<PAGE>
As filed with the Securities and Exchange Commission on February 20, 1998
Registration Nos. 333-45227,
333-45227-01,
333-45227-02 and
333-45227-03
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
Cendant Corporation Delaware 06-0918165
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Cendant Capital I Delaware 22-3565324
- -------------------------------------------------------------------------------
Cendant Capital II Delaware 22-3565323
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Cendant Capital III Delaware 22-3565321
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(Exact name of the (State or other (I.R.S. Employer
registrants as specified Jurisdiction of Identification No.)
in their respective Incorporation or
charters) Organization)
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(973) 428-9700
FAX: (973) 496-5331
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES E. BUCKMAN, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
CENDANT CORPORATION
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(973) 428-9700
FAX: (973) 496-5331
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
VINCENT J. PISANO, ESQ. ERIC J. BOCK, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP VICE PRESIDENT-LEGAL
919 THIRD AVENUE CENDANT CORPORATION
NEW YORK, NY 10022 6 SYLVAN WAY
(212) 735-3000 PARSIPPANY, NEW JERSEY 07054
FAX: (212) 735-2000 (973) 428-9700
FAX: (973) 496-5331
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AS DETERMINED BY
MARKET CONDITIONS.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [ ]
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, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR
INTEREST REINVESTMENT PLANS,
<PAGE>
CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE 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 DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [X]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OF
TO BE REGISTERED REGISTERED SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------- ---------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
Debt Securities(2)..........
Common Stock, $.01
par value..................
Preferred Stock,
par value $.01.............
Stock Purchase Units
of Cendant Corporation.....
Stock Purchase Contracts
of Cendant Corporation.....
Warrants of Cendant
Corporation................
Preferred Securities of
Cendant Capital I .........
Preferred Securities of
Cendant Capital II.........
Preferred Securities of
Cendant Capital III........
Guarantees and backup
Undertakings of Cendant
Corporation in connection
with Preferred Securities
of Cendant Capital I,
Cendant Capital II and
Cendant Capital III by
Cendant Corporation........
Total.................. $4,000,000,000(3) 100% $4,000,000,000(3)(4) $1,180,000(5)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i).
(2) Also includes such indeterminate number of Debt Securities, shares of
Common Stock, shares of Preferred Stock, Stock Purchase Units, Stock Purchase
Contracts, Guarantees and Warrants of Cendant Corporation, or Preferred
Securities of Cendant Capital I, Cendant Capital II and Cendant Capital III as
may be issued upon conversion or exchange of any of the Debt Securities or
Preferred Stock that provide for conversion or exchange into other securities.
(3) Such amount represents the principal amount of any Debt Securities issued
at their principal amount, the issue price rather than the principal amount of
any Debt Securities issued at original issue discount, the liquidation
preference of any Preferred Stock and the amount computed pursuant to Rule
457(i) for any Common Stock.
(4) No separate consideration will be received for Debt Securities, Preferred
Stock, Common Stock, Stock Purchase Units, Stock Purchase Contracts, Guarantees
and Warrants of Cendant Corporation, or Preferred Securities of Cendant Capital
I, Cendant Capital II and Cendant Capital III issuable upon conversion or
exchange of the Debt Securities or Preferred Stock.
(5) All of such amount was previously paid.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
2
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 17, 1998
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED FEBRUARY , 1998)
20,000,000 FELINE PRIDES (SERVICE MARK)
(CONSISTING OF INCOME PRIDES (SERVICE MARK) AND GROWTH PRIDES (SERVICE MARK))
[CENDANT CORPORATION LOGO]
,000,000 Trust Preferred Securities
Cendant Capital I
% Trust Originated Preferred Securities (Service Mark) ("TOPrS" (Service
Mark))
(Liquidation Amount $50 per Trust Preferred Security)
fully and unconditionally guaranteed to
the extent set forth herein by
Cendant Corporation
-----------------
The securities offered hereby are 20,000,000 FELINE PRIDES (Service Mark)
("FELINE PRIDES") of Cendant Corporation, a Delaware corporation ("Cendant"
or the "Company"), and at least 2,000,000 % Trust Originated Preferred
Securities (the "Trust Preferred Securities" and, together with the FELINE
PRIDES, the "Securities") of Cendant Capital I, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"), having a stated
liquidation amount per
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-29 OF THIS PROSPECTUS SUPPLEMENT
FOR CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES.
Prior to the offering made hereby there has been no public market for the
Securities. Application will be made to list the Income PRIDES, the Growth
PRIDES and the Trust Preferred Securities on the New York Stock Exchange
("NYSE"), subject to official notice of issuance. On February 13, 1998, the
last reported sale price of the Common Stock on the NYSE was $37 1/2 per
share.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================
PRICE TO PUBLIC(1) UNDERWRITING COMMISSION(2) PROCEEDS TO THE COMPANY(3)
- ----------------------------------- -------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Per Income PRIDES .................. $ $ $
- ----------------------------------- -------------------- ---------------------------- ----------------------------
Per Growth PRIDES .................. $ $ $
- ----------------------------------- -------------------- ---------------------------- ----------------------------
Per Trust Preferred Securities .... $ $ $
- ----------------------------------- -------------------- ---------------------------- ----------------------------
Total(4) ........................... $ $ $
====================================================================================================================
</TABLE>
(1) Plus accrued distributions on the related Trust Preferred Securities
and Contract Adjustment Payments, if any, from , 1998.
(2) The Company and the Trust have agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses payable by the Company estimated at
$ .
(4) The Company and the Trust have granted to the Underwriters 30-day
options to purchase up to an additional Income PRIDES, Growth
PRIDES and Trust Preferred Securities, to cover over-allotments, if
any. If such options are exercised in full, the total Price to Public,
Underwriting Commission and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
<PAGE>
-----------------
The Securities are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, and subject to approval
of certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Securities offered hereby will be made in New York, New York
on or about February , 1998.
-----------------
MERRILL LYNCH & CO. CHASE SECURITIES INC.
-----------------
The date of this Prospectus Supplement is February , 1998.
- --------------
(Service Mark) Service Mark of Merrill Lynch & Co., Inc.
<PAGE>
(cover continued from previous page)
Trust Preferred Security equal to the Stated Amount (as defined herein),
representing a preferred undivided beneficial interest in the assets of the
Trust. Initially, ,000,000 of the Trust Preferred Securities will be
issued and held as a component of the FELINE PRIDES. The FELINE PRIDES
offered hereby will initially consist of (A) ,000,000 units (referred to
as "Income PRIDES" (Service Mark) ) with a Stated Amount, per Income PRIDES,
of $50 (the "Stated Amount") and (B) at least 2,000,000 units (referred to as
"Growth PRIDES" (Service Mark) ) with a face amount, per Growth PRIDES, equal
to the Stated Amount. Each Income PRIDES will initially consist of a unit
comprised of (a) a stock purchase contract (a "Purchase Contract") under
which (i) the holder will purchase from the Company on 16, 2001 (the
"Purchase Contract Settlement Date"), for an amount of cash equal to the
Stated Amount, a number of newly issued shares of common stock, $0.01 par
value per share (the "Common Stock"), of the Company equal to the Settlement
Rate described herein, and (ii) the Company will pay the holder unsecured
contract adjustment payments ("Contract Adjustment Payments") at the rate
of % of the Stated Amount per annum and (b) either beneficial ownership
of a Trust Preferred Security or upon the occurrence of a Tax Event
Redemption (as defined herein) prior to the Purchase Contract Settlement
Date, the Applicable Ownership Interest (as defined herein). Each Growth
PRIDES will initially consist of a unit comprised of (a) a Purchase Contract
under which (i) the holder will purchase from the Company on the Purchase
Contract Settlement Date, for an amount in cash equal to the Stated Amount, a
number of newly issued shares of Common Stock of the Company, equal to the
Settlement Rate, and (ii) the Company will pay the holder Contract Adjustment
Payments, at the rate of % of the Stated Amount per annum, and (b) a
1/20 undivided beneficial interest in a % zero-coupon U.S. Treasury
Security (CUSIP No. ) having a principal amount equal to $1,000 and
maturing on 16, 2001 (the "Treasury Securities"). The Company will,
directly or indirectly, own all the common securities (the "Common
Securities" and, together with the Trust Preferred Securities, the "Trust
Securities") representing undivided beneficial interests in the assets of the
Trust. The Trust exists for the sole purpose of issuing the Trust Securities
and investing the proceeds thereof in an equivalent amount of Debentures of
the Company, due , 2003 and initially bearing interest at %
(the "Debentures"). As long as the FELINE PRIDES are in the form of Income
PRIDES or Growth PRIDES, the related Trust Preferred Securities or the
Treasury Portfolio or a Treasury Security, as applicable, will be pledged to
the Collateral Agent (as defined herein), to secure the holder's obligation
to purchase Common Stock under the related Purchase Contracts.
Aggregate payments of % of the Stated Amount per annum will be made or
accrue on each Income PRIDES quarterly in arrears on February 16, May 16,
August 16 and November 16 of each year, commencing 16, 1998, until the
Purchase Contract Settlement Date. These payments will consist of cumulative
cash distributions on the related Trust Preferred Securities or Treasury
Portfolio, as applicable, payable at the rate of % of the Stated Amount per
annum, and Contract Adjustment Payments payable by the Company at the rate of
% of the Stated Amount per annum, subject in the case of Trust Preferred
Securities and Contract Adjustment Payments, to the Company's right to defer
payment of such amounts. Contract Adjustment Payments, payable by the Company
at the rate of % of the Stated Amount per annum, will be made or accrue on
each Growth PRIDES quarterly in arrears on February 16, May 16, August 16 and
November 16 of each year, commencing 16, 1998, until the Purchase
Contract Settlement Date, subject to the Company's right to defer such
payments. In addition, original issue discount ("OID") will accrue on the
related Treasury Security. Subject to the Company's right to defer such
payments, holders of each Trust Preferred Security will receive cumulative
cash distributions, payable quarterly in arrears, on February 16, May 16,
August 16 and November 16 of each year, commencing 16, 1998 at the rate
of % of the Stated Amount per annum. Such quarterly distributions on the
Trust Preferred Securities will constitute a portion of the quarterly
distribution on the related Income PRIDES. The ability of the Trust to make
the quarterly distributions on the Trust Preferred Securities will be solely
dependent upon the receipt of corresponding interest payments from the
Company on the Debentures. The Company will have the right at any time, and
from time to time, limited to a period not extending beyond the maturity date
of the Debentures, to defer the interest payments due on the Debentures. As a
consequence of such deferral, quarterly distributions on the Trust Preferred
Securities and the Income PRIDES (to the extent that a portion of the
quarterly distribution on the Income PRIDES is comprised of the quarterly
distributions on the Trust Preferred Securities) would be deferred, but would
continue to accrue with interest compounded quarterly. The Company will have
the right at any time, and from time to time, limited to a period not
extending beyond the Purchase
S-2
<PAGE>
Contract Settlement Date, to defer Contract Adjustment Payments. As a
consequence of such deferral, such portion of the cumulative quarterly
distributions on the Income PRIDES that is comprised of the Contract
Adjustment Payments and the quarterly cash distributions on the Growth PRIDES
would be deferred; however, such deferred Contract Adjustment Payments, if
any, would continue to accrue at the rate of % per annum, compounded
quarterly (the higher of (i) the rate which would accrue on Income PRIDES for
such payments and (ii) the rate which would accrue on Growth PRIDES for such
payments). If a Tax Event Redemption has occurred and the Treasury Portfolio
has become a component of the Income PRIDES as described herein, quarterly
distributions on such Treasury Portfolio as a portion of the cumulative cash
distributions to the holders of Income PRIDES will not be deferred.
The applicable distribution rate on the Trust Preferred Securities and the
interest rate on the related Debentures that remain outstanding on and after
the Purchase Contract Settlement Date will be reset on the third Business Day
(as defined herein) immediately preceding the Purchase Contract Settlement
Date to a rate per annum (the "Reset Rate") to be determined by the Reset
Agent (as defined herein) equal to the sum of (x) a spread amount (the "Reset
Spread") to be determined by the Reset Agent on the tenth Business Day prior
to the Purchase Contract Settlement Date and (y) the rate of interest on the
Two-Year Benchmark Treasury (as defined herein) in effect on the third
Business Day immediately preceding the Purchase Contract Settlement Date,
such sum being the distribution rate the Trust Preferred Securities should
bear in order for a Trust Preferred Security to have an approximate market
value of 100.5% of the Stated Amount on the third Business Day immediately
preceding the Purchase Contract Settlement Date, provided that the Company
may limit such Reset Spread to be no higher than 200 basis points (2%). Such
market value may be less than 100.5% if the Reset Spread is limited to a
maximum of 2%.
The payment of distributions and certain redemptions out of monies held by
the Trust and payments on liquidation of the Trust will be guaranteed by the
Company (the "Guarantee") to the extent described herein and under
"Description of the Guarantee." The Guarantee covers payments of
distributions and other payments on the Trust Preferred Securities only if
and to the extent the Trust has funds available therefor, which will not be
the case unless the Company has made a payment of principal or interest on
the Debentures held by the Trust as its sole asset. The Guarantee, when taken
together with the Company's obligations under the Debentures, the Indenture
(as defined herein) and the Company's obligations under the Declaration (as
defined below), provides a full and unconditional guarantee on a senior
unsecured basis by the Company of amounts due on the Trust Preferred
Securities.
The Company's obligations in respect of the Debentures and the Guarantee
generally will be senior unsecured obligations of the Company. The Contract
Adjustment Payments will be subordinated and junior in right of payment only
to the Company's obligations under the Senior Indebtedness (as defined
herein). "Senior Indebtedness" means indebtedness of any kind of the Company
unless the instrument under which such indebtedness is incurred expressly
provides that it is in parity or subordinate in right of payments to the
Contract Adjustment Payments.
If the holder of an Income PRIDES (unless a Tax Event Redemption has
occurred) has not notified the Purchase Contract Agent (as defined herein) by
the fifth Business Day immediately preceding the Purchase Contract Settlement
Date, in the manner described herein, of its intention to settle the related
Purchase Contract with separate cash on the Business Day immediately
preceding the Purchase Contract Settlement Date, the Remarketing Agent (as
defined herein), pursuant to the terms of the Remarketing Agreement and the
Remarketing Underwriting Agreement (each as defined herein), will use its
reasonable efforts to remarket the related Trust Preferred Security (bearing
the Reset Rate) on the third Business Day immediately preceding the Purchase
Contract Settlement Date for settlement on the Purchase Contract Settlement
Date at a price of approximately 100.5% of such Trust Preferred Security's
stated liquidation amount plus accrued and unpaid distributions (including
deferred distributions, if any) thereon. The proceeds from such remarketing,
in an amount equal to the aggregate stated liquidation amount of such Trust
Preferred Securities, will automatically be applied to satisfy in full such
holder's obligation to purchase Common Stock under the related Purchase
Contract. In addition, after deducting as a remarketing fee (the "Remarketing
Fee") an amount not exceeding 25 basis points (.25%) of the aggregate stated
liquidation amount of the remarketed securities, from any amount received in
connection with such remarketing in excess of the aggregate stated
liquidation amount of such Trust
S-3
<PAGE>
Preferred Securities plus any accrued and unpaid distributions (including
deferred distributions, if any), the Remarketing Agent will remit the
remaining portion of the proceeds, if any, to the Purchase Contract Agent for
the benefit of such holder. If, despite using its reasonable efforts the
Remarketing Agent fails to remarket the Trust Preferred Securities at a price
not less than 100% of their aggregate stated liquidation amount plus accrued
and unpaid distributions (including deferred distributions, if any), the
remarketing will be deemed to have failed (a "Failed Remarketing") and the
Company will exercise its rights as a secured party to dispose of the Trust
Preferred Securities in accordance with applicable law and satisfy in full,
from the proceeds of such disposition, such holder's obligation to purchase
Common Stock under the related Purchase Contracts; provided, that if the
Company exercises such rights as a secured Party with respect to such Trust
Preferred Securities, any accrued and unpaid distributions (including any
deferred distributions, if any) on such Trust Preferred Securities will be
paid in cash by the Company to the holder of record of such Trust Preferred
Securities. The Company will cause a notice of such Failed Remarketing to be
published on the second Business Day immediately preceding the Purchase
Contract Settlement Date.
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement, on or prior to the Business Day
immediately preceding the Purchase Contract Settlement Date, but no earlier
than the Business Day immediately preceding the Purchase Contract
Settlement Date, holders of separate Trust Preferred Securities which are not
components of Income PRIDES may elect, in the manner described herein, to
have their Trust Preferred Securities remarketed by the Remarketing Agent.
Holders of Trust Preferred Securities electing to have their Trust Preferred
Securities remarketed will also have the right to withdraw such election on
or prior to the Business Day immediately preceding the Purchase Contract
Settlement Date.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder (including, initially, an Underwriter)
of an Income PRIDES (unless a Tax Event Redemption has occurred) will have
the right to substitute for the related Trust Preferred Securities held by
the Collateral Agent zero-coupon U.S. Treasury Securities (CUSIP No. ),
which are principal strips of the % U.S. Treasury Securities that mature
on the Business Day immediately preceding the Purchase Contract Settlement
Date (the "Treasury Securities"), in an amount per Income PRIDES equal to the
Stated Amount per Trust Preferred Security thereby creating Growth PRIDES.
Because Treasury Securities are issued in integral multiples of $1,000,
holders of Income PRIDES may make such substitutions only in integral
multiples of 20 Income PRIDES; provided, however, if a Tax Event Redemption
has occurred prior to the Purchase Contract Settlement Date and the Treasury
Portfolio has became a component of the Income PRIDES, holders of Income
PRIDES may make such substitutions only in integral multiples of 32,000
Income PRIDES (but obtaining the release of the appropriate Applicable
Ownership Interest of the Treasury Portfolio rather than the Trust Preferred
Securities), at any time on or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date. Such Treasury Securities
will be substituted for the Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
and will be pledged with the Collateral Agent to secure the holder's
obligation to purchase Common Stock under the related Purchase Contracts. In
the event that Contract Adjustment Payments are at a higher rate for Growth
PRIDES than for Income PRIDES, holders of Income PRIDES wishing to recreate
Growth PRIDES will also be required to deliver cash in an amount equal to the
excess of the Contract Adjustment Payments that would have accrued since the
last Payment Date through the date of substitution on the Growth PRIDES being
created by such holders, over the Contract Adjustment Payments that have
accrued over the same time period on the related Incoming PRIDES.
A holder of Growth PRIDES will have the right to subsequently recreate
Income PRIDES at any time on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date by delivering 20 Growth
PRIDES to the Purchase Contract Agent plus 20 Trust Preferred Securities to
the Collateral Agent in exchange for 20 Income PRIDES and the release of the
related Treasury Security to such holder; provided, however, if a Tax Event
Redemption has occurred prior to the Purchase Contract Settlement Date and
the Treasury Portfolio has become a component of the Income PRIDES, holders
of Growth PRIDES may make such substitution (but using the appropriate
Applicable
S-4
<PAGE>
Ownership Interest of the Treasury Portfolio rather than Trust Preferred
Securities) only in integral multiples of 32,000 Growth PRIDES at any time on
or prior to the second Business Day immediately preceding the Purchase
Contract Settlement Date. Such Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
will be substituted for the Treasury Security and will be pledged with the
Collateral Agent to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts. In the event that Contract Adjustment
Payments are at a higher rate for Income PRIDES than for Growth PRIDES,
holders of Growth PRIDES wishing to recreate Income PRIDES will also be
required to deliver cash in an amount equal to the excess of the Contract
Adjustment Payments that would have accrued since the last payment date
through the date of substitution on the Income PRIDES being recreated by such
holders, over the Contract Adjustment Payments that have accrued over the
same time period on the related Growth PRIDES.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder of a Growth PRIDES (unless a Tax Event
Redemption has occurred) will have the right to substitute for the related
Treasury Securities held by the Collateral Agent Trust Preferred Securities
in an amount per Growth PRIDES equal to the Stated Amount per Treasury
Security, thereby creating Income PRIDES. Such Trust Preferred Securities
will be pledged with the Collateral Agent to secure the holder's obligation
to purchase Common Stock under the related Purchase Contracts. Holders of
Growth PRIDES may make such substitutions only in integral multiples of 20
Growth PRIDES; provided, however, if a Tax Event Redemption has occurred and
the Treasury Portfolio has become a component of the Income PRIDES, holders
of Growth PRIDES may make such substitution only in integral multiples of
32,000 Growth PRIDES at any time on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date (but obtaining
the release of the appropriate Applicable Ownership Interest of the Treasury
Portfolio rather than the Treasury Securities). In the event that Contract
Adjustment Payments are at a higher rate for Income PRIDES than for Growth
PRIDES, holders of Growth PRIDES wishing to create Income PRIDES will also be
required to deliver cash in an amount equal to the excess of the Contract
Adjustment Payments that would have accrued since the last Payment Date
through the date of substitution on the Income PRIDES being created by such
holders, over the Contract Adjustment Payments that have accrued over the
same time period on the related Growth PRIDES. Upon the substitution of Trust
Preferred Securities for the related Treasury Securities as collateral, such
Treasury Securities will be released to the Growth PRIDES holder as described
herein. A holder of such Income PRIDES will have the right to subsequently
recreate Growth PRIDES by delivering 20 Income PRIDES to the Purchase
Contract Agent plus a Treasury Security to the Collateral Agent in exchange
for 20 Growth PRIDES and the release of the 20 related Trust Preferred
Securities to such Income PRIDES holder; provided, however, if a Tax Event
Redemption has occurred and the Treasury Portfolio has become a component of
the Income PRIDES, holders of Income PRIDES may make such substitutions only
in integral multiples of 32,000 Income PRIDES. In the event that Contract
Adjustment Payments are at a higher rate for Growth PRIDES than for Income
PRIDES, holders of Income PRIDES will also be required to deliver cash in an
amount equal to the excess of the Contract Adjustment Payments that would
have accrued since the last Payment Date through the date of substitution on
the Growth PRIDES being recreated by such holders, over the Contract
Adjustment Payments that have accrued over the same time period on the
related Income PRIDES.
If a Failed Remarketing has occurred, each holder of Trust Securities
(including, following the distribution of the Debentures upon a dissolution
of the Trust as described herein, such Debenture holders) holding such Trust
Securities or Debentures, as the case may be, following the Purchase Contract
Settlement Date will have the right, in the case of the Trust Securities, to
require the Trust to put to the Company the related Debentures or, in the
case of the Debentures, to put such Debentures directly to the Company on
, 2001, upon at least three Business Days' prior notice, at a price
equal to the principal amount thereof, plus accrued and unpaid interest
(including deferred interest), if any, thereon. Upon the repurchase of such
Debentures by the Company, (i) the proceeds from such repurchase shall
simultaneously be applied (in the case of Trust Securities) to redeem such
Trust Securities of such holder having an aggregate stated liquidation amount
equal to the aggregate principal amount of the Debentures so repurchased and
(ii) any accrued and unpaid distributions (including deferred distributions)
with respect to such Trust Securities will be paid to such holder in cash.
S-5
<PAGE>
On the Business Day immediately preceding the Purchase Contract
Settlement Date, unless a holder of Income PRIDES or Growth PRIDES (i) has
settled the related Purchase Contracts through the early delivery of cash to
the Purchase Contract Agent in the manner described herein, (ii) in the case
of Income PRIDES, has settled the related Purchase Contracts with separate
cash on the Business Day immediately preceding the Purchase Contract
Settlement Date pursuant to prior notification to the Purchase Contract
Agent, (iii) has had the Trust Preferred Securities related to such holder's
Purchase Contract remarketed in the manner described herein in connection
with settling such Purchase Contracts, or (iv) an event described under
"Description of the Purchase Contracts -- Termination" has occurred, then (A)
in the case of Income PRIDES (unless a Tax Event Redemption has occurred) the
Company will exercise its rights as a secured party to dispose of the Trust
Preferred Securities in accordance with applicable law and (B) in the case of
Growth PRIDES or Income PRIDES (in the event that a Tax Event Redemption has
occurred), the principal amount of the related Treasury Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, when paid at maturity, will automatically be applied, pursuant to
the exercise of such rights by the Company to satisfy in full such holder's
obligation to purchase Common Stock under the related Purchase Contracts.
In the event that a holder of either Income PRIDES or Growth PRIDES
effects the early settlement of the related Purchase Contracts through the
delivery of cash or settles (in the case of Income PRIDES) such Purchase
Contracts with cash on the Business Day immediately preceding the Purchase
Contract Settlement Date, the related Trust Preferred Securities, the
appropriate Applicable Ownership Interest of the Treasury Portfolio or
Treasury Securities, as the case may be, will be released to the holder as
described herein.
The Company will have the right at any time to dissolve the Trust, after
satisfaction of liabilities to creditors, and cause the Debentures to be
distributed to the holders of the Trust Securities. If the Debentures are
distributed to the holders of the Trust Preferred Securities, the Company
will use its best efforts to cause the Debentures to be listed on such
exchange on which the Trust Preferred Securities are then listed, including,
if applicable, the New York Stock Exchange.
The Debentures (and, thus, the Trust Securities) are redeemable at the
option of the Company, in whole but not in part, on not less than 30 days nor
more than 60 days prior notice upon the occurrence and continuation of a Tax
Event (as defined herein) under the circumstances described herein (a "Tax
Event Redemption"). If the Company so redeems all of the Debentures, the
Trust must redeem all of the Trust Securities at a redemption price (the
"Redemption Price") per Trust Security equal to the Redemption Amount (as
defined herein) plus accrued and unpaid distributions including deferred
distributions, if any, thereon to the date fixed for redemptions and pay in
cash such Redemption Price to the holders of such Trust Securities. If such
Tax Event Redemption occurs prior to the Purchase Contract Settlement Date,
the Redemption Price payable in liquidation of the Income PRIDES holders'
interests in the Trust or in the Debentures will be distributed to the
Collateral Agent, who in turn will apply an amount equal to the Redemption
Amount of such Redemption Price to purchase, on behalf of the holders of
Income PRIDES, the Treasury Portfolio and remit the remaining portion, if
any, of such Redemption Price to the Purchase Contract Agent for payment to
the holder of such Income PRIDES. See "Description of the Debentures -- Tax
Event Redemption." Such Treasury Portfolio will be substituted for the Trust
Preferred Securities and will be pledged to the Collateral Agent to secure
such Income PRIDES holders' obligations to purchase the Common Stock under
their Purchase Contracts.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES AND
THE COMMON STOCK OF THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING
TRANSACTIONS, THE PURCHASE OF SECURITIES TO COVER SYNDICATE SHORT POSITIONS
AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
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<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and consolidated financial statements of the Company
appearing elsewhere in the accompanying Prospectus, this Prospectus
Supplement or in the documents incorporated herein or in the accompanying
Prospectus by reference. A listing of the pages on which certain definitions
of capitalized terms used in this Prospectus Supplement Summary and elsewhere
in this Prospectus Supplement are defined is set forth in the "Index of Terms
for Prospectus Supplement" herein. Except as otherwise noted, all information
in this Prospectus Supplement assumes no exercise of the Underwriters'
over-allotment option. Unless the context otherwise requires, the terms
"Cendant" and "Company" refer to Cendant Corporation and its consolidated
subsidiaries.
THE COMPANY
The Company is one of the foremost consumer and business services
companies in the world. The Company was created through the merger (the
"Merger") of CUC International Inc. ("CUC") and HFS Incorporated ("HFS") in
December 1997 and provides all of the services formerly provided by each of
CUC and HFS, including technology-driven, membership-based consumer services,
travel services and real estate services. See "The Company."
THE TRUST
The Trust is a statutory business trust created under Delaware law
pursuant to (i) a declaration of trust, executed by the Company, as sponsor
(the "Sponsor"), and certain of the trustees of the Trust (the "Cendant
Trustees") and (ii) the filing of a certificate of trust with the Secretary
of State of the State of Delaware on February 5, 1998. Such declaration will
be amended and restated in its entirety (as so amended and restated, the
"Declaration") substantially in the form filed as an exhibit to the
Registration Statement of which this Prospectus Supplement forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The Trust exists for the
exclusive purposes of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Debentures and (iii) engaging in only
those other activities necessary, appropriate, convenient or incidental
thereto. See "The Trust."
THE OFFERING
Securities Offered ............ 20,000,000 FELINE PRIDES, consisting of
,000,000 Income PRIDES and at least
2,000,000 Growth PRIDES, and at least
2,000,000 separate Trust Preferred
Securities. ,000,000 Trust Preferred
Securities will be initially issued and held
as a component of the Income PRIDES.
Issuers ....................... Cendant Corporation and Cendant Capital I.
Stated Amount ................. $50 per FELINE PRIDES.
Listing of the Income
PRIDES, Growth PRIDES and
Trust Preferred Securities ... Application will be made to list the Income
PRIDES, the Growth PRIDES and the Trust
Preferred Securities on the NYSE, subject to
official notice of issuance. See
"Underwriting."
NYSE Symbol of Common Stock ... "CD"
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<PAGE>
Use of Proceeds .............. Substantially all of the proceeds from the
sale of the Growth PRIDES will be used to
purchase the underlying Treasury Securities
to be transferred to holders of the Growth
PRIDES pursuant to the terms thereof, and
the Company will receive no proceeds from
the sale of the Growth PRIDES. All or
substantially all of the proceeds from the
sale of the Income PRIDES, the Trust
Preferred Securities which are not
components of Income PRIDES and the Common
Securities will be invested by the Trust in
Debentures of the Company. The Company
currently anticipates using all of the net
proceeds from the sale of the Debentures,
estimated to be approximately $ million,
to repay outstanding indebtedness under the
Company's revolving credit facilities,
including (i) $ million of outstanding
indebtedness under the $1.25 billion 364-Day
Competitive Advance and Revolving Credit
Agreement dated as of October 2, 1996, as
amended and restated, among the Company (as
successor by Merger with HFS), the lenders
named therein (the "Lenders") and The Chase
Manhattan Bank ("Chase"), as Administrative
Agent (the "364-Day Revolving Credit
Facility") and (ii) $ million of
outstanding indebtedness under the $750
million Five-Year Competitive Advance and
Revolving Credit Agreement dated as of
October 2, 1996, as amended and restated,
among the Company, the Lenders and Chase
(the "Five Year Revolving Credit Facility"
and, together with the 364-Day Revolving
Credit Facility, the "Revolving Credit
Facilities").
The 364-Day Revolving Credit Facility will
mature on September 30, 1998, provided that
the Company is entitled to annually request
a 364-day extension of such maturity date,
and the Five Year Revolving Credit Facility
will mature on October 1, 2001.
The 364-Day Revolving Credit Facility and
the Five Year Revolving Credit Facility
provide for revolving loans which bear
interest, at the option of the Company, at
rates based on competitive bids of Lenders
participating in such facilities, at a prime
rate or at LIBOR plus a margin approximating
22.5 basis points. The proceeds of such
loans have been used for general corporate
purposes, primarily for business
acquisitions.
Chase is an affiliate of Chase Securities
Inc., an Underwriter.
Components of FELINE PRIDES ... The 20,000,000 FELINE PRIDES offered hereby
will initially consist of (A) ,000,000
units referred to as Income PRIDES and (B)
at least 2,000,000 units referred to as
Growth PRIDES. Each Income PRIDES will
initially consist of a unit comprised of (a)
a Purchase Contract under which (i) the
holder will purchase from the Company on the
Purchase Contract Settlement Date, for an
amount of cash equal to the Stated Amount, a
number of newly issued shares of Common
Stock of the Company equal to the Settlement
Rate, and (ii) the Company will pay Contract
Adjustment Payments at the rate of % of
the Stated Amount per annum to the holder,
and (b) either
S-8
<PAGE>
beneficial ownership of a % Trust
Originated Preferred Security, having a
stated liquidation amount equal to the
Stated Amount, representing a preferred,
undivided beneficial interest in the assets
of the Trust or upon the occurrence of a Tax
Event Redemption prior to the Purchase
Contract Settlement Date, the appropriate
the Applicable Ownership Interest in the
Treasury Portfolio. The purchase price of
each Income PRIDES will be allocated between
the related Purchase Contract and the
related Trust Preferred Security in
proportion to their respective fair market
values at the time of purchase. Each Growth
PRIDES will initially consist of a unit
comprised of (a) a Purchase Contract under
which (i) the holder will purchase from the
Company on the Purchase Contract Settlement
Date, for an amount in cash equal to the
Stated Amount, a number of newly issued
shares of Common Stock of the Company, equal
to the Settlement Rate, and (ii) the Company
will pay Contract Adjustment Payments at the
rate of % of the Stated Amount per annum
and (b) a 1/20 undivided beneficial interest
in a % Treasury Security having a
principal amount of $1,000 and maturing on
, 2001. The purchase price of each
Growth PRIDES will be allocated between the
related Purchase Contract and the related
interest in the Treasury Security in
proportion to their respective fair market
values at the time of purchase.
The applicable distribution rate on the
Trust Preferred Securities and the interest
rate on the related Debentures that remain
outstanding on and after the Purchase
Contract Settlement Date will be reset on
the third Business Day immediately preceding
the Purchase Contract Settlement Date to the
Reset Rate, to be determined by a nationally
recognized investment banking firm chosen by
the Company (the "Reset Agent"). See
"Description of the Trust Preferred
Securities -- Market Rate Reset."
The Company will have the right at any time
to dissolve the Trust and, after
satisfaction of liabilities to creditors of
the Trust, if any, to cause the Debentures
to be distributed to the holders of the
Trust Preferred Securities. References
herein to Trust Preferred Securities, unless
the context otherwise requires, mean (i) the
Trust Preferred Securities or (ii) the
Debentures which have been delivered to the
holders of the Trust Preferred Securities
upon dissolution of the Trust. In addition,
as described below, upon the occurrence of a
Tax Event (as defined herein) prior to the
Purchase Contract Settlement Date, the
Company may at its option cause the
Debentures (and, thus, the Trust Preferred
Securities) to be redeemed at the Redemption
Price and the Treasury Portfolio will be
substituted for the redeemed Trust Preferred
Securities in the manner described herein to
secure the Income PRIDES holders'
obligations under their related Purchase
Contracts. The distribution rate and the
payment dates for the Trust Preferred
Securities will correspond to the interest
rate and the payment dates for the
Debentures,
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<PAGE>
which will be the sole assets of the Trust.
As long as a FELINE PRIDES is in the form of
an Income PRIDES or Growth PRIDES, the
related Trust Preferred Securities, Treasury
Securities or the Treasury Portfolio, as
applicable, will be pledged pursuant to a
pledge agreement, to be dated as of
February , 1998 (the "Pledge Agreement"),
between the Company and The Chase Manhattan
Bank, as collateral agent for the Company
(together with any successor thereto in such
capacity, the "Collateral Agent"), to secure
the holder's obligation to purchase Common
Stock under the related Purchase Contract.
See "Risk Factors."
Purchase Contract Agreement ... The FELINE PRIDES will be issued under a
Purchase Contract Agreement, to be dated as
of February , 1998 (the "Purchase Contract
Agreement"), between the Company and The
First National Bank of Chicago, as agent for
the holders of the FELINE PRIDES (together
with any successor thereto in such capacity,
the "Purchase Contract Agent").
Substitution of Pledged
Securities .................... Each holder of an Income PRIDES will have
the right, on or prior to the fifth Business
Day immediately preceding the Purchase
Contract Settlement Date, to substitute for
the related Trust Preferred Securities held
by the Collateral Agent zero-coupon U.S.
Treasury Securities in an amount per Income
PRIDES equal to the Stated Amount per Trust
Preferred Security. Such Treasury Securities
will be substituted for the Trust Preferred
Securities and will be pledged with the
Collateral Agent to secure the holder's
obligation to purchase Common Stock under
the related Purchase Contracts. Because
Treasury Securities are issued in integral
multiples of $1,000, holders of Income
PRIDES may make such substitutions only in
integral multiples of 20 Income PRIDES;
provided, however, if a Tax Event Redemption
has occurred prior to the Purchase Contract
Settlement Date and the Treasury Portfolio
has become a component of the Income PRIDES,
holders of Income PRIDES may make such
substitutions only in integral multiples of
32,000 Income PRIDES (but obtaining the
release of the appropriate Applicable
Ownership Interest of the Treasury Portfolio
rather than the Trust Preferred Securities)
at any time on or prior to the second
Business Day immediately preceding the
Purchase Contract Settlement Date. In the
event that Contract Adjustment Payments are
at a higher rate for Growth PRIDES than for
Income PRIDES, holders of Income PRIDES
wishing to create Growth PRIDES will also be
required to deliver cash in an amount equal
to the excess of the Contract Adjustment
Payments that would have accrued since the
last Payment Date through the date of
substitution on the Growth PRIDES being
created by such holders, over the Contract
Adjustment Payments that have accrued over
the same time period on the related Income
PRIDES.
Each holder of Growth PRIDES will have the
right, on or prior to the fifth Business Day
immediately preceding the Purchase
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<PAGE>
Contract Settlement Date, to create Income
PRIDES by delivering 20 Growth PRIDES to the
Purchase Contract Agent plus 20 Trust
Preferred Securities to the Collateral Agent
in exchange for 20 Income PRIDES and the
release of the related Treasury Security to
such holder; provided, however, if a Tax
Event Redemption has occurred prior to the
Purchase Contract Settlement Date and the
Treasury Portfolio has become a component of
the Income PRIDES, holders of Growth PRIDES
may make such substitution (but using the
Treasury Portfolio rather than Trust
Preferred Securities) only in integral
multiples of 32,000 Growth PRIDES at any
time on or prior to the second Business Day
immediately preceding the Purchase Contract
Settlement Date. Such Trust Preferred
Securities or the appropriate Applicable
Ownership Interest of the Treasury
Portfolio, as the case may be, will be
pledged with the Collateral Agent to secure
the holder's obligation to purchase Common
Stock under the related Purchase Contracts.
In the event that Contract Adjustment
Payments are at a higher rate for Income
PRIDES than for Growth PRIDES, holders of
Growth PRIDES wishing to create Income
PRIDES will also be required to deliver cash
in an amount equal to the excess of the
Contract Adjustment Payments that would have
accrued since the last Payment Date through
the date of substitution on the Income
PRIDES being created by such holders, over
the Contract Adjustment Payments that have
accrued over the same time period on the
related Growth PRIDES. See "Description of
the FELINE PRIDES -- Substitution of Pledged
Securities."
Holders who elect to substitute Pledged
Securities (as defined in "Description of
the Purchase Contracts -- Pledged Securities
and Pledge Agreement"), will be responsible
for any fees or expenses payable in
connection therewith. See "Certain
Provisions of the Purchase Contract
Agreements and the Pledge Agreement --
Miscellaneous."
Recreating Income PRIDES
or Growth PRIDES ............. On or prior to the fifth Business Day
immediately preceding the Purchase Contract
Settlement Date, a holder of Growth PRIDES
will have the right to recreate Income
PRIDES by delivering 20 Growth PRIDES to the
Purchase Contract Agent plus 20 Trust
Preferred Securities to the Collateral Agent
in exchange for 20 Income PRIDES and the
release of the related Treasury Security to
such holder; provided, however, if a Tax
Event Redemption has occurred prior to the
Purchase Contract Settlement Date and the
Treasury Portfolio has become a component of
the Income PRIDES, holders of Growth PRIDES
may make such substitution (but using the
Treasury Portfolio rather than Trust
Preferred Securities) only in integral
multiples of 32,000 Growth PRIDES at any
time on or prior to the second Business Day
immediately preceding the Purchase Contract
Settlement Date. Such Trust Preferred
Securities or the appropriate Applicable
Ownership Interest of the Treasury
Portfolio,
S-11
<PAGE>
as the case may be, will be pledged with the
Collateral Agent to secure the holder's
obligation to purchase Common Stock under
the related Purchase Contracts. In the event
that Contract Adjustment Payments are at a
higher rate for Income PRIDES than for
Growth PRIDES, holders of Growth PRIDES
wishing to recreate Income PRIDES will also
be required to deliver cash in an amount
equal to the excess of the Contract
Adjustment Payments that would have accrued
since the last Payment Date through the date
of substitution on the Income PRIDES being
recreated by such holders, over the Contract
Adjustment Payments that have accrued over
the same time period on the related Growth
PRIDES.
On or prior to the fifth Business Day
immediately preceding the Purchase Contract
Settlement Date, a holder of Income PRIDES
will have the right to subsequently recreate
Growth PRIDES by delivering 20 Income PRIDES
to the Purchase Contract Agent plus a
Treasury Security to the Collateral Agent in
exchange for 20 Growth PRIDES and the
release of the 20 related Trust Preferred
Securities to such Income PRIDES, holder;
provided, however, if a Tax Event Redemption
has occurred and the Treasury Portfolio has
become a component of the Income PRIDES,
holders of Income PRIDES may make such
substitutions only in integral multiples of
32,000 Income PRIDES. In the event that
Contract Adjustment Payments are at a higher
rate for Growth PRIDES than for Income
PRIDES, holders of Income PRIDES wishing to
recreate Growth PRIDES will also be required
to deliver cash in an amount equal to the
excess of the Contract Adjustment Payments
that would have accrued since the last
Payment Date through the date of
substitution on the Growth PRIDES being
recreated by such holders, over the Contract
Adjustment Payments that have accrued over
the same time period on the related Income
PRIDES. See "Description of the FELINE
PRIDES -- Recreating Income PRIDES and
Growth PRIDES."
Current Payments .............. Holders of Income PRIDES will be entitled to
receive aggregate cash distributions at a
rate of % of the Stated Amount per annum
from and after 16, 1998, payable
quarterly in arrears, consisting of
cumulative cash distributions on the related
Trust Preferred Securities or the Treasury
Portfolio, as applicable, payable at the
rate of % of the Stated Amount per annum,
and Contract Adjustment Payments, payable by
the Company at the rate of % of the Stated
Amount per annum, subject (in the case of
both the distributions on the Trust
Preferred Securities and of the Contract
Adjustment Payments), to the Company's right
to defer the payment of such amounts. The
ability of the Trust to make the quarterly
distributions on the related Trust Preferred
Securities will be solely dependent upon the
receipt of corresponding interest payments
from the Company on the Debentures. The
Company's obligations with respect to the
Debentures will be senior
S-12
<PAGE>
and unsecured and will rank on a parity in
right of payment with all other senior
unsecured obligations of the Company.
If a Tax Event Redemption has occurred prior
to the Purchase Contract Settlement Date as
described herein and the Treasury Portfolio
has become a component of the Income PRIDES,
quarterly distributions on the appropriate
Applicable Ownership Interest of the
Treasury Portfolio, as a portion of the
cumulative quarterly distribution to the
holders of Income PRIDES, will not be
deferred.
Holders of Growth PRIDES will be entitled to
receive quarterly cash distributions of
Contract Adjustment Payments, payable by the
Company at the rate of % of the Stated
Amount per annum, subject to the Company's
rights of deferral described herein. In
addition, OID would continue to accrue on
the related Treasury Securities. See "Risk
Factors -- Right to Defer Current Payments."
Contract Adjustment Payments .. Contract Adjustment Payments will be fixed
at a rate per annum of % of the Stated
Amount per Purchase Contract in the case of
Income PRIDES, and % of the Stated Amount
per Purchase Contract, in the case of Growth
PRIDES. The Contract Adjustment Payments, if
any, will be subordinated and junior in
right of payment to the Senior Indebtedness.
See "Description of the Purchase Contracts
-- Contract Adjustment Payments."
Option to Extend Distribution
Payment Periods .............. The Company has the right at any time, and
from time to time, limited to a period not
extending beyond the maturity date of the
Debentures, to defer the interest payments
due on the Debentures. As a consequence of
such deferral, the corresponding quarterly
distributions to holders of Trust Preferred
Securities and Income PRIDES would be
deferred (but despite such deferral, would
continue to accumulate quarterly and would
accrue interest thereon compounded quarterly
at the rate of % per annum through and
including 15, 2001, and at the Reset
Rate thereafter). The Company also has the
right to defer the payment of Contract
Adjustment Payments on the related Purchase
Contracts until no later than the Purchase
Contract Settlement Date; however, such
deferred Contract Adjustment Payments will
bear additional Contract Adjustment Payments
at the rate of % per annum (the higher of
(i) the rate which would accrue on Income
PRIDES for such payments and (ii) the rate
which would accrue on Growth PRIDES for such
payments) (such deferred Contract Adjustment
Payments together with such additional
Contract Adjustment Payments shall be
referred to as the "Deferred Contract
Adjustment Payments"). See "Description of
the Purchase Contracts --Contract Adjustment
Payments." If interest payments on the
Debentures or the Contract Adjustment
Payments are deferred, the Company has
agreed, among other things, not to declare
or
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<PAGE>
pay any dividend on or repurchase its
capital stock (subject to certain
exceptions) during the period of such
deferral. If a Tax Event Redemption has
occurred prior to the Purchase Contract
Settlement Date and the Treasury Portfolio
has become a component of the Income PRIDES,
quarterly distributions on the appropriate
Applicable Ownership Interest Treasury
Portfolio as a portion of the cumulative
quarterly distributions to the holders of
Income PRIDES will not be deferred.
In the event that the Company elects to
defer the payment of Contract Adjustment
Payments on the related Purchase Contracts
until the Purchase Contract Settlement Date,
each holder of the related Income PRIDES or
Growth PRIDES will receive on the Purchase
Contract Settlement Date in respect of such
Deferred Contract Adjustment Payments, in
lieu of a cash payment, a number of shares
of Common Stock equal to (x) the aggregate
amount of Deferred Contract Adjustment
Payments payable to such holder divided by
(y) the Applicable Market Value (as defined
herein). See "Description of the Purchase
Contracts -- Option to Defer Contract
Adjustment Payments."
Payment Dates ................. Subject to the deferral provisions described
herein, the current payments described above
in respect of the Income PRIDES will be
payable quarterly in arrears on February 16,
May 16, August 16 and November 16 of each
year, commencing 16, 1998, through and
including (i) in the case of the Contract
Adjustment Payments, the earlier of the
Purchase Contract Settlement Date or the
most recent such quarterly date on or prior
to any early settlement of the related
Purchase Contracts and (ii) in the case of
Trust Preferred Securities, the most recent
such quarterly date on or prior to the
earlier of the Purchase Contract Settlement
Date and the date the liquidation amount of
a Trust Preferred Security, together with
all accumulated and unpaid distributions
thereon (each, a "Payment Date").
Remarketing ................... Unless a Tax Event Redemption has occurred,
pursuant to a remarketing agreement (the
"Remarketing Agreement") dated as of ,
1998, among the Company, the Trust, the
Purchase Contract Agent and a nationally
recognized investment banking firm chosen by
the Company (the "Remarketing Agent"), and
subject to the terms of a Remarketing
Underwriting Agreement to be dated as of the
third Business Day immediately preceding the
Purchase Contract Settlement Date among such
parties (the "Remarketing Underwriting
Agreement"), the Trust Preferred Securities
of such Income PRIDES holders who have
failed to notify the Purchase Contract
Agent, on or prior to the fifth Business Day
immediately preceding the Purchase Contract
Settlement Date, of their intention to
settle the related Purchase Contracts with
separate cash, will be remarketed on the
third Business Day immediately preceding the
Purchase Contract Settlement Date. The
Remarketing Agent will use its reasonable
efforts to remarket such Trust
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<PAGE>
Preferred Securities (bearing the Reset
Rate) on such date for settlement on the
Purchase Contract Settlement Date at a price
of approximately 100.5% of the aggregate
stated liquidation amount of such Trust
Preferred Security, plus accrued and unpaid
distributions (including any deferred
distributions), if any, thereon. The portion
of the proceeds from such remarketing equal
to the aggregate stated liquidation amount
of such Trust Preferred Securities will be
automatically applied to satisfy in full
such Income PRIDES holders' obligations to
purchase Common Stock under the related
Purchase Contracts. In addition, after
deducting as the Remarketing Fee an amount
not exceeding 25 basis points (.25%) of the
aggregate stated liquidation amount of the
remarketed securities from any amount of
such proceeds in excess of the aggregate
stated liquidation amount of the remarketed
Trust Preferred Securities plus any accrued
and unpaid distributions (including any
deferred distributions), the Remarketing
Agent will remit the remaining portion of
the proceeds, if any, for the benefit of
such holder. Income PRIDES holders, whose
Trust Preferred Securities are so remarketed
will not otherwise be responsible for any
Remarketing Fee in connection therewith. If,
despite using its reasonable efforts, the
Remarketing Agent cannot remarket the
related Trust Preferred Securities of such
holders of Income PRIDES at a price not less
than 100% of the aggregate stated
liquidation amount of such Trust Preferred
Securities plus accrued and unpaid
distributions, including deferred
distributions, if any, resulting in a Failed
Remarketing, the Company will exercise its
rights as a secured party to dispose of the
Trust Preferred Securities in accordance
with applicable law and to satisfy in full,
from the proceeds of such disposition, such
holder's obligation to purchase Common Stock
under the related Purchase Contracts,
provided, that if the Company exercises such
rights as a secured party with respect to
such Trust Preferred Securities, any accrued
and unpaid distributions (including any
deferred distributions) on such Trust
Preferred Securities will be paid in cash by
the Company to the holder of record of such
Trust Preferred Securities. The Company will
cause a notice of such Failed Remarketing to
be published on the second Business Day
immediately preceding the Purchase Contract
Settlement Date. It is currently anticipated
that Merrill Lynch, Pierce, Fenner & Smith
Incorporated will be the Remarketing Agent.
See "Description of the Purchase Contracts
-- Remarketing."
Purchase Contract Settlement
Date .......................... 16, 2001.
Settlement of Purchase
Contracts ..................... On the Business Day immediately preceding
the Purchase Contract Settlement Date,
unless a holder of Income PRIDES or Growth
PRIDES (i) has settled the related Purchase
Contracts through the early delivery of cash
to the Purchase Contract Agent in the manner
described herein, (ii) in the case of Income
PRIDES, has settled the related Purchase
Contracts
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<PAGE>
with separate cash on the Business Day prior
to the Purchase Contract Settlement Date
pursuant to prior notification to the
Purchase Contract Agent, (iii) has had the
Trust Preferred Securities related to such
holder's Purchase Contracts remarketed in
the manner described herein in connection
with settling such Purchase Contracts, or
(iv) an event described under "Description
of the Purchase Contracts -- Termination"
has occurred, (A) in the case of Income
PRIDES (unless a Tax Event Redemption has
occurred), the Company will exercise its
rights as a secured party to dispose of the
related Trust Preferred Securities in
accordance with the applicable law, and (B)
in the case of Growth PRIDES or Income
PRIDES (if a Tax Event Redemption has
occurred) the principal amount of the
related Treasury Securities or the
appropriate Applicable Ownership Interest of
the Treasury Portfolio, as applicable, when
paid at maturity, will automatically be
applied, pursuant to the exercise of such
rights by the Company to satisfy in full
such holder's obligation to purchase Common
Stock under the related Purchase Contracts.
In the event that a holder of either Income
PRIDES or Growth PRIDES effects the early
settlement of the related Purchase Contracts
through the delivery of cash or, in the case
of an Income PRIDES, settles such Purchase
Contracts with cash on the Business Day
immediately preceding the Purchase Contract
Settlement Date, the related Trust Preferred
Securities, the appropriate Applicable
Ownership Interest of the Treasury Portfolio
or the Treasury Securities, as the case may
be, will be released to such holder as
described herein.
Settlement Rate ............... The number of newly issued shares of Common
Stock issuable upon settlement of each
Purchase Contract on the Purchase Contract
Settlement Date (the "Settlement Rate") will
be calculated as follows (subject to
adjustment under certain circumstances): (a)
if the Applicable Market Value is equal to
or greater than $ (the "Threshold
Appreciation Price," which is approximately
% above the last reported sale price of
the Common Stock set forth on the cover page
of the final Prospectus Supplement (the
"Reference Price")), the Settlement Rate
(which will be equal to the Stated Amount
divided by the Threshold Appreciation Price)
will be ; accordingly, if, between the
date of the final Prospectus Supplement and
the period during which the Applicable
Market Value is measured, the market price
for the Common Stock increases to an amount
that is higher than the Threshold
Appreciation Price, the aggregate market
value of the shares of Common Stock issued
upon settlement of each Purchase Contract
(assuming that such market value is the same
as the Applicable Market Value of such
Common Stock) will be higher than the Stated
Amount, and if such market price is the same
as the Threshold Appreciation Price, the
aggregate market value of such shares
(assuming that such market value is the same
as the Applicable
S-16
<PAGE>
Market Value of such Common Stock) will be
equal to the Stated Amount; (b) if the
Applicable Market Value is less than the
Threshold Appreciation Price but greater
than the Reference Price, the Settlement
Rate will be equal to the Stated Amount
divided by the Applicable Market Value;
accordingly, if the market price for the
Common Stock increases between the date of
the final Prospectus Supplement and the
period during which the Applicable Market
Value is measured but such market price is
less than the Threshold Appreciation Price,
the aggregate market value of the shares of
Common Stock issued upon settlement of each
Purchase Contract (assuming that such market
value is the same as the Applicable Market
Value of such Common Stock) will be equal to
the Stated Amount; and (c) if the Applicable
Market Value is less than or equal to the
Reference Price, the Settlement Rate (which
will be equal to the Stated Amount divided
by the Reference Price) will be ;
accordingly, if the market price for the
Common Stock decreases between the date of
the final Prospectus Supplement and the
period during which the Applicable Market
Value is measured, the aggregate market
value of the shares of Common Stock issued
upon settlement of each Purchase Contract
(assuming that such market value is the same
as the Applicable Market Value of such
Common Stock) will be less than the Stated
Amount, and if such market price stays the
same, the aggregate market value of such
shares (assuming that such market value is
the same as the Applicable Market Value of
such Common Stock) will be equal to the
Stated Amount. "Applicable Market Value"
means the average of the Closing Price (as
defined herein) per share of Common Stock on
each of the twenty consecutive Trading Days
(as defined herein) ending on the third
Trading Day immediately preceding the
Purchase Contract Settlement Date. See
"Description of the Purchase Contracts --
General."
Early Settlement .............. A holder of Income PRIDES (unless a Tax
Event Redemption has occurred) may settle
the related Purchase Contracts on or prior
to the fifth Business Day immediately
preceding the Purchase Contract Settlement
Date in the manner described herein, but
only in integral multiples of 20 Income
PRIDES; provided, however, if a Tax Event
Redemption has occurred prior to the
Purchase Contract Settlement Date and the
Treasury Portfolio has become a component of
the Income PRIDES, holders of Income PRIDES
may settle early only in integral multiples
of 32,000 Income PRIDES at any time on or
prior to the second Business Day immediately
preceding the Purchase Contract Settlement
Date. A holder of Growth PRIDES may settle
the related Purchase Contracts on or prior
to the second Business Day immediately
preceding the Purchase Contract Settlement
Date in the manner described herein (in
either case, an "Early Settlement"). Upon
such Early Settlement, (a) the holder will
pay to the Company through the Purchase
Contract Agent in immediately available
funds an amount equal to the
S-17
<PAGE>
Stated Amount for each Purchase Contract to
be settled and deliver the Income PRIDES or
Growth PRIDES, as the case may be, to the
Purchase Contract Agent, (b) the related
Trust Preferred Securities, the appropriate
Applicable Ownership Interest of the
Treasury Portfolio or the Treasury
Securities, as the case may be, within three
Business Days of the date of Early
Settlement, will be transferred to the
holder free and clear of the Company's
security interest therein, and (c) the
Company, within three Business Days of the
date of Early Settlement, will deliver
newly issued shares of Common Stock an
amount equal to the Stated Amount divided by
the Threshold Appreciation Price) to the
holder for each Purchase Contract so
settled. Upon Early Settlement, (i) the
holder's rights to receive Deferred Contract
Adjustment Payments, if any, on the Purchase
Contracts being settled will be forfeited,
(ii) the holder's right to receive
additional Contract Adjustment Payments, if
any, in respect of such Purchase Contracts
will terminate and (iii) no adjustment will
be made to or for the holder on account of
Deferred Contract Adjustment Payments, or
any amount accrued in respect of Contract
Adjustment Payments. See "Description of the
Purchase Contracts -- Early Settlement."
Termination ................... The Purchase Contracts and the rights and
obligations of The Company and the holders
of the FELINE PRIDES thereunder(including
the right thereunder to receive accrued or
Deferred Contract Adjustment Payments, if
any, and the obligation to purchase Common
Stock) will automatically terminate upon the
occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to
the Company. Upon such termination, the
Collateral Agent will release the related
Trust Preferred Securities, the appropriate
Applicable Ownership Interest of the
Treasury Portfolio or Treasury Securities,
as the case may be, held by it to the
Purchase Contract Agent for distribution to
the holders, subject in the case of the
Treasury Portfolio to the Purchase Contract
Agent's disposition of the subject
securities for cash, and the payment of such
cash to the holders, to the extent that the
holder would otherwise have been entitled to
receive less than $1,000 of any such
security. Upon such termination, there may
be a delay before such release and
distribution. In the event that the Company
becomes the subject of a case under the
United States Bankruptcy Code of 1978, as
amended (the "Bankruptcy Code"), such delay
may occur as a result of the automatic stay
under the Bankruptcy Code and continue until
such automatic stay has been lifted. The
Company expects any such delay to be
limited. See "Description of the Purchase
Contracts -- Termination."
Voting and Certain Other
Rights ........................ Holders of Trust Preferred Securities will
not be entitled to vote to appoint, remove
or replace, or to increase or decrease the
number of Regular Trustees (as defined
herein) and will generally have no voting
rights except in the limited circumstances
described under "Description of Trust
Preferred Securities --
S-18
<PAGE>
Voting Rights." Holders of Purchase
Contracts forming part of the Income PRIDES
or Growth PRIDES in their capacities as such
holders will have no voting or other rights
in respect of the Common Stock.
TRUST PREFERRED SECURITIES
The Trust ..................... The Trust is a Delaware statutory business
trust. The sole assets of the Trust will
consist of the Debentures. The Company will
directly or indirectly own all of the Common
Securities representing common undivided
beneficial ownership interests in the assets
of the Trust.
Trust Preferred Securities .... % Trust Preferred Securities
(liquidation amount $50 per Trust Preferred
Security), representing preferred, undivided
beneficial ownership interests in the assets
of the Trust.
Distributions ................. Distributions on the Trust Preferred
Securities, which will constitute all or a
portion of the distributions on the Income
PRIDES, will be cumulative, will accrue from
the first date of issuance of the Trust
Preferred Securities and will be payable
initially at the annual rate of % of the
liquidation amount of $50 per Trust
Preferred Security to but excluding the
Purchase Contract Settlement Date, and in
the case of Trust Preferred Securities that
remain outstanding on and after the Purchase
Contract Settlement Date, from the Purchase
Contract Settlement Date to but excluding
16, 2003, at the Reset Rate, in
each case, when, as and if funds are
available for payment. Subject to the
distribution deferral provisions,
distributions will be payable quarterly in
arrears on each February 16, May 16, August
16 and November 16, commencing 16,
1998.
Market Rate Reset ............. The applicable quarterly distribution rate
on the Trust Preferred Securities and the
interest rate on the Debentures on and after
the Purchase Contract Settlement Date, will
be reset on the third Business Day
immediately preceding the Purchase Contract
Settlement Date to the Reset Rate,
determined by the Reset Agent as the rate
the Trust Preferred Securities should bear
in order for a Trust Preferred Security to
have an approximate market value of 100.5%
of the Stated Amount on the third Business
Day immediately preceding the Purchase
Contract Settlement Date, provided, that the
Company may limit such Reset Rate to be no
higher than the rate on the Two-Year
Benchmark Treasury plus 200 basis points
(2%). Such market value may be less than
100.5% if the Reset Spread is limited to a
maximum of 2%. It is currently anticipated
that Merrill Lynch, Pierce, Fenner & Smith
Incorporated will be the Reset Agent. See
"Description of the Trust Preferred
Securities -- Market Rate Reset."
S-19
<PAGE>
Optional Remarketing ......... Pursuant to the Remarketing Agreement and
subject to the terms of Remarketing
Underwriting Agreement, on or prior to the
Business Day immediately preceding the
Purchase Contract Settlement Date, but no
earlier than the Business Day
immediately preceding the Purchase Contract
Settlement Date, holders of separate Trust
Preferred Securities which are not
components of Income PRIDES may elect to
have their Trust Preferred Securities
remarketed, by delivering their Trust
Preferred Securities along with a notice of
such election to the Collateral Agent.
Holders of Trust Preferred Securities
electing to have their Trust Preferred
Securities remarketed will also have the
right to withdraw such election on or prior
to the Business Day immediately
preceding the Purchase Contract Settlement
Date. On the fourth Business Day immediately
preceding the Purchase Contract Settlement
Date, the Collateral Agent will deliver such
Trust Preferred Securities to the
Remarketing Agent for remarketing. The
Remarketing Agent will use its reasonable
efforts to remarket such Trust Preferred
Securities (bearing the Reset Rate) on the
third Business Day immediately preceding the
Purchase Contract Settlement Date at a price
of approximately 100.5% of the aggregate
stated liquidation amount of such Trust
Preferred Securities, plus accrued and
unpaid distributions (including deferred
distributions), if any, thereon. The portion
of the proceeds from such remarketing equal
to the aggregate stated liquidation amount
of such Trust Preferred Securities will be
remitted by the Remarketing Agent to the
Collateral Agent for the benefit of such
Trust Preferred Securities holders. In
addition, after deducting as the Remarketing
Fee an amount not exceeding 25 basis points
(.25%) of the aggregate stated liquidation
amount of the remarketed securities from any
amount of such proceeds in excess of the
aggregate stated liquidation amount of the
remarketed Trust Preferred Securities plus
any accrued and unpaid distributions
(including any deferred distributions), the
Remarketing Agent will remit to the
Collateral Agent the remaining portion of
the proceeds, if any, for the benefit of
such holder of Trust Preferred Securities.
If, despite using its reasonable efforts,
the Remarketing Agent cannot remarket the
Trust Preferred Securities of such holders
of Trust Prefered Securities at a price not
less than 100% of the aggregate stated
liquidation amount of such Trust Preferred
Securities plus accrued and unpaid
distributions, including deferred
distributions, if any, resulting in a Failed
Remarketing, the Remarketing Agent will
return such Trust Preferred Securities to
the Collateral Agent to return such Trust
Preferred Securities to such holders. The
Company will cause a notice of such Failed
Remarketing to be published on the second
Business Day immediately preceding the
Purchase Contract Settlement Date. It is
currently anticipated that Merrill Lynch,
Pierce, Fenner & Smith Incorporated will be
the Remarketing Agent. See "Description of
the Trust Preferred Securities -- Optional
Remarketing."
S-20
<PAGE>
Distribution Deferral
Provisions .................... The ability of the Trust to pay
distributions on the Trust Preferred
Securities will be solely dependent on the
receipt of interest payments from the
Company on the Debentures. The Company will
have the right at any time, and from time to
time, to defer the interest payments due on
the Debentures for successive extension
periods (the "Extension Periods") limited,
in the aggregate, to a period not extending
beyond the maturity date of the Debentures.
The corresponding quarterly distributions on
the Trust Preferred Securities would be
deferred by the Trust (but would continue to
accumulate quarterly and would accrue
interest, compounded quarterly, at the rate
of % per annum through and including
15, 2001, and at the Reset Rate thereafter)
until the end of any such Extension Period.
If a deferral of an interest payment occurs,
the holders of the Trust Preferred
Securities will be required to accrue
interest income for United States federal
income tax purposes in advance of the
receipt of any corresponding cash
distribution with respect to such deferred
interest payment. See "Risk Factors -- Right
to Defer Current Payments," "Description of
the Trust Preferred Securities --
Distributions" and "Certain Federal Income
Tax Consequences -- Income PRIDES -- Trust
Preferred Securities -- Interest Income and
Original Issue Discount."
Rights Upon Deferral of
Distribution ................. During any period in which interest payments
on the Debentures are deferred, interest
will accrue on the Debentures (compounded
quarterly) and the corresponding quarterly
distributions on the Trust Preferred
Securities will continue to accumulate with
interest thereon at the rate of % per
annum through and including 15, 2001,
and at the Reset Rate thereafter, compounded
quarterly.
Liquidation Preference ........ In the event of any liquidation of the
Trust, and after satisfaction of liabilities
to creditors of the Trust, if any, holders
will be entitled to receive Debentures in an
aggregate principal amount equal to the
aggregate stated liquidation amount of the
Trust Preferred Securities.
Put Option .................... If a Failed Remarketing has occurred,
holders of Trust Securities (including,
following the distribution of the Debentures
upon a dissolution of the Trust as described
herein, such Debenture holders), holding
such Trust Securities or Debentures, as the
case may be, following the Purchase Contract
Settlement Date will have the right, in the
case of Trust Securities, to require the
Trust to put to the Company the related
Debentures, or in the case of Debentures, to
put such Debentures directly to the Company
on , 2001, upon at least three Business
Days' prior notice, at a price equal to the
principal amount, plus accrued and unpaid
interest (including deferred interest), if
any, thereon. Upon the repurchase of such
Debentures the proceeds of such repurchase
shall simultaneously be applied (in the case
of Trust Securities) to redeem
S-21
<PAGE>
such Trust Securities of such holder in an
aggregate stated liquidation amount equal to
the aggregate principal amount of the
Debentures so repurchased and (ii) any
accrued and unpaid distributions (including
deferred distributions) with respect to such
Trust Securities will be paid to such holder
in cash. See "Description of the Debentures
-- Put Option."
Distribution of Debentures .... In certain circumstances involving an
Investment Company Event, the Trust would be
dissolved, with the result that, after
satisfaction of liabilities to creditors of
the Trust, if any, Debentures with an
aggregate principal amount equal to the
aggregate stated liquidation amount of the
Trust Preferred Securities would be
distributed to the holders of the Trust
Preferred Securities on a pro rata basis
including the Collateral Agent. In such
event an Income PRIDES would thereafter
consist of beneficial ownership of a
Debenture with a principal amount equal to
the Stated Amount of such Income PRIDES and
the related Purchase Contract, and such
Debenture would be otherwise treated as if
it were a Trust Preferred Security. See
"Description of the Trust Preferred
Securities -- Distribution of Debentures."
Tax Event Redemption .......... The Debentures (and, thus, the Trust
Securities) are redeemable, at the option of
the Company, on not less than 30 days or
more than 60 days prior written notice in
whole but not in part upon the occurrence
and continuation of a Tax Event under the
circumstances described herein at a
Redemption Price equal to, for each
Debenture, the Redemption Amount together
with accrued and unpaid distributions
(including deferred distributions). See
"Description of the Debentures -- Tax Event
Redemption." If the Company so redeems all
of the Debentures, the Trust must redeem all
of the Trust Securities and pay in cash such
Redemption Price to the holders of such
Trust Securities. If such Tax Event
Redemption occurs prior to the Purchase
Contract Settlement Date, the Redemption
Price payable in liquidation of any Income
PRIDES holders' interest in the Trust, will
be distributed to the Collateral Agent, who
in turn will apply an amount equal to the
Redemption Amount of such Redemption Price
to purchase the Treasury Portfolio on behalf
of the holders of Income PRIDES and remit
the remaining portion, if any, of such
Redemption Price to the Purchase Contract
Agent for payment to holders of such Income
PRIDES. The Treasury Portfolio will be
substituted for the Trust Preferred Security
and will be pledged with the Collateral
Agent to secure such Income PRIDES holders'
obligations to purchase the Common Stock
under their Purchase Contracts.
Other than in the event of a Tax Event
Redemption, the Company will not have the
ability to redeem the Debentures prior to
their stated maturity date. See "Description
of the Debentures -- Tax Event Redemption of
Trust Preferred Securities."
S-22
<PAGE>
Guarantee .................... The Company will irrevocably and
unconditionally guarantee (the "Guarantee"),
generally on a senior unsecured basis, the
payment in full of (i) distributions on the
Trust Preferred Securities to the extent the
Trust has funds available therefor, (ii) the
redemption price of Trust Preferred
Securities in respect of which the related
Debentures have been repurchased by the
Company on the Purchase Contract Settlement
Date, to the extent the Trust has funds
available therefor, and (iii) generally, the
liquidation amount of the Trust Preferred
Securities or the Redemption Price upon a
Tax Event Redemption, to the extent the
Trust has assets available for distribution
to holders of Trust Preferred Securities in
the event of a dissolution of the Trust. The
Company's obligations under the Guarantee
will be a senior unsecured obligation of the
Company and will rank on a parity with all
of the Company's other senior unsecured
obligations. See "Description of the
Guarantee."
Debentures .................... Unless a Tax Event Redemption has occurred,
the Debentures will mature on 16,
2003, and will bear interest initially at
the rate of % per annum, payable
quarterly in arrears on each February 16,
May 16, August 16 and November 16,
commencing 16, 1998. The interest
rate on the Debentures, and the distribution
rate on the Trust Preferred Securities, that
remain outstanding after the Purchase
Contract Settlement Date will be reset on
the third Business Day immediately preceding
the Purchase Contract Settlement Date to the
Reset Rate determined by the Reset Agent.
See "Description of Debentures -- Interest."
Interest payments on the Debentures may be
deferred from time to time by the Company
for successive Extension Periods not
extending, in the aggregate, beyond the
stated maturity date of the Debentures.
During any Extension Period, interest at the
rate of % per annum through and
including 15, 2001, and at the Reset
Rate thereafter would continue to accrue and
compound quarterly. Upon the termination of
any Extension Period and the payment of all
amounts then due, the Company may commence a
new Extension Period, provided such new
Extension Period does not extend beyond the
stated maturity date of the Debentures. No
interest shall be due during an Extension
Period until the end of such period. During
an Extension Period, the Company will be
prohibited (subject to certain exceptions)
from paying dividends on or purchasing any
of its capital stock and making certain
other restricted payments until quarterly
interest payments are resumed and all
amounts then due on the Debentures are paid.
The Debentures will be senior unsecured
obligations of the Company and will rank on
a parity with all of the Company's other
senior unsecured obligations. See
"Description of the Debentures."
S-23
<PAGE>
Federal Income Tax
Consequences Related to
the Income PRIDES, Growth
PRIDES and Trust Preferred
Securities .................... Provided the Company does not exercise its
right to defer interest on the Debentures, a
beneficial owner of Income PRIDES and Trust
Preferred Securities will include in gross
income its pro rata share of the stated
interest on the Debentures when such
interest income is paid or accrued in
accordance with its regular method of tax
accounting. The Company intends to report
the Contract Adjustment Payments as income
to holders of Income PRIDES and Growth
PRIDES, but holders should consult their tax
advisors concerning the possibility that the
Contract Adjustment Payments may be treated
as loans, purchase price adjustments,
rebates or option premiums rather than being
includible in income on a current basis. A
beneficial owner of Growth PRIDES will be
required to include in gross income its
allocable share of any OID with respect to
the Treasury Securities as it accrues on a
constant yield to maturity basis. If a Tax
Event Redemption has occurred, a beneficial
owner of Income PRIDES will be required to
include in gross income its allocable share
of OID on the Treasury Portfolio as it
accrues on a constant yield to maturity
basis. See "Certain Federal Income Tax
Consequences."
S-24
<PAGE>
EXPLANATORY DIAGRAMS
For illustrative purposes only, the following diagrams demonstrate some of
the key features of Purchase Contracts, Income PRIDES and Growth PRIDES and
the transformation of Income PRIDES into Growth PRIDES and Trust Preferred
Securities. The hypothetical percentages, coupon rates and time periods below
are for illustration only. There can be no assurance that the actual
percentage of shares delivered will be limited by the range of hypothetical
percentages shown. In addition, there can be no assurance that payment rates
on the FELINE PRIDES will be at the levels set forth below.
The following diagrams and the related text are not complete, are general
in nature and are qualified in their entirety by more detailed information
appearing elsewhere in the accompanying Prospectus, this Prospectus
Supplement and in documents which are on file with the Commission.
FELINE PRIDES PURCHASE CONTRACT
o Income PRIDES and Growth PRIDES both include a Purchase Contract under which
the investor agrees to purchase shares of Common Stock of the Company at the
end of three years. In addition, such Purchase Contracts include specified
Contract Adjustment Payments as shown in the diagrams on the following pages.
PURCHASE CONTRACT
-----------------
VALUE OF DELIVERED SHARES AT MATURITY
Reference Price
Threshold Application Price
Common Stock Price
QUANTITY OF DELIVERED SHARES AT MATURITY
Deliver 100% of Shares
Deliver Between 77% and 100% of Shares
Deliver 77% of Shares
Reference Price
Threshold Appreciation Price
Common Stock Price
S-25
<PAGE>
INCOME PRIDES
o Income PRIDES consist of two components as described below:
PURCHASE CONTRACT
- -----------------
(Owed to Investor)
Shares + Contract Adjustment Payment 1.00% per annum paid quarterly
$50 at Maturity
(end of year 3)
(Owed to Company)
TRUST PREFERRED SECURITIES
- --------------------------
(Owed to Investor)
6.25% per annum paid quarterly
(reset at end of year 3)
$50 at Maturity
(end of year 5)
(Owed to Investor)
o The investor owns the Trust Preferred Securities but will pledge them to the
Company to secure its obligations under the Purchase Contract.
GROWTH PRIDES
o Growth PRIDES consist of two components as described below:
PURCHASE CONTRACT
- -----------------
(Owed to Investor)
Shares + Contract Adjustement Payment 1.25% per annum paid quarterly
$50 at Maturity
(end of year 3)
(Owed to Company)
+
ZERO-COUPON TREASURY SECURITY
- -----------------------------
$50 at Maturity
(end of year 3)
(Owed to Investor)
o The investor owns the Zero-Coupon Treasury Security but will pledge it to
the Company to secure its obligations under the Purchase Contract.
S-26
<PAGE>
TRUST PREFERRED SECURITIES
o Trust Preferred Securities have the terms described below:
(Owed to Investor)
6.25% per annum
paid quarterly
(reset at end of year 3)
$50 at Maturity
(end of year 5)
(Owed to Investor)
o The holder of Trust Preferred Securities which are a component of Income
PRIDES has an option at the end of year 3 to either.
o Cash settle the Purchase Contract for $50 and receive Trust Preferred
Securities whose rate has been reset at the end of year 3, or
o Cash settle the Purchase Contract by allowing the Trust Preferred
Securities to be included in the remarketing process.
o The holder of Trust Preferred Securities that are separate and not a component
of Income PRIDES has the option at the end of year 3 to either.
o Continue to hold the Trust Preferred Securities whose rate has been
reset at the end of year 3, or
o Deliver the Trust Preferred Securities to the Collateral Agent to be
included in the remarketing process.
S-27
<PAGE>
TRANSFORMING INCOME PRIDES INTO GROWTH PRIDES AND TRUST PRIDES SECURITIES
o To create a Growth PRIDES, the investor separates an Income PRIDES into
its two components -- the Purchase Contract and the Trust Preferred
Securities -- and then combines the Purchase Contract with a specific
Zero-Coupon Treasury Security which matures concurrently with the maturity
of the Purchase Contract.
o The investor owns the Zero-Coupon Treasury Security but will pledge it to
the Company to secure its obligations under the Purchase Contract.
o The Zero-Coupon Treasury Security together with the Purchase Contract
constitute a Growth PRIDES. The Trust Preferred Securities which are no
longer a component of the Income PRIDES are tradeable as separate securities.
PURCHASE CONTRACT
- -----------------
(Owed to Investor)
Shares
+
Contract Adjustment
Payment
1.00% per annum
paid quarterly
$50 at Maturity
(end of year 3)
(Owed to Company)
TRUST PREFERRED SECURITIES
- --------------------------
(Owed to Investor)
6.25% per annum paid quarterly
(reset at end of year 3)
$50 at Maturity
(end of year 5)
(Owed to Investor)
Income PRIDES
PURCHASE CONTRACT
- -----------------
(Owed to Investor)
Shares
+
Contract Adjustment Payment
1.25% per annum
paid quarterly
$50 at Maturity
(end of year 3)
(Owed to Company)
+
<PAGE>
Zero-Coupon Treasury Security
- -----------------------------
$50 at Maturity
(end of year 3)
(Owed to Investor)
Growth PRIDES
+
TRUST PREFERRED SECURITIES
- --------------------------
(Owed to Investor)
6.25% per annum paid quarterly
(reset at end of year 3)
$50 at Maturity
(end of year 5)
(Owed to Investor)
o The investor can also transform Growth PRIDES and Trust Preferred Securities
into Income PRIDES.
S-28
<PAGE>
RISK FACTORS
Potential purchasers of the FELINE PRIDES offered hereby should carefully
consider the risk factors set forth herein under "Risk Factors" as well as
other information contained in this Prospectus Supplement, the accompanying
Prospectus and the documents incorporated by reference therein.
INVESTMENT IN FELINE PRIDES REQUIRES HOLDERS TO PURCHASE COMMON STOCK; RISK
OF DECLINE IN EQUITY VALUE
Although holders of the FELINE PRIDES will be the beneficial owners of the
related Trust Preferred Securities, Treasury Portfolio or Treasury
Securities, as the case may be, prior to the Purchase Contract Settlement
Date, unless a holder of FELINE PRIDES settles the related Purchase Contracts
through the delivery of cash to the Purchase Contract Agent in the manner
described below or the Purchase Contracts are terminated (upon the occurrence
of certain events of bankruptcy, insolvency or reorganization with respect to
the Company), the proceeds of the repurchase by the Company of the related
Debentures or the principal of the related Treasury Securities, or the
applicable Appropriate Ownership Interest of the Treasury Portfolio, when
paid at maturity, as the case may be, will automatically be applied to the
purchase of a specified number of shares of Common Stock on behalf of such
holder. Thus, unless a holder of Income PRIDES has cash settled, following
the Purchase Contract Settlement Date, the holder will own shares of Common
Stock rather than a beneficial interest in Trust Preferred Securities. See
"Description of the Purchase Contracts -- General." There can be no assurance
that the market value of the Common Stock receivable by the holder on the
Purchase Contract Settlement Date will be equal to or greater than the Stated
Amount of the FELINE PRIDES held by such holder. If the Applicable Market
Value of the Common Stock is less than the Reference Price the aggregate
market value of the Common Stock issued to the holder in settlement of each
Purchase Contract on the Purchase Contract Settlement Date (assuming that
such market value is the same as the Applicable Market Value of such Common
Stock) will be less than the Stated Amount paid for the FELINE PRIDES and the
market value per share of such Common Stock will be less than the effective
price per share paid by each holder for such Common Stock on the date hereof,
in which case an investment in the Securities will result in a loss.
Accordingly, a holder of the FELINE PRIDES assumes the risk that the market
value of the Common Stock may decline, and that such decline could be
substantial.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded
by a direct investment in the Common Stock because the market value of the
Common Stock to be received by a holder of Purchase Contracts on the Purchase
Contract Settlement Date (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will only exceed the Stated
Amount if the Applicable Market Value of the Common Stock exceeds the
Threshold Appreciation Price (which represents an appreciation of % over
the Reference Price). Moreover, in such event, holders of FELINE PRIDES would
receive on the Purchase Contract Settlement Date only % (the percentage
equal to the Reference Price divided by the Threshold Appreciation Price) of
the shares of Common Stock that such holders would have received if they had
made a direct investment in the Common Stock on the date hereof, and
therefore would receive on the Purchase Contract Settlement Date only % of
the appreciation in the value of the Common Stock in excess of the Threshold
Appreciation Price through such date.
FACTORS AFFECTING TRADING PRICES
The trading prices of Income PRIDES and Growth PRIDES in the secondary
market will be directly affected by the trading prices of the Common Stock in
the secondary market, the general level of interest rates and the credit
quality of the Company. It is impossible to predict whether the price of the
Common Stock or interest rates will rise or fall. Trading prices of the
Common Stock will be influenced by the Company's operating results and
prospects and by economic, financial and other factors and market conditions
that can affect the capital markets generally, including the level of, and
fluctuations in, the trading prices of stocks generally and sales of
substantial amounts of Common Stock in the market
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subsequent to the offering of the Securities or the perception that such
sales could occur. Fluctuations in interest rates may give rise to
opportunities of arbitrage based upon changes in the relative value of the
Common Stock underlying the Purchase Contracts and of the other components of
the FELINE PRIDES. Any such arbitrage could, in turn, affect the trading
prices of the Income PRIDES, Growth PRIDES, Trust Preferred Securities and
Common Stock.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Trust Preferred Securities will not be entitled to vote to
appoint, remove or replace or to increase or decrease the number of Cendant
Trustees, and generally will have no voting rights except in the limited
circumstances described under "Description of the Trust Preferred Securities
- -- Voting Rights." Holders of FELINE PRIDES will not be entitled to any
rights with respect to the Common Stock (including, without limitation,
voting rights and rights to receive any dividends or other distributions in
respect thereof) unless and until such time as the Company shall have
delivered shares of Common Stock for FELINE PRIDES on the Purchase Contract
Settlement date or as a result of Early Settlement, as the case may be, and
unless the applicable record date, if any, for the exercise of such rights
occurs after such date. For example, in the event that an amendment is
proposed to the Articles of Incorporation or By-Laws of the Company and the
record date for determining the stockholders of record entitled to vote on
such amendment occurs prior to such delivery, holders of FELINE PRIDES will
not be entitled to vote on such amendment.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date or as a result
of Early Settlement is subject to adjustment for certain events arising from
stock splits and combinations, stock dividends and certain other actions of
the Company that modify its capital structure. See "Description of the
Purchase Contracts -- Anti-Dilution Adjustments." Such number of shares of
Common Stock to be received by such holders on the Purchase Contract
Settlement Date or as a result of Early Settlement will not be adjusted for
other events, such as offerings of Common Stock for cash or in connection
with acquisitions. The Company is not restricted from issuing additional
Common Stock during the term of either the Purchase Contracts or the Trust
Preferred Securities and has no obligation to consider the interests of the
holders of FELINE PRIDES for any reason. Additional issuances may materially
and adversely affect the price of the Common Stock and, because of the
relationship of the number of shares to be received on the Purchase Contract
Settlement Date to the price of the Common Stock, such other events may
adversely affect the trading price of Income PRIDES or Growth PRIDES.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how Income PRIDES, Growth PRIDES or Trust
Preferred Securities will trade in the secondary market or whether such
market will be liquid or illiquid. Income PRIDES and Growth PRIDES are novel
securities and there is currently no secondary market for either Income
PRIDES or Growth PRIDES. Application has been made to list the Income PRIDES,
Growth PRIDES and Trust Preferred Securities on the NYSE. There can be no
assurance as to the liquidity of any market that may develop for the Income
PRIDES, the Growth PRIDES or the Trust Preferred Securities, the ability of
holders to sell such securities or whether a trading market, if it develops,
will continue. In addition, in the event that holders of Income PRIDES or
Growth PRIDES were to substitute Treasury Securities or Trust Preferred
Securities for Trust Preferred Securities or Treasury Securities, thereby
converting their Income PRIDES to Growth PRIDES or their Growth PRIDES to
Income PRIDES, as the case may be, the liquidity of Income PRIDES, Growth
PRIDES and Trust Preferred Securities could be adversely affected. There can
be no assurance that the Income PRIDES, Growth PRIDES or Trust Preferred
Securities will not be delisted from the NYSE or that trading in the Income
PRIDES, Growth PRIDES and Trust Preferred Securities will not be suspended as
a result of the election by holders to create Income PRIDES or Growth PRIDES
through the substitution of collateral, which could cause the number of
Income PRIDES, Growth PRIDES or Trust Preferred Securities to fall below the
requirement for listing securities on the NYSE that at least 1,000,000 Income
PRIDES, Growth PRIDES and Trust Preferred Securities be outstanding at any
time.
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PLEDGED SECURITIES ENCUMBERED
Although the beneficial owners of FELINE PRIDES will be the beneficial
owners of the related Trust Preferred Securities, Treasury Portfolio or
Treasury Securities (together, the "Pledged Securities"), as applicable,
those Pledged Securities will be pledged with the Collateral Agent to secure
the obligations of the holders under the related Purchase Contracts. Thus,
rights of the holders to their Pledged Securities will be subject to the
Company's security interest. Additionally, notwithstanding the automatic
termination of the Purchase Contracts, in the event that the Company becomes
the subject of a case under the Bankruptcy Code, the delivery of the Pledged
Securities to holders of the FELINE PRIDES may be delayed by the imposition
of the automatic stay of Section 362 of the Bankruptcy Code.
INVESTMENT COMPANY EVENT DISTRIBUTION
Upon the occurrence of an Investment Company Event, the Trust will be
dissolved (except in the limited circumstances described in the following
sentence) with the result that Debentures with an aggregate principal amount
equal to the aggregate stated liquidation amount of the Trust Preferred
Securities would be distributed to the holders of the Trust Preferred
Securities on a pro rata basis. Such dissolution and distribution shall be
conditioned on the Company being unable to avoid such Investment Company
Event within a 90 day period by taking some ministerial action or pursuing
some other reasonable measure that will have no adverse effect on the Trust,
the Company or the holders of the Trust Preferred Securities, and will
involve no material cost. In addition, the Company will have the right at any
time to dissolve the Trust. See "Description of the Trust Preferred
Securities -- Distribution of the Debentures."
There can be no assurance as to the impact on the market prices for Income
PRIDES of a distribution of the Debentures in exchange for Trust Preferred
Securities upon a dissolution of the Trust. Because Income PRIDES will
consist of Debentures and related Purchase Contracts upon the occurrence of
the dissolution of the Trust as a result of an Investment Company Event or
otherwise, prospective purchasers of Income PRIDES are also making an
investment decision with regard to the Debentures and should carefully review
all the information regarding the Debentures contained herein. See
"Description of the Trust Preferred Securities -- Distribution of the
Debentures" and "Description of the Debentures -- General."
TAX EVENT REDEMPTION
The Debentures (and, thus, the Trust Securities) are redeemable, at the
option of the Company, on not less than 30 days or more than 60 days prior
written notice, in whole but not in part, at any time prior to the Purchase
Contract Settlement Date upon the occurrence and continuation of a Tax Event
under the circumstances described herein at a Redemption Price equal to, for
each Debenture, the Redemption Amount plus accrued and unpaid distributions
(including deferred distributions). See "Description of the Debentures -- Tax
Event Redemption." If the Company so redeems all of the Debentures, the Trust
must redeem all of the Trust Securities and pay in cash such Redemption Price
to the holder of such Trust Securities. If the Tax Event Redemption has
occurred prior the Purchase Contract Settlement Date, the Redemption Price
payable in liquidation of the Income PRIDES holders' interest in the Trust
will be distributed to the Collateral Agent, who in turn will apply an amount
equal to the Redemption Amount of such Redemption Price to purchase the
Treasury Portfolio on behalf of the holders of Income PRIDES. Holders of
Trust Preferred Securities, not held in the form of Income PRIDES, will
receive redemption payments directly. The Treasury Portfolio will be
substituted for the Trust Preferred Securities and will be pledged with the
Collateral Agent to secure such Income PRIDES holders' obligations to
purchase the Company's Common Stock under their Purchase Contracts. There can
be no assurance as to the impact on the market prices for the Income PRIDES
of the substitution of the Treasury Portfolio as collateral in replacement of
any Trust Preferred Securities so redeemed. See "Description of the Trust
Preferred Securities -- Optional Redemption." A Tax Event Redemption will be
a taxable event to the beneficial owners of the Trust Preferred Securities.
See "Certain Federal Income Tax Consequences -- Tax Event Redemption of Trust
Preferred Securities."
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RIGHT TO DEFER CURRENT PAYMENTS
The Company may, at its option, defer the payment of Contract Adjustment
Payments on the Purchase Contracts until the Purchase Contract Settlement
Date. However, deferred installments of Contract Adjustment Payments will
bear Deferred Contract Adjustment Payments at the rate of % per annum
(compounding on each succeeding Payment Date) until paid (the higher of (i)
the rate which would accrue on Income PRIDES for such Payments and (ii) the
rate which would accrue on Growth PRIDES for such payments). If the Purchase
Contracts are settled early or terminated (upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect to the
Company), the right to receive Contract Adjustment Payments and Deferred
Contract Adjustment Payments, if any, will also terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Purchase Contracts will receive on the
Purchase Contract Settlement Date in respect of the Deferred Contract
Adjustment Payments, in lieu of a cash payment, a number of shares of Common
Stock equal to (x) the aggregate amount of Deferred Contract Adjustment
Payments payable to such holder divided by (y) the Applicable Market Value.
See "Description of the Purchase Contracts -- Contract Adjustment Payments."
The Company also will have the right under the Indenture to defer payments
of interest on the Debentures by extending the interest payment period at any
time, and from time to time, on the Debentures. As a consequence of such an
extension, quarterly distributions on the Trust Preferred Securities, held
either as a component of the Income PRIDES or held separately, would be
deferred (but despite such deferrals would accrue interest at a rate of %
per annum through and including February 15, 2001, and at the Reset Rate
thereafter, compounded on a quarterly basis) by the Trust during any such
Extension Period. Such right to extend the interest payment period for the
Debentures will be limited such that an Extension Period may not extend
beyond the stated maturity of the Debentures. During any such Extension
Period, (a) the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of the Company in connection with
the satisfaction by the Company of its obligations under any employee or
agent benefit plans or the satisfaction by the Company of its obligations
pursuant to any contract or security outstanding on the date of such event
requiring the Company to purchase capital stock of the Company, (ii) as a
result of a reclassification of the Company's capital stock or the exchange
or conversion of one class or series of the Company's capital stock for
another class or series of the Company's capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of
the Company (or rights to acquire capital stock) or repurchases or
redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan), (b) the Company shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank on a parity with or junior to
the Debentures and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than payments pursuant to the Guarantee or
the Common Securities Guarantee (as defined herein)). Prior to the
termination of any such Extension Period, the Company may further extend the
interest payment period; provided, that such Extension Period may not extend
beyond the stated maturity of the Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. See
"Description of the Trust Preferred Securities -- Distributions" and
"Description of the Debentures -- Option to Extend Interest Payment Period."
The Company believes, and intends to take the position, that as of the
issue date of the Debentures, the likelihood that it will exercise its right
to defer payments of stated interest on the Debentures is remote and that,
therefore, the Debentures should not be considered to be issued with OID as a
result of the Company's right to defer payments of stated interest on the
Debentures unless it actually exercises such deferral right. There is no
assurance that the Internal Revenue Service will agree with such position.
See "Certain Federal Income Tax Consequences -- Trust Preferred Securities --
Interest Income and Original Issue Discount."
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Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each beneficial owner of Trust
Preferred Securities held either as a component of the Income PRIDES or held
separately would be required to include such beneficial owner's share of the
stated interest on the Trust Preferred Securities in gross income, as OID, on
daily economic accrual basis, regardless of such owner's method of tax
accounting and in advance of receipt of the cash attributable to such income.
As a result, each such beneficial owner of Trust Preferred Securities would
recognize income for United States federal income tax purposes in advance of
the receipt of cash attributable to such income, and would not receive the
cash from the Trust related to such income if such holder disposes of its
Trust Preferred Securities prior to the record date for the date on which
distributions of such amounts are made. See "Certain Federal Income Tax
Consequences --Trust Preferred Securities -- Interest Income and Original
Issue Discount." The Company has no current intention of exercising its right
to defer payments of interest by extending the interest payment period on the
Debentures. However, should the Company determine to exercise such right in
the future, the market price of the Trust Preferred Securities is likely to
be affected. A holder that disposes of its Trust Preferred Securities during
an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Trust Preferred Securities.
In addition, as a result of the existence of the Company's right to defer
interest payments, the market price of the Trust Preferred Securities (which
represent a preferred, undivided beneficial interest in the assets of the
Trust) may be more volatile than the market price of other securities that
are not subject to such deferral. See "Certain Federal Income Tax
Consequences --Trust Preferred Securities -- Interest Income and Original
Issue Discount."
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly addresses the
treatment of the FELINE PRIDES or instruments similar to the FELINE PRIDES
for United States federal income tax purposes. As a result, certain United
States federal income tax consequences of the purchase, ownership and
disposition of FELINE PRIDES are not entirely clear. See "Certain Federal
Income Tax Consequences."
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT; LIMITED
OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Trust Preferred Securities constituting a part of the Income
PRIDES will be issued pursuant to the Declaration, which will be qualified
under the Trust Indenture Act, the Purchase Contract Agreement will not be
qualified as an indenture under the Trust Indenture Act and the Purchase
Contract Agent will not be required to qualify as a trustee thereunder.
Accordingly, holders of FELINE PRIDES will not have the benefit of the
protections of the Trust Indenture Act. The protections generally afforded
the holder of the security issued under an indenture that has been qualified
under the Trust Indenture Act include disqualification of the indenture
trustee for "conflicting interests" as defined under the Trust Indenture Act,
provisions preventing a trustee that is also a creditor of the issuer from
improving its own credit position at the expense of the security holders
immediately prior to or after a default under such indenture and the
requirement that the indenture trustee deliver reports at least annually with
respect to certain matters concerning the indenture trustee and the
securities. Under the terms of the Purchase Contract Agreement, the Purchase
Contract Agent will have only limited obligations to the holders of FELINE
PRIDES. See "Certain Provisions of the Purchase Contract Agreement and the
Pledge Agreement -- Information Concerning the Purchase Contract Agent."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Guarantee Trustee will act as indenture trustee under the Guarantee
for the purposes of compliance with the provisions of the Trust Indenture
Act. The Guarantee Trustee will hold the Guarantee for the benefit of the
holders of the Trust Preferred Securities.
The Guarantee guarantees to the holders of the Trust Preferred Securities,
generally on a senior unsecured basis, the payment of (i) any accrued and
unpaid distributions that are required to be paid on the Trust Preferred
Securities, to the extent the Trust has funds available therefor, (ii) the
redemption
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price, including all accumulated and unpaid distributions to the date of
redemption, of Trust Preferred Securities in respect of which the related
Debentures have been repurchased by the Company on the Purchase Contract
Settlement Date, to the extent the Trust has funds available therefor, and
(iii) upon a voluntary or involuntary dissolution of the Trust (other than in
connection with the distribution of Debentures to the holders of Trust
Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the Trust Preferred
Securities to the date of payment to the extent the Trust has funds available
therefor or (b) the amount of assets of the Trust remaining available for
distribution to holders of the Trust Preferred Securities in liquidation of
the Trust. The majority in liquidation amount of the Trust Preferred
Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee
or to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. Notwithstanding the foregoing, any holder of the
Trust Preferred Securities may institute a legal proceeding directly against
the Company to enforce such holder's rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity. If the Company were to default on its obligation
to pay amounts payable on the Debentures or otherwise, the Trust would lack
funds for the payment of distributions or amounts payable on redemption of
the Trust Preferred Securities or otherwise, and, in such event, holders of
the Trust Preferred Securities would not be able to rely upon the Guarantee
for payment of such amounts. Instead, holders of the Trust Preferred
Securities would rely on the enforcement (1) by the Institutional Trustee of
its rights as registered holder of the Debentures against the Company
pursuant to the terms of the Indenture and the Debentures or (2) by such
holder of the Institutional Trustee's or such holder's own rights against the
Company to enforce payments on the Debentures. See "--Enforcement of Certain
Rights by Holders of Trust Preferred Securities," "Description of the
Debentures" and "Description of the Guarantee." The Declaration provides that
each holder of Trust Preferred Securities, by acceptance thereof, agrees to
the provisions of the Guarantee, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, the holders of Trust Preferred Securities would rely on the
enforcement by the Institutional Trustee of its rights as registered holder
of the Debentures against the Company. In addition, the holders of a majority
in liquidation amount of the Trust Preferred Securities will have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Institutional Trustee or to direct the exercise of
any trust or power conferred upon the Institutional Trustee under the
Declaration, including the right to direct the Institutional Trustee to
exercise the remedies available to it as the holder of the Debentures. The
Indenture provides that the Debt Trustee (as defined herein) shall give
holders of Debentures notice of all defaults or events of default within 30
days after occurrence. However, except in the cases of a default or an event
of default in payment on the Debentures, the Debt Trustee will be protected
in withholding such notice if its officers or directors in good faith
determine that withholding of such notice is in the interest of such holders.
If the Institutional Trustee fails to enforce its rights under the
Debentures in respect of an Indenture Event of Default (as defined herein)
after a holder of record of Trust Preferred Securities has made a written
request, such holder of record of Trust Preferred Securities may, to the
extent permitted by applicable law, institute a legal proceeding against the
Company to enforce the Institutional Trustee's rights under the Debentures.
In addition, if the Company fails to pay interest or principal on the
Debentures on the date such interest or principal is otherwise payable, and
such failure to pay is continuing, a holder of Trust Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of
the principal of or interest on the Debentures having a principal amount
equal to the aggregate stated liquidation amount of the Trust Preferred
Securities of such holder (a "Direct Action") after the respective due date
specified in the Debentures. In connection with such a Direct Action, the
Company shall have the right under the Indenture to set off any payment made
to such holder by the Company. The holders of Trust Preferred Securities will
not be able to exercise directly any other remedy available to the holders of
the Debentures. See "Description of the Trust Preferred Securities --
Declaration Events of Default."
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LIMITED RIGHTS OF ACCELERATION
The Institutional Trustee, as holder of the Debentures, may accelerate
payment of the principal and accrued and unpaid interest on the Debentures
only upon the occurrence and continuation of a Declaration Event of Default
or Indenture Event of Default, which generally are limited to payment
defaults, breach of certain covenants, certain events of bankruptcy,
insolvency and reorganization of the Company and certain events of
dissolution of the Trust. See "Description of the Trust Preferred Securities
- -- Declaration Events of Default." Accordingly, there is no right to
acceleration upon default by the Company of its payment obligations under the
Guarantee.
TRADING PRICE OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the
underlying Debentures. A holder who disposes of his Trust Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Debentures through the
date of disposition in income as ordinary income (i.e., interest or,
possibly, OID), and to add such amount to his adjusted tax basis in his pro
rata share of the underlying Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis, a holder will
recognize a loss. See "Certain Federal Income Consequences --Trust Preferred
Securities -- Interest Income and Original Issue Discount" and "--Sales,
Exchanges or Other Dispositions of Trust Preferred Securities."
THE COMPANY
The Company is one of the foremost consumer and business services
companies in the world. The Company was created through the Merger of CUC and
HFS in December 1997 and provides all of the services formerly provided by
each of CUC and HFS, including technology-driven, membership-based consumer
services, travel services and real estate services.
Membership Services. The Company's membership-based consumer services
provide more than 66.5 million members with access to a variety of goods and
services worldwide. These memberships include such components as shopping,
travel, auto, dining, home improvement, lifestyle, vacation exchange, credit
card and checking account enhancement packages, financial products and
discount programs. The Company also administers insurance package programs
which are generally combined with discount shopping and travel for credit
union members, distributes welcoming packages which provide new homeowners
with discounts for local merchants, and provides travelers with value-added
tax refunds. The Company believes that it is the leading provider of
membership-based consumer services of these types in the United States. The
Company's membership activities are conducted principally through its
Comp-U-Card division and certain of the Company's wholly-owned subsidiaries,
FISI*Madison Financial Corporation, Benefit Consultants, Inc., Entertainment
Publications, Inc. and SafeCard Services, Inc.
Travel Services. The Company also provides services to consumers through
intermediaries in the travel and real estate industries. In the travel
industry, the Company, through certain of its subsidiaries, franchises hotels
primarily in the mid-priced and economy markets. It is the world's largest
hotel franchisor, operating the Days Inn(Registered Trademark),
Ramada(Registered Trademark) (in the United States), Howard
Johnson(Registered Trademark), Super 8(Registered Trademark),
Travelodge(Registered Trademark) (in North America), Villager
Lodge(Registered Trademark), Knights Inn(Registered Trademark) and Wingate
Inn(Registered Trademark) franchise systems. Additionally, the Company owns
the Avis worldwide vehicle rental system, which is operated through its
franchisees and is the second-largest car rental system in the world (based
on total revenues and volume of rental transactions). The Company currently
owns approximately 27.5% of the capital stock of the world's largest Avis
franchisee, Avis Rent A Car, Inc. The Company also owns Resort Condominiums
International, Inc., a leading timeshare exchange organization. The Company
also operates the second largest provider in North America of comprehensive
vehicle management services and is the market leader in the United Kingdom
among the four nationwide providers of fuel card services and the six
nationwide providers of vehicle management services.
Real Estate Services. In the residential real estate industry, the
Company, through certain of its subsidiaries, franchises real estate
brokerage offices under the Century 21(Registered Trademark), Coldwell
Banker(Registered Trademark) and
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Electronic Realty Associates(Registered Trademark) (ERA(Registered
Trademark)) real estate brokerage franchise systems and is the world's
largest real estate brokerage franchisor. Additionally, the Company, through
Cendant Mobility Services Corporation, is the largest provider of corporate
relocation services in the United States, offering relocation clients a
variety of services in connection with the transfer of a client's employees.
Through Cendant Mortgage Corporation, the Company originates, sells and
services residential mortgage loans in the United States, marketing such
services to consumers through relationships with corporations, affinity
groups, financial institutions, real estate brokerage firms and other
mortgage banks.
As a franchisor of hotels, residential real estate brokerage offices and
car rental operations, the Company licenses the owners and operators of
independent businesses to use the Company's brand names. The Company does not
own or operate hotels or real estate brokerage offices. Instead, the Company
provides its franchisee customers with services designed to increase their
revenue and profitability.
Other. The Company also offers consumer software in various multimedia
forms. During 1996, the Company acquired Davidson & Associates, Inc., Sierra
On-Line, Inc. and Knowledge Adventure, Inc. These companies develop, publish,
manufacture and distribute educational, entertainment and personal
productivity interactive multimedia products for home and school use.
The Company from time to time explores and conducts discussions with
regard to acquisitions and other strategic corporate transactions in its
industries and in other businesses. Historically, the Company has been
involved in numerous transactions of various magnitudes including
transactions in excess of $1 billion, for consideration which included cash
or securities (including Common Stock) or combinations thereof. The Company
will evaluate and pursue appropriate acquisition and combination
opportunities as they arise. No assurance can be given with respect to the
timing, likelihood or financial or business effect of any possible
transaction. In the past, acquisitions by the Company have involved both
relatively small acquisitions and acquisitions which have been significant.
As part of its regular on-going evaluation of acquisition opportunities,
the Company is currently engaged in a number of separate and unrelated
preliminary discussions concerning possible acquisitions. The Company is in
the early stages of such discussions and has not entered into any agreement
in principle with respect to any of these possible acquisitions. The purchase
price for the possible acquisitions may be paid in cash, through the issuance
of Common Stock (which would increase the number of shares of Common Stock
outstanding), Preferred Stock, Debt Securities or other securities of the
Company, borrowings, or a combination thereof. Prior to consummating any such
possible acquisitions, the Company, among other things, will have to initiate
and satisfactorily complete its due diligence investigation; negotiate the
financial and other terms (including price) and conditions of such
acquisitions; obtain appropriate Board of Directors, regulatory and other
necessary consents and approvals; and secure financing. The Company cannot
predict whether any such acquisitions will be consummated or, if consummated,
will result in a financial or other benefit to the Company.
The Company's principal executive offices are located at 6 Sylvan Way,
Parsippany, New Jersey 07054 (telephone number: (973) 428-9700).
RECENT DEVELOPMENTS
1997 Financial Results. On February 4, 1998, the Company announced its
financial results for the year ended December 31, 1997. The Company reported
diluted earnings per share of $1.00 for 1997, a 49% increase compared to $.67
earnings per share reported for 1996, excluding one-time charges recognized
in both 1997 and 1996. The Company had revenues of $5.3 billion for 1997
compared with $3.9 billion for 1996, an increase of 36%, and net income of
$872.2 million for 1997, excluding one-time charges, compared with $542.3
million of 1996, excluding one-time charges, an increase of 61%. On a pro
forma basis, which assumes that the financial results include all of the
Company's 1996 acquisitions, accounted for under the purchase method, as if
they had occurred as of January 1, 1996, earnings per share for the year
ended December 31, 1997, excluding one-time charges, was $1.00 representing a
43% increase over pro forma $.70 per share for the year ended December 31,
1996.
S-36
<PAGE>
When giving effect to one-time charges, the Company reported $.06 diluted
earnings per share for the year ended December 31, 1997 and net income of
$55.4 million for 1997 compared to $423.6 million for 1996. In 1997, one-time
charges totaled $1.1 billion ($816.8 million after-tax, or $.94 per share)
for merger related costs and unusual charges coincident with the Merger, as
well as the merger of HFS and PHH Corporation which was consummated in April
1997. In 1996, one-time charges totaled $179.9 million ($118.7 million
after-tax, or $.15 per share) related to three CUC mergers.
Proposed Acquisition of American Bankers. On January 27, 1998, the Company
made a proposal to acquire American Bankers Insurance Group Inc. ("American
Bankers") for $58 per share in cash and stock, for an aggregate purchase
price of approximately $2.7 billion on a fully diluted basis. On January 28,
1998, the Company commenced a tender offer to purchase approximately 23.5
million of American Bankers' common shares at a price of $58 per share in
cash, which together with shares the Company owns will equal approximately
51% of the fully diluted shares of American Bankers. The Company proposes to
exchange, on a tax free basis, shares of its common stock with a fixed value
of $58 per share for the balance of American Bankers' common stock. The
tender offer is subject to customary conditions and there can be no assurance
that the Company will be successful in its proposal to acquire American
Bankers.
In connection with the Company's proposal to acquire American Bankers, the
Company entered into a commitment letter, dated January 23, 1998, with The
Chase Manhattan Bank and Chase Securities Inc. to provide a $1.5 billion
364-Day revolving credit facility (the "New Facility") which will mature 364
days after the execution of the definitive documentation relating thereto.
The New Facility will bear interest, at the option of the Company, at rates
based on competitive bids of lenders participating in such facilities at a
prime rate or at LIBOR plus an applicable variable margin based on the
Company's senior unsecured long-term debt rating.
Harpur Acquisition. On January 20, 1998, the Company completed the
acquisition of Harpur Group, Ltd., a leading fuel card and vehicle management
company in the United Kingdom, from H-G Holdings, Inc. for approximately $186
million in cash plus future contingent payments of up to $20 million over the
next two years.
Jackson Hewitt Acquisition. On January 7, 1998, the Company completed the
acquisition of Jackson Hewitt Inc. ("Jackson Hewitt"), for approximately $480
million in cash, or $68 per share of common stock of Jackson Hewitt. Jackson
Hewitt is the second largest tax preparation service system in the United
States with locations in 41 states. Jackson Hewitt franchises a system of
approximately 2,050 offices that specialize in computerized preparation of
federal and state individual income tax returns.
Interval Divestiture. On December 17, 1997, in connection with the merger
with HFS, the Company completed the divestiture of its timeshare exchange
subsidiary, Interval International Inc., as contemplated by the consent
decree with the Federal Trade Commission.
Providian Acquisition. On December 10, 1997, the Company announced that it
had entered into a definitive agreement to acquire Providian Auto and Home
Insurance Company ("Providian") and its subsidiaries from an Aegon N.V.
subsidiary for approximately $219 million in cash. Providian sells automobile
insurance to consumers through direct response marketing in 45 states and the
District of Columbia. The closing of this transaction is subject to customary
conditions, including regulatory approval and is anticipated to occur in the
spring of 1998.
Hebdo Mag Acquisition. On October 3, 1997, the Company completed the
acquisition of all of the outstanding capital stock of Hebdo Mag
International Inc. ("Hebdo Mag") in exchange for the issuance of shares of
preferred stock of Getting to Know You of Canada Ltd., an indirect
wholly-owned subsidiary of the Company, exchangeable for shares of Common
Stock (the "Hebdo Acquisition Shares") and the assumption of certain options
of Hebdo Mag exchanged for options to acquire shares of Common Stock, such
Hebdo Acquisition Shares or options having an aggregate value of
approximately $440 million. Based in Paris, France, Hebdo Mag is an
international publisher of over 150 titles and distributor of classified
advertising information with operations in twelve countries, including
Canada, France, Sweden, Hungary, the United States, Italy, Russia and
Holland. The Hebdo Mag Acquisition was accounted for in accordance with the
pooling-of-interests method of accounting.
S-37
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION OF THE COMPANY
The following summary historical and pro forma consolidated financial data of
Cendant should be read in conjunction with (i) the Cendant historical
financial statements and notes thereto and: (ii) the pro forma financial
information of Cendant. Such information is contained in Cendant's Current
Reports on Forms 8-K, dated January 29, 1998 and February 13, 1998,
respectively, which are incorporated herein by reference. See "Incorporation
of Certain Documents by Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
---------------------------------------------------------------------------------- ENDED
PRO FORMA SEPTEMBER 30,
1992 1993 1994 1995 1996 1996 (3) 1997 (4)
---------- ---------- ------------ ------------ --------------- --------------- ----------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
(1)(2)
Net Revenues................ $1,835.5 $2,136.4 $2,446.7 $2,992.1 $ 3,908.8 $ 4,475.3 $3,890.0
---------- ---------- ------------ ------------ --------------- --------------- ---------------
Expenses:
Total expenses exclusive
of depreciation,
amortization and
interest.................. 1,512.4 1,628.5 1,874.6(6) 2,362.6(7) 3,001.8(8)(9) 3,395.7(10) 2,908.3
Depreciation and
amortization.............. 68.5 80.8 97.2 112.9 167.9 234.3 190.6
Interest, net.............. 17.6 13.9 10.6 13.3 25.4 48.2 43.9
---------- ---------- ------------ ------------ --------------- --------------- ---------------
Total expenses.............. 1,598.5 1,723.2 1,982.4 2,488.8 3,195.1 3,678.3 3,142.8
---------- ---------- ------------ ------------ --------------- --------------- ---------------
Income before income taxes
and extraordinary loss...... 237.0 413.2 464.3 503.3 713.7 797.0 747.2
Net income.................. 153.2 209.2(5) 286.6(6) 302.8(7) 423.6(8)(9) 473.4(10) 400.7
Net income per share (fully
diluted)................... $ .30 $ .34(5) $ .41(6) $ .41(7) $ .52(8)(9)$ .56(10) $ .47
Weighted average shares
outstanding (fully
diluted)................... 519.2 607.7 702.2 748.7 820.6 851.1 877.4
AT DECEMBER 31,
------------------------------------------------------------------ AT SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
---------- ---------- ------------ ------------ --------------- --------------------
Balance sheet data: (1)(2)
Total assets................ $6,027.2 $6,698.8 $7,437.0 $8,994.4 $13,588.4 $14,997.0
Long-term debt.............. 303.5 394.1 420.0 354.0 1,004.6 2,422.5
Assets under management and
mortgage programs.......... 3,805.7 4,058.8 4,115.4 4,955.6 5,729.2 5,602.2
Debt under management and
mortgage programs.......... 3,273.1 3,629.7 3,791.6 4,427.9 5,089.9 4,952.0
Shareholders' equity........ 1,054.1 1,319.3 1,629.8 2,148.8 4,322.7 4,608.9
</TABLE>
- ------------
(1) Financial data reflects and has been restated to include the
following mergers and acquisitions accounted for under the pooling of
interest method of accounting: (i) the Merger; (ii) the April 30,
1997 merger with PHH Corporation; (iii) the July 1996 mergers with
Davidson and Associates Inc. ("Davidson") and Sierra On-Line, Inc.
("Sierra"); (iv) the August 1996 merger with Ideon Group Inc.
("Ideon"); (v) the 1995 acquisitions of Getko Group Inc., North
American Outdoor Group, Inc. and Advance Ross Corporation; and (vi)
other mergers and acquisitions.
(2) Financial data reflects the following acquisitions accounted for
under the purchase method of accounting, and accordingly the
financial results of such acquired companies are reflected since the
respective dates of acquisition: (i) Resort Condominiums
International, Inc. ("RCI") in November 1996; (ii) Avis, Inc.
("Avis") in October 1996; (iii) Coldwell Banker Corporation
("Coldwell Banker") in May 1996; (iv) Century 21 Real Estate
Corporation in August 1995; (v) the Super 8 Motel franchise system in
April 1993; (vi) the Days Inn of America, Inc. franchise system in
January 1992; and (vii) other acquisitions.
(3) Pro forma income statement data include the following acquisitions
and related financing, as if they occurred on January 1, 1996: (i)
Coldwell Banker in May 1996; (ii) Avis in October 1996; (iii) RCI in
November 1996; and (iv) other acquisitions completed during 1996.
S-38
<PAGE>
(4) In the opinion of management, all adjustments necessary for a fair
presentation of the interim consolidated financial data are included.
These interim results are not necessarily indicative of results for a
full year.
(5) Includes extraordinary loss, net of tax of $12.8 million or $.02 per
fully diluted share, related to the early extinguishment of debt.
(6) Includes a net gain of $9.8 million ($6.2 million, after-tax or $.01
per fully diluted share) comprised of the gain on the sale of The
ImagiNation Network, Inc. offset by costs related to Ideon products
abandoned and restructuring.
(7) Includes provision for costs related to the abandonment of certain
Ideon development efforts and the restructuring of Cendant's SafeCard
division and corporate infrastructure. The charges aggregated $97.0
million ($62.1 million, after-tax or $.08 per fully diluted share).
(8) Includes provisions for costs incurred principally in connection with
the 1996 mergers with Davidson, Sierra and Ideon. The charges
aggregated $179.9 million ($118.7 million, after-tax or $.14 per
fully diluted share). Such costs in connection with Cendant's mergers
with Davidson and Sierra are non-recurring and are comprised
primarily of transaction costs and other professional fees. Such
costs associated with Cendant's merger with Ideon are non-recurring
and include transaction costs as well as a provision relating to
certain litigation matters. In June 1997, Cendant entered into an
agreement which provided for the settlement of certain Ideon
litigation matters. Such agreement called for the payment of $70.5
million over a six-year period which was provided for during the year
ended December 31, 1996.
(9) Includes a charge of $7.0 million ($4.3 million, after-tax or $.05
per fully diluted share) related primarily to the contribution of
Coldwell Banker's owned brokerage offices to an independent trust.
(10) Includes a one-time merger related charge of $303 million ($227
million, after-tax or .28 per fully diluted share) during the second
quarter of 1997 in connection with the merger with PHH Corporation
("PHH"). Such charge is comprised of merger-related costs, including
severance, facility and system consolidations and terminations, costs
associated with exiting certain activities and professional fees.
S-39
<PAGE>
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, executed by the Sponsor and certain of the
Cendant Trustees and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware on February 5, 1998. Such trust
declaration will be amended and restated in its entirety substantially in the
form filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. The Declaration will be qualified as an
indenture under the Trust Indenture Act. Although upon issuance of the Trust
Preferred Securities, the holders of Income PRIDES will be the beneficial
owners of the related Trust Preferred Securities, such Trust Preferred
Securities will be pledged with the Collateral Agent to secure the
obligations of the holders under the related Purchase Contracts. See
"Description of the Purchase Contracts -- Pledged Securities and Pledge
Agreement" and "Description of the Trust Preferred Securities -- Book-Entry
Only Issuance -- The Depository Trust Company." The Company will directly or
indirectly acquire Common Securities in an aggregate liquidation amount equal
to 3% of the total capital of the Trust. The Trust exists for the exclusive
purposes of (i) issuing the Trust Securities representing undivided
beneficial ownership interests in the assets of the Trust, (ii) investing the
proceeds of the Trust Securities in the Debentures and (iii) engaging in only
those other activities necessary, appropriate, convenient or incidental
thereto. The Trust has a term of approximately seven years, but may dissolve
earlier as provided in the Declaration.
The number of Cendant Trustees initially is three. Two of the Cendant
Trustees (the "Regular Trustees") are persons who are employees or officers
of or who are affiliated with the Company. Pursuant to the Declaration, the
third trustee will be a financial institution that is unaffiliated with the
Company, which trustee serves as institutional trustee under the Declaration
and as indenture trustee for the purposes of compliance with the provisions
of the Trust Indenture Act (the "Institutional Trustee"). Initially,
Wilmington Trust Company, a Delaware banking corporation, will be the
Institutional Trustee until removed or replaced by the holder of the Common
Securities. For purposes of compliance with the provisions of the Trust
Indenture Act, Wilmington Trust Company will also act as the Preferred
Securities Guarantee and as trustee resident in the State of Delaware (the
"Delaware Trustee") for purposes of the Delaware Business Trust Act (the
"Trust Act"). See "Description of the Guarantee" and "description of the
Trust Preferred Securities -- Voting Rights."
The Institutional Trustee will hold title to the Debentures for the
benefit of the holders of the Trust Securities and the Institutional Trustee
will have the power to exercise all rights, powers and privileges under the
Indenture as the holder of the Debentures. In addition, the Institutional
Trustee will maintain exclusive control of a segregated noninterest bearing
bank account (the "Property Account") to hold all payments made in respect of
the Debentures for the benefit of the holders of the Trust Securities. The
Institutional Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities
out of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Trust Preferred Securities.
The Company, as the direct or indirect holder of all the Common Securities,
will have the right to appoint, remove or replace any Cendant Trustee and to
increase or decrease the number of Cendant Trustees; provided, however, that
the number of Cendant Trustees shall be at least two, at least one of which
shall be a Regular Trustee. The Company will pay all fees and expenses
related to the Trust and the offering of the Trust Securities. See
"Description of the Debentures -- Miscellaneous."
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in
the Declaration, the Trust Act and the Trust Indenture Act. See "Description
of the Trust Preferred Securities."
The office of the Delaware Trustee currently is Wilmington Trust Company,
Wilmington, Delaware. The principal place of business of the Trust shall be
c/o Cendant Corporation, 6 Sylvan Way, Parsippany, New Jersey 07054 and its
telephone number shall be (973) 428-9700.
S-40
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed and traded on the NYSE under the symbol "CD".
The following table sets forth, for the calendar quarters indicated, the high
and low closing sales prices per share on the NYSE for the periods shown
below as reported on the NYSE Composite Tape. All stock prices have been
adjusted to give retroactive effect to the three-for-two stock split
effective October 21, 1996 for shareholders of record on October 7, 1996. On
December 17, 1997, CUC merged with HFS, with CUC surviving and changing its
name to "Cendant Corporation."
<TABLE>
<CAPTION>
MARKET PRICE (1)
-------------
PERIOD HIGH LOW
- ------ ------ -----
<S> <C> <C>
1996:
First Quarter ............................ $26 11/64 $19 5/64
Second Quarter ........................... 26 1/4 18 43/64
Third Quarter ............................ 26 37/64 21 1/4
Fourth Quarter ........................... 27 21/64 22 1/2
1997:
First Quarter ............................ $26 7/8 $22 1/2
Second Quarter ........................... 26 3/4 20
Third Quarter ............................ 31 3/4 23 11/16
Fourth Quarter ........................... 34 3/8 26 15/16
1998:
First Quarter (through February 11, 1998) $37 1/2 $32 1/8
</TABLE>
- ------------
(1) All Cendant Common Stock prices prior to the first quarter of 1998
are for CUC.
The Company has never paid a cash dividend on its Common Stock. The
Company does not anticipate paying cash dividends on its capital stock in the
foreseeable future and intends to retain all earnings to finance the
operations and expansion of the Company's business. The payment of cash
dividends in the future will depend on the Company's earnings, financial
condition and capital needs and on other factors deemed relevant by the Board
of Directors at that time.
S-41
<PAGE>
CAPITALIZATION
The following table summarizes the actual capitalization of the Company
and its consolidated subsidiaries at September 30, 1997 and such
capitalization adjusted to reflect: (i) the sale of the FELINE PRIDES and
Trust Preferred Securities offered hereby, (ii) the concurrent purchase by
the Trust from the Company of approximately $1,031 million principal amount
of Debentures and (iii) an assumed application of the proceeds from the
foregoing, after underwriting commissions and estimated expenses of this
Offering, to repay indebtedness. This table should be read in conjunction
with the Company's Current Report on Form 8-K dated January 29, 1998 which is
incorporated by reference herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------
ADJUSTMENTS FOR
THE
ISSUANCE OF FELINE AS
(AMOUNTS IN MILLIONS, EXCEPT SHARE AMOUNTS) ACTUAL PRIDES(2)(3)(4) ADJUSTED
----------- ------------------ ----------
<S> <C> <C> <C>
Long-term debt including current portion:
Revolving Credit Facilities.................... $ 1,122.5 $(970.0) $ 152.5
5 7/8% Senior Notes due 1998................... 150.0 150.0
4 1/2% Convertible Senior Notes due 1999 ...... 149.6 149.6
4 3/4% Convertible Senior Notes due 2003 ...... 240.0 240.0
3% Convertible Subordinated Notes due 2002 ... 550.0 550.0
Other loans and capital lease obligations ..... 210.4 210.4
----------- ------------------ ----------
Total long-term debt including current
portion ...................................... 2,422.5 (970.0) 1,452.5
----------- ------------------ ----------
Liabilities under management and mortgage
programs:
Commercial paper............................... 2,431.9 2,431.9
Medium-term-notes.............................. 2,262.8 2,262.8
Other.......................................... 257.4 257.4
----------- ------------------ ----------
Total liabilities under management and
mortgage programs:........................... 4,952.1 4,952.1
----------- ------------------ ----------
Minority interest in consolidated subsidiaries:
Company-obligated manditorily redeemable
preferred securities of subsidiary trusts
(1)........................................... 970.0 970.0
----------- ------------------ ----------
Shareholders' equity:
Preferred stock, $1.00 par value--authorized
10 million shares; none issued and
outstanding .................................. -- --
Common stock, $.01 par value--authorized 2
billion shares; issued 824,544,641 shares .... 8.2 8.2
Additional paid-in capital..................... 3,017.5 (2.9) 3,014.6
Retained earnings.............................. 1,890.5 1,890.5
Currency translation adjustment................ (27.0) (27.0)
Restricted stock, deferred compensation ....... (28.7) (28.7)
Treasury stock, at cost, 13,964,693 shares .... (251.6) (251.6)
----------- ------------------ ----------
Total shareholders' equity................... 4,608.9 (2.9) 4,606.0
----------- ------------------ ----------
Total capitalization......................... $11,983.5 $ (2.9) $11,980.6
=========== ================== ==========
</TABLE>
- ------------
(1) Subsequent to the completion of the Offering, the assets of the Trust
will consist solely of approximately $1,031 million in aggregate
principal amount of the Debentures with an interest rate of % and
a maturity date of 16, 2003.
(2) Pro forma adjustments assume that the anticipated net proceeds from
the issuance of the FELINE PRIDES and the Trust Preferred Securities
will be used to reduce borrowings under the revolving credit
agreements.
(3) The pro forma adjustments assume that the underwriters'
over-allotment options are not exercised.
(4) The present value of the Contract Adjustment Payments is charged to
additional paid-in capital.
S-42
<PAGE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Trust Preferred Securities shown
on the Company's balance sheet under the caption "Company-obligated
mandatorily redeemable preferred securities of subsidiary trusts." The
financial statement footnotes to the Company's consolidated financial
statements will reflect that the sole asset of the Trust will be the
Debentures. Dividends on the Trust Preferred Securities will be reflected as
a charge to the Company's consolidated income, identified as Minority
Interest in Net Income of Consolidated Subsidiaries, whether paid or accrued.
The Purchase Contracts are forward transactions in the Common Stock. Upon
settlement of a Purchase Contract, the Company will receive the Stated Amount
on such Purchase Contract and will issue the requisite number of shares of
Common Stock. The Stated Amount thus received will be credited to
shareholders' equity allocated between the common stock and paid-in capital
accounts. The present value of the Contract Adjustment Payments will
initially be charged to equity, with an offsetting credit to liabilities.
Subsequent Contract Adjustment Payments will be allocated between this
liability account and interest expense based on a constant rate calculation
over the life of the transaction.
Prior to the issuance of shares of Common Stock upon settlement of the
Purchase Contracts, it is anticipated that the FELINE PRIDES will be
reflected in the Company's earnings per share calculations using the treasury
stock method. Under this method, the number of shares of Common Stock used in
calculating earnings per share is deemed to be increased by the excess, if
any, of the number of shares issuable upon settlement of the Purchase
Contracts over the number of shares that could be purchased by the Company in
the market (at the average market price during the period) using the proceeds
receivable upon settlement. Consequently, it is anticipated there will be no
dilutive effect on the Company's earnings per share except during periods
when the average market price of Common Stock is above the Threshold
Appreciation Price.
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Growth PRIDES will
be used to purchase the underlying Treasury Securities to be transferred to
holders of the Growth PRIDES pursuant to the terms thereof, and the Company
will receive no proceeds from the sale of the Growth PRIDES. All or
substantially all of the proceeds from the sale of the Income PRIDES, the
Trust Preferred Securities which are not components of Income PRIDES and the
Common Securities will be invested by the Trust in Debentures of the Company.
The Company currently anticipates using all of the net proceeds from the sale
of the Debentures, estimated to be approximately $ million, to repay
outstanding indebtedness under the Revolving Credit Facilities, including (i)
$ million of outstanding indebtedness under the 364-Day Revolving Credit
Facility and (ii) $ million of outstanding indebtedness under the
Five-Year Revolving Credit Facility.
The 364-Day Revolving Credit Facility will mature on September 30, 1998,
provided that the Company is entitled to annually request a 364-day extension
of such maturity date, and the Five Year Revolving Credit Facility will
mature on October 1, 2001.
The 364-Day Revolving Credit Facility and the Five Year Revolving Credit
Facility provide for revolving loans which bear interest, at the option of
the Company, at rates based on competitive bids of Lenders participating in
such facilities, at a prime rate or at LIBOR plus a margin approximating 22.5
basis points. The proceeds of such loans have been used for general corporate
purposes, primarily for business acquisitions.
Chase is an affiliate of Chase Securities Inc., an Underwriter.
S-43
<PAGE>
DESCRIPTION OF THE FELINE PRIDES
The following descriptions of certain terms of the FELINE PRIDES offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the FELINE PRIDES set
forth in the accompanying Prospectus, to which reference is hereby made. The
summaries of certain provisions of documents described below are not
necessarily complete, and in each instance reference is hereby made to the
copies of such documents (including the definitions therein of certain terms)
which are on file with the Commission. Wherever particular sections of, or
terms defined in, such documents are referred to herein, such sections or
defined terms are incorporated by reference herein. Capitalized terms not
defined herein have the meanings assigned to such terms in the accompanying
Prospectus.
Each FELINE PRIDES will be issued under the Purchase Contract Agreement
between the Company and the Purchase Contract Agent. The FELINE PRIDES
offered hereby initially will consist of (A) 000,000 units referred to as
Income PRIDES and (B) at least ,000,000 units referred to as Growth PRIDES.
Each Income PRIDES will initially consist of a unit comprised of (a) a
Purchase Contract under which (i) the holder (including, initially, an
Underwriter) will purchase from the Company on the Purchase Contract
Settlement Date, for an amount of cash equal to the Stated Amount, a number
of newly issued shares of Common Stock equal to the Settlement Rate described
below under "Description of the Purchase Contracts -- General," and (ii) the
Company will pay Contract Adjustment Payments to the holder at the rate of
% of the Stated Amount per amount, and (b) (i) beneficial ownership of a
related % Trust Originated Preferred Security, having a stated liquidation
amount per Trust Preferred Security equal to the Stated Amount, representing
a preferred, undivided beneficial ownership interest in the assets of the
Trust, which will consist solely of the Debentures, (ii) in the case of a
distribution of the Debentures upon the dissolution of the Trust as a result
of an Investment Company Event, as described below, or otherwise, Debentures
having a principal amount equal to the Stated Amount or (iii) upon the
occurrence of a Tax Event Redemption prior to the Purchase Contract
Settlement Date, the appropriate Applicable Ownership Interest in the
Treasury Portfolio. "Applicable Ownership Interest" means, with respect to an
Income PRIDES and the U.S. Treasury Securities in the Treasury Portfolio, (A)
a 1/20, or 5%, undivided beneficial ownership interest in a $1,000 principal
or interest amount of a principal or interest strip in a U.S. Treasury
Security included in such Treasury Portfolio which matures on or prior to
February 15, 2001 and (B) for each scheduled interest payment date on the
Debentures that occurs after the Tax Event Redemption Date, a % undivided
beneficial ownership interest in a $1,000 face amount of such U.S. Treasury
Security which is a principal or interest strip maturing on such date. Each
Growth PRIDES will initially consist of a unit comprised of (a) a Purchase
Contract under which (i) the holder will purchase from the Company on the
Purchase Contract Settlement Date, for an amount in cash equal to the Stated
Amount , a number of newly issued shares of Common Stock of the Company,
equal to the Settlement Rate, and (ii) the Company will pay the holder
Contract Adjusted Payments at the rate of % of the Stated Amount, and (b)
a 1/20 undivided beneficial interest in a % Treasury Security. The
purchase price of each FELINE PRIDES will be allocated between the related
Purchase Contract and the related Trust Preferred Security or interest in a
Treasury Security in proportion to their respective fair market values at the
time of purchase. The Company expects that the entire purchase price of a
FELINE PRIDES will be allocated to the related Trust Preferred Security or
interest in a Treasury Security and that no amount will be allocated to the
related Purchase Contract. Such position generally will be binding on each
beneficial owner of each Income PRIDES (but not on the IRS (as defined
herein)). See "Certain Federal Income Tax Consequences -- FELINE PRIDES --
Allocation of Purchase Price." As long as a FELINE PRIDES is in the form of
an Income PRIDES or Growth PRIDES, the related Trust Preferred Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio or
the Treasury Securities, as applicable, will be pledged to the Collateral
Agent, to secure the holder's obligation to purchase Common Stock under the
related Purchase Contracts.
SUBSTITUTION OF PLEDGED SECURITIES
Each holder of an Income PRIDES (unless a Tax Event Redemption has
occurred) will have the right, at any time on or prior to the fifth Business
Day immediately preceding the Purchase Contract
S-44
<PAGE>
Settlement Date, to substitute for the related Trust Preferred Securities
held by the Collateral Agent Treasury Securities in an aggregate principal
amount equal to the aggregate stated liquidation amount of such Trust
Preferred Securities. Such Treasury Securities will be pledged with the
Collateral Agent to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts. Because Treasury Securities are issued
in integral multiples of $1,000, holders of Income PRIDES may make such
substitution only in integral multiples of 20 Income PRIDES; provided,
however, if a Tax Event Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio has become a component of
the Income PRIDES, holders of such Income PRIDES may make such substitutions
only in integral multiples of 32,000 Income PRIDES (but obtaining the release
of the Treasury Portfolio rather than the Trust Preferred Securities), at any
time on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date. FELINE PRIDES with respect to which
Treasury Securities have been substituted for the related Trust Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, as collateral to secure such holder's
obligation under the related Purchase Contracts will be referred to as Growth
PRIDES. To create 20 Growth PRIDES, (unless a Tax Event Redemption has
occurred), the Income PRIDES holder will (a) deposit with the Collateral
Agent a Treasury Security having a principal amount at maturity of $1,000 and
(b) transfer 20 Income PRIDES to the Purchase Contract Agent accompanied by a
notice stating that the Income PRIDES holder has deposited a Treasury
Security with the Collateral Agent and requesting that the Purchase Contract
Agent instruct the Collateral Agent to release to such holder the 20 Trust
Preferred Securities relating to such 20 Income PRIDES. In the event that
Contract Adjustment Payments are at a higher rate for Growth PRIDES than for
Income PRIDES, holders of Income PRIDES wishing to create Growth PRIDES will
also be required to deliver cash in an amount equal to the excess of the
Contract Adjustment Payments that would have accrued since the last Payment
Date through the date of substitution on the Growth PRIDES being created by
such holders, over the Contract Adjustment Payments that have accrued over
the same period on the related Income PRIDES. Upon such deposit and receipt
of an instruction from the Purchase Contract Agent, the Collateral Agent will
effect the release of the related 20 Trust Preferred Securities from the
pledge under the Pledge Agreement free and clear of the Company's security
interest therein to the Purchase Contract Agent, which will (i) cancel the 20
Income PRIDES, (ii) transfer the 20 related Trust Preferred Securities to
such holder and (iii) deliver 20 Growth PRIDES to the holder. The Treasury
Security will be substituted for the Trust Preferred Securities and will be
pledged with the Collateral Agent to secure the holder's obligation to
purchase Common Stock under the related Purchase Contracts. The related Trust
Preferred Securities released to the holder thereafter will trade separately
from the resulting Growth PRIDES. Contract Adjustment Payments will be
payable by the Company on such Growth PRIDES on each Payment Date from the
later of , 1998 and the last Payment Date on which Contract Adjustment
Payments were paid. In addition, original issue discount will accrue on the
related Treasury Securities. Distributions on any Trust Preferred Securities,
up to but not including the Purchase Contract Settlement Date, including
after a substitution of collateral resulting in the creation of Growth
PRIDES, will continue to be payable by the Trust at the rate of % of the
Stated Amount per annum, subject to the Company's deferral rights described
in "--Current Payments."
Each holder of a Growth PRIDES (unless a Tax Event Redemption has
occurred) will have the right, at any time on or prior to the Fifth Business
Day immediately preceding the Purchase Contract Settlement Date, to
substitute for the related Treasury Securities held by the Collateral Agent
Trust Preferred Securities in an aggregate principal amount equal to the
aggregate stated liquidation amount of such Trust Preferred Securities,
thereby creating Income PRIDES. Such Trust Preferred Securities will be
pledged with the Collateral Agent to secure such Income PRIDES holders
obligation to purchase Common Stock under the related Purchase Contract.
Because Treasury Securities are issued in integral multiples of $1,000,
holders of Growth PRIDES may make such substitutions only in integral
multiples of 20 Growth PRIDES; provided, however, if a Tax Event Redemption
has occurred and the Treasury Portfolio has become a component of the Income
PRIDES, holders of the Growth PRIDES, may make such substitution only in
integral multiples of 32,000 Growth PRIDES, at any time, on or prior ro the
second Business Day immediately preceding the Purchase Contract Settlement
Date. To create 20 Income PRIDES (unless a Tax Event Redemption has occurred,
the Growth PRIDES holder will (a) deposit with
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the Collateral Agent 20 Trust Preferred Securities and (b) transfer 20 Growth
PRIDES certificates to the Purchase Contract Agent accompanied by a notice
stating that the Growth PRIDES holder has deposited 20 Trust Preferred
Securities with the Collateral Agent and requesting that the Purchase
Contract Agent instruct the Collateral Agent to release to such Growth PRIDES
holder the Treasury Security relating to such Growth PRIDES. In the event
that Contract Adjustment Payments are at a higher rate for Income PRIDES than
for Growth PRIDES, holders of Growth PRIDES wishing to create Income PRIDES
will also be required to deliver cash in an amount equal to the excess of the
Contract Adjustment Payments that would have accrued since the last Payment
Date through the date of substitution on the Income PRIDES being created by
such holders, over the Contract Adjustment Payments that have accrued over
the same time period on the related Growth PRIDES. Upon such deposit and
receipt of an instruction from the Purchase Contract Agent, the Collateral
Agent will effect the release of the related Treasury Security from the
pledge under the Pledge Agreement free and clear of the Company's security
interest therein to the Purchase Contract Agent, which will (i) cancel the 20
Growth PRIDES, (ii) transfer the related Treasury Security to such holder of
Growth PRIDES and (iii) deliver 20 Income PRIDES to such holder of Growth
PRIDES. The substituted Trust Preferred Securities will be pledged with the
Collateral Agent to secure such Income PRIDES holder's obligation to purchase
Common Stock under the related purchase contacts. Cumulative cash
distribution, payable quarterly at a rate of % of the Stated Amount per
annum (subject to the Company's deferral rights) on such Income PRIDES, will
be payable on such Income PRIDES by the Company on each Payment Date from the
later of , 1998 and the last Payment Date on which such cumulative cash
distributions, if any, were paid.
Holders who elect to substitute Pledged Securities, thereby creating
Growth PRIDES or Income PRIDES or recreating Income PRIDES or Growth PRIDES
(as discussed below), shall be responsible for any fees or expenses payable
in connection with such substitution. See "Certain Provisions of the Purchase
Contract Agreement and the Pledge Agreement -- Miscellaneous."
RECREATING INCOME PRIDES OR GROWTH PRIDES
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date a holder of Growth PRIDES or Income PRIDES may
recreate Income PRIDES or Growth PRIDES (unless a Tax Event Redemption has
occurred) by (a) depositing with the Collateral Agent 20 Trust Preferred
Securities or a Treasury Security and (b) transferring 20 Growth PRIDES or
Income PRIDES, as applicable to the Purchase Contract Agent accompanied by a
notice stating that the Growth PRIDES or Income PRIDES holder has deposited
20 Trust Preferred Securities or a Treasury Security with the Collateral
Agent and requesting that the Purchase Contract Agent instruct the Collateral
Agent to release to such holder the related Treasury Security or Trust
Preferred Securities, as applicable. Upon such deposit and receipt of
instructions from the Purchase Contract Agent, the Collateral Agent will
effect the release of the related Treasury Security or Trust Preferred
Securities, as applicable, from the pledge of the Pledge Agreement free and
clear of the Company's security interest therein to the Purchase Contract
Agent, which will (i) cancel the 20 Growth PRIDES or Income PRIDES, as
applicable, (ii) transfer such Treasury Security or Trust Preferred
Securities, as applicable, to such holder and (iii) deliver 20 Income PRIDES
or 20 Growth PRIDES, as applicable, to such holder; provided, however, if a
Tax Event Redemption has occurred prior to the Purchase Contract Settlement
Date and the Treasury Portfolio has become a component of the Income PRIDES,
holders of Growth PRIDES or Income PRIDES, as applicable, may make such
substitutions (but using the appropriate Applicable Ownership Interest of the
Treasury Portfolio rather than the Trust Preferred Securities, in the case of
the Growth PRIDES) at any time on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date but only in
integral multiples of 32,000 Growth PRIDES or Income PRIDES, as applicable.
In the event that Contract Adjustment Payments are at a higher rate for
Growth PRIDES than for Income PRIDES, holders of Income PRIDES wishing to
recreate Growth PRIDES will also be required to deliver cash in an amount
equal to the excess of the Contract Adjustment Payments that would have
accrued since the last Payment Date through the date of substitution on the
Growth PRIDES being recreated by such holders, over the Contract Adjustment
Payments that have accrued over the same time period on the related Income
PRIDES. In the event that Contract Adjustment Payments are at a higher rate
for Income PRIDES than for Growth PRIDES, holders of Growth PRIDES wishing to
recreate
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Income PRIDES will also be required to deliver cash in an amount equal to the
excess of the Contract Adjustment Payments that would have accrued since the
last Payment Date through the date of substitution on the Income PRIDES being
recreated by such holders, over the same time period on the related Growth
PRIDES. The substituted Trust Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio or a Treasury
Security, as the case may be, will be pledged with the Collateral Agent to
secure the holder's obligation to purchase Common Stock under the related
Purchase Contracts.
CURRENT PAYMENTS
Holders of Income PRIDES are entitled to receive aggregate cash
distributions at a rate of % of the Stated Amount per annum from and after
, 1998, payable quarterly in arrears. The quarterly payments on the
Income PRIDES will consist of (i) cumulative cash distributions on the
related Trust Preferred Securities or the Treasury Portfolio, as applicable,
payable at the rate of % of the Stated Amount per annum and (ii) Contract
Adjustment Payments payable by the Company at the rate of % of the Stated
Amount per annum, subject (in the case of distributions on the Trust
Preferred Securities and the Contract Adjustment Payments) to the Company's
right of deferral as described herein.
Each holder of Growth PRIDES will be entitled to receive quarterly
Contract Adjustment Payments payable by the Company at the rate of % of
the Stated Amount per annum, subject to the Company's rights of deferral. In
addition, OID will accrue on the related Treasury Securities.
The ability of the Trust to make the quarterly distributions on the Trust
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from the Company on the Debentures. The Company has the
right at any time, and from time to time, limited to a period not extending
beyond the maturity of the Debentures, to defer the interest payments on the
Debentures. As a consequence of such deferral, quarterly distributions
(unless a Tax Event Redemption has occurred) to holders of Income PRIDES (or
any Trust Preferred Securities outstanding after the Purchase Contract
Settlement Date or after a substitution of collateral resulting in the
creation of Growth PRIDES) would be deferred (but despite such deferral,
would continue to accumulate quarterly and would accrue interest thereon
compounded quarterly at the rate of % per annum through and including
February 15, 2001, and at the Reset Rate thereafter). The Company also has
the right to defer the payment of Contract Adjustment Payments on the related
Purchase Contracts until the Purchase Contract Settlement Date; however,
deferred Contract Adjustment Payments will bear additional Contract
Adjustment Payments at the rate of % per annum (the higher of (i) the rate
which would accrue on Income PRIDES for such payments and (ii) the rate which
would accrue on Growth PRIDES for such payments) (such deferred installments
of Contract Adjustment Payments, together with the additional Contract
Adjustment Payments, shall be referred to as the "Deferred Contract
Adjustment Payments"). See "Description of the Purchase Contracts -- Contract
Adjustment Payments" and "Description of the Trust Preferred Securities --
Distributions." If a Tax Event Redemption has occurred and the Treasury
Portfolio has become a component of the Income PRIDES, quarterly
distributions on the Treasury Portfolio, as a portion of the cumulative
quarterly distributions to the holders of Income PRIDES, will not be
deferred.
The Company's obligations with respect to the Debentures will be senior
and unsecured and will rank on a parity in right of payment with all other
senior unsecured obligations of the Company. The Company's obligations with
respect to the Contract Adjustment Payments will be subordinated and junior
in right of payment to the Company's Senior Indebtedness.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Trust Preferred Securities, in their capacities as such
holders, will not be entitled to vote to appoint, remove or replace, or to
increase or decrease the number of Regular Trustees and will generally have
no voting rights except in the limited circumstances described under
"Description of the Trust Preferred Securities -- Voting Rights." Holders of
Purchase Contracts relating to the Income PRIDES or Growth PRIDES, in their
capacities as such holders, will have no voting or other rights in respect of
the Common Stock.
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LISTING OF THE SECURITIES
Application will be made to list the Income PRIDES, the Growth PRIDES and
the Trust Preferred Securities on the NYSE, subject to official notice of
issuance.
NYSE SYMBOL OF COMMON STOCK
The Common Stock is listed on the NYSE under the symbol "CD."
MISCELLANEOUS
The Company or its affiliates may from time to time purchase any of the
Securities offered hereby which are then outstanding by tender, in the open
market or by private agreement.
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each Purchase Contract underlying a FELINE PRIDES (unless earlier
terminated, or earlier settled at the holder's option) will obligate the
holder of such Purchase Contract to purchase, and the Company to sell, on the
Purchase Contract Settlement Date, for an amount in cash equal to the Stated
Amount of such FELINE PRIDES, a number of newly issued shares of Common Stock
equal to the Settlement Rate. The number of newly issued shares of Common
Stock issuable upon settlement of each Purchase Contract on the Purchase
Contract Settlement Date (the "Settlement Rate") will be calculated as
follows (subject to adjustment under certain circumstances): (a) if the
Applicable Market Value is equal to or greater than $ (the "Threshold
Appreciation Price," which is approximately % above the last reported sale
price of the Common Stock set forth on the cover page of the final Prospectus
Supplement (the "Reference Price")), the Settlement Rate (which is equal to
the Stated Amount divided by the Threshold Appreciation Price) will be ;
accordingly, if, between the date of the final Prospectus Supplement and the
period during which the Applicable Market Value is measured, the market price
for the Common Stock increases to an amount that is higher than the Threshold
Appreciation Price, the aggregate market value of the shares of Common Stock
issued upon settlement of each Purchase Contract (assuming that such market
value is the same as the Applicable Market Value of such Common Stock) will
be higher than the Stated Amount, and if such market price is the same as the
Threshold Appreciation Price, the aggregate market value of such shares
(assuming that such market value is the same as the Applicable Market Value
of such Common Stock) will be equal to the Stated Amount; (b) if the
Applicable Market Value is less than the Threshold Appreciation price but
greater than the Reference Price, the Settlement Rate will be equal to the
Stated Amount divided by the Applicable Market Value; accordingly, if the
market price for the Common Stock increases between the date of the final
Prospectus Supplement and the period during which the Applicable Market Value
is measured but such market price is less than the Threshold Appreciation
Price, the aggregate market value of the shares of Common Stock issued upon
settlement of each Purchase Contract (assuming that such market value is the
same as the Applicable Market Value of such Common Stock) will be equal to
the Stated Amount; and (c) if the Applicable Market Value is less than or
equal to the Reference Price, the Settlement Rate (which is equal to the
Stated Amount divided by the Reference Price) will be ; accordingly, if
the market price for the Common Stock decreases between the date of the final
Prospectus Supplement and the period during which the Applicable Market Value
is measured, the aggregate market value of the shares of Common Stock issued
upon settlement of each Purchase Contract (assuming that such market value is
the same as the Applicable Market Value of such Common Stock) will be less
than the Stated Amount, and if such market price stays the same, the
aggregate market value of such shares (assuming that such market value is the
same as the Applicable Market Value of such Common Stock) will be equal to
the Stated Amount. "Applicable Market Value" means the average of the Closing
Prices (as defined herein) per share of Common Stock on each of the twenty
consecutive Trading Days (as defined herein) ending on the third Trading Day
immediately preceding the Purchase Contract Settlement Date. "Closing Price"
of the Common Stock on any date of determination means the closing sale price
(or, if no closing price is reported, the last reported sale price) of the
Common Stock on the NYSE on such date or, if the Common
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Stock is not listed for trading on the NYSE on any such date, as reported in
the composite transactions for the principal United States securities
exchange on which the Common Stock is so listed, or if the Common Stock is
not so listed on a United States national or regional securities exchange, as
reported by the Nasdaq Stock Market, or, if the Common Stock is not so
reported, the last quoted bid price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or
similar organization, or, if such bid price is not available, the market
value of the Common Stock on such date as determined by a nationally
recognized independent investment banking firm retained for this purpose by
the Company. A "Trading Day" means a day on which the Common Stock (A) is not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the Common Stock.
No fractional shares of Common Stock will be issued by the Company
pursuant to the Purchase Contracts. In lieu of fractional shares otherwise
issuable (calculated on an aggregate basis) in respect of Purchase Contracts
being settled by a holder of Income PRIDES or Growth PRIDES, the holder will
be entitled to receive an amount of cash equal to such fraction of a share
times the Applicable Market Value.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts prior to the Purchase Contract Settlement Date
through the early delivery of cash to the Purchase Contract Agent in the
manner described under "--Early Settlement," (ii) in the case of Income
PRIDES, has settled the related Purchase Contracts with separate cash on the
Business Day immediately preceding the Purchase Contract Settlement Date
pursuant to prior notice in the manner described under "--Notice to Settle
with Cash", (iii) has had the Trust Preferred Securities related to such
holder's Purchase Contracts remarketed in the manner described herein in
connection with settling such Purchase Contracts, or (iv) an event described
under "--Termination" below has occurred, then (A) in the case of Income
PRIDES (unless a Tax Event Redemption has occurred) the Company will exercise
its rights as a secured party to dispose of the Trust Preferred Securities in
accordance with applicable law and (B) in the case of Growth PRIDES or Income
PRIDES (in the event that a Tax Event Redemption has occurred), the principal
amount of the related Treasury Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as applicable, when paid at
maturity, will automatically be applied to satisfy in full the holder's
obligation to purchase Common Stock under the related Purchase Contracts.
Such Common Stock will then be issued and delivered to such holder or such
holder's designee, upon presentation and surrender of the certificate
evidencing such FELINE PRIDES (a "FELINE PRIDES Certificate") and payment by
the holder of any transfer or similar taxes payable in connection with the
issuance of the Common Stock to any person other than such holder. In the
event that a holder of either Income PRIDES or Growth PRIDES effects the
early settlement of the related Purchase Contracts through the delivery of
cash or, in the case of Income PRIDES, settles the related Purchase Contracts
with cash on the Business Day immediately preceding the Purchase Contract
Settlement Date, the related Trust Preferred Securities or Treasury
Securities, as the case may be, will be released to the holder as described
herein. The funds received by the Collateral Agent on the Business Day
immediately preceding the Purchase Contract Settlement Date, upon cash
settlement of a Purchase Contract, will be promptly invested in overnight
permitted investments and paid to the Company on the Purchase Contract
Settlement Date. Any funds received by the Collateral Agent in respect of the
interest earned from the overnight investment in permitted investments will
be distributed to the Purchase Contract Agent for payment to the holders.
Prior to the date on which shares of Common Stock are issued in settlement
of Purchase Contracts, the Common Stock underlying the related Purchase
Contracts will not be deemed to be outstanding for any purpose and the
holders of such Purchase Contracts will not have any voting rights, rights to
dividends or other distributions or other rights or privileges of a
stockholder of the Company by virtue of holding such Purchase Contracts. See
"Description of the Trust Preferred Securities -- Voting Rights."
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the related Purchase
Contracts be deemed to have (a) irrevocably agreed to be bound by the terms
of the related Purchase Contracts and the Pledge Agreement for so long as
such holder remains a holder of such FELINE PRIDES, and (b) duly appointed
the Purchase Contract
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Agent as such holder's attorney-in-fact to enter into and perform the related
Purchase Contracts on behalf of and in the name of such holder. In addition,
each beneficial owner of Income PRIDES or Growth PRIDES, by acceptance of
such interest, will be deemed to have agreed to treat (i) itself as the owner
of the related Trust Preferred Securities, the appropriate Applicable
Ownership Interest of the Treasury Portfolio or Treasury Securities, as the
case may be, and (ii) the Debentures as indebtedness of the Company, in each
case, for United States federal, state and local income and franchise tax
purposes.
REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement between the Remarketing Agent, the
Purchase Contract Agent, the Company and the Trust, the Trust Preferred
Securities of Income PRIDES holders' who have failed to notify the Purchase
Contract Agent, on or prior to the fifth Business Day immediately preceding
the Purchase Contract Settlement Date in the manner described under "--Notice
to Settle with Cash" of their intention to settle the related Purchase
Contracts with separate cash on the Business Day immediately preceding the
Purchase Contract Settlement Date, will be remarketed on the third Business
Day immediately preceding the Purchase Contract Settlement Date. The
Remarketing Agent will use its reasonable efforts to remarket such Trust
Preferred Securities on such date at a price of approximately 100.5% of the
aggregate stated liquidation amount of such Trust Preferred Securities, plus
accrued and unpaid distributions (including deferred distributions), if any,
thereon. The portion of the proceeds from such remarketing equal to the
aggregate stated liquidation amount of such Trust Preferred Securities will
automatically be applied to satisfy in full such Income PRIDES holders'
obligations to purchase Common Stock under the related Purchase Contracts. In
addition, after deducting as the Remarketing Fee an amount not exceeding 25
basis points (.25%) of the aggregate stated liquidation amount of the
remarketed securities, from any amount of such proceeds in excess of the
aggregate stated liquidation amount of the remarketed Trust Preferred
Securities plus any accrued and unpaid distributions (including deferred
distributions, if any), the Remarketing Agent will remit the remaining
portion of the proceeds, if any, for the benefit of such holder. Income
PRIDES holders whose Trust Preferred Securities are so remarketed will not
otherwise be responsible for the payment of any Remarketing Fee in connection
therewith. If, in spite of using its reasonable efforts, the Remarketing
Agent cannot remarket the related Trust Preferred Securities of such holders
of Income PRIDES at a price not less than 100% of the aggregate stated
liquidation amount of such Trust Preferred Securities plus accrued and unpaid
distributions (including deferred distributions) and thus resulting in a
Failed Remarketing, the Company will exercise its rights as a secured party
to dispose of the Trust Preferred Securities in accordance with the
applicable law and satisfy in full, from the proceeds of such disposition,
such holder's obligation to purchase Common Stock under the related Purchase
Contracts; provided, that if the Company exercises such rights as a secured
creditor, any accrued and unpaid distributions (including any deferred
distributions) on such Trust Preferred Securities will be paid in cash by the
Company to the holders of record of such Trust Preferred Securities. The
Company will cause a notice of such Failed Remarketing to be published on the
second Business Day immediately preceding the Purchase Contract Settlement
Date by publication in a daily newspaper in the English language of general
circulation in The City of New York, which is expected to be The Wall Street
Journal. In addition, the Company will request, not later than seven nor more
than 15 calendar days prior to the remarketing date, that the Depository
notify its participants holding Trust Preferred Securities, Income PRIDES and
Growth PRIDES of such remarketing and of the procedures that must be followed
if a Trust Preferred Security holder wishes to exercise its right to put its
Trust Preferred Security to the Company as described herein. The Company will
endeavor to ensure that a registration statement with regard to the full
amount of the Trust Preferred Securities to be remarketed shall be effective
in such form as will enable the Remarketing Agent to rely on it in connection
with the remarketing process. It is currently anticipated that Merrill Lynch,
Pierce, Fenner & Smith Incorporated will be the Remarketing Agent.
EARLY SETTLEMENT
A holder of Income PRIDES may settle the related Purchase Contracts on or
prior to the fifth Business Day immediately preceding the Purchase Contract
Settlement Date by presenting and surrendering the FELINE PRIDES Certificate
evidencing such Income PRIDES at the offices of the
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Purchase Contract Agent with the form of "Election to Settle Early" on the
reverse side of such certificate completed and executed as indicated,
accompanied by payment (payable to the Company in immediately available
funds) of an amount equal to the Stated Amount times the number of Purchase
Contracts being settled; provided, however, if a Tax Event Redemption has
occurred prior to the Purchase Contract Settlement Date and the Treasury
portfolio has become a component of the Income PRIDES, holders of such Income
PRIDES may settle early only in integral multiples of 32,000 Income PRIDES
(and the related appropriate Applicable Ownership Interest of the Treasury
Portfolio) at any time on or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date. A holder of Growth PRIDES
may settle the related Purchase Contracts on or prior to the second Business
Day immediately preceding the Purchase Contract Settlement Date by presenting
and surrendering the FELINE PRIDES Certificate evidencing such Growth PRIDES
at the offices of the Purchase Contract Agent with the form of "Election to
Settle Early" on the reverse side of such certificate completed and executed
as indicated, accompanied by payment in immediately available funds of an
amount equal to the Stated Amount times the number of Purchase Contracts
being settled. So long as the FELINE PRIDES are evidenced by one or more
global security certificates deposited with the Depositary (as defined
herein), procedures for early settlement will also be governed by standing
arrangements between the Depositary and the Purchase Contract Agent.
Upon Early Settlement of the Purchase Contracts related to any Income
PRIDES or Growth PRIDES, (a) the holder will receive newly issued shares of
Common Stock per Income PRIDES or Growth PRIDES having a Stated Amount of $50
(regardless of the market price of the Common Stock on the date of such Early
Settlement), subject to adjustment under the circumstances described in
"-- Anti-Dilution Adjustments" below, (b) the Trust Preferred Securities, the
appropriate Applicable Ownership Interest of the Treasury Portfolio or
Treasury Securities, as the case may be, related to such Income PRIDES or
Growth PRIDES will thereupon be transferred to the holder free and clear of
the Company's security interest therein, (c) the holder's right to receive
Deferred Contract Adjustment Payments, if any, on the Purchase Contracts
being settled will be forfeited, (d) the holder's right to receive future
Contract Adjustment Payments will terminate and (e) no adjustment will be
made to or for the holder on account of Deferred Contract Adjustment
Payments, if any, or any amounts accrued in respect of Contract Adjustment
Payments.
If the Purchase Contract Agent receives a FELINE PRIDES Certificate,
accompanied by the completed "Election to Settle Early" and requisite
immediately available funds, from a holder of FELINE PRIDES by 5:00 p.m., New
York City time, on a Business Day, that day will be considered the settlement
date. If the Purchase Contract Agent receives the foregoing after 5:00 p.m.,
New York City time, on a Business Day or at any time on a day that is not a
Business Day (other than from Income PRIDES holders after the occurrence of a
Tax Event Redemption), the next Business Day will be considered the
settlement date.
Upon Early Settlement of Purchase Contracts in the manner described above,
presentation and surrender of the FELINE PRIDES Certificate evidencing the
related Income PRIDES or Growth PRIDES and payment of any transfer or similar
taxes payable by the holder in connection with the issuance of the related
Common Stock to any person other than the holder of such Income PRIDES or
Growth PRIDES, the Company will cause the shares of Common Stock being
purchased to be issued, and the related Trust Preferred Securities, the
appropriate Applicable Ownership Interest of the Treasury Portfolio or
Treasury Securities, as the case may be, securing such Purchase Contracts to
be released from the pledge under the Pledge Agreement (described in
"--Pledged Securities and Pledge Agreement") and transferred, within three
Business Days following the settlement date, to the purchasing holder or such
holder's designee.
NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES or Growth PRIDES wishing to settle the
related Purchase Contract with separate cash on the Business Day immediately
preceding the Purchase Contract Settlement Date must notify the Purchase
Contract Agent by presenting and surrendering the FELINE PRIDES Certificate
evidencing such Income PRIDES or Growth PRIDES at the offices of the Purchase
Contract
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Agent with the form of "Notice to Settle by Separate Cash" on the reverse
side of the certificate completed and executed as indicated on or prior to
5:00 p.m., New York City time, on the second Business Day immediately
preceding the Purchase Contract Settlement Date in the case of a Growth
PRIDES holder or an Income PRIDES holder (if a Tax Event Redemption has
occurred) and on the fifth Business Day immediately preceding the Purchase
Contract Settlement Date in the case of Income PRIDES holder. If a holder
that has given notice of such holder's intention to settle the related
Purchase Contract with separate cash fails to deliver such cash on the
Business Day immediately preceding the Purchase Contract Settlement Date,
then the Company will exercise its right as a secured party to dispose of, in
accordance with the applicable law, the related Trust Preferred Securities or
Treasury Securities, as the case may be, to satisfy in full, from the
disposition of such Trust Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, such holder's obligation to
purchase Common Stock under the related Purchase Contract.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments will be fixed at a rate per annum of % of
the Stated Amount per Purchase Contract in the case of Income PRIDES, and at
a rate per annum of % of the Stated Amount per Purchase Contract in the
case of Growth Prides. Contract Adjustment Payments that are not paid when
due (after giving effect to any permitted deferral thereof) will bear
interest thereon at the rate per annum of % thereof (the higher of (i) the
rate which would accrue on Income PRIDES for such payments and (ii) the rate
which would accrue on Growth PRIDES for such payments), compounded quarterly,
until paid. Contract Adjustment Payments payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. Contract
Adjustment Payments will accrue from December 12, 1997 and will be payable
quarterly in arrears on February 16, May 16, August 16 and November 16 of
each year, commencing 16, 1998.
Contract Adjustment Payments will be payable to the holders of Purchase
Contracts as they appear on the books and records of the Purchase Contract
Agent on the relevant record dates, which, as long as the Income PRIDES or
Growth PRIDES remain in book-entry only form, will be one Business Day prior
to the relevant payment dates. Such distributions will be paid through the
Purchase Contract Agent who will hold amounts received in respect of the
Contract Adjustment Payments for the benefit of the holders of the Purchase
Contracts relating to such Income PRIDES or Growth PRIDES. Subject to any
applicable laws and regulations, each such payment will be made as described
under "--Book-Entry System." In the event that the Income PRIDES or Growth
PRIDES do not continue to remain in book-entry only form, the Company shall
have the right to select relevant record dates, which shall be more than one
Business Day but less than 60 Business Days prior to the relevant payment
dates. In the event that any date on which Contract Adjustment Payments are
to be made on the Purchase Contracts related to the Income PRIDES or Growth
PRIDES is not a Business Day, then payment of the Contract Adjustment
Payments payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
payment date. A "Business Day" shall mean any day other than Saturday, Sunday
or any other day on which banking institutions in New York City (in the State
of New York) are permitted or required by any applicable law to close.
The Company's obligations with respect to Contract Adjustment Payments
will be subordinated and junior in right of payment to the Company's
obligations under the Senior Indebtedness.
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option and upon prior written notice to the
holders of the FELINE PRIDES and the Purchase Contract Agent, defer the
payment of Contract Adjustment Payments on the Purchase Contracts until no
later than the Purchase Contract Settlement Date. However, Deferred Contract
Adjustment Payments, if any, will bear additional Contract Adjustment
Payments at the rate of % per annum (the higher of (i) the rate which would
accrue on Income PRIDES for such payments and (ii) the rate which would
accrue on Growth PRIDES for such payments) (compounding on each
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succeeding Payment Date) until paid. If the Purchase Contracts are terminated
(upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company), the right to receive Contract
Adjustment Payments and Deferred Contract Adjustment Payments, if any, will
also terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of FELINE PRIDES will receive on the Purchase
Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal
to (x) the aggregate amount of Deferred Contract Adjustment Payments payable
to such holder divided by (y) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, until the Deferred Contract Adjustment Payments
have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make
guarantee payments with respect to the foregoing (other than (i) purchases or
acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant
to any contract or security outstanding on the date of such event requiring
the Company to purchase capital stock of the Company, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion
of one class or series of the Company's capital stock for another class or
series of the Company capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of the Company capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of
the Company (or rights to acquire capital stock) or repurchases or
redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan).
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment (without duplication) upon the occurrence of certain events,
including: (a) the payment of dividends (and other distributions) of Common
Stock on Common Stock; (b) the issuance to all holders of Common Stock of
rights, warrants or options entitling them, for a period of up to 45 days, to
subscribe for or purchase Common Stock at less than the Current Market Price
(as defined herein) thereof; (c) subdivisions, splits and combinations of
Common Stock; (d) distributions to all holders of Common Stock of evidences
of indebtedness of the Company, shares of capital stock, securities, cash or
property (excluding any dividend or distribution covered by clause (a) or (b)
above and any dividend or distribution paid exclusively in cash); (e)
distributions consisting exclusively of cash to all holders of Common Stock
in an aggregate amount that, together with (i) other all-cash distributions
made within the preceding 12 months and (ii) any cash and the fair market
value, as of the expiration of the tender or exchange offer referred to
below, of consideration payable in respect of any tender or exchange offer by
the Company or a subsidiary thereof for the Common Stock concluded within the
preceding 12 months, exceeds 15% of the Company's aggregate market
capitalization (such aggregate market capitalization being the product of the
Current Market Price of the Common Stock multiplied by the number of shares
of Common Stock then outstanding) on the date of such distribution; and (f)
the successful completion of a tender or exchange offer made by the Company
or any subsidiary thereof for the Common Stock which involves an aggregate
consideration that, together with (i) any cash and the fair market value of
other consideration payable in respect of any tender or exchange offer by the
Company or a subsidiary thereof for the Common Stock concluded within the
preceding 12 months and (ii) the aggregate amount of any all-cash
distributions to all holders of the Company's Common Stock made within the
preceding 12 months, exceeds 15% of the Company's aggregate market
capitalization on the expiration of such tender or exchange offer. The
"Current Market Price" per share of Common Stock on any day means the average
of the daily Closing Prices for the 5 consecutive Trading Days selected by
the Company commencing not more than 30 Trading Days before, and ending not
later than, the earlier of the day in question and the day before the "ex
date" with respect to the issuance or distribution requiring such
computation. For purposes of this
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paragraph, the term "ex date", when used with respect to any issuance or
distribution, shall mean the first date on which the Common Stock trades
regular way on such exchange or in such market without the right to receive
such issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales
or transfers of assets or other transactions pursuant to which the Common
Stock is converted into the right to receive other securities, cash or
property, each Purchase Contract then outstanding would, without the consent
of the holders of the related Income PRIDES or Growth PRIDES, as the case may
be, become a contract to purchase only the kind and amount of securities,
cash and other property receivable upon consummation of the transaction by a
holder of the number of shares of Common Stock which would have been received
by the holder of the related Income PRIDES or Growth PRIDES immediately prior
to the date of consummation of such transaction if such holder had then
settled such Purchase Contract.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (i.e., distributions of evidences
of indebtedness or assets of the Company, but generally not stock dividends
or rights to subscribe to capital stock) and, pursuant to the Settlement Rate
adjustment provisions of the Purchase Contract Agreement, the Settlement Rate
is increased, such increase may give rise to a taxable dividend to holders of
FELINE PRIDES. See "Certain Federal Income Tax Consequences -- Purchase
Contracts -- Adjustment to Settlement Rate."
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish
any income tax to holders of its capital stock resulting from any dividend or
distribution of capital stock (or rights to acquire capital stock) or from
any event treated as such for income tax purposes or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which
by reason of the foregoing are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
adjustment of the Settlement Rate, to provide written notice to the Purchase
Contract Agent of the occurrence of such event and a statement in reasonable
detail setting forth the method by which the adjustment to the Settlement
Rate was determined and setting forth the revised Settlement Rate.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of shares of Common Stock issuable upon early
settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the FELINE PRIDES thereunder (including the right
thereunder to receive accrued Contract Adjustment Payments or Deferred
Contract Adjustment Payments and the right and obligation to purchase Common
Stock), will automatically terminate upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company. Upon
such termination, the Collateral Agent will release the related Trust
Preferred Securities, the appropriate Applicable Ownership Interest of the
Treasury Portfolio or Treasury Securities, as the case may be, held by it to
the Purchase Contract Agent for distribution to the holders, subject in the
case of the Treasury Portfolio to the Purchase Contract Agent's disposition
of the subject securities for cash and the payment of such cash to the
holders to the extent that the holders would otherwise have been entitled to
receive less than $1,000 of any such security. Upon such termination,
however, such release and distribution may be subject to a delay. In the
event that the Company becomes the subject of a case under the Bankruptcy
Code, such delay may occur as a result of the automatic stay under the
Bankruptcy Code and continue until such automatic stay has been lifted. The
Company expects any such delay to be limited.
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PLEDGED SECURITIES AND PLEDGE AGREEMENT
The Trust Preferred Securities related to the Income PRIDES or the
Treasury Securities related to the Growth PRIDES, or the Treasury Portfolio
if a Tax Event Redemption has occurred prior to the Purchase Contract
Settlement Date (collectively, the "Pledged Securities") will be pledged to
the Collateral Agent, for the benefit of the Company, pursuant to the Pledge
Agreement to secure the obligations of holders of FELINE PRIDES to purchase
Common Stock under the related Purchase Contracts. The rights of holders of
FELINE PRIDES to the related Pledged Securities will be subject to the
Company's security interest therein created by the Pledge Agreement. No
holder of Income PRIDES or Growth PRIDES will be permitted to withdraw the
Pledged Securities related to such Income PRIDES or Growth PRIDES from the
pledge arrangement except (i) to substitute Treasury Securities for the
related Trust Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, (ii) to substitute
Trust Preferred Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, for the related Treasury
Securities (for both (i) and (ii), as provided for under "Description of the
FELINE PRIDES -- Substitution of Pledged Securities" and "--Recreating Income
PRIDES or Growth PRIDES") or (iii) upon the termination or Early Settlement
of the related Purchase Contracts. Subject to such security interest and the
terms of the Purchase Contract Agreement and the Pledge Agreement, each
holder of Income PRIDES (unless a Tax Event Redemption has occurred) will be
entitled through the Purchase Contract Agent and the Collateral Agent to all
of the proportional rights and preferences of the related Trust Preferred
Securities (including distribution, voting, redemption, repayment and
liquidation rights), and each holder of Growth PRIDES or Income PRIDES (if a
Tax Event Redemption has occurred) will retain beneficial ownership of the
related Treasury Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as applicable, pledged in respect of the related
Purchase Contracts. The Company will have no interest in the Pledged
Securities other than its security interest.
Except as described in "Description of the Purchase Contracts -- General,"
the Collateral Agent will, upon receipt of distributions on the Pledged
Securities, distribute such payments to the Purchase Contract Agent, which
will in turn distribute those payments, together with Contract Adjustment
Payments received from the Company, to the persons in whose names the related
Income PRIDES or Growth PRIDES are registered at the close of business on the
Record Date immediately preceding the date of such distribution.
BOOK ENTRY-SYSTEM
The Depository Trust Company (the "Depositary") will act as securities
depositary for the FELINE PRIDES. The FELINE PRIDES will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global security
certificates ("Global Security Certificates"), representing the total
aggregate number of FELINE PRIDES, will be issued and will be deposited with
the Depositary and will bear a legend regarding the restrictions on exchanges
and registration of transfer thereof referred to below.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the FELINE PRIDES
so long as such FELINE PRIDES are represented by Global Security
Certificates.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Depositary holds securities that its participants ("Participants") deposit
with the Depositary. The Depositary also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). The Depositary is owned by a number of
its Direct Participants and by the NYSE, the American
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Stock Exchange, Inc., and the National Association of Securities Dealers,
Inc. Access to the Depositary system is also available to others, such as
securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its Participants
are on file with the Commission.
No FELINE PRIDES represented by Global Security Certificates may be
exchanged in whole or in part for FELINE PRIDES registered, and no transfer
of Global Security Certificates in whole or in part may be registered, in the
name of any person other than the Depositary or any nominee of the Depositary
unless the Depositary has notified the Company that it is unwilling or unable
to continue as depositary for such Global Security Certificates or has ceased
to be qualified to act as such as required by the Purchase Contract Agreement
or there shall have occurred and be continuing a default by the Company in
respect of its obligations under one or more Purchase Contracts. All FELINE
PRIDES represented by one or more Global Security Certificates or any portion
thereof will be registered in such names as the Depositary may direct.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case
may be, will be considered the sole owner and holder of the Global Security
Certificates and all FELINE PRIDES represented thereby for all purposes under
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the FELINE PRIDES represented thereby registered in their
names, will not receive or be entitled to receive physical delivery of FELINE
PRIDES Certificates in exchange therefor and will not be considered to be
owners or holders of such Global Security Certificates or any FELINE PRIDES
represented thereby for any purpose under the FELINE PRIDES or the Purchase
Contract Agreement. All payments on the FELINE PRIDES represented by the
Global Security Certificates and all transfers and deliveries of Trust
Preferred Securities, Treasury Portfolio, Treasury Securities and Common
Stock with respect thereto will be made to the Depositary or its nominee, as
the case may be, as the holder thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests
through institutions that have accounts with the Depositary or its nominee.
Ownership of beneficial interests in Global Security Certificates will be
shown only on, and the transfer of those ownership interests will be effected
only through, records maintained by the Depositary or its nominee (with
respect to Participants' interests) or any such Participant (with respect to
interests of persons held by such Participants on their behalf). Procedures
for settlement of Purchase Contracts on the Purchase Contract Settlement Date
or upon Early Settlement will be governed by arrangements among the
Depositary, Participants and persons that may hold beneficial interests
through Participants designed to permit such settlement without the physical
movement of certificates. Payments, transfers, deliveries, exchanges and
other matters relating to beneficial interests in Global Security
Certificates may be subject to various policies and procedures adopted by the
Depositary from time to time. None of the Company, the Purchase Contract
Agent or any agent of the Company or the Purchase Contract Agent will have
any responsibility or liability for any aspect of the Depositary's or any
Participant's records relating to, or for payments made on account of,
beneficial interests in Global Security Certificates, or for maintaining,
supervising or reviewing any of the Depositary's records or any Participant's
records relating to such beneficial ownership interests.
The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that the Company and the
Trust believe to be reliable, but neither the Company nor the Trust takes
responsibility for the accuracy thereof.
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CERTAIN PROVISIONS OF THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase Contracts
(and documents related thereto) will be settled and transfers of the FELINE
PRIDES will be registrable at the office of the Purchase Contract Agent in
the Borough of Manhattan, The City of New York. In addition, in the event
that the FELINE PRIDES do not remain in book-entry form, payment of
distributions on the FELINE PRIDES may be made, at the option of the Company,
by check mailed to the address of the person entitled thereto as shown on the
Security Register.
Shares of Common Stock will be delivered on the Purchase Contract
Settlement Date (or earlier upon Early Settlement), or, if the Purchase
Contracts have terminated, the related Pledged Securities will be delivered
potentially after a delay as a result of the imposition of the automatic stay
under the Bankruptcy Code (see "Description of the Purchase Contracts --
Termination"), in each case upon presentation and surrender of the FELINE
PRIDES Certificate at the office of the Purchase Contract Agent. The Company
expects any such delay to be limited.
If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract
Settlement Date, the shares of Common Stock issuable in settlement of the
related Purchase Contract and in payment of any Deferred Contract Adjustment
Payments will be registered in the name of the Purchase Contract Agent and,
together with any distributions thereon, shall be held by the Purchase
Contract Agent as agent for the benefit of such holder, until such FELINE
PRIDES Certificate is presented and surrendered or the holder provides
satisfactory evidence that such certificate has been destroyed, lost or
stolen, together with any indemnity that may be required by the Purchase
Contract Agent and the Company.
If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the related Pledged Securities have been transferred to the
Purchase Contract Agent for distribution to the holders entitled thereto and
a holder fails to present and surrender the FELINE PRIDES Certificate
evidencing such holder's Income PRIDES or Growth PRIDES to the Purchase
Contract Agent, the related Pledged Securities delivered to the Purchase
Contract Agent and payments thereon shall be held by the Purchase Contract
Agent as agent for the benefit of such holder, until such FELINE PRIDES
Certificate is presented or the holder provides the evidence and indemnity
described above.
The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or
exchange of the FELINE PRIDES, except for any tax or other governmental
charge that may be imposed in connection therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting the Company and the Purchase Contract Agent or
Collateral Agent, as the case may be, with the consent of the holders of not
less than a majority of the Purchase Contracts at the time outstanding, to
modify the terms of the Purchase Contracts, the Purchase Contract Agreement
and the Pledge Agreement, except that no such modification may, without the
consent of the holder of each outstanding Purchase Contract affected thereby,
(a) change any Payment Date, (b) change the amount or type of Pledged
Securities related to such Purchase Contract, impair the right of the holder
of any Pledged Securities to receive distributions on such Pledged Securities
(except for the rights of holders of Income PRIDES to substitute Treasury
Securities for the related Trust Preferred Securities or Treasury Portfolio,
as the case may be, or the rights of holders of Growth PRIDES to substitute
Trust Preferred Securities or Treasury Portfolio, as the case may be, for the
related Treasury Securities) or otherwise adversely affect the holder's
rights in or to such Pledged Securities, (c) change the place or currency of
payment or reduce any Contract
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Adjustment Payments or any Deferred Contract Adjustment Payments, (d) impair
the right to institute suit for the enforcement of such Purchase Contract,
(e) reduce the amount of Common Stock purchasable under such Purchase
Contract, increase the price to purchase Common Stock on settlement of such
Purchase Contract, change the Purchase Contract Settlement Date or otherwise
adversely affect the holder's rights under such Purchase Contract or (f)
reduce the above-stated percentage of outstanding Purchase Contracts the
consent of whose holders is required for the modification or amendment of the
provisions of the Purchase Contracts, the Purchase Contract Agreement or the
Pledge Agreement; provided, that if any amendment or proposal referred to
above would adversely affect only the Income PRIDES or the Growth PRIDES,
then only the affected class of holder will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the consent of the holders of not less than a majority of such
class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or
Growth PRIDES, as applicable, be deemed expressly to have withheld any
consent to the assumption (i.e., affirmance) of the related Purchase
Contracts by the Company or its trustee in the event that the Company becomes
the subject of a case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with any other entity or sell, assign, transfer,
lease or convey all or substantially all of its properties and assets to any
person, firm or corporation unless the Company is the continuing corporation
or the successor corporation is a corporation organized under the laws of the
United States of America or a state thereof and such corporation expressly
assumes the obligations of the Company under the Purchase Contracts, the
Debentures, the Purchase Contract Agreement and the Pledge Agreement, and the
Company or such successor corporation is not, immediately after such merger,
consolidation, sale, assignment, transfer, lease or conveyance, in default in
the performance of any of its obligations thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral Agent may
treat the registered owner of any FELINE PRIDES as the absolute owner thereof
for the purpose of making payment and settling the related Purchase Contracts
and for all other purposes.
REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by the Company at the expense of
the holder upon surrender of such certificate to the Purchase Contract Agent.
FELINE PRIDES Certificates that become destroyed, lost or stolen will be
replaced by the Company at the expense of the holder upon delivery to the
Company and the Purchase Contract Agent of evidence of the destruction, loss
or theft thereof satisfactory to the Company and the Purchase Contract Agent.
In the case of a destroyed, lost or stolen FELINE PRIDES Certificate, an
indemnity satisfactory to the Purchase Contract Agent and the Company may be
required at the expense of the holder of the FELINE PRIDES evidenced by such
certificate before a replacement will be issued.
Notwithstanding the foregoing, the Company will not be obligated to issue
any Income PRIDES or Growth PRIDES on or after the Purchase Contract
Settlement Date (or after Early Settlement) or after the Purchase Contracts
have terminated. The Purchase Contract Agreement will provide that in lieu of
the delivery of a replacement FELINE PRIDES Certificate following the
Purchase Contract Settlement Date, the Purchase Contract Agent, upon delivery
of the evidence and indemnity described above, will deliver the Common Stock
issuable pursuant to the Purchase Contracts included in the Income PRIDES
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or Growth PRIDES evidenced by such certificate, or, if the Purchase Contracts
have terminated prior to the Purchase Contract Settlement Date, transfer the
principal amount of the Pledged Securities included in the Income PRIDES or
Growth PRIDES evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of
the State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the Purchase Contract Agent.
The Purchase Contract Agent will act as the agent for the holders of Income
PRIDES and Growth PRIDES from time to time. The Purchase Contract Agreement
will not obligate the Purchase Contract Agent to exercise any discretionary
actions in connection with a default under the terms of the Income PRIDES and
Growth PRIDES or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of
the Purchase Contract Agent. The Purchase Contract Agreement will contain
provisions under which the Purchase Contract Agent may resign or be replaced.
Such resignation or replacement would be effective upon the appointment of a
successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the Collateral Agent. The Collateral
Agent will act solely as the agent of the Company and will not assume any
obligation or relationship of agency or trust for or with any of the holders
of the Income PRIDES and Growth PRIDES except for the obligations owed by a
pledgee of property to the owner thereof under the Pledge Agreement and
applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which
the Collateral Agent may resign or be replaced. Such resignation or
replacement would be effective upon the appointment of a successor.
The Chase Manhattan Bank maintains commercial banking relationships with
the Company.
MISCELLANEOUS
The Purchase Contract Agreement will provide that the Company will pay all
fees and expenses related to (i) the offering of the FELINE PRIDES, (ii) the
retention of the Collateral Agent and (iii) the enforcement by the Purchase
Contract Agent of the rights of the holders of the FELINE PRIDES; provided,
however, that holders who elect to substitute the related Pledged Securities,
thereby creating Growth PRIDES or Income PRIDES or recreating Income PRIDES
or Growth PRIDES, shall be responsible for any fees or expenses payable in
connection with such substitution, as well as any commissions, fees or other
expenses incurred in acquiring the Pledged Securities to be substituted, and
the Company shall not be responsible for any such fees or expenses.
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DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities, a certain portion of which form a
component of the Income PRIDES, and a certain portion of which will trade
separately, will be issued pursuant to the terms of the Declaration. See
"Description of the FELINE PRIDES -- Substitution of Pledged Securities." The
Declaration will be qualified as an indenture under the Trust Indenture Act.
The Institutional Trustee, Wilmington Trust Company, an independent trustee,
will act as indenture trustee for the Trust Preferred Securities under the
Declaration for purposes of compliance with the provisions of the Trust
Indenture Act. The terms of the Trust Preferred Securities will include those
stated in the Declaration and those made part of the Declaration by the Trust
Indenture Act. The following summary of certain provisions of the Trust
Preferred Securities and the Declaration is not necessarily complete, and
reference is hereby made to the copy of the Declaration (including the
definitions therein of certain terms) which is filed as an exhibit to the
Registration Statement relating to this Prospectus Supplement, the Trust Act
and the Trust Indenture Act. Whenever particular defined terms are referred
to in this Prospectus Supplement, such defined terms are incorporated herein
by reference. The following descriptions of certain terms of the Trust
Preferred Securities offered hereby supplements and, to the extent
inconsistent with, replaces the description of the general terms and
provisions of the Trust Preferred Securities set forth in the accompanying
Prospectus, to which reference is hereby made.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial ownership
interests in the assets of the Trust. All of the Common Securities will be
owned, directly or indirectly, by the Company. The Common Securities rank on
a parity, and payments will be made thereon on a pro rata basis, with the
Trust Preferred Securities, except that upon the occurrence and during the
continuance of an Indenture Event of Default, the rights of the holders of
the Common Securities to receive payment of periodic distributions and
payments upon liquidation, redemption and otherwise will be subordinated to
the rights of the holders of the Trust Preferred Securities. The Declaration
does not permit the issuance by the Trust of any securities other than the
Trust Securities or the incurrence of any indebtedness by the Trust. Pursuant
to the Declaration, the Institutional Trustee will own the Debentures
purchased by the Trust for the benefit of the holders of the Trust
Securities. The payment of distributions out of money held by the Trust, and
payments upon redemption of the Trust Preferred Securities or liquidation of
the Trust, are guaranteed by the Company to the extent described under
"Description of the Guarantee." The Guarantee, when taken together with the
Company's obligations under the Debentures and the Indenture and its
obligations under the Declaration, including the obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Preferred Securities), provides a full and unconditional guarantee of
amounts due on the Trust Preferred Securities. The Guarantee will be held by
the Wilmington Trust Company, the Guarantee Trustee, for the benefit of the
holders of the Trust Preferred Securities. The Guarantee does not cover
payment of distributions when the Trust does not have sufficient available
funds to pay such distributions. In such event, the remedy of a holder of
Trust Preferred Securities is to vote to direct the Institutional Trustee to
enforce the Institutional Trustee's rights under the Debentures (except in
the limited circumstances in which the holder may take direct action). See
"-- Declaration Events of Default" and "-- Voting Rights."
DISTRIBUTIONS
Distributions on the Trust Preferred Securities will be fixed initially at
a rate per annum of % of the stated liquidation amount of $50 per Trust
Preferred Security. Distributions applicable on the Trust Preferred
Securities that remain outstanding on and after the Purchase Contract
Settlement Date will be reset on the third Business Day immediately preceding
the Purchase Contract Settlement Date. See "-- Market Rate Reset."
Distributions in arrears for more than one quarter will bear interest thereon
at the rate of % per annum through and including 15, 2001 and at the Reset
Rate thereafter, compounded quarterly. The term "distribution" as used herein
includes any such interest payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a
360-day year of twelve 30-day months.
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Distributions on the Trust Preferred Securities will be cumulative and
will accrue from December 12, 1997 and will be payable quarterly in arrears
on February 16, May 16, August 16, and November 16 of each year, commencing
, 1998, when, as and if funds are available for payment. Distributions
will be made by the Institutional Trustee, except as otherwise described
below.
The Company has the right under the Indenture to defer payments of
interest on the Debentures by extending the interest payment period from time
to time on the Debentures, which right, if exercised, would defer quarterly
distributions on the Trust Preferred Securities (though such distributions
would continue to accrue with interest at the rate of % per annum through
and including 15, 2001, and at the Reset Rate thereafter) during any
such extended interest payment period. Such right to extend the interest
payment period for the Debentures is limited to a period, in the aggregate,
not extending beyond the maturity date of the Debentures. In the event that
the Company exercises this right, then (a) the Company shall not declare or
pay dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock (other than (i) purchases or acquisitions of capital stock of the
Company in connection with the satisfaction by the Company of its obligations
under any employee or agent benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security outstanding on the
date of such event requiring the Company to purchase capital stock of the
Company, (ii) as a result of a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock,
(iii) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged, (iv) dividends or distributions
in capital stock of the Company (or rights to acquire capital stock) or
repurchases or redemptions of capital stock solely from the issuance or
exchange of capital stock or (v) redemptions or repurchases of any rights
outstanding under a shareholder rights plan), (b) the Company shall not make
any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank on a
parity with or junior to such Debentures, and (c) the Company shall not make
any guarantee payments with respect to the foregoing other than pursuant to
the Guarantee or the Common Securities Guarantee. Prior to the termination of
any such Extension Period, the Company may further extend the interest
payment period; provided, that such Extension Period, together with all such
previous and further extensions thereof, may not extend beyond the maturity
date of the Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may select a new Extension
Period, subject to the above requirements. See "Description of the Debentures
- -- Interest" and "-- Option to Extend Interest Payment Period." If
distributions are deferred, the deferred distributions and accrued interest
thereon shall be paid to holders of record of the Trust Preferred Securities
as they appear on the books and records of the Trust on the record date next
following the termination of such Extension Period.
Distributions on the Trust Preferred Securities must be paid on the dates
payable to the extent that the Trust has funds available in the Property
Account for the payment of such distributions. The Trust's funds available
for distribution to the holders of the Trust Preferred Securities will be
limited to payments received from the Company on the Debentures. See
"Description of the Debentures." The payment of distributions out of moneys
held by the Trust is guaranteed by the Company to the extent set forth under
"Description of the Guarantee." Distributions on the Trust Preferred
Securities will be payable to the holders thereof, including the Collateral
Agent, as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Trust Preferred Securities remain in
book-entry only form, will be one Business Day prior to the relevant payment
dates. Such distributions will be paid through the Institutional Trustee who
will hold amounts received in respect of the Debentures in the Property
Account for the benefit of the holders of the Trust Preferred Securities.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "-- Book-Entry
Only Issuance -- The Depository Trust Company" below. With respect to Trust
Preferred Securities not in book-entry form, the Regular Trustees shall have
the right to select relevant record dates, which shall be more than one
Business Day but less than 60 Business Days prior to the relevant payment
dates. In the event that any date on which distributions are to be made on
the Trust Preferred Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next
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succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such record date.
MARKET RATE RESET
The applicable quarterly distribution rate on the Trust Preferred
Securities and the interest rate on the related Debentures that remain
outstanding on and after the Purchase Contract Settlement Date will be reset
on the third Business Day immediately preceding the Purchase Contract
Settlement Date to the Reset Rate, which will be equal to the sum of the
Reset Spread and the rate on the Two-Year Benchmark Treasury in effect on the
third Business Day immediately preceding the Purchase Contract Settlement
Date and will be determined by the Reset Agent as the rate the Trust
Preferred Securities should bear in order for a Trust Preferred Security to
have an approximate market value on the third Business Day immediately
preceding the Purchase Contract Settlement Date of 100.5% of the Stated
Amount; provided that the Company may limit such Reset Rate to be no higher
than the rate on the Two-Year Benchmark Treasury on the Purchase Contract
Settlement Date plus 200 basis points (2%). Such market value may be less
than 100.5% if the Reset Spread is limited to a maximum of 2%. The "Two-Year
Benchmark Treasury" shall mean direct obligations of the United States (which
may be obligations traded on a when-issued basis only) having a maturity
comparable to the remaining term to maturity of the Trust Preferred
Securities, as agreed upon by the Company and the Reset Agent. The rate for
the Two-Year Benchmark Treasury will be the bid side rate displayed at 10:00
A.M., New York City time, on the third Business Day immediately preceding the
Purchase Contract Settlement Date in the Telerate system (or if the Telerate
system is (a) no longer available on the third Business Day immediately
preceding the Purchase Contract Settlement Date or (b) in the opinion of the
Reset Agent (after consultation with the Company) no longer an appropriate
system from which to obtain such rate, such other nationally recognized
quotation system as, in the opinion of the Reset Agent (after consultation
with the Company) is appropriate). If such rate is not so displayed, the rate
for the Two-Year Benchmark Treasury shall be, as calculated by the Reset
Agent, the yield to maturity for the Two-Year Benchmark Treasury, expressed
as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis, and computed by taking the
arithmetic mean of the secondary market bid rates, as of 10:30 A.M., New York
City time, on the third Business Day immediately preceding the Purchase
Contract Settlement Date of three leading United States government securities
dealers selected by the Reset Agent (after consultation with the Company)
(which may include the Reset Agent or an affiliate thereof). The Company may
limit the Reset Rate to be no higher than the rate on the Two-Year Benchmark
Treasury on the third Business Day immediately preceding the Purchase
Contract Settlement Date plus 200 basis points (2%). It is currently
anticipated that Merrill Lynch, Pierce, Fenner & Smith Incorporated will be
the investment banking firm acting as the Reset Agent.
On the tenth Business Day immediately preceding the Purchase Contract
Settlement Date, the Two-Year Benchmark Treasury to be used to determine the
Reset Rate on the Purchase Contract Settlement Date will be selected and the
Reset Spread to be added to the rate on the Two-Year Benchmark Treasury in
effect on the third Business Day immediately preceding the Purchase Contract
Settlement Date will be established by the Reset Agent, and the Reset Spread
and the Two-Year Benchmark Treasury will be announced by the Company (the
"Reset Announcement Date"). The Company will cause a notice of the Reset
Spread and such Two-Year Benchmark Treasury to be published on the Business
Day following the Reset Announcement Date by publication in a daily newspaper
in the English language of general circulation in The City of New York, which
is expected to be The Wall Street Journal. The Company will request, not
later than 7 nor more than 15 calendar days prior to the Reset Announcement
Date, that the Depositary notify its participants holding Trust Preferred
Securities, Income PRIDES or Growth PRIDES of such Reset Announcement Date
and of the procedures that must be followed if any owner of FELINE PRIDES
wishes to settle the related Purchase Contract with cash on the Business Day
immediately preceding the Purchase Contract Settlement Date.
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OPTIONAL REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement, on or prior to the Business Day
immediately preceding the Purchase Contract Settlement Date, but no earlier
than the Business Day immediately preceding the Purchase Contract
Settlement Date, holders of separate Trust Preferred Securities which are not
components of Income PRIDES may elect to have their Trust Preferred
Securities remarketed, by delivering their Trust Preferred Securities along
with a notice of such election to the Collateral Agent. The Collateral Agent
will hold such Trust Preferred Securities in an account separate from the
collateral account in which the Pledged Securities will be held. Holders of
Trust Preferred Securities electing to have their Trust Preferred Securities
remarketed will also have the right to withdraw such election on or prior to
the Business Day immediately preceding the Purchase Contract Settlement
Date. On the fourth Business Day immediately preceding the Purchase Contract
Settlement Date, the Collateral Agent will deliver such Trust Preferred
Securities to the Remarketing Agent for remarketing. The Remarketing Agent
will use its reasonable efforts to remarket such Trust Preferred Securities
on such date at a price of approximately 100.5% of the aggregate stated
liquidation amount of such Trust Preferred Securities, plus accrued and
unpaid distributions (including deferred distributions), if any, thereon. The
portion of the proceeds from such remarketing equal to the aggregate stated
liquidation amount of such Trust Preferred Securities will automatically be
remitted by the Remarketing Agent to the Collateral Agent for the benefit of
such Trust Preferred Securities holders. In addition, after deducting as the
Remarketing Fee an amount not exceeding 25 basis points (.25%) of the
aggregate stated liquidation amount of the remarketed securities, from any
amount of such proceeds in excess of the aggregate stated liquidation amount
of the remarketed Trust Preferred Securities plus any accrued and unpaid
distributions (including deferred distributions, if any), the Remarketing
Agent will remit to the Collateral Agent the remaining portion of the
proceeds, if any, for the benefit of such holder. If, despite using its
reasonable efforts, the Remarketing Agent cannot remarket the related Trust
Preferred Securities of such holders at a price not less than 100% of the
aggregate stated liquidation amount of such Trust Preferred Securities plus
accrued and unpaid distributions (including deferred distributions) and thus
resulting in a Failed Remarketing, Collateral Agent will promptly return such
Trust Preferred Securities to the Collateral Agent to release to such
holders. The Company will cause a notice of such Failed Remarketing to be
published on the second Business Day immediately preceding the Purchase
Contract Settlement Date by publication in a daily newspaper in the English
language of general circulation in The City of New York, which is expected to
be The Wall Street Journal. In addition, the Company will request, not later
than seven nor more than 15 calendar days prior to the remarketing date, that
the Depository notify its participants holding Trust Preferred Securities,
Income PRIDES and Growth PRIDES of such remarketing and of the procedures
that must be followed if a Trust Preferred Security holder wishes to exercise
its right to put its Trust Preferred Security to the Company as described
herein. The Company will endeavor to ensure that a registration statement
with regard to the full amount of the Trust Preferred Securities to be
remarketed shall be effective in such form as will enable the Remarketing
Agent to rely on it in connection with the remarketing process. It is
currently anticipated that Merrill Lynch, Pierce, Fenner & Smith Incorporated
will be the Remarketing Agent.
OPTIONAL REDEMPTION
The Debentures are redeemable at the option of the Company, in whole but
not in part, on not less than 30 days nor more than 60 days notice, upon the
occurrence and continuation of a Tax Event under the circumstances described
under "Description of the Debentures -- Tax Event Redemption". If the Company
redeems the Debentures upon the occurrence and continuation of a Tax Event,
the proceeds from such repayment shall simultaneously be applied on a pro
rata basis to redeem Trust Preferred Securities having an aggregate stated
liquidation amount equal to the aggregate principal amount of the Debentures
so redeemed at a Redemption Price, per Trust Preferred Security, equal to the
Redemption Amount plus accrued and unpaid interest thereon to the date of
such redemption. Such proceeds will be payable in cash to the holders of such
Trust Preferred Securities. If the Tax Event Redemption occurs prior to the
Purchase Contract Settlement Date, the Redemption Price payable to the
Collateral Agent, in liquidation of the Income PRIDES holders' interests in
the Trust, will be simultaneously applied by the
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Collateral Agent to purchase on behalf of the holders' of the Income PRIDES
the Treasury Portfolio. The Treasury Portfolio will be pledged with the
Collateral Agent to secure the obligation of Income PRIDES holders' to
purchase Common Stocks under the related Purchase Contracts.
If a Failed Remarketing has occurred, holders of Trust Securities
(including, following the distribution of the Debentures upon a dissolution
of the Trust as described herein, such Debenture holders) holding such Trust
Securities or Debentures, as the case may be, following the Purchase Contract
Settlement Date will have the right, in the case of Trust Securities, to
require the Trust to put to the Company the related Debentures or, in the
case of the Debentures, to put such Debentures directly to the Company on
March 2, 2001, upon at least three Business Days' prior notice, at a price
per Debenture equal to $50, plus accrued and unpaid interest (including
deferred interest), if any, thereon. Upon the repurchase of such Debentures
by the Company, (i) the proceeds from such repurchase shall simultaneously be
applied (in the case of the Trust Securities) to redeem such Trust Securities
of such holder in an aggregate stated liquidation amount equal to the
aggregate principal amount of the Debentures so repurchased and (ii) any
accrued and unpaid distributions, including deferred distributions, with
respect to such Trust Securities will be paid to such holder in cash.
REDEMPTION PROCEDURES
If the Trust gives a notice of redemption (which notice will be
irrevocable) in respect of all of the Trust Preferred Securities, then, by
12:00 noon, New York City time, on the redemption date, provided that the
Company has paid to the Institutional Trustee sufficient amount of cash in
connection with the related redemption or maturity of the Debentures, the
Trust will irrevocably deposit with the Depositary, the Purchase Contract
Agent or the Collateral Agent, as applicable, funds sufficient to pay the
applicable Redemption Price and will give the Depositary, the Purchase
Contract Agent or the Collateral Agent, as applicable, irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Trust Preferred Securities so called for redemption. If notice of redemption
shall have been given and funds deposited as required, then, immediately
prior to the close of business on the date of such deposit, distributions
will cease to accrue and all rights of holders of such Trust Preferred
Securities so called for redemption will cease, except the right of the
holders of such Trust Preferred Securities to receive the Redemption Price
but without interest on such Redemption Price. In the event that any date
fixed for redemption of Trust Preferred Securities is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next succeeding day that is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day.
DISTRIBUTION OF THE DEBENTURES
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel experienced in practice under
the 1940 Act (as defined below) to the effect that, as a result of the
occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act
Law"), which Change in 1940 Act Law becomes effective on or after the date of
this Prospectus Supplement, there is more than an insubstantial risk that the
Trust is or will be considered an "investment company" which is required to
be registered under the Investment Company Act of 1940, as amended (the "1940
Act").
If, at any time, an Investment Company Event shall occur and be
continuing, the Trust shall be dissolved, with the result that Debentures
with an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, the
Trust Securities, would be distributed to the holders of the Trust Securities
in liquidation of such holders' interests in the Trust on a pro rata basis
within 90 days following the occurrence of such Investment Company Event;
provided, however, that such dissolution and distribution shall be
conditioned on the Company being unable to avoid such Investment Company
Event within such 90-day period by taking some ministerial action or pursuing
some other similar reasonable measure that will have no adverse effect on the
Trust, the Company or the holders of
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the Trust Securities and will involve no material cost. If an Investment
Company Event occurs, Debentures distributed to the Collateral Agent in
liquidation of such holder's interest in the Trust would be pledged (in lieu
of the Trust Preferred Securities) to secure Income PRIDES holders'
obligations to purchase Common Stock under the Purchase Contracts.
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities of creditors of the Trust as provided by
applicable law, cause the Debentures to be distributed to the holders of the
Trust Securities. As of the date of any distribution of Debentures upon
dissolution of the Trust, (i) the Trust Preferred Securities will no longer
be deemed to be outstanding, (ii) the Depositary or its nominee, as the
record holder of the Trust Preferred Securities, will receive a registered
global certificate or certificates representing the Debentures to be
delivered upon such distribution, and (iii) any certificates representing
Trust Preferred Securities not held by the Depositary or its nominee will be
deemed to represent Debentures having an aggregate principal amount equal to
the aggregate stated liquidation amount of, with an interest rate identical
to the distribution rate of, and accrued and unpaid interest equal to accrued
and unpaid distributions on, such Trust Preferred Securities until such
certificates are presented to the Company or its agent for transfer or
reissuance. Debentures distributed to the Collateral Agent in liquidation of
the interest of the holders of the Trust Preferred Securities in the Trust
would be substituted for the Trust Preferred Securities and pledged to secure
Income PRIDES holders' obligations to purchase Common Stock under the
Purchase Contracts.
There can be no assurance as to the market prices for either the Trust
Preferred Securities or the Debentures that may be distributed in exchange
for the Trust Preferred Securities if a dissolution of the Trust were to
occur. Accordingly, the Trust Preferred Securities or such Debentures that an
investor may receive if a dissolution of the Trust were to occur may trade at
a discount to the price that the investor paid to purchase the Trust
Preferred Securities forming a part of the Income PRIDES offered hereby.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Trust
(unless a Tax Event Redemption has occurred), the then holders of the Trust
Preferred Securities will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors, Debentures in an
aggregate principal amount equal to the aggregate stated liquidation amount
of, with an interest rate identical to the distribution rate of, and accrued
and unpaid interest equal to accrued and unpaid distributions on, the Trust
Preferred Securities on a pro rata basis in exchange for such Trust Preferred
Securities.
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the
Trust Preferred Securities, except that if a Declaration Event of Default has
occurred and is continuing, the Trust Preferred Securities shall have a
preference over the Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on ,
2004, the expiration of the term of the Trust, (ii) upon the bankruptcy of
the Company or the holder of the Common Securities, (iii) upon the filing of
a certificate of dissolution or its equivalent with respect to the Company or
the revocation of the charter of the Company and the expiration of 90 days
after the date of revocation without a reinstatement thereof, (iv) after the
receipt by the Institutional Trustee of written direction from the Company to
dissolve the Trust or the filing of a certificate of dissolution or its
equivalent with respect to the Trust, (v) upon the distribution of
Debentures, (vi) upon the occurrence and continuation of a Tax Event
Redemption or (vii) upon the entry of a decree of a judicial dissolution of
the holder of the Common Securities, the Company or the Trust.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the
Trust Securities (a "Declaration Event of Default"); provided, that pursuant
to the Declaration, the holder of the Common Securities will be deemed to
have waived any Declaration Event of Default with respect to the Common
Securities until all Declaration Events of Default with respect to the Trust
Preferred Securities have been cured, waived or otherwise
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eliminated. Until such Declaration Events of Default with respect to the
Trust Preferred Securities have been so cured, waived or otherwise
eliminated, the Institutional Trustee will be deemed to be acting solely on
behalf of the holders of the Trust Preferred Securities and only the holders
of the Trust Preferred Securities will have the right to direct the
Institutional Trustee with respect to certain matters under the Declaration
and, therefore, the Indenture. If a Declaration Event of Default with respect
to the Trust Preferred Securities is waived by holders of Trust Preferred
Securities, such waiver will also constitute the waiver of such Declaration
Event of Default with respect to the Common Securities without any further
act, vote or consent of the holders of the Common Securities. If the
Institutional Trustee fails to enforce its rights under the Debentures in
respect of an Indenture Event of Default after a holder of record of Trust
Preferred Securities has made a written request, such holder of record of
Trust Preferred Securities may, to the fullest extent permitted by applicable
law, institute a legal proceeding against the Company to enforce the
Institutional Trustee's rights under the Debentures without first proceeding
against the Institutional Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Debentures on the date such
interest or principal is otherwise payable (after giving effect to any right
of deferral), then a holder of Trust Preferred Securities may directly
institute a proceeding after the respective due date specified in the
Debentures for enforcement of payment (a "Direct Action") to such holder
directly of the principal of or interest on the Debentures having a principal
amount equal to the aggregate liquidation amount of the Trust Preferred
Securities of such holder. In connection with such Direct Action, the Company
shall have the right under the Indenture to set off any payment made to such
holder of the Company. The holders of Trust Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Debentures. See "Effect of Obligations under the Debentures and the
Guarantee."
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Debentures will have the right under the
Indenture to declare the principal of and interest on the Debentures to be
immediately due and payable. The Company and the Trust are each required to
file annually with the Institutional Trustee an officer's certificate as to
its compliance with all conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and the Trust Indenture
Act and under "Description of the Guarantee -- Modification of the Guarantee;
Assignment," and as otherwise required by law and the Declaration, the
holders of the Trust Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate stated liquidation amount
of the Trust Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Institutional Trustee, or direct the exercise of any trust or power conferred
upon the Institutional Trustee under the Declaration, including the right to
direct the Institutional Trustee, as holder of the Debentures, to (i)
exercise the remedies available under the Indenture with respect to the
Debentures, (ii) waive any past Indenture Event of Default that is waivable
under Section 5.7 of the Indenture, (iii) exercise any right to rescind or
annul a declaration that the principal of all the Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Debentures where such consent shall be required; provided,
however, that, where a consent or action under the Indenture would require
the consent or act of holders of more than a majority in principal amount of
the Debentures (a "Super-Majority") affected thereby, only the holders of at
least such Super-Majority in aggregate stated liquidation amount of the Trust
Preferred Securities may direct the Institutional Trustee to give such
consent or take such action. The Institutional Trustee shall notify all
holders of the Trust Preferred Securities of any notice of default received
from the Debt Trustee (as defined herein) with respect to the Debentures.
Such notice shall state that such Indenture Event of Default also constitutes
a Declaration Event of Default. Except with respect to directing the time,
method and place of conducting a proceeding for a remedy, the Institutional
Trustee
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shall not take any of the actions described in clauses (i), (ii) or (iii)
above unless the Institutional Trustee has obtained an opinion of tax counsel
experienced in such matters to the effect that, as a result of such action,
the Trust will not fail to be classified as a grantor trust for federal
income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of
the Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Debentures,
the Institutional Trustee shall request the direction of the holders of the
Trust Preferred Securities and the Common Securities with respect to such
amendment, modification or termination and shall vote with respect to such
amendment, modification or termination as directed by a majority in stated
liquidation amount of the Trust Preferred Securities and the Common
Securities voting together as a single class; provided, however, that where a
consent under the Indenture would require the consent of a Super-Majority,
the Institutional Trustee may only give such consent at the direction of the
holders of at least the proportion in stated liquidation amount of the Trust
Preferred Securities and the Common Securities which the relevant
Super-Majority represents of the aggregate principal amount of the Debentures
outstanding. The Institutional Trustee shall not take any such action in
accordance with the directions of the holders of the Trust Preferred
Securities and the Common Securities unless the Institutional Trustee has
obtained an opinion of tax counsel experienced in such matters to the effect
that, as a result of such action, the Trust will not fail to be classified as
a grantor trust for United States federal income tax purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Trust Preferred
Securities may be given at a separate meeting of holders of Trust Preferred
Securities convened for such purpose, at a meeting of all of the holders of
Trust Securities or pursuant to written consent. The Regular Trustees will
cause a notice of any meeting at which holders of Trust Preferred Securities
are entitled to vote, or of any matter upon which action by written consent
of such holders is to be taken, to be mailed to each holder of record of
Trust Preferred Securities. Each such notice will include a statement setting
forth the following information: (i) the date of such meeting or the date by
which such action is to be taken; (ii) a description of any resolution
proposed for adoption at such meeting on which such holders are entitled to
vote or of such matter upon which written consent is sought; and (iii)
instructions for the delivery of proxies or consents. No vote or consent of
the holders of Trust Preferred Securities will be required for the Trust to
cancel Trust Preferred Securities or distribute Debentures in accordance with
the Declaration.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Trust Preferred Securities that are owned at such time by the Company or any
entity directly or indirectly controlling or controlled by, or under direct
or indirect common control with, the Company, shall not be entitled to vote
or consent and shall, for purposes of such vote or consent, be treated as if
such Trust Preferred Securities were not outstanding.
The procedures by which holders of Trust Preferred Securities may exercise
their voting rights are described below. See "-- Book-Entry Only Issuance --
The Depository Trust Company."
Holders of the Trust Preferred Securities will have no rights to appoint
or remove the Conseco Trustees, who may be appointed, removed or replaced
solely by the Company as the indirect or direct holder of all of the Common
Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the
Delaware Trustee), provided, that if any proposed amendment provides for, or
the Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise or
(ii) the dissolution of the Trust other than pursuant to the terms of the
Declaration, then the holders of the Trust Securities voting together as a
single class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of at
least a majority in such stated liquidation amount of the Trust Securities
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affected thereby; provided further, that if any amendment or proposal
referred to in clause (i) above would adversely affect only the Trust
Preferred Securities or the Common Securities, then only the affected class
will be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of a majority in
stated liquidation amount of such class of securities. In addition, the
Declaration may be amended without the consent of the holders of the Trust
Securities to, among other things, cause the Trust to continue to be
classified for United States federal income tax purposes as a grantor trust.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust
to be classified as other than a grantor trust for purposes of United States
federal income taxation, (ii) reduce or otherwise adversely affect the powers
of the Institutional Trustee or (iii) cause the Trust to be deemed an
"investment company" which is required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below or as described in "Liquidation Distribution Upon
Dissolution". The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State; provided, that (i) if the Trust is not the
surviving entity, such successor entity either (x) expressly assumes all of
the obligations of the Trust under the Trust Securities or (y) substitutes
for the Trust Securities other securities having substantially the same terms
as the Trust Securities (the "Successor Securities"), so long as the
Successor Securities rank the same as the Trust Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii)
the Company expressly acknowledges a trustee of such successor entity
possessing the same powers and duties as the Institutional Trustee as the
holder of the Debentures, (iii) if the Trust Preferred Securities are listed,
any Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which the Trust
Preferred Securities are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the Trust Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the
rights, preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), (vi)
such successor entity has a purpose substantially identical to that of the
Trust, (vii) prior to such merger, consolidation, amalgamation or
replacement, the Company has received an opinion of a nationally recognized
independent counsel to the Trust experienced in such matters to the effect
that, (A) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the holders' interest in the new
entity), (B) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor such successor entity will be required to
register as an investment company under the 1940 Act and (C) following such
merger, consolidation, amalgamation or replacement, the Trust (or the
successor entity) will continue to be classified as a grantor trust for
federal income tax purposes, and (viii) the Company guarantees the
obligations of such successor entity under the Successor Securities at least
to the extent provided by the Guarantee and the Common Securities Guarantee
(as defined herein). Notwithstanding the foregoing the Trust shall not,
except with the consent of holders of 100% in stated liquidation amount of
the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for federal income tax
purposes.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
In the event that the Trust Preferred Securities are issued as one or more
fully-registered global Trust Preferred Securities certificates representing
the total aggregate number of Trust Preferred Securities, the
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Depositary will act as securities depositary for any Trust Preferred
Securities that are held separately from the Income PRIDES. In such event,
the Trust Preferred Securities will be issued only as fully-registered
securities registered in the name of Cede & Co. (the Depositary's nominee).
However, under certain circumstances, the Regular Trustees with the consent
of the Company may decide not to use the system of book-entry transfers
through the DTC with respect to the Trust Preferred Securities. In that
event, certificates of the Trust Preferred Securities will be printed and
delivered to the holders.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Trust
Preferred Securities as represented by a global certificate.
Purchases of Trust Preferred Securities within the Depositary's system
must be made by or through Direct Participants, which will receive a credit
for the Trust Preferred Securities on the Depositary's records. The ownership
interest of each actual purchaser of each Trust Preferred Security (a
"Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchases, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners purchased
Trust Preferred Securities. Transfers of ownership interests in the Trust
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in the Trust
Preferred Securities, except in the event that use of the book-entry system
for the Trust Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Trust Preferred Securities
deposited by Participants with the Depositary will be registered in the name
of the Depositary's nominee, Cede & Co. The deposit of Trust Preferred
Securities with the Depositary and their registration in the name of Cede &
Co. effect no change in beneficial ownership. The Depositary has no knowledge
of the actual Beneficial Owners of the Trust Preferred Securities. The
Depositary's records reflect only the identity of the Direct Participants to
whose accounts such Trust Preferred Securities are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
So long as the Depositary or its nominee is the registered owner or holder
of a global certificate, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Trust Preferred Securities
represented thereby for all purposes under the Declaration and the Trust
Preferred Securities. No beneficial owner of an interest in a global
certificate will be able to transfer that interest except in accordance with
the Depositary applicable procedures, in addition to those provided for under
the Declaration.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Trust Preferred Securities (including
the presentation of Trust Preferred Securities for exchange as described
below) only at the direction of one or more Participants to whose account the
Depositary's interests in the global certificates are credited and only in
respect of such portion of the stated liquidation amount of Trust Preferred
Securities as to which such Participant or Participants has or have given
such directions. However, if there is a Declaration Event of Default under
the Trust Preferred Securities, the Depositary will exchange the global
certificates for certificated securities, which it will distribute to its
Participants.
Conveyance of notices and other communications by the Depositary to Direct
Participants and Indirect Participants and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements that may be
in effect from time to time.
Although voting with respect to the Trust Preferred Securities is limited,
in those cases where a vote is required, neither the Depositary nor Cede &
Co. will itself consent or vote with respect to Trust Preferred Securities.
Under its usual procedures, the Depositary would mail an omnibus proxy to the
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Trust as soon as possible after the record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Trust Preferred Securities are credited on the record date
(identified in a listing attached to the omnibus proxy). The Company and the
Trust believe that the arrangements among the Depositary, Direct and Indirect
Participants, and Beneficial Owners will enable the Beneficial Owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a record holder of a beneficial interest in the Trust.
Distribution payments on the Trust Preferred Securities issued in the form
of one or more global certificates will be made to the Depositary in
immediately available funds. The Depositary's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on the Depositary's records unless the Depositary
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in "street name," and
such payments will be the responsibility of such Participant and not of the
Depositary, the Trust or the Company, subject to any statutory or regulatory
requirements to the contrary that may be in effect from time to time. Payment
of distributions to the Depositary is the responsibility of the Trust,
disbursement of such payments to Direct Participants is the responsibility of
the Depositary, and disbursement of such payments to the Beneficial Owners is
the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Trust Preferred
Security certificate will not be entitled to receive physical delivery of
Trust Preferred Securities. Accordingly, each Beneficial Owner must rely on
the procedures of the Depositary to exercise any rights under the Trust
Preferred Securities.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the global certificates among
Participants, the Depositary is under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
None of the Company, the Trust or any Conseco Trustee will have any
responsibility for the performance by the Depositary or its Participants or
Indirect Participants under the rules and procedures governing the
Depositary. The Depositary may discontinue providing its services as
securities depositary with respect to the Trust Preferred Securities at any
time by giving reasonable notice to the Trust. Under such circumstances, in
the event that a successor securities depositary is not obtained, Trust
Preferred Securities certificates are required to be printed and delivered to
holders. Additionally, the Regular Trustees (with the consent of the Company)
may decide to discontinue use of the system of book-entry transfers through
the Depositary (or any successor depositary) with respect to the Trust
Preferred Securities. In that event, certificates for the Trust Preferred
Securities will be printed and delivered to holders. In each of the above
circumstances, the Company will appoint a paying agent with respect to the
Trust Preferred Securities.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the
Company and the Trust believe to be reliable, but neither the Company nor the
Trust takes responsibility for the accuracy hereof.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
Payments in respect of the Trust Preferred Securities represented by the
global certificates shall be made to the Depositary, which shall credit the
relevant accounts at the Depositary on the applicable distribution dates, or,
in the case of certificated securities, such payments shall be made by check
mailed to the address of the holder entitled thereto as such address shall
appear on the Register. The Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Cendant Trustees. In the
event that First National Bank of Chicago shall no longer be the Paying
Agent, the Regular Trustees shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company).
The First National Bank of Chicago will act as registrar, transfer agent
and paying agent for the Trust Preferred Securities.
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Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (and the giving
of such indemnity as the Trust or the Company may require) in respect of any
tax or other government charge which may be imposed in relation to it.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee prior to the occurrence of a default with
respect to the Trust Securities and after the curing of any defaults that may
have occurred, undertakes to perform only such duties as are specifically set
forth in the Declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her
own affairs. Subject to such provisions, the Institutional Trustee is under
no obligation to exercise any of the powers vested in it by the Declaration
at the request of any holder of Trust Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The holders of Trust Preferred
Securities will not be required to offer such indemnity in the event such
holders, by exercising their voting rights, direct the Institutional Trustee
to take any action it is empowered to take under the Declaration following a
Declaration Event of Default. The Institutional Trustee also serves as
trustee under the Guarantee.
The Institutional Trustee maintains commercial banking relationships with
the Company.
GOVERNING LAW
The Declaration and the Trust Preferred Securities will be governed by,
and construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an
"investment company" under the 1940 Act or be characterized as other than a
grantor trust for federal income tax purposes. The Company is authorized and
directed to conduct its affairs so that the Debentures will be treated as
indebtedness of the Company for federal income tax purposes. In this
connection, the Company and the Regular Trustees are authorized to take any
action not inconsistent with applicable law, the Declaration of Trust, the
certificate of trust of the Trust or the certificate of incorporation of the
Company, that each of the Company and the Regular Trustees determines in its
discretion to be necessary or desirable to achieve such end, as long as such
action does not adversely affect the interests of the holders of the Trust
Preferred Securities or vary the terms thereof.
Holders of the Trust Preferred Securities have no preemptive or similar
rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee which
will be executed and delivered by the Company for the benefit of the holders
from time to time of Trust Preferred Securities. The Guarantee will be
qualified as an indenture under the Trust Indenture Act. Wilmington Trust
Company will act as the Guarantee Trustee for the purposes of compliance with
the provisions of the Trust Indenture Act. The terms of the Guarantee will be
those set forth in the Guarantee and those made part of the Guarantee by the
Trust Indenture Act. The following summary is not necessarily complete, and
reference is hereby made to the copy of the form of Guarantee (including the
definitions therein of certain terms) which is filed as an exhibit to the
Registration Statement relating to this Prospectus Supplement, and to the
Trust Indenture Act. Whenever particular defined terms of the Guarantee are
referred to in this Prospectus Supplement, such defined terms are
incorporated herein by reference. The Guarantee will be held by the Guarantee
Trustee for the benefit of the holders of the Trust Preferred Securities. The
following descriptions of certain terms of the Guarantee supplements and, to
the extent inconsistent with, replaces the description of the general terms
and provisions of the Guarantee set forth in the accompanying Prospectus, to
which reference is hereby made.
GENERAL
Pursuant to the Guarantee, the Company will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full on a
senior unsecured basis, to the holders of the Trust Preferred Securities
issued by the Trust, the Guarantee Payments (as defined herein) (except to
the extent paid by the Trust), as and when due, regardless of any defense,
right of set-off or counterclaim which the Trust may have or assert. The
following payments or distributions with respect to Trust Preferred
Securities issued by the Trust to the extent not paid by or on behalf of the
Trust (the "Guarantee Payments"), will be subject to the Guarantee thereon
(without duplication): (i) any accrued and unpaid distributions which are
required to be paid on the Trust Preferred Securities, to the extent the
Trust shall have funds available therefor; (ii) the redemption price,
including all accumulated and unpaid distributions to the date of redemption,
of Trust Preferred Securities in respect of which the related Debentures have
been redeemed by the Company upon the occurrence of a Tax Event Redemption,
to the extent the Trust shall have funds available therefor; and (iii) upon a
voluntary or involuntary dissolution of the Trust (other than in connection
with the distribution of Debentures to the holders of Trust Preferred
Securities), the lesser of (a) the aggregate of the stated liquidation amount
and all accrued and unpaid distributions on such Trust Preferred Securities
to the date of payment, to the extent the Trust has funds available therefor,
and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Trust Preferred Securities in liquidation of
the Trust. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of Trust Preferred Securities or by causing the Trust to pay such
amounts to such holders.
The Guarantee will be a full and unconditional guarantee on a senior
unsecured basis with respect to the Trust Preferred Securities issued by the
Trust, but will not apply to any payment of distributions except to the
extent the Trust shall have funds available therefor. If the Company does not
make interest payments on the Debentures purchased by the Trust, the Trust
will not pay distributions on the Trust Preferred Securities and will not
have funds available therefor. See "Effect of Obligations under the
Debentures and the Guarantee."
The Guarantee, when taken together with the Company's obligations under
the Debentures, the Indenture, and the Declaration, will have the effect of
providing a full and unconditional guarantee on a senior unsecured basis by
the Company of payments due on the Trust Preferred Securities.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Guarantee,
except that upon an Indenture Event of Default, holders of Trust Preferred
Securities shall have priority over holders of Common Securities with respect
to distributions and payments on liquidation, redemption or otherwise.
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CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company will covenant that, so long as any Trust
Preferred Securities issued by the Trust remain outstanding, if there shall
have occurred any event that would constitute an event of default under the
Guarantee or the Declaration, then (a) the Company shall not declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital
stock (other than (i) purchases or acquisitions of capital stock of the
Company in connection with the satisfaction by the Company of its obligations
under any employee or agent benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security outstanding on the
date of such event requiring the Company to purchase capital stock of the
Company, (ii) as a result of a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock,
(iii) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged, (iv) dividends or distributions
in capital stock of the Company (or rights to acquire capital stock) or
repurchases or redemptions of capital stock solely from the issuance or
exchange of capital stock or (v) redemptions or repurchases of any rights
outstanding under a shareholder rights plan), (b) the Company shall not make
any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company which rank on
a parity with or junior to the Debentures and (c) the Company shall not make
any guarantee payments with respect to the foregoing (other than payments
pursuant to the Guarantee or the Common Securities Guarantee).
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not adversely affect the
rights of holders of Trust Preferred Securities (in which case no vote will
be required), the Guarantee may be amended only with the prior approval of
the holders of not less than a majority in stated liquidation amount of the
outstanding Trust Preferred Securities issued by the Trust. All guarantees
and agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Trust Preferred Securities then outstanding.
TERMINATION
The Guarantee will terminate (a) upon distribution of the Debentures held
by the Trust to the holders of the Trust Preferred Securities, (b) upon full
payment of the redemption price of all the Trust Preferred Securities in the
event that all of the Debentures are repurchased by the Company upon the
occurrence of a Tax Event Redemption or (c) upon full payment of the amounts
payable in accordance with the Declaration upon liquidation of the Trust. The
Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of Trust Preferred Securities must return
payment of any sums paid under the Trust Preferred Securities or the
Guarantee.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder.
The holders of a majority in stated liquidation amount of the Trust
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee
Trustee fails to enforce such Guarantee, any holder of Trust Preferred
Securities may institute a legal proceeding directly against the Company to
enforce such holder's rights under the Guarantee, without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person
or entity. The Company waives any right or remedy to require that any action
be brought first against the Trust or any other person or entity before
proceeding directly against the Company.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank on a parity with all of the Company's other senior unsecured
obligations.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect
to the Guarantee, undertakes to perform only such duties as are specifically
set forth in the Guarantee and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her
own affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Trust Preferred Securities, unless offered
reasonable indemnity against the costs, expenses and liabilities which might
be incurred thereby; but the foregoing shall not relieve the Guarantee
Trustee, upon the occurrence of an event of default under the Guarantee, from
exercising the rights and powers vested in it by the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.
DESCRIPTION OF THE DEBENTURES
Set forth below is a description of the specific terms of the Debentures
in which the Trust will invest the proceeds from the issuance and sale of the
Trust Securities. The following description is not necessarily complete, and
reference is hereby made to the copy of the form of the Indenture to be
entered into between the Company and The Bank of Nova Scotia Trust Company of
New York , as trustee (the "Debt Trustee"), as supplemented or amended from
time to time (as so supplemented and amended, the "Indenture") which is filed
as an exhibit to the Registration Statement relating to this Prospectus
Supplement, and to the Trust Indenture Act. Certain capitalized terms used
herein are defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust,
Debentures may be distributed to the holders of the Trust Securities in
liquidation of the Trust. See "Description of the Trust Preferred Securities
- -- Distribution of the Debentures." The following descriptions of certain
terms of the Debentures supplement and, to the extent inconsistent with,
replaces the description of the general terms and provisions of the Debt
Securities set forth in the accompanying Prospectus, to which reference is
hereby made.
GENERAL
The Debentures will be issued as senior unsecured debt under the Indenture
and will rank on a parity in right of payment with all of the Company's other
senior unsecured debt obligations. The Debentures will be limited in
aggregate principal amount to $ million.
The Debentures will not be subject to a sinking fund provision. Unless a
Tax Event Redemption has occurred prior to the Purchase Contract Settlement
Date, the entire principal amount of the Debentures will mature and become
due and payable, together with any accrued and unpaid interest thereon
including Compound Interest (as defined herein) and expenses and taxes of the
Trust, if any, on 16, 2003.
The Company will have the right at any time to dissolve the Trust and
cause the Debentures to be distributed to the holders of the Trust
Securities. If Debentures are distributed to holders of Trust Securities in
liquidation of such holders' interests in the Trust, such Debentures will
initially be issued as a Global Security (as defined herein). As described
herein, under certain limited circumstances, Debentures may be issued in
certificated form in exchange for a Global Security. See "-- Book-Entry and
Settlement" below. In the event that Debentures are issued in certificated
form, such Debentures will be in denominations of $50 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Debentures issued as a Global Security will be made to the
Depositary, a successor depositary or, in the event that no depositary is
used, to a Paying Agent for the Debentures. In
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the event Debentures are issued in certificated form, principal and interest
will be payable, the transfer of the Debentures will be registrable and
Debentures will be exchangeable for Debentures of other denominations of a
like aggregate principal amount, at the corporate trust office or agency of
the Institutional Trustee in Wilmington, Delaware; provided, that at the
option of the Company, payment of interest may be made by check mailed to the
address of the holder entitled thereto or by wire transfer to an account
appropriately designated by the holder entitled thereto. Notwithstanding the
foregoing, so long as the holder of any Debentures is the Institutional
Trustee, the payment of principal and interest on the Debentures held by the
Institutional Trustee will be made at such place and to such account as may
be designated by the Institutional Trustee.
The Indenture does not contain provisions that afford holders of the
Debentures protection in the event of a highly leveraged transaction or other
similar transaction involving the Company that may adversely affect such
holders.
INTEREST
Each Debenture shall bear interest initially at the rate of % per annum
from the original date of issuance, payable quarterly in arrears on February
16, May 16, August 16 and November 16 of each year (each an "Interest Payment
Date"), commencing 16, 1998, to the person in whose name such
Debenture is registered, subject to certain exceptions, at the close of
business on the Business Day next preceding such Interest Payment Date. The
applicable interest rate on the Debentures and the distribution rate on the
related Trust Preferred Securities outstanding on and after the Purchase
Contract Settlement Date will be reset on the third Business Day immediately
preceding the Purchase Contract Settlement Date to the Reset Rate, which will
be equal to the sum of the Reset Spread and the rate on the Two-Year
Benchmark Treasury in effect on the third Business Day immediately preceding
the Purchase Contract Settlement Date, and will be determined by the Reset
Agent as the rate the Trust Preferred Securities should bear in order for a
Trust Preferred Security to have an approximate market value on the third
Business Day immediately preceding the Purchase Contract Settlement Date of
100.5% of the Stated Amount; provided that the Company may limit such Reset
Rate to be no higher than the rate on the Two-Year Benchmark Treasury on the
third Business Day immediately preceding the Purchase Contract Settlement
Date plus 200 basis points (2%). Such market value may be less than 100.5% if
the Reset Spread is limited to a maximum of 2%.
On the Reset Announcement Date, the Two-Year Benchmark Treasury will be
selected and the Reset Spread to be added to the rate on the Two-Year
Benchmark Treasury in effect on the third Business Day immediately preceding
the Purchase Contract Settlement Date will be established by the Reset Agent,
and the Reset Spread and the Two-Year Benchmark Treasury will be announced by
the Company. The Company will cause a notice of the Reset Spread and such
Two-Year Benchmark Treasury to be published on the Business Day following the
Reset Announcement Date by publication in a daily newspaper in the English
language of general circulation in The City of New York, which is expected to
be The Wall Street Journal. In the event the Debentures shall not continue to
remain in book-entry only form, the Company shall have the right to select
record dates, which shall be more than fifteen Business Days but less than 60
Business Days prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. The amount of
interest payable for any period shorter than a full quarterly period for
which interest is computed will be computed on the basis of the actual number
of days elapsed in such 90-day period. In the event that any date on which
interest is payable on the Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect
of any such delay), except that, if such Business Day is in the next
succeeding calendar year, then such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if
made on such date.
TAX EVENT REDEMPTION
If a Tax Event shall occur and be continuing, the Company may, at its
option, redeem Debentures in whole (but not in part) at any time prior to the
Purchase Contract Settlement Date, at a Redemption Price
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equal to, for each Debenture, the Redemption Amount plus accrued and unpaid
interest thereon, including Compound Interest and expenses and taxes of the
Trust, if any, to the date of redemption (the "Tax Event Redemption Date").
If, following the occurrence of a Tax Event, the Company exercises its option
to redeem the Debentures, then the proceeds of such redemption will be
applied to redeem Trust Securities having a liquidation amount equal to the
principal amount of Debentures to be paid in accordance with their terms, at
the Redemption Price. Such Redemption Price will be payable in cash to the
holders of such Trust Securities. If such Tax Event Redemption occurs prior
to the Purchase Contract Settlement Date, the Redemption Price payable in
liquidation of the Income PRIDES holders' interest in the Trust will be
distributed to the Collateral Agent, who in turn will apply an amount equal
to the Redemption Amount of such Redemption Price to purchase the Treasury
Portfolio on behalf of the holders of Income PRIDES and remit the remaining
portion, if any, of such Redemption Price to the Purchase Contract Agent for
payment to the holders of such Income PRIDES. Such Treasury Portfolio will be
substituted for the Trust Preferred Securities and will be pledged with the
Collateral Agent to secure such Income PRIDES holders' obligation to purchase
the Company's Common Stock under the Purchase Contracts; provided, that if
the Tax Event Redemption occurs after the Purchase Contract Settlement Date,
such Treasury Portfolio will not be purchased.
"Tax Event" means the receipt by the Trust of an opinion of a nationally
recognized independent tax counsel experienced in such matters to the effect
that, as a result of (a) any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein affecting taxation, (b) any amendment to or change in an
interpretation or application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority or (c) any
interpretation or pronouncement that provides for a position with respect to
such laws or regulations that differs from the generally accepted position on
the date the Trust Securities are issued, which amendment or change is
effective or which interpretation or pronouncement is announced on or after
the date of issuance of the Trust Securities under the Declaration, there is
more than an insubstantial risk that (i) interest payable by the Company on
the Debentures would not be deductible, in whole or in part, by the Company
for federal income tax purposes or (ii) the Trust would be subject to more
than a de minimis amount of other taxes, duties or other governmental
charges.
"Treasury Portfolio" means, with respect to the Applicable Principal
Amount of Debentures (a) if the Tax Event Redemption Date occurs prior to the
Purchase Contract Settlement Date, a portfolio of zero-coupon U.S. Treasury
Securities consisting of (i) interest or principal strips of U.S. Treasury
Securities which mature on or prior to 15, 2001 in an aggregate amount
equal to the Applicable Principal Amount and (ii) with respect to each
scheduled interest payment date on the Debentures that occurs after the Tax
Event Redemption Date interest or principal strips of U.S. Treasury
Securities which mature on or prior to such date in an aggregate amount equal
to the aggregate interest payment that would be due on the Applicable
Principal Amount of the Debentures on such date, and (b) if the Tax Event
Redemption Date occurs after the Purchase Contract Settlement Date, a
portfolio of zero-coupon U.S. Treasury Securities consisting of (i) principal
or interest strips of U.S. Treasury Securities which mature on or prior to
15, 2003 in an aggregate amount equal to the Applicable Principal Amount
and (ii) with respect to each scheduled interest payment date on the
Debentures that occurs after the Tax Event Redemption Date interest or
principal strips of such U.S. Treasury Securities which mature on or prior to
such date in an aggregate amount equal to the aggregate interest payment that
would be due on the Applicable Principal Amount of the Debentures on such
date.
"Applicable Principal Amount" means either (i) if the Tax Event Redemption
Date occurs prior to the Purchase Contract Settlement Date, the aggregate
principal amount of the Debentures corresponding to the aggregate stated
liquidation amount of the Trust Preferred Securities which are components of
Income PRIDES on the Tax Event Redemption Date or (ii) if the Tax Event
Redemption occurs on or after the Purchase Contract Settlement Date, the
aggregate principal amount of the Debentures corresponding to the aggregate
stated liquidation amount of the Trust Preferred Securities outstanding on
such Tax Event Redemption Date.
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"Redemption Amount" means for each Debenture, the product of (i) the
principal amount of such Debenture and (ii) a fraction whose numerator is the
Treasury Portfolio Purchase Price and whose denominator is the Applicable
Principal Amount.
"Treasury Portfolio Purchase Price" means the lowest aggregate price
quoted by a primary U.S. government securities dealer in New York City (a
"Primary Treasury Dealer") to the Quotation Agent on the third Business Day
immediately preceding the Tax Event Redemption Date for the purchase of the
Treasury Portfolio for settlement on the Tax Event Redemption Date.
"Quotation Agent" means (i) Merrill Lynch Government Securities, Inc. and
its respective successors, provided, however, that if the foregoing shall
cease to be a Primary Treasury Dealer, the Company shall substitute therefor
another Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer
selected by the Company.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of Debentures to
be prepaid at its registered address. Unless the Company defaults in payment
of the Redemption Price, on and after the redemption date interest shall
cease to accrue on such Debentures.
PUT OPTION
If a Failed Remarketing has occurred, holders of Debentures (including the
Institutional Trustee, and following the distribution of the Debentures upon
a dissolution of the Trust as described herein, such Debenture holders) will
have the right to put their Debentures to the Company on , 2001, upon
at least three Business Days' prior notice, at a price per Debenture equal to
$50, plus accrued and unpaid interest, if any, thereon. Upon the repurchase
of such Debentures by the Company, the proceeds from such repurchase shall
simultaneously be applied to redeem (in the case of Trust Securities) any
outstanding Trust Preferred Securities of such holders having an aggregate
stated liquidation amount equal to the aggregate principal amount of the
Debentures so repurchased plus accrued and unpaid distributions, including
deferred distributions, if any.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time,
during the term of the Debentures, to defer payments of interest by extending
the interest payment period for a period not extending beyond the maturity
date of the Debentures, at the end of which Extension Period, the Company
shall pay all interest then accrued and unpaid (including any expenses and
taxes of the Trust, as herein defined) together with interest thereon
compounded quarterly at the rate of % per annum through and including
15, 2001, and at the Reset Rate thereafter, to the extent permitted by
applicable law ("Compound Interest"); provided, that during any such
Extension Period, (a) the Company shall not declare or pay dividends or make
any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of the Company in connection with
the satisfaction by the Company of its obligations under any employee or
agent benefit plans or the satisfaction by the Company of its obligations
pursuant to any contract or security outstanding on the date of such event
requiring the Company to purchase capital stock of the Company, (ii) as a
result of a reclassification of the Company's capital stock or the exchange
or conversion of one class or series of the Company's capital stock for
another class or series of the Company capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of
the Company (or rights to acquire capital stock) or repurchases or
redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan), (b) the Company shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank on a parity with or junior to
the Debentures, and (c) the Company shall not make any guarantee payments
with respect to the foregoing (other than payments pursuant to the Guarantee
or the Common Securities Guarantee).
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Prior to the termination of any such Extension Period, the Company may
further defer payments of interest by extending the interest payment period;
provided, however, that such Extension Period, including all such previous
and further extensions, may not extend beyond the maturity of the Debentures.
Upon the termination of any Extension Period and the payment of all amounts
then due, the Company may commence a new Extension Period, subject to the
terms set forth in this section. No interest during an Extension Period,
except at the end thereof, shall be due and payable, but the Company, at its
option, may prepay on any Interest Payment Date all of the interest accrued
during the then elapsed portion of an Extension Period. The Company has no
present intention of exercising its right to defer payments of interest by
extending the interest payment period on the Debentures. If the Institutional
Trustee shall be the sole holder of the Debentures, the Company shall give
the Regular Trustees and the Institutional Trustee notice of its selection of
such Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Trust Preferred Securities are payable or (ii) the date
the Regular Trustees are required to give notice, if applicable, to the NYSE
(or other applicable self-regulatory organization) or to holders of the Trust
Preferred Securities of the record or payment date of such distribution. The
Regular Trustees shall give notice of the Company's selection of such
Extension Period to the holders of the Trust Preferred Securities. If the
Institutional Trustee shall not be the sole holder of the Debentures, the
Company shall give the holders of the Debentures notice of its selection of
such Extension Period ten Business Days prior to the earlier of (i) the
Interest Payment Date or (ii) the date upon which the Company is required to
give notice, if applicable, to the NYSE (or other applicable self-regulatory
organization) or to holders of the Debentures of the record or payment date
of such related interest payment.
EXPENSES AND TAXES OF THE TRUST
In the Indenture, the Company, as borrower, has agreed to pay all debts
and other obligations (other than with respect to the Trust Securities) and
all costs and expenses of the Trust (including the costs and expenses
relating to the organization of the Trust, the fees and expenses of the
Trustees and the costs and expenses relating to the operation of the Trust)
and to pay any and all taxes and all costs and expenses with respect thereto
(other than United States withholding taxes) to which the Trust might become
subject. The Company also has agreed in the Indenture to execute such
additional agreements as may be necessary or desirable to give full effect to
the foregoing.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Debentures, will have the right
to declare the principal of and the interest on the Debentures (including any
Compound Interest and expenses and taxes of the Trust, if any) and any other
amounts payable under the Indenture to be forthwith due and payable and to
enforce its other rights as a creditor with respect to the Debentures.
The following are Events of Default under the Indenture with respect to
the Debentures: (1) failure to pay interest on the Debentures when due,
continued for 30 days; provided, however, that if the Company is permitted by
the terms of the Debentures to defer the payment in question, then the date
on which such payment is due and payable shall be the date on which the
Company is required to make payment following such deferral, if such deferral
has been elected pursuant to the terms of the Debentures; (2) failure to pay
the principal of (or premium, if any, on) the Debentures when due and payable
at the stated maturity date, upon redemption or otherwise; provided, however,
if the Company is permitted by the terms of the Debentures to defer the
payment in question, the date on which such payment is due and payable shall
be the date on which the Company is required to make payment following such
deferral, if such deferral has been elected pursuant to the terms of the
Debentures; (3) failure to observe or perform in any material respect certain
other covenants contained in the Indenture, continued for a period of 90 days
after written notice has been given to the Company by the Debt Trustee or
holders of at least 25% in aggregate principal amount of the outstanding
Debentures; and (4) certain events of bankruptcy, insolvency or
reorganization relating to the Company.
The Indenture provides that the Debt Trustee shall, within 90 days after
the occurrence of any Default or Event of Default with respect to the
Debentures, give the holders of the Debentures notice of
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all uncured Defaults or Events of Default known to it (the term "Default"
includes any event which after notice or passage of time or both would be an
Event of Default); provided, however, that, except in the case of a Default
in the payment of the principal of (or premium, if any, on) or interest on
any Debt Securities of such series, or in the payment of any sinking fund
installment with respect to Debt Securities of such series, the Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders of Debt
Securities of such series and any related coupons; provided, however, that,
except in the case of an Event of Default or a Default in a payment on the
Debentures, the Debt Trustee shall be protected in withholding such notice so
long as the board of directors, the executive committee or directors or
responsible officers of the Debt Trustee in good faith determine that the
withholding of such notice is in the interest of the holders of the
Debentures.
If an Event of Default with respect to the Debentures occurs and is
continuing, the Debt Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Debentures, by notice in writing to the
Company (and to the Debt Trustee if given by the holders of at least 25% in
aggregate principal amount of the Debentures), may declare the unpaid
principal of and accrued interest to the date of acceleration on all the
outstanding Debentures to be due and payable immediately and, upon any such
declaration, the Debentures shall become immediately due and payable.
In addition, in the case of the Debentures held by the Trust, if an Event
of Default has occurred and is continuing and such event is attributable to
the failure of the Company to pay interest or principal, then a holder of
Trust Preferred Securities may directly institute a proceeding against the
Company for payment.
Any such declaration with respect to the Debentures may be annulled and
past Events of Default and Defaults (except, unless theretofore cured, an
Event of Default or a Default in payment of principal of or interest on the
Debentures) may be waived by the holders of a majority of the principal
amount of the outstanding Debentures, upon the conditions provided in the
Indenture.
The Indenture provides that the Company shall periodically file statements
with the Debt Trustee regarding compliance by the Company with certain of the
respective covenants thereof and shall specify any Event of Default or
Defaults with respect to the Debentures, in performing such covenants, of
which the signers may have knowledge.
An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of Trust Preferred Securities in certain circumstances
have the right to direct the Institutional Trustee to exercise its rights as
the holder of the Debentures. See "Description of the Trust Preferred
Securities -- Declaration Events of Default" and "--Voting Rights."
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to
pay interest or principal on the Debentures on the date such interest or
principal is otherwise payable, the Company acknowledges that a holder of
Trust Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder directly of the principal of and
interest on the Debentures having a principal amount equal to the aggregate
stated liquidation amount of the Trust Preferred Securities of such holder
after the respective due date specified in the Debentures. In connection with
such action, the Company shall have the right under the Indenture to set-off
any payment made to such holder by the Company. The holders of Trust
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Trust Preferred Securities in connection with
the involuntary or voluntary dissolution of the Trust, the Debentures will be
issued in the form of one or more global certificates (each a "Global
Security") registered in the name of the Depositary or its nominee. Except
under the limited circumstances described below, Debentures represented by
the Global Security will not be exchangeable
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for, and will not otherwise be issuable as, Debentures in certificated form.
The Global Securities described above may not be transferred except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or to a successor
depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in certificated form.
Such laws may impair the ability to transfer beneficial interests in such a
Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Debentures in
certificated form and will not be considered the holders (as defined in the
Indenture) thereof for any purpose under the Indenture, and no Global
Security representing Debentures shall be exchangeable, except for another
Global Security of like denomination and tenor to be registered in the name
of the Depositary or its nominee or to a successor Depositary or its nominee.
Accordingly, each Beneficial Owner must rely on the procedures of the
Depositary or if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest to exercise any
rights of a holder under the Indenture.
THE DEPOSITARY
If Debentures are distributed to holders of Trust Preferred Securities in
liquidation of such holders' interests in the Trust, the Depositary will act
as securities depositary for the Debentures. For a description of the
Depositary and the specific terms of the depositary arrangements, see
"Description of the Trust Preferred Securities -- Book-Entry Only Issuance --
The Depository Trust Company." As of the date of this Prospectus Supplement,
the description therein of the Depositary's book-entry system and the
Depositary's practices as they relate to purchases, transfers, notices and
payments with respect to the Trust Preferred Securities apply in all material
respects to any debt obligations represented by one or more Global Securities
held by the Depositary. The Company may appoint a successor to the Depositary
or any successor depositary in the event the Depositary or such successor
depositary is unable or unwilling to continue as a depositary for the Global
Securities.
None of the Company, the Trust, the Institutional Trustee, any paying
agent and any other agent of the Company or the Debt Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global
Security for such Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Debentures registered in the
names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
a depositary for such Global Security and no successor depositary shall have
been appointed, (ii) the Depositary at any time, ceases to be a clearing
agency registered under the Exchange Act at which time the depositary is
required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) the Company, in its sole
discretion, determines that such Global Security shall be so exchangeable or
(iv) there shall have occurred an Indenture Event of Default with respect to
such Debentures. Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Debentures registered in such
names as the Depositary shall direct. It is expected that such instructions
will be based upon directions received by the Depositary from its
Participants with respect to ownership of beneficial interests in such Global
Security.
GOVERNING LAW
The Indenture and the Debentures will be governed by, and construed in
accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Debentures, (ii) the organization, maintenance
and dissolution of the Trust, (iii) the retention of the Conseco Trustees and
(iv) the enforcement by the Institutional Trustee of the rights of the
holders of the Trust Preferred Securities.
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EFFECT OF OBLIGATIONS UNDER THE
DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets
of the Trust, and to invest the proceeds from such issuance and sale in the
Debentures and engage in only those other activities necessary or incidental
thereto.
As long as payments of interest and other payments are made when due on
the Debentures, such payments will be sufficient to cover distributions and
payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Debentures will be equal to the sum of the
aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Debentures will
match the distribution rate and distribution and other payment dates for the
Trust Securities; (iii) the Company shall pay, and the Trust shall not be
obligated to pay, directly or indirectly, all costs, expenses, debts, and
obligations of the Trust (other than with respect to the Trust Securities);
and (iv) the Declaration further provides that the Cendant Trustees shall not
take or cause or permit the Trust to, among other things, engage in any
activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Trust Preferred Securities (to the extent funds
therefor are available) are guaranteed by the Company as and to the extent
set forth under "Description of the Guarantee." If the Company does not make
interest payments on the Debentures purchased by the Trust, the Trust will
not have sufficient funds to pay distributions on the Trust Preferred
Securities. The Guarantee does not apply to any payment of distributions
unless and until the Trust has sufficient funds for the payment of such
distributions.
If the Company fails to make interest or other payments on the Debentures
when due (taking account of any Extension Period), the Declaration provides a
mechanism whereby the holders of the Trust Preferred Securities, using the
procedures described in "Description of the Trust Preferred Securities --
Book-Entry Only Issuance -- The Depository Trust Company" and "-- Voting
Rights," may direct the Institutional Trustee to enforce its rights under the
Indenture. If the Institutional Trustee fails to enforce its rights under the
Indenture in respect of an Indenture Event of Default, such holder of record
of Trust Preferred Securities may, to the fullest extent permitted by
applicable law, institute a legal proceeding against the Company to enforce
the Institutional Trustee's rights under the Indenture without first
instituting any legal proceeding against the Institutional Trustee or any
other person or entity. Notwithstanding the foregoing, if a Declaration Event
of Default has occurred and is continuing and such event is attributable to
the failure of the Company to pay interest or principal on the Debentures on
the date such interest or principal is otherwise payable, then a holder of
Trust Preferred Securities may directly institute a proceeding against the
Company for payment. The Company, under the Guarantee, acknowledges that the
Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the
Trust Preferred Securities. If the Company fails to make payments under the
Guarantee, the Guarantee provides a mechanism whereby the holders of the
Trust Preferred Securities may direct the Guarantee Trustee to enforce its
rights thereunder. Notwithstanding the foregoing, if the Company has failed
to make a payment under the Guarantee, any holder of Trust Preferred
Securities may institute a legal proceeding directly against the Company to
enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee, or any other person or
entity.
The Guarantee, when taken together with the Company's obligations under
the Debentures and the Indenture and its obligations under the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of
the Trust (other than with respect to the Trust Securities), has the effect
of providing a full and unconditional guarantee of amounts due on the Trust
Preferred Securities. See "Description of the Guarantee."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States
federal income tax consequences of the purchase, ownership and disposition of
FELINE PRIDES, Trust Preferred Securities and Common Stock acquired under a
Purchase Contract. Unless otherwise stated, this summary applies only to
"U.S. Holders" who purchase Income PRIDES, Growth PRIDES or Trust Preferred
Securities upon original issuance for an amount equal to the initial offering
price thereof. A "U.S. Holder" is (i) a person who is a citizen or resident
of the United States, (ii) a corporation or partnership created or organized
in or under the laws of the United States or any state thereof or the
District of Columbia, (iii) an estate the income of which is subject to
United States federal income taxation, regardless of its source, or (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of such trust and one or more United
States persons have the authority to control all substantial decisions of
such trust. The tax treatment of a holder may vary depending on such holder's
particular situation. This summary does not deal with special classes of
holders such as banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, certain U.S. expatriates, or persons that
will hold FELINE PRIDES, Trust Preferred Securities or Common Stock acquired
under a Purchase Contract as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or
other integrated investment, or as other than a capital asset. This summary
does not address the tax consequences to persons that have a functional
currency other than the U.S. dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of FELINE PRIDES, Trust Preferred
Securities or Common Stock acquired pursuant to a Purchase Contract. Further,
it does not include any description of any alternative minimum tax
consequences or the tax laws of any state, local or foreign government that
may be applicable. PROSPECTIVE INVESTORS THAT ARE NOT UNITED STATES PERSONS
(WITHIN THE MEANING OF SECTION 7701(a)(30) OF THE CODE) ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN FELINE PRIDES OR TRUST PREFERRED SECURITIES,
INCLUDING THE POTENTIAL APPLICATION OF UNITED STATES WITHHOLDING TAXES.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations (including proposed Treasury regulations)
issued thereunder, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject
to change, possibly on a retroactive basis. Any such changes may be applied
retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a U.S. Holder.
No statutory, administrative or judicial authority directly addresses the
treatment of FELINE PRIDES or instruments similar to FELINE PRIDES for United
States federal income tax purposes. As a result, no assurance can be given
that the IRS will agree with the tax consequences described herein.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE FELINE PRIDES OR TRUST PREFERRED SECURITIES IN LIGHT OF
THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
FELINE PRIDES
Allocation of Purchase Price. A U.S. Holder's acquisition of FELINE PRIDES
will be treated as an acquisition of a unit consisting of two components--in
the case of an Income PRIDES, the Trust Preferred Security and the Purchase
Contract constituting such Income PRIDES and, in the case of a Growth PRIDES,
the Treasury Security interest and the Purchase Contract comprising such
Growth PRIDES. The purchase price of each FELINE PRIDES will be allocated
between the two components in proportion to their respective fair market
values at the time of purchase. Such allocation will establish the U.S.
Holder's initial tax basis in the Trust Preferred Security or Treasury
Security interest and the Purchase Contract. The Company will report the fair
market value of each Trust Preferred Security and
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Treasury Security interest so that the entire purchase price of a FELINE
PRIDES will be allocable to the Trust Preferred Security or Treasury Security
interest, as the case may be, and no amount will be allocable to the Purchase
Contract. This position will be binding upon each U.S. Holder (but not on the
IRS) unless such U.S. Holder explicitly discloses a contrary position on a
statement attached to such U.S. Holder's timely filed United States federal
income tax return for the taxable year in which a FELINE PRIDES is acquired.
Thus, absent such disclosure, a U.S. Holder should allocate the purchase
price for a FELINE PRIDES in accordance with the foregoing. The remainder of
this discussion assumes that this allocation of purchase price will be
respected for United States federal income tax purposes.
Ownership of Trust Preferred Securities or Treasury Securities. A U.S.
Holder will be treated as owning the Trust Preferred Securities or Treasury
Securities constituting a part of the Income PRIDES or Growth PRIDES,
respectively. The Company and, by acquiring FELINE PRIDES, each U.S. Holder
agree to treat such U.S. Holder as the owner, for United States federal,
state and local income and franchise tax purposes, of the Trust Preferred
Securities or Treasury Securities constituting a part of the FELINE PRIDES
beneficially owned by such U.S. Holder. The remainder of this summary will
assume that U.S. Holders of FELINE PRIDES will be treated as the owners of
the Trust Preferred Securities or Treasury Securities constituting a part of
such FELINE PRIDES for United States federal, state and local income and
franchise tax purposes. The United States federal income tax consequences of
owning the Trust Preferred Securities or Treasury Securities are discussed
below (see "-- Trust Preferred Securities," "-- Treasury Securities" and
"-- Tax Event Redemption of Trust Preferred Securities.").
TRUST PREFERRED SECURITIES
Classification of the Trust. In connection with the issuance of the FELINE
PRIDES, Skadden, Arps, Slate, Meagher & Flom LLP ("Tax Counsel"), will
deliver an opinion that, under current law and assuming compliance with the
terms of the Declaration, and based on certain facts and assumptions
contained in such opinion, the Trust will be classified as a grantor trust
and not as an association taxable as a corporation for United States federal
income tax purposes. As a result, each U.S. Holder of Trust Preferred
Securities will be treated as owning an undivided beneficial ownership
interest in the Debentures. Accordingly, each U.S. Holder of Trust Preferred
Securities will be required to include in its gross income its pro rata share
of the interest income or OID that is paid or accrued on the Debentures. See
"-- Interest Income and Original Issue Discount."
Classification of the Debentures. The Company, the Trust and, by acquiring
Income PRIDES or Trust Preferred Securities, each U.S. Holder agree to treat
the Debentures as indebtedness of the Company for all United States tax
purposes. In connection with the issuance of the Debentures, Tax Counsel will
deliver an opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion, the
Debentures will be classified as indebtedness for United States federal
income tax purposes.
Interest Income and Original Issue Discount. Subject to the discussion
below regarding the Company's right to defer payments of interest on the
Debentures, the Debentures should be treated as "reset bonds" under
applicable Treasury regulations, and interest on the Debentures should not
constitute contingent interest for purposes of the OID rules. Under the
Treasury regulations applicable to reset bonds, the Debentures should be
treated, solely for purposes of calculating the accrual of OID, as maturing
on the day immediately preceding the Purchase Contract Settlement Date for an
amount equal to 100.5% of the Stated Amount (the "Reset Amount") and as
having been reissued on the Purchase Contract Settlement Date for the Reset
Amount. If the amount of the initial purchase price for the FELINE PRIDES
allocated to the Trust Preferred Securities is less than the Reset Amount, as
is anticipated, the Debentures should be treated as having been issued with
OID equal to the difference between the Reset Amount and the amount so
allocated to the Trust Preferred Securities, unless such difference is less
than three-fourths of one-percent of the Reset Amount, as would likely occur,
in which case the Debentures would not be treated as having been issued with
OID. If the Debentures were, however, treated as issued with OID, a U.S.
Holder would be required to include such OID in income on an economic accrual
basis over the period between the issue date and the day immediately
preceding the Purchase Contract Settlement Date regardless of such U.S.
Holder's method of tax accounting.
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Consequently, each U.S. Holder (including those using the cash basis of
accounting) would be required to include OID in its gross income even though
the Company would not actually make current cash payments with respect to
such OID. Any amount of OID included in a U.S. Holder's gross income would
increase such U.S. Holder's tax basis in its Trust Preferred Securities. In
addition, a U.S. Holder will include stated interest on the Debentures in
income as ordinary income when paid to the Trust or accrued, in accordance
with such U.S. Holder's regular method of accounting, whether or not such
U.S. Holder is required to accrue OID.
Under the Indenture, the Company has the right to defer payments of
interest on the Debentures. The Company's right to defer payments of interest
could cause the Debentures to be subject to the OID rules. The Company,
however, believes, and intends to take the position, that as of the issue
date, the terms and conditions of the Debentures make the likelihood that the
Company would exercise its option to defer the payment of interest a "remote"
contingency for these purposes. If so treated, except as provided below, the
Debentures would not be subject to the OID rules as a result of the Company's
right to defer payments of interest on the Debentures.
If the Company were to exercise its right to defer payments of interest,
the Debentures would at that time be treated, solely for purposes of the OID
rules, as reissued with OID. In such event, all of a U.S. Holder's taxable
interest income with respect to the Debentures would thereafter be accounted
for on an economic accrual basis regardless of such U.S. Holder's method of
tax accounting, and actual distributions of stated interest would not be
reported as taxable income. Consequently, each U.S. Holder (including those
using the cash basis of accounting) would be required to include OID in its
gross income even though the Company would not make actual cash payments
during an Extension Period. Any amount of OID included in a U.S. Holder's
gross income would increase such U.S. Holder's tax basis in its Trust
Preferred Securities, and the amount of distributions received by a U.S.
Holder with respect to such Trust Preferred Securities would reduce the tax
basis of such Trust Preferred Securities.
The IRS could take the position that the likelihood that the Company would
exercise its right to defer payments of interest is not a "remote"
contingency for these purposes, in which case U.S. Holders would be required
to accrue OID on the Debentures on an economic accrual basis under the OID
rules described in the preceding paragraph during the entire term of the
Debentures.
U.S. Holders that are corporations will not be entitled to a dividends
received deduction with respect to any income recognized with respect to the
Trust Preferred Securities.
Distribution of Debentures to U.S. Holders of Trust Preferred Securities.
A distribution by the Trust of the Debentures as described under the caption
"Description of the Trust Preferred Securities -- Liquidation Distribution
Upon Dissolution" would be non-taxable to U.S. Holders. In such event, a U.S.
Holder would have an aggregate tax basis in the Debentures received in the
liquidation equal to the aggregate tax basis such U.S. Holder had in its
Trust Preferred Securities surrendered therefor, and the holding period of
such Debentures would include the period during which such U.S. Holder had
held the Trust Preferred Securities. Also, a U.S. Holder would continue to
include interest (or OID) in respect of Debentures received from the Trust in
the manner described under "-- Interest Income and Original Issue Discount."
Sales, Exchanges or Other Dispositions of Trust Preferred Securities.
Gain or loss will be recognized by a U.S. Holder on a sale, exchange,
redemption or other taxable disposition (collectively, a "disposition") of a
Trust Preferred Security (including a redemption for cash or the remarketing
thereof) in an amount equal to the difference between the amount realized by
the U.S. Holder on the disposition of the Trust Preferred Securities (except
to the extent that such amount realized is characterized as a payment in
respect of accrued but unpaid interest on such U.S. Holder's allocable share
of the Debentures that such U.S. Holder has not included in gross income
previously, which amount will be taxable as ordinary interest income) and the
U.S. Holder's adjusted tax basis in the Trust Preferred Security. Selling
expenses incurred by a U.S. Holder, including the remarketing fee, will
reduce the amount of gain or increase the amount of loss recognized by such
U.S. Holder upon the sale, exchange or other disposition of the Trust
Preferred Securities. Gain or loss realized by a U.S. Holder on a disposition
of a Trust
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Preferred Security may be long-term capital gain depending on the holding
period of the Trust Preferred Securities. Capital gains of individuals are
eligible for reduced rates of taxation depending upon the holding period of
such capital assets. The deductibility of capital losses is subject to
limitations.
TREASURY SECURITIES
Original Issue Discount. A U.S. Holder of Growth PRIDES will be required
to treat the Treasury Security interest comprising the Growth PRIDES as an
interest in a bond originally issued on the date such Growth PRIDES is
purchased and having OID equal to the excess of the Stated Amount of the
Growth PRIDES over the purchase price of the Growth PRIDES. A U.S. Holder
will be required to include such OID in income on an economic accrual basis
over the period between the issue date of the Growth PRIDES and the day
immediately preceding the Purchase Contract Settlement Date, regardless of
such U.S. Holder's method of tax accounting. Amounts of OID included in a
U.S. Holder's gross income will increase such U.S. Holder's tax basis in its
Treasury Security interest.
Sales, Exchanges or Other Dispositions of Treasury Securities. In the
event that a U.S. Holder obtains the release of Treasury Securities by
delivering Trust Preferred Securities to the Collateral Agent, gain or loss
will be recognized by the U.S. Holder on a subsequent sale, exchange or other
taxable disposition of the Treasury Securities in an amount equal to the
difference between the amount realized by the U.S. Holder on such disposition
and the U.S. Holder's adjusted tax basis in the Treasury Securities. Such
gain or loss may be long-term capital gain or loss depending on the holding
period of the Treasury Securities. Capital gains of individuals are eligible
for reduced rates of taxation depending upon the holding period of such
capital assets. The deductibility of capital losses is subject to
limitations.
PURCHASE CONTRACTS
Income From Contract Adjustment Payments and Deferred Contract Adjustment
Payments; Delivery of Cash. There is no direct authority addressing the
treatment, under current law, of the Contract Adjustment Payments and
Deferred Contract Adjustment Payments (if any), or the delivery of cash in
respect of excess accrued Contract Adjustment Payments (if any) by a U.S.
Holder of Income PRIDES or Growth PRIDES upon the creation of Growth PRIDES
or Income PRIDES, respectively, and such treatment is unclear. Contract
Adjustment Payments and Deferred Contract Adjustment Payments, if any, may
constitute taxable income to a U.S. Holder of FELINE PRIDES when received or
accrued, in accordance with the U.S. Holder's method of tax accounting. To
the extent the Company is required to file information returns with respect
to Contract Adjustment Payments or Deferred Contract Adjustment Payments, it
intends to report such payments as taxable income to each U.S. Holder. U.S.
Holders should consult their own tax advisors concerning the treatment of
Contract Adjustment Payments and Deferred Contract Adjustment Payments and
the delivery of cash upon creation of Growth PRIDES, including the
possibility that any Contract Adjustment Payment or Deferred Contract
Adjustment Payment may be treated as a loan, purchase price adjustment,
rebate or payment analogous to an option premium, rather than being
includible in income on a current basis, and that the delivery of cash upon
creation of Growth PRIDES or Income PRIDES may be treated as an offset to
Contract Adjustment Payments or Deferred Contract Adjustment Payments or as a
purchase price adjustment. The treatment of Contract Adjustment Payments,
Deferred Contract Adjustment Payments and the delivery of cash upon creation
of Growth PRIDES or Income PRIDES could affect a U.S. Holder's tax basis in a
Purchase Contract or Common Stock received under a Purchase Contract or the
amount realized by a U.S. Holder upon the sale or disposition of a FELINE
PRIDES or the termination of a Purchase Contract. See "-- Acquisition of
Common Stock under a Purchase Contract," "-- Sale or Disposition of FELINE
PRIDES" and "-- Termination of Purchase Contract."
Acquisition of Common Stock Under a Purchase Contract. A U.S. Holder of
FELINE PRIDES generally will not recognize gain or loss on the purchase of
Common Stock under a Purchase Contract, except with respect to any cash paid
in lieu of a fractional share of Common Stock. Subject to the following
discussion, a U.S. Holder's aggregate initial tax basis in the Common Stock
received under a Purchase Contract generally should equal the purchase price
paid for such Common Stock plus such U.S. Holder's tax basis in the Purchase
Contract (if any), less the portion of such purchase price and tax basis
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allocable to the fractional share. Payments of Contract Adjustment Payments
or Deferred Contract Adjustment Payments that have been received in cash by a
U.S. Holder but not included in income by such U.S. Holder should reduce such
U.S. Holder's tax basis in the Purchase Contract or the Common Stock to be
received thereunder; payments in cash that have been made by a U.S. Holder to
create Growth PRIDES or Income PRIDES but not offset against payments of
Contract Adjustment Payments or Deferred Contract Adjustment Payments may
increase such U.S. Holder's tax basis in the Purchase Contract or the Common
Stock to be received thereunder (see "-- Income from Contract Adjustment
Payments and Deferred Contract Adjustment Payments" above). The holding
period for Common Stock received under a Purchase Contract will commence on
the day after the acquisition of such Common Stock.
Ownership of Common Stock Acquired Under the Purchase Contract. Any
dividend on Common Stock paid by the Company out of its current or
accumulated earnings and profits (as determined for United States federal
income tax purposes) will be includible in income by a U.S. Holder when
received. Any such dividend will be eligible for the dividends received
deduction if received by an otherwise qualifying corporate U.S. Holder that
meets the holding period and other requirements for the dividends received
deduction.
Upon a disposition of Common Stock, a U.S. Holder generally will recognize
capital gain or loss equal to the difference between the amount realized and
such U.S. Holder's adjusted tax basis in the Common Stock. Such gain or loss
may be long-term capital gain or loss depending on the holding period of the
Common Stock. Capital gains of individuals are eligible for reduced rates of
taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
Early Settlement of Purchase Contract. A U.S. Holder of FELINE PRIDES will
not recognize gain or loss on the receipt of such U.S. Holder's proportionate
share of Trust Preferred Securities or Treasury Securities upon Early
Settlement of a Purchase Contract and will have the same tax basis in such
Trust Preferred Securities or Treasury Securities as before such Early
Settlement.
Termination of Purchase Contract. If a Purchase Contract terminates, a
U.S. Holder of FELINE PRIDES will recognize gain or loss equal to the
difference between the amount realized (if any) upon such termination and
such U.S. Holder's adjusted tax basis (if any) in the Purchase Contract at
the time of such termination. Payments of Contract Adjustment Payments or
Deferred Contract Adjustment Payments, if any, received by a U.S. Holder but
not included in income by such U.S. Holder should either reduce such U.S.
Holder's tax basis in the Purchase Contract or result in an amount realized
on the termination of the Purchase Contract. Any Contract Adjustment Payments
or Deferred Contract Adjustment Payments included in a U.S. Holder's income
but not paid should increase such U.S. Holder's tax basis in the Purchase
Contract; payments in cash that have been made by a U.S. Holder to create
Growth PRIDES or Income PRIDES but not offset against payments of Contract
Adjustment Payments or Deferred Contract Adjustment Payments may increase
such U.S. Holder's tax basis in the Purchase Contract or result in a
deduction on the termination of the Purchase Contract (see "-- Income from
Contract Adjustment Payments and Deferred Contract Adjustment Payments"
above). Any such gain or loss may be long-term capital gain or loss depending
upon the holding period of the Purchase Contract. Capital gains of
individuals are eligible for reduced rates of taxation depending upon the
holding period of such capital assets. The deductibility of capital losses is
subject to limitations. A U.S. Holder will not recognize gain or loss on the
receipt of such U.S. Holder's proportionate share of the Trust Preferred
Securities, Treasury Securities or Treasury Portfolio upon termination of the
Purchase Contract and will have the same tax basis in such Trust Preferred
Securities, Treasury Securities or Treasury Portfolio as before such
distribution.
Adjustment to Settlement Rate. U.S. Holders of FELINE PRIDES might be
treated as receiving a constructive distribution from the Company if (i) the
Settlement Rate is adjusted and as a result of such adjustment the
proportionate interest of U.S. Holders of FELINE PRIDES in the assets or
earnings and profits of the Company is increased and (ii) the adjustment is
not made pursuant to a bona fide, reasonable anti-dilution formula. An
adjustment in the Settlement Rate would not be considered made pursuant to
such a formula if the adjustment were made to compensate a U.S. Holder for
certain taxable
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distributions with respect to the Common Stock. Thus, under certain
circumstances, an increase in the Settlement Rate might give rise to a
taxable dividend to U.S. Holders of FELINE PRIDES even though such U.S.
Holders would not receive any cash related thereto.
SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE GROWTH PRIDES
A U.S. Holder of an Income PRIDES that delivers Treasury Securities to the
Collateral Agent in substitution for Trust Preferred Securities generally
will not recognize gain or loss upon the delivery of such Treasury Securities
or the release of the Trust Preferred Securities to such U.S. Holder. Such
U.S. Holder will continue to take into account items of income or deduction
otherwise includible or deductible, respectively, by such U.S. Holder with
respect to such Treasury Securities and Trust Preferred Securities, and such
U.S. Holder's tax basis in the Treasury Securities, the Trust Preferred
Securities and the Purchase Contract will not be affected by such delivery
and release.
SUBSTITUTION OF TRUST PREFERRED SECURITIES TO CREATE OR RECREATE INCOME
PRIDES
A U.S. Holder of a Growth PRIDES that delivers Trust Preferred Securities
to the Collateral Agent in substitution for Treasury Securities generally
will not recognize gain or loss upon the delivery of such Trust Preferred
Securities or the release of the Treasury Securities to the U.S. Holder. Such
U.S. Holder will continue to take into account items of income or deduction
otherwise includible or deductible, respectively, by such U.S. Holder with
respect to such Treasury Securities and Trust Preferred Securities, and such
U.S. Holder's tax basis in the Treasury Securities, the Trust Preferred
Securities and the Purchase Contract will not be affected by such delivery
and release.
TAX EVENT REDEMPTION OF TRUST PREFERRED SECURITIES
A Tax Event Redemption will be a taxable event for U.S. Holders of Trust
Preferred Securities. Gain or loss will be recognized by a U.S. Holder in an
amount equal to the difference between the Redemption Price (whether paid
directly to such U.S. Holder or applied by the Collateral Agent to the
purchase of the Treasury Portfolio on behalf of holders of Income PRIDES),
except to the extent of amounts paid in respect of accrued but unpaid
interest not previously included in income, which will be taxable as ordinary
interest income, and the U.S. Holder's adjusted tax basis in the Trust
Preferred Securities. Gain or loss realized by a U.S. Holder upon a Tax Event
Redemption will be capital gain or loss and may be long-term capital gain or
loss depending upon the holding period of the Trust Preferred Securities.
Capital gains of individuals are eligible for reduced rates of taxation
depending upon the holding period of such capital assets. The deductibility
of capital losses is subject to limitations.
Ownership of Treasury Portfolio. The Company, the Trust and, by acquiring
Income PRIDES, each U.S. Holder agree to treat such U.S. Holder as the owner,
for United States federal, state and local income and franchise tax purposes,
of the Applicable Ownership Interest of the Treasury Portfolio constituting a
part of the Income PRIDES beneficially owned by such U.S. Holder in the event
of a Tax Redemption prior to the Purchase Contract Settlement Date. Each U.S.
Holder will include in income any amount earned on such pro rata portion of
the Treasury Portfolio for all United States federal, state and local income
and franchise tax purposes. Based on such agreement, the remainder of this
summary assumes that U.S. Holders of Income PRIDES will be treated as the
owners of the Applicable Ownership Interest of the Treasury Portfolio
constituting a part of such Income PRIDES for United States federal, state
and local income and franchise tax purposes.
Interest Income and Original Issue Discount. The Treasury Portfolio will
consist of stripped U.S. Treasury Securities. Following a Tax Redemption
prior to the Purchase Contract Settlement Date, a U.S. Holder of Income
PRIDES will be required to treat its pro rata portion of each U.S. Treasury
Security in the Treasury Portfolio as a bond that was originally issued on
the date the Collateral Agent acquired the relevant U.S. Treasury Securities
and will include OID in income over the life of the U.S. Treasury Securities
in an amount equal to the U.S. Holder's pro rata portion of the excess of the
amounts payable on such U.S. Treasury Securities over the value of the U.S.
Treasury Securities at the time the Collateral Agent acquires them on behalf
of holders of Income PRIDES. The amount of such excess will constitute
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only a portion of the total amounts payable in respect of the Treasury
Portfolio. Consequently, a substantial portion of each scheduled interest
payment to U.S. Holders will be treated as a tax-free return of the U.S.
Holder's investment in the Treasury Portfolio and will not be considered
current income for federal income tax purposes.
A U.S. Holder, whether on the cash or accrual method of tax accounting,
will be required to include OID (other than OID on short-term U.S. Treasury
Securities as defined below) in income for federal income tax purposes as it
accrues on a constant yield to maturity basis. See "-- Interest Income and
Original Issue Discount" above. In the case of any U.S. Treasury Security
with a maturity of one year or less from the date it is purchased (a
"short-term U.S. Treasury Security"), in general only accrual basis taxpayers
will be required to include OID in income as it is accrued. Unless such an
accrual basis U.S. Holder elects to accrue the OID on a short-term U.S.
Treasury Security according to the constant-yield-to-maturity method, such
OID will be accrued on a straight-line basis.
Tax Basis of the Treasury Portfolio. A U.S. Holder's initial tax basis in
such U.S. Holder's Applicable Ownership Interest of the Treasury Portfolio
will equal such U.S. Holder's pro rata portion of the amount paid by the
Collateral Agent for the Treasury Portfolio. A U.S. Holder's tax basis in the
Treasury Portfolio will be increased by the amount of OID included in income
with respect thereto and decreased by the amount of cash received in respect
of the Treasury Portfolio.
SALE OR DISPOSITION OF FELINE PRIDES
Upon a disposition of FELINE PRIDES, a U.S. Holder will be treated as
having sold, exchanged or disposed of the Purchase Contract and the Trust
Preferred Securities, Treasury Portfolio or, in the case of Growth PRIDES,
the Treasury Securities, that constitute such FELINE PRIDES and generally
will have gain or loss equal to the difference between the portion of the
proceeds to such U.S. Holder allocable to the Purchase Contract and the Trust
Preferred Securities, Treasury Portfolio or Treasury Securities, as the case
may be, and such U.S. Holder's respective adjusted tax bases in the Purchase
Contract and the Trust Preferred Securities, Treasury Portfolio or Treasury
Securities. Such gain or loss generally will be capital gain or loss, except
to the extent that such U.S. Holder is treated as having received an amount
with respect to accrued interest on the Trust Preferred Securities, which
will be treated as ordinary interest income, or to the extent such U.S.
Holder is treated as having received an amount with respect to accrued
Contract Adjustment Payments or Deferred Contract Adjustment Payments, which
may be treated as ordinary income, in each case to the extent not previously
included in income. Such capital gain or loss may be long-term capital gain
or loss depending on the holding period of the FELINE PRIDES. Capital gains
of individuals are eligible for reduced rates of taxation depending upon the
holding period of such capital assets. The deductibility of capital losses is
subject to limitations. If the disposition of FELINE PRIDES occurs when the
Purchase Contract has negative value, the U.S. Holder should be considered to
have received additional consideration for the Trust Preferred Securities,
Treasury Portfolio or Treasury Securities in an amount equal to such negative
value and to have paid such amount to be released from the U.S. Holder's
obligation under the Purchase Contract. U.S. Holders should consult their tax
advisors regarding a disposition of the FELINE PRIDES at a time when the
Purchase Contract has negative value.
Payments to a U.S. Holder of Contract Adjustment Payments or Deferred
Contract Adjustment Payments that have not previously been included in the
income of such U.S. Holder should either reduce such U.S. Holder's tax basis
in the Purchase Contract or result in an increase in the amount realized on
the disposition of the Purchase Contract. Any Contract Adjustment Payments or
Deferred Contract Adjustment Payments included in a U.S. Holder's income but
not paid should increase such U.S. Holder's tax basis in the Purchase
Contract. Payments in cash that have been made by a U.S. Holder to create
Growth PRIDES or Income PRIDES but not offset against payments of Contract
Adjustment Payments or Deferred Contract Adjustment Payments may increase
such U.S. Holder's tax basis in the Purchase Contract or result in a decrease
in the amount realized on the disposition of the Purchase Contract (see
"-- Income from Contract Adjustment Payments and Deferred Contract Adjustment
Payments; Delivery of Cash" above).
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BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Payments under the FELINE PRIDES, Trust Preferred Securities or Common
Stock acquired under a Purchase Contract, the proceeds received with respect
to a fractional share of Common Stock upon the settlement of a Purchase
Contract, and the sale of FELINE PRIDES, Trust Preferred Securities or Common
Stock acquired under a Purchase Contract, may be subject to information
reporting and United States federal backup withholding tax at the rate of 31%
if the U.S. Holder thereof fails to supply an accurate taxpayer
identification number or otherwise fails to comply with applicable United
States information reporting or certification requirements. Any amounts so
withheld will be allowed as a credit against such U.S. Holder's United States
federal income tax liability.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Trust and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, and Chase Securities Inc. (the
"Underwriters"), the Company and the Trust have agreed to sell to the
Underwriters, and the Underwriters severally have agreed to purchase from the
Company and the Trust, the number of Income PRIDES, Growth PRIDES and Trust
Preferred Securities set forth below opposite each Underwriter's name. In the
Underwriting Agreement, the Underwriters have agreed, subject to the terms
and conditions set forth therein, to purchase all of the Income PRIDES,
Growth PRIDES and Trust Preferred Securities offered hereby if any of the
Income PRIDES, Growth PRIDES or Trust Preferred Securities are purchased.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
INCOME GROWTH TRUST
UNDERWRITERS PRIDES PRIDES PREFERRED SECURITIES
- -------------------------------------------- ------------- ------------- ------------------------
<S> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ........................
------------- ------------- ------------------------
Chase Securities Inc. .....................
------------- ------------- ------------------------
Total................................
============= =============
</TABLE>
The Underwriters have advised the Company and the Trust that they propose
initially to offer the Income PRIDES, Growth PRIDES and Trust Preferred
Securities to the public at the public offering price set forth on the cover
page of this Prospectus Supplement and to certain dealers at such price less
a concession not in excess of $ per Income PRIDES, $ per Growth PRIDES
and $ per Trust Preferred Security. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per Income PRIDES, $
per Growth PRIDES and $ per Trust Preferred Security on sales to certain
other dealers. After the initial public offering, the public offering prices,
concessions and discounts may be changed.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and any selling group
members to bid for and purchase the Securities or shares of Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Securities or the Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Securities or the Common
Stock.
If the Underwriters create a short position in the Securities in
connection with the Offering, i.e., if they sell more Securities than are set
forth on the cover page of this Prospectus Supplement, the Underwriters may
reduce that short position by purchasing Securities in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment options described below.
The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase Securities in the open
market to reduce the Underwriters' short position or to stabilize the price
of the Securities, they may reclaim the amount of the selling concession from
any Underwriter and selling group members who sold those Securities as part
of the Offering.
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In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security and the
Common Stock of the Company to be higher than it might be in the absence of
such purchases. The imposition of a penalty bid might also have an effect on
the price of a security to the extent that it were to discourage resales of
the security.
Neither the Company, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Securities
or the Common Stock. In addition, neither the Company, the Trust nor any of
the Underwriters makes any representation that the Underwriters will engage
in such transaction or that such transactions, once commenced, will not be
discontinued without notice.
The Company and the Trust have granted to the Underwriters options,
exercisable for 30 days following the date of this Prospectus Supplement, to
purchase up to an aggregate of an additional ,000,000 Income PRIDES,
,000,000 Growth PRIDES and ,000,000 Trust Preferred Securities from the
Company and the Trust at the Price to Public set forth on the cover page of
this Prospectus Supplement less the underwriting discount. The Underwriters
may exercise these options only to cover over-allotments, if any, made on the
sale of the Income PRIDES, Growth PRIDES and Trust Preferred Securities
offered hereby. If the Underwriters exercise their over-allotment options,
each of the Underwriters has severally agreed, subject to certain conditions,
to effect the foregoing transactions with respect to approximately the same
percentage of such Income PRIDES, Growth PRIDES and Trust Preferred
Securities that the respective number of Income PRIDES, Growth PRIDES and
Trust Preferred Securities set forth opposite its name in the foregoing table
bears to the Income PRIDES, Growth PRIDES and Trust Preferred Securities
offered hereby.
The Company and the Trust have agreed, for a period of 90 days after the
date of this Prospectus Supplement, to not, without the prior written consent
of Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, or enter into any agreement to sell, any Income PRIDES,
Growth PRIDES, Purchase Contracts, Trust Preferred Securities or Common
Stock, as the case may be, or any securities of the Company similar to the
Income PRIDES, Growth PRIDES, Purchase Contracts, Trust Preferred Securities
or Common Stock or any security convertible into or exchangeable or
exercisable for Income PRIDES, Growth PRIDES, Purchase Contracts, Trust
Preferred Securities or Common Stock other than (i) to the Underwriters
pursuant to the Underwriting Agreement, (ii) shares of Common Stock or
options for shares of Common Stock issued pursuant to or sold in connection
with any employee or agent benefit, dividend reinvestment and stock option
and stock purchase plans of the Company and its subsidiaries, (iii) any
securities issued pursuant to or sold in connection with any securities of
the Company and its subsidiaries, outstanding as of the date hereof, which
are convertible into or exchangeable or exercisable for any securities of the
Company and its subsidiaries, (iv) any securities issued pursuant to a merger
or acquisition, (v) the Growth PRIDES or Income PRIDES to be created or
recreated upon substitution of Pledged Securities, or shares of Common Stock
issuable upon early settlement of the Income PRIDES or Growth PRIDES or (vi)
upon exercise of stock options.
Prior to this offering, there has been no public market for the Income
PRIDES, Growth PRIDES and the Trust Preferred Securities. The public offering
price for the Income PRIDES, Growth PRIDES and the Trust Preferred Securities
was determined in negotiations between the Company, the Trust and the
Underwriters. In determining the terms of the Income PRIDES, Growth PRIDES
and the Trust Preferred Securities including the public offering price, the
Company, the Trust and the Underwriters considered the market price of the
Common Stock and also considered the Company's recent results of operations,
the future prospects of the Company and the industry in general, market
prices and terms of, and yields on, securities of other companies considered
to be comparable to the Company and prevailing conditions in the securities
markets. Application will be made to list the Income PRIDES, Growth PRIDES
and Trust Preferred Securities have been approved for listing on the NYSE,
subject to official notice of issuance. There can be no assurance that an
active trading market will develop for the Income PRIDES, the Growth PRIDES
or the Trust Preferred Securities or that the Income PRIDES, Growth PRIDES or
Trust Preferred Securities will trade in the public market subsequent to the
offering at or above the initial public offering price.
S-90
<PAGE>
The Company and the Trust have agreed to indemnify the Underwriters
against, or to contribute to payments that the Underwriters may be required
to make in respect of, certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
This Prospectus Supplement, as amended or stickered, may be used by the
Remarketing Agent for remarketing the Trust Preferred Securities at such time
as is necessary.
In the ordinary course of their respective businesses, the Underwriters
and their affiliates have performed, and may in the future perform, financial
advisory, investment banking and/or general financing and banking services
for the Company. Chase Securities Inc. is an affiliate of The Chase Manhattan
Bank, which currently serves as Lender and Administrative Agent under the
Revolving Credit Facilities and as Collateral Agent under the Pledge
Agreement. The Chase Manhattan Bank will receive a portion of the amounts
repaid under the Revolving Credit Facilities with the proceeds from the sale
of the Debentures. See "Use of Proceeds."
LEGAL OPINIONS
The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof and the Debentures will be passed upon for the Company by
Eric J. Bock, Esq., Vice President-Legal of the Company, and Skadden, Arps,
Slate, Meagher & Flom LLP, and certain matters of Delaware law with respect
to the validity of the Trust Preferred Securities offered hereby will be
passed upon for the Company and the Trust by Skadden, Arps, Slate, Meagher &
Flom LLP. The validity of the Purchase Contracts, the Common Stock issuable
upon settlement thereof, the Debentures and the Trust Preferred Securities
will be passed upon for the Underwriters by Shearman & Sterling. Mr. Bock
owns Common Stock and options to acquire shares of Common Stock of the
Company.
S-91
<PAGE>
INDEX OF PRINCIPAL TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
<S> <C>
1940 Act S-64
Applicable Market Value S-17, S-48
Applicable Ownership Interest S-44
Applicable Principal Amount S-76
Bankruptcy Code S-18
Beneficial Owner S-69
Business Day S-52
Cendant Trustees S-7
Change in 1940 Act Law S-64
Closing Price S-48
Code S-82
Collateral Agent S-10
Common Securities S-2
Common Securities Guarantee S-72
Common Stock S-2
Compound Interest S-77
Contract Adjustment Payments S-2
Current Market Price S-53
Debentures S-2
Debt Trustee S-74
Declaration S-7
Declaration Event of Default S-65
Default S-79
Deferred Contract Adjustment Payments S-13, S-47
Delaware Trustee S-40
Depositary S-55
Direct Action S-34, S-66
Direct Participants S-55
Early Settlement S-17
Exchange Act S-55
Extension Periods S-21
Failed Remarketing S-4
FELINE PRIDES S-1
FELINE PRIDES Certificate S-49
Global Security S-79
Global Security Certificates S-55
Growth PRIDES S-2
Guarantee S-3, S-23
Guarantee Payments S-72
Income PRIDES S-2
Indenture S-74
Indenture Event of Default S-65
Indirect Participants S-56
Institutional Trustee S-40
Interest Payment Date S-75
Investment Company Event S-64
IRS S-82
NYSE S-1
OID S-2
S-92
<PAGE>
Participants S-55
Payment Date S-14
Pledge Agreement S-10
Pledged Securities S-31, S-55
Primary Treasury Dealer S-77
Property Account S-40
Purchase Contract S-2
Purchase Contract Agent S-10
Purchase Contract Agreement S-10
Purchase Contract Settlement Date S-2
Quotation Agent S-77
Redemption Amount S-77
Redemption Price S-6
Reference Price S-16, S-48
Regular Trustees S-40
Remarketing Agent S-14
Remarketing Agreement S-14
Remarketing Fee S-3
Remarketing Underwriting Agreement S-14
Reset Agent S-9
Reset Amount S-83
Reset Announcement Date S-62
Reset Rate S-3
Reset Spread S-3
Securities S-1
Senior Indebtedness S-3
Settlement Rate S-16, S-48
Sponsor S-7
Stated Amount S-2
Successor Securities S-68
Super-Majority S-66
Tax Counsel S-83
Tax Event S-76
Tax Event Redemption S-6
Tax Event Redemption Date S-76
Threshold Appreciation Price S-16, S-48
Trading Day S-49
Treasury Portfolio S-76
Treasury Portfolio Purchase Price S-77
Treasury Securities S-2, S-4
Trust S-1
Trust Act S-40
Trust Indenture Act S-7
Trust Preferred Securities S-1
Trust Securities S-2
Underwriters S-89
Underwriting Agreement S-89
U.S. Holders S-82
</TABLE>
S-93
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CENDANT CORPORATION
Independent Auditors' Report................................................................ F-2
Consolidated Balance Sheets for the years ended December 31, 1996 and 1995 ................. F-3
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 ..... F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995
and 1994................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 . F-9
Notes to Consolidated Financial Statements.................................................. F-11
Consolidated Balance Sheets at September 30, 1997 and December 31, 1996..................... F-55
Consolidated Statements of Income for the three months ended September 30, 1997 and 1996
and for the nine months ended September 30, 1997 and 1996.................................. F-57
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997, and
1996....................................................................................... F-58
Notes to Consolidated Financial Statements.................................................. F-59
Management's Discussion and Analysis of Financial Condition and Results of Operations ...... F-66
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cendant Corporation
We have audited the consolidated balance sheets of Cendant Corporation and
subsidiaries (the "Company") as of December 31, 1996 and 1995, and the related
supplemental consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits. The consolidated financial statements
give retroactive effect to the merger of CUC International Inc. with HFS
Incorporated to form Cendant Corporation, which has been accounted for as a
pooling of interests as described in Note 2 to the consolidated financial
statements. We did not audit the balance sheets of CUC International Inc. as of
January 31, 1997 and 1996, or the related statements of income, shareholders'
equity, and cash flows of CUC International Inc. for the years ended January
31, 1997, 1996 and 1995, which statements reflect total assets of approximately
$2.5 billion and $2.1 billion as of January 31, 1997 and 1996, respectively,
and net income of approximately $164.1 million, $145.0 million and $164.1
million for the years ended January 31, 1997, 1996 and 1995, respectively. Nor
did we audit the balance sheets of PHH Corporation (a consolidated subsidiary
of HFS Incorporated) as of December 31, 1996 and January 31, 1996, or the
related statements of income, shareholders' equity, and cash flows of PHH
Corporation for the years ended December 31, 1996, January 31, 1996 and 1995,
which statements reflect total assets of approximately $6.6 billion and $5.8
billion as of December 31, 1996 and January 31, 1996, respectively, and net
income of approximately $87.6 million, $78.1 million and $69.0 million for the
years ended December 31, 1996, January 31, 1996 and 1995, respectively. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for CUC
International Inc. and PHH Corporation for such periods, is based solely on the
reports of such other auditors.
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 and the reports of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cendant Corporation and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights", in the year ended December 31,
1995.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
December 17, 1997
F-2
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 633,903 $ 355,959
Marketable securities 94,200 97,164
Receivables, net of allowance for doubtful accounts
of $85,640 and $66,059 1,290,625 1,028,976
Deferred income taxes 141,251 50,563
Other current assets 369,614 271,483
----------- -----------
Total current assets 2,529,593 1,804,145
----------- -----------
Deferred membership acquisition costs 401,564 404,655
Franchise agreements - net 995,947 517,218
Goodwill - net 2,302,226 700,375
Other intangibles - net 636,230 38,845
Other assets 993,574 573,537
----------- -----------
Total assets exclusive of assets under programs 7,859,134 4,038,775
----------- -----------
Assets under management and mortgage programs
Net investment in leases and leased vehicles 3,418,666 3,243,236
Relocation receivables 773,326 736,038
Mortgage loans held for sale 1,248,299 784,901
Mortgage servicing rights and fees 288,943 191,434
----------- -----------
5,729,234 4,955,609
----------- -----------
TOTAL ASSETS $13,588,368 $ 8,994,384
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------ ------------
<S> <C> <C>
Accounts payable, accrued expenses and other
current liabilities $ 1,664,946 $ 919,057
------------ ------------
Deferred income 1,099,393 747,414
Long-term debt 1,004,584 353,977
Deferred income taxes 46,770 59,899
Other noncurrent liabilities 78,115 102,601
------------ ------------
Total liabilities exclusive of liabilities under programs 3,893,808 2,182,948
------------ ------------
Liabilities under management and mortgage programs
Debt 5,089,943 4,427,872
Deferred income taxes 281,948 234,918
------------ ------------
5,371,891 4,662,790
Commitments and contingencies (Note 13)
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value - authorized
10 million shares; none issued and outstanding -- --
Common stock, $.01 par value - authorized
2 billion shares; issued 804,655,850
and 700,361,629 shares 8,047 7,004
Additional paid-in capital 2,870,422 994,814
Retained earnings 1,556,300 1,202,589
Net unrealized gain on marketable securities 4,334 593
Currency translation adjustment (12,452) (25,356)
Restricted stock, deferred compensation (28,212) --
Treasury stock, at cost, 6,911,757 and 5,115,947 shares (75,770) (30,998)
------------ ------------
Total shareholders' equity 4,322,669 2,148,646
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,588,368 $ 8,994,384
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Membership and service fees - net $ 3,433,917 $ 2,606,196 $ 2,178,984
Fleet leasing (net of depreciation and
interest costs of $1,132,408, $1,088,993
and $976,244, respectively) 56,660 52,079 47,860
Other 418,203 333,847 219,887
----------- ----------- -----------
Net revenues 3,908,780 2,992,122 2,446,731
----------- ----------- -----------
EXPENSES
Operating 1,392,788 1,110,928 921,832
Marketing and reservation 1,089,482 875,155 742,933
General and administrative 339,543 279,500 221,745
Depreciation and amortization 167,907 112,914 97,175
Interest - net 25,445 13,264 10,553
Merger and related costs and other unusual charges 179,945 97,029 7,900
Gain on sale of the ImagiNation Network -- -- (19,739)
----------- ----------- -----------
Total expenses 3,195,110 2,488,790 1,982,399
----------- ----------- -----------
Income before income taxes 713,670 503,332 464,332
Provision for income taxes 290,059 200,507 179,742
----------- ----------- -----------
Net income before cumulative effect of
accounting change for income taxes 423,611 302,825 284,590
Cumulative effect of accounting change for
income taxes -- -- 2,000
----------- ----------- -----------
Net income $ 423,611 $ 302,825 $ 286,590
=========== =========== ===========
PER SHARE INFORMATION
Net income per share
Primary $ 0.53 $ 0.42 $ 0.42
Fully diluted $ 0.52 $ 0.41 $ 0.41
Weighted average shares
Primary 814,292 734,624 690,547
Fully diluted 820,586 748,704 702,209
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED RESTRICTED
ADDITIONAL GAIN (LOSS) ON CURRENCY STOCK,
COMMON STOCK PAID-IN RETAINED MARKETABLE TRANSLATION DEFERRED UNEARNED TREASURY
SHARES AMOUNT CAPITAL EARNINGS SECURITIES ADJUSTMENT COMPENSATION ESOP STOCK
------- ------- --------- --------- ----------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 643,258 $ 6,433 $ 533,807 $ 822,399 $ -- $ (26,481) $ -- $(7,160) $(9,745)
Issuance of common stock 10,592 106 62,043 -- -- -- -- -- --
Exercise of stock options
by payment of cash and
common stock 7,732 76 53,649 (10,140) -- -- -- -- (760)
Tax benefit from exercise
of stock options and
vesting of restricted
stock -- -- 44,151 -- -- -- -- -- --
Amortization of
restricted stock -- -- 303 -- -- -- -- -- --
Amortization of ESOP
obligation -- -- -- -- -- -- -- 2,331 --
Adjustment to reflect
change in GETKO and
NAOG fiscal years -- -- -- (4,067) -- -- -- 3,071 --
Cash dividends declared -- -- -- (29,199) -- -- -- -- --
Conversion of convertible
notes 4,484 45 22,650 -- -- -- -- -- --
Net unrealized loss on
marketable securities -- -- -- -- (748) -- -- -- --
Purchase of common stock -- -- -- -- -- -- -- -- (25,885)
Retirement of treasury
stock (2,832) (28) (25,873) -- -- -- -- -- 25,885
Currency translation
adjustment -- -- -- -- -- 4,529 -- -- --
Distribution of Chartwell
Leisure Inc. -- -- (18,445) (79,775) -- -- -- -- --
Net income -- -- -- 286,590 -- -- -- -- --
------- ------- --------- --------- ----------- ---------- ------------ -------- --------
Balance, December 31, 1994 663,234 6,632 672,285 985,808 (748) (21,952) -- (1,758) (10,505)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED RESTRICTED
ADDITIONAL GAIN (LOSS) ON CURRENCY STOCK,
COMMON STOCK PAID-IN RETAINED MARKETABLE TRANSLATION DEFERRED UNEARNED TREASURY
SHARES AMOUNT CAPITAL EARNINGS SECURITIES ADJUSTMENT COMPENSATION ESOP STOCK
------- ------- --------- --------- ----------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1995 663,234 $6,632 $672,285 $985,808 $ (748) $(21,952) $ -- $(1,758) $(10,505)
Issuance of common
stock 20,810 208 183,384 -- -- -- -- -- --
Exercise of stock
options by
payment of cash
and common stock 12,435 124 64,421 -- -- -- -- -- (20,493)
Tax benefit from
exercise of
stock options -- -- 54,842 -- -- -- -- -- --
Amortization of
ESOP obligation -- -- 1,242 -- -- -- -- 1,758 --
Exercise of stock
warrants 2,381 24 14,872 -- -- -- -- -- --
Cash dividends
declared and
other equity
distributions -- -- 175 (36,005) -- -- -- -- --
Adjustment to
reflect change
in Advance Ross
and Ideon fiscal
years -- -- -- (50,039) -- -- -- -- --
Conversion of
convertible notes 2,126 21 13,670 -- -- -- -- -- --
Net unrealized gain
on marketable
securities -- -- -- -- 1,341 -- -- -- --
Purchase of common
stock -- -- -- -- -- -- -- -- (10,083)
Retirement of
treasury stock (624) (5) (10,077) -- -- -- -- -- 10,083
Currency
translation
adjustment -- -- -- -- -- (3,404) -- -- --
Net income -- -- -- 302,825 -- -- -- -- --
------- ------- --------- --------- ----------- ---------- ------------ -------- --------
Balance,
December 31, 1995 700,362 7,004 994,814 1,202,589 593 (25,356) -- -- (30,998)
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED RESTRICTED
ADDITIONAL GAIN (LOSS) ON CURRENCY STOCK,
COMMON STOCK PAID-IN RETAINED MARKETABLE TRANSLATION DEFERRED UNEARNED TREASURY
SHARES AMOUNT CAPITAL EARNINGS SECURITIES ADJUSTMENT COMPENSATION ESOP STOCK
------- ------- --------- --------- ----------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 700,362 $7,004 $ 994,814 $1,202,589 $ 593 $(25,356) $ -- $ -- $(30,998)
Hebdo Mag
adjustment 14,203 142 16,705 718 -- 1,612 -- -- --
Issuance of common
stock 70,961 710 1,654,009 (34,137) -- -- -- -- --
Exercise of stock
options by
payment of cash
and common stock 14,010 140 78,161 -- -- -- -- -- (25,620)
Restricted stock
issuance 1,365 13 30,472 -- -- -- (30,485) -- --
Amortization of
restricted stock -- -- -- -- -- -- 2,273 -- --
Tax benefit from
exercise of
stock options -- -- 78,844 -- -- -- -- -- --
Cash dividends
declared -- -- -- (29,402) -- -- -- -- --
Adjustment to
reflect change
in Davidson,
Sierra & Ideon
fiscal years -- -- -- (4,674) -- -- -- -- --
Adjustment to
reflect change
in PHH fiscal
year (67) (1) (634) (2,405) -- 2,380 -- -- --
Conversion of
convertible
notes 3,822 39 18,051 -- -- -- -- -- --
Net unrealized
gain on
marketable
securities -- -- -- -- 3,741 -- -- -- --
Purchase of
common stock -- -- -- -- -- -- -- -- (19,152)
Currency
translation
adjustment -- -- -- -- -- 8,912 -- -- --
Net income -- -- -- 423,611 -- -- -- -- --
------- ------ ---------- ---------- ------ -------- -------- ------- --------
Balance,
December 31, 1996 804,656 $8,047 $2,870,422 $1,556,300 $4,334 $(12,452) $(28,212) $ -- $(75,770)
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
OPERATING ACTIVITIES 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 423,611 $ 302,825 $ 286,590
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 177,725 117,031 103,667
Membership acquisition costs (638,182) (605,058) (508,807)
Amortization of membership costs 641,272 556,548 467,019
Gain on sales of mortgage servicing rights (5,194) (17,400) (28,076)
Deferred income taxes 56,523 22,632 58,387
Increase (decrease) from changes in:
Receivables (162,566) (184,801) (103,688)
Accounts payable, accrued expenses and other current liabilities 149,387 136,595 (33,804)
Deferred income 23,386 83,533 60,220
Other 28,127 (55,027) (100,004)
----------- ----------- -----------
694,089 356,878 201,504
----------- ----------- -----------
Increase (decrease) from changes in assets
under management and mortgage programs:
Depreciation and amortization under management and
mortgage programs 1,021,761 960,913 869,807
Mortgage loans held for sale (73,308) (139,520) 42,562
----------- ----------- -----------
948,453 821,393 912,369
----------- ----------- -----------
Net cash provided by operating activities 1,642,542 1,178,271 1,113,873
----------- ----------- -----------
INVESTING ACTIVITIES
Assets under management and mortgage programs:
Investment in leases and leased vehicles (1,738,426) (2,008,559) (1,703,690)
Payments received on investment in leases and leased vehicles 595,852 576,670 593,155
Proceeds from sales and transfers of leases and
leased vehicles to third parties -- 109,859 105,087
Additions to originated mortgage servicing rights (164,393) (130,135) (41,920)
Proceeds from sales of mortgage servicing rights 7,113 21,742 36,836
Repayment of advances on homes under management 4,348,857 6,070,490 5,059,017
Equity advances on homes under management (4,307,978) (6,238,538) (4,989,953)
----------- ----------- -----------
(1,258,975) (1,598,471) (941,468)
Property and equipment additions (140,626) (108,702) (73,804)
Proceeds from sales of marketable securities 137,277 255,916 136,977
Purchases of marketable securities (125,551) (138,198) (161,585)
Loans and investments (12,721) (33,783) (42,524)
Net assets acquired, exclusive of cash acquired (1,688,294) (145,789) (63,437)
Funding of grantor trusts (89,849) -- --
Other 33,634 (23,821) 27,355
----------- ----------- -----------
Net cash used in investing activities (3,145,105) (1,792,848) (1,118,486)
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from borrowings $ 2,150,404 $ 1,858,826 $ 1,413,699
Principal payments on borrowings (1,649,040) (1,282,911) (1,252,979)
Net change in short term borrowings under
management and mortgage programs 231,819 17,419 27,852
Issuance of common stock 1,222,199 100,806 46,401
Purchases of common stock (19,152) (10,083) (25,885)
Redemption of warrants -- 14,877 --
Payment of dividends of pooled entities (27,782) (30,971) (29,199)
Other (81,620) -- (50,043)
----------- ----------- -----------
Net cash provided by financing activities 1,826,828 667,963 129,846
----------- ----------- -----------
Effect of changes in exchange rates
on cash and cash equivalents (46,321) 6,545 2,665
----------- ----------- -----------
Net increase in cash and cash equivalents 277,944 59,931 127,898
Cash and cash equivalents, beginning of period 355,959 296,028 168,130
----------- ----------- -----------
Cash and cash equivalents, end of period $ 633,903 $ 355,959 $ 296,028
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 307,600 $ 285,400 $ 207,900
=========== =========== ===========
Taxes $ 89,400 $ 90,700 $ 87,600
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Cendant Corporation (formerly CUC International
Inc. ("CUC")), together with its subsidiaries and its joint ventures (the
"Company") is a leading global provider of services to businesses serving
consumer industries. On December 17, 1997, the Company merged with HFS
Incorporated ("HFS"), which has been accounted for as a pooling of
interests. The Company primarily engages in three business segments:
membership services, travel and real estate.
MEMBERSHIP SERVICES SEGMENT BUSINESSES:
o Membership. The Company provides individual, wholesale and discount
program membership services to consumers which are distributed through
various channels, including through financial institutions, credit
unions, charities, other cardholder-based organizations and retail
establishments. These memberships include such components as shopping,
travel, auto, dining, home improvement, lifestyle, credit card and
checking account enhancement packages, financial products and discount
programs. The Company also administers insurance package programs
which are generally combined with discount shopping and travel for
credit union members, distributes welcoming packages which provide new
homeowners with discounts from local merchants, and provides travelers
with value-added tax refunds.
TRAVEL SEGMENT BUSINESSES:
o Lodging franchise. The Company franchises guest lodging facilities and
provides operational and administrative services to its franchisees.
As franchisor, the Company licenses the owners and operators of
independent hotels to use the Company's brand names. Services include
access to a national reservation system, national advertising and
promotional campaigns, co-marketing programs and volume purchasing
discounts.
o Car rental. The Company licenses the Avis trademark to Avis
Rent A Car, Inc. ("ARAC"). In addition, the Company operates the
telecommunications and computer processing system which services ARAC
for reservations, rental agreement processing, accounting and fleet
control for which the Company charges ARAC at cost. The Company also
provides similar franchise services to licensees other than ARAC.
o Timeshare. The Company is a provider of timeshare exchange programs,
publications and other travel related services to the timeshare
industry.
o Fleet management. The Company provides services which primarily
consist of the management, purchasing, leasing, and resale of vehicles
for corporate clients and government agencies. These services also
include fuel, maintenance, safety and accident management programs and
other fee-based services for clients' vehicle fleets.
F-11
<PAGE>
REAL ESTATE SEGMENT BUSINESSES:
o Real estate franchise. The Company franchises residential real estate
brokerage offices and provides operational and administrative services
to its franchisees. As franchisor, the Company licenses the owners and
operators of independent real estate brokerage offices to use the
Company's brand names. The Company provides services designed to
increase franchisee revenue and profitability including national
advertising and promotions, referrals, training and volume purchasing
discounts.
o Relocation. The Company provides relocation services to client
corporations which include the responsibility of selling transferee
residences, providing equity advances on transferee residences for the
purchase of new homes and certain home management services. The
Company also offers fee-based programs such as home marketing
assistance, household goods moves, destination services and property
dispositions for financial institutions and government agencies.
o Mortgage services. The Company provides services which primarily
include the origination, sale and servicing of residential first
mortgage loans. The Company markets a variety of first mortgage
products to consumers through relationships with corporations,
affinity groups, financial institutions, real estate brokerage firms
and other mortgage banks.
OTHER SEGMENT BUSINESSES: The Company develops, publishes and distributes
educational and entertainment software for home and school use and provides
marketing and other services to casino gaming facilities. Also included in
other segment businesses is the equity in the earnings from its investment
in ARAC.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts and transactions of the Company together
with its joint ventures and its wholly owned and majority owned
subsidiaries except for the Company's ownership of ARAC, which is accounted
for under the equity method. The accompanying consolidated financial
statements have been restated for the business combinations accounted for
as poolings of interests (as discussed in Note 2) as if such combined
companies had operated as one entity since inception. All material
intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS: The Company considers highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation is computed by the
straight-line method over the estimated useful lives of the related assets.
FRANCHISE AGREEMENTS: Franchise agreements are recorded at their estimated
fair values upon acquisition and amortized on a straight-line basis over
the estimated period to be benefited, ranging from 12 to 40 years. At
December 31, 1996 and 1995, accumulated amortization amounted to $87.9
million and $65.9 million, respectively.
GOODWILL: Goodwill, which represents the excess of cost over fair value of
net assets acquired is being amortized on a straight-line basis over the
estimated useful lives, ranging from 5 to 40 years. At December
F-12
<PAGE>
31, 1996 and 1995, accumulated amortization amounted to $168.6 million and
$74.1 million, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company periodically evaluates the
recoverability of its long-lived assets, comparing the respective carrying
values to the current and expected future cash flows to be generated from
such assets. Property and equipment is evaluated separately within each
business segment. The recoverability of franchise agreements and goodwill
are evaluated on a separate basis for each acquisition and each respective
franchise brand.
MEMBERSHIP ACQUISITION COSTS: Membership acquisition costs are deferred and
charged to operations as membership fees are recognized. These costs, which
relate directly to membership solicitations (direct response advertising
costs), principally include: postage, printing, kits, mailings,
publications (including coupon books) and telemarketing costs.
Substantially all of these costs are incurred for services performed by
outside sources. Such costs are amortized on a straight-line basis as
revenues are realized over the average membership period (generally one to
three years). The membership acquisition costs incurred, applicable to
obtaining a new member, for memberships other than coupon book memberships,
generally approximate the initial membership fee. Initial membership fees
for coupon book memberships generally exceed the membership acquisition
costs incurred applicable to obtaining a new member. However, if membership
acquisitions costs were to exceed the membership fee, an appropriate
adjustment would be made for any significant impairment.
Amortization of membership acquisition costs, including deferred renewal
costs, which consist principally of charges from sponsoring institutions
and publications, amounted to $641.3 million, $556.5 million and $467.0
million for the years ended December 31, 1996, 1995 and 1994, respectively.
All advertising costs other than direct response advertising costs are
expensed in the period incurred. Such amounts, exclusive of amounts
recorded as part of marketing and reservation expense, were $273.9 million,
$172.3 million and $133.8 million for the years ended December 31, 1996,
1995 and 1994, respectively.
Membership fees are generally billed through financial institutions and
other cardholder based institutions and are recorded as deferred membership
income upon acceptance of membership, net of estimated cancellations, and
pro-rated over the membership period.
SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF SOFTWARE REVENUE:
Capitalization of software development costs begins upon the establishment
of technological feasibility of the product. Costs meeting this criteria
are insignificant and, therefore, most costs related to designing,
development and testing new software products are charged to operating
expenses as incurred. Software research and development costs aggregated
$66.2 million, $52.9 million and $36.3 million for the years ended December
31, 1996, 1995 and 1994, respectively. Software net revenue included in
other was $375.2 million, $291.9 million and $191.0 million for the years
ended December 31, 1996, 1995 and 1994, respectively. Costs of software
revenue include material costs, manufacturing labor and overhead and
royalties paid to developers and affiliated label publishers. Costs of
software revenue are included in operating expenses and aggregated $109.6
million, $115.3 million and $73.3 million for the years ended December 31,
1996, 1995 and 1994, respectively.
The Company has a history of working closely with all of its distributors
and retailers with respect to selling consumer software. As a result, the
Company monitors the sales of its consumer software at all of its
significant points of sale on a regular basis. Therefore, the Company has
extensive data on returns by product on an on-going basis and does not have
any significant obligations for future performance. Accordingly, the
Company has the ability to estimate the amount of future returns and
accurately determine the amount of revenue that should be recognized in
accordance with Statement of Position 91-1 "Software Revenue Recognition"
at any point in time.
REVENUE RECOGNITION: Revenue primarily consists of fees for providing
services to businesses in consumer industries.
Membership revenue: Membership fees are generally billed through financial
institutions and other cardholder based institutions and are recorded as
deferred membership income upon acceptance of membership, net of estimated
cancellations. Membership fees are recognized over the average membership
period, generally one to three years. Deferred membership income is
classified as non-current in the supplemental consolidated balance sheet
since working capital will not be required as the deferred income is
recognized over future periods.
Franchise revenue: Franchise revenue principally consists of royalty,
marketing and reservation fees which are based on a percentage of
franchised lodging properties' gross room sales and franchised real estate
F-13
<PAGE>
brokerage offices' gross commissions earned on sales of residential real
estate properties. Royalty, marketing and reservation fees are accrued as
the underlying franchisee revenue is earned. Franchise revenue also
includes initial franchise fees which are recorded as revenue when the
lodging property, car rental location or real estate brokerage office
opens as a franchised unit.
Relocation revenue: Relocation revenue primarily consists of the purchase,
management and resale of homes and fee based home related services for
transferred employees of corporate clients, members of affinity group
clients and government agencies. Although the Company acquires the home of
client employees, the client corporation reimburses the Company for
carrying costs until the home is sold and for home sale losses.
Accordingly, the Company earns a fee for services with minimal real estate
risk. Revenues associated with the resale of a residence are recognized
when services are performed.
Timeshare revenue: Timeshare exchange fees are recognized as revenue when
the exchange request has been confirmed to the subscriber. Timeshare
subscription revenue is deferred upon receipt and recorded as revenue as
the contractual services (delivery of publications) are provided to
subscribers.
Fleet management revenue: Revenues from fleet management services other
than leasing are recognized over the period in which services are provided
and the related expenses are incurred. The Company records the cost of
leased vehicles as "net investment in leases and leased vehicles". Amounts
charged to lessees for interest on the unrecovered investment are credited
to income on a level yield method which approximates the contractual
terms.
Mortgage services revenue: Loan origination fees and direct loan
origination costs are deferred until the loan is sold. Servicing fees are
credited to income when received. Sales of mortgage loans are generally
recorded on the date a loan is delivered to an investor. Sales of mortgage
securities are recorded on the settlement date.
The Company records mortgage servicing rights at the time a loan is sold
by allocating cost based on the relative fair value of assets acquired, as
long as the recorded amount is less than the servicing rights' fair value.
The carrying value of mortgage servicing rights is amortized in proportion
to, and over the period of, estimated net servicing income.
Gains or losses on the sale of mortgage servicing rights are recognized
when title and all risks and rewards have irrevocably passed to the buyer
and there are no significant unresolved contingencies.
The Company reviews the recoverability of mortgage servicing rights based
on their fair value, and records impairment to individual strata. For
measuring impairment, the interest rate bands of the underlying loans are
the risk characteristic used to stratify the capitalized servicing
portfolio. To determine the fair value of mortgage servicing rights, the
Company uses market prices for comparable mortgage servicing, when
available, or alternatively uses a valuation model that calculates a
present value for mortgage servicing rights with assumptions that market
participants would use in estimating future net servicing income.
INCOME TAXES: The Company uses the liability method of recording deferred
income taxes. Differences in financial and tax reporting result from
differences in the recognition of income and expenses for financial and
income tax purposes as well as differences between the fair value of
assets acquired in business combinations accounted for as purchases and
their respective tax bases. The Company and its subsidiaries file a
consolidated federal income tax return for periods subsequent to each
acquisition.
F-14
<PAGE>
NET INCOME PER SHARE: Net income per share has been computed based upon
the weighted average number of common and common equivalent shares
outstanding during the respective periods after giving effect to the
mergers and acquisitions accounted for in accordance with the pooling of
interests method of accounting (See Note 2) and stock splits (See Note
15). The $240 million 4-3/4% Convertible Senior Notes issued in February
1996 are antidilutive for all respective periods and, accordingly, are not
included in the computations of earnings per share. In addition, the $150
million 4-1/2% Convertible Senior Notes issued in October 1994 are
antidilutive for the year ended December 31, 1994 and, accordingly, are
not included in the computation of earnings per share for 1994.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION: The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123
"Accounting for Stock-Based Compensation" and applies Accounting Principle
Board Opinion ("APB") No. 25 and related interpretations in accounting for
its stock option plans. Under APB No. 25, because the exercise prices of
the Company's employee stock options are equal to the market prices of the
underlying Company stock on the date of grant, no compensation expense is
recognized (See Note 16).
DERIVATIVE FINANCIAL INSTRUMENTS: As a matter of policy, the Company does
not engage in derivatives trading or market-making activities. Rather,
derivative financial instruments including interest rate swaps and forward
exchange contracts are used by the Company principally in the management
of its interest rate exposures and foreign currency exposures on
intercompany borrowings. Additionally, the Company enters into forward
delivery contracts, financial futures programs and options to reduce the
risks of adverse price fluctuation with respect to both mortgage loans
held for sale and anticipated mortgage loan closings arising from
commitments issued.
Amounts to be paid or received under interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the
swap agreements as an adjustment to interest expense. The fair values of
the swap agreements are not recognized in the consolidated financial
statements since they are accounted for as hedges. Market value gains and
losses on the Company's foreign currency transaction hedges are recognized
in income and substantially offset by the related foreign exchange
transaction gains and losses. Market value gains and losses on positions
used as hedges in the mortgage banking services operations are deferred
and considered in the valuation of lower of cost or market value of
mortgage loans held for sale.
TRANSLATION OF FOREIGN CURRENCIES: Assets and liabilities of foreign
subsidiaries are translated at the exchange rates as of the balance sheet
dates, equity accounts are translated at historical exchange rates and
revenues, expenses and cash flows are translated at the average exchange
rates for the periods presented. Translation gains and losses are included
in shareholders' equity. Gains and losses resulting from the change in
exchange rates realized upon settlement of foreign currency transactions
are substantially offset by gains and losses realized upon settlement of
forward exchange contracts. Therefore, the resulting net income effect of
transaction gains and losses in the years ended December 31, 1996, 1995
and 1994, was not significant.
RECLASSIFICATIONS: Certain reclassifications have been made to the
historical financial statements of the Company and HFS to conform to the
restated presentation.
F-15
<PAGE>
2. BUSINESS COMBINATIONS
In connection with the underlying pooling of interests business
combinations, the accompanying consolidated financial statements have been
prepared as if the Company and all such pooled companies had operated as
one entity since inception.
1997 POOLINGS
On December 17, 1997, the Company completed a merger with HFS (the
"Cendant Merger") by issuing 440.0 million shares of its common stock in
exchange for all of the outstanding common stock of HFS. Pursuant to the
terms of the agreement and plan of merger, HFS stockholders received
2.4031 shares of Company common stock for each share of HFS common stock.
Upon consummation of the Cendant Merger, the Company changed its name from
CUC International Inc. to Cendant Corporation. In connection with the
Cendant Merger, the Company changed its fiscal year end from January 31 to
December 31. HFS had a calendar year end and, accordingly, the HFS
statements of income for the years ended December 31, 1996, 1995 and 1994
have been combined with the Company's statements of income for the fiscal
years ended January 31, 1997, 1996 and 1995, respectively.
On October 3, 1997, the Company, through a wholly-owned subsidiary
("Acquisition Sub"), acquired all of the outstanding capital stock of
Hebdo Mag International Inc. ("Hebdo Mag") pursuant to the terms of a
share purchase agreement dated August 13, 1997 among the Company,
Acquisition Sub, Hebdo Mag and other parties thereto. The purchase price
of approximately $440.0 million was satisfied by the issuance of 14.2
million shares of Company common stock. Hebdo Mag is a leading publisher
and distributor of classified advertising information. In connection with
the merger, Hebdo Mag's statement of income for the twelve month period
ended December 31, 1996 has been combined with the Company's statement of
income for the fiscal year ended January 31, 1997.
On April 30, 1997, prior to being merged with and into the Company, HFS
acquired PHH Corporation ("PHH") by merger (the "HFS/PHH Merger") which
was satisfied by the issuance of 72.8 million equivalent shares of Company
common stock in exchange for all of the outstanding common stock of PHH.
PHH is the world's largest provider of corporate relocation services and
also provides mortgage services and fleet management services. Prior to
the HFS/PHH Merger, PHH had an April 30 fiscal year end. In connection
with the HFS/PHH Merger, PHH prepared financial statements for the twelve
month periods ended December 31, 1996, January 31, 1996 and January 31,
1995. To conform to a calendar year end, the PHH statements of income for
the aforementioned twelve month periods have been combined with the HFS
statements of income for the years ended December 31, 1996, 1995 and 1994,
respectively. In combining PHH's twelve month periods to the HFS calendar
years, the consolidated statement of income for the year ended December
31, 1996 included one month (January 1996) of PHH's operating results
which was also included in the consolidated statement of income for the
year ended December 31, 1995. Accordingly, an adjustment has been made to
1996 retained earnings for the duplication of net income of $8.3 million
and cash dividends declared of $5.9 million for such one month period.
During February 1997, the Company acquired substantially all of the assets
and assumed specific liabilities of Numa Corporation ("Numa") for $73.5
million. The purchase price was satisfied by the issuance of 3.4 million
shares of Company common stock. Numa publishes personalized heritage
publications and markets
F-16
<PAGE>
and sells personalized merchandise.
1996 POOLINGS
During July 1996, the Company acquired all of the outstanding capital
stock of Davidson & Associates, Inc. ("Davidson") for a purchase price of
approximately $1 billion, which was satisfied by the issuance of 45.1
million shares of Company common stock. Also during July 1996, the Company
acquired all of the outstanding capital stock of Sierra On-Line, Inc.
("Sierra") for a purchase price of $858.0 million, which was satisfied by
the issuance of 38.4 million shares of Company common stock. Davidson and
Sierra develop, publish and distribute educational and entertainment
software for home and school use. During August 1996, the Company acquired
all of the outstanding capital stock of Ideon Group, Inc. ("Ideon"),
principally a provider of credit card enhancement services, for a purchase
price of $393 million, which was satisfied by the issuance of 16.6 million
shares of Company common stock.
During 1995, prior to being merged into the Company, Davidson and Sierra
acquired all of the outstanding capital stock of various companies by
issuing an aggregate of .8 million and 3.9 million equivalent shares of
Company common stock, respectively. During 1994, Davidson acquired all of
the outstanding shares of a company by issuing .8 million equivalent
shares of Company common stock.
Davidson, Sierra and Ideon previously used the fiscal years ended December
31, March 31 and December 31, respectively, for their financial reporting.
To conform to the Company's January 31 former fiscal year end, Davidson's
and Ideon's operating results for January 1996 have been excluded from,
and Sierra's operating results for February and March 1996 have been
duplicated in the Company's year ended January 31, 1997 operating results.
The excluded and duplicated periods have been adjusted by a net $4.7
million charge to retained earnings at December 31, 1996. Effective
January 1, 1995, Ideon changed its fiscal year end from October 31 to
December 31 (the "Ideon Transition Period"). The Ideon Transition Period
has been excluded from the accompanying consolidated statements of income.
Ideon's revenues and net loss for the Ideon Transition Period were $34.7
million and $49.9 million, respectively. This excluded period has been
adjusted by a $49.9 million charge to retained earnings at December 31,
1995. The net loss for the Ideon Transition Period was principally the
result of a $65.5 million one-time, non-cash, pre-tax charge recorded in
connection with a change in amortization periods for deferred membership
acquisition costs. Prior to the change, membership acquisition costs were
generally amortized up to ten years for single year membership periods and
up to twelve years for multi-year membership periods. These amortization
periods represented the estimated life of the member. At December 31,
1994, the amortization periods were shortened to one year and three years
for single and multi-year membership periods, respectively (initial
membership period without regard for anticipated renewals).
In 1996, the Company acquired outstanding stock or substantially all of
the assets and liabilities of certain other entities for an aggregate
purchase price of $202.1 million, consisting of 8.3 million shares of
Company common stock.
1995 POOLINGS
During June 1995, the Company acquired all of the outstanding capital
stock of Getko Group, Inc. ("Getko") for a purchase price of $100.0
million, which was satisfied by the issuance of 5.6 million shares of
Company common stock. Getko distributes complimentary welcoming packages
to new homeowners throughout the
F-17
<PAGE>
United States and Canada. During September 1995, the Company acquired all
of the outstanding capital stock of North American Outdoor Group, Inc.
("NAOG") for a purchase price of $52.0 million, which was satisfied by the
issuance of 2.3 million shares of Company common stock. NAOG owns one of
the largest for-profit hunting and general interest fishing membership
organizations in the United States, and also owns various other membership
organizations. During January 1996, the Company acquired all of the
outstanding capital stock of Advance Ross Corporation ("Advance Ross") for
a purchase price of $183.0 million, which was satisfied by the issuance of
8.9 million shares of Company common stock. Advance Ross processes
value-added tax refunds for travelers in over 20 European countries.
Getko, NAOG, and Advance Ross previously used the fiscal years ended
November 30, December 31 and December 31, respectively for their financial
reporting. To conform to the Company's January 31 former fiscal year end,
Getko's operating results for December 1993 and January 1994 and NAOG's
operating results for January 1994 have been excluded from the Company's
year ended January 31, 1995 operating results in the consolidated
financial statements. The excluded periods have been adjusted by a net
$4.1 million charge to retained earnings at December 31, 1994. In
addition, Advance Ross' operating results for January 1995 have been
excluded from the year ended January 31, 1996 operating results in the
consolidated financial statements. This excluded period has been adjusted
by a $0.1 million charge to retained earnings at December 31, 1995.
The following table presents the historical results of the Company and the
pooled entities for the last complete periods prior to their respective
mergers ($000's):
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED SEPTEMBER 30, ------------------------------------------------
1997 (UNAUDITED) 1996 1995 1994
-------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues
The Company $ 2,002,597 $ 2,347,655 $ 1,401,551 $ 1,044,669
HFS (inclusive of PHH) 1,749,477 1,436,457 1,056,890 892,120
Hebdo Mag 137,941 124,668 - -
1996 Pooled Entities - - 533,681 371,715
1995 Pooled Entities - - - 138,227
------------ ------------- ------------- -------------
$ 3,890,015 $ 3,908,780 $ 2,992,122 $ 2,446,731
============ ============= ============= =============
Net income
The Company $ 252,082 $ 164,099 $ 164,669 $ 117,591
HFS (inclusive of PHH) 142,057 257,241 157,850 122,533
Hebdo Mag 6,555 2,271 - -
1996 Pooled Entities - - (19,694) 39,491
1995 Pooled Entities - - - 6,975
------------ ------------- ------------- -------------
$ 400,694 $ 423,611 $ 302,825 $ 286,590
============ ============= ============= =============
</TABLE>
F-18
<PAGE>
The following table shows the historical results of HFS and PHH for the
periods prior to the HFS/PHH Merger ($000's):
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH 31, ------------------------------------------------
1997 (UNAUDITED) 1996 1995 1994
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues
HFS $ 347,962 $ 785,980 $ 411,299 $ 312,081
PHH 178,635 650,477 645,591 580,039
------------ ------------- ------------- -------------
Total $ 526,597 $ 1,436,457 $ 1,056,890 $ 892,120
============ ============= ============= =============
Net income
HFS $ 58,940 $ 169,584 $ 79,730 $ 53,489
PHH 32,164 87,657 78,120 69,044
------------ ------------- ------------- -------------
Total $ 91,104 $ 257,241 $ 157,850 $ 122,533
============ ============= ============= =============
</TABLE>
PURCHASE BUSINESS COMBINATIONS
The acquisitions discussed below were accounted for using the purchase
method of accounting; accordingly, assets acquired and liabilities assumed
were recorded at their estimated fair values. The operating results of
such acquired companies are reflected in the Company's consolidated
statements of income since the respective dates of acquisition.
The following tables reflect the fair values of assets acquired and
liabilities assumed in connection with the acquisitions described below.
<TABLE>
<CAPTION>
(IN MILLIONS) ACQUIRED IN 1996
-----------------------------------------------------
COLDWELL
RCI AVIS BANKER OTHER
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Cash paid $ 412.1 $ 367.2 $ 747.8 $ 210.4
Common stock issued 75.0 338.4 - 70.8
Notes issued - 100.9 - 5.0
--------- -------- ----------- -----------
Total consideration 487.1 806.5 747.8 286.2
--------- -------- ----------- -----------
Assets acquired 439.1 783.9 541.7 94.8
Liabilities assumed 429.7 311.4 148.5 50.9
--------- -------- ----------- -----------
Fair value of net assets acquired 9.4 472.5 393.2 43.9
--------- -------- ----------- -----------
Goodwill $ 477.7 $ 334.0 $ 354.6 $ 242.3
========= ======== =========== ===========
Shares issued 2.4 11.1 46.6 2.5
========= ======== =========== ===========
</TABLE>
F-19
<PAGE>
(IN MILLIONS) ACQUIRED IN 1995
-------------------------------
CENTURY 21 OTHER
----------- ------------
Cash paid $ 100.2 $ 122.5
Common stock issued 64.8 40.8
Preferred stock issued 80.0 -
----------- ------------
Total consideration 245.0 163.3
----------- ------------
Assets acquired 120.6 67.2
Liabilities assumed 75.3 56.2
----------- ------------
Fair value of net assets acquired 45.3 11.0
----------- ------------
Goodwill $ 199.7 $ 152.3
=========== ============
Shares issued 9.6 6.0
=========== ============
RESORT CONDOMINIUMS INTERNATIONAL, INC.: In November 1996, HFS completed
the acquisition of all the outstanding capital stock of Resort
Condominiums International, Inc. and its affiliates ("RCI") for $487.1
million. The purchase agreement provides for contingent payments of up to
$200.0 million over the next five years which are based on components
which measure RCI's future performance, including EBITDA, net revenues and
number of members, as defined. Any contingent payments made will be
accounted for as additional goodwill.
AVIS: In October 1996, HFS completed the acquisition of all of the
outstanding capital stock of ARAC, initially including payments under
certain employee stock plans of Avis and the redemption of certain series
of preferred stock of Avis for an aggregate $806.5 million. Subsequently,
HFS made contingent cash payments of: (a) during the first quarter of
1997, $17.6 million to General Motors Corporation ("GM"), representing the
amount by which the value attributable under the stock purchase agreement
to HFS common stock received by GM in the Avis acquisition exceeded the
proceeds realized upon the subsequent sale of such Company common stock;
and (b) during the fourth quarter of 1996, $26.0 million of credit
facility termination fees which were not at HFS's discretion since the
facility termination resulted from change of control provisions and the
elimination of the Avis Employee Stock Ownership Plan in connection with
the Avis acquisition.
In September 1997, ARAC completed an IPO resulting in a 72.5% dilution of
HFS's investment in ARAC, the Company that operated the car rental
operations of HFS Car Rental, Inc. Net proceeds approximating $359.3
million retained by ARAC were used to fund its August 20, 1997 acquisition
of The First Gray Line Corporation and repay ARAC indebtedness. See Note
23 for a discussion of HFS's executed business plan and related accounting
treatment regarding Avis.
COLDWELL BANKER CORPORATION: In May 1996, HFS acquired by merger Coldwell
Banker Corporation ("Coldwell Banker"), the largest gross revenue
producing residential real estate company in North America and a leading
provider of corporate relocation services. HFS paid $640.0 million in cash
for all of the outstanding capital stock of Coldwell Banker and repaid
$105.0 million of Coldwell Banker indebtedness. The aggregate purchase
price for the transaction was financed through the May 1996 sale of an
aggregate 46.6 million equivalent shares of Company common stock pursuant
to a public offering. Subsequent to the acquisition of Coldwell Banker,
HFS acquired for $2.8 million a relocation consulting firm which was
merged into the Coldwell Banker relocation business.
F-20
<PAGE>
Immediately following the closing of the Coldwell Banker acquisition, HFS
conveyed Coldwell Banker's 318 owned real estate brokerage offices (the
"Owned Brokerage Business") to National Realty Trust (the "Trust"), an
independent trust in which HFS has no beneficial interest. HFS recorded a
$5.0 million charge ($3.1 million, net of tax) in the second quarter of
1996 representing the fair value of operations contributed to the Trust.
The charge represents the fair value of the Owned Brokerage Business based
upon a valuation which considered earnings, cash flow, assets and business
prospects to the contributed business.
OTHER: During 1996, the Company and HFS acquired certain entities for an
aggregate purchase price of $286.2 million.
CENTURY 21: In August 1995, a majority owned subsidiary of HFS, C21
Holding Corp. ("Holding"), acquired Century 21 Real Estate Corporation
("Century 21"), the world's largest residential real estate brokerage
franchisor. Aggregate consideration for the acquisition consisted of
$245.0 million plus expenses, including an initial cash payment of $70.2
million, 9.6 million equivalent shares of Company common stock valued at
$64.8 million, the assumption of $80.0 million of Century 21 redeemable
preferred stock issued prior to the acquisition (subsequently redeemed in
February 1996) and a $30.0 million contingent payment made in February
1996.
HFS and certain stockholders sold approximately 15.4 million equivalent
shares of Company common stock pursuant to a public offering in September
1995 (the "C21 Offering"). Included in the C21 Offering were 9.6 million
equivalent Company shares issued as partial consideration for the
acquisition of Century 21. In accordance with Century 21 acquisition
agreements, HFS received $28.9 million representing proceeds from the sale
of such shares in excess of $7.28 per equivalent Company share, net of
certain expenses of the C21 Offering. In connection with the C21 Offering,
HFS also received $20.1 million of proceeds, net of certain expenses from
the sale of shares issued upon the exercise of an underwriter
over-allotment option. Net proceeds from the C21 Offering received by HFS
resulted in corresponding increases in stockholders' equity.
In connection with the acquisition, HFS executed an agreement (the
"Subscription and Stockholders' Agreement"), with a management group
pursuant to which the ownership of Century 21 Holding Corp. common stock
would be divided 87.5% to HFS and 12.5% to the management group. In
addition, the management group executives entered into renewable
employment agreements with HFS with initial terms that commenced on
November 1, 1995 and would expire on December 31, 1997. HFS had a call
option to purchase Holding common stock owned by the management group and
the management group had a put option to require HFS to purchase all their
Holding common stock after January 1, 1998 at fair market value. Effective
October 29, 1996 (the "Effective Date"), HFS amended the Subscription and
Stockholders' Agreement to provide that HFS's call option to purchase
Holding common stock at fair value from the management group would be
accelerated to the Effective Date with the fair value determined as of the
Effective Date. Pursuant to such amendment, the employment agreements were
terminated in October 1996 and the put and call options have been
exercised. The 12.5% interest was acquired by HFS for $52.8 million in the
second quarter of 1997.
OTHER: During 1995, the Company and HFS collectively acquired certain
entities for an aggregate purchase price of $163.3 million.
PRO FORMA INFORMATION (UNAUDITED): The following information reflects pro
forma statements of income data for the years ended December 31, 1996 and
1995 assuming the aforementioned completed acquisitions were consummated
on January 1, 1995.
F-21
<PAGE>
The 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 with appropriate recognition given
to the effect of current interest rates and income taxes. Management does
not expect that the final allocation of the purchase prices for the above
acquisitions will differ materially from the preliminary allocations. The
pro forma results are not necessarily indicative of the operating results
that would have occurred had the transactions been consummated as
indicated nor are they intended to indicate results that may occur in the
future. The underlying pro forma information includes the amortization
expense associated with the assets acquired, the reflection of the
Company's and HFS's financing arrangements, the elimination of redundant
costs and the related income tax effects.
($000's, except per share amounts) YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995
------------- ------------
Net revenue $ 4,475,262 $ 3,809,181
Income before income taxes 797,042 634,898
Net income 473,359 378,577
Net income per share:
Primary $ .57 .48
Fully diluted $ .56 .47
Weighted average shares outstanding:
Primary 844,798 803,548
Fully diluted 851,091 817,628
3. MERGER AND RELATED COSTS AND OTHER UNUSUAL CHARGES
1997 POOLINGS (UNAUDITED)
The Company expects to incur merger and related costs and other unusual
charges in connection with the fourth quarter 1997 mergers with HFS and
Hebdo Mag approximating $825.0 million ($560.0 million, after tax).
HFS recorded a one-time merger and related charge (the "PHH Merger
Charge") of $303.0 million ($227.0 million, after tax) during the second
quarter of 1997 in connection with the HFS/PHH Merger. The PHH Merger
Charge is summarized by type as follows (in millions):
Personnel related $ 142.4
Professional fees 36.8
Business terminations 44.7
Facility related 57.1
Other costs 22.0
-------------
Total $ 303.0
=============
Personnel related charges are comprised of costs incurred in connection
with employee reductions associated with the combination of HFS's
relocation services business and the consolidation of corporate
activities. Personnel related charges include termination benefits such as
severance, medical and other benefits. Also included in personnel related
charges are supplemental retirement benefits resulting from the change of
control. Several grantor trusts were established and funded by HFS to pay
such benefits in accordance with the terms of the PHH merger agreement.
Full implementation of the restructuring plan will result in the
termination of
F-22
<PAGE>
approximately 500 employees, substantially all of whom are located in
North America, of which 369 employees were terminated as of September 30,
1997. Professional fees are primarily comprised of investment banking,
accounting and legal fees incurred in connection with the HFS/PHH Merger.
Business termination charges relate to the exit from certain activities
associated with fleet management, mortgage services and ancillary
operations in accordance with HFS's revised strategic plan. Facility
related expenses include costs associated with contract and lease
terminations, asset disposal and other charges incurred in connection with
the consolidation and closure of excess space.
The Company anticipates that approximately $236.0 million will be paid in
cash in connection with the PHH Merger Charge of which $137.0 million was
paid through September 30, 1997. The remaining cash portion of the PHH
Merger Charge will be financed through cash generated from operations and
borrowings under the Company's revolving credit facilities. Revenue and
operating results from activities that will not be continued are not
material to the results of operations of the Company.
1996 POOLINGS
Principally in connection with the Davidson, Sierra and Ideon mergers, the
Company recorded a charge to operations of approximately $179.9 million
($118.7 million, after-tax) for the year ended December 31, 1996.
The charge is summarized by type, as follows ($000's):
Personnel related $ 18.6
Professional fees and litigation 95.3
Facility related 66.0
---------
$ 179.9
=========
Such costs in connection with the Davidson & Sierra mergers with the
Company (approximately $48.6 million) are non-recurring and are comprised
primarily of transaction costs, other professional fees and exit costs.
Such costs associated with the Company's merger with Ideon (the "Ideon
Merger") (approximately $131.3 million) are non-recurring and include
transaction and exit costs as well as a provision relating to certain
litigation matters giving consideration to the Company's intended approach
to these matters. In determining the amount of the provision related to
these outstanding litigation matters, the Company estimated the cost of
settling these litigation matters. In estimating such cost, the Company
considered potential liabilities related to these matters and the
estimated cost of prosecuting and defending them (including out-of-pocket
costs, such as attorneys' fees, and the cost to the Company of having its
management involved in numerous complex litigation matters). The Company
has since settled certain of these litigation matters while certain of
these matters remain outstanding. Although the Company has attempted to
estimate the amounts that will be required to settle remaining litigation
matters, there can be no assurance that the actual aggregate amount of
such settlements will not exceed the amount accrued (See Note 13). As of
September 30, 1997, such charges amounted to $155.7 million. The Company
considered litigation-related costs and liabilities, as well as exit and
transaction costs, in determining the agreed upon exchange ratio in
respect to the Ideon Merger.
In determining the amount of the provision related to the Company's
proposed consolidation efforts, the Company estimated the significant
severance costs to be accrued upon the consummation of the Ideon Merger
and costs relating to the expected obligations for certain third-party
contracts (e.g., existing leases and vendor agreements) to which Ideon is
a party and which are neither terminable at will nor automatically
terminate upon a change-in-control of Ideon. As a result of the Ideon
Merger, 120 employees were terminated. The Company
F-23
<PAGE>
incurred significant exit costs because Ideon's credit card registration
and enhancement services are substantially similar to the Company's credit
card registration and enhancement services. All of the business activities
related to the operations performed by Ideon's Jacksonville, Florida
office were transferred to the Company's Comp-U- Card Division in
Stamford, Connecticut upon the consummation of the Ideon Merger. The
Company does not expect any loss in revenue as a result of these
consolidation efforts.
COSTS RELATED TO IDEON PRODUCTS ABANDONED AND RESTRUCTURING
During the year ended December 31, 1995, Ideon incurred special charges
totaling $43.8 million, net of recoveries, related to the abandonment of
certain new product developmental efforts and the related impairment of
certain assets and the restructuring of the SafeCard division of Ideon and
the Ideon corporate infrastructure as discussed below. The original charge
of $45.0 million was composed of accrued liabilities of $36.2 million and
asset impairments of $8.8 million. In December 1995, Ideon recovered $1.2
million of costs in the above charges. Also included in costs related to
the Ideon merger and products abandoned are marketing and operational
costs incurred for products abandoned of $53.2 million. During the year
ended December 31, 1996, all remaining amounts that had been previously
accrued were paid.
During 1995, the following costs related to products abandoned and
restructuring were incurred. In early 1995, Ideon launched an expanded PGA
TOUR Partners program that provided various benefits to members and
consumer response rates after the launch were significantly less than
Ideon management's expectations. The product as configured was deemed not
economically viable and a charge of $18 million was incurred. Costs
associated with the abandonment of the product marketing included employee
severance payments (approximately 130 employees), costs to terminate
equipment and facilities leases, costs for contract impairments and
write-downs taken for asset impairments. In September 1995, after a period
of product redesign and test marketing, Ideon discontinued its PGA TOUR
Partners credit card servicing role and recorded a charge of $3.6 million
for costs associated with the abandonment of this role, including employee
severance payments (approximately 60 employees), costs to terminate
equipment and facilities leases and the recognition of certain
commitments. In April 1995, Ideon launched a nationwide child registration
and missing child search program. Consumer response rates after the launch
were significantly less than Ideon management's expectations and a charge
of $9 million was incurred to cover severance payments (approximately 100
employees), costs to terminate equipment and facilities leases and
write-down taken for asset impairments. As a result of the discontinuance
of these products, Ideon undertook an overall restructuring of its
operations and incurred charges of $7.2 million to terminate operating
leases and write-down assets to realizable value, $3.0 million for
restructuring its SafeCard division and $4.2 million for restructuring its
corporate infrastructure.
During 1994, costs related to products abandoned and restructuring were
incurred when Ideon reorganized its operations and named a new senior
management team, resulting in $7.9 million of charges for various
severance agreements and a lease termination.
PURCHASE BUSINESS COMBINATION LIABILITIES
In connection with the acquisitions of Century 21, Coldwell Banker, RCI
and certain other acquisitions related business plans were developed to
restructure each of the respective companies. Acquisition liabilities were
recorded at the dates of consummation and are included in the respective
purchase price allocations. These liabilities include costs associated
with restructuring activities such as planned involuntary termination and
relocation of employees, the consolidation and closing of certain
facilities and the elimination of duplicative
F-24
<PAGE>
operating and overhead activities. Accrued acquisition obligations related
to each acquired entity are summarized by type as follows ($000's):
COLDWELL
CENTURY 21 BANKER RCI OTHER
---------- ----------- ----------- ----------
Personnel related $ 12,647 $ 4,237 $ 9,845 $ 5,542
Facility related 16,511 5,491 6,929 3,851
Other costs 990 211 7,025 880
---------- ----------- ----------- ----------
Total $ 30,148 $ 9,939 $ 23,799 $ 10,273
========== =========== =========== ==========
Terminated employees 319 87 252 275
Personnel related charges include termination benefits such as severance,
wage continuation, medical and other benefits. Facility related costs
include contract and lease terminations, temporary storage and relocation
costs associated with assets to be disposed of, and other charges incurred
in the consolidation and closure of excess space.
During 1995, approximately $14.3 million was paid and charged against the
acquisition liability for restructuring charges related to the Century 21
acquisition. During 1996, approximately $11.3 million, $3.9 million, $0.5
million and $7.7 million was paid and charged against the acquisition
liabilities for restructuring charges related to the Century 21, Coldwell
Banker, RCI and certain other acquisitions, respectively. Additional
restructuring charges were accrued during 1996 for Century 21 of $6.1
million. The adjustment to the restructuring liability represented revised
cost estimates for activities contemplated in management's original
restructuring plans.
The business plans to restructure Century 21, Coldwell Banker, RCI and
certain other acquisitions have been fully executed. Remaining accrued
acquisition obligations related to the restructuring of such acquired
companies pertain primarily to future lease commitments and other
contractual obligations that existed at the respective acquisition dates.
4. OTHER INTANGIBLES - NET
Other intangibles - net consisted of ($000's):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
BENEFIT PERIODS ------------------------------
IN YEARS 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Avis trademark 40 $ 400,000 $ --
Customer lists 6.5 - 10 113,976 --
Reservation system 10 95,000 --
Contract renewal rights 2 - 16 90,695 90,345
------------- -------------
699,671 90,345
Less accumulated amortization 63,441 51,500
------------- -------------
Other intangibles - net $ 636,230 $ 38,845
============= =============
</TABLE>
Other intangibles are recorded at their estimated fair values at the dates
acquired and are amortized on a straight-line basis over the periods to be
benefited.
F-25
<PAGE>
5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities consisted
of ($000's):
YEAR ENDED
DECEMBER 31,
---------------------------
1996 1995
------------- ------------
Accounts payable $ 535,978 $ 407,437
Short-term debt 250,930 --
Merger and acquisition obligations 167,238 13,227
Accrued payroll and related 157,032 88,364
Advances from relocation clients 78,761 95,869
Other 475,007 314,160
------------- -----------
Accounts payable, accrued expenses and other
current liabilities $ 1,664,946 $ 919,057
============= ===========
Short-term debt at December 31, 1996 consisted of $150 million of acquired
Avis fleet financing, borrowed on behalf of ARAC, which was repaid upon
settlement of the corresponding intercompany loan due from ARAC prior to
the IPO and a $100.9 million note payable issued to ARAC as partial
consideration for ARAC in connection with the Company's acquisition of
ARAC. The outstanding short-term debt as of December 31, 1996 had a
weighted average interest rate of 6.85%.
6. NET INVESTMENT IN LEASES AND LEASED VEHICLES
The net investment in leases and leased vehicles consisted of ($000's):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Vehicles under open-end operating leases $ 2,617,263 $ 2,585,953
Vehicles under closed-end operating leases 443,853 320,894
Direct financing leases 356,699 335,498
Accrued interest on leases 851 891
------------- -------------
Net investments in leases and leased vehicles $ 3,418,666 $ 3,243,236
============= =============
</TABLE>
The Company leases vehicles for initial periods of twelve months or more
under either operating or direct financing lease agreements. The Company's
experience indicates that the full term of the leases may vary
considerably due to extensions beyond the minimum lease term. Lessee
repayments of investments in leases and leased vehicles for 1996 and 1995
were $1.6 billion and $1.5 billion, respectively, and the ratio of such
repayments to the average net investment in leases and leased vehicles was
47.19% and 47.96%, respectively.
Vehicles under operating leases are amortized using the straight-line
method over the expected lease term. The Company has two types of
operating leases. Under one type, open-end operating leases, resale of the
vehicles upon termination of the lease is generally for the account of the
lessee except for a minimum residual value which the Company has
guaranteed. The Company's experience has been that vehicles under this
type of lease agreement have consistently been sold for amounts exceeding
the residual value guarantees. Maintenance and repairs of vehicles under
these agreements are the responsibility of the lessee. The original cost
and accumulated depreciation of vehicles under this type of operating
lease was $4.6 billion and $2.0 billion, respectively, at December 31,
1996 and $4.4 billion and $1.8 billion, respectively, at December 31,
1995.
F-26
<PAGE>
Under the other type of operating lease, closed-end operating leases,
resale of the vehicles on termination of the lease is for the account of
the Company. The lessee generally pays for or provides maintenance,
vehicle licenses and servicing. The original cost and accumulated
depreciation of vehicles under these agreements was $600.6 million and
$156.7 million, respectively at December 31, 1996 and $482.9 million and
$162.0 million, respectively, at December 31, 1995. The Company believes
adequate reserves are maintained in the event of loss on vehicle
disposition.
Under the direct financing lease agreements, resale of the vehicles upon
termination of the lease is generally for the account of the lessee.
Maintenance and repairs of these vehicles are the responsibility of the
lessee.
Leasing revenues, which are reflected in fleet leasing on the consolidated
statements of income consist of ($000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Operating leases $ 1,145,745 $ 1,098,697 $ 982,416
Direct financing leases, primarily interest 43,323 42,375 41,688
------------- ------------- -------------
$ 1,189,068 $ 1,141,072 $ 1,024,104
============= ============= =============
</TABLE>
Other managed vehicles are subject to leases serviced by the Company for
others, and neither the vehicles nor the leases are included as assets of
the Company. The Company receives a fee under such agreements which covers
or exceeds its cost of servicing.
The Company has transferred existing managed vehicles and related leases
to unrelated investors and has retained servicing responsibility. Credit
risk for such agreements is retained by the Company to a maximum extent in
one of two forms: excess assets transferred, which were $7.1 million and
$5.9 million at December 31, 1996 and 1995, respectively; or guarantees to
a maximum extent of $0 and $263,000 at December 31, 1996 and 1995,
respectively. All such credit risk has been included in the Company's
consideration of related reserves. The outstanding balances under such
agreements aggregated $158.5 million and $98.4 million at December 31,
1996 and 1995, respectively.
Other managed vehicles with balances aggregating $93.9 million and $114.9
million at December 31, 1996 and 1995, respectively, are included in a
special purpose entity which is not owned by the Company. This entity does
not require consolidation as it is not controlled by the Company and all
risks and rewards rest with the owners. Additionally, managed vehicles
totaling approximately $47.4 million and $48.5 million at December 31,
1996 and 1995, respectively, are owned by special purpose entities which
are owned by the Company. However, such assets and related liabilities
have been netted in the balance sheet since there is a two-party agreement
with determinable accounts, a legal right of setoff exists and the Company
exercises its right of setoff in settlement with client corporations.
7. MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are recorded at the lower of cost or market
value on the aggregate loan basis. The Company issues mortgage-backed
certificates insured or guaranteed by various government sponsored
entities and private insurance agencies. Primarily, the insurance or
guaranty is provided on a non-recourse basis to the Company, except where
limited by the Federal Housing Administration and Veterans Administration
and their respective loan program. The valuation reserve was approximately
$10.1 million and $1.9 million at December
F-27
<PAGE>
31, 1996 and 1995, respectively. As of December 31, 1996, mortgage loans
sold with recourse amounted to approximately $83.0 million.
8. MORTGAGE SERVICING RIGHTS AND FEES
Mortgage servicing rights and fees activity was as follows ($000's):
<TABLE>
<CAPTION>
EXCESS PURCHASED ORIGINATED
SERVICING SERVICING SERVICING IMPAIRMENT
FEES RIGHTS RIGHTS ALLOWANCE TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 75,529 $ 8,808 $ - $ - $ 84,337
Additions 24,679 17,241 - - 41,920
Amortization (13,512) (6,772) - - (20,284)
Sales (8,729) (31) - - (8,760)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 77,967 19,246 - - 97,213
Additions 51,191 17,849 61,095 - 130,135
Amortization (18,609) (5,858) (4,089) - (28,556)
Write-down/provision (1,630) - - (1,386) (3,016)
Sales (1,080) (3,262) - - (4,342)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 107,839 27,975 57,006 (1,386) 191,434
Less: PHH activity for January
1996 to reflect change in
PHH fiscal year (3,623) (170) (10,227) 183 (13,837)
Additions 66,825 - 97,568 - 164,393
Amortization (31,235) (4,763) (15,752) - (51,750)
Write-down/provision - - - 622 622
Sales (1,291) (628) - - (1,919)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 $ 138,515 $ 22,414 $ 128,595 $ (581) $ 288,943
========== ========== ========== =========== ===========
</TABLE>
Excess servicing fees represent the present value of the differential
between the actual servicing fees and normal servicing fees which are
capitalized at the time loans are sold with servicing rights retained.
Purchased servicing rights represent the cost of acquiring the rights to
service mortgage loans for others. Originated servicing rights represents
the present value of normal servicing fees which are capitalized at the
time loans are sold with servicing rights retained.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights" (SFAS No. 122). This
Statement requires that mortgage servicing rights be recognized when a
mortgage loan is sold and servicing rights are retained. The Company
adopted SFAS No. 122 effective May 1, 1995 and, accordingly, capitalized
originated servicing rights, net of amortization and valuation allowances
of approximately $82.4 million and $55.6 million in the years ended
December 31, 1996 and 1995, respectively.
SFAS No. 122 requires that a portion of the cost of originating a mortgage
loan be allocated to the mortgage servicing rights based on the fair value
of the servicing rights' relative to the loan as a whole. To determine the
fair value of mortgage servicing rights, the Company uses market prices
for comparable mortgage servicing, when available, or alternatively uses a
valuation model that calculates the present value of future net servicing
income using assumptions that market participants would use in estimating
future net servicing income.
F-28
<PAGE>
SFAS No. 122 also requires the impairment of originated and purchased
servicing rights to be measured based on the difference between the
carrying amount and current fair value of the servicing rights. In
determining impairment, the Company aggregates all mortgage servicing
rights, excluding those capitalized prior to the adoption of SFAS No. 122,
and stratifies them based on the predominant risk characteristic of
interest rate band. For each risk stratification, a valuation allowance is
maintained for any excess of amortized book value over the current fair
value by a charge or credit to income.
Prior to the adoption of SFAS No. 122, the Company reviewed the
recoverability of purchased servicing rights by discounting anticipated
future cash flows at appropriate discount rates, utilizing externally
published prepayment rates. If the recorded balance exceeded the
discounted anticipated future cash flows, the amortization of the
purchased servicing rights was accelerated on a prospective basis.
9. MARKETING AND RESERVATION ACTIVITIES
The Company receives marketing and reservation fees from several of its
lodging and real estate franchisees. Marketing and reservation fees
related to the Company's lodging brands' franchisees are calculated based
on a specified percentage of gross room sales. Marketing and reservation
fees received from the Company's real estate brands' franchisees are based
on a specified percentage of gross closed commissions earned on the sale
of real estate. As provided in the franchise agreements, at the Company's
discretion, all of these fees are to be expended for marketing purposes
and the operation of a centralized brand-specific reservation system for
the respective franchisees and are controlled by the Company until
disbursement. Membership and service fee revenues included marketing and
reservation fees of $157.6 million, $140.1 million, $130.6 million for the
years ended December 31, 1996, 1995 and 1994, respectively. Advertising
expenses included in marketing and reservation expense are $55.2 million,
$48.0 million and $43.6 million for the years ended December 31, 1996,
1995 and 1994, respectively.
10. LONG-TERM DEBT
Long-term debt consists of ($000's):
DECEMBER 31,
-----------------------------
1996 1995
------------ -------------
Revolving Credit Facilities $ 330,205 $ 15,400
5-7/8% Senior Notes 149,811 149,715
4-1/2% Convertible Senior Notes 146,678 149,971
4-3/4% Convertible Senior Notes 240,000 --
Other loans and capital lease obligations 148,925 41,140
------------ -------------
1,015,619 356,226
Less current portion 11,035 2,249
------------ -------------
Long-term debt $ 1,004,584 $ 353,977
============ =============
REVOLVING CREDIT FACILITIES: At December 31, 1996, the Company had a
$500.0 million revolving credit facility (the "CUC Credit Facility") with
a variety of different types of loans available thereunder. Interest was
payable, depending on the type of loan utilized by the Company, at a
variety of rates based on the federal funds rate, LIBOR, the prime rate or
rates quoted by participating banks based on an auction process for the
CUC Credit Facility. At December 31, 1996, no borrowings under this
facility were outstanding. The CUC Credit Facility required the Company to
maintain certain financial ratios and contained other restrictive
covenants
F-29
<PAGE>
including, without limitation, financial covenants and restrictions on
certain corporate transactions, and also contained various events of
default provisions including, without limitation, defaults arising from
certain changes in control of the Company.
At December 31, 1996, HFS had $1 billion in revolving credit facilities
consisting of (i) a $500.0 million, five year revolving credit facility
(the "Five Year Revolving Credit Facility") and (ii) a $500.0 million, 364
day revolving credit facility (the "364 Day Revolving Credit Facility" and
collectively with the Five Year Revolving Credit Facility, the "Revolving
Credit Facilities"). At December 31, 1996, there was $205.0 million
outstanding under the Revolving Credit Facilities and there were no
borrowings under such facility at December 31, 1995.
Upon consummation of the Cendant Merger, the CUC Credit Facility was
terminated and the Revolving Credit Facilities were maintained with
commitments aggregating $1.25 billion and $750.0 million under the 364 Day
Revolving Credit Facility and Five Year Revolving Credit Facility,
respectively. The 364 Day Revolving Credit Facility will mature on
September 30, 1998 but may be renewed on an annual basis for an additional
364 days upon receiving lender approval. The Five Year Revolving Credit
Facility will mature on October 1, 2001. The Revolving Credit Facilities,
at the option of the Company, bear interest based on competitive bids of
lenders participating in the facilities, at prime rates or at LIBOR plus a
margin of approximately 22 basis points. The Company is required to pay a
per annum facility fee of .08% and .06% of the average daily availability
of the Five Year Revolving Credit Facility and 364 Revolving Credit
Facility, respectively. The interest rates and facility fees are subject
to change based upon credit ratings on the Company's senior unsecured
long-term debt by nationally recognized statistical rating companies. The
Revolving Credit Facilities contain certain restrictive covenants
including restrictions on indebtedness, mergers, liquidations and sale and
leaseback transactions and requires the maintenance of certain financial
ratios, including a 3:1 minimum interest average ratio and a 3.5:1 maximum
coverage ratio, as defined.
During the year ended December 31, 1996, Wright Express Corporation, a
wholly-owned subsidiary of the Company, entered into a new revolving
credit facility agreement replacing its previous revolving line of credit.
This facility has an available line of $60 million and expires February 8,
1999. Interest on the outstanding borrowings is computed, at the option of
Wright Express Corporation, under various methods. At December 31, 1996,
$31.4 million was outstanding under this facility with an interest rate of
6.04%. Borrowings under the previous arrangement at December 31, 1995
aggregated $15.4 million with interest rates ranging from 6.31% to 7.25%.
In connection with the acquisition of Hebdo Mag, the Company assumed a
$115.2 million revolving credit facility which bears interest at varying
rates ranging from the prime rate plus .25% to 1.5% or LIBOR plus 1.0% to
2.25%, depending upon Hebdo Mag's ratio of total debt to pro forma cash
flow, as defined. At December 31, 1996, $93.8 million was outstanding
under this facility. This facility expires on March 15, 1998 but may be
renewed on an annual basis for successive periods of one year upon
receiving lender approval.
Amounts outstanding under all revolving credit facilities as of December
31, 1996 and 1995 are classified as long-term, based on the Company's
intent and ability to maintain these loans on a long-term basis.
SENIOR NOTES: In December 1993, HFS completed a public offering of $150.0
million, unsecured 5-7/8% Senior Notes due December 15, 1998 (the "Senior
Notes"). Interest is payable semi-annually.
4-1/2% CONVERTIBLE SENIOR NOTES: In October 1994, HFS completed a public
offering of $150.0 million unsecured 4-1/2% Convertible Senior Notes (the
"4-1/2% Notes") due 1999, which were convertible at the
F-30
<PAGE>
option of the holders at any time prior to maturity into 132.425
equivalent shares of Company common stock per $1,000 principal amount of
the 4-1/2% Notes, representing a conversion price of $7.55 per share.
Interest was payable semi-annually commencing April 1995.
On September 22, 1997, HFS exercised its option to redeem the outstanding
4-1/2% Notes effective on October 15, 1997 in accordance with the
provisions of the indenture under which the 4-1/2% Notes were issued.
Prior to the redemption date, all of the outstanding 4-1/2% Notes were
converted. Accordingly, 19.7 million equivalent shares of Company common
stock were issued as a result of the conversion of such notes.
4-3/4% CONVERTIBLE SENIOR NOTES: On February 22, 1996, HFS completed a
public offering of $240 million unsecured 4-3/4% Convertible Senior Notes
(the "4-3/4% Notes") due 2003, which are convertible at the option of the
holder at any time prior to maturity into 36.030 equivalent shares of
Company common stock per $1,000 principal amount of the 4-3/4% Notes,
representing a conversion price of $27.76 per share. The 4- 3/4% Notes are
redeemable at the option of the Company, in whole or in part, at any time
on or after March 3, 1998 at redemption prices decreasing from 103.393% of
principal at March 3, 1998 to 100% of principal at March 3, 2003. However,
on or after March 3, 1998 and prior to March 3, 2000, the 4-3/4% Notes
will not be redeemable at the option of the Company unless the closing
price of the Company's common stock shall have exceeded $38.86 per share
(subject to adjustment upon the occurrence of certain events) for 20
trading days within a period of 30 consecutive trading days ending within
five days prior to redemption. Interest on the 4- 3/4% Notes is payable
semi-annually commencing September 1, 1996.
OTHER LOANS AND CAPITAL LEASES OBLIGATIONS
Zero Coupon Convertible Notes: The Zero Coupon Convertible Notes issued
in connection with the Company's fiscal 1990 recapitalization were
recorded at their fair value on the date of issuance and were issued in
$100 principal amounts and multiples thereof. Each $100 principal amount
was convertible into 22.78 shares of Company common stock. Virtually all
of the Zero Coupon Convertible Notes were converted into Company common
stock by the maturity date of June 6, 1996. The principal balance
outstanding at December 31, 1995 was $14.4 million.
6-1/2% Convertible Subordinated Notes: On April 12, 1994, Sierra issued
$50.0 million in principal amount of 6-1/2% Convertible Subordinated Notes
due April 1, 2001 (the "6-1/2% Notes"). Interest on the 6-1/2% Notes is
payable semi-annually on April 1 and October 1 of each year. Each $7.62
principal amount of 6-1/2% Notes is convertible into one share of Company
common stock, subject to adjustment under certain conditions. The 6-1/2%
Notes are redeemable after April 2, 1997, at the option of the Company, at
specified redemption prices. The 6-1/2% Notes are subordinated to all
existing and future Senior Indebtedness (as defined in the indenture
governing the 6-1/2% Notes) of Sierra. Issuance costs have been netted
against the principal convertible debt balance and are being amortized on
a straight-line basis over seven years. The principal convertible debt
balance outstanding at December 31, 1996 and 1995 was $23.5 million and
$23.4 million, respectively.
Other: In connection with the acquisition of Hebdo Mag, the Company
assumed long-term debt of $110.5 million consisting of senior and
subordinated notes and other miscellaneous loans which is reflected in the
long-term debt balance at December 31, 1996.
F-31
<PAGE>
Long-term debt payments including obligations under capital leases at
December 31, 1996 are due as follows ($000's):
YEAR AMOUNT
----------- -------------
1997 $ 11,035
1998 167,797
1999 175,447
2000 34,900
2001 261,286
Thereafter 365,154
-------------
Total $ 1,015,619
=============
11. LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS
Borrowings to fund assets under management and mortgage programs,
classified as "Liabilities under management and mortgage programs-debt"
consisted of ($000's):
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
Commercial paper $ 3,090,843 $ 2,348,732
Medium-term notes 1,662,200 2,031,200
Other 336,900 47,940
------------- -------------
Liabilities under management and
mortgage programs - debt $ 5,089,943 $ 4,427,872
============= =============
Commercial paper, all of which matures within 90 days, is supported by
committed revolving credit agreements described below and short-term lines
of credit. The weighted average interest rates on the Company's
outstanding commercial paper was 5.4% and 5.8% at December 31, 1996 and
1995, respectively
Medium-term notes of $1.6 billion represent unsecured loans which mature
in 1997. The weighted average interest rates on such medium-term notes was
5.7% and 5.8% at December 31, 1996 and 1995, respectively. The remaining
$0.1 billion of medium-term notes represents an unsecured obligation
having a fixed interest rate of 6.5% with interest payable semi-annually
and a term of seven years payable in full in 2000.
Other liabilities under management and mortgage programs is principally
comprised of unsecured debt, all of which matures in 1997, which includes
borrowings under short-term lines of credit and other bank facilities. The
weighted average interest rate on unsecured debt was 5.8% and 6.9% at
December 31, 1996 and 1995, respectively.
Interest expense is incurred on indebtedness which is used to finance
vehicle leasing activities, mobility services, and mortgage servicing
activities. Interest incurred on borrowings used to finance vehicle
leasing activities of $161.8 million, $159.7 million and $126.7 million
for the years ended December 31, 1996, 1995, and 1994 respectively, is
included net within fleet leasing revenues in the consolidated statements
of income. Interest on borrowings used to finance both equity advances on
homes and mortgage servicing activities are recorded net within service
fee revenues in the consolidated statements of income. Interest related to
equity advances on homes was $35.0 million, $26.0 million and $20.0
million for the years ended December 31, 1996, 1995 and 1994,
respectively. Interest related to mortgage servicing activities was $63.4
million, $49.9 million and $32.8 million for the years ended December 31,
1996, 1995 and 1994, respectively.
F-32
<PAGE>
The Company has a $2.5 billion syndicated unsecured credit facility backed
by a consortium of domestic and foreign banks. The facility is comprised
of $1.25 billion of lines maturing in 364 days and $1.25 billion maturing
in five years. Under the credit facilities, the Company is obligated to
pay annual commitment fees which were $2.4 million and $2.3 million for
the years ended December 31, 1996 and 1995, respectively. The Company had
other unused lines of credit of $301.5 million and $327.9 million at
December 31, 1996 and 1995, respectively with various banks.
Although the period of service for a vehicle is at the lessee's option,
and the period a home is held for resale varies, management estimates, by
using historical information, the rate at which vehicles will be disposed
and the rate at which homes will be resold. Projections of estimated
liquidations of assets under management and mortgage programs and the
related estimated repayment of liabilities under management and mortgage
programs as of December 31, 1996, as set forth in the table below,
indicate that the actual repayments of liabilities under management and
mortgage programs will be different than required by contractual
maturities. ($000's):
ASSETS UNDER MANAGEMENT LIABILITIES UNDER MANAGEMENT
YEARS AND MORTGAGE PROGRAMS AND MORTGAGE PROGRAMS
----- ------------------------ ---------------------
1997 $ 2,961,264 $ 2,608,179
1998 1,539,172 1,471,407
1999 673,535 671,623
2000 318,643 217,143
2001 53,843 71,061
2002-2006 182,777 50,530
------------- -------------
$ 5,729,234 $ 5,089,943
============= =============
12. FAIR VALUE OF FINANCIAL INSTRUMENTS AND SERVICING RIGHTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for material financial instruments.
The fair values of the financial instruments presented may not be
indicative of their future values.
Marketable securities: Marketable securities primarily consist of
corporate bonds, tax-free municipal obligations, U.S. Treasury notes,
commercial paper and equity securities. The Company determines the
appropriate classification of marketable securities at the time of
purchase and reevaluates such designation as of each balance sheet date.
All securities at December 31, 1996 and 1995 were classified as
available-for-sale and were reported at fair value with the net unrealized
holding gains and losses, net of tax, reported as a component of
shareholders' equity until realized. Fair value was based upon quoted
market prices or investment adviser estimates. Securities not maturing
within one year are classified as non-current assets. Declines in the
market value of available-for-sale securities deemed to be other than
temporary result in charges to current earnings and the establishment of a
new cost basis. The majority of debt securities had contractual maturities
of less than one year with $4.0 million and $28.7 million having
maturities of greater than one year at December 31, 1996 and 1995,
respectively. Gross unrealized gains and losses of such securities were
not material.
Mortgage loans held for sale: Fair value is estimated using the quoted
market prices for securities backed by similar types of loans and current
dealer commitments to purchase loans. These loans are priced to be sold
with servicing rights retained. Gains (losses) on mortgage-related
positions, used to reduce the risk of adverse price
F-33
<PAGE>
fluctuations, for both mortgage loans held for sale and anticipated
mortgage loan closings arising from commitments issued, are included in
the carrying amount of mortgage loans held for sale.
Mortgage servicing rights and fees: Fair value is estimated by discounting
the expected net cash flow of servicing rights and fees using discount
rates that approximate market rates and externally published prepayment
rates, adjusted, if appropriate, for individual portfolio characteristics.
Long-term debt: The fair values of the Company's Senior Notes, Convertible
Notes and Medium-term Notes are estimated based on quoted market prices or
market comparables.
Interest rate swaps, foreign exchange contracts, forward delivery
commitments, futures contracts and options: The fair value of interest
rate swaps, foreign exchange contracts, forward delivery commitments,
futures contracts and options is estimated, using dealer quotes, as the
amount that the Company would receive or pay to execute a new agreement
with terms identical to those remaining on the current agreement,
considering interest rates at the reporting date.
F-34
<PAGE>
The carrying amounts and fair values of the Company's financial
instruments at December 31, are as follows ($000's):
<TABLE>
<CAPTION>
1996 1995
------------------------------------ -------------------------------------
ESTIMATED ESTIMATED
NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
----------- ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ - $ 633,903 $ 633,903 $ - $ 355,959 $ 355,959
Marketable securities:
Debt securities - 75,673 75,673 - 110,492 110,492
Equity securities - 22,500 22,500 - 15,353 19,200
Assets under management
and mortgage programs:
Receivables - 1,290,625 1,290,625 - 1,028,976 1,028,976
Relocation receivables - 773,326 773,326 - 736,038 736,038
Mortgage loans held for sale - 1,248,299 1,248,299 - 784,901 784,901
Excess mortgage servicing fees - 138,515 155,033 - 107,839 107,966
Originated mortgage servicing
rights - 128,014 139,776 - 55,620 58,764
Purchased mortgage servicing
rights - 22,414 29,326 - 27,975 33,268
Liabilities
Long-term debt - 1,004,584 1,484,277 - 353,977 543,092
Liabilities under management
and mortgage programs:
Debt - 5,089,943 5,089,943 - 4,427,872 4,427,872
Off balance sheet
Interest rate swaps 1,670,155 - - 2,630,567 - -
In a gain position - - 2,457 - - 4,969
In a loss position - - (10,704) - - (13,828)
Foreign exchange forwards 329,088 - 10,010 118,069 - 6,413
Mortgage-related positions:(a)
Forward delivery commitments 1,703,495 11,425 7,448 1,323,285 5,407 (6,997)
Option contracts to sell 265,000 952 746 330,000 839 69
Option contracts to buy 350,000 1,346 (463) 485,000 3,388 528
Treasury options used to hedge
servicing rights 313,900 1,327 278 - - -
</TABLE>
- ---------
(a) Gains (losses) on mortgage-related positions are already included in the
determination of market value of mortgage loans held for sale.
F-35
<PAGE>
13. COMMITMENTS AND CONTINGENCIES
LEASES: The Company has noncancelable operating leases covering various
equipment and facilities, which expire through 2004. Rental expense for
the years ended December 31, 1996, 1995 and 1994 was $84.4 million, $66.9
million and $54.5 million respectively, excluding real estate taxes and
other fees that are also the responsibility of the Company.
Operating lease commitments over the next five years and thereafter are as
follows ($000's):
FOR THE YEAR ENDING DECEMBER 31,
1997 $ 90,066
1998 77,543
1999 58,727
2000 45,335
2001 33,067
Thereafter 76,430
-------------
Total minimum lease payments $ 381,168
=============
The Company has been granted rent abatements for varying periods on
certain of its facilities. Deferred rent relating to those abatements is
being amortized on a straight-line basis over the applicable lease terms.
IDEON: On June 13, 1997, the Company entered into an agreement (the
"Agreement") with Peter Halmos, the co-founder of SafeCard Services,
Incorporated ("SafeCard"), which was reorganized in 1995 as Ideon. The
Company acquired Ideon in August 1996. The Agreement provides for the
settlement of all of the outstanding litigation matters involving Peter
Halmos, SafeCard and Ideon as set forth below. The Agreement became
effective in July 1997. The Agreement calls for the dismissal with
prejudice of these outstanding litigation matters and the payment to Peter
Halmos, over a six-year period, of $70.5 million. Specifically, the
Agreement requires that the Company pay Peter Halmos one up-front payment
of $13.5 million and six subsequent annual payments of $9.5 million each.
The Agreement also calls for the transfer to the Company of assets related
to SafeCard's CreditLine business, including the transfer by CreditLine
Corporation to the Company of all of the CreditLine Corporation's rights
under a marketing agreement between it and SafeCard dated November 1,
1988.
The following Halmos related cases have been dismissed pursuant to the
Agreement:
1. Halmos Trading & Investing Company v. SafeCard Services, Inc. and
Gerald Cahill v. Peter A. Halmos and Steven J. Halmos and Halmos
Trading & Investment Co., Case No. 93-04354 (06) in the Circuit Court
for the 17th Judicial Circuit in and for Broward County, Florida.
2. SafeCard Services, Inc. v. Peter Halmos, a Florida resident; High
Plains Capital Corporation, a Wyoming Corporation; and CreditLine
Corporation, a Wyoming corporation which is pending in the District
Court, First Judicial District of Laramie County, Wyoming; Case No.
Doc. 134, No. 192.
3. Peter Halmos, CreditLine Corporation and Continuity Marketing
Corporation v. Paul G. Kahn, William T. Bacon, Robert L.
Dilenschneider, Eugene Miller and SafeCard Services, Inc., in the
United States District Court, Southern District of Florida, Case No.
94-6920 CG-NESBITT.
F-36
<PAGE>
4. Peter Halmos v SafeCard Services, Inc., William T. Bacon, Jr., Barry
I. Tillis and Barry Natter, Case No. 95-6325 (AJ) filed in the
Circuit Court, Fifteenth Judicial Circuit, in and for Palm Beach
County Florida.
5. High Plains Capital Corporation f/k/a Halmos & Company, Inc v. Ideon
Group, Inc., SafeCard Services, Inc., Eugene Miller, Robert L.
Dilenschneider, and the Dilenschneider Group, Inc., Palm Beach
County, Florida, Civil Action No. CL 95 8313 AE (Hon. Walter
Colbath).
6. High Plains Capital Corporation v. Ideon Group, Inc., and SafeCard
Services, Inc., Civil Action No. 95 015024, Seventeenth Judicial
Circuit, Broward County, Florida.
The following Halmos related case will also be dismissed pursuant to the
Agreement:
7. Ideon Group, Inc., SafeCard Services, Inc., Paul G. Kahn, William T.
Bacon, Jr., Marshall L. Burman, John Ellis (Jeb) Bush, Robert L.
Dilenschneider, Adam W. Herbert, Eugene Miller, and Thomas F. Petway,
III v. Peter Halmos, Civil Action No. 14600, filed in the Court of
Chancery of New Castle County, Delaware.
On October 22, 1997, the plaintiffs, the Company and all of the Company's
indemnitees, entered into a Memorandum of Understanding and thereafter
filed final settlement agreements in James B. Chambers and Peter A. Halmos
v. SafeCard Services, Inc; Ideon Group, Inc.; Paul G. Kahn; William T.
Bacon, Jr.,; Robert L. Dilenschneider; The Dilenschneider Group; Eugene
Miller; G. Thomas Frankland; Francis J. Marino; John R. Birk; Marshall
Burman; Thomas F. Petway III; John Ellis Bush; Adam W. Herbert, Jr.; Price
Waterhouse LLP; Mahoney Adams & Criser, P.A. and John Does 1 through 25,
United States District Court, Southern District of Florida, Case No.
95-1298-CIV-NESBITT ("Chambers"); Lois Hekker v. Ideon Group, Inc. and
Paul G. Kahn, United States District Court, Middle District of Florida,
Jacksonville Division, Case No. 95-681-CIV-J ("Hekker"); and James L.
Binder, individually, as custodian for Elizabeth Binder, and as custodian
for the James L. Binder, D.D.S., P.C. Profit Sharing Trust; Edward Dubois;
Sheila Ann Dubois, as Personal Representative for The Estate of Winifred
Dubois; G. Neal Goolsby; John E. Masters, individually and as custodian
for Gregory Halmos and Nicholas Halmos; J.B. McKinney; on behalf of
themselves and all others similarly situated, and Peter A. Halmos, as
Trustee for the Peter A. Halmos Revocable Trust Dated January 24, 1990,
and The Halmos Foundation, Inc., individually, v. SafeCard Services, Inc.,
a Delaware corporation; Paul G. Kahn; William T. Bacon, Jr.; Robert L.
Dilenschneider; The Dilenschneider Group, a Delaware corporation; Eugene
Miller; Gerald R. Cahill; Oppenheimer & Co., Inc., a Delaware corporation;
and John Does 1 through 100, inclusive. United States District Court for
the Southern District of Florida, (Miami Division) Case No.
94-2604-CIV-MOORE ("Binder"). The above referenced settlement in the
Chambers and Hekker matters was for payment by the Company to class
members of $15.0 million. The settlement in the Binder litigation calls
for the payment by the Company to class members of $3.0 million. These
settlements must be approved by the court at hearings anticipated during
the first quarter of 1998.
The following actions remain pending, in whole or in part, as described
below:
A suit initiated by Peter Halmos, related entities, and Myron Cherry (a
former lawyer for SafeCard) in April 1993 in Cook County Circuit Court in
Illinois against SafeCard and one of Ideon's directors, purporting to
state claims aggregating in excess of $100.0 million, principally relating
to alleged rights to "incentive compensation," stock options or their
equivalent, indemnification, wrongful termination and defamation. On
February 7, 1995, the court dismissed with prejudice Peter Halmos' claims
regarding alleged rights to "incentive compensation," stock options or
their equivalent, wrongful termination and defamation. Mr. Halmos has
appealed this ruling. SafeCard has filed an answer to the remaining
indemnification claims. Its obligation to file an answer to the
F-37
<PAGE>
claims of Myron Cherry have been stayed pending settlement discussions. On
December 28, 1995, the court stayed Halmos' indemnification claims pending
resolution of a declaratory judgment action filed by Ideon in Delaware
Chancery Court. As a result of the Halmos settlement described above, only
the claims of Myron Cherry remain pending.
A suit seeking monetary damages and injunctive relief by LifeFax, Inc. and
Continuity Marketing Corporation, companies affiliated with Peter Halmos,
in the State Circuit Court in Palm Beach County, Florida in April 1995
against Ideon, Family Protection Network, Inc., SafeCard, one of Ideon's
directors and Ideon's Chief Executive Officer purporting to state various
statutory and tort claims. The claims principally relate to the allegation
by these companies that SafeCard's Early Warnings Service and Family
Protection Network were conceived and commercialized by, among others,
Peter Halmos and have been improperly copied. An amended complaint filed
on June 14, 1995 seeking monetary damages adds to the prior claims certain
claims by Nicholas Rubino that principally relate to the allegation that
SafeCard's Pet Registration Product was conceived by Mr. Rubino and has
been improperly copied. The company has filed an appropriate answer. As a
result of the Halmos settlement, all claims of Continuity Marketing
Corporation will be dismissed, leaving pending only the claims related to
Family Protection Network and the Pet Registration Program.
A suit by First Capital Partners, Thomas F. Frist III and Patricia F.
Elcan against Ideon and two of its employees in the United States District
Court for the Southern District of New York. The litigation involves
claims against Ideon, its former CEO and its Vice President of Investor
Relations for alleged material misrepresentations and omissions in
connection with announcements relating to Ideon's expected earnings per
share in 1995 and its new product sales, which included the PGA Tour Card
Program, Family Protection Network and Collections of the Vatican Museums.
On July 15, 1996, Ideon filed a motion to dismiss. The company withdrew
its motion to dismiss and answered the complaint on December 5, 1996.
The Company established a reserve upon the consummation of the merger with
Ideon during the third quarter of 1996 related, in part, to these
litigation matters. Although not anticipated, in the event the foregoing
class action settlements are not approved by the Court, the outcome of the
class action matters described above as well as the other pending Ideon
matters could also exceed the amount accrued. The Company is also involved
in certain other claims and litigation arising in the ordinary course of
business, which are not considered material to the financial position,
operations or cash flows of the Company.
F-38
<PAGE>
14. INCOME TAXES
The income tax provision (benefit) consists of ($000's):
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------ ------------- -------------
Current
Federal $ 149,290 $ 108,767 $ 106,831
State 19,561 22,050 19,738
Foreign 21,254 14,744 11,261
------------- ------------- -------------
190,105 145,561 137,830
------------- ------------- -------------
Deferred
Federal $ 83,308 $ 52,447 $ 36,687
State 15,462 1,299 5,460
Foreign 1,184 1,200 (235)
------------- ------------- -------------
99,954 54,946 41,912
------------- ------------- ------------
Provision for income taxes $ 290,059 $ 200,507 $ 179,742
============= ============= ============
Net deferred income tax assets and liabilities are comprised of the
following ($000's):
DECEMBER 31,
-------------------------
1996 1995
--------- ----------
Provision for doubtful accounts $ 8,100 $ 7,600
Deferred income 46,400 7,800
Acquisition and litigation related reserves 62,700 14,446
Franchise acquisition costs (2,600) (2,400)
Insurance retention refund (11,306) (9,773)
Accrued liabilities and deferred income 37,591 29,915
Other 366 2,975
---------- ----------
Current net deferred tax asset $ 141,251 $ 50,563
========== ==========
Depreciation and amortization $ (173,597) $ (78,742)
Accrued liabilities and deferred income 65,165 22,239
Acquired net operating loss carryforward 85,900 --
Insurance retention refund (11,306) (9,773)
Acquisition and litigation related reserves -- 8,175
Other (12,932) (1,798)
------------ -----------
Noncurrent net deferred tax liability $ (46,770) $ (59,899)
============ ===========
F-39
<PAGE>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
Depreciation $ (245,146) $ (223,337)
Unamortized mortgage servicing rights (51,239) (23,489)
Accrued liabilities and deferred income 1,359 2,101
Alternative minimum tax and net operating loss
carryforwards 13,078 9,807
----------- ----------
Net deferred tax liabilities under management
and mortgage programs $ (281,948) $ (234,918)
=========== ===========
Net operating loss carryforwards at December 31, 1996 acquired in
connection with the acquisition of Avis, Inc. expire as follows: 2001,
$14.8 million; 2002, $89.6 million; 2005, $7.2 million; 2009, $17.7
million; and 2010, $116.0 million.
The Company's effective income tax rate differs from the statutory federal
rate as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes net of federal benefit 3.0% 3.6% 3.4%
Amortization of non-deductible goodwill 1.2% 1.4% 1.2%
Foreign taxes differential 0.3% 0.1% 0.3%
Tax exempt interest (0.2%) -- (0.6%)
Technology under development -- -- 0.3%
Non consolidated losses -- -- (0.2%)
Merger costs 1.4% -- --
Other (0.1%) (0.3%) (0.7%)
--------- -------- -------
Effective tax rate 40.6% 39.8% 38.7%
========= ======== =======
</TABLE>
15. SHAREHOLDERS' EQUITY
A. STOCK SPLITS: On September 26, 1996, the Company's Board of Directors
declared a three-for-two split of the Company's common stock which was
effected in the form of a stock dividend in October 1996. In each of
November 1995 and February 1994, HFS's Board of Directors authorized a
two-for-one split of HFS's common stock which was effected in the form of
a 100% stock dividend in February 1996 and April 1994, respectively. All
equivalent share, per share, stock price and stock award plan information
presented herein has been retroactively adjusted to reflect the stock
splits.
B. AUTHORIZED SHARES: In conjunction with the Cendant Merger effective on
December 17, 1997, the Company's shareholders approved an amendment to the
Company's Restated Certificate of Incorporation to increase the number of
authorized shares of common stock and preferred stock to 2 billion shares
and 10 million shares, respectively. The Company has never issued any
shares of preferred stock.
16. STOCK OPTION PLANS
In connection with the Cendant Merger, the Company adopted its 1997 Stock
Incentive Plan (the "Incentive Plan"). The Incentive Plan authorizes the
granting of up to 25 million shares of Company common stock through awards
of stock options (which may include incentive stock options and/or
nonqualified stock options), stock
F-40
<PAGE>
appreciation rights and shares of restricted Company common stock. All
directors, officers and employees of the Company and its affiliates are
eligible to receive awards under the Incentive Plan. Options granted under
the Incentive Plan generally have a ten year term and are exercisable at
20% per year commencing one year from the date of grant. During 1997, the
Company also adopted two other stock plans: the 1997 Employee Stock Plan
(the "1997 Employee Plan") and the 1997 Stock Option Plan (the "1997
SOP"). The 1997 Employee Plan authorizes the granting of up to 25 million
shares of Company common stock through awards of nonqualified stock
options, stock appreciation rights and shares of restricted Company common
stock to employees of the Company and its affiliates. The 1997 SOP
provides for the granting of up to 10 million shares of Company common
stock to key employees (including employees who are directors and
officers) of the Company and its subsidiaries through awards of incentive
and/or nonqualified stock options. Options granted under the 1997 Employee
Plan and the 1997 SOP generally have ten year terms and are exercisable
at 20% per year commencing one year from the date of grant.
The Company also grants options to employees pursuant to three additional
stock option plans: the 1992 Employee Stock Option Plan (the "1992 Plan"),
the 1992 Bonus and Salary Replacement Stock Option Plan (the "Replacement
Plan") and the 1987 Stock Option Plan (the "1987 Plan"). Under these
plans, the Company may grant options to purchase in the aggregate up to
90.8 million shares of Company common stock. At December 31, 1996, there
were outstanding in the aggregate options to purchase 35.5 million shares
of Company common stock pursuant to the 1992 Plan, the Replacement Plan
and the 1987 Plan. Options granted under the 1992 Plan generally are
exercisable at 20% per year commencing one year from the date of grant.
Options granted under the Replacement Plan generally are exercisable at
33% per year commencing one year from the date of grant. Options granted
under the 1987 Plan generally are exercisable at 25% per year commencing
one year from the date of grant. Options granted under these stock option
plans generally have 10-year terms. All options outstanding under these
plans are non-qualified stock options. These stock option plans include
options acquired by the Company in connection with its various
acquisitions accounted for in accordance with the pooling of interests
method of accounting (See Note 2).
The Company has granted options to its non-employee directors pursuant to
its 1994 Directors Stock Option Plan (the "1994 Directors Plan"). The 1994
Directors Plan provides that options to acquire an aggregate of up to .3
million shares of Company common stock shall be granted to non-employee
directors of the Company in office on each of November 23, 1994, 1995,
1996 and 1997. Options under the 1994 Directors Plan are exercisable in
full on the date of grant. At January 31, 1997, there also were
outstanding grants made to non-employee directors of the Company under the
Company's 1990 Directors Stock Option Plan (the "1990 Directors Plan") and
1992 Directors Stock Option Plan (the "1992 Directors Plan"), under which
the Company is no longer granting options.
The Company has certain other stock option plans pursuant to which it no
longer makes any new option grants, but pursuant to which there continues
to exist outstanding options to purchase shares of Company common stock.
These options generally expire ten years after their grant dates. Under
these plans, there are outstanding both non-qualified stock options and
incentive stock options to purchase 3.8 million shares of Company common
stock in the aggregate at January 31, 1997. These stock option plans
include plans assumed by the Company in connection with its acquisitions
of Sierra and Knowledge Adventure, Inc. during fiscal 1997.
Prior to the Cendant Merger, HFS had two stock option plans: the 1992
Stock Option Plan and the Amended and Restated 1993 Stock Option Plan.
These plans provided for the granting of options to certain directors,
officers, employees and independent contractors of HFS's common stock at
prices not less than the fair market values at the date of grant.
Generally, such stock options have a ten-year term and vest within five
years from the date
F-41
<PAGE>
of grant On December 17, 1997, in connection with the Cendant Merger, all
obligations under HFS's stock option plans were assumed by the Company.
Following the Cendant Merger, no further grants will be made under these
plans.
Prior to the HFS/PHH Merger, PHH had stock option plans for its key
employees and outside directors. The plans allowed for the purchase of
common stock at prices not less than fair market value on the date of
grant. Either incentive stock options or non-statutory stock options were
granted under the plans. Options became exercisable after one year from
date of grant on a vesting schedule provided by the plans and expired ten
years after the date of the grant. On April 30, 1997, in connection with
the HFS/PHH Merger, all unexercised PHH stock options were canceled and
converted to 1,770,852 equivalent shares of Company common stock. The
table below summarizes the annual activity of the Company's pooled stock
option plans (shares in 000's):
WEIGHTED
OPTIONS AVG. EXERCISE
OUTSTANDING PRICE
----------- ---------
BALANCE AT JANUARY 1, 1994 77,579 $ 4.86
Granted 23,878 9.90
Canceled (2,079) 6.36
Exercised (7,731) 3.93
Distribution of Chartwell Leisure Inc. 1,091 4.44
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 92,738 $ 6.20
Granted 21,098 10.74
Canceled (2,726) 8.48
Exercised (12,434) 5.39
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 98,676 $ 7.21
Granted 36,116 22.14
Canceled (2,838) 18.48
Exercised (14,010) 5.77
Less: PHH activity for January 1996
to reflect change in PHH fiscal year 48 8.78
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 117,992 $ 11.68
----------------------------------------------------------------------
F-42
<PAGE>
The Company adopted the disclosure-only provisions of SFAS No. 123 and
accordingly, no compensation cost was recognized in connection with its
stock option plans. Had the Company elected to recognize compensation cost
for its stock option plans based on the calculated fair value at the grant
dates for awards under such plans, consistent with the method prescribed
by SFAS No. 123, net income per share would have reflected the pro forma
amounts indicated below ($000's, except per share data):
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995
------------- -------------
Net income:
as reported $ 423,611 $ 302,825
pro forma 338,769 297,547
-------------------------------------------------------------------
Net income per share:
Primary as reported $ 0.53 $ 0.42
pro forma 0.43 0.41
Fully diluted as reported 0.52 0.41
pro forma 0.43 0.41
-------------------------------------------------------------------
The fair values of the stock options are estimated on the dates of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for options granted in 1996 and 1995:
<TABLE>
<CAPTION>
THE COMPANY PLANS HFS PLANS PHH PLANS
--------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
-------- -------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield 0% 0% 0% 0% 2.8% 3.5%
Expected volatility 28.0% 26.0% 37.5% 37.5% 21.5% 19.8%
Risk-free interest rate 6.3% 5.3% 6.4% 6.4% 6.5% 6.9%
Expected holding period 5 years 5 years 9.1 years 9.1 years 7.5 years 7.5 years
</TABLE>
The weighted average fair values of stock options granted during the years
ended December 31, 1996 and 1995 were $7.51 and $6.69, respectively for
the Company plans. The weighted average fair values of stock options
granted during the years ended December 31, 1996 and 1995 for the HFS
plans (inclusive of PHH Plans) were $10.96 and $4.79, respectively.
The effect of applying SFAS No. 123 on the pro forma net income per share
disclosures is not indicative of future amounts because it does not take
into consideration option grants made prior to 1995 or in future years.
F-43
<PAGE>
The tables below summarize information regarding pooled stock options
outstanding and exercisable of the Company as of December 31, 1996 (shares
in 000's):
<TABLE>
<CAPTION>
THE COMPANY/HFS OPTIONS OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- ---------------------------------------------- ----------------------------
WEIGHTED AVG. WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES SHARES LIFE PRICE SHARES PRICE
---------------------- --------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ .01 to $ 10.00 56,548 6.3 $ 4.19 43,460 $ 3.71
$ 10.01 to $ 20.00 31,597 8.2 14.50 8,781 15.04
$ 20.01 to $ 30.00 16,809 9.4 23.97 1,055 25.77
$ 30.01 to $ 40.00 6,331 9.6 31.78 226 31.37
--------- -----------
Total 111,285 7.5 11.67 53,522 6.12
========= ===========
PHH OPTIONS
Less than $6.87 3,489 4.5 $ 5.74 3,489 $ 5.74
Greater than $6.87 3,218 8.7 8.82 1,055 6.90
--------- -----------
Total 6,707 6.5 7.22 4,544 6.01
========= ===========
</TABLE>
Shares exercisable and available for grant were as follows (000's):
<TABLE>
<CAPTION>
THE COMPANY OPTIONS HFS OPTIONS PHH OPTIONS
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
--------------------- -------------------- ---------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Shares exercisable 11,819 12,193 41,703 17,012 4,544 5,890
Shares available for grant 8,358 10,013 3,958 84 1,182 3,316
</TABLE>
The Company has reserved 11,390,625 shares of Company common stock for
issuance in connection with its 1989 Restricted Stock Plan. As of December
31, 1996, 10,494,423 shares of restricted common stock had been granted
under this plan. During fiscal 1997, 720,000 shares of restricted common
stock were granted under the plan and 645,000 shares of restricted common
stock were granted other than under the plan. The aggregate fair value on
the date of grant of such restricted common stock was $30.5 million, which
amount was deducted from shareholders' equity and is being amortized over
the vesting period of 10 years.
The Company has reserved 1,125,000 shares of Company common stock in
connection with its 1994 Employee Stock Purchase Plan, which enables
employees to purchase shares of common stock from the Company at 90% of
the fair market value on the fifteenth day following the last day of each
calendar quarter, in an amount up to 25% of the employees' year-to-date
earnings.
17. EMPLOYEE BENEFIT PLANS
The Company sponsors several defined contribution plans that provide
certain eligible employees of the Company an opportunity to accumulate
funds for their retirement. The Company matches the contributions of
participating employees on the basis of the percentages specified in the
plans. During 1996, a Deferred Compensation Plan (the "Plan") was
implemented providing senior executives with the opportunity to
participate in a funded, deferred compensation program. The assets of the
Plan are held in an irrevocable rabbi
F-44
<PAGE>
trust. Under the Plan, participants may defer up to 80% of their base
compensation and up to 98% of bonuses earned. The Company contributes
$0.50 for each $1.00 contributed by a participant, regardless of length of
service, up to a maximum of six percent of the employee's compensation.
The Plan is not qualified under Section 401 of the Internal Revenue Code.
The Company's matching contributions relating to the above plans were not
material to the consolidated financial statements for all periods
presented.
PENSION AND SUPPLEMENTAL RETIREMENT PLANS
The Company's PHH subsidiary has a non-contributory defined benefit
pension plan covering substantially all US employees of PHH and its
subsidiaries. PHH's subsidiary located in the UK has a contributory
defined benefit pension plan, with participation at the employee's option.
Under both the US and UK plans, benefits are based on an employee's years
of credited service and a percentage of final average compensation. The
policy for both plans is to contribute amounts sufficient to meet the
minimum requirements plus other amounts as the Company deems appropriate
from time to time. The projected benefit obligations of the funded plans
were $97.1 million and 85.6 million and funded assets, at fair value
(primarily common stock and bond mutual funds) were $88.4 million and
$74.3 million at December 31, 1996 and 1995, respectively. The net pension
cost and the recorded liability were not material to the accompanying
consolidated financial statements.
The Company also sponsors two unfunded supplemental retirement plans to
provide certain key executives with benefits in excess of limits under the
federal tax law and to include annual incentive payments in benefit
calculations. The projected benefit obligation, net pension cost and
recorded liability related to the unfunded plans were not material to the
accompanying consolidated financial statements for all periods presented.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company's PHH subsidiary provides health care and life insurance
benefits for certain retired employees up to the age of 65. The net
periodic postretirement benefit costs and the recorded liability were not
material to the accompanying consolidated financial statements for all
periods presented.
18. SALE OF THE IMAGINATION NETWORK - SIERRA
The operating activities of The ImagiNation Network, Inc. ("INN") were
consolidated with those of Sierra through July 26, 1993. On July 27, 1993
Sierra sold 42% of INN's voting stock and reduced its ownership interest
to 58% and reduced its voting control such that Sierra recorded its
liquidation preference in excess of recorded book value as shareholders'
equity.
In December 1994, Sierra sold its remaining equity interest in INN to AT&T
and recorded a gain of $19.7 million for the year ended December 31, 1994.
Sierra also entered into a multi-year publishing agreement with AT&T to
provide content for INN. The publishing agreement provides for AT&T to
fund up to $4.0 million of Sierra's development expenditures under an
existing publishing agreement and up to $23.0 million of Sierra's
development expenditures, subject to certain limitations, through
non-refundable royalty advances. The non-refundable royalty advances are
reflected net of research and development expense.
19. FRANCHISING ACTIVITIES
F-45
<PAGE>
Revenue from franchising activities includes initial fees charged to
lodging properties and real estate brokerage offices upon execution of a
franchise contract based on the number of rooms at the lodging property
and estimated real estate brokerage offices gross closed commissions.
Initial franchise fees amounted to $24.2 million, $15.7 million and $13.8
million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Franchising activity for the years ended December 31, 1996, 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
LODGING REAL ESTATE
----------------------------------- ---------------------------
1996 1995 1994 1996 1995
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FRANCHISES IN OPERATION
Units at end of year 5,397 4,603 4,229 11,349 5,990
EXECUTED BUT NOT OPENED
Acquired 24 31 - 110 104
New agreements 1,142 983 870 829 248
Backlog, end of year 786 682 594 275 176
</TABLE>
20. DERIVATIVE FINANCIAL INSTRUMENTS
The Company employs interest rate swap agreements to match effectively the
fixed or floating rate nature of liabilities to the assets funded. A key
assumption in the following information is that rates remain constant at
December 31, 1996 levels. To the extent that rates change, both the
maturity and variable interest rate information will change. However, the
net rate the Company pays remains matched with the assets funded.
F-46
<PAGE>
The following table summarizes the maturity and weighted average rates of
the Company's interest rate swaps employed at December 31, 1996. These
characteristics are effectively offset within the portfolio of assets
funded by the Company ($000's):
<TABLE>
<CAPTION>
MATURITIES
---------------------------------------------------------------
TOTAL 1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Commercial Paper:
Pay fixed/receive floating:
Notional value $427,181 $199,528 $136,176 $ 59,346 $ 20,531 $ 4,625 $ 6,975
Weighted average receive rate 5.72% 5.72% 5.72% 5.72% 5.72% 5.72%
Weighted average pay rate 6.21% 6.33% 6.47% 6.37% 6.51% 6.60%
Medium-Term Notes:
Pay floating/receive fixed:
Notional value 336,000 250,000 86,000
Weighted average receive rate 6.59% 6.50%
Weighted average pay rate 5.95% 5.86%
Pay floating/receive floating:
Notional value 357,200 357,200
Weighted average receive rate 5.51%
Weighted average pay rate 5.90%
CANADA
Commercial Paper:
Pay fixed/receive floating:
Notional value 68,255 32,631 22,849 10,585 2,190
Weighted average receive rate 3.11% 3.11% 3.11% 3.11%
Weighted average pay rate 6.25% 5.89% 5.63% 4.58%
Pay floating/receive floating:
Notional value 52,730 28,010 14,961 4,342 2,853 2,564
Weighted average receive rate 7.21% 7.09% 6.93% 7.61% 7.61%
Weighted average pay rate 3.38% 3.38% 3.38% 3.38% 3.38%
Pay floating/receive fixed:
Notional value 36,481 36,481
Weighted average receive rate 4.92%
Weighted average pay rate 3.07%
UK
Commercial Paper:
Pay floating/receive fixed:
Notional value 379,308 37,708 93,070 138,834 109,696
Weighted average receive rate 6.56% 6.56% 6.56% 6.56%
Weighted average pay rate 6.17% 7.85% 6.96% 7.10%
GERMANY
Commercial Paper:
Pay fixed/receive fixed:
Notional value 13,000 1,950 2,925 (6,825) 3,575 11,375
Weighted average receive rate 3.25% 3.25% 3.25% 3.25% 3.25%
Weighted average pay rate 5.34% 5.34% 5.34% 5.34% 5.34%
--------- -------- -------- -------- -------- ---------
Total $1,670,155 $943,508 $269,981 $292,282 $138,845 $ 18,564 $ 6,975
========== ======== ======== ======== ======== ========= =========
</TABLE>
F-47
<PAGE>
For the years ended December 31, 1996 and 1995, the Company's hedging
activities increased interest expense $4.1 million and $2.0 million,
respectively, and had no effect on its weighted average borrowing rate.
For the same period in the year ended December 31, 1994, hedging
activities increased interest expense $8.4 million and increased the
weighted average borrowing rate 0.2%.
The Company enters into foreign exchange contracts as hedges against
currency fluctuations on certain intercompany loans. Such contracts
effectively offset the currency risk applicable to approximately $329.1
million and $118.1 million of obligations at December 31, 1996 and 1995,
respectively.
The Company is exposed to credit-related losses in the event of
non-performance by counterparties to certain derivative financial
instruments. The Company manages such risk by periodically evaluating the
financial position of counterparties and spreading its positions among
multiple counterparties. The Company presently does not expect
non-performance by any of the counterparties.
F-48
<PAGE>
21. INDUSTRY SEGMENT INFORMATION
The Company is principally in the business of providing services to
businesses that serve consumer industry customers. The Company's major
business segments are reflective of the industries in which it serves. See
Note 1 for a more detailed description of each of the Company's industry
segments. Operating profit consists of revenues less operating expenses
excluding interest income, net and includes merger and related charges of
$131.3 million and $48.6 million allocated to the membership and other
segments respectively, for the year ended December 31, 1996 (See Note 3).
Membership services operating profit for the year ended December 31, 1995
includes $97.0 million of costs related to Ideon products abandoned and
restructuring. Membership Services operating profit for the year ended
December 31, 1994 includes $7.9 million of costs related to Ideon products
abandoned and restructuring and a $17.7 million net gain on the sale of
INN. The following table presents industry segment data of the Company for
the years ended December 31, 1996, 1995 and 1994.
F-49
<PAGE>
Operations by segment ($000's):
Year Ended December 31, 1996
<TABLE>
<CAPTION>
REAL ESTATE
------------------------------------------
REAL ESTATE MORTGAGE
CONSOLIDATED MEMBERSHIP FRANCHISE RELOCATION SERVICES
------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,908,780 $ 2,097,098 $ 233,469 $ 344,865 $ 127,729
Operating income 739,115 266,314 110,535 54,302 41,302
Identifiable assets 13,588,368 2,517,600 1,295,501 1,086,374 1,742,409
Depreciation and amortization 167,907 60,888 27,317 11,168 4,442
Capital expenditures 140,626 48,678 9,932 9,112 9,859
TRAVEL
-----------------------------------------------------------
CAR
LODGING RENTAL TIMESHARE FLEET OTHER
----------- ----------- ----------- ------------- -----------
Net revenues $ 385,920 $ 10,014 $ 30,723 $ 255,866 $ 423,096
Operating income 145,798 537 3,319 76,218 40,790
Identifiable assets 954,649 882,397 772,585 3,868,472 468,381
Depreciation and amortization 30,852 3,439 2,559 13,214 14,028
Capital expenditures 19,302 -- 1,473 9,999 32,271
Year Ended December 31, 1995
REAL ESTATE
------------------------------------------
REAL ESTATE MORTGAGE
CONSOLIDATED MEMBERSHIP FRANCHISE RELOCATION SERVICES
------------- ----------- ----------- ------------- -----------
Net revenues $ 2,992,122 $ 1,643,242 $ 47,965 $ 301,667 $ 93,251
Operating income 516,596 184,699 19,277 41,718 41,744
Identifiable assets 8,994,384 1,800,952 195,157 1,023,860 1,142,272
Depreciation and amortization 112,914 40,358 2,997 10,385 3,099
Capital expenditures 108,702 53,048 2,034 8,678 2,987
TRAVEL
------------------------------------------
LODGING FLEET OTHER
----------- ----------- -----------
Net revenues $ 335,402 $ 258,877 $ 311,718
Operating income 120,606 56,918 51,634
Identifiable assets 724,673 3,649,654 457,816
Depreciation and amortization 26,058 18,837 11,180
Capital expenditures 5,059 9,872 27,024
</TABLE>
F-50
<PAGE>
Year Ended December 31, 1994
<TABLE>
<CAPTION>
REAL ESTATE
----------------------------
MORTGAGE
CONSOLIDATED MEMBERSHIP RELOCATION SERVICES
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 2,446,731 $ 1,363,561 $ 255,974 $ 74,494
Operating income 474,885 218,145 34,534 30,172
Identifiable assets 7,437,042 1,566,186 794,372 849,131
Depreciation and amortization 97,175 27,683 9,280 2,944
Capital expenditures 73,804 29,809 11,541 2,471
TRAVEL
------------------------------------------
LODGING FLEET OTHER
----------- ----------- -----------
Net revenues $ 300,694 $ 249,571 $ 202,437
Operating income 102,487 52,323 37,224
Identifiable assets 738,543 3,247,320 241,490
Depreciation and amortization 21,921 17,765 17,582
Capital expenditures 9,378 8,854 11,751
</TABLE>
The Company's operations outside of North America principally include
fleet management and relocation segment operations in Europe. Geographic
operations of the Company are as follows ($000's):
<TABLE>
<CAPTION>
NORTH EUROPE
YEAR ENDED DECEMBER 31, 1996 AMERICA & OTHER CONSOLIDATED
---------------------------- -------------- ----------- -------------
<S> <C> <C> <C>
Net revenues $ 3,529,563 $ 379,217 $ 3,908,780
Income before income taxes 650,030 63,640 713,670
Identifiable assets 12,519,616 1,068,752 13,588,368
YEAR ENDED DECEMBER 31, 1995
Net revenues 2,774,201 217,921 2,992,122
Income before income taxes 464,393 38,939 503,332
Identifiable assets 8,230,792 763,592 8,994,384
YEAR ENDED DECEMBER 31, 1994
Net revenues $ 2,296,067 $ 150,664 $ 2,446,731
Income before income taxes 439,390 24,942 464,332
Identifiable assets 6,857,565 579,477 7,437,042
</TABLE>
F-51
<PAGE>
22. SELECTED QUARTERLY FINANCIAL DATA - (UNAUDITED)
($000's, except per share data)
<TABLE>
<CAPTION>
1996 FIRST SECOND (1) THIRD (2) FOURTH (3) TOTAL YEAR
---- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues $ 821,411 $ 935,639 $ 1,042,901 $ 1,108,829 $ 3,908,780
Income before income taxes 158,300 179,430 112,569 263,371 713,670
Net income 95,974 101,064 68,466 158,107 423,611
Net income per share:
Primary $ .13 $ .13 $ .08 $ .20 $ .53
Fully diluted $ .13 $ .13 $ .08 $ .19 $ .52
1995 FIRST (4) SECOND (4) THIRD (4) FOURTH (4, 5) TOTAL YEAR
---- ----------- ----------- ----------- ------------- -------------
Net revenues $ 661,280 $ 722,571 $ 787,150 $ 821,121 $ 2,992,122
Income before income taxes 117,865 64,211 151,646 169,610 503,332
Net income 71,139 36,116 90,082 105,488 302,825
Net income per share:
Primary $ .10 $ .05 $ .12 $ .14 $ .42
Fully diluted $ .10 $ .05 $ .12 $ .14 $ .41
</TABLE>
(1) Includes merger cost of $28.6 million ($25.1 million, after tax or
$0.03 per share) recorded in connection with the mergers of Davidson
& Associates, Inc. and Sierra On-Line, Inc.
(2) Includes merger costs of $147.2 million ($89.6 million, after tax or
$0.11 per share) principally related to the completion of the Ideon
Group, Inc. acquisition.
(3) Includes costs of $4.1 million principally related to investment
banking fees incurred in connection with other Company acquisitions.
(4) The first, second, third and fourth quarters include $8.1 million
($5.2 million, net of tax or $.01 per share), $73.1 million ($46.8
million net of tax or $.07 per share), $16.4 million ($10.5 million
net of tax or $.01 per share) and ($.6 million), respectively of
Ideon's costs related to products abandoned and restructuring.
(5) Includes merger costs of $5.2 million ($4.2 million, net of tax or
$.06 per share) related to the acquisition of Advance Ross.
23. INVESTMENT IN ARAC
Upon entering into a definitive merger agreement to acquire Avis, Inc. in
July 1996, HFS announced its strategy to dilute its interest in ARAC's car
rental operations while retaining assets associated with the franchise
business, including trademarks, reservation system assets and franchise
agreements with ARAC and other licensees. Since HFS's control was planned
to be temporary, HFS accounted for its 100% investment in ARAC under the
equity method. In September 1997, ARAC completed the IPO, which diluted
HFS's equity interest to approximately 27.5%.
The Company licenses the Avis trademark to ARAC pursuant to a 50-year
master license agreement and receives royalty fees based upon 4% of ARAC
revenue, escalating to 4.5% of ARAC revenue over a 5-year period. In
addition, the Company operates the telecommunications and computer
processing system which services ARAC for reservations, rental agreement
processing, accounting and fleet control for which the Company charges
ARAC at cost. Summarized financial information of ARAC is as follows
($000's):
F-52
<PAGE>
AVIS RENT A CAR, INC.
SEPTEMBER 30,
1997 DECEMBER 31,
Balance sheet data: (UNAUDITED) 1996
----------------- --------------
Vehicles $ 3,364,660 $ 2,243,492
Total assets 4,717,107 3,131,357
Debt 3,285,548 2,295,474
Total liabilities 4,263,001 3,054,817
Shareholders' equity 454,106 76,540
NINE MONTHS ENDED OCTOBER 17, 1996
SEPTEMBER 30, 1997 (DATE OF ACQUISITION)
(UNAUDITED) TO DECEMBER 31, 1996
------------------ --------------------
Statement of income data:
Revenues $ 1,525,696 $ 362,844
Income before provision
for income taxes 49,313 2,261
Net income 26,974 1,221
24. SUBSEQUENT EVENTS - (PRIOR TO THE CENDANT MERGER DATE OF DECEMBER 17, 1997)
PROVIDIAN ACQUISITION
On December 9, 1997, HFS executed a definitive agreement to acquire
Providian Auto and Home Insurance Company and its subsidiaries from an
AEGON N.V. subsidiary for approximately $219.0 million in cash. Closing is
subject to receipt of required regulatory approval and other customary
conditions and is anticipated in the spring of 1998. Providian sells
automobile insurance to consumers through direct response marketing in 45
states and the District of Columbia.
DIVESTITURE
As directed by the Federal Trade Commission ("FTC") as a condition
terminating the waiting period under the Hart Scott Rodino Antitrust
Improvements Act in connection with the Cendant Merger, on December 17,
1997, the Company sold its wholly-owned subsidiary, Interval International
Inc. and certain related entities ("Interval"), for approximately $200.0
million, subject to certain adjustments. The agreement contemplates that
the Company will continue to provide certain existing services to
Interval's developers and members.
INVESTMENT IN NRT
During the third quarter of 1997, HFS acquired $182.0 million of preferred
stock of NRT Incorporated ("NRT"), a newly formed corporation created to
acquire residential real estate brokerage firms. HFS acquired $216.1
million of certain intangible assets including trademarks associated with
real estate brokerage firms acquired by NRT in 1997. The Company, at its
discretion, may acquire up to $81.3 million of additional NRT preferred
stock and may also purchase up to $229.9 million of certain intangible
assets of real estate brokerage firms acquired by NRT.
In September 1997, NRT acquired the real estate brokerage business and
operations of the Trust, and two other regional real estate brokerage
businesses. The Trust is an independent trust to which HFS contributed the
brokerage offices formerly owned by Coldwell Banker in connection with
HFS's acquisitions of Coldwell Banker. NRT is the largest residential
brokerage firm in the United States.
ISSUANCE OF 3% CONVERTIBLE SUBORDINATED NOTES
On February 11, 1997, the Company issued $550 million in principal amount
of 3% Convertible Subordinated Notes (the "3% Notes") due February 15,
2002. Interest on the 3% Notes is payable semi-annually. Each $1,000
principal amount of 3% Notes is convertible into 32.6531 shares of Company
common stock subject to adjustment in certain events. The 3% Notes may be
redeemed at the option of the Company at any time on or after February 15,
2000, in whole or in part, at the appropriate redemption prices (as
defined in the indenture governing the 3% Notes) plus accrued interest to
the redemption date. The 3% Notes will be subordinated in right of payment
to all existing and future Senior Debt (as defined in the indenture
governing the 3% Notes) of the Company. Issuance costs are being amortized
on a straight-line basis over five years.
F-53
<PAGE>
- -------------------------------------------------------------------------------
SUBSEQUENT EVENTS - (POST CENDANT MERGER DATE OF DECEMBER 17, 1997) -
UNAUDITED
PROPOSED ACQUISITION
On January 27, 1998, the Company proposed to acquire American Bankers
Insurance Group Inc. ("American Bankers") for $58 per share in cash and
stock, for an aggregate purchase price approximating $2.7 billion. On
January 28, 1998, the Company commenced a tender offer to purchase
approximately 23.5 million shares of American Bankers' common stock at a
price of $58 per share in cash, which together with shares owned by the
Company on the announcement date, approximate 51% of the fully diluted
shares of American Bankers. The Company proposed to exchange, on a tax
free basis, shares of its common stock with a fixed value of $58 per share
for the balance of American Bankers' common stock. The tender offer is
subject to certain customary conditions and there can be no assurance that
the Company will be successful in its proposal to acquire American
Bankers. The Company received a commitment from a bank to provide funds
necessary to finance the proposed acquisition.
HARPUR GROUP LTD. ACQUISITION
On January 20, 1998, the Company completed its acquisition of The Harpur
Group Ltd. ("Harpur"), a leading fuel card and vehicle management company
in the United Kingdom, from privately held H-G Holdings, Inc. for
approximately $186.0 million in cash plus future contingent payments of up
to $20.0 million over the next two years.
JACKSON HEWITT INC. MERGER
On January 7, 1998, the Company completed the acquisition of Jackson
Hewitt Inc. (" Jackson Hewitt"), for approximately $480.0 million in cash
or $68 per share of common stock of Jackson Hewitt. Jackson Hewitt is the
second largest tax preparation service system in the United States with
locations in 41 states.
Jackson Hewitt franchises a system of approximately 2,050 offices that
specialize in computerized prepartion of federal and state individual
income tax returns.
F-54
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 902,777 $ 633,903
Marketable securities 308,947 94,200
Receivables, net 1,538,415 1,290,625
Other current assets 630,657 510,865
--------------- --------------
Total current assets 3,380,796 2,529,593
--------------- --------------
Deferred membership acquisition costs 389,870 401,564
Franchise agreements, net 942,780 995,947
Goodwill, net 1,913,478 2,302,226
Other intangibles, net 1,438,537 636,230
Other assets 1,329,370 993,574
--------------- --------------
Total assets exclusive of assets under programs 9,394,831 7,859,134
--------------- --------------
Assets under management and mortgage programs
Net investment in leases and leased vehicles 3,547,217 3,418,666
Relocation receivables 587,310 773,326
Mortgage loans held for sale 1,162,220 1,248,299
Mortgage servicing rights and fees 305,428 288,943
--------------- --------------
5,602,175 5,729,234
--------------- --------------
TOTAL ASSETS $ 14,997,006 $ 13,588,368
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-55
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and
other current liabilities $ 1,358,767 $ 1,664,946
--------------- --------------
Deferred income 1,091,649 1,099,393
Long-term debt 2,422,524 1,004,584
Other noncurrent liabilities 262,407 124,885
--------------- --------------
Total liabilities exclusive of liabilities under programs 5,135,347 3,893,808
--------------- --------------
Liabilities under management and mortgage programs
Debt 4,952,083 5,089,943
Deferred income taxes 300,683 281,948
--------------- --------------
5,252,766 5,371,891
--------------- --------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value - authorized 10 million shares;
none issued and outstanding -- --
Common stock, $.01 par value - authorized 2 billion shares;
issued 824,544,641 and 804,655,850 shares, respectively 8,245 8,047
Additional paid-in capital 3,017,461 2,870,422
Retained earnings 1,890,452 1,556,300
Net unrealized gain on marketable securities -- 4,334
Currency translation adjustment (27,024) (12,452)
Restricted stock, deferred compensation (28,664) (28,212)
Treasury stock, at cost (13,964,693 and 6,911,757 shares, respectively) (251,577) (75,770)
---------------- --------------
Total shareholders' equity 4,608,893 4,322,669
---------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,997,006 $ 13,588,368
================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-56
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net $ 1,288,092 $ 924,246 $ 3,502,423 $ 2,513,994
Fleet leasing (net of depreciation and
interest costs of $307,908, $283,086,
$892,186 and $839,080, respectively) 13,148 14,297 42,905 41,016
Other 130,064 104,358 344,687 244,941
------------ ------------- ------------- -----------
Net revenues 1,431,304 1,042,901 3,890,015 2,799,951
------------ ------------- ------------- -----------
EXPENSES
Operating 464,483 363,426 1,317,841 1,004,391
Marketing and reservation 360,900 283,529 963,349 776,908
General and administrative 105,859 83,811 324,076 255,765
Merger and related costs and other
unusual charges - 147,200 303,000 175,835
Depreciation and amortization 70,240 49,903 190,599 119,529
Interest, net 15,562 2,463 43,920 17,224
------------ ------------- ------------- -----------
Total expenses 1,017,044 930,332 3,142,785 2,349,652
------------ ------------- ------------- -----------
Income before income taxes 414,260 112,569 747,230 450,299
Provision for income taxes 165,996 44,103 346,536 184,795
------------ ------------- ------------- -------------
Net income $ 248,264 $ 68,466 $ 400,694 $ 265,504
============ ============= ============= =============
PER SHARE INFORMATION
Net income per share
Primary $ 0.29 $ 0.08 $ 0.47 $ 0.34
============ ============= ============= ===========
Fully diluted $ 0.28 $ 0.08 $ 0.47 $ 0.33
============ ============= ============= ===========
Weighted average common and common
equivalent shares outstanding
Primary 888,061 834,441 874,379 800,716
Fully diluted 899,447 838,483 877,419 807,607
</TABLE>
See accompanying notes to consolidated financial statements.
F-57
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1997 1996
------------ --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 400,694 $ 265,504
Merger related charge 303,000 --
Merger related payments (137,000) --
Depreciation and amortization 168,083 93,606
Increase (decrease) from changes in
assets under management programs
Depreciation and amortization under management
and mortgage programs 812,309 764,173
Mortgage loans held for sale 86,079 (318,767)
Other (314,955) 61,310
------------- --------------
Net cash provided by operating activities 1,318,210 865,826
------------- --------------
INVESTING ACTIVITIES:
Assets under management and mortgage programs
Investment in leases and leased vehicles (1,565,857) (1,217,700)
Payments received on investment in leases and leased vehicles 615,153 470,193
Equity advances on homes under management (4,185,486) (2,347,351)
Repayment of advances on homes under management 4,341,295 2,377,103
Additions to originated mortgage servicing rights (147,608) (115,219)
Proceeds from sales of mortgage servicing rights 48,974 7,113
Property and equipment additions (112,608) (93,381)
Proceeds from sales of marketable securities 233,902 108,071
Purchases of marketable securities (467,176) (96,517)
Investment in preferred stock (181,191) --
Due from Avis Rent A Car, Inc. (124,440) --
Net assets acquired, exclusive of cash acquired (567,438) (990,668)
Other (6,789) 19,853
------------ --------------
Net cash used in investing activities (2,119,269) (1,878,503)
------------ ---------------
FINANCING ACTIVITIES:
Proceeds from borrowings 3,046,657 1,538,130
Principal payments on borrowings (1,767,264) (1,212,446)
Net proceeds from issuance of convertible notes 542,830 --
Redemption of series A preferred stock -- (80,000)
Net change in short term borrowings under management and mortgage programs (693,891) 114,518
Issuance of common stock, net 119,977 1,218,689
Purchases of common stock (171,318) (8,025)
Payment of dividends of pooled entities (6,644) (21,154)
------------ ---------------
Net cash provided by financing activities 1,070,347 1,549,712
----------- -------------
Effect of changes in exchange rates on cash and cash equivalents (414) (17,104)
------------ --------------
Net increase in cash and cash equivalents 268,874 519,931
Cash and cash equivalents, beginning of period 633,903 355,959
----------- --------------
Cash and cash equivalents, end of period $ 902,777 $ 875,890
=========== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-58
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated balance sheet of Cendant Corporation and subsidiaries,
formerly CUC International Inc. (the "Company"), as of September 30, 1997,
the consolidated statements of income for the three and nine months ended
September 30, 1997 and 1996, and the consolidated statements of cash flows
for the nine months ended September 30, 1997 and 1996, are unaudited. In
the opinion of management, all adjustments necessary for a fair
presentation of such financial statements are included. There were no
adjustments of an unusual nature recorded during the three and nine months
ended September 30, 1997 and 1996 except for (i) a one-time charge of
$303.0 million ($227.0 million after tax), recorded in the second quarter
of 1997 representing merger and related costs incurred in connection with
the merger of HFS Incorporated ("HFS") with PHH Corporation ("PHH"); (ii)
non-recurring charges of $147.2 ($89.6 million, after tax) and $28.6
million ($25.1 million, after tax) recorded in the third and second
quarters of 1996, respectively, representing merger and related costs
incurred in connection with the 1996 mergers of the Company with Davidson
& Associates, Inc. ("Davidson"), Sierra On-Line, Inc. ("Sierra") and Ideon
Group, Inc. ("Ideon") and (iii) a $5.0 million restructuring charge
recorded in June 1996, related to the contribution of owned Coldwell
Banker brokerage offices to an independent trust.
The consolidated financial statements include the accounts and
transactions of the Company and all wholly-owned and majority owned
subsidiaries and joint ventures except for the Company's ownership of Avis
Rent A Car Inc. ("ARAC"), which is accounted for under the equity method
(See Note 5). The accompanying consolidated financial statements have been
restated for the business combinations accounted for as poolings of
interest (See Note 2) as if such combined companies had operated as one
entity since inception. All material intercompany balances and
transactions have been eliminated in consolidation. These consolidated
financial statements will become the Company's primary historical
financial statements for the periods presented. Interim results are not
necessarily indicative of results for a full year.
The accompanying consolidated financial statements and notes thereto
are presented in accordance with interim financial reporting requirements
as required by Form 10-Q and do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. The December 31, 1996 consolidated balance sheet was
derived from the Company's audited consolidated financial statements. For
further information, refer to the consolidated financial statements and
notes thereto included herein as Exhibit 99.1 in this Form 8-K.
Certain reclassifications have been made to the historical financial
statements of the pooled companies to conform to the restated
presentation.
F-59
<PAGE>
2. BUSINESS COMBINATIONS
1997 POOLINGS
On December 17, 1997, the Company completed a merger with HFS (the
"Cendant Merger") by issuing 440.0 million shares of its common stock in
exchange for all of the outstanding common stock of HFS. Pursuant to the
terms of the agreement and plan of merger, HFS stockholders received
2.4031 shares of Company common stock for each share of HFS common stock.
Upon consummation of the Cendant Merger, the Company changed its name from
CUC International Inc. to Cendant Corporation.
In connection with the Cendant Merger, the Company changed its fiscal
year end from January 31 to December 31. HFS has a calendar year end and
the Company has only recalendarized its 1997 results. Accordingly, the HFS
statements of income for the three and nine months ended September 30,
1997 and September 30, 1996 have been combined with the Company's
statements of income for the three and nine months ended September 30,
1997 and October 31, 1996, respectively.
On October 3, 1997, the Company, through a wholly-owned subsidiary
("Acquisition Sub"), acquired all of the outstanding capital stock of
Hebdo Mag International Inc. ("Hebdo Mag"), pursuant to the terms of a
share purchase agreement dated August 13, 1997 among the Company,
Acquisition Sub, Hebdo Mag and other parties thereto. The purchase price
of approximately $440.0 million was satisfied by the issuance of 14.2
million shares of Company common stock. Hebdo Mag is a leading publisher
and distributor of classified advertising information.
On April 30, 1997, prior to being merged with and into the Company, HFS
acquired PHH by merger (the "HFS/PHH Merger") which was satisfied by the
issuance of 72.8 million equivalent shares of Company common stock in
exchange for all of the outstanding common stock of PHH. PHH is the
world's largest provider of corporate relocation services and also
provides mortgage services and fleet management services. In connection
with the merger, PHH changed its fiscal year end from April 30 to December
31.
During February 1997, the Company acquired substantially all of the
assets and assumed specific liabilities of Numa Corporation ("Numa") for
$73.5 million. The purchase price was satisfied by the issuance of 3.4
million shares of Company common stock. Numa publishes personalized
heritage publications and markets and sells personalized merchandise.
The following table presents the historical results of the Company and
the respective pooled entities for the last complete periods prior to
their respective mergers ($000's):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues
The Company $ 737,067 $ 602,203 $ 2,002,597 $ 1,673,426
HFS (inclusive of PHH) 649,880 409,571 1,749,477 1,032,615
Hebdo Mag 44,357 31,127 137,941 93,910
------------- ------------- ------------- -------------
$ 1,431,304 $ 1,042,901 $ 3,890,015 $ 2,799,951
============= ============= ============= =============
</TABLE>
F-60
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income
The Company $ 87,553 $ (18,009) $ 252,082 $ 74,573
HFS (inclusive of PHH) 157,403 84,874 142,057 188,491
Hebdo Mag 3,308 1,601 6,555 2,440
------------- ------------- ------------- -------------
$ 248,264 $ 68,466 $ 400,694 $ 265,504
============= ============= ============= =============
</TABLE>
The following table presents the historical results of HFS and PHH for
the periods prior to the HFS/PHH Merger ($000's):
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
--------------- ------------------
Net revenues
HFS $ 347,962 $ 550,010
PHH 177,923 482,605
--------------- -------------------
$ 525,885 $ 1,032,615
=============== ===================
Net income
HFS $ 58,940 $ 130,960
PHH 32,164 57,531
--------------- -------------------
$ 91,104 $ 188,491
=============== ===================
PURCHASE BUSINESS COMBINATIONS
During the nine months ended September 30, 1997, the Company acquired
certain entities for an aggregate purchase price of $63.3 million,
satisfied by the payment of $27.5 million in cash and the issuance of 1.5
million shares of Company common stock. The goodwill resulting from these
acquisitions aggregated $89.9 million. These acquisitions were accounted
for in accordance with the purchase method of accounting and, accordingly,
the results of operations have been included in the consolidated results
of operations from the respective dates of acquisitions. The results of
operations for the periods prior to the respective dates of acquisition
were not significant to the Company's operations.
3. MERGER AND RELATED COSTS AND OTHER UNUSUAL CHARGES
PHH MERGER CHARGE
HFS recorded a one-time merger and restructuring charge (the "PHH
Merger Charge") of $303.0 million ($227.0 million, after tax) during the
second quarter of 1997 in connection with the HFS/PHH Merger. Excluding
the PHH Merger Charge, net income was $627.7 million for the nine months
ended September 30, 1997. The PHH Merger Charge is summarized by type as
follows (in millions):
F-61
<PAGE>
Personnel related $ 142.4
Professional fees 36.8
Business terminations 44.7
Facility related 57.1
Other costs 22.0
-----------
Total $ 303.0
===========
Personnel related charges are comprised of costs incurred in connection
with employee reductions associated with the combination of HFS's
relocation service businesses and the consolidation of corporate
activities. Personnel related charges include termination benefits such as
severance, medical and other benefits. Also included in personnel related
charges are supplemental retirement benefits resulting from the change of
control. Several grantor trusts were established and funded by HFS to pay
such benefits in accordance with the terms of the HFS/PHH Merger
agreement. Full implementation of the restructuring plan will result in
the termination of approximately 500 employees substantially all of whom
are located in North America, of which 369 employees were terminated as of
September 30, 1997. Professional fees are primarily comprised of
investment banking, accounting and legal fees incurred in connection with
the HFS/PHH Merger. Business termination charges relate to the exit from
certain activities associated with fleet management, mortgage services and
ancillary operations. Facility related expenses include costs associated
with contract and lease terminations, asset disposals and other charges
incurred in connection with the consolidation and closure of excess space.
The Company anticipates that approximately $236.0 million will be paid
in cash in connection with the PHH Merger Charge of which $137.0 million
was paid through September 30, 1997. The remaining cash portion of the PHH
Restructuring Charge will be financed through cash generated from
operations and borrowings under the Company's revolving credit facilities.
It is currently anticipated that the restructuring plan will be completed
during the first quarter of 1998. Revenue and operating results from
activities that will not be continued are not material to the results of
operations of the Company.
1996 POOLINGS
In connection with the Company's 1996 acquisitions of Davidson, Sierra and
Ideon, which were accounted for as poolings of interests, the Company
recorded a non-recurring charge of approximately $179.9 million ($118.7
million, after tax) for the year ended December 31, 1996. Such charge is
comprised of transaction costs, exit costs and a provision relating to
certain litigation matters giving consideration to the Company's intended
approach to these matters. As of September 30, 1997, such charges amounted
to $155.7 million.
4. PRO FORMA INFORMATION
The following table reflects the unaudited operating results of the
Company for the nine months ended September 30, 1996 on a pro forma basis,
which gives effect to HFS's 1996 acquisitions, accounted for under the
purchase method of accounting as if they had occurred on January 1, 1996:
Net revenues $ 3,284,158
Net income 319,439
Net income per share (fully diluted) $ 0.38
F-62
<PAGE>
5. INVESTMENT IN ARAC
Upon entering into a definitive merger agreement to acquire Avis, Inc.
in July 1996, HFS announced its strategy to dilute its interest in ARAC's
car rental operations while retaining assets associated with the franchise
business, including trademarks, reservation system assets and franchise
agreements with ARAC and other licensees. Since HFS's control was planned
to be temporary, HFS accounted for its 100% investment in ARAC under the
equity method. In September 1997, ARAC completed an initial public
offering ("IPO") of a subsidiary that operated the car rental operations
of HFS Car Rental Inc., which diluted HFS's equity interest in such
subsidiary to approximately 27.5%. Net proceeds from the IPO approximating
$359.3 million retained by ARAC were used to fund its August 20, 1997
acquisition of The First Gray Line Corporation and repay ARAC
indebtedness.
The Company licenses the Avis trademark to ARAC pursuant to a 50-year
master license agreement and receives royalty fees based upon 4% of ARAC
revenue, escalating to 4.5% of ARAC revenue over a 5-year period. In
addition, the Company operates the telecommunications and computer
processing system which services ARAC for reservations, rental agreement
processing, accounting and fleet control for which the Company charges
ARAC at cost. Summarized financial information of ARAC is as follows
($000's):
AVIS RENT A CAR, INC.
<TABLE>
<CAPTION>
Balance sheet data: SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Vehicles $ 3,364,660 $ 2,243,492
Total assets 4,717,107 3,131,357
Debt 3,285,548 2,295,474
Total liabilities 4,263,001 3,054,817
Shareholders' equity 454,106 76,540
THREE MONTHS ENDED NINE MONTHS ENDED
Statement of income data: SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------- ------------------
Revenues $ 580,049 $ 1,525,696
Income before provision for income taxes 24,953 49,313
Net income 13,868 26,974
</TABLE>
6. SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF SOFTWARE REVENUE
Software research and development costs are included in operating expenses
and aggregated $30.0 million and $15.9 million for the three months ended
September 30, 1997 and 1996, respectively, and $79.7 million and $46.1
million for the nine months ended September 30, 1997 and 1996,
respectively. Software revenue included in Other was $265.2 million and
$228.1 million for the nine months ended September 30, 1997 and 1996,
respectively. Costs of software revenue are included in operating expenses
and aggregated $26.7 million and $24.0 million for the three months ended
September 30, 1997 and 1996, respectively, and $82.1 million and $69.9
million for the nine months ended September 30, 1997 and 1996,
respectively.
F-63
<PAGE>
7. REDEMPTION OF 4-1/2% NOTES
On September 22, 1997, HFS exercised its option to redeem the
outstanding 4-1/2% Convertible Senior Notes ("4-1/2% Notes") effective on
October 15, 1997 in accordance with the provisions of the indenture under
which the 4-1/2% Notes were issued. Prior to the redemption date, all of
the outstanding 4-1/2% Notes were converted. Accordingly, 19.7 million
equivalent shares of Company common stock were issued (0.2 million shares
as of September 30, 1997) as a result of the conversion of such notes.
8. ISSUANCE OF 3% CONVERTIBLE SUBORDINATED NOTES
On February 11, 1997, the Company issued $550.0 million in principal
amount of 3% Convertible Subordinated Notes (the "3% Notes") due February
15, 2002. Interest on the 3% Notes is payable semi-annually. Each $1,000
principal amount of 3% Notes is convertible into 32.6531 shares of Company
common stock subject to adjustment in certain events. The 3% Notes may be
redeemed at the option of the Company at any time on or after February 15,
2000, in whole or in part, at the appropriate redemption prices (as
defined in the indenture governing the 3% Notes) plus accrued interest to
the redemption date. The 3% Notes will be subordinated in right of payment
to all existing and future Senior Debt (as defined in the indenture
governing the 3% Notes) of the Company. Issuance costs are being amortized
on a straight-line basis over five years.
9. INVESTMENT IN NRT
During the third quarter of 1997, HFS acquired $182.0 million of
preferred stock (included in other assets) of NRT Incorporated ("NRT"), a
newly formed corporation created to acquire residential real estate
brokerage firms. HFS acquired $216.1 million of certain intangible assets
including trademarks associated with real estate brokerage firms acquired
by NRT in 1997. HFS, at its discretion, may acquire up to $81.3 million
of additional NRT preferred stock and may also purchase up to $229.9
million of certain intangible assets of real estate brokerage firms
acquired by NRT.
In September 1997, NRT, acquired the real estate brokerage business and
operations of National Realty Trust (the "Trust"), and two other regional
real estate brokerage businesses. The Trust is an independent trust to
which HFS contributed the brokerage offices formerly owned by Coldwell
Banker Corporation in connection with HFS's acquisition of Coldwell Banker
Corporation. NRT is the largest residential brokerage firm in the United
States.
10. SHAREHOLDERS' EQUITY
A. AUTHORIZED SHARES
In conjunction with the Cendant Merger effective on December 17, 1997,
the Company's shareholders approved an amendment to the Company's
restated certificate of incorporation to increase the number of
authorized shares of common stock and preferred stock to 2 billion
shares and 10 million shares, respectively. The Company has never issued
shares of preferred stock.
F-64
<PAGE>
B. TREASURY PURCHASES
In January 1997, HFS's Board of Directors authorized the purchase of 6.2
million equivalent shares of Company common stock to satisfy stock option
exercises and conversions of convertible debt securities and to fund
future acquisitions. The Company acquired approximately 6.2 million
equivalent treasury shares in January and February 1997 for $179.4 million
with revolving credit borrowings.
11. CONTINGENCIES - IDEON
On June 13, 1997, the Company entered into an agreement (the
"Agreement") with Peter Halmos, the co-founder of SafeCard Services,
Incorporated ("SafeCard"), which was reorganized in 1995 as Ideon. The
Agreement calls for the dismissal with prejudice of certain outstanding
litigation matters between Peter Halmos and certain of the Company's
subsidiaries and the payment to Peter Halmos, over a six-year period, of
$70.5 million. Specifically, the Agreement requires that the Company pay
Peter Halmos one up-front payment of $13.5 million of six subsequent
annual payments of $9.5 million each. For additional disclosure, see
Footnote 13 -- Commitments and Contingencies on Page F-37.
F-65
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL OVERVIEW
On December 17, 1997 CUC International Inc. ("CUC" or the "Company")
merged with HFS Incorporated ("HFS") and was renamed Cendant Corporation in a
transaction which has been accounted for as a pooling of interests.
Accordingly, financial statements have been restated for all periods presented
as if CUC and HFS had operated as one entity since inception. The Company is a
leading global provider of services to businesses serving consumer industries.
The Company provides fee-based services to consumers within the
Membership, Travel and Real Estate business segments. The Company generally
does not own the assets or share the risks associated with the underlying
businesses of its customers. In the Membership Services segment, the Company is
a technology-driven leading provider of membership-based consumer services. In
the Travel segment, the Company is the world's largest franchisor of lodging
facilities and rental car agencies, the leading provider of vacation timeshare
exchange services and a leading provider of international fleet management
services. In the Real Estate segment, the Company is the world's largest
franchisor of residential real estate brokerage offices, the world's largest
provider of corporate relocation services and operates a leading mortgage
lending business in the United States. The combination of CUC and HFS provides
the Company's membership businesses access to HFS's more than 100 million
consumer contacts, while providing HFS businesses with the technology-driven,
direct marketing expertise necessary to successfully cross-market within its
existing business units.
SEGMENT DISCUSSION
Certain of the underlying business segments are comprised of businesses
acquired which were accounted for as poolings of interest (See "Liquidity and
Capital Resources - 1997 Poolings, 1996 Poolings and 1995 Poolings").
Accordingly, all financial information has been restated as if all of the
pooled companies operated as one entity since inception. Certain of the
underlying segments are comprised of businesses which were acquired in 1996 and
1995 and accounted for by the purchase method of accounting. (See " Liquidity
and Capital Resources - 1996 Purchase Acquisitions and 1995 Purchase
Acquisitions"). Accordingly, the results of operations of such acquired
companies were included in the consolidated operating results of the Company
from the respective dates of acquisition. In the underlying results of
operations discussions, operating expenses include total expenses excluding
interest expense and income taxes.
RESULTS OF OPERATIONS DISCUSSION
YEAR ENDED DECEMBER 31, 1996 VS YEAR ENDED DECEMBER 31, 1995
Net income increased $120.8 million (40%) despite non-recurring merger and
related charges approximating $179.9 million ($118.7 million, after tax) (the
"Davidson, Sierra and Ideon Merger Charge") in 1996 in connection with the
mergers with Davidson & Associates, Inc. ("Davidson"), Sierra On-Line, Inc.
("Sierra") and Ideon Group, Inc. ("Ideon"). In connection with such charge,
$131.3 million was allocated to the operations of the "Membership" segment.
F-66
<PAGE>
The increase in net income primarily resulted from a $222.5 million (43%)
increase in operating income.
The financial summary of the Company for the years ended December 31, 1996
and 1995 is as follows ($000's):
1996 1995 VARIANCE
------------- -------------- ---------
Net revenue $ 3,908,780 $ 2,992,122 31%
Operating expenses 3,169,665 2,475,526 28%
------------- --------------
Operating income $ 739,115 $ 516,596 43%
============= ==============
Net income $ 423,611 $ 302,825 40%
============= ==============
MEMBERSHIP SEGMENT
The Company provides its consumers, representing approximately 73 million
memberships at September 30, 1997, access to a variety of goods and services
including shopping, travel, auto, dining, home improvement,
lifestyle, credit card and checking account enhancement packages, financial
products and discount programs. The Company also administers insurance package
programs which are generally combined with discount shopping and travel for
credit union members and distributes welcoming packages which provide new
homeowners with discounts for local merchants. Revenue is derived from
membership fees which vary depending on the particular membership program. The
Company provides individual, wholesale and discount program membership services
to consumers, which are distributed through various channels including
financial institutions, credit unions, charities, other cardholder-based
organizations and retail establishments. Individual memberships consist of
members that pay directly for the services and the Company pays for the
marketing costs to solicit the members primarily using direct marketing
techniques. Wholesale memberships include members that pay directly for the
services to their sponsor and the Company does not pay for the marketing costs
to solicit the members. Discount program memberships are generally marketed
through a direct sales force, participating merchants or general advertising
and the related fees are either paid directly by the member or the local
retailer. All of these categories share various aspects of the Company's
marketing and operating resources. The Company maintains a flexible marketing
plan so that it is not dependent on any one service for the future growth of
the total membership base.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
OPERATING INCOME ($000'S) 1996 1995 VARIANCE
------------------------- ------------- ------------- --------
<S> <C> <C> <C>
Net revenue $ 2,097,098 $ 1,643,242 28%
Operating expenses 1,830,784 1,458,543 26%
------------- -------------
Operating income $ 266,314 $ 184,699 44%
============= =============
</TABLE>
Operating income increased $81.6 million (44%) despite $34.3 million of
incremental non-recurring merger and related costs and other unusual charges in
1996 compared to 1995. Operating income increased $115.9 million (41%)
excluding such charges.
The Company's overall membership base continues to grow at a rapid rate
(from 59.7 million members at December 31, 1995 to 66.3 million members at
December 31, 1996), which is the largest contributing factor to the 28%
increase in membership revenues (from $1.6 billion in 1995 to $2.1 billion in
1996). While the
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<PAGE>
overall membership base increased by 6.6 million members, or 11% during the
year, the average annual fee charged for the Company's membership services
increased by approximately 4%.
In 1996, individual (before giving effect to Ideon acquired members),
wholesale and discount program memberships grew by 14%, 23% and 12%,
respectively. Wholesale memberships have grown in part due to the success of
the Company's international business in Europe. For the year ended December 31,
1996, individual, wholesale and discount program memberships represented 68%,
13% and 19% of membership revenues, respectively. The Company completed a
number of acquisitions accounted for under the purchase method of accounting
during 1996. Total revenue contributed by these acquisitions is not material to
the Company's total reported membership revenue.
As the Company's membership services continue to mature, a greater
percentage of the total individual membership base is in its renewal years.
This results in increased profit margins for the Company due to the significant
decrease in certain marketing costs incurred on renewing members. Improved
response rates for new members also favorably impact profit margins.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rates. Historically, an increase in overall membership usage has had a
favorable impact on renewal rates. Actual membership cancellations were $401
million in 1996, compared to $376 million in 1995. This represents 17% and 19%,
respectively, of the gross membership revenues accrued for all services. The
Company records its deferred revenue net of estimated cancellations which are
anticipated in the Company's marketing programs. The number of cancellations
has increased due to the increased level of marketing efforts, but has
decreased as a percentage of the total number of members.
The major components of the Company's membership operating costs continue
to be personnel, telephone, computer processing and participant insurance
premiums (the cost of obtaining insurance coverage for members). Historically,
the Company has seen a direct correlation between providing a high level of
service to its members and improved retention. Marketing costs remained
constant as a percentage of revenues, which is primarily due to maintained per
member acquisitions costs and an increase in renewing members. The Company
routinely reviews all membership renewal rates and has not seen any material
change in the average renewal rate in 1996 compared to 1995. Renewal rates are
calculated by dividing the total number of renewing members not requesting a
refund during their renewal year by the total members eligible for renewal.
TRAVEL SEGMENT
LODGING
The Company operates eight nationally recognized brands with approximately
5,700 lodging properties under franchise contracts of up to 20 years in
duration. The Company provides central reservation system services and national
marketing programs, which are completely funded by its franchisees from a
designated portion of the franchise fees. The Company charges royalty fees
based on a percentage of franchisee gross room sales to fund all expenses not
covered by marketing and reservation fees, such as quality inspections and
franchise sales and service functions. The significant revenue drivers of the
Company are the number of royalty-paying franchise units and the average rate
at which they pay. Other relevant drivers are the average daily rates and
occupancy percentages of the underlying lodging properties.
F-68
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATING INCOME ($000'S) 1996 1995 VARIANCE
------------------------- ----------- ----------- --------
<S> <C> <C> <C>
Net revenue $ 385,920 $ 335,402 15%
Operating expenses 240,122 214,796 12%
----------- -----------
Operating income $ 145,798 $ 120,606 21%
=========== ===========
</TABLE>
Operating income increased 21% and net revenue increased 15% as a result
of a 13% increase in royalty fees and a 41% increase in revenue from preferred
alliances seeking access to the Company's franchisees and their underlying
consumer base. Results for 1996 demonstrated that room growth is the most
significant outcome driver for franchisee royalty, as the Company added 55,253
net rooms in 1996, representing a 133% increase from 1995 results. The Company
added 94,506 rooms in 1996 (including 30,274 rooms added by the acquisition of
Travelodge franchise contracts) and terminated 39,253 rooms in 1996 (including
6,053 Park Inn International rooms, comprising the franchise system sold in
September 1996 for $2.2 million). In 1995, the Company added 63,280 rooms
(including 9,780 rooms added by the acquisition of Knights Inn franchise
contracts) and terminated 39,603 rooms (including 22,151 related to a special
year-end removal of properties as a result of the repositioning and tightening
of quality standards of the Company's brands). Total U.S. system revenue per
available room ("REVPAR") increased 1.3% primarily due to a 1.9% increase in
the average daily rates ("ADR") charged at franchised lodging facilities,
however, REVPAR for comparable properties in 1996 and 1995 ("same store basis")
increased 3.3% as a result of increases in ADR. The 12% ($25.3 million)
increase in operating expenses included an 18% increase ($4.7 million) in
depreciation and amortization, primarily related to the excess of cost over net
assets acquired ("goodwill") associated with the acquisitions of the Travelodge
and Knights Inn franchise systems in January 1996 and August 1995,
respectively. In addition, operating expenses increased as a result of a 13%
($17.8 million) increase in marketing and reservation expenses associated with
funds administered by the Company on a pass-through basis (corresponding
franchisee contribution included in revenue).
CAR RENTAL
HFS acquired HFS Car Rental, Inc. (formerly Avis, Inc.) in October 1996.
In September 1997, Avis Rent A Car, Inc. ("ARAC") then a subsidiary of HFS Car
Rental Inc., which operated the rental car operations of HFS Car Rental Inc.,
completed an initial public offering ("IPO") which diluted HFS's equity
interest in ARAC from 100% to 27.5%. HFS retained the assets that are
consistent with its service provider business profile, including the
trademarks, franchise agreements, reservation system and information technology
system assets. The Company licenses the Avis trademark to ARAC pursuant to a
50-year master license agreement and receives royalty fees based upon 4% of
ARAC revenue, escalating to 4.5% of ARAC revenue over a 5-year period. In
addition, the Company operates the telecommunications and computer processing
system which services ARAC for reservations, rental agreement processing,
accounting and fleet control for which the Company charges ARAC at cost.
FOR THE PERIOD
OCTOBER 17, 1996 TO
OPERATING INCOME ($000'S) DECEMBER 31, 1996
------------------------- -------------------
Net revenue $ 10,014
Operating expenses 9,477
-----------
Operating income $ 537
===========
F-69
<PAGE>
Net revenue consisted primarily of fees for information technology
services provided to ARAC from the October 17, 1996 acquisition date. Operating
expenses consisted of $3.4 million of depreciation and amortization expenses
primarily associated with the Avis trademark and goodwill and $6.0 million of
technology related expenses for services provided to ARAC and other rental car
companies.
TIMESHARE
HFS acquired Resort Condominiums International ("RCI") in November 1996
for $487.1 million plus up to $200 million of contingent consideration. RCI
sells subscription memberships to owners of vacation timeshare resorts which
allow members to exchange their timeshare accommodations for timeshare
accommodations owned by other members at participating affiliated resorts
worldwide. In addition to membership fees, RCI earns fees for exchanges
processed by its call center. The key timeshare revenue drivers include the
number of fee paying members and exchanges as well as each corresponding
average fee.
FOR THE PERIOD
NOVEMBER 12, 1996 TO
OPERATING INCOME ($000'S) DECEMBER 31, 1996
------------------------- --------------------
Net revenue $ 30,723
Operating expenses 27,404
-----------
Operating income $ 3,319
===========
Net revenue primarily consisted of $11.3 million of member fees and $12.1
million of exchange fees. Operating expenses consisted primarily of $17.9
million of staff and communication costs associated with member services (call
centers). Assuming Company ownership of RCI since January 1, 1995, pro forma
annual membership and exchange fee revenue increased 12% to $102.0 million and
$11% to $157.6 million, respectively and total members and exchanges for
calendar year 1996 increased 8% to 2.2 million and 9% to 1.7 million,
respectively compared to 1995.
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<PAGE>
FLEET MANAGEMENT SERVICES
Fleet management services are offered to corporate clients and government
agencies to assist them in effectively managing their vehicle fleet costs,
reducing in-house administrative costs and enhancing driver productivity.
Services consist of leasing (which generally requires an investment by the
Company in the vehicle and includes new vehicle purchasing, open and closed-end
operating leasing, direct finance leasing and used vehicle marketing) as well
as a variety of fee-based services including fuel purchasing, maintenance
management programs, expense reporting, fuel management programs, accident and
safety programs and other driver services for managing clients' vehicle fleets.
The Company has experienced minimal losses associated with its investment in
vehicles due to the overall creditworthiness of its corporate clients.
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATING INCOME ($000'S) 1996 1995 VARIANCE
------------------------- ----------- ----------- ---------
Net revenue $ 255,866 $ 258,877 (1%)
Operating expenses 179,648 201,959 (11%)
----------- -----------
Operating income $ 76,218 $ 56,918 34%
=========== ===========
Operating income increased $19.3 million (34%) to $76.2 million, primarily
as a result of an increase in fee-based services and an $11.7 million gain on
the sale of the Company's truck fuel management business ("NTS") which was sold
in January 1996. The net revenue generated in 1996 included the increase in
fee- based services but was offset by the absence of approximately $21.8
million of revenue from the sold NTS business. The $22.3 million (11%) decrease
in operating expenses was primarily associated with $19.1 million of expenses
associated with the sold NTS business.
REAL ESTATE SEGMENT
REAL ESTATE FRANCHISE
The Company licenses brand names to independently owned brokerage offices
associated with three of the four largest franchise systems in the world. The
Company acquired the world's largest franchise system, the CENTURY 21(R)
franchise system, in August 1995, the ERA(R) franchise system in February 1996
and the Coldwell Banker(R)franchise system in May 1996. The most significant
revenue driver for real estate franchise is the number of transactions for
which the broker receives commission revenue. Royalties are calculated based on
a percentage of such franchisee commission revenue. Marketing fees are
collected by the Company and are used to fund national advertising expenditures
and other marketing activities.
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATING INCOME ($000'S) 1996 1995 VARIANCE
------------------------- ----------- ----------- -----------
Net revenue $ 233,469 $ 47,965 387%
Operating expenses 122,934 28,688 329%
----------- -----------
Operating income $ 110,535 $ 19,277 473%
=========== ===========
The increases in net revenue and operating income are due to the CENTURY
21 franchise system's first full year contribution to operating results and
partial year contributions from the acquired Coldwell Banker and ERA franchise
systems. These franchises systems licensed their trademarks to approximately
184,000 sales associates at December 31, 1996. The royalty portion of revenue
increased $162.8 million (361%) and revenue from preferred affiliates grew from
$0.2 million to $13.4 million, net of the Company's $11.0 million
F-71
<PAGE>
fourth quarter 1996 write-off of revenue associated with the license of the
CENTURY 21 trademark to Amre, Inc., which filed for bankruptcy protection in
February 1997.
Operating expenses increased 329% ($94.2 million) as a result of
incremental expenses associated with acquired franchise systems. Operating
expenses also included a $5.0 million restructuring charge associated with the
second quarter 1996 contribution of Coldwell Banker's former owned brokerage
business to National Realty Trust (the "Trust"), an independent entity governed
by independent trustees.
RELOCATION
Relocation primarily consist of the purchase, management and resale of
homes and fee-based home- related services for transferred employees of
corporate clients, members of affinity group clients and government agencies.
Although the Company acquires the homes of client employees, the client
corporations reimburse the Company for carrying costs until the home is sold
and for home sale losses. Accordingly, the Company earns a fee for services
with minimal real estate risk. Operating expenses primarily consist of staffing
and related costs for sales and service functions. Operating results include
contributions from PHH Relocation for all periods shown, from Coldwell Banker
Relocation Services, Inc. ("CBRS") since the May 31, 1996 acquisition date and
from Worldwide Relocation Management, Inc. ("WRM") since the August 1, 1995
acquisition date.
YEAR ENDED DECEMBER 31,
OPERATING INCOME ($000'S) 1996 1995 VARIANCE
------------------------- ----------- ----------- --------
Net revenue $ 344,865 $ 301,667 14%
Operating expenses 290,563 259,949 12%
----------- -----------
Operating income $ 54,302 $ 41,718 30%
=========== ===========
Acquired CBRS and WRM operations generated $19.2 million of operating
income and PHH Relocation operating income decreased $6.6 million (18%). PHH
Relocation net revenue increased $23.7 million due to an expansion of services
provided to corporate clients while revenue from home sale assistance was flat
compared to 1995. The revenue increase was offset by $30.3 million of increased
expenses associated with the development of the expanded full service
infrastructure.
MORTGAGE SERVICES
Mortgage services primarily consist of the origination, sale and servicing
of residential first mortgage loans. The Company packages its originated loans
for sale in secondary markets, generally within 45 days of origination, and
retains servicing rights. The Company markets a variety of first mortgage
products to consumers through relationships with corporations, affinity groups,
government agencies, financial institutions, real estate brokerage firms and
mortgage banks by a combination of retail teleservices delivery and wholesale
correspondent lending arrangements.
YEAR ENDED DECEMBER 31,
--------------------------------
OPERATING INCOME ($000'S) 1996 1995 VARIANCE
------------------------- ----------- ------------ --------
Net revenue $ 127,729 $ 93,251 37%
Operating expenses 86,427 51,507 68%
----------- ------------
Operating income $ 41,302 $ 41,744 (1%)
=========== ============
F-72
<PAGE>
The increase in net revenue resulted from a 149% increase in loan
origination revenue offset by a 28% decrease in loan servicing fees. The volume
of loan closings increased 33% from $6.3 billion to $8.4 billion and the
average fee increased from 54 to 100 basis points. Whereas the portfolio of
loans serviced increased 16% from $19.4 billion to $22.5 billion, the average
fee decreased 38% from 30.8 to 19.2 basis points. The increase in origination
fees and decrease in servicing fees results from the implementation of
Statement of Financial Accounting Standards ("SFAS") No. 122 "Accounting for
Mortgage Servicing Rights" in 1995, which had the effect of reallocating
revenue from servicing fees to origination fees. A reduction in gains recorded
from the sale of a portion of the loan servicing portfolio also contributed to
the decrease in service fees. The gain on the sale of servicing amounted to
$17.4 million in 1995 compared to $1.5 million in 1996. Operating expenses
increased as a result of higher closing volume experienced in expanded retail
teleservices delivery arrangements in 1996.
OTHER SEGMENT
Other business operations primarily consist of the development and sale of
high-quality educational, entertainment and personal productivity interactive
multimedia products for home and school use ("Software"), casino credit
information and marketing services, the equity in earnings from the Company's
investment in ARAC (net of information technology fees charged to ARAC) and
other operations or transactions which are not included in the Company's
primary business segments.
YEAR ENDED DECEMBER 31,
OPERATING INCOME ($000'S) 1996 1995 VARIANCE
------------------------- ----------- ------------ --------
Net revenue $ 423,096 $ 311,718 36%
Operating expenses 382,306 260,084 47%
----------- ------------
Operating income $ 40,790 $ 51,634 (21%)
=========== ============
Operating income decreased $10.9 million (21%) as a result of $48.6
million of incremental merger and related charges associated with the
acquisitions of Davidson and Sierra. Excluding such merger and related charges,
operating income increased $37.8 million (73%) primarily as a result of a $27.1
million increase from Software operations and $9.5 million in consideration
received for the termination of a corporate services agreement with Chartwell
Leisure Inc. Software revenue increased 28% to $375.2 million in 1996 and
excluding the merger and related costs, software profit margins increased from
14% in 1995 to 19% in 1996. Distribution revenue, which consists principally of
third-party software and typically has low operating margins, was down from
$64.8 million in 1995 to $46.9 million in 1996. The Company's Software
operations continue to grow by focusing on selling titles through retailers.
Excluding distribution revenue, core software revenue grew by 44%. Contributing
to the Software revenue growth in 1996 is the availability of a larger number
of titles as well as a significant increase in the installed base of CD-ROM
personal computers.
F-73
<PAGE>
YEAR ENDED DECEMBER 31, 1995 VS YEAR ENDED DECEMBER 31, 1994
Net income increased $41.7 million (9%) despite $89.1 million of incremental
non-recurring merger charges and costs associated with Ideon products
abandoned. Net income excluding such charges increased $72.1 million (25%). The
increase in net income was a result of a $41.7 million increase in operating
income partially offset by a $2.7 million increase in net interest expense
associated with financing the CENTURY 21 acquisition, and a general rise in
interest rates in 1995 compared to 1994. Despite average LIBOR rate increases
approximating 84 basis points, the Company's average borrowing rate increased
only 40 basis points to 6.0%, principally as a result of favorable fixed rate
debt securities issued in 1994 and 1993.
The financial summary of the Company for the years ended December 31, 1995 and
1994 is as follows ($000's):
1995 1994 VARIANCE
------------- ------------- ---------
Net revenue $ 2,992,122 $ 2,446,731 22%
Operating expenses 2,475,526 1,971,846 26%
------------- -------------
Operating income $ 516,596 $ 474,885 9%
============= =============
Net income $ 302,825 $ 286,590 6%
============= =============
MEMBERSHIP SEGMENT
YEAR ENDED DECEMBER 31,
-------------------------------
OPERATING INCOME ($000'S) 1995 1994 VARIANCE
------------------------- ------------- ------------- --------
Net revenue $ 1,643,242 $ 1,363,561 21%
Operating expenses 1,458,543 1,145,416 27%
------------- -------------
Operating income $ 184,699 $ 218,145 (15%)
============= =============
Operating income decreased $33.4 million (15%) as a result of $89.1
million of incremental non-recurring merger charges and costs related to Ideon
products abandoned. Excluding such costs, operating income increased $55.7
million (26%) in 1995 compared to 1994.
The Company's overall membership base grew at a rapid rate (from 46.9
million members at December 31, 1994 to 59.7 million members at December 31,
1995), which is the largest contributing factor to the 21% increase in
membership revenues (from $1.4 billion in 1994 to $1.6 billion in 1995). While
the overall membership base increased by 12.8 million members, or 27%, (of
which approximately 8.0 million members came from acquisitions during the year
("Acquired Members")), the average annual fee charged for the Company's
membership services increased by 3%.
In 1995, individual (before giving effect to Ideon acquired members),
wholesale and discount program memberships grew by 14%, 19% and 11%,
respectively, in addition to the increase due to Acquired Members. For the year
ended December 31, 1995, individual, wholesale and discount program memberships
represented 68%, 12% and 20% of membership revenues, respectively. Discount
program memberships incurred the largest increase from Acquired Members.
Welcome Wagon International, Inc., Getko Group Inc. and Advance Ross
Corporation, all acquired in 1995, are classified in this membership category
as their businesses provide local discounts to consumers. The Company maintains
a flexible marketing plan so that it is not dependent on any one service for
the future growth of the total membership base. The Company completed
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<PAGE>
a number of acquisitions during 1995 which were accounted for under the
purchase method of accounting. The total revenues contributed by these
acquisitions are not material to the Company's total reported revenues.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rates. Historically, an increase in overall membership usage has had a
favorable impact on renewal rates. Actual membership cancellations were $376
million in 1995 compared to $354 million in 1994. This represents 19% and 21%,
respectively, of the gross membership revenues accrued for all services. The
Company records its deferred revenue net of estimated cancellations which are
anticipated in the Company's marketing programs. The number of cancellations
has increased due to the increased level of marketing efforts, but has
decreased as a percentage of the total number of members.
The major components of the Company's membership operating costs are
personnel, telephone, computer processing and participant insurance premiums
(the cost of obtaining insurance coverage for members). Marketing costs
decreased as a percentage of revenues which is primarily due to improved per
member acquisition costs and an increase in renewing members. The Company
routinely reviews all membership renewal rates and has not seen any material
change in the average renewal rate in 1996 compared to 1995.
TRAVEL SEGMENT
LODGING
YEAR ENDED DECEMBER 31,
OPERATING INCOME ($000'S) 1995 1994 VARIANCE
------------------------- ----------- ----------- --------
Net revenue $ 335,402 $ 300,694 12%
Operating expenses 214,796 198,207 8%
----------- -----------
Operating income $ 120,606 $ 102,487 18%
=========== ===========
Net revenue increased 12% as a result of a $20.7 million (16%) increase in
royalty fees and a $6.8 million (49%) increase in revenue from preferred
alliances seeking access to franchisees and their customers. Room growth
represented the most significant revenue outcome driver contributing to the
revenue increase. The Company added 63,280 rooms during 1995, representing an
18.8% increase, but also terminated 39,603 rooms including 22,151 rooms in a
special year-end removal of properties as a result of the repositioning and
tightening of quality standards of the Company's brands. Total REVPAR increased
3.0% primarily due to a 2.6% increase in the average daily rates charged at
franchisee hotels and a 1.8% increase in average royalty rates.
Demonstrating the Company's ability to translate revenue into earnings,
operating income increased $18.1 million (18%) while operating expenses
increased only $16.6 million (8%). The increase in operating expenses included
$4.6 million of franchise sales and bad debt expenses associated with system
growth as well as $1.5 million of scheduled Ramada license fee increases.
Depreciation expense also increased $4.1 million in part from a full year's
expense in 1995 related to the newly developed reservation system for Days Inn
which was implemented in October 1994. The increase was also attributable to
goodwill amortization associated with the issuance of Company common stock in
December 1994 and September 1995, pursuant to an earnout agreement entered into
with Bryanston Group, Inc., an affiliate of the sellers of the Days Inn
franchise system.
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<PAGE>
FLEET MANAGEMENT SERVICES
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATING INCOME ($000'S) 1995 1994 VARIANCE
------------------------- ----------- ----------- --------
Net revenue $ 258,877 $ 249,571 4%
Operating expenses 201,959 197,248 2%
----------- -----------
Operating income $ 56,918 $ 52,323 9%
=========== ===========
The revenue increase primarily resulted from an increase in service fees
generated by growth in fuel and maintenance management programs. Such growth
reflects increased market penetration in the United States and United Kingdom.
Operating expenses increased only 2% reflecting a cost reduction program
implemented in 1995 net of certain expenses that vary with revenue growth.
REAL ESTATE SEGMENT
REAL ESTATE FRANCHISE
The CENTURY 21 franchise system contributed $48.0 million of net revenue
and $19.3 million of operating income for the five months following HFS's
August 1, 1995 acquisition. Franchise fees paid by the approximately 6,000
CENTURY 21 franchised brokerage offices approximated $42.1 million and
accounted for the significant portion of real estate franchise net revenue.
Operating expenses included $21.5 million of SG&A, including franchise sales,
service and training expenses and $3.0 million of depreciation and amortization
associated with goodwill and franchise agreements acquired in the CENTURY 21
acquisition.
RELOCATION
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATING INCOME ($000'S) 1995 1994 VARIANCE
------------------------- ----------- ----------- --------
Net revenue $ 301,667 $ 255,974 18%
Operating expenses 259,949 221,440 17%
----------- -----------
Operating income $ 41,718 $ 34,534 21%
=========== ===========
The 18% increase in net revenue resulted primarily from an expansion of
full service products offered to corporate clients and a 7% ($7.8 million)
increase in home sale assistance fees. 1995 also included revenue and expense
contributions from WRM which was acquired on August 1, 1995 in connection with
the acquisition of CENTURY 21. The operating expense increase resulted from
growth in the infrastructure necessary to match competition for fee-based
services other than home sale assistance and system related expenses associated
with U.S. and Canadian asset management businesses.
MORTGAGE SERVICES
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATING INCOME ($000'S) 1995 1994 VARIANCE
------------------------- ----------- ----------- --------
Net revenue $ 93,251 $ 74,494 25%
Operating expenses 51,507 44,322 16%
----------- -----------
Operating income $ 41,744 $ 30,172 38%
=========== ===========
F-76
<PAGE>
The increase in net revenue was primarily a result of the capitalization
of $55.6 million of net revenue associated with the capitalization of
originated mortgage servicing rights partially offset by a $10.7 million
reduction in the gain on sale of servicing rights and a 32% increase in total
loan closings from 1994 to 1995. In addition, operating expenses increased as
the Company responded to the increase in loan production volume and the
increased servicing portfolio.
Mortgage loan closings increased from $3.4 billion in 1994 to $6.3 billion
in 1995. These increases resulted from increased consumer demand and the
Company's increased market share due primarily to expanded relationships with
affinity groups which represented 29% of the total increase, and with financial
institutions which represented 24% of the total increase. Servicing net revenue
increased 13% as a result of an increase in the average servicing portfolio
partially offset by increased amortization of servicing rights.
The Company adopted SFAS No. 122, effective May 1, 1995. This statement
requires that originated mortgage servicing rights be recognized as income when
the loan is sold and servicing is retained. The effect of this change in
accounting was partially offset by a decrease in margins realized on loans
sold. This decline in margins reflects the price competition in the industry
intended to capture market share during a period of low demand for mortgages
which was created by changes in interest rates during 1995.
OTHER SEGMENT
YEAR ENDED DECEMBER 31,
-----------------------------
OPERATING INCOME ($000'S) 1995 1994 VARIANCE
------------------------- ----------- ----------- --------
Net revenue $ 311,718 $ 202,437 54%
Operating expenses 260,084 165,213 57%
----------- -----------
Operating income $ 51,634 $ 37,224 39%
=========== ===========
Operating income increased $14.4 million (39%) as a result of $27.8
million from software operations and incremental profits from Central Credit
Inc., which conducts a casino credit information business and was acquired in
May 1995. Operating income in 1994 included a $19.7 million gain on the sale of
the ImagiNation Network.
Software revenues increased 53% ($100.9 million) to $292.0 million in
1995. Contributing to the strong Software growth in 1995 was the release of 63
new titles and an additional 18 titles which were acquired, as compared to 34
new products released in 1994. Also contributing to the Software revenue growth
is the significant increase in the installed base of CD-ROM personal computers
as well as increases in affiliated label and distribution revenues.
F-77
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 VS THREE MONTHS ENDED SEPTEMBER 30,
1996
The Company recorded a merger and related charge of $147.2 million ($89.6
million, after tax) (the "Third Quarter 1996 Davidson, Sierra and Ideon Merger
Charge") during the third quarter of 1996 in connection with the 1996 mergers
of the Company with Davidson, Sierra and Ideon. In connection with such charge
$127.2 million was allocated to the operations of the "Membership" segment, and
the remaining $20.0 million of the charge pertained to the Company's software
operations, which is included in the Company's "Other" segment.
The financial summary of the Company for the three months ended September
30, 1997 and 1996, INCLUDING AND EXCLUDING THE DAVIDSON, SIERRA AND IDEON
MERGER CHARGE, IS AS FOLLOWS ($000'S):
<TABLE>
<CAPTION>
1996 VARIANCE
---------------------------- --------------------------
INCLUDING EXCLUDING INCLUDING EXCLUDING
1997 CHARGE CHARGE CHARGE CHARGE
-------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net revenue $ 1,431,304 $ 1,042,901 $ 1,042,901 37% 37%
Operating expenses 1,001,482 927,869 780,669 8% 28%
-------------- ------------- -------------
Operating income $ 429,822 $ 115,032 $ 262,232 274% 64%
============== ============= =============
Net income $ 248,264 $ 68,466 $ 158,066 263% 57%
============== ============= =============
Net income per share
(fully diluted) $ 0.28 $ 0.08 $ 0.19 250% 47%
============== ============= =============
</TABLE>
Net interest expense increased $13.1 million in 1997 primarily resulting
from borrowings under revolving credit arrangements which financed 1997
treasury stock purchases, restructuring expenditures and acquisition related
expenditures. The weighted average effective interest rate decreased from 7.84%
to 5.30% as a result of increased fixed rate borrowings at lower interest
rates.
FOR COMPARATIVE PURPOSES, THE FOLLOWING SEGMENT INFORMATION AND
DISCUSSIONS EXCLUDE THE THIRD QUARTER 1996 DAVIDSON, SIERRA AND IDEON MERGER
CHARGE.
MEMBERSHIP SEGMENT
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ----------- ------------- ----------
Net revenues $ 690,220 $ 534,718 29%
Operating expenses 544,414 438,793 24%
----------- -------------
Operating income $ 145,806 $ 95,925 52%
=========== =============
The Company's overall membership base continues to grow at a rapid rate
(from 63.8 million members at September 30, 1996 to 72.9 million members at
September 30, 1997), which is the largest contributing factor to the 29%
increase in membership revenues (from $534.7 million for the quarter ended
September 30, 1996 to $690.2 million for the quarter ended September 30, 1997).
While the overall membership base increased by approximately 2.2 million
members during the quarter, the average annual fee collected for the Company's
membership services increased by approximately 1%.
F-78
<PAGE>
Compared to the previous year's third quarter, individual, wholesale and
discount program memberships grew by 13%, 21% and 13%, respectively. Wholesale
memberships have grown in part due to the success of the Company's
international business in Europe. For the quarter ended September 30, 1997,
individual, wholesale and discount program memberships represented 67%, 14% and
19% of membership revenues, respectively.
As the Company's membership services continue to mature, a greater
percentage of the total individual membership base is in its renewal years.
This results in increased profit margins for the Company due to the significant
decrease in certain marketing costs incurred on renewing members. Improved
response rates for new members also favorably impacted profit margins.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rates. Historically, an increase in overall membership usage has had a
favorable impact on renewal rates. Included in net revenue for the quarter
ended September 30, 1997, are revenues resulting from acquisitions which were
completed during the nine months ended September 30, 1997. However, net revenue
contributed from these acquisitions are not material to the Company's total
reported net revenue. The Company routinely reviews all membership renewal
rates and has not seen any material change over the last year in the average
renewal rate.
TRAVEL SEGMENT
LODGING
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 124,473 $ 115,670 8%
Operating expenses 73,487 71,530 3%
----------- ------------
Operating income $ 50,986 $ 44,140 16%
=========== ============
The net revenue increase resulted from an 8% increase in royalty fees and a
41% increase in revenue from preferred alliances seeking access to the
Company's franchisees and their underlying consumer base. The increase in
royalty fees resulted primarily from a 5% growth in franchised rooms from the
same period in 1996. The 3% increase in operating expenses represents increased
marketing expenses associated with funds administered by the Company on behalf
of franchisees on a pass-through basis (corresponding franchisee contribution
included in revenue).
CAR RENTAL
In September 1997, the IPO of ARAC, then a subsidiary that operated the car
rental operations of HFS Car Rental Inc., was completed, which diluted HFS's
equity interest in such subsidiary from 100% to 27.5%. The Company licenses the
Avis trademark to ARAC pursuant to a 50-year master license agreement and
receives royalty fees based upon 4% of ARAC revenue, escalating to 4.5% of ARAC
revenue over a 5-year period. In addition, the Company operates the
telecommunications and computer processing system, which services ARAC for
which the Company charges ARAC at cost.
F-79
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1996
OPERATING INCOME ($000'S) 1997 (PRO FORMA) VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 62,787 $ 59,315 6%
Operating expenses 37,596 38,334 (2%)
------------- --------------
Operating income $ 25,191 $ 20,981 20%
============= ==============
Assuming the ARAC IPO occurred on January 1, 1996, pro forma operating
income increased $4.2 million (20%) from 1996 to 1997 as a result of $1.3
million (7%) increase in royalty fees and $2.2 million of preferred alliance
and other revenue. A 6% increase in franchisee car rental price per day
contributed to the royalty increase.
TIMESHARE
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1996
OPERATING INCOME ($000'S) 1997 (PRO FORMA) VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 86,860 $ 78,164 11%
Operating expenses 64,392 66,649 (3%)
------------ -------------
Operating income $ 22,468 $ 11,515 95%
============ =============
Assuming Company ownership of timeshare operations since January 1, 1996,
pro forma operating income increased $11.0 million (95%) from 1996 to 1997 as a
result of expense reductions realized following the November 1996 acquisition
of RCI. Pro forma revenue increased 11% as a result of a 9% increase in
exchange revenue and a 24% increase in subscription revenue, resulting from
member fee and price increases.
FLEET MANAGEMENT
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 59,810 $ 59,062 1%
Operating expenses 41,104 44,156 (7%)
------------ --------------
Operating income $ 18,706 $ 14,906 25%
============ ==============
Net revenue increased only $.7 million (1%) as a result of the Company's
January 1997 sale of certain credit card operations. The Company currently
participates in such credit card operations as a joint venture partner and
accordingly, records revenue based on its equity in earnings on the joint
venture. As a result, revenue in 1997 includes revenue, net of expenses from
the joint venture, compared to gross revenue received from corresponding,
wholly-owned credit card operations in 1996. Assuming the joint venture
commenced January 1, 1996, pro forma net revenue increased 12% primarily as a
result of $3.6 million of increased fuel card revenue in the United Kingdom and
a $1.6 million increase in the United States fleet card operations. Operating
income increased 25% as a result of savings generated from the restructuring of
operations subsequent to the HFS/PHH Merger.
F-80
<PAGE>
REAL ESTATE SEGMENT
REAL ESTATE FRANCHISE
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 98,344 $ 79,426 24%
Operating expenses 36,574 36,187 1%
----------- -------------
Operating income $ 61,770 $ 43,239 43%
=========== =============
The royalty portion of revenue increased $13.0 million (18%) to $85.8
million. Increased royalty revenue reflects higher broker sales volume
primarily resulting from a 5 % increase in real estate transactions and a 12%
increase in the average price of homes sold. The net revenue increase also
reflects a 75% increase in revenue from preferred alliance programs to $8.3
million in 1997. The Company limited operating expenses to a $0.4 million (1%)
increase as a result of the post-acquisition realization of cost savings
associated with the consolidation of operating functions of its franchise
systems.
RELOCATION
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 112,034 $ 101,958 10%
Operating expenses 76,907 80,804 (5%)
------------- -------------
Operating income $ 35,127 $ 21,154 66%
============= =============
The increase in net revenue was primarily attributable to an increase in
referral fees from home sale transactions. The $3.9 million reduction in
operating expenses primarily reflects savings associated with the restructuring
of relocation operations following the HFS/PHH Merger.
MORTGAGE SERVICES
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 51,602 $ 40,513 27%
Operating expenses 32,161 26,533 21%
----------- -------------
Operating income $ 19,441 $ 13,980 39%
=========== =============
The increase in net revenue resulted primarily from a $6.2 million (22%)
increase in loan origination revenue due to an increase in loan closings ($3.5
billion for third quarter ) and a $4.9 million (41%) increase in loan servicing
fees. Operating expenses increased $5.6 million (21%), reflecting the increase
in current loan origination volume, and the anticipation of future volume
increases.
F-81
<PAGE>
OTHER SEGMENT
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 145,174 $ 111,554 30%
Operating expenses 94,847 82,666 15%
----------- -------------
Operating income $ 50,327 $ 28,888 74%
=========== =============
Operating income increased $21.4 million (74%) primarily as a result of a
$26.9 million increase in the equity in earnings of ARAC (recorded in net
revenue) and a $6.0 million gain on the sale of an investment partially offset
by a decrease of $22.4 million from Software operations. As a result of the
Company recalendarizing only its 1997 results, software operations for calendar
1997 are compared against the fiscal period ended October 31, 1996. Assuming a
comparable quarter, software operating income remained relatively constant from
1996 to 1997. The increase in net revenues is also attributable to the
continued focus on selling software titles through retailers and the
availability of a large number of titles as well as the significant increase in
the installed base of CD-ROM personal computers.
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS NINE MONTHS ENDED SEPTEMBER 30, 1996
The Company incurred an anticipated $303.0 million one-time merger and
restructuring charge ($227.0 million, after tax) during the nine months ended
September 30, 1997 in connection with the HFS/PHH Merger. In connection with
such charge, $40.4 million and $50.4 million of costs were allocated to the
operations of the fleet management and relocation business segments,
respectively. The remaining merger and related costs did not directly apply to
the Company's operating segments and were therefore included as operating
expenses in the Company's "Other" segment.
During the nine months ended September 30, 1996, the Company incurred a
merger and related charge of $175.8 million ($114.7 million after tax) in
connection with the mergers with Davidson, Sierra and Ideon. In connection with
such charge, $127.2 million was allocated to the operations of the membership
segment and the remaining $48.6 million pertained to the Company's software
operations, which is included in the Company's "Other" segment.
The financial summary for the nine months ended September 30, 1997 and 1996
INCLUDING THE PHH MERGER CHARGE OF $303.0 MILLION ($227.0 MILLION AFTER TAX)
AND THE MERGER AND RELATED CHARGES ASSOCIATED WITH THE MERGERS WITH DAVIDSON,
SIERRA AND IDEON OF $175.8 MILLION $114.6 MILLION AFTER TAX) IS AS FOLLOWS
($000's):
1997 1996 VARIANCE
------------- ------------ --------
Net revenue $ 3,890,015 $ 2,799,951 39%
Operating expenses 3,098,865 2,332,428 33%
------------- ------------
Operating income $ 791,150 $ 467,523 69%
============= ============
Net income $ 400,694 $ 265,504 51%
============= ============
Net income per share
(fully diluted) $ .47 $ .33 42%
============= ============
F-82
<PAGE>
The financial summary for the nine months ended September 30, 1997 and 1996,
EXCLUDING THE PHH MERGER CHARGE AND THE MERGER AND RELATED CHARGES ASSOCIATED
WITH THE MERGERS WITH DAVIDSON, SIERRA AND IDEON IS AS FOLLOWS ($000's):
1997 1996 VARIANCE
------------- ------------ --------
Net revenue $ 3,890,015 $ 2,799,951 39%
Operating expenses 2,795,865 2,156,593 30%
------------- ------------
Operating income $ 1,094,150 $ 643,358 70%
============= ============
Net income $ 627,694 $ 380,104 65%
============= ============
Net income per share
(fully diluted) $ .73 $ .48 52%
============= ============
Net interest expense increased 155% ($26.7 million) primarily resulting from
borrowings under revolving credit arrangements which financed 1997 treasury
stock purchases, restructuring expenditures and acquisition related
expenditures, while the weighted average effective interest rate decreased from
7.53% to 6.09% as a result of increased fixed rate borrowings at lower interest
rates.
FOR COMPARATIVE PURPOSES, THE FOLLOWING SEGMENT INFORMATION AND DISCUSSIONS
EXCLUDE THE PHH MERGER CHARGE AND THE MERGER AND RELATED CHARGES ASSOCIATED
WITH THE MERGERS WITH DAVIDSON, SIERRA AND IDEON.
MEMBERSHIP SEGMENT
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ----------- ------------- ----------
Net revenue $ 1,875,347 $ 1,539,240 22%
Operating expenses 1,458,829 1,250,785 17%
------------- -------------
Operating income $ 416,518 $ 288,455 44%
============= =============
The Company's overall membership base continues to grow at a rapid rate
(from 63.8 million members at September 30, 1996 to 72.9 million members at
September 30, 1997), which is the largest contributing factor to the 22%
increase in membership revenues (from $1.5 billion for the nine months ended
September 30, 1996 to $1.9 billion for the nine months ended September 30,
1997). While the overall membership base increased by approximately 6.6 million
members during the nine months ended September 30, 1997, the average annual fee
collected for the Company's membership services increased by approximately 3%.
Compared to the previous year's first nine months, individual, wholesale and
discount program memberships grew by 10%, 23% and 12%, respectively. Wholesale
memberships have grown in part due to the success of the Company's
international business in Europe. For the quarter ended September 30, 1997,
individual, wholesale and discount program memberships represented 67%, 14% and
19% of membership revenues, respectively.
As the Company's membership services continue to mature, a greater
percentage of the total individual membership base is in its renewal years.
This results in increased profit margins for the Company due to the significant
decrease in certain marketing costs incurred on renewing members. Improved
response rates for new members also favorably impacted profit margins.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rates.
F-83
<PAGE>
Historically, an increase in overall membership usage has had a favorable
impact on renewal rates. Included in total revenues for the quarter ended
September 30, 1997, are revenues resulting from acquisitions which were
completed during the nine months ended September 30, 1997. However, total
revenues contributed from these acquisitions are not material to the Company's
total reported revenues. The Company routinely reviews all membership renewal
rates and has not seen any material change over the last year in the average
renewal rate.
TRAVEL SEGMENT
LODGING
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ------------- ------------- ----------
Net revenue $ 322,427 $ 295,892 9%
Operating expenses 191,240 186,555 3%
------------- ------------
Operating income $ 131,187 $ 109,337 20%
============= ============
The net revenue increase resulted from a 7% increase in royalty fees and a
62% increase in revenue from preferred alliances seeking access to the
Company's franchisees and their underlying consumer base. The increase in
royalty fees resulted primarily from a 4% growth in franchised rooms from the
same period in 1996. The 3% ($4.7 million) increase in operating expenses
resulted from a 10% ($12.2 million) increase in marketing and reservation
expenses which are funded by the Company's franchisees partially offset by the
absorption of corporate overhead expenses by several other operating segments
acquired in 1996.
CAR RENTAL
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ------------- ------------- ----------
Net revenue $ 181,657 $ 165,112 10%
Operating expenses 113,889 109,561 4%
------------- ------------
Operating income $ 67,768 $ 55,551 22%
============= ============
Assuming the ARAC IPO occurred on January 1, 1996, pro forma operating
income increased 22% primarily as a result of a $3.3 million ( 5%) increase in
royalty fees and $5.2 million of preferred alliance and other revenue. The
increase in royalty fees was primarily attributable to a 5% increase in ARAC's
car rental price per day.
TIMESHARE
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ------------- ------------- ----------
Net revenue $ 274,570 $ 236,675 16%
Operating expenses 212,531 207,397 2%
------------- ------------
Operating income $ 62,039 $ 29,278 112%
============= ============
Assuming Company ownership of timeshare operations since January 1, 1996,
pro forma operating income increased $32.8 million (112%) from 1996 to 1997 as
a result of a $37.9 million (16%) increase in net revenue and only a $5.1
million (2%) increase in operating expenses. Pro forma revenue increased 16% as
a result
F-84
<PAGE>
of an $11.6 million (9%) increase in exchange revenue and an $18.0 million
(24%) increase in subscription revenue due to both membership and price
increases. The pro forma operating expense increase of only 2% is a result of
expense reductions realized following the November 1996 acquisition of RCI.
FLEET MANAGEMENT
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ------------- ------------- ----------
Net revenue $ 206,391 $ 192,832 7%
Operating expenses 130,491 135,055 (3%)
------------- ------------
Operating income $ 75,900 $ 57,777 31%
============= ============
Operating income increased $18.1 million (31%) to $75.9 million, primarily
as a result of a $13.6 million (7%) increase in net revenue and a $4.6 million
(3%) decrease in operating expenses resulting from operational efficiencies
realized from the second quarter 1997 restructuring of certain fleet management
operations. The increase in net revenue is comprised of a 10% increase in
fee-based revenue and a 4% increase in asset-based fees.
REAL ESTATE INDUSTRY
REAL ESTATE FRANCHISE
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
NINE MONTHS ENDED SEPTEMBER 30, 1996
OPERATING INCOME ($000'S) 1997 1996 VARIANCE (PRO FORMA) VARIANCE
------------------------- ------------- -------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue $ 237,412 $ 159,951 48% $ 203,519 17%
Operating expenses 108,465 84,897 28% 113,264 (4%)
------------- -------------- -------------
Operating income $ 128,947 $ 75,054 72% $ 90,255 43%
============= ============== =============
</TABLE>
Operating income increased 72% as a result of a $77.5 million (48%) increase
in net revenue and only a $23.6 million (28%) increase in operating expenses.
The royalty portion of revenue increased $65.5 million (46%) to $208.8 million
which is primarily attributable to the Coldwell Banker franchise system
operations which were acquired in May 1996. Operating expenses increased as a
result of incremental expenses associated with the acquired franchise systems.
Pro forma operating income which gives effect to the acquisitions of the
Coldwell Banker and ERA franchise systems as if these acquisitions were
consummated on January 1, 1996, increased $38.7 million (43%) from 1996 to 1997
as a result of a $33.9 million (17%) increase in net revenue and a $4.8 million
(4%) reduction in operating expenses. Pro forma net revenue increased primarily
as a result of a 10% increase in royalty fees principally due to increases in
homes sold and the average price of homes sold. The pro forma reduction in
operating expenses reflects cost savings realized from the restructuring of
real estate businesses acquired.
F-85
<PAGE>
RELOCATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1996
OPERATING INCOME ($000'S) 1997 1996 VARIANCE (PRO FORMA) VARIANCE
------------------------- ----------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net revenue $ 300,727 $ 253,073 19% $ 287,951 4%
Operating expenses 226,348 213,689 6% 241,859 (6%)
----------- ----------- -----------
Operating income $ 74,379 $ 39,384 89% $ 46,092 61%
=========== =========== ===========
</TABLE>
The $35.0 million (89%) increase in operating income is primarily
attributable to operating income from the Coldwell Banker relocation business
acquired in May 1996. Pro forma operating income increased $28.3 million (61%)
from 1996 to 1997 as a result of a $12.8 million (4%) increase in net revenue
and a $15.5 million (6%) reduction in operating expenses. Pro forma net revenue
increased primarily as a result of an increase in referral fees from home sale
transactions. The pro forma reduction in operating expenses reflects savings
associated with the restructuring of relocation operations following the
HFS/PHH Merger.
MORTGAGE SERVICES
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ------------- ------------ --------
Net revenue $ 127,731 $ 95,667 34%
Operating expenses 76,832 65,620 17%
------------- ------------
Operating income $ 50,899 $ 30,047 69%
============= ============
Operating income increased 69% as a result of a 34% increase in net revenue,
net of a 17% increase in operating expenses. Loan origination revenue increased
$25.5 million (43%) as a result of a 19% increase in loan closings and a 20%
price increase. Servicing revenue increased $4.3 million (20%) as a result of
an 18% increase in revenue from the servicing portfolio. Operating expenses
increased 17% due to increases in loan origination volume as well as increased
recruiting, training and systems development costs associated with the
anticipation of increased volume, primarily from the retail teleservice
delivery systems.
OTHER SEGMENT
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
OPERATING INCOME ($000'S) 1997 1996 VARIANCE
------------------------- ------------- ------------ --------
Net revenue $ 363,753 $ 263,296 38%
Operating expenses 277,240 219,992 26%
------------- ------------
Operating income $ 86,513 $ 43,304 100%
============= ============
Operating income increased $43.2 million (100%) primarily as a result of a
$51.2 million increase in the equity in earnings of ARAC (recorded in net
revenue) and a $16.7 million gain on the sale of investments, partially offset
by a decrease of $22.3 million from software operations. As a result of the
Company recalendarizing its 1997 results, software operations for calendar
1997 are compared against the fiscal period ended October 31, 1996. Assuming a
comparable nine month period, software operating income remained relatively
constant from 1996 to 1997.
The increase in net revenues is in large part attributable to the continued
focus on selling software titles through retailers and the availability of a
large number of titles as well as the significant increase in the installed
base of CD-ROM personal computers.
F-86
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
ACQUISITION OVERVIEW
The Company continues to seek to expand and strengthen its leadership
position in its membership, travel and real estate industry segments with
strategic acquisitions. The Company's acquired businesses share similar
characteristics, foremost of which is that each was immediately accretive to
Company cash flow and earnings. Revenue is substantially generated from service
fees and is not dependent on tangible assets or the need for capital
expenditures other than technology investments. These service businesses each
generate significant cash flow which is enhanced by the Company's operating
leverage that supports acquired revenue streams without corresponding increases
in operating infrastructure expenses.
1997 POOLINGS
CENDANT - The Cendant Merger was completed on December 17, 1997 pursuant to
which the Company issued 440.0 million shares of its common stock for all of
the outstanding common stock of HFS. Pursuant to the agreement and plan of
merger, HFS stockholders received 2.4031 shares of Company common stock for
each share of HFS common stock. The Company anticipates that it will incur
merger and related charges approximating $825 million associated with fourth
quarter 1997 mergers.
As directed by the Federal Trade Commission ("FTC") as a condition of
terminating the waiting period under the Hart Scott Rodino Antitrust
Improvements Act in connection with the Cendant Merger, on December 17, 1997,
the Company sold its wholly-owned subsidiary, Interval International Inc. and
certain related entities ("Interval"), for approximately $200 million, subject
to certain adjustments. The agreement contemplates that the Company will
continue to provide certain existing services to Interval's developers and
members.
HEBDO MAG - On October 3, 1997, the Company acquired all of the outstanding
capital stock of Hebdo Mag for approximately $440 million, which was satisfied
by the issuance of approximately 14.2 million shares of Company common stock.
Hebdo Mag is a leading publisher and distributor of international classified
advertising information.
PHH - On April 30, 1997, HFS acquired PHH by merger, which was satisfied by the
issuance of 72.8 million equivalent shares of Company common stock in exchange
for all of the outstanding common stock of PHH. PHH is the world's largest
provider of corporate relocation services and also provides mortgage and fleet
management services. HFS recorded a one-time merger and related charge of
approximately $303.0 million in the second quarter of 1997 upon consummation of
the HFS/PHH Merger.
1996 POOLINGS
DAVIDSON AND SIERRA - During July 1996, the Company acquired all of the
outstanding capital stock of Davidson for a purchase price of approximately $1
billion, which was satisfied by the issuance of approximately 45.1 million
shares of Company common stock. Also during July 1996, the Company acquired all
of the outstanding capital stock of Sierra for a purchase price of
approximately $858 million, which was satisfied by the issuance of
approximately 38.4 million shares of the Company common stock. Davidson and
Sierra develop, publish and distribute educational and entertainment software
for home and school use. During August 1996, the Company acquired all of the
outstanding capital stock of Ideon, principally a
F-87
<PAGE>
provider of credit card enhancement services, for a purchase price of
approximately $393 million, which was satisfied by the issuance of 16.6 million
shares of Company common stock.
In connection with the Davidson, Sierra and Ideon mergers, the Company recorded
a charge approximating $179.9 million in the year ended December 31, 1996. Such
costs are non-recurring and those associated with the Ideon Merger include a
provision relating to certain litigation matters giving consideration to the
Company's intended approach to these matters. The Company has since settled
certain of these litigation matters while certain of these matters remain
outstanding. Although the Company has attempted to estimate the amounts that
will be required to settle the remaining litigation matters, there can be no
assurance that the actual aggregate amount of such settlements will not exceed
the amount accrued.
1995 POOLINGS
GETKO, NAOG AND ADVANCE ROSS - During June 1995, the Company acquired all of
the outstanding capital stock of Getko Group, Inc. ("Getko") for a purchase
price of approximately $100 million, which was satisfied by the issuance of
approximately 5.6 million shares of Company common stock. Getko distributes
complimentary welcoming packages to new homeowners throughout the United States
and Canada. During September 1995, the Company acquired all of the outstanding
capital stock of North American Outdoor Group, Inc. ("NAOG") for a purchase
price of approximately $52 million, which was satisfied by the issuance of
approximately 2.3 million shares of Company common stock. NAOG owns one of the
largest for-profit hunting and general interest fishing membership
organizations in the United States, and also owns various other membership
organizations. During January 1996, the Company acquired all of the outstanding
capital stock of Advance Ross Corporation ("Advance Ross") for a purchase price
of approximately $183 million, which was satisfied by the issuance of
approximately 8.9 million shares of Company common stock. Advance Ross
processes value-added tax refunds to travelers in over 20 European countries.
1997 PURCHASE ACQUISITIONS
PROPOSED ACQUISITION
On January 27, 1998, the Company proposed to acquire American Bankers Insurance
Group Inc. ("American Bankers") for $58 per share in cash and stock, for an
aggregate purchase price approximating $2.7 billion. On January 28, 1998, the
Company commenced a tender offer to purchase approximately 23.5 million of
American Bankers' common stock at a price of $58 per share in cash, which
together with shares the Company owns on the announcement date approximating
51% of the fully diluted shares of American Bankers. The Company proposed to
exchange, on a tax free basis, shares of its common stock with a fixed value of
$58 per share for the balance of American Bankers' common stock. The tender
offer is subject to certain conditions and there can be no assurance that the
Company will be successful in its proposal to acquire American Bankers. The
Company has received a commitment from a bank to provide funds necessary to
finance the proposed acquisition.
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HARPUR - On January 20, 1998, the Company completed its acquisition of The
Harpur Group Ltd., a leading fuel card and vehicle management company in the
United Kingdom, from privately held H-G Holdings, Inc., for approximately $186
million in cash plus future contingent payments of up to $20 million over the
next two years.
JACKSON HEWITT - On January 7, 1998, the Company completed the acquisition of
Jackson Hewitt Inc. ("Jackson Hewitt"), for approximately $480 million in cash
or $68 per share of common stock of Jackson Hewitt. Jackson Hewitt is the
second largest tax preparation service franchise system in the United States
with locations in 41 states. Jackson Hewitt franchises a system of
approximately 2,050 offices that specialize in computerized preparation of
federal and state individual income tax returns.
PROVIDIAN - On December 9, 1997, HFS executed a definitive agreement to
acquire Providian Auto and Home Insurance Company and its subsidiaries from an
AEGON N.V. subsidiary for approximately $219 million in cash. Closing is
subject to receipt of required regulatory approval and other customary
conditions and is anticipated in the spring of 1998. Providian sells automobile
insurance to consumers through direct response marketing in 45 states and the
District of Columbia.
INVESTMENT IN NRT - During the third quarter of 1997, HFS acquired $182.0
million of preferred stock of NRT Incorporated ("NRT"), a newly formed
corporation created to acquire residential real estate brokerage firms. HFS
acquired $216.1 million of certain intangible assets including trademarks
associated with real estate brokerage firms acquired by NRT in 1997. The
Company, at its discretion, may acquire up to $81.3 million of additional NRT
preferred stock and may also purchase up to $229.9 million of certain
intangible assets of real estate brokerage firms acquired by NRT.
In September 1997, NRT acquired the real estate brokerage business and
operations of the Trust, and two other regional real estate brokerage
businesses. The Trust is an independent trust to which HFS contributed the
brokerage offices formerly owned by Coldwell Banker in connection with HFS's
acquisition of Coldwell Banker. NRT is the largest residential brokerage firm
in the United States.
1996 PURCHASE ACQUISITIONS
RCI - In November 1996, HFS completed the acquisition of all the outstanding
common stock of RCI for approximately $487 million comprised of $412 million in
cash and $75 million of HFS common stock plus future contingent payments of up
to $200 million over the next five years. The cash portion of the purchase
price was funded with borrowings under a revolving credit facility, acquired
RCI cash and excess proceeds from a second quarter public offering of
approximately 46.6 million equivalent shares of Company common stock (the
"Offering") which generated $1.2 billion of proceeds.
RCI is the world's largest provider of timeshare exchange programs and is also
engaged in publishing related to the timeshare industry and provides other
travel-related services, integrated software systems and resort management and
consulting services.
AVIS - In October 1996, HFS completed the acquisition of all of the outstanding
capital stock of HFS Car Rental Inc., formerly Avis Inc. ("Avis"), including
payments under certain employee stock plans of Avis and the redemption of
certain series of preferred stock of Avis for $806.5 million. The purchase
price was comprised of approximately $367.2 million in cash, $100.9 million in
indebtedness and $338.4 million
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(approximately 11.1 million equivalent shares) in Company common stock. The
cash portion of the purchase price was funded with excess proceeds from the
Offering.
Prior to the consummation of the acquisition, HFS announced its strategy to
dilute its interest in the Avis car rental operations while retaining assets
that are consistent with its service provider business profile, including the
trademark, franchise agreements, reservation system and information technology
system assets. In September 1997, ARAC (the company which operated the rental
car operations of HFS Car Rental, Inc.) completed an IPO resulting in a 72.5%
dilution of HFS's equity interest in ARAC.
COLDWELL BANKER - In May 1996, HFS acquired by merger Coldwell Banker, the
largest gross revenue producing residential real estate company in North
America and a leading provider of corporate relocation services. HFS paid
$640.0 million in cash for all of the outstanding capital stock of Coldwell
Banker and repaid $105.0 million of Coldwell Banker indebtedness. The aggregate
purchase price for the transaction was financed through the May 1996 sale of an
aggregate 46.6 million equivalent shares of Company common stock generating
$1.2 billion of proceeds pursuant to a public offering. Immediately following
the closing of the Coldwell Banker acquisition, HFS conveyed Coldwell Banker's
318 owned real estate brokerage offices to National Realty Trust, an
independent trust in which HFS has no beneficial interest and recorded a $5.0
million pre-tax charge in connection with such contribution.
OTHER - During 1996, HFS acquired certain other entities for an aggregate
purchase price of $286.2 million comprised of $210.4 million in cash, $70.8
million of common stock (2.5 million equivalent Company shares) and $5.0
million of notes.
1995 PURCHASE ACQUISITIONS
CENTURY 21 - In August 1995, a majority owned subsidiary of HFS, C21 Holding
Corp. ("Holding"), acquired Century 21 Real Estate Corporation ("Century 21"),
the world's largest residential real estate brokerage franchisor. Aggregate
consideration for the acquisition consisted of $245.0 million plus expenses,
including an initial cash payment of $70.2 million, 9.6 million equivalent
shares of Company common stock valued at $64.8 million, the assumption of $80.0
million of Century 21 redeemable preferred stock prior to the acquisition
(subsequently redeemed in February 1996) and a $30.0 million contingent payment
made in February 1996. Consideration paid in 1996 financed these payments with
proceeds from the February 1996 issuance of $240 million of unsecured 4-3/4%
Convertible Senior Notes (the "4-3/4% Notes").
Effective October 29, 1996 (the "Effective Date"), HFS amended the Subscription
and Stockholders' Agreement dated as of August 1, 1995 among Holding, HFS and a
group of former executives of Century 21 Real Estate Corporation ("the Former
Management") pursuant to which the Company owned 87.5% of Holding and the
Former Management owned 12.5% of Holding. Such amendment provided for the
acceleration of HFS's option to purchase the 12.5% ownership from the Former
Management at fair market value, determined as of the Effective Date. The
Company completed such purchase in the second quarter of 1997 for $52.8
million.
OTHER - During 1995, the Company and HFS collectively acquired certain entities
for an aggregate purchase price of $163.3 million, comprised of $122.5 million
in cash and $40.8 million of common stock (6.0 million equivalent Company
shares).
TREASURY PURCHASES
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In January 1997, HFS's Board of Directors authorized the purchase of 6.2
million equivalent shares of Company common stock to satisfy stock option
exercises and conversions of convertible debt securities and to fund future
acquisitions. HFS acquired approximately 6.2 million equivalent treasury shares
of Company common stock in the first quarter of 1997 for $179.4 million with
revolving credit borrowings.
FINANCING (EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAM FINANCING)
POST CENDANT MERGER
The Company continues to believe that it has excellent liquidity and access
to liquidity through various sources. The Company has also demonstrated its
ability to access equity and public debt markets and financial institutions to
generate capital for strategic acquisitions. Indicative of the Company's
creditworthiness, as of the consummation of the Cendant Merger, Standard and
Poors Corporation ("S&P") and Duff and Phelps ("Duff") affirmed A ratings to
the Company's debt and Moody's Investor Service ("Moody's") upgraded the
Company's senior unsecured debt rating to A3. A security rating is not a
recommendation to buy, sell or hold securities and is subject to revision or
withdrawal at any time by S&P, Duff and Moody's.
As of the Cendant Merger consummation date, the Company terminated its
existing credit facility and amended the HFS revolving credit facilities to
provide aggregate commitments of $2.0 billion consisting of (i) a $1.25
billion, 364-day revolving credit facility (the "364 Day Revolving Credit
Facility") and (ii) a $750.0 million, five year revolving credit facility (the
"Five Year Revolving Credit Facility" and collectively with the 364 Day
Revolving Credit Facility, (the "Revolving Credit Facilities"). The 364 Day
Revolving Credit Facility will mature on September 30, 1998 but may be renewed
on an annual basis for an additional 364 days up to a maximum aggregate term of
five years upon receiving lender approval. The Five Year Revolving Credit
Facility will mature on October 1, 2001. The Revolving Credit Facilities, at
the option of the Company, bear interest based on competitive bids of lenders
participating in the facilities, at prime rates or at LIBOR plus a margin of
approximately 22 basis points. The Company is required to pay a per annum
facility fee of .08% and .06% of the average daily availability of the Five
Year Revolving Credit Facility and the 364 Day Revolving Credit Facility,
respectively. The interest rates and facility fees are subject to change based
upon credit ratings assigned to the Company's senior unsecured long-term debt
by nationally recognized statistical rating companies. The Revolving Credit
Facilities contain certain restrictive covenants including restrictions on
indebtedness, mergers, liquidations and sale and leaseback transactions.
The Company intends to file a shelf registration statement with the
Securities and Exchange Commission for the issuance of up to an aggregate $3
billion of debt and equity securities. These securities may be offered from
time to time based on terms to be determined at the time of sale. The proceeds
would be used for general corporate purposes, which may include future
acquisitions.
PRE CENDANT MERGER
Prior to the Cendant Merger, the Company had a $500.0 million revolving
credit facility (the "CUC Credit Facility") with a variety of different types
of loans available thereunder. Interest was payable, depending on the type of
loan utilized by the Company, at a variety of rates based on the federal funds
rate, LIBOR, the prime rate or rates quoted by participating banks based on an
auction process for the CUC Credit Facility. No borrowings under this facility
were outstanding at December 31, 1996, March 31, 1997, June 30, 1997 and
September 30, 1997. The CUC Credit Facility required the Company to maintain
certain financial ratios and contained other restrictive covenants including,
without limitation, financial covenants and restrictions
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on certain corporate transactions, and also contained various events of default
provisions including, without limitation, defaults arising from certain changes
in control of the Company.
Prior to Cendant Merger, HFS maintained up to $1.5 billion in revolving
credit facilities pursuant to the same terms and conditions under the Company's
Revolving Credit Facilities post the Cendant Merger. Outstanding borrowings
under HFS's revolving credit facilities at December 31, 1996 and September 30,
1997 aggregated $205.0 million and $1.1 billion, respectively. At December 31,
1996 and September 30, 1997 available borrowings under HFS's revolving credit
facilities were $795.0 million and $400.0 million respectively.
In connection with the acquisition of Hebdo Mag, the Company assumed a
$115.2 million revolving credit facility and other long-term debt of $110.5
million, consisting of senior and subordinated notes and other miscellaneous
loans. The revolving credit facility bears interest at varying rates ranging
from the prime rate plus .25% to 1.5% or LIBOR plus 1.0% to 2.25%, depending
upon Hebdo Mag's ratio of total debt to pro forma cash flow, as defined. This
facility expires on February 15, 1998 but may be renewed on an annual basis for
successive periods of one year upon receiving lender approval. Outstanding
borrowings under this facility at December 31, 1996 and September 30, 1997
aggregated $93.8 million and $82.9 million, respectively.
On February 11, 1997, the Company issued $550 million in principal amount of
3% convertible subordinated Notes (the "3% Notes") due February 15, 2002.
Interest on the 3% Notes is payable semi-annually. Each $1,000 principal amount
of 3% Notes is convertible into 32.6531 shares of Company common stock subject
to adjustment in certain events. The 3% Notes may be redeemed at the option of
the Company at any time on or after February 15, 2000, in whole or in part, at
the appropriate redemption prices (as defined in the Indenture governing the 3%
Notes) plus accrued interest to the redemption date. The 3% Notes will be
subordinated in right of payment to all existing and future Senior Debt (as
defined in the Indenture governing the 3% Notes) of the Company.
In January 1997, Wright Express Corporation, a wholly-owned subsidiary,
entered into a new revolving credit facility agreement replacing its previous
revolving line of credit. The new credit facility has an available line of $60
million. At December 31, 1996 and September 30, 1997, Wright Express had $31.4
million and $36.2 million, respectively outstanding under the new credit
facility. The new credit facility expires February 8, 1999.
On February 22, 1996, HFS completed a public offering of $240 million
unsecured 4-3/4% Convertible Senior Notes (the "4-3/4% Notes") due 2003, which
are convertible at the option of the holder at any time prior to maturity into
36.028 equivalent shares of Company common stock per $1,000 principal amount of
the 4-3/4% Notes, representing a conversion price of $27.756 per share. The
4-3/4% Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after March 3, 1998 at redemption prices decreasing from
103.393% of principal at March 3, 1998 to 100% of principal at March 3, 2003.
However, on or after March 3, 1998 and prior to March 3, 2000, the 4-3/4% Notes
will not be redeemable at the option of the Company unless the closing price of
the Company's common stock shall have exceeded $38.86 per share (subject to
adjustment upon the occurrence of certain events) for 20 trading days within a
period of 30 consecutive trading days ending within five days prior to
redemption. Interest on the 4-3/4% Notes is payable semi-annually commencing
September 1, 1996.
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In October 1994, HFS completed a public offering of $150 million unsecured
4-1/2% Convertible Senior Notes (the "4-1/2% Notes") due 1999, which were
convertible at the option of the holders at any time prior to maturity into
132.425 equivalent shares of Company common stock per $1,000 principal amount
of the 4- 1/2% Notes, representing a conversion price of $7.55 per share.
Interest was payable semi-annually commencing April 1995. On September 22,
1997, HFS exercised its option to redeem the outstanding 4-1/2% Notes effective
October 15, 1997 in accordance with the provisions of the indenture under which
the 4-1/2% Notes were issued. Prior to the redemption date, all of the
outstanding 4-1/2% Notes were converted. Accordingly, 19.7 million equivalent
shares of Company common stock were issued as a result of the conversion of
such notes.
In connection with the Company's 1996 acquisition of Sierra, the Company
assumed $50 million in principal amount of 6-1/2% convertible subordinated
notes due April 1, 2001 (the "Notes"). Interest on the Notes is payable
semi-annually on April 1 and October 1 of each year. Each $7.62 principal
amount of Notes is convertible into one share of Company common stock, subject
to adjustment under certain conditions. The Notes are redeemable after April 2,
1997, at the option of Sierra, at specified redemption prices. At December 31,
1996 and September 30, 1997, Sierra had $23.5 million and $20.3 million,
respectively, outstanding on the Notes.
Long-term debt increased $1.4 billion to $2.4 billion at September 30, 1997
when compared to amounts outstanding at December 31, 1996, primarily as a
result of the $550 million issuance of 3% Notes, and approximately $900 million
of incremental borrowings under HFS's revolving credit facilities, which was
principally used to fund $171.3 million of treasury share purchases, $137.0
million of the PHH Merger Charge and $680.0 million of the Company's investment
in NRT and certain intangible assets associated with NRT's acquisitions during
the third quarter of 1997 and other acquisition related payments. Long-term
debt at September 30, 1997 primarily consisted of $1.1 billion of fixed rate
publicly issued debt and $1.2 billion of borrowings under the Company's
revolving credit facilities.
Long-term debt increased $646.0 million from $354.0 million at December 31,
1995 to $1.0 billion at December 31, 1996, primarily due to the issuance of the
$240 million 4-3/4% Notes and $189.6 million of incremental borrowings under
HFS's revolving credit facilities which partially financed the November
acquisition of RCI. In addition, the Company assumed $204.3 million of debt in
connection with the merger of Hebdo Mag, which consisted of revolving credit
facility borrowings, senior and subordinated notes and other miscellaneous
loans.
MANAGEMENT AND MORTGAGE PROGRAM FINANCING
PHH operates mortgage services, fleet management and relocation businesses
as a separate public reporting entity and supports purchases of leased vehicles
and originated mortgages primarily by issuing commercial paper and medium term
notes. Such borrowings are not classified based on contractual maturities, but
rather are included in liabilities under management and mortgage programs
rather than long-term debt since such debt corresponds directly with high
quality related assets. Although PHH's debt to equity ratio approximates 6 to
1, such debt corresponds directly with net investments in high quality related
assets. Accordingly, following the announcement of the HFS/PHH Merger, S&P,
Moody's and Fitch Investor Service affirmed investment grade ratings of A+, A2
and A+, respectively to PHH debt and A1 and F1, respectively to PHH commercial
paper. A security rating is not a recommendation to buy, sell or hold
securities and is subject to revision or withdrawal at any time.
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PHH debt is issued without recourse to the Company. The Company expects to
continue to have broad access to global capital markets by maintaining the
quality of its assets under management. This is achieved by establishing credit
standards to minimize credit risk and the potential for losses. Depending upon
asset growth and financial market conditions, PHH utilizes the United States,
European and Canadian commercial paper markets, as well as other cost-effective
short-term instruments. In addition, PHH will continue to utilize the public
and private debt markets to issue unsecured senior corporate debt. Augmenting
these sources, PHH will continue to manage outstanding debt with the potential
sale or transfer of managed assets to third parties while retaining fee-related
servicing responsibility.
PHH's aggregate outstanding borrowings at the underlying balance sheet dates
were as follows ($ billions):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- -------------
<S> <C> <C>
Commercial paper $3.1 $2.5
Medium-term notes 1.7 2.3
Other 0.4 0.2
</TABLE>
To provide additional financial flexibility, the Company's current policy
is to ensure that minimum committed facilities aggregate 80 percent of the
average amount of outstanding commercial paper. PHH maintains a $2.5 billion
syndicated unsecured credit facility which is backed by domestic and foreign
banks and is comprised of $1.25 billion of lines of credit maturing in 364 days
and $1.25 billion maturing in five years. In addition, PHH has approximately
$300 million of uncommitted lines of credit with various financial
institutions. Management closely evaluates not only the credit of the banks but
the terms of the various agreements to ensure ongoing availability. The full
amount of PHH's committed facilities in 1997 to date are undrawn and available.
Management believes that its current policy provides adequate protection should
volatility in the financial markets limit PHH's access to commercial paper or
medium-term notes funding.
PHH minimizes its exposure to interest rate and liquidity risk by
effectively matching floating and fixed interest rate and maturity
characteristics of funding to related assets, varying short and long-term
domestic and international funding sources, and securing available credit under
committed banking facilities.
The Company and PHH currently operate under policies limiting (a) the
payment of dividends on PHH's capital stock to 40% of net income of PHH on an
annual basis, less the outstanding principal balance of loans from PHH to the
Company as of the date of the proposed dividend payment, and (b) the
outstanding principal balance of loans from PHH to the Company to 40% of net
income of PHH on an annual basis, less payment of dividends on PHH's capital
stock during such year.
CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 VS YEAR ENDED DECEMBER 31, 1995
The Company generated $1.6 billion of cash flows from operations in 1996
representing a $464.3 million increase from 1995. This increase primarily
reflects improved net income net of non-cash charges.
In 1996, cash flows from operating activities of $1.6 billion and $1.8
billion of cash flows from financing activities, principally consisting of net
debt financing of $733 million and $1.2 billion of proceeds from the
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issuance of common stock were used principally to fund $1.7 million of Company
acquisitions and the Company's net investment in assets under management
mortgage programs of $1.3 billion and core service fee based operations.
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS NINE MONTHS ENDED SEPTEMBER 30, 1996
The Company generated $1.3 billion of cash flows from operations in 1997
representing a $452.4 million increase from 1996. This increase primarily
reflects improved net income net of non cash charges. In 1997, cash flows from
operating activities of $1.3 billion and net debt borrowings of $1.1 billion,
including the February 1997 issuance of $550 million 3% convertible
subordinated Notes were used principally to fund the Company's net investment
in assets under mangement and mortgage programs of $893.5 million, $748.6
million of Company acquisitions, treasury stock purchases of $171.3 million,
and core service fee based operations.
CAPITAL EXPENDITURES
The Company anticipates investing approximately $200 million during
calendar year 1998 in capital expenditures. Such capital expenditures are
primarily associated with the consolidation of internationally based call
centers and information technology systems to support expected volume increases
in the Company's mortgage services business and improve operational
efficiencies in the delivery of relocation services.
IMPACT OF INFLATION AND SEASONALITY
To date, inflation has not had a material impact on Company operations.
The third quarter represented 29% of annual pro forma net income as a result of
peak leisure travel and real estate sales in summer months. Fourth quarter
respresented 27% of pro forma net income due to holiday season demand for
software products.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
The Company is currently assessing these statements, which are effective for
fiscal years beginning after December 15, 1997 and establish standards for the
reporting and display of comprehensive income and disclosure regarding related
segments.
In March 1997, FASB issued SFAS No. 128, "Earnings per Share" which is
effective for the Company in financial statements issued after December 15,
1997. SFAS No. 128 supersedes APB 15 and replaces the presentations of primary
EPS with a presentation of Basic EPS. It also requires presentation of Basic
and Diluted EPS on the income statement for all entities with complex capital
structures. Assuming SFAS No. 128 was applicable for 1996, the Company would
have reported the following net income (loss) per share amounts:
F-95
<PAGE>
BASIC DILUTED
-------- ------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 .56 .52
1995 .45 .42
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 .31 .29
1996 .09 .08
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 .50 .47
1996 .36 .34
In June 1996, the FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The
statement provides accounting and reporting standards for transfers and
servicing of financial assets and, among other things, also requires that
previously recognized servicing receivables that exceed contractually specified
servicing fees be reclassified as interest-only strips receivable, and
subsequently measured under the provisions of SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." The Company adopted the
provisions of SFAS No. 125 on January 1, 1997 and has reclassified a portion of
its excess servicing fees to interest-only strips. The effect of adopting SFAS
No. 125 was not material to the Company's operations or financial condition.
FORWARD LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forwarding-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forwarding-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forwarding-looking statements. These forwarding-looking statements were based
on various factors and were derived utilizing numerous important assumptions
and other important factors that could cause actual results to differ
materially from those in the forwarding-looking statements. Important
assumptions and other factors that could cause actual results to differ
materially from those in the forwarding-looking statements, include, but are
not limited to: uncertainty as to the Company's future profitability, the
Company's ability to develop and implement operational and financial systems to
manage rapidly growing operations; competition in the Company's existing and
potential future lines of business; the Company's ability to integrate and
operate
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successfully acquired and merged businesses and the risks associated with such
businesses, including the Company's ability to obtain financing on acceptable
terms to finance the Company's growth strategy and for the Company to operate
within the limitations imposed by financing arrangements; uncertainty as to the
future profitability of acquired businesses, and other factors. Other factors
and assumptions not identified above were also involved in the derivation of
these forwarding-looking statements, and the failure of such other assumptions
to be realized as well as other factors may also cause actual results to differ
materially from those projected. The Company assumes no obligation to update
these forwarding-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forwarding-looking
statements.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 17, 1998
$4,000,000,000
CENDANT CORPORATION
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK,
STOCK PURCHASE CONTRACTS, STOCK PURCHASE UNITS AND WARRANTS
CENDANT CAPITAL I
CENDANT CAPITAL II
CENDANT CAPITAL III
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED
BY CENDANT CORPORATION
---------------
Cendant Corporation (the "Company"), directly or through such agents,
dealers or underwriters as may be designated from time to time, may offer,
issue and sell, together or separately, its (i) debt securities (the "Debt
Securities"), which may be senior debt securities (the "Senior Debt
Securities") or subordinated debt securities (the "Subordinated Debt
Securities"), (ii) shares of its preferred stock, par value $0.01 per share
(the "Preferred Stock"), (iii) shares of its common stock, par value $0.01
per share (the "Common Stock"), (iv) Stock Purchase Contracts ("Stock
Purchase Contracts") to purchase shares of Common Stock, (v) Stock Purchase
Units, each representing ownership of a Stock Purchase Contract and Preferred
Securities (as defined herein) or debt obligations of third parties,
including U.S. Treasury securities, securing the holder's obligation to
purchase Common Stock under the Stock Purchase Contracts ("Stock Purchase
Units") and (vi) warrants to purchase Debt Securities, Preferred Stock,
Common Stock or other securities or rights ("Warrants").
Cendant Capital I, Cendant Capital II and Cendant Capital III (each, a
"Cendant Trust"), statutory business trusts formed under the laws of the
State of Delaware, may offer, from time to time, preferred securities,
representing preferred undivided beneficial interests in the assets of the
respective Cendant Trusts ("Preferred Securities"). The payment of periodic
cash distributions ("Distributions") with respect to Preferred Securities out
of moneys held by each of the Cendant Trusts, and payments on liquidation,
redemption or otherwise with respect to such Preferred Securities, will be
guaranteed by the Company to the extent described herein (each, a "Trust
Guarantee"). See "Description of Preferred Securities" and "Description of
Trust Guarantees." The Company's obligations under the Trust Guarantees will
rank junior and subordinate in right of payment to all other liabilities of
the Company and pari passu with its obligations under the senior most
preferred or preference stock of the Company. See "Description of Trust
Guarantees--Status of the Trust Guarantees." Debt Securities may be issued
and sold by the Company in one or more series to a Cendant Trust or a trustee
of such Cendant Trust in connection with the investment of the proceeds from
the offering of Preferred Securities and Common Securities (as defined
herein) of such Cendant Trust. The Debt Securities purchased by a Cendant
Trust may be subsequently distributed pro rata to holders of Preferred
Securities and Common Securities in connection with the dissolution of such
Cendant Trust. The Debt Securities, Preferred Stock, Common Stock, Stock
Purchase Contracts, Stock Purchase Units, Warrants and Preferred Securities
are herein collectively referred to as the "Securities," with an aggregate
public offering price of up to $4,000,000,000 (or its equivalent in foreign
currencies or foreign currency units based on the applicable exchange rate at
the time of offering) in amounts, at prices and on terms to be determined at
the time of sale.
The form in which the Securities are to be issued, their specific
designation, aggregate principal amount or aggregate initial offering price,
maturity, if any, rate and times of payment of interest or dividends, if any,
redemption, conversion, and sinking fund terms, if any, voting or other
rights, if any, exercise price and detachability, if any, and other specific
terms will be set forth in a Prospectus Supplement (the "Prospectus
Supplement"), together with the terms of offering of such Securities. Any
such Prospectus Supplement will also contain information, as applicable,
about certain material United States Federal income tax considerations
relating to the particular Securities offered thereby.
<PAGE>
The Declaration of Trust for each of such Trusts also provides that to the
full extent permitted by law, the Company shall indemnify any Company
Indemnified 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 any such Trust) by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys' fees),
judgments, fines and amounts paid in
<PAGE>
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of any such Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. Each of the Declaration of Trusts also provides that to the full
extent permitted by law, the Company shall indemnify any Company Indemnified
Person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of any
such trust to procure a judgment in its favor by reason of the fact that such
person is or was a Company Indemnified Person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of any such trust and except that
no such indemnification shall be made in respect of any claim, issue or
matter as to which such Company Indemnified Person shall have been adjudged
to be liable to any such trust unless and only to the extent that the Court
of Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such Court of
Chancery or such other court shall deem proper. The Declaration of Trust for
each such Trust further provides that expenses (including attorneys' fees)
incurred by a Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to in the
immediately preceding two sentences shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such Company Indemnified Person to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Company as authorized in any such
Declaration.
The Declaration of Trust for each Trust also provides that the Company
shall indemnify each Fiduciary Indemnified Person against any loss, liability
or expense incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of the trust or
trusts under any such Trust, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties thereunder.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "CD". On February 13, 1998, the last reported sale price of the
Common Stock on the New York Stock Exchange was $ per share. Any
Prospectus Supplement will also contain information, where applicable, as to
any other listing on a securities exchange of the Securities covered by such
Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Securities may be sold directly by the Company, through agents
designated from time to time or to or through underwriters or dealers. The
Company reserves the sole right to accept, and together with its agents, from
time to time, to reject in whole or in part any proposed purchase of
Securities to be made directly or through agents. If any agents or
underwriters are involved in the sale of any Securities, the names of such
agents or underwriters and any applicable fees, commissions or discounts will
be set forth in the applicable Prospectus Supplement. See "Plan of
Distribution."
This Prospectus may not be used to consummate any sale of Securities
unless accompanied by a Prospectus Supplement.
The date of this Prospectus is February, 1998
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE
OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING
DESCRIBED HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all the amendments and exhibits thereto, the
"Registration Statement") filed by the Company and the Cendant Trusts with
the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities. This Prospectus does not contain all of the information set
forth in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, although it does
include a summary of the material terms of the Indenture and the Declaration
of Trust (each as defined herein). Reference is made to such Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company, the Cendant Trusts and the Securities. Any statements
contained herein concerning the provisions of any document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission
or incorporated by reference herein are not necessarily complete, and, in
each instance, reference is made to the copy of such document so filed for a
more complete description of the matter involved. Each such statement is
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661 and 7 World Trade Center, 13th Floor,
New York, New York 10048. The Commission also maintains a website that
contains reports, proxy and information statements and other information. The
website address is http.//www.sec.gov. In addition, such material can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
No separate financial statements of the Cendant Trusts have been included
or incorporated by reference herein. The Company does not consider that such
financial statements would be material to holders of the Preferred Securities
because (i) all of the voting securities of the Cendant Trusts will be owned,
directly or indirectly, by the Company, a reporting company under the
Exchange Act, (ii) the Cendant Trusts have and will have no independent
operations but exist for the sole purpose of issuing securities representing
undivided beneficial interests in their assets and investing the proceeds
thereof in Subordinated Debt Securities issued by the Company, and (iii) the
Company's obligations described herein and in any accompanying Prospectus
Supplement, under the Declaration (as defined herein)(including the
obligation to pay expenses of the Cendant Trusts), the Subordinated Indenture
and any supplemental indentures thereto, the Subordinated Debt Securities
issued to the Cendant Trust and the Trust Guarantees taken together,
constitute a full and unconditional guarantee by the Company of payments due
on the Preferred Securities. See "Description of Preferred Securities of the
Cendant Trusts" and "Description of Trust Guarantees."
The Cendant Trusts are not currently subject to the information reporting
requirements of the Exchange Act. The Cendant Trusts will become subject to
such requirements upon the effectiveness of the Registration Statement,
although they intend to seek and expect to receive exemptions therefrom.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended January 31, 1997
(the "1997 Form 10-K"); (ii) Quarterly Reports on Form 10-Q for the fiscal
quarters ended April 30, 1997, July 31, 1997 and October 31, 1997 (the "1997
Form 10-Qs"); (iii) Current Reports on Form 8-K dated January 22, 1997,
February 4, 1997, February 13, 1997, February 26, 1997, March 17, 1997, May
29, 1997, August 15, 1997, October 31, 1997, November 4, 1997, December 18,
1997, January 14, 1998, January 22, 1998, January 27, 1998, January 29, 1998,
February 4, 1998, February 6, 1998, February 13, 1998 and February 17, 1998;
and (iv) description of the common stock of the Company which is contained in
the Registration Statements on Form 8-A of the Company dated July 27, 1984 and
August 15, 1989.
The financial statements filed as part of the Current Report on Form 8-K
dated January 29, 1998 are now the historical financial statements of the
Company (the "Historical Financial Statements"). The Historical Financial
Statements supercede the financial statements appearing in the 1997 Form 10-K
and the 1997 Form 10-Qs.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
filing of such documents. Any statement contained in this Prospectus or in a
document incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated herein by reference or
in any Prospectus Supplement modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have
been or may be incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to James E.
Buckman, Esq., Senior Executive Vice President and General Counsel, Cendant
Corporation, 6 Sylvan Way, Parsippany, New Jersey 07054, (973) 428-9700.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE SECURITIES
OFFERED HEREBY, INCLUDING STABILIZING TRANSACTIONS, THE PURCHASE OF
SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS.
3
<PAGE>
THE COMPANY
The Company is one of the foremost consumer and business services
companies in the world. The Company was created through the merger (the
"Merger") of CUC International Inc. ("CUC") and HFS Incorporated ("HFS") in
December 1997 and provides all of the services formerly provided by each of
CUC and HFS, including technology-driven, membership-based consumer services,
travel services and real estate services.
Membership Services. The Company's membership-based consumer services
provide more than 66.5 million members with access to a variety of goods and
services worldwide. These memberships include such components as shopping,
travel, auto, dining, home improvement, lifestyle, vacation exchange, credit
card and checking account enhancement packages, financial products and
discount programs. The Company also administers insurance package programs
which are generally combined with discount shopping and travel for credit
union members, distributes welcoming packages which provide new homeowners
with discounts for local merchants, and provides travelers with value-added
tax refunds. The Company believes that it is the leading provider of
membership-based consumer services of these types in the United States. The
Company's membership activities are conducted principally through its
Comp-U-Card division and certain of the Company's wholly-owned subsidiaries,
FISI*Madison Financial Corporation, Benefit Consultants, Inc., Entertainment
Publications, Inc. and SafeCard Services, Inc.
Travel Services. The Company also provides services to consumers through
intermediaries in the travel and real estate industries. In the travel
industry, the Company, through certain of its subsidiaries, franchises hotels
primarily in the mid-priced and economy markets. It is the world's largest
hotel franchisor, operating the Days Inn(Registered Trademark),
Ramada(Registered Trademark) (in the United States), Howard
Johnson(Registered Trademark), Super 8(Registered Trademark),
Travelodge(Registered Trademark) (in North America), Villager
Lodge(Registered Trademark), Knights Inn(Registered Trademark) and Wingate
Inn(Registered Trademark) franchise systems. Additionally, the Company owns
the Avis worldwide vehicle rental system, which is operated through its
franchisees and is the second-largest car rental system in the world (based
on total revenues and volume of rental transactions). The Company currently
owns approximately 27.5% of the capital stock of the world's largest Avis
franchisee, Avis Rent A Car, Inc. The Company also owns Resort Condominiums
International, Inc., a leading timeshare exchange organization. The Company
also operates the second largest provider in North America of comprehensive
vehicle management services and is the market leader in the United Kingdom
among the four nationwide providers of fuel card services and the six
nationwide providers of vehicle management services.
Real Estate Services. In the residential real estate industry, the
Company, through certain of its subsidiaries, franchises real estate
brokerage offices under the Century 21(Registered Trademark), Coldwell
Banker(Registered Trademark) and Electronic Realty Associates(Registered
Trademark) (ERA(Registered Trademark)) real estate brokerage franchise
systems and is the world's largest real estate brokerage franchisor.
Additionally, the Company, through Cendant Mobility Services Corporation, is
the largest provider of corporate relocation services in the United States,
offering relocation clients a variety of services in connection with the
transfer of a client's employees. Through Cendant Mortgage Corporation, the
Company originates, sells and services residential mortgage loans in the
United States, marketing such services to consumers through relationships
with corporations, affinity groups, financial institutions, real estate
brokerage firms and other mortgage banks.
As a franchisor of hotels, residential real estate brokerage offices and
car rental operations, the Company licenses the owners and operators of
independent businesses to use the Company's brand names. The Company does not
own or operate hotels or real estate brokerage offices. Instead, the Company
provides its franchisee customers with services designed to increase their
revenue and profitability.
Other. The Company also offers consumer software in various multimedia
forms. During 1996, the Company acquired Davidson & Associates, Inc., Sierra
On-Line, Inc. and Knowledge Adventure, Inc. These companies develop, publish,
manufacture and distribute educational, entertainment and personal
productivity interactive multimedia products for home and school use.
The Company from time to time explores and conducts discussions with
regard to acquisitions and other strategic corporate transactions in its
industries and in other businesses. Historically, the Company
4
<PAGE>
has been involved in numerous transactions of various magnitudes, for
consideration which included cash or securities (including Common Stock) or
combinations thereof. The Company will evaluate and pursue appropriate
acquisition and combination opportunities as they arise. No assurance can be
given with respect to the timing, likelihood or financial or business effect
of any possible transaction. In the past, acquisitions by the Company have
involved both relatively small acquisitions and acquisitions which have been
significant.
As part of its regular on-going evaluation of acquisition opportunities,
the Company is currently engaged in a number of separate and unrelated
preliminary discussions concerning possible acquisitions. The Company is in
the early stages of such discussions and has not entered into any agreement
in principle with respect to any of these possible acquisitions. The purchase
price for the possible acquisitions may be paid in cash, through the issuance
of Common Stock (which would increase the number of shares of Common Stock
outstanding) Preferred Stock, Debt Securities or other securities of the
Company, borrowings, or a combination thereof. Prior to consummating any such
possible acquisitions, the Company, among other things, will have to initiate
and satisfactorily complete its due diligence investigation; negotiate the
financial and other terms (including price) and conditions of such
acquisitions; obtain appropriate Board of Directors, regulatory and other
necessary consents and approvals; and secure financing. The Company cannot
predict whether any such acquisitions will be consummated or, if consummated,
will result in a financial or other benefit to the Company.
The Company's principal executive offices are located at 6 Sylvan Way,
Parsippany, New Jersey 07054 (telephone number: (973) 428-9700).
THE CENDANT TRUSTS
Each of the Cendant Trusts is a statutory business trust formed under
Delaware law pursuant to (i) a declaration of trust (each a "Declaration")
executed by the Company as sponsor for such trust (the "Sponsor"), and the
Cendant Trustees (as defined herein) of such trust and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
February 5, 1998. Each Cendant Trust exists for the exclusive purposes of (i)
issuing and selling the Preferred Securities and common securities
representing common undivided beneficial interests in the assets of such
Cendant Trust (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities"), (ii) using the gross proceeds from the
sale of the Trust Securities to acquire the Debt Securities and (iii)
engaging in only those other activities necessary, appropriate, convenient or
incidental thereto. All of the Common Securities will be directly or
indirectly owned by the Company. The Common Securities will rank pari passu,
and payments will be made thereon pro rata, with the Preferred Securities,
except that, if an event of default under the Declaration has occurred and is
continuing, the rights of the holders of the Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Company will directly or indirectly acquire Common Securities
in an aggregate liquidation amount equal to at least 3% of the total capital
of each Cendant Trust.
Unless otherwise specified in the applicable Prospectus Supplement, each
Cendant Trust has a term of up to 55 years but may terminate earlier, as
provided in the Declaration. Each Cendant Trust's business and affairs will
be conducted by the trustees (the "Cendant Trustees") appointed by the
Company as the direct or indirect holder of all of the Common Securities. The
holder of the Common Securities will be entitled to appoint, remove or
replace any of, or increase or reduce the number of, the Cendant Trustees of
each Cendant Trust. The duties and obligations of the Cendant Trustees shall
be governed by the Declaration of such Cendant Trust. A majority of the
Cendant Trustees (the "Regular Trustees") of each Cendant Trust will be
persons who are employees or officers of or who are affiliated with the
Company. One Cendant Trustee of each Cendant Trust will be a financial
institution (the "Institutional Trustee") that is not affiliated with the
Company and has a minimum amount of combined capital and surplus of not less
than $50,000,000, which shall act as property trustee and as indenture
trustee for the purposes of compliance with the provisions of Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), pursuant to the terms
set forth in the applicable Prospectus Supplement. In addition, unless the
Institutional Trustee maintains a principal place of business in the State of
Delaware and otherwise meets
5
<PAGE>
the requirements of applicable law, one Cendant Trustee of each Cendant Trust
will be an entity having a principal place of business in, or a natural
person resident of, the State of Delaware (the "Delaware Trustee"). The
Company will pay all fees and expenses related to the Cendant Trust and the
offering of the Trust Securities.
Unless otherwise specified in the applicable Prospectus Supplement, the
Institutional Trustee and Delaware Trustee for each Cendant Trust shall be
Wilmington Trust Company, and its address in the State of Delaware is Rodney
Square, North, 1100 North Market Street, Wilmington, Delaware 19890. The
principal place of business of each Cendant Trust shall be c/o Cendant
Corporation, 6 Sylvan Way, Parsippany, New Jersey 07054, telephone (973)
428-9700.
RECENT DEVELOPMENTS
1997 FINANCIAL RESULTS. On February 4, 1998, the Company announced its
financial results for the year ended December 31, 1997. The Company reported
diluted earnings per share of $1.00 for 1997, a 49% increase compared to $.67
earnings per share reported for 1996, excluding one-time charges recognized
in both 1997 and 1996. The Company had revenues of $5.3 billion for 1997
compared with $3.9 billion for 1996, an increase of 36%, and net income of
$872.2 million for 1997, excluding one-time charges, compared with $542.3
million of 1996, excluding one-time charges, an increase of 61%. On a pro
forma basis, which assumes that the financial results include all of the
Company's 1996 acquisitions, accounted for under the purchase method, as if
they had occurred as of January 1, 1996, earnings per share for the year
ended December 31, 1997, excluding one-time charges, was $1.00 representing a
43% increase over pro forma $.70 per share for the year ended December 31,
1996.
When giving effect to one-time charges, the Company reported $.06 diluted
earnings per share for the year ended December 31, 1997 and net income of
$55.4 million for 1997 compared to $423.6 million for 1996. In 1997, one-time
charges totaled $1.1 billion ($816.8 million after-tax, or $.94 per share)
for merger related costs and unusual charges coincident with the Merger, as
well as the merger of HFS and PHH Corporation which was consummated in April
1997. In 1996, one-time charges totaled $179.9 million ($118.7 million
after-tax, or $.15 per share) related to three CUC mergers.
Proposed Acquisition of American Bankers. On January 27, 1998, the Company
made a proposal to acquire American Bankers Insurance Group Inc. ("American
Bankers") for $58 per share in cash and stock, for an aggregate purchase
price of approximately $2.7 billion on a fully diluted basis. On January 28,
1998, the Company commenced a tender offer to purchase approximately 23.5
million of American Bankers' common shares at a price of $58 per share in
cash, which together with shares the Company owns will equal approximately
51% of the fully diluted shares of American Bankers. The Company proposes to
exchange, on a tax free basis, shares of its common stock with a fixed value
of $58 per share for the balance of American Bankers' common stock. The
tender offer is subject to customary conditions and there can be no assurance
that the Company will be successful in its proposal to acquire American
Bankers.
In connection with the Company's proposal to acquire American Bankers, the
Company entered into a commitment letter, dated January 23, 1998, with The
Chase Manhattan Bank and Chase Securities Inc. to provide a $1.5 billion
364-Day revolving credit facility (the "New Facility") which will mature 364
days after the execution of the definitive documentation relating thereto.
The New Facility will bear interest, at the option of the Company, at rates
based on competitive bids of lenders participating in such facilities at a
prime rate or at LIBOR plus an applicable variable margin based on the
Company's senior unsecured long-term debt rating.
Harpur Acquisition. On January 20, 1998, the Company completed the
acquisition of Harpur Group, Ltd., a leading fuel card and vehicle management
company in the United Kingdom, from H-G Holdings, Inc. for approximately $186
million in cash plus future contingent payments of up to $20 million over the
next two years.
Jackson Hewitt Acquisition. On January 7, 1998, the Company completed the
acquisition of Jackson Hewitt Inc. ("Jackson Hewitt"), for approximately $480
million in cash, or $68 per share of common stock of Jackson Hewitt. Jackson
Hewitt is the second largest tax preparation service system in the United
6
<PAGE>
States with locations in 41 states. Jackson Hewitt franchises a system of
approximately 2,050 offices that specialize in computerized preparation of
federal and state individual income tax returns.
Interval Divestiture. On December 17, 1997, in connection with the merger
with HFS, the Company completed the divestiture of its timeshare exchange
subsidiary, Interval International Inc., as contemplated by the consent
decree with the Federal Trade Commission.
Providian Acquisition. On December 10, 1997, the Company announced that it
had entered into a definitive agreement to acquire Providian Auto and Home
Insurance Company ("Providian") and its subsidiaries from an Aegon N.V.
subsidiary for approximately $219 million in cash. Providian sells automobile
insurance to consumers through direct response marketing in 45 states and the
District of Columbia. The closing of this transaction is subject to customary
conditions, including regulatory approval and is anticipated to occur in the
spring of 1998.
Hebdo Mag Acquisition. On October 3, 1997, the Company completed the
acquisition of all of the outstanding capital stock of Hebdo Mag
International Inc. ("Hebdo Mag") in exchange for the issuance of shares of
preferred stock of Getting to Know You of Canada Ltd., an indirect
wholly-owned subsidiary of the Company, exchangeable for shares of Common
Stock (the "Hebdo Acquisition Shares") and the assumption of certain options
of Hebdo Mag exchanged for options to acquire shares of Common Stock, such
Hebdo Acquisition Shares or options having an aggregate value of
approximately $440 million. Based in Paris, France, Hebdo Mag is an
international publisher of over 150 titles and distributor of classified
advertising information with operations in twelve countries, including
Canada, France, Sweden, Hungary, the United States, Italy, Russia and
Holland. The Hebdo Mag Acquisition was accounted for in accordance with the
pooling-of-interests method of accounting.
USE OF PROCEEDS
Unless otherwise set forth in a Prospectus Supplement, the net proceeds
from the offering of the Securities will be used for general corporate
purposes, which may include acquisitions, repayment of other debt, working
capital and capital expenditures. When a particular series of Securities is
offered, the Prospectus Supplement relating thereto will set forth the
Company's intended use for the net proceeds received from the sale of such
Securities. Pending application for specific purposes, the net proceeds may
be invested in short-term marketable securities.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the unaudited consolidated ratio of
earnings to fixed charges of the Company for the periods indicated.
<TABLE>
<CAPTION>
HISTORICAL
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, 1997 1996 1995 1994 1993 1992
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges (1) . 3.48x 3.06x 2.70x 2.94x 2.68x 1.99x
</TABLE>
- ------------
(1) The ratio of earnings to fixed charges is computed by dividing income
before income taxes and extraordinary items plus fixed charges, less
capitalized interest by fixed charges. Fixed charges consist of
interest expense on all indebtedness (including amortization of
deferred financing costs) and the portion of operating lease rental
expense that is representative of the interest factor (deemed to be
one-third of operating lease rentals).
7
<PAGE>
DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities may be offered from time to time by the Company as
Senior Debt Securities and/or as Subordinated Debt Securities. The Senior
Debt Securities will be issued under an Indenture, as it may be supplemented
from time to time (the "Senior Indenture"), between the Company and The Bank
of Nova Scotia Trust Company of New York, as trustee (the "Senior Trustee").
The Subordinated Debt Securities will be issued under an Indenture, as it may
be supplemented from time to time (the "Subordinated Indenture"), between the
Company and The Bank of Nova Scotia Trust Company of New York, as trustee
(the "Subordinated Trustee"). The term "Trustee", as used herein, refers to
either the Senior Trustee or the Subordinated Trustee, as appropriate. The
forms of the Senior Indenture and the Subordinated Indenture (being sometimes
referred to herein collectively as the "Indentures" and individually as an
"Indenture") have been filed as exhibits to the Registration Statement. The
terms of the Indentures are also governed by certain provisions of the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary of certain material provisions of the Debt Securities does not
purport to be complete and is qualified in its entirety by reference to the
Indentures. All capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Indentures. For a summary of
certain definitions used in this section, see "Certain Definitions" below.
GENERAL
The Indentures will provide for the issuance of Debt Securities in series
up to the aggregate amount from time to time authorized by the Company for
each series. A Prospectus Supplement will set forth the following terms (to
the extent such terms are applicable to such Debt Securities) of and
information relating to the Debt Securities in respect of which this
Prospectus is delivered: (1) the designation of such Debt Securities; (2)
classification as Senior or Subordinated Debt Securities; (3) the aggregate
principal amount of such Debt Securities; (4) the percentage of their
principal amount at which such Debt Securities will be issued; (5) the date
or dates on which such Debt Securities will mature; (6) the rate or rates, if
any, per annum, at which such Debt Securities will bear interest, or the
method of determination of such rate or rates; (7) the times and places at
which such interest, if any, will be payable; (8) provisions for sinking,
purchase or other analogous fund, if any; (9) the date or dates, if any,
after which such Debt Securities may be redeemed at the option of the Company
or of the holder and the redemption price or prices; (10) the date or the
dates, if any, after which such Debt Securities may be converted or exchanged
at the option of the holder into or for shares of Common Stock or Preferred
Stock of the Company and the terms for any such conversion or exchange; and
(11) any other specific terms of the Debt Securities. Principal, premium, if
any, and interest, if any, will be payable and the Debt Securities offered
hereby will be transferable, at the corporate trust office of the Trustee's
agent in the borough of Manhattan, City of New York, provided that payment of
interest, if any, may be made at the option of the Company by check mailed to
the address of the person entitled thereto as it appears in the Security
Register. (Section 301 of each Indenture)
If a Prospectus Supplement specifies that a series of Debt Securities is
denominated in a currency or currency unit other than United States dollars,
such Prospectus Supplement shall also specify the denomination in which such
Debt Securities will be issued and the coin or currency in which the
principal, premium, if any, and interest, if any, on such Debt Securities
will be payable, which may be United States dollars based upon the exchange
rate for such other currency or currency unit existing on or about the time a
payment is due. Special United States federal income tax considerations
applicable to any Debt Securities so denominated are also described in the
applicable Prospectus Supplement.
The Debt Securities may be issued in registered or bearer form and, unless
otherwise specified in a Prospectus Supplement, in denominations of $1,000
and integral multiples thereof. Debt Securities may be issued in book-entry
form, without certificates. Any such issue will be described in the
Prospectus Supplement relating to such Debt Securities. No service charge
will be made for any transfer or exchange of the Debt Securities, but the
Company or the Trustee may require payment of a sum sufficient to cover any
tax or other government charge payable in connection therewith.
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Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be sold at a substantial discount from their stated
principal amount. United States Federal income tax consequences and other
considerations applicable thereto will be described in the Prospectus
Supplement relating to such Debt Securities.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indentures will provide that the Company shall not consolidate with or
merge into any other corporation or convey, transfer or lease its properties
and assets substantially as an entirety to any Person, unless: (1) the
corporation formed by such consolidation or into which the Company is merged
or the Person which acquires by conveyance or transfer, or which leases, the
properties and assets of the Company substantially as an entirety (A) shall
be a corporation, partnership, limited liability company or trust organized
and validly existing under the laws of the United States of America, any
state thereof or the District of Columbia and (B) shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the Company's obligation for the due and
punctual payment of the principal of (and premium, if any, on) and interest
on all the Debt Securities and the performance and observance of every
covenant of the Indentures on the part of the Company to be performed or
observed; (2) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (3) the
Company or such Person shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and such supplemental indenture comply
with this "Merger, Consolidation and Sale of Assets" section and that all
conditions precedent herein provided for relating to such transaction have
been complied with. This paragraph shall apply only to a merger or
consolidation in which the Company is not the surviving corporation and to
conveyances, leases and transfers by the Company as transferor or lessor.
(Section 801 of each Indenture)
The Indentures will further provide that upon any consolidation by the
Company with or merger by the Company into any other corporation or any
conveyance, transfer or lease of the properties and assets of the Company
substantially as an entirety to any Person in accordance with the preceding
paragraph, the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, transfer or lease is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indentures with the same effect as if such
successor Person had been named as the Company therein, and in the event of
any such conveyance or transfer, the Company (which term shall for this
purpose mean Cendant Corporation or any successor Person which shall
theretofore become such in the manner described in the preceding paragraph),
except in the case of a lease, shall be discharged of all obligations and
covenants under the Indentures and the Debt Securities and the coupons and
may be dissolved and liquidated. (Section 802 of each Indenture)
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indentures with
respect to Debt Securities of any series:
(1) default in the payment of any interest on any Debt Securities of that
series or any related coupon, when such interest or coupon becomes due and
payable, and continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any, on)
any Debt Securities of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment when and as due
pursuant to the terms of the Debt Securities of that series and Article
Twelve of the Indentures; or
(4) default in the performance, or breach, of any covenant or warranty of
the Company in the Indentures (other than a default in the performance, or
breach, of a covenant or warranty which is specifically dealt with
elsewhere under this "Events of Default" section), and continuance of such
default or breach for a period of 90 days after there has been given, by
registered or certified mail,
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to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of all Outstanding Debt
Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" thereunder; or
(5) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company under the Federal
Bankruptcy Code or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of 90 consecutive days; or
(6) the institution by the Company of proceedings to be adjudicated
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Code or any other applicable federal or state law, or
the consent by it to the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due; or
(7) (A) there shall have occurred one or more defaults by the Company in
the payment of the principal of (or premium, if any, on) Debt aggregating
$50 million or more, when the same becomes due and payable at the stated
maturity thereof, and such default or defaults shall have continued after
any applicable grace period and shall not have been cured or waived, or
(B) Debt of the Company aggregating $50 million or more shall have been
accelerated or otherwise declared due and payable, or required to be
prepaid or repurchased (other than by regularly scheduled required
prepayment), prior to the stated maturity thereof; or
(8) any other Event of Default provided with respect to Debt Securities
of that series.
If an Event of Default described in clause (1), (2), (3), (4), (7) or (8)
above with respect to Debt Securities of any series at the time Outstanding
occurs and is continuing, then in every such case the Trustee or the Holders
of not less than 25% in principal amount of the Outstanding Debt Securities
of that series may declare the principal amount (or, if the Debt Securities
of that series are Original Issue Discount Securities or Indexed Securities,
such portion of the principal amount as may be specified in the terms of that
series) of all of the Debt Securities of that series to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if
given by Holders), and upon any such declaration such principal amount (or
specified portion thereof) shall become immediately due and payable. If an
Event of Default described in clause (5) or (6) above occurs and is
continuing, then the principal amount of all the Debt Securities shall become
and be immediately due and payable without any declaration or other act on
the part of the Trustee or any Holder, subject, however, to all rights,
powers and limitations provided for by the Federal Bankruptcy Code or any
other applicable Federal or State Law.
At any time after a declaration of acceleration with respect to Debt
Securities of any series (or of all series, as the case may be) has been made
and before a judgment or decree for payment of the money due has been
obtained by the Trustee as provided in Article Five of the Indentures, the
Holders of a majority in principal amount of the Outstanding Debt Securities
of that series (or of all series, as the case may be), by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay in the Currency in which the Debt Securities of such series are
payable (except as otherwise specified pursuant to Section 301 of the
Indentures for the Debt Securities of such series and except, if
applicable, as provided in certain provisions of Section 312 of the
Indentures):
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(A) all overdue interest on all Outstanding Debt Securities of that
series (or of all series, as the case may be) and any related coupons;
(B) all unpaid principal of (and premium, if any, on) any Outstanding
Debt Securities of that series (or of all series, as the case may be)
which has become due otherwise than by such declaration of
acceleration, and interest on such unpaid principal at the rate or
rates prescribed therefor in such Debt Securities;
(C) to the extent that payment of such interest is lawful, interest
on overdue interest at the rate or rates prescribed therefor in such
Debt Securities; and
(D) all sums paid or advanced by the Trustee thereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Debt Securities of that series
(or of all series, as the case may be), other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on Debt
Securities of that series (or of all series, as the case may be) which
have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513 of the Indentures.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Debt Securities because of an Event of Default
specified in clause (7) of the first paragraph of this section shall have
occurred and be continuing, such declaration of acceleration shall be
automatically annulled if the Debt that is the subject of such Event of
Default has been discharged or the holders thereof have rescinded their
declaration of acceleration in respect of such Debt, and written notice of
such discharge or rescission, as the case may be, shall have been given to
the Trustee by the Company and countersigned by the holders of such Debt or a
trustee, fiduciary or agent for such holders, within 30 days after such
declaration of acceleration in respect of the Debt Securities, and no other
Event of Default has occurred during such 30-day period which has not been
cured or waived during such period. (Section 502 of each Indenture)
Subject to Section 502 of each Indenture, the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
may on behalf of the Holders of all the Debt Securities of such series waive
any past default described in clause (1), (2), (3), (4), (7), or (8) of the
first paragraph of this section (or, in the case of a default described in
clause (5) or (6) of the first paragraph of this section, the Holders of not
less than a majority in principal amount of all Outstanding Debt Securities
may waive any such past default), and its consequences, except a default (i)
in respect of the payment of the principal of (or premium, if any, on) or
interest on any Debt Security or any related coupon, or (ii) in respect of a
covenant or provision which under the Indentures cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security
of such series affected. (Section 513 of each Indenture)
Upon any such waiver, any such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of the Indentures; but no such waiver shall extend to any subsequent
or other default or Event of Default or impair any right consequent thereon.
(Section 513 of each Indenture)
No Holder of any Debt Security of any series or any related coupons shall
have any right to institute any proceeding, judicial or otherwise, with
respect to the Indentures, or for the appointment of a receiver or trustee,
or for any other remedy thereunder, unless (i) such Holder has previously
given written notice to the Trustee of a continuing Event of Default with
respect to the Debt Securities of that series; (ii) the Holders of not less
than 25% in principal amount of the Outstanding Debt Securities of that
series in the case of any Event of Default under clause (1), (2), (3), (4),
(7) or (8) of the first paragraph of this section, or, in the case of any
Event of Default described in clause (5) or (6) of the first paragraph of
this section, the Holders of not less than 25% in principal amount of all
Outstanding Debt Securities, shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own name
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as Trustee under each of the Indentures; (iii) such Holder or Holders have
offered to the Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request; (iv) the Trustee
for 60 days after its receipt of such notice, request and offer of indemnity
has failed to institute any such proceeding; and (v) no direction
inconsistent with such written request has been given to the Trustee during
such 60-day period by the Holders of a majority or more in principal amount
of the Outstanding Debt Securities of that series in the case of any Event of
Default described in clause (1), (2), (3), (4), (7) or (8) of the first
paragraph of this section, or, in the case of any Event of Default described
in clause (5) or (6) of the first paragraph of this section, by the Holders
of a majority or more in principal amount of all Outstanding Debt Securities.
(Section 507 of each Indenture)
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under either Indenture in good
faith. Subject to the provisions of the Indentures relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee under the Indentures is not under any obligation to exercise any of
its rights or powers under the Indentures at the request or direction of any
of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity. Subject to certain provisions concerning
the rights of the Trustee, with respect to the Debt Securities of any series,
the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of such series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the Trustee
under the Indentures.
Within 90 days after the occurrence of any Default with respect to Debt
Securities of any series, the Trustee shall transmit in the manner and to the
extent provided in TIA Section 313(c), notice of such Default known to the
Trustee, unless such Default shall have been cured or waived; provided,
however, that, except in the case of a Default in the payment of the
principal of (or premium, if any, on) or interest on any Debt Securities of
such series, or in the payment of any sinking fund installment with respect
to Debt Securities of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders of Debt Securities of such series
and any related coupons; and provided further that, in the case of any
Default of the character specified in clause (7) of the first paragraph of
this section with respect to Debt Securities of such series, no such notice
to Holders shall be given until at least 30 days after the occurrence
thereof.
The Company is required to deliver to the Trustee, within 120 days after
the end of each fiscal year, a brief certificate of the Company's compliance
with all of the conditions and covenants under the Indentures.
DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURES
The Indentures will provide that the Company may, at its option and at any
time, terminate the obligations of the Company with respect to the
Outstanding Debt Securities of any series ("defeasance"). Such defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Outstanding Debt Securities and any related
coupons, except for the following which shall survive until otherwise
terminated or discharged under the Indentures: (A) the rights of Holders of
such Outstanding Debt Securities and any related coupons (i) to receive,
solely from the trust fund described in the Indentures, payments in respect
of the principal of (and premium, if any, on) and interest on such Debt
Securities and any related coupons when such payments are due, and (ii) to
receive shares of common stock or other Securities from the Company upon
conversion of any convertible Debt Securities issued thereunder, (B) the
Company's obligations to issue temporary Debt Securities, register the
transfer or exchange of any Debt Securities, replace mutilated, destroyed,
lost or stolen Debt Securities, maintain an office or agency for payments in
respect of the Debt Securities and, if the Company acts as its own Paying
Agent, hold in trust, money to be paid to such Persons entitled to payment,
and with respect to Additional Amounts, if any, on such Debt Securities as
contemplated in the Indentures, (C) the rights, powers, trusts, duties and
immunities of the Trustee under the Indentures and (D) the defeasance
provisions of the Indentures. With respect to Subordinated Debt Securities,
money
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and securities held in trust pursuant to the Defeasance and Covenant
Defeasance provisions described herein, shall not be subject to the
subordination provisions of the Subordinated Indenture. In addition, the
Company may, at its option and at any time, elect to terminate the
obligations of the Company with respect to certain covenants that are set
forth in the Indentures, some of which are described in the "Certain
Covenants" section above, and any omission to comply with such obligations
shall not constitute a Default or an Event of Default with respect to the
Debt Securities ("covenant defeasance"). (Section 1403 of each Indenture)
In order to exercise either defeasance or covenant defeasance:
(1) the Company shall irrevocably have deposited or caused to be deposited
with the Trustee, in trust, for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of such Debt Securities and any related coupons, (A) money in an
amount (in such Currency in which such Debt Securities and any related
coupons are then specified as payable at Stated Maturity), or (B) Government
Obligations applicable to such Debt Securities (determined on the basis of
the Currency in which such Debt Securities are then specified as payable at
Stated Maturity) which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment of principal (including
any premium) and interest, if any, under such Debt Securities and any related
coupons, money in an amount or (C) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent public accountants to
pay and discharge (i) the principal of (and premium, if any, on) and interest
on the Outstanding Debt Securities and any related coupons on the Stated
Maturity (or Redemption Date, if applicable) of such principal (and premium,
if any) or installment or interest and (ii) any mandatory sinking fund
payments or analogous payments applicable to the Outstanding Debt Securities
and any related coupons on the day on which such payments are due and payable
in accordance with the terms of the Indentures and of such Debt Securities
and any related coupons; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such Government
Obligations to said payments with respect to such Debt Securities and any
related coupons. Before such a deposit, the Company may give to the Trustee,
in accordance with certain redemption provisions in the Indentures, a notice
of its election to redeem all or any portion of such Outstanding Debt
Securities at a future date in accordance with the terms of the Debt
Securities of such series and the redemption provisions of the Indentures,
which notice shall be irrevocable. Such irrevocable redemption notice, if
given, shall be given effect in applying the foregoing; and
(2) no Default or Event of Default with respect to the Debt Securities and
any related coupons shall have occurred and be continuing on the date of such
deposit or, insofar as the Event of Default described in clauses (5) and (6)
of the Events of Default section above are concerned, at any time during the
period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period); (3) such defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a default under, the
Indentures or any other material agreement or instrument to which the Company
is a party or by which it is bound; (4) in the case of a defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel stating
that (x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the Issue Date, there has been
a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Debt Securities and any related coupons will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
defeasance had not occurred; (5) in the case of a covenant defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the Outstanding Debt Securities and any related
coupons will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; (6) notwithstanding any other provisions of the defeasance and
covenant defeasance provisions of the Indentures, such defeasance or covenant
defeasance shall be effected in compliance with any additional or substitute
terms, conditions or
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limitations in connection therewith pursuant to Section 301 of the
Indentures; and (7) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent under the Indentures to either defeasance or covenant
defeasance, as the case may be, have been complied with. (Section 1404 of
each Indenture)
SATISFACTION AND DISCHARGE
The Indentures shall upon Company Request cease to be of further effect
with respect to any series of Debt Securities (except as to any surviving
rights of registration of transfer or exchange of Debt Securities of such
series herein expressly provided for and the obligation of the Company to pay
any Additional Amounts as contemplated by Section 1005 of each Indenture) and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of such Indenture as to such series
when (1) either (A) all Debt Securities of such series theretofore
authenticated and delivered and all coupons, if any, appertaining thereto
(other than (i) coupons appertaining to Bearer Securities surrendered for
exchange for Registered Securities and maturing after such exchange, whose
surrender is not required or has been waived as provided in Section 305 of
the Indentures, (ii) Debt Securities and coupons of such series which have
been destroyed, lost or stolen and which have been replaced or paid as
provided in Section 306 of the Indentures, (iii) coupons appertaining to Debt
Securities called for redemption and maturing after the relevant Redemption
Date, whose surrender has been waived as provided in Section 1106 of the
Indentures, and (iv) Debt Securities and coupons of such series for whose
payment money has theretofore been deposited in trust with the Trustee or any
Paying Agent or segregated and held in trust by the Company and thereafter
repaid to the Company, as provided in Section 1003 of the Indentures) have
been delivered to the Trustee for cancellation; or (B) all Debt Securities of
such series and, in the case of (i) or (ii) below, any coupons appertaining
thereto not theretofore delivered to the Trustee for cancellation (i) have
become due and payable, or (ii) will become due and payable at their Stated
Maturity within one year, or (iii) if redeemable at the option of the
Company, are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company, and the Company, in
the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose an
amount, in the Currency in which the Debt Securities of such series are
payable, sufficient to pay and discharge the entire indebtedness on such Debt
Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of such deposit (in
the case of Debt Securities which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be; (2) the Company has
paid or caused to be paid all other sums payable hereunder by the Company;
and (3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of the Indentures as
to such series have been complied with. (Section 401 of each Indenture)
AMENDMENTS AND WAIVERS
The Indentures will provide that at any time and from time to time, the
Company and the Trustee may, without the consent of any holder of Debt
Securities, enter into one or more indentures supplemental thereto for
certain specified purposes, including, among other things, (i) to cure
ambiguities, defects or inconsistencies, or to make any other provisions with
respect to questions or matters arising under the Indentures (provided that
such action shall not adversely affect the interests of the Holders in any
material respect), (ii) to effect or maintain the qualification of the
Indentures under the Trust Indenture Act, or (iii) to evidence the succession
of another person to the Company and the assumption by any such successor of
the obligations of the Company in accordance with the Indentures and the Debt
Securities. (Section 901 of each Indenture). Other amendments and
modifications of the Indentures or the Debt Securities may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of all of the then Outstanding
Debt Securities of any Series; provided, however, that no such modification
or amendment may, without the consent of the holder of each Outstanding Debt
Security affected thereby, (1) change the Stated Maturity of the principal
of, or any installment of interest on, any Debt Security or reduce the
principal amount thereof
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or the rate of interest thereon or any premium payable upon the redemption
thereof, or change any obligation of the Company to pay Additional Amounts
contemplated by Section 1005 of each Indenture (except as contemplated and
permitted by certain provisions of the Indentures), or reduce the amount of
the principal of an Original Issue Discount Security that would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant
to Section 502 of the Indentures of the amount thereof provable in bankruptcy
pursuant to Section 504 of the Indentures, or adversely affect any right of
repayment at the option of any Holder of any Debt Security, or change any
Place of Payment where, or the Currency in which, any Debt Security or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption or repayment at the option of the
Holder, on or after the Redemption Date or Repayment Date, as the case may
be), or adversely affect any right to convert or manage any Debt Securities
as may be provided pursuant to Section 301 of the Indentures, or (2) reduce
the percent in principal amount of the Outstanding Debt Securities of any
series, the consent of whose Holders is required for any such supplemental
indenture, for any waiver of compliance with certain provisions of the
Indentures or certain defaults thereunder and their consequences provided for
in the Indentures, or reduce the requirements for quorum or voting.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by and construed
in accordance with the laws of the State of New York. The Indentures are
subject to the provisions of the Trust Indenture Act that are required to be
a part thereof and shall, to the extent applicable, be governed by such
provisions.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Capital Stock" means any and all shares, interests, participations,
rights or equivalents (however designated) of corporate stock of the Company
or any Principal Subsidiary.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Debt" means notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Fair Market Value" means the fair market value of the item in question as
determined by the Board of Directors acting in good faith and in exercise of
its fiduciary duties.
"Holder" means a Person in whose name a Debt Security is registered in the
Security Register.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debt Securities.
"Issue Date" means the date of first issuance of the Debt Securities under
either Indenture.
"Maturity", when used with respect to any Debt Securities, means the date
on which the principal of such Debt Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption, notice of
option to elect repayment or otherwise.
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"Officers' Certificate" means a certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall
be acceptable to the Trustee.
"Original Issue Discount Security" means any Debt Security which provides
for an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502 of the Indentures.
"Outstanding", when used with respect to Debt Securities, means, as of the
date of determination, all Debt Securities theretofore authenticated and
delivered under the Indentures, except:
(i) Debt Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Debt Securities, or portions thereof, for whose payment, money in
the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Debt Securities;
(iii) Debt Securities, except to the extent provided in the "Defeasance
or Covenant Defeasance of the Indentures" section, with respect to which
the Company has effected defeasance and/or covenant defeasance as provided
in the Indenture; and
(iv) Mutilated, destroyed, lost or stolen Debt Securities which have
become or are about to become due and payable which have been paid
pursuant to Section 306 of the Indentures or in exchange for or in lieu of
which other Debt Securities have been authenticated and delivered pursuant
to the Indenture, other than any such Debt Securities in respect of which
there shall have been presented to the Trustee proof satisfactory to it
that such Debt Securities are held by a bona fide purchaser in whose hands
the Debt Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Debt Securities have given any request,
demand, authorization, direction, notice, consent or waiver under the
Indentures, and for the purpose of making the calculations required by TIA
Section 313, Debt Securities owned by the Company or any other obligor upon
the Debt Securities or any Affiliate of the Company or such other obligor
shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in making such calculation
or in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Debt Securities which the Trustee knows to be
so owned shall be so disregarded. Debt Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Debt Securities and that the pledgee is not the Company
or any other obligor upon the Debt Securities or any Affiliate of the Company
or such other obligor.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if
any, on) or interest on any Debt Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer,
the cashier, any assistant cashier, any trust officer or assistant trust
officer, the controller or any assistant controller or any other officer of
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the Trustee customarily performing functions similar to those performed by
any of the above-designated officers, and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Rolling Period" shall mean with respect to any fiscal quarter, such
fiscal quarter and the three immediately preceding fiscal quarters considered
as a single accounting period.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305 of the Indenture.
"Stated Maturity", when used with respect to any Debt Security or any
installment of principal thereof or interest thereon, means the date
specified in such Debt Security as the fixed date on which the principal of
such Debt Security or such installment of principal or interest is due and
payable.
"Subsidiary" means any corporation of which at the time of determination
the Company, directly and/or indirectly through one or more Subsidiaries,
owns more than 50% of the Voting Stock.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which the Indentures were executed, except that any
supplemental indenture executed pursuant to the Indentures shall conform to
the requirements of the Trust Indenture Act as in effect on the date of
execution thereof.
"Trustee" means The Bank of Nova Scotia Trust Company of New York until a
successor Trustee shall have become such pursuant to the applicable
provisions of the Indentures, and thereafter "Trustee" shall mean such
successor Trustee.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Voting Stock" means stock of the class or classes having general voting
power under ordinary circumstances to elect at least a majority of the board
of directors, managers or trustees of a corporation (irrespective of whether
or not at the time stock of any other class or classes shall have or might
have voting power by reason of the happening of any contingency).
GENERAL DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, the more complete descriptions thereof set forth in the Company's Amended
and Restated Certificate of Incorporation (the "Certificate"), and Amended
and Restated By-laws (the "By-laws") which documents are exhibits to this
Registration Statement.
The Company is authorized to issue up to 2,000,000,000 shares of Common
Stock, par value $.01 per share, and up to 10,000,000 shares of Preferred
Stock, par value $1.00 per share. As of January 15, 1998, there were
839,992,974 shares of Common Stock and no shares of Preferred Stock
outstanding.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The following summary contains a description of certain general terms of
the Company's Preferred Stock. The particular terms of any series of
Preferred Stock that may be offered will be described in the applicable
Prospectus Supplement. If so indicated in a Prospectus Supplement, the terms
of any such series may differ from the terms set forth below. The summary of
terms of the Preferred Stock does not purport to be complete and is subject
to and qualified in its entirety by reference to the provisions of the
Certificate and the Certificate of Designation (the "Certificate of
Designation") relating to a particular series of offered Preferred Stock
which is or will be in the form filed or incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part at
or prior to the time of the issuance of such series of Preferred Stock.
The Board of Directors of the Company has the power, without further
action by the shareholders, to issue Preferred Stock in one or more series,
with such designations of series, dividend rates, redemption
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provisions, special or relative rights in the event of liquidation,
dissolution, distribution or winding up of the Company, sinking fund
provisions, conversion or exchange provisions, voting rights thereof and
other preferences, privileges, powers, rights, qualifications, limitations
and restrictions, as shall be set forth as and when established by the Board
of Directors of the Company. The shares of any series of Preferred Stock will
be, when issued, fully paid and non-assessable and holders thereof will have
no preemptive rights in connection therewith.
RANK
Unless otherwise specified in the Prospectus Supplement relating to a
particular series of Preferred Stock, each series of Preferred Stock will
rank on parity as to dividends and liquidation rights in all respects with
each other series of Preferred Stock.
DIVIDEND RIGHTS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of
funds legally available therefor, cash dividends at such rates and on such
dates as are set forth in the Prospectus Supplement relating to such series
of Preferred Stock. Different series of the Preferred Stock may be entitled
to dividends at different rates or based upon different methods of
determination. Such rates may be fixed or variable or both. Each such
dividend will be payable to the holders of record as they appear on the stock
books of the Company on such record dates as will be fixed by the Board of
Directors of the Company or a duly authorized committee thereof. Dividends on
any series of the Preferred Stock may be cumulative or noncumulative, as
provided in the Prospectus Supplement relating thereto.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock will
be entitled to receive out of assets of the Company available for
distribution to stockholders, before any distribution of assets is made to
holders of Common Stock or any other class of stock ranking junior to such
series of the Preferred Stock upon liquidation, liquidating distributions in
the amount set forth in the Prospectus Supplement relating to such series of
Preferred Stock plus an amount equal to accrued and unpaid dividends for the
then current dividend period and, if such series of the Preferred Stock is
cumulative, for all dividend periods prior thereto, all as set forth in the
Prospectus Supplement with respect to such series of Preferred Stock.
REDEMPTION
The terms, if any, on which shares of a series of Preferred Stock may be
subject to optional or mandatory redemption, in whole or in part, will be set
forth in the Prospectus Supplement relating to such series.
CONVERSION AND EXCHANGE
The terms, if any, on which shares of a series of Preferred Stock are
convertible into another series of Preferred Stock or Common Stock or
exchangeable for another series of Preferred Stock or Common Stock will be
set forth in the Prospectus Supplement relating thereto. Such terms may
include provisions for conversion, either mandatory, at the option of the
holder, or at the option of the Company, in which case the number of shares
of another series of Preferred Stock or Common Stock to be received by the
holders of such series of Preferred Stock would be calculated as of a time
and in the manner stated in such Prospectus Supplement.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursement agent for each
series of Preferred Stock will be designate in the applicable Prospectus
Supplement. The registrar for shares of each series of Preferred Stock will
send notices to shareholders of any meetings at which holders of the
Preferred Stock have the right to elect directors of the Company or to vote
on any other matter.
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VOTING RIGHTS
The holders of Preferred Stock of a series offered hereby will not be
entitled to vote except as indicated in the Prospectus Supplement relating to
such series of Preferred Stock or as required by applicable law.
DESCRIPTION OF COMMON STOCK
GENERAL
Subject to the rights of the holders of any shares of the Company's
Preferred Stock which may at the time be outstanding, holders of Common Stock
are entitled to such dividends as the Board of Directors may declare out of
funds legally available therefor. The holders of Common Stock will possess
exclusive voting rights in the Company, except to the extent the Board of
Directors specifies voting power with respect to any Preferred Stock issued.
Except as hereinafter described, holders of Common Stock are entitled to one
vote for each share of Common Stock, but will not have any right to cumulate
votes in the election of directors. In the event of liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
receive, after payment of all of the Company's debts and liabilities and of
all sums to which holders of any Preferred Stock may be entitled, the
distribution of any remaining assets of the Company. Holders of the Common
Stock will not be entitled to preemptive rights with respect to any shares
which may be issued. Any shares of Common Stock sold hereunder will be fully
paid and non-assessable upon issuance against full payment of the purchase
price therefor. The Common Stock is listed on the New York Stock Exchange
under the symbol "CD."
CERTAIN PROVISIONS
The provisions of the Company's Certificate and By-Laws which are
summarized below may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider in such stockholder's best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
CLASSIFIED BOARD
The Board of Directors is divided into three classes that are elected for
staggered three-year terms. A director may be removed by the stockholders
without cause only by the affirmative vote of the holders, voting as a single
class, of 80% or more of the total number of votes entitled to be cast by all
holders of the voting stock, which shall include all capital stock of the
Company which by its terms may vote on all matters submitted to stockholders
of the Company generally. The size of the Board of Directors was set by
resolution at 30 and pursuant to the By-Laws (i) until the third anniversary
of the consummation of the merger of HFS and CUC (the "Effective Time"), an
affirmative vote of 80% of the entire Board of Directors will be required in
order to change the number of directors, and (ii) a quorum, at any meeting of
the Board of Directors, shall consist of a majority of the entire Board of
Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Pursuant to the Certificate, the Board of Director's authority to
designate committees shall be subject to the provisions of the By-Laws.
Pursuant to the By-Laws, the Board of Directors shall have the following
committees: (i) an Executive Committee consisting of four CUC Directors (as
defined below) and four HFS Directors (as defined below) and whose Chairman
shall be the Chairman of the Board; (ii) a Compensation Committee consisting
of two CUC Directors and two HFS Directors and whose Chairman shall be an HFS
Director; and (iii) an Audit Committee consisting of two CUC Directors and
two HFS Directors and whose Chairman shall be a CUC Director. The Board of
Directors may designate one or more directors as alternate members of any
committee to fill any vacancy on a committee and to fill a vacant
chairmanship of a committee occurring as a result of a member or chairman
leaving the committee, whether through death, resignation, removal or
otherwise. Until the third anniversary of the Effective Time, the affirmative
vote of 80% of the entire Board of Directors will be required in order to
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remove a director from a committee, change the chairmanship of a committee,
designate an alternate member to any committee, designate any additional
committee, or amend, modify or repeal or adopt any provision inconsistent
with the provisions described herein.
The term "HFS Director" means (A) any person serving as a Director of HFS
on May 27, 1997 (or any person appointed by the Board of Directors of HFS
after May 27, 1997 to fill a vacancy on the HFS Board of Directors created
other than due to an increase in the size of the Board of Directors of HFS)
who continues as a Director of the Company at the Effective Time and (B) any
person who becomes a Director of the Company and who was designated as such
by the remaining HFS Directors prior to his or her election; and the term
"CUC Director" means (A) any person serving as a Director of the Company on
May 27, 1997 (or any person appointed by the Board of Directors of the
Company after May 27, 1997 but prior to the Effective Time to fill a vacancy
on the Board of Directors created other than due to an increase in the size
of the Board of Directors) who continues as a Director of the Company at the
Effective Time, (B) any of the four persons designated by the CUC Directors
to become a Director of the Company at the Effective Time and (C) any person
who becomes Director of the Company and who was designated as such by the
remaining CUC Directors prior to his or her election.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Pursuant to the By-Laws, until the third anniversary of the Effective
Time, the Board of Directors will delegate to the Executive Committee the
full and exclusive power and authority to nominate directors for election to
the Board of Directors at the next stockholders' meetings at which directors
are to be elected, elect directors to fill vacancies on the Board of
Directors between stockholders' meetings and fill vacancies on any committee
of the Board of Directors to the extent an alternate member has not been
previously designated. Such nominations and elections of directors and
members of committees shall be undertaken by the Executive Committee such
that (i) the number of HFS Directors and CUC Directors on the Board of
Directors or any committee of the Board of Directors shall be equal and (ii)
the remaining HFS Directors (if the number of HFS Directors is less than the
number of CUC Directors) or the remaining CUC Directors (if the number of CUC
Directors is less than the number of HFS Directors) shall designate the
person to be nominated or elected. Any resolution regarding such election or
nomination as described above in a manner that (a) is consistent with the two
preceding sentences will require the approval by only three members of the
Executive Committee (or only two members if there are then two vacancies on
the Executive Committee) or (b) is inconsistent with the two preceding
sentences will require approval by at least seven members of the Executive
Committee. Until the third anniversary of the Effective Time, the affirmative
vote of at least 80% of the entire Board of Directors shall be required in
order for the Board of Directors to amend, modify or repeal, or adopt any
provision inconsistent with, the provisions of the By-Laws described herein.
OFFICERS
Pursuant to the By-Laws, Walter A. Forbes shall be the Chairman of the
Board from and after the Effective Time and until January 1, 2000, at which
time Henry R. Silverman will be the Chairman of the Board. If, for any reason
Mr. Forbes ceases to serve as Chairman of the Board prior to January 1, 2000
and at such time Mr. Silverman is President and Chief Executive Officer, Mr.
Silverman shall become Chairman of the Board. Mr. Silverman will be President
and Chief Executive Officer from and after the Effective Time and until
January 1, 2000, at which time Mr. Forbes will be President and Chief
Executive Officer. If, for any reason Mr. Silverman ceases to serve as
President and Chief Executive Officer prior to January 1, 2000 and at such
time Mr. Forbes is Chairman of the Board, Mr. Forbes shall become President
and Chief Executive Officer. Until January 1, 2002, the affirmative vote of
80% of the entire Board of Directors shall be required in order for the Board
to (i) amend, modify, repeal or adopt any provision inconsistent with the
provisions described herein, (ii) remove Mr. Forbes or Mr. Silverman from the
positions specifically provided for in their employment agreements with the
Company and HFS, respectively, (iii) modify either of the respective roles,
duties or authority of Messrs. Forbes and Silverman.
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SPECIAL MEETINGS OF STOCKHOLDERS
A special meeting of stockholders may be called only by the Chairman of
the Board of Directors, the President or the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors.
QUORUM AT STOCKHOLDER MEETINGS
The holders of one-third of the shares entitled to vote at any meeting of
the stockholders, present in person or by proxy, shall constitute a quorum at
all stockholder meetings.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Stockholder action by written consent in lieu of a meeting is prohibited
under the Certificate. As a result, stockholder action can be taken only at
an annual or special meeting of stockholders. This prevents the holders of a
majority of the outstanding voting stock of the Company from using the
written consent procedure to take stockholder action without giving all the
stockholders of the Company entitled to vote on a proposed action the
opportunity to participate in determining the proposed action.
ADVANCE NOTICE OF STOCKHOLDER--PROPOSED BUSINESS AT ANNUAL MEETINGS
The By-Laws provide that for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth
day following the date on which such notice of the date of the annual meeting
was mailed or such public disclosure was made. A stockholder's notice to the
Secretary must set forth as to each matter the stockholder proposes to bring
before the annual meeting; (i) a brief description of the business desired to
be brought before the annual meeting, (ii) the name and address, as they
appear on the Company's books, of the stockholder proposing such business,
(iii) the class and number of shares of the Company which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder
in such business.
In addition, the By-Laws provide that for a stockholder to properly
nominate a director at a meeting of stockholders, the stockholder must have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company (i) in the case of an annual
meeting, at least 90 days prior to the date of the last annual meeting of the
Company stockholders and (ii) with respect to a special meeting of
stockholders, the close of business on the 10th day following the date on
which notice of such meeting is first given to stockholders. Such
stockholder's notice to the Secretary must set forth: (i) the name and
address of the stockholder who intends to make the nomination and of the
person or persons to be nominated, (ii) a representation that the stockholder
is holder of record of Common Stock and intends to appear in person or by
proxy at the meeting to nominate each such nominee, (iii) a description of
all arrangements between such stockholder and each nominee, (iv) such other
information with respect to each nominee as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Commission, and
(v) the consent of each nominee to serve as director of the Company if so
elected.
AMENDMENT OF GOVERNING DOCUMENTS
In addition to the provisions of the Certificate which require a
super-majority of stockholders to approve certain amendments to the
Certificate and the By-Laws, the By-Laws require the affirmative vote of 80%
of the entire Board of Directors in order for the Board of Directors to adopt
certain amendments to the By-Laws as described under "--Board of Directors,"
"--Committees of the Board of Directors," "Newly Created Directorships and
Vacancies" and "--Officers."
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FAIR PRICE PROVISIONS
Under the Delaware General Corporation Law and the Certificate, an
agreement of merger, sale, lease or exchange of all or substantially all of
the Company's assets must be approved by the Board of Directors and adopted
by the holders of a majority of the outstanding shares of stock entitled to
vote thereon. However, the Certificate includes what generally is referred to
as a "fair price provision," which requires the affirmative vote of the
holders of at least 80% of the outstanding shares of capital stock entitled
to vote generally in the election of the Company's directors, voting together
as a single class, to approve certain business combination transactions
(including certain mergers, recapitalization and the issuance or transfer of
securities of the Company or a subsidiary having an aggregate fair market
value of $10 million or more) involving the Company or a subsidiary and an
owner or any affiliate of an owner of 5% or more of the outstanding shares of
capital stock entitled to vote, unless either (i) such business combination
is approved by a majority of disinterested directors, or (ii) the
shareholders receive a "fair price" for their securities and certain other
procedural requirements are met. The Certificate provides that this provision
may not be repealed or amended in any respect except by the affirmative vote
of the holders of not less than 80% of the outstanding shares of capital
stock entitled to vote generally in the election of directors.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants to purchase Debt Securities, Preferred
Stock, Common Stock or any combination thereof, and such Warrants may be
issued independently or together with any such Securities and may be attached
to or separate from such Securities. Each series of Warrants will be issued
under a separate warrant agreement (each a "Warrant Agreement") to be entered
into between the Company and a warrant agent ("Warrant Agent"). The Warrant
Agent will act solely as an agent of the Company in connection with the
Warrants of each such series and will not assume any obligation or
relationship of agency for or with holders or beneficial owners of Warrants.
The following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any
Warrants in respect of which this Prospectus is being delivered, including
the following: (i) the title of such Warrants; (ii) the aggregate number of
such Warrants; (iii) the price or prices at which such Warrants will be
issued; (iv) the currency or currencies, including composite currencies, in
which the price of such Warrants may be payable; (v) the designation and
terms of the Securities (other than Preferred Securities and Common
Securities) purchasable upon exercise of such Warrants; (vi) the price at
which and the currency or currencies, including composite currencies, in
which the Securities (other than Preferred Securities and Common Securities)
purchasable upon exercise of such Warrants may be purchased; (vii) the date
on which the right to exercise such Warrants shall commence and the date on
which such right shall expire; (viii) whether such Warrants will be issued in
registered form or bearer form; (ix) if applicable, the minimum or maximum
amount of such Warrants which may be exercised at any one time; (x) if
applicable, the designation and terms of the Securities (other than Preferred
Securities and Common Securities) with which such Warrants are issued and the
number of such Warrants issued with each such Security; (xi) if applicable,
the date on and after which such Warrants and the related Securities (other
than Preferred Securities and Common Securities) will be separately
transferable; (xii) information with respect to book-entry procedures, if
any; (xiii) if applicable, a discussion of certain United States Federal
income tax considerations; and (xiv) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
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DESCRIPTION OF PREFERRED SECURITIES OF THE CENDANT TRUSTS
GENERAL
Each Cendant Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each Cendant Trust authorizes the
Regular Trustees of such Cendant Trust to issue on behalf of such Cendant
Trust one series of Preferred Securities. Each Declaration will be qualified
as an indenture under the Trust Indenture Act. The Institutional Trustee, an
independent trustee, will act as indenture trustee for the Preferred
Securities for purposes of compliance with the provisions of the Trust
Indenture Act. The Preferred Securities will have such terms, including
distributions, redemption, voting, liquidation rights and such other
preferred, deferred or other special rights or such restrictions as shall be
established by the Regular Trustees in accordance with the applicable
Declaration or as shall be set forth in the Declaration or made part of the
Declaration by the Trust Indenture Act. Reference is made to any Prospectus
Supplement relating to the Preferred Securities of a Cendant Trust for
specific terms of the Preferred Securities, including, to the extent
applicable, (i) the distinctive designation of such Preferred Securities,
(ii) the number of Preferred Securities issued by such Cendant Trust, (iii)
the annual distribution rate (or method of determining such rate) for
Preferred Securities issued by such Cendant Trust and the date or dates upon
which such distributions shall be payable (provided, however, that
distributions on such Preferred Securities shall, subject to any deferral
provisions, and any provisions for payment of defaulted distributions, be
payable on a quarterly basis to holders of such Preferred Securities as of a
record date in each quarter during which such Preferred Securities are
outstanding), (iv) any right of such Cendant Trust to defer quarterly
distributions on the Preferred Securities as a result of an interest deferral
right exercised by the Company on the Subordinated Debt Securities held by
such Cendant Trust; (v) whether distributions on Preferred Securities shall
be cumulative, and, in the case of Preferred Securities having such
cumulative distribution rights, the date or dates or method of determining
the date or dates from which distributions on Preferred Securities shall be
cumulative, (vi) the amount or amounts which shall be paid out of the assets
of such Cendant Trust to the holders of Preferred Securities upon voluntary
or involuntary dissolution, winding-up or termination of such Cendant Trust,
(vii) the obligation or option, if any, of such Cendant Trust to purchase or
redeem Preferred Securities and the price or prices at which, the period or
periods within which and the terms and conditions upon which Preferred
Securities shall be purchased or redeemed, in whole or in part, pursuant to
such obligation or option with such redemption price to be specified in the
applicable Prospectus Supplement, (viii) the voting rights, if any, of
Preferred Securities in addition to those required by law, including the
number of votes per Preferred Security and any requirement for the approval
by the holders of Preferred Securities as a condition to specified action or
amendments to the Declaration, (ix) the terms and conditions, if any, upon
which Subordinated Debt Securities held by such Cendant Trust may be
distributed to holders of Preferred Securities, and (x) any other relevant
rights, preferences, privileges, limitations or restrictions of Preferred
Securities consistent with the Declaration or with applicable law. All
Preferred Securities offered hereby will be guaranteed by the Company to the
extent set forth below under "Description of Trust Guarantees." The Trust
Guarantee issued to each Cendant Trust, when taken together with the
Company's back-up undertakings, consisting of its obligations under each
Declaration (including the obligation to pay expenses of each Cendant Trust),
the applicable Indenture and any applicable supplemental indentures thereto
and the Subordinated Debt Securities issued to any Cendant Trust will provide
a full and unconditional guarantee by the Company of amounts due on the
Preferred Securities issued by each Cendant Trust. The payment terms of the
Preferred Securities will be the same as the Subordinated Debt Securities
issued to the applicable Cendant Trust by the Company.
Each Declaration authorizes the Regular Trustees to issue on behalf of the
applicable Trust one series of Common Securities having such terms including
distributions, redemption, voting, liquidation rights or such restrictions as
shall be established by the Regular Trustees in accordance with the
Declaration or as shall otherwise be set forth therein. The terms of the
Common Securities issued by each Cendant Trust will be substantially
identical to the terms of the Preferred Securities issued by such Cendant
Trust, and the Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities except that, if an event
of default under such Declaration has occurred and is
23
<PAGE>
continuing, the rights of the holders of the Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Common Securities will also carry the right to vote and to
appoint, remove or replace any of the Cendant Trustees of such Cendant Trust.
All of the Common Securities of each Cendant Trust will be directly or
indirectly owned by the Company.
The financial statements of any Cendant Trust that issues Preferred
Securities will be reflected in the Company's consolidated financial
statements with the Preferred Securities shown as Company-obligated
mandatorily-redeemable preferred securities of a subsidiary trust under
minority interest in consolidated subsidiaries. In a footnote to the
Company's audited financial statements there will be included statements that
the applicable Cendant Trust is wholly-owned by the Company and that the sole
asset of such Cendant Trust is the Subordinated Debt Securities (indicating
the principal amount, interest rate and maturity date thereof).
DESCRIPTION OF TRUST GUARANTEES
Set forth below is a summary of information concerning the Trust
Guarantees that will be executed and delivered by the Company for the benefit
of the holders, from time to time, of Preferred Securities. Each Trust
Guarantee will be qualified as an indenture under the Trust Indenture Act.
Unless otherwise specified in the applicable Prospectus Supplement,
Wilmington Trust Company will act as independent indenture trustee for Trust
Indenture Act purposes under each Trust Guarantee (the "Preferred Securities
Guarantee Trustee"). The terms of each Trust Guarantee will be those set
forth in such Trust Guarantee and those made part of such Trust Guarantee by
the Trust Indenture Act. The following summary does not purport to be
complete and is subject to and qualified in its entirety by reference to the
provisions of the form of Trust Guarantee, a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part,
and the Trust Indenture Act. Each Trust Guarantee will be held by the
Preferred Securities Guarantee Trustee for the benefit of the holders of the
Preferred Securities of the applicable Cendant Trust.
GENERAL
Unless otherwise specified in the applicable Prospectus Supplement,
pursuant to each Trust Guarantee, the Company will agree, to the extent set
forth therein, to pay in full to the holders of the Preferred Securities, the
Guarantee Payments (as defined below) (except to the extent paid by such
Cendant Trust), as and when due, regardless of any defense, right of set-off
or counterclaim which such Cendant Trust may have or assert. The following
payments or distributions with respect to the Preferred Securities (the
"Guarantee Payments"), to the extent not paid by such Cendant Trust, will be
subject to the Trust Guarantee (without duplication): (i) any accrued and
unpaid distributions that are required to be paid on such Preferred
Securities, to the extent such Cendant Trust shall have funds available
therefor, (ii) the redemption price, including all accrued and unpaid
distributions to the date of redemption (the "Redemption Price"), to the
extent such Cendant Trust has funds available therefor, with respect to any
Preferred Securities called for redemption by such Cendant Trust and (iii)
upon a voluntary or involuntary dissolution, winding-up or termination of
such Cendant Trust (other than in connection with such distribution of Debt
Securities to the holders of Preferred Securities or the redemption of all of
the Preferred Securities upon maturity or redemption of the Subordinated Debt
Securities) the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on such Preferred Securities to the date of
payment, to the extent such Cendant Trust has funds available therefor or (b)
the amount of assets of such Cendant Trust remaining for distribution to
holders of such Preferred Securities in liquidation of such Cendant Trust.
The Company's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of
Preferred Securities or by causing the applicable Cendant Trust to pay such
amounts to such holders.
Each Trust Guarantee will not apply to any payment of distributions except
to the extent the applicable Cendant Trust shall have funds available
therefor. If the Company does not make interest or principal payments on the
Subordinated Debt Securities purchased by such Cendant Trust, such Cendant
Trust will not pay distributions on the Preferred Securities issued by such
Cendant Trust and will not have funds available therefore.
24
<PAGE>
The Company has also agreed to guarantee the obligations of each Cendant
Trust with respect to the Common Securities (the "Common Guarantee") issued
by such Cendant Trust to the same extent as the Trust Guarantee, except that,
if an Event of Default under the Subordinated Indenture has occurred and is
continuing, holders of Preferred Securities under the Trust Guarantee shall
have priority over holders of the Common Securities under the Common
Guarantee with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
Unless otherwise specified in the applicable Prospectus Supplement, in
each Trust Guarantee, the Company will covenant that, so long as any
Preferred Securities issued by the applicable Cendant Trust remain
outstanding, if there shall have occurred any event of default under such
Trust Guarantee or under the Declaration of such Cendant Trust, then (a) the
Company will not declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or
acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant
to any contract or security outstanding on the date of such event requiring
the Company to purchase capital stock of the Company, (ii) as a result of a
reclassification of the Company's capital stock (other than into cash or
other property) or the exchange or conversion of one class or series of the
Company's capital stock for another class or series of the Company's capital
stock, (iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged, (iv) dividends or
distributions in capital stock of the Company (or rights to acquire capital
stock) or repurchases or redemptions of capital stock solely from the
issuance or exchange of capital stock or (v) redemptions or repurchases of
any rights outstanding under a shareholder rights plan); (b) the Company
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company which
rank junior to the Subordinated Debt Securities issued to the applicable
Cendant Trust and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than pursuant to a Trust Guarantee).
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), each Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of
the outstanding Preferred Securities of such Cendant Trust. The manner of
obtaining any such approval of holders of such Preferred Securities will be
set forth in accompanying Prospectus Supplement. All guarantees and
agreements contained in a Trust Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Preferred Securities of the applicable Cendant
Trust then outstanding.
EVENTS OF DEFAULT
An event of default under a Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
to which such Trust Guarantee relates have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Preferred Securities Guarantee Trustee in respect of such Trust Guarantee or
to direct the exercise of any trust or power conferred upon the Preferred
Securities Guarantee Trustee under such Trust Guarantee.
If the Preferred Securities Guarantee Trustee fails to enforce such Trust
Guarantee, any record holder of Preferred Securities to which such Trust
Guarantee relates may institute a legal proceeding directly against the
Company to enforce the Preferred Securities Guarantee Trustee's rights under
such Trust Guarantee without first instituting a legal proceeding against the
applicable Cendant Trust, the Preferred Securities Guarantee Trustee or any
other person or entity. Notwithstanding the foregoing, if the Company has
failed to make a Guarantee Payment under a Trust Guarantee, a record holder
of
25
<PAGE>
Preferred Securities to which such Trust Guarantee relates may directly
institute a proceeding against the Company for enforcement of such Trust
Guarantee for such payment to the record holder of the Preferred Securities
to which such Trust Guarantee relates of the principal of or interest on the
applicable Debt Securities on or after the respective due dates specified in
the Debt Securities, and the amount of the payment will be based on the
holder's pro rata share of the amount due and owing on all of the Preferred
Securities to which such Trust Guarantee relates. The Company has waived any
right or remedy to require that any action be brought first against the
applicable Cendant Trust or any other person or entity before proceeding
directly against the Company. The record holder in the case of the issuance
of one or more global Preferred Securities certificates will be The
Depository Trust Company acting at the direction of the beneficial owners of
the Preferred Securities.
The Company will be required to provide annually to the Preferred
Securities Guarantee Trustee a statement as to the performance by the Company
of certain of its obligations under each outstanding Trust Guarantee and as
to any default in such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default to a Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in such Trust Guarantee and, after default with
respect to such Trust Guarantee, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provision, the Preferred Securities Guarantee Trustee is
under no obligation to exercise any of the powers vested in it by a Trust
Guarantee at the request of any holder of Preferred Securities to which such
Trust Guarantee relates unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
TERMINATION
Each Trust Guarantee will terminate as to the Preferred Securities issued
by the applicable Cendant Trust upon full payment of the Redemption Price of
all Preferred Securities of such Cendant Trust, upon distribution of the Debt
Securities held by such Cendant Trust to the holders of all of the Preferred
Securities of such Cendant Trust or upon full payment of the amounts payable
in accordance with the Declaration of such Cendant Trust upon liquidation of
such Cendant Trust. Each Trust Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of
Preferred Securities issued by the applicable Cendant Trust must restore
payment of any sums paid under such Preferred Securities or such Trust
Guarantee.
STATUS OF THE TRUST GUARANTEES
The Trust Guarantees will constitute senior unsecured obligations of the
Company and will rank on a parity with all of the Company's other senior
unsecured obligations.
Each Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under such Trust Guarantee
without instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Trust Guarantees will be governed by and construed in accordance with
the law of the State of New York.
26
<PAGE>
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts, including contracts
obligating holders to purchase from the Company, and the Company to sell to
the holders, a specified number of shares of Common Stock or Preferred Stock
at a future date or dates. The consideration per share of Common Stock or
Preferred Stock may be fixed at the time the Stock Purchase Contracts are
issued or may be determined by reference to a specific formula set forth in
the Stock Purchase Contracts. The Stock Purchase Contracts may be issued
separately or as a part of units ("Stock Purchase Units") consisting of a
Stock Purchase Contract and Debt Securities, Preferred Securities or debt
obligations of third parties, including U.S. Treasury securities, securing
the holders' obligations to purchase the Common Stock or Preferred Stock
under the Stock Purchase Contracts. The Stock Purchase Contracts may require
the Company to make periodic payments to the holders of the Stock Purchase
Units or vice versa, and such payments may be unsecured or prefunded on some
basis. The Stock Purchase Contracts may require holders to secure their
obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not necessarily be complete, and reference will be made to
the Stock Purchase Contracts, and, if applicable, collateral arrangements and
depositary arrangements, relating to such Stock Purchase Contracts or Stock
Purchase Units.
PLAN OF DISTRIBUTION
The Company may sell the Securities and the Cendant Trusts may sell
Preferred Securities being offered hereby in any of, or any combination of,
the following ways: (i) directly to purchasers; (ii) through agents; (iii)
through underwriters; and/or (iv) through dealers.
Offers to purchase Securities may be solicited directly by the Company
and/or a Cendant Trust or by agents designated by the Company and/or a
Cendant Trust from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the
offer or sale of Securities, will be named, and any commissions payable by
the Company and/or a Cendant Trust to such agent will be set forth, in the
Prospectus Supplement. Unless otherwise indicated in a Prospectus Supplement,
any such agent will be acting on a best efforts basis for the period of its
appointment (ordinarily five business days or less).
If an underwriter or underwriters are utilized in the offer or sale of
Securities, the Company and/or the applicable Cendant Trust will execute an
underwriting agreement with such underwriters at the time of sale of such
Securities to such underwriters and the names of such underwriters and the
principal terms of the Company's and/or the applicable Cendant Trust's
agreement with such underwriters will be set forth in the appropriate
Prospectus Supplement.
If a dealer is utilized in the offer or sale of Securities, the Company
and/or the applicable Cendant Trust will sell such Securities to such dealer,
as principal. Such dealer may then resell such Securities to the public at
varying prices to be determined by such dealer at the time of resale. The
name of such dealer and the principal terms of the Company's and/or the
applicable Cendant Trust's agreement with such dealer will be set forth in
the appropriate Prospectus Supplement.
Agents, underwriters, and dealers may be entitled under agreements with
the Company and/or a Cendant Trust to indemnification by the Company and/or a
Cendant Trust against certain liabilities, including liabilities under the
Securities Act. Agents, dealers and underwriters may also be customers of,
engage in transactions with, or perform services for the Company in the
ordinary course of their business.
Underwriters, agents or their controlling persons may engage in
transactions with and perform services for the Company in the ordinary course
of business.
The place and time of delivery for Securities will be set forth in the
accompanying Prospectus Supplement for such Securities.
27
<PAGE>
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Cendant Trusts by Skadden,
Arps, Slate, Meagher & Flom LLP. The validity of the Securities offered
hereby by the Company will be passed on for the Company by Eric J. Bock,
Esq., Vice President--Legal of the Company. Mr. Bock holds shares of Common
Stock and options to acquire shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company and its consolidated
subsidiaries, except PHH Corporation ("PHH"), as of December 31, 1996 and
January 31, 1996 and for the years ended December 31, 1996, January 31, 1996
and 1995 and CUC International Inc. ("CUC") as of January 31, 1997 and 1996
and for each of the three years in the period ended January 31, 1997
incorporated in this Prospectus by reference from the Company Form 8-K dated
January 29, 1998, have been audited by Deloitte & Touche LLP, as stated in
their report which is incorporated herein by reference. The financial
statements of PHH (consolidated with those of the Company) have been audited
by KPMG Peat Marwick LLP, independent auditors of PHH Corporation, as stated
in their report incorporated herein by reference. Their report contains an
explanatory paragraph that states that PHH adopted the provisions of
Statement of Financial Standards No. 122 "Accounting for Mortgage Service
Rights" in the year ended January 31, 1996. The consolidated financial
statements of CUC (consolidated with those of the Company) have been audited
by Ernst & Young LLP, as set forth in their report included in the Current
Report on Form 8-K, dated January 29, 1998 incorporated herein by reference,
which, as to the years ended January 31, 1996 and 1995, is based in part on
the reports of Deloitte & Touche LLP, independent auditors of Sierra On-Line,
Inc., KPMG Peat Marwick LLP, independent auditors of Davidson & Associates,
Inc., and Price Waterhouse LLP, independent accountants of Ideon Group, Inc.
Such supplemental consolidated financial statements of the Company and its
consolidated subsidiaries are incorporated by reference herein in reliance
upon the respective reports of such firms given upon their authority as
experts in accounting and auditing. All of the foregoing firms are
independent auditors.
The consolidated financial statements of Avis Rent A Car, Inc.
incorporated in this Prospectus by reference from the Current Report on Form
8-K, dated February 6, 1998, filed by Cendant Corporation have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report,
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
28
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS, NOR ANY SALE MADE HEREUNDER AND THEREUNDER, SHALL UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS SHALL NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OF SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
<S> <C>
Prospectus Supplement Summary ................. S-7
Explanatory Diagrams ......................... S-25
Risk Factors .................................. S-29
The Company ................................... S-35
Summary Historical and Pro Forma Financial
Information of the Company ................... S-38
The Trust ..................................... S-40
Price Range of Common Stock and Dividends .... S-41
Capitalization ................................ S-42
Accounting Treatment .......................... S-43
Use of Proceeds ............................... S-43
Description of the FELINE PRIDES .............. S-44
Description of the Purchase Contracts ........ S-48
Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement ........... S-57
Description of the Trust Preferred
Securities ................................... S-60
Description of the Guarantee .................. S-72
Description of the Debentures ................. S-74
Effect of Obligations Under the Debentures and
the Guarantee ................................ S-81
Certain Federal Income Tax Consequences ...... S-82
Underwriting .................................. S-89
Legal Opinions ................................ S-91
Index of Terms for Prospectus Supplement ..... S-92
Index to Financial Statements ................. F-1
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
<S> <C>
Available Information ......................... 2
Incorporation of Certain Documents by
Reference .................................... 3
The Company ................................... 4
Use of Proceeds ............................... 7
Consolidated Ratio of Earnings to Fixed
Charges....................................... 7
Description of the Debt Securities ............ 8
General Description of Capital Stock ......... 17
Description of Warrants ....................... 22
Description of Preferred Securities of the
Cendant Trusts ............................... 23
Description of Trust Guarantees ............... 24
Description of Stock Purchase Contracts and
Stock Purchase Units ......................... 27
Plan of Distribution .......................... 27
Legal Opinions ................................ 28
Experts ....................................... 28
</TABLE>
20,000,000 FELINE PRIDES (SERVICE MARK)
,000,000 TRUST
PREFERRED SECURITIES
% TRUST ORIGINATED
PREFERRED SECURITIES (SERVICE MARK)
("TOPRS" (SERVICE MARK))
[CENDANT LOGO]
CENDANT CAPITAL I
---------------------
PROSPECTUS SUPPLEMENT
---------------------
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
FEBRUARY , 1998
(Service Mark) Service Mark of Merrill Lynch & Co., Inc.
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission
Registration Fee....................................... $1,180,000
Trustee's Expenses..................................... 25,000
*Accounting Fees and Expenses.......................... 50,000
*Legal Fees and Expenses............................... 50,000
*Miscellaneous......................................... 20,000
----------
Total Expenses......................................... $1,325,000
------------
* Estimated for purposes of completing the information required
pursuant to this Item 14.
The Company will pay all fees and expenses associated with filing the
Registration Statement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation 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 such corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A Delaware corporation may indemnify directors, officers, employees
and other agents of such corporation in an action by or in the right of a
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the person to be indemnified has been
adjudged to be liable to the corporation. Where a director, officer, employee
or agent of the corporation is successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to above or in defense of
any claim, issue or matter therein, the corporation must indemnify such person
against the expenses (including attorneys' fees) which he or she actually and
reasonably incurred in connection therewith.
The Registrant's By-Laws contain provisions that provide for indemnification of
officers and directors and their heirs and distributees to full extent
permitted by, and in the manner permissible under, the General Corporation Law
of the State of Delaware.
As permitted by Section 102(b)(7) of the General Corporation Law of the State
of Delaware, registrant's Amended and Restated Certificate of Incorporation
contains a provision eliminating the personal liability of a director to the
Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, subject to certain exceptions.
The Company maintains, at its expense, a policy of insurance which insures its
directors and officers, subject to certain exclusions and deductions as are
usual in such insurance policies, against certain liabilities which may be
incurred in those capacities.
Article IV of the Declaration of Trust for each Trust limits the liability to
the Trust and certain other persons and provides for the indeminification by
the Trust or the Company of Trustees, the Officers, other employees and certain
other persons.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The Undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement, to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of each
such Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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;
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrants
of expenses incurred or paid by a director, officer or controlling person of
such Registrant 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, such Registrant 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 idemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(i) The undersigned Registrants hereby undertake that:
(1) For the 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 the registrant 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 of 1933, 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-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement (Standard Provisions) for Debt
Securities.*
1.2 Form of Underwriting Agreement (Standard Provisions) for Common
Stock.*
1.3 Form of Underwriting Agreement (Standard Provisions) for
Preferred Stock.*
1.4 Forms of Underwriting Agreement for Offering of Preferred
Securities, Stock Purchase Units, Stock Purchase Contracts,
Guarantees and Warrants (to be filed subsequently by Form 8-K).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Appendix B to the Joint
Proxy Statement/Prospectus included as part of the Registration
Statement on Form S-4 of the Registrant, Registration No.
333-34517).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Appendix C of the Registrant's Proxy
Statement/Prospectus included as part of the Registration
Statement on Form S-4 of the Registrant, Registration No.
333-34517).
4.1 Form of Certificate for the Company's Common Stock, par value
$.01 per share.*
4.2 Form of Senior Indenture to be entered into by the Company and
The Bank of Nova Scotia Trust Company of New York, as Trustee.*
4.3 Form of Subordinated Indenture to be entered into by the Company
and The Bank of Nova Scotia Trust Company of New York, as
Trustee.*
4.4 Certificate of Trust of Cendant Capital I.*
4.5 Certificate of Trust of Cendant Capital II.*
4.6 Certificate of Trust of Cendant Capital III.*
4.7 Declaration of Trust of Cendant Capital I.*
4.8 Declaration of Trust of Cendant Capital II.*
4.9 Declaration of Trust of Cendant Capital III.*
4.10 Form of Amended and Restated Declaration of Trust of Cendant
Capital I (including as Exhibit A-1 the form of Preferred
Securities Certificate).*
4.11 Form of Amended and Restated Declaration of Trust of Cendant
Capital II (including as Exhibit A-1 the form of Preferred
Securities Certificate).*
4.12 Form of Amended and Restated Declaration of Trust of Cendant
Capital III (including as Exhibit A-1 the form of Preferred
Securities Certificate).*
4.13 Form of Preferred Securities Guarantee Agreement by Cendant
Corporation with respect to Cendant Capital I.*
4.14 Form of Preferred Securities Guarantee Agreement by Cendant
Corporation with respect to Cendant Capital II.*
4.15 Form of Preferred Securities Guarantee Agreement by Cendant
Corporation with respect to Cendant Capital III.*
4.16 Form of Warrant Agreement.**
4.17 Form of Warrant.**
4.18 Form of Purchase Contract Agreement (including as Exhibit A the
form of the Income PRIDES and as Exhibit B the form of the Growth
PRIDES).
II-3
<PAGE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.19 Form of Pledge Agreement.
4.20 Form of First Supplemental Indenture between Cendant Corporation
and The Bank of Nova Scotia Trust Company of New York, as Trustee
(including the form of Debentures of Cendant Corporation to be
issued to the Trust).
4.21 Form of Remarketing Agreement (including as Exhibit A the form of
Remarketing Underwriting Agreement).
5.1 Opinion of Eric J. Bock, Esq. regarding the legality of the
Securities being registered by the Company hereby (to be filed
subsequently by Form 8-K).
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the
legality of the Securities being registered by the Cendant Trusts
hereby (to be filed subsequently by Form 8-K).
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to tax
matters, including consent (to be fled subsequently by
Form 8-K).
12.1 Statement re: Computation of Consolidated Ratio of Earnings to
Fixed Charges.*
23.1 Consent of Deloitte & Touche LLP related to the financial
statements of Cendant Corporation.*
23.2 Consent of Ernst & Young LLP relating to the financial
statements of CUC International Inc.*
23.3 Consent of KPMG Peat Marwick LLP related to the financial
statements of PHH Corporation.*
23.4 Consent of Deloitte & Touche LLP relating to the financial
statements of Sierra On-Line, Inc.*
23.5 Consent of Deloitte & Touche LLP relating to the financial
statements of Avis Rent A Car, Inc.*
23.6 Consent of KPMG Peat Marwick LLP relating to the financial
statements of Davidson & Associates, Inc.*
23.7 Consent of Price Waterhouse LLP relating to the financial
statements of Ideon Group, Inc.*
23.8 Consent of Eric J. Bock (included in Exhibit 5.1).
23.9 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibits 5.2 and 8.1).
24.1 Power of attorney.*
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of The Bank of Nova Scotia Trust Company of New York, as
Trustee for the Senior Debt Securities.*
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of The Bank of Nova Scotia Trust Company of New York, as
Trustee for the Subordinated Debt Securities.*
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of Wilmington Trust Company, as Trustee under the
Declaration of Trust of Cendant Capital I.
25.4 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Preferred Securities Guarantee of Cendant Capital I.
25.5 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Declaration of Trust of Cendant Capital II.
25.6 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Preferred Securities Guarantee of Cendant Capital II.
25.7 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Declaration of Trust of Cendant Capital III.
25.8 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Preferred Securities Guarantee of Cendant Capital III.
</TABLE>
* Previously filed.
** To be filed by amendment.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Cendant
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement, to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Parsippany, State of New Jersey, on
February 20, 1998.
CENDANT CORPORATION
By: /s/ James E. Buckman
---------------------------------
James E. Buckman
Senior Executive Vice President,
General Counsel and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chairman of the Board February 20, 1998
- ------------------------
(Walter A. Forbes)
* President, Chief Executive February 20, 1998
- ------------------------ Officer and Director
(Henry R. Silverman)
* Vice Chairman, Chief Financial February 20, 1998
- ------------------------ Officer and Director
(Michael P. Monaco)
* Senior Vice President-Finance February 20, 1998
- ------------------------ (Chief Accounting Officer)
Scott E. Forbes
* Vice Chairman and Director February 20, 1998
- ------------------------
(Stephen P. Holmes)
* Vice Chairman and Director February 20, 1998
- ------------------------
(Robert D. Kunisch)
II-5
<PAGE>
* Vice Chairman and Director February 20, 1998
- ----------------------------
(Christopher K. McLeod)
* Vice Chairman and Director February 20, 1998
- ----------------------------
(E. Kirk Shelton)
* Vice Chairman, Director February 20, 1998
- ---------------------------- and Secretary
(Robert T. Tucker)
/s/ James E. Buckman Senior Executive Vice February 20, 1998
- ---------------------------- President, General Counsel
(James E. Buckman) and Director
* Director February 20, 1998
- ----------------------------
(John D. Snodgrass)
* Director February 20, 1998
- ----------------------------
(Bartlett Burnap)
* Director February 20, 1998
- ----------------------------
(Leonard S. Coleman)
* Director February 20, 1998
- ----------------------------
(T. Barnes Donnelley)
* Director February 20, 1998
- ----------------------------
(Martin L. Edelman)
* Director February 20, 1998
- ----------------------------
(Frederick D. Green)
* Director February 20, 1998
- ------------------------
(Stephen A. Greyser)
* Director February 20, 1998
- ------------------------
(Dr. Carole G. Hankin)
* Director February 20, 1998
- ----------------------------
(The Rt. Hon. Brian Mulroney,
P.C., LL.D.)
II-6
<PAGE>
* Director February 20, 1998
- ----------------------------
(Robert E. Nederlander)
* Director February 20, 1998
- ----------------------------
(Burton C. Perfit)
* Director February 20, 1998
- ----------------------------
(Anthony G. Petrello)
* Director February 20, 1998
- ----------------------------
(Robert W. Pittman)
* Director February 20, 1998
- ----------------------------
(E. John Rosenwald, Jr.)
* Director February 20, 1998
- ----------------------------
(Robert P. Rittereiser)
* Director February 20, 1998
- ----------------------------
(Stanley M. Rumbough, Jr.)
* Director February 20, 1998
- ----------------------------
(Leonard Schutzman)
* Director February 20, 1998
- ----------------------------
(Robert F. Smith)
* Director February 20, 1998
- ----------------------------
(Craig R. Stapleton)
/s/ James E. Buckman
- ----------------------------
James E. Buckman
(As Attorney-in-fact for
each of the persons
indicated)*
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Cendant
Capital I, Cendant Capital II and Cendant Capital III certify that they have
reasonable grounds to believe that they meet all of the requirements for filing
on Form S-3 and that they have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Parsippany, State of New Jersey on February 20, 1998.
CENDANT CAPITAL I
By: /s/ Michael P. Monaco
--------------------------------
Michael P. Monaco, Trustee
By: /s/ James E. Buckman
--------------------------------
James E. Buckman, Trustee
CENDANT CAPITAL II
By: /s/ Michael P. Monaco
--------------------------------
Michael P. Monaco, Trustee
By: /s/ James E. Buckman
--------------------------------
James E. Buckman, Trustee
CENDANT CAPITAL III
By: /s/ Michael P. Monaco
--------------------------------
Michael P. Monaco, Trustee
By: /s/ James E. Buckman
--------------------------------
James E. Buckman, Trustee
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
1.1 Form of Underwriting Agreement (Standard Provisions) for Debt
Securities.*
1.2 Form of Underwriting Agreement (Standard Provisions) for Common
Stock.*
1.3 Form of Underwriting Agreement (Standard Provisions) for
Preferred Stock.*
1.4 Forms of Underwriting Agreement for Offering of Preferred
Securities, Stock Purchase Units, Stock Purchase Contracts,
Guarantees and Warrants (to be filed subsequently by Form 8-K).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Appendix B to the Joint
Proxy Statement/Prospectus included as part of the Registration
Statement on Form S-4 of the Registrant, Registration No.
333-34517).*
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Appendix C of the Registrant's Proxy
Statement/Prospectus included as part of the Registration
Statement on Form S-4 of the Registrant, Registration No.
333-34517).*
4.1 Form of Certificate for the Company's Common Stock, par value
$.01 per share.*
4.2 Form of Senior Indenture to be entered into by the Company and
The Bank of Nova Scotia Trust Company of New York, as Trustee.*
4.3 Form of Subordinated Indenture to be entered into by the Company
and The Bank of Nova Scotia Trust Company of New York, as
Trustee.*
4.4 Certificate of Trust of Cendant Capital I.*
4.5 Certificate of Trust of Cendant Capital II.*
4.6 Certificate of Trust of Cendant Capital III.*
4.7 Declaration of Trust of Cendant Capital I.*
4.8 Declaration of Trust of Cendant Capital II.*
4.9 Declaration of Trust of Cendant Capital III.*
4.10 Form of Amended and Restated Declaration of Trust of Cendant
Capital I (including as Exhibit A-1 the form of Preferred
Securities Certificate).*
4.11 Form of Amended and Restated Declaration of Trust of Cendant
Capital II (including as Exhibit A-1 the form of Preferred
Securities Certificate).*
4.12 Form of Amended and Restated Declaration of Trust of Cendant
Capital III (including as Exhibit A-1 the form of Preferred
Securities Certificate).*
4.13 Form of Preferred Securities Guarantee Agreement by Cendant
Corporation with respect to Cendant Capital I.*
4.14 Form of Preferred Securities Guarantee Agreement by Cendant
Corporation with respect to Cendant Capital II.*
4.15 Form of Preferred Securities Guarantee Agreement by Cendant
Corporation with respect to Cendant Capital III.*
4.16 Form of Warrant Agreement.**
4.17 Form of Warrant.**
4.18 Form of Purchase Contract Agreement (including as Exhibit A the
form of the Income PRIDES and as Exhibit B the form of the Growth
PRIDES).
<PAGE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
4.19 Form of Pledge Agreement.
4.20 Form of First Supplemental Indenture between Cendant Corporation
and The Bank of Nova Scotia Trust Company of New York, as Trustee
(including the form of Debentures of Cendant Corporation to be
issued to the Trust).
4.21 Form of Remarketing Agreement (including as Exhibit A the form of
Remarketing Underwriting Agreement).
5.1 Opinion of Eric J. Bock, Esq. regarding the legality of the
Securities being registered by the Company hereby (to be filed
subsequently by Form 8-K).
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the
legality of the Securities being registered by the Cendant Trusts
hereby (to be filed subsequently by Form 8-K).
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to tax
matters, including consent (to be fled subsequently by
Form 8-K).
12.1 Statement re: Computation of Consolidated Ratio of Earnings to
Fixed Charges.*
23.1 Consent of Deloitte & Touche LLP related to the financial
statements of Cendant Corporation.*
23.2 Consent of Ernst & Young LLP relating to the financial
statements of CUC International Inc.*
23.3 Consent of KPMG Peat Marwick LLP related to the financial
statements of PHH Corporation.*
23.4 Consent of Deloitte & Touche LLP relating to the financial
statements of Sierra On-Line, Inc.*
23.5 Consent of Deloitte & Touche LLP relating to the financial
statements of Avis Rent A Car, Inc.*
23.6 Consent of KPMG Peat Marwick LLP relating to the financial
statements of Davidson & Associates, Inc.*
23.7 Consent of Price Waterhouse LLP relating to the financial
statements of Ideon Group, Inc.*
23.8 Consent of Eric J. Bock (included in Exhibit 5.1).
23.9 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibits 5.2 and 8.1).
24.1 Power of attorney.*
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of The Bank of Nova Scotia Trust Company of New York, as
Trustee for the Senior Debt Securities.*
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of The Bank of Nova Scotia Trust Company of New York, as
Trustee for the Subordinated Debt Securities.*
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of Wilmington Trust Company, as Trustee under the
Declaration of Trust of Cendant Capital I.
25.4 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Preferred Securities Guarantee of Cendant Capital I.
25.5 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Declaration of Trust of Cendant Capital II.
25.6 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Preferred Securities Guarantee of Cendant Capital II.
25.7 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Declaration of Trust of Cendant Capital III.
25.8 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of Wilmington Trust Company, as Trustee under the
Preferred Securities Guarantee of Cendant Capital III.
</TABLE>
* Previously filed.
** To be filed by amendment.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CENDANT CORPORATION
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS PURCHASE CONTRACT AGENT
--------------------------
FORM OF PURCHASE CONTRACT AGREEMENT
--------------------------
DATED AS OF ________ ___, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
RECITALS ...........................................................................................1
ARTICLE I
Definitions and Other Provisions
of General Applications.............................................................................1
Section 1.1. Definitions.......................................................................1
Section 1.2. Compliance Certificates and Opinions.............................................12
Section 1.3. Form of Documents Delivered to Agent.............................................12
Section 1.4. Acts of Holders; Record Dates....................................................13
Section 1.5. Notices..........................................................................15
Section 1.6. Notice to Holders; Waiver........................................................16
Section 1.7. Effect of Headings and Table of Contents.........................................16
Section 1.8. Successors and Assigns...........................................................16
Section 1.9. Separability Clause..............................................................17
Section 1.10. Benefits of Agreement............................................................17
Section 1.11. Governing Law....................................................................17
Section 1.12. Legal Holidays...................................................................17
Section 1.13. Counterparts.....................................................................18
Section 1.14. Inspection of Agreement..........................................................18
i
<PAGE>
<CAPTION>
Page
<S> <C>
ARTICLE II
Certificate Forms..................................................................................18
Section 2.1. Forms of Certificates Generally..................................................18
Section 2.2. Form of Agent's Certificate of Authentication....................................19
ARTICLE III
The Securities.....................................................................................20
Section 3.1. Title and Terms; Denominations...................................................20
Section 3.2. Rights and Obligations Evidenced by the Certificates.............................20
Section 3.3. Execution, Authentication, Delivery and Dating...................................21
Section 3.4. Temporary Certificates...........................................................22
Section 3.5. Registration; Registration of Transfer and Exchange..............................23
Section 3.6. Book-Entry Interests.............................................................24
Section 3.7. Notices to Holders...............................................................25
Section 3.8. Appointment of Successor Clearing Agency.........................................25
Section 3.9. Definitive Certificates..........................................................25
Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates...............................26
Section 3.11. Persons Deemed Owners............................................................27
Section 3.12. Cancellation.....................................................................28
Section 3.14. Establishment or Reestablishment of Income PRIDES................................31
ii
<PAGE>
<CAPTION>
Page
<S> <C>
Section 3.15. Transfer of Collateral upon Occurrence of Termination Event......................32
Section 3.16. No Consent to Assumption.........................................................33
ARTICLE IV
The Preferred Securities...........................................................................33
Section 4.1. Payment of Distribution; Rights to Distributions Preserved;
Distribution Rate Reset; Notice..................................................33
Section 4.2. Notice and Voting................................................................35
Section 4.3. Distribution of Debentures; Tax Event Redemption.................................35
ARTICLE V
The Purchase Contracts.............................................................................37
Section 5.1. Purchase of Shares of Common Stock...............................................37
Section 5.2. Contract Adjustment Payments.....................................................39
Section 5.3. Deferral of Payment Dates For Contract Adjustment Payments.......................40
Section 5.4. Payment of Purchase Price........................................................41
Section 5.5. Issuance of Shares of Common Stock...............................................46
Section 5.6. Adjustment of Settlement Rate....................................................47
Section 5.7. Notice of Adjustments and Certain Other Events...................................53
Section 5.8. Termination Event; Notice........................................................54
Section 5.9. Early Settlement.................................................................54
Section 5.10. No Fractional Shares.............................................................56
iii
<PAGE>
<CAPTION>
Page
<S> <C>
Section 5.11. Charges and Taxes................................................................57
ARTICLE VI
Remedies...........................................................................................57
Section 6.1. Unconditional Right of Holders to Receive Contract Adjustment
Payments and to Purchase Common Stock............................................57
Section 6.2. Restoration of Rights and Remedies...............................................58
Section 6.3. Rights and Remedies Cumulative...................................................58
Section 6.4. Delay or Omission Not Waiver.....................................................58
Section 6.5. Undertaking for Costs............................................................58
Section 6.6. Waiver of Stay or Extension Laws.................................................59
ARTICLE VII
The Agent..........................................................................................59
Section 7.1. Certain Duties and Responsibilities..............................................59
Section 7.2. Notice of Default................................................................60
Section 7.3. Certain Rights of Agent..........................................................60
Section 7.4. Not Responsible for Recitals or Issuance of Securities...........................61
Section 7.5. May Hold Securities..............................................................62
Section 7.6. Money Held in Custody............................................................62
Section 7.7. Compensation and Reimbursement...................................................62
iv
<PAGE>
<CAPTION>
Page
<S> <C>
Section 7.8. Corporate Agent Required; Eligibility............................................63
Section 7.9. Resignation and Removal; Appointment of Successor................................63
Section 7.10. Acceptance of Appointment by Successor...........................................64
Section 7.11. Merger, Conversion, Consolidation or Succession to Business......................65
Section 7.12. Preservation of Information; Communications to Holders...........................65
Section 7.13. No Obligations of Agent..........................................................66
Section 7.14. Tax Compliance...................................................................66
ARTICLE VIII
Supplemental Agreements............................................................................67
Section 8.1. Supplemental Agreements Without Consent of Holders...............................67
Section 8.2. Supplemental Agreements with Consent of Holders..................................68
Section 8.3. Execution of Supplemental Agreements.............................................69
Section 8.4. Effect of Supplemental Agreements................................................69
Section 8.5. Reference to Supplemental Agreements.............................................69
ARTICLE IX
Consolidation, Merger, Sale or Conveyance..........................................................70
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey Property Except
Under Certain Conditions.........................................................70
Section 9.2. Rights and Duties of Successor Corporation.......................................70
Section 9.3. Opinion of Counsel Given to Agent................................................71
v
<PAGE>
<CAPTION>
Page
<S> <C>
ARTICLE X
Covenants..........................................................................................71
Section 10.1. Performance Under Purchase Contracts.............................................71
Section 10.2. Maintenance of Office or Agency..................................................71
Section 10.3. Company to Reserve Common Stock..................................................72
Section 10.4. Covenants as to Common Stock.....................................................72
Section 10.5. Statements of Officer of the Company as to Default...............................73
EXHIBIT A Form of Income PRIDES Certificate
EXHIBIT B Form of Growth PRIDES Certificate
EXHIBIT C Instruction to Collateral Agent
EXHIBIT D Instruction to Purchase Contract Agent
EXHIBIT E Notice to Settle with Separate Cash
</TABLE>
vi
<PAGE>
PURCHASE CONTRACT AGREEMENT, dated as of _______ ___, 1998, between
Cendant Corporation, a Delaware corporation (the "Company"), and The First
National Bank of Chicago, a national banking association, acting as purchase
contract agent for the Holders of Securities from time to time (the "Agent").
RECITALS
The Company has duly authorized the execution and delivery of this
Agreement and the Certificates evidencing the Securities.
All things necessary to make the Purchase Contracts, when the
Certificates are executed by the Company and authenticated, executed on behalf
of the Holders and delivered by the Agent, as provided in this Agreement, the
valid obligations of the Company, and to constitute these presents a valid
agreement of the Company, in accordance with its terms, have been done.
WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed as follows:
ARTICLE I
Definitions and Other Provisions
of General Applications
Section 1.1. Definitions.
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular; and nouns
and pronouns of the masculine gender include the feminine and neuter genders;
<PAGE>
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
(d) the following terms have the meanings given to them in the
Declaration: (i) Applicable Ownership Interest; (ii) Applicable Principal
Amount; (iii) Authorized Newspaper; (iv) Indenture, (v) Investment Company
Event; (vi) Liquidation Distribution; (vii) Preferred Securities Guarantee;
(viii) Primary Treasury Dealer; (ix) Quotation Agent; (x) Redemption Amount;
(xi) Redemption Price; (xii) Reset Agent; (xiii) Reset Announcement Date; (xiv)
Reset Rate; (xv) Reset Spread; (xvi) Tax Event; (xvii) Tax Event Redemption;
(xviii) Tax Event Redemption Date; (xix) Two-Year Benchmark Treasury; (xx)
Treasury Portfolio; and (xxi) Treasury Portfolio Purchase Price; and
(e) the following terms have the meanings given to them in this
Section 1.1(e).
"Act" when used with respect to any Holder, has the meaning specified
in Section 1.4.
"Affiliate"has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"Agent" means the Person named as the "Agent" in the first paragraph
of this instrument until a successor Agent shall have become such pursuant to
the applicable provisions of this Agreement, and thereafter "Agent" shall mean
such Person.
"Agreement" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more agreements
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Applicable Market Value" has the meaning specified in Section 5.1.
2
<PAGE>
"Bankruptcy Code" means title 11 of the United States Code, or any
other law of the United States that from time to time provides a uniform system
of bankruptcy laws.
"Beneficial Owner" means, with respect to a Book-Entry Interest, a
Person who is the beneficial owner of such Book-Entry Interest as reflected on
the books of the Clearing Agency or on the books of a Person maintaining an
account with such Clearing Agency (directly as a Clearing Agency Participant or
as an indirect participant, in each case in accordance with the rules of such
Clearing Agency).
"Board of Directors" means the board of directors of the Company or a
duly authorized committee of that board.
"Board Resolution" means one or more resolutions of the Board of
Directors, a copy of which has been certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such certification and
delivered to the Agent.
"Book-Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 3.6.
"Business Day" means any day other than a Saturday, Sunday or any
other day on which banking institutions in New York City (in the State of New
York) are permitted or required by any applicable law to close.
"Cash Settlement" has the meaning set forth in Section 5.4(a)(i).
"Certificate" means an Income PRIDES Certificate or a Growth PRIDES
Certificate.
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as a
depositary for the Securities and in whose name, or in the name of a nominee of
that organization, shall be registered a Global Certificate and which shall
undertake to effect book entry transfers and pledges of the Securities.
3
<PAGE>
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with
the Clearing Agency.
"Closing Price" has the meaning specified in Section 5.1.
"Collateral" has the meaning specified in Section 2.1 of the Pledge
Agreement.
"Collateral Agent" means The Chase Manhattan Bank, as Collateral Agent
under the Pledge Agreement until a successor Collateral Agent shall have become
such pursuant to the applicable provisions of the Pledge Agreement, and
thereafter "Collateral Agent" shall mean the Person who is then the Collateral
Agent thereunder.
"Collateral Substitution" has the meaning specified in Section 3.13.
"Common Stock" means the Common Stock, par value $1.25, of the
Company.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor shall have become such pursuant
to the applicable provision of this Agreement, and thereafter "Company" shall
mean such successor.
"Contract Adjustment Payments" means the fee payable by the Company in
respect of each Purchase Contract, equal to % per annum of the Stated Amount in
the case of Income PRIDES and % per annum of the Stated Amount in the case of
Growth PRIDES, computed on the basis of a 360 day year of twelve 30 day months,
plus any Deferred Contract Adjustment Payments accrued pursuant to Section 5.2.
"Corporate Trust Office" means the principal corporate trust office of
the Agent at which, at any particular time, its corporate trust business shall
be administered, which office at the date hereof is located at One First
National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention: Corporate Trust
Services Division, except that for purposes of Section 10.2, such term shall
mean the office or agency of the Agent in the Borough of Manhattan, the City of
New York, which office at the date hereof is located at 14 Wall Street, Eighth
Floor, New York, NY 10005.
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"Coupon Rate" means the percentage rate per annum at which each
Debenture will bear interest initially.
"Current Market Price" has the meaning specified in Section 5.6(a)(8).
"Debentures" means the series of debentures of the Company designated
the ____% Debentures due February 16, 2003, to be issued under the Indenture as
of the date hereof.
"Declaration" means the Amended and Restated Agreement of Trust of
Cendant Capital I, dated ________ ___, 1998, among the Company, as the sponsor,
the trustees named therein and the holders from time to time of individual
beneficial interests in the assets of the Trust.
"Deferred Contract Adjustment Payments" has the meaning specified in
Section 5.3.
"Depositary" means, initially, DTC until another Clearing Agency
becomes its successor.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Early Settlement" has the meaning specified in Section 5.9(a).
"Early Settlement Amount" has the meaning specified in Section 5.9(a).
"Early Settlement Date" has the meaning specified in Section 5.9(a).
"Early Settlement Rate" has the meaning specified in Section 5.9(b).
"Exchange Act" means the Securities Exchange Act of 1934 and any
statute successor thereto, in each case as amended from time to time, and the
rules and regulations promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.4.
"Expiration Time" has the meaning specified in Section 5.6(a)(6).
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"Global Certificate" means a Certificate that evidences all or part of
the Securities and is registered in the name of a Depositary or a nominee
thereof.
"Global Preferred Security Certificate" means a certificate evidencing
the rights and obligations of a Holder in respect of the number of Preferred
Securities specified on such certificate and which is registered in the name of
a Clearing Agency or a nominee thereof.
"Growth PRIDES" means, following the substitution of one or more
Treasury Securities for Preferred Securities or for the Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, as collateral to secure
a holder's obligations under a Purchase Contract, the collective rights and
obligations of a holder of a Growth PRIDES Certificate in respect of such
Treasury Securities, subject in each case to the Pledge thereof, and the
related Purchase Contract.
"Growth PRIDES Certificate" means a certificate evidencing the rights
and obligations of a Holder in respect of the number of Growth PRIDES specified
on such certificate.
"Growth PRIDES Register" and "Growth PRIDES Registrar" have the
respective meanings specified in Section 3.5.
"Holder," when used with respect to a Security, means the Person in
whose name the Security evidenced by an Income PRIDES Certificate and/or a
Growth PRIDES Certificate is registered in the related Income PRIDES Register
and/or the Growth PRIDES Register, as the case may be.
"Income PRIDES" means the collective rights and obligations of a
Holder of an Income PRIDES Certificate in respect of a Preferred Security or an
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, subject in each case to the Pledge thereof, and the related
Purchase Contract.
"Income PRIDES Certificate" means a certificate evidencing the rights
and obligations of a Holder in respect of the number of Income PRIDES specified
on such certificate.
"Income PRIDES Register" and "Income PRIDES Registrar" have the
respective meanings specified in Section 3.5.
"Indenture" has the meaning set forth in Section 1.1 of the
Declaration.
"Indenture Trustee" means The Bank of Nova Scotia Trust Company of
New York, a national banking association, as trustee under the Indenture,
or any successor thereto.
"Institutional Trustee" means Wilmington Trust Company, as
institutional trustee under the Declaration, or any successor thereto that
is a financial institution unaffiliated with the Company.
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"Issuer Order" or "Issuer Request" means a written order or request
signed in the name of the Company by its Chairman of the Board, any Vice
Chairman, its President or a Vice President and by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the Agent.
"NYSE" has the meaning specified in Section 5.1.
"Officer's Certificate" means a certificate signed by the Chairman of
the Board, any Vice Chairman of the Board, the President, any Vice President,
the Treasurer, any Assistant Treasurer, the Secretary or any Assistant
Secretary of the Company and delivered to the Agent.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company or an Affiliate
and who shall be reasonably acceptable to the Agent.
"Outstanding Securities," with respect to any Income PRIDES or Growth
PRIDES, means, as of the date of determination, all Income PRIDES or Growth
PRIDES evidenced by Certificates theretofore authenticated, executed and
delivered under this Agreement, except:
(i) If a Termination Event has occurred, (A) Growth PRIDES
and (B) Income PRIDES for which the Stated Amount of the related
Preferred Security or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, or a Liquidation Distribution in respect of
such Preferred Security, as the case may be, has been theretofore
deposited with the Agent in trust for the Holders of such Income
PRIDES;
(ii) Income PRIDES and Growth PRIDES evidenced by
Certificates theretofore cancelled by the Agent or delivered to the
Agent for cancellation or deemed cancelled pursuant to the provisions
of this Agreement; and
(iii) Income PRIDES and Growth PRIDES evidenced by
Certificates in exchange for or in lieu of which other Certificates
have been authenticated, executed on behalf of the Holder and
delivered pursuant to this Agreement, other than any such Certificate
in respect of which there shall have been presented to the Agent proof
satisfactory to it that such Certificate is held by a bona fide
purchaser in whose hands the Income PRIDES or
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Growth PRIDES evidenced by such Certificate are valid obligations of
the Company;
provided, however, that in determining whether the Holders of the requisite
number of the Income PRIDES or Growth PRIDES have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Income PRIDES or
Growth PRIDES owned by the Company or any Affiliate of the Company shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Agent shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Income PRIDES or
Growth PRIDES which a Responsible Officer of the Agent knows to be so owned
shall be so disregarded. Income PRIDES or Growth PRIDES so owned which have
been pledged in good faith may be regarded as Outstanding Securities if the
pledgee establishes to the satisfaction of the Agent the pledgee's right so to
act with respect to such Income PRIDES or Growth PRIDES and that the pledgee is
not the Company or any Affiliate of the Company.
"Payment Date" means each February 16, May 16, August 16 and November
16, commencing , 1998.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Permitted Investments" has the meaning set forth in Section 1 of the
Pledge Agreement.
"Pledge" means the pledge under the Pledge Agreement of the Preferred
Securities, the Treasury Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, in each case constituting a part of the
Securities.
"Pledge Agreement" means the Pledge Agreement, dated as of the date
hereof, by and among the Company, the Collateral Agent and the Agent, on its
own behalf and as attorney-in-fact for the Holders from time to time of the
Securities.
"Predecessor Certificate" means a Predecessor Income PRIDES
Certificate or a Predecessor Growth PRIDES Certificate.
"Predecessor Growth PRIDES Certificate" of any particular Growth
PRIDES Certificate means every previous Growth PRIDES Certificate evidencing
all or a
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portion of the rights and obligations of the Company and the Holder under the
Growth PRIDES evidenced thereby; and, for the purposes of this definition, any
Growth PRIDES Certificate authenticated and delivered under Section 3.10 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Growth PRIDES
Certificate shall be deemed to evidence the same rights and obligations of the
Company and the Holder as the mutilated, destroyed, lost or stolen Growth
PRIDES Certificate.
"Predecessor Income PRIDES Certificate" of any particular Income
PRIDES Certificate means every previous Income PRIDES Certificate evidencing
all or a portion of the rights and obligations of the Company and the Holder
under the Income PRIDES evidenced thereby; and, for the purposes of this
definition, any Income PRIDES Certificate authenticated and delivered under
Section 3.10 in exchange for or in lieu of a mutilated, destroyed, lost or
stolen Income PRIDES Certificate shall be deemed to evidence the same rights
and obligations of the Company and the Holder as the mutilated, destroyed, lost
or stolen Income PRIDES Certificate.
"Preferred Securities" means the ____% Trust Originated Preferred
Securities of the Trust, each having a stated liquidation amount of $50,
representing preferred undivided beneficial interests in the assets of the
Trust.
"Proceeds" has the meaning set forth in Section 1 of the Pledge
Agreement.
"Purchase Contract," when used with respect to any Security, means the
contract forming a part of such Security and obligating the Company to (i) sell
and the Holder of such Security to purchase Common Stock and (ii) pay the
Holder Contract Adjustment Payments, if any, on the terms and subject to the
conditions set forth in Article Five hereof.
"Purchase Contract Settlement Date" means February 16, 2001.
"Purchase Contract Settlement Fund" has the meaning specified in
Section 5.5.
"Purchase Price" has the meaning specified in Section 5.1.
"Purchased Shares" has the meaning specified in Section 5.6(a)(6).
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"Record Date" for the distribution and Contract Adjustment Payments
payable on any Payment Date means, as to any Global Certificate, the Business
Day next preceding such Payment Date, and as to any other Certificate, a day
selected by the Company which shall be more than one Business Day but less than
60 Business Days prior to such Payment Date.
"Register" means the Income PRIDES Register and the Growth PRIDES
Register.
"Registrar" means the Income PRIDES Registrar and the Growth PRIDES
Registrar.
"Remarketing Agent" has the meaning specified in Section 5.4.
"Remarketing Agreement" means the Remarketing Agreement dated _______
___, 1998 by and between the Company, the Trust, the Remarketing Agent and the
Purchase Contract Agent.
"Remarketing Fee" has the meaning specified in Section 5.4.
"Remarketing Purchase Agreement" has the meaning specified in the
Remarketing Agreement.
"Reorganization Event" has the meaning specified in Section 5.6(b).
"Responsible Officer," when used with respect to the Agent, means any
officer of the Agent assigned by the Agent to administer its corporate trust
matters.
"Security" means an Income PRIDES or a Growth PRIDES.
"Senior Indebtedness" means indebtedness of any kind of the Company
unless the instrument under which such indebtedness is incurred expressly
provides that it is on parity with or subordinated in right of payment to the
Contract Adjustment Payments.
"Settlement Rate" has the meaning specified in Section 5.1.
"Stated Amount" means $50.
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"Termination Date" means the date, if any, on which a Termination Event
occurs.
"Termination Event" means the occurrence of any of the following
events: (i) at any time on or prior to the Purchase Contract Settlement Date, a
judgment, decree or court order shall have been entered granting relief under
the Bankruptcy Code, adjudicating the Company to be insolvent, or approving as
properly filed a petition seeking reorganization or liquidation of the Company
or any other similar applicable Federal or State law, and, unless such
judgment, decree or order shall have been entered within 60 days prior to the
Purchase Contract Settlement Date, such decree or order shall have continued
undischarged and unstayed for a period of 60 days; or (ii) a judgment, decree
or court order for the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of the Company or of its property, or for
the winding up or liquidation of its affairs, shall have been entered, and,
unless such judgment, decree or order shall have been entered within 60 days
prior to the Purchase Contract Settlement Date, such judgment, decree or order
shall have continued undischarged and unstayed for a period of 60 days, or
(iii) at any time on or prior to the Purchase Contract Settlement Date the
Company shall file a petition for relief under the Bankruptcy Code, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file a
petition or answer or consent seeking reorganization or liquidation under the
Bankruptcy Code or any other similar applicable Federal or State law, or shall
consent to the filing of any such petition, or shall consent to the appointment
of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency
of it or of its property, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts generally
as they become due.
"Threshold Appreciation Price" has the meaning specified in Section
5.1.
"TIA" means the Trust Indenture Act of 1939, as amended, or any
successor statute.
"Trading Day" has the meaning specified in Section 5.1.
"Treasury Security" means zero-coupon U.S. Treasury Securities (Cusip
Number ) which are the principal strip of the 7 3/4% U.S. Treasury
Securities which mature on , 2001.
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"Trust" means Cendant Capital I, a statutory business trust formed
under the laws of the State of Delaware, or any successor thereto by merger or
consolidation.
"Underwriting Agreement" means the Underwriting Agreement dated
________ ___, 1998 between the Company, the Trust, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Chase Securities Inc.
"Vice President" means any vice president, whether or not designated
by a number or a word or words added before or after the title "vice
president."
Section 1.2. Compliance Certificates and Opinions.
Except as otherwise expressly provided by this Agreement, upon any
application or request by the Company to the Agent to take any action under any
provision of this Agreement, the Company shall furnish to the Agent an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Agreement relating to the proposed action have been complied with
and, if requested by the Agent, an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any
provision of this Agreement relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Agreement shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he or she has made such examination or investigation as is necessary
to enable such individual to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
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(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.3. Form of Documents Delivered to Agent.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 1.4. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Agent and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the
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"Act" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and (subject to Section 7.1)
conclusive in favor of the Agent and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Agent deems
sufficient.
(c) The ownership of Securities shall be proved by the Income PRIDES
Register or the Growth PRIDES Register, as the case may be.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Certificate shall bind every future
Holder of the same Certificate and the Holder of every Certificate issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Agent or the
Company in reliance thereon, whether or not notation of such action is made
upon such Certificate.
(e) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or
take any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Agreement to be given, made or taken
by Holders of Securities. If any record date is set pursuant to this paragraph,
the Holders of the Outstanding Income PRIDES and the Outstanding Growth PRIDES,
as the case may be, on such record date, and no other Holders, shall be
entitled to take the relevant action with respect to the Income PRIDES or the
Growth PRIDES, as the case may be, whether or not such Holders remain Holders
after such record date; provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite number of Outstanding Securities on such record date. Nothing
in this paragraph shall be construed to prevent the Company from setting a new
record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite number of Outstanding Securities on
the date such action is taken. Promptly after any record date is set pursuant
to this paragraph, the Company, at its own expense, shall cause notice of such
record date, the proposed action by Holders and the applicable Expiration Date
to be given to the
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Agent in writing and to each Holder of Securities in the manner set forth in
Section 1.6.
With respect to any record date set pursuant to this Section, the
Company may designate any date as the "Expiration Date" and from time to time
may change the Expiration Date to any earlier or later day; provided that no
such change shall be effective unless notice of the proposed new Expiration
Date is given to the Agent in writing, and to each Holder of Securities in the
manner set forth in Section 1.6, on or prior to the existing Expiration Date.
If an Expiration Date is not designated with respect to any record date set
pursuant to this Section, the Company shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
Section 1.5. Notices.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Agreement to
be made upon, given or furnished to, or filed with,
(1) the Agent by any Holder or by the Company shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and
personally delivered or mailed, first-class postage prepaid, to the
Agent at The First National Bank of Chicago, One First National Plaza,
Suite 0126, Chicago, IL 60670-0126, Attention: Corporate Trust
Services Division, or at any other address previously furnished in
writing by the Agent to the Holders and the Company; or
(2) the Company by the Agent or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and
personally delivered or mailed, first-class postage prepaid, to the
Company at Cendant Corporation, 6 Sylvan Way, Parsippany, New Jersey
07054, Attention: Corporate Secretary, or at any other address
previously furnished in writing to the Agent by the Company; or
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(3) the Collateral Agent by the Agent, the Company or any
Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if made, given, furnished or
filed in writing and personally delivered or mailed, first-class
postage prepaid, addressed to the Collateral Agent at The Chase
Manhattan Bank, 450 West 33rd Street, 15th Floor, New York, NY 10001,
Attention: Corporate Trust Administration, or at any other address
previously furnished in writing by the Collateral Agent to the Agent,
the Company and the Holders; or
(4) the Institutional Trustee by the Company shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and
personally delivered or mailed, first-class postage prepaid, addressed
to the Institutional Trustee at Wilmington Trust Company [ ],
Attention: Corporate Trust Services Division, or at any other address
previously furnished in writing by the Institutional Trustee to the
Company; or
(5) the Indenture Trustee by the Company shall be sufficient
for every purpose hereunder (unless otherwise herein expressly
provided) if made, given, furnished or filed in writing and personally
delivered or mailed, first-class postage prepaid, addressed to the
Indenture Trustee at [ ] or at any other address previously furnished
in writing by the Indenture Trustee to the Company.
Section 1.6. Notice to Holders; Waiver.
Where this Agreement provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at its address as it appears in the applicable Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders. Where this Agreement provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Agent, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
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In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Agent
shall constitute a sufficient notification for every purpose hereunder.
Section 1.7. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.8. Successors and Assigns.
All covenants and agreements in this Agreement by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.9. Separability Clause.
In case any provision in this Agreement or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof and thereof shall not in any way be affected or
impaired thereby.
Section 1.10. Benefits of Agreement.
Nothing in this Agreement or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and, to the extent provided hereby, the Holders, any benefits or any
legal or equitable right, remedy or claim under this Agreement. The Holders
from time to time shall be beneficiaries of this Agreement and shall be bound
by all of the terms and conditions hereof and of the Securities evidenced by
their Certificates by their acceptance of delivery of such Certificates.
Section 1.11. Governing Law.
This Agreement and the Securities shall be governed by and construed
in accordance with the laws of the State of New York.
Section 1.12. Legal Holidays.
In any case where any Payment Date shall not be a Business Day, then
(notwithstanding any other provision of this Agreement or the Income PRIDES
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Certificates or the Growth PRIDES Certificates) payment of the Contract
Adjustment Payments, if any, shall not be made on such date, but such payments
shall be made on the next succeeding Business Day with the same force and
effect as if made on such Payment Date, provided that no interest shall accrue
or be payable by the Company or any Holder for the period from and after any
such Payment Date, except that, if such next succeeding Business Day is in the
next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day with the same force and effect as if made on such
Payment Date.
In any case where any Purchase Contract Settlement Date shall not be a
Business Day, then (notwithstanding any other provision of this Agreement, the
Income PRIDES Certificates or the Growth PRIDES Certificates), the Purchase
Contracts shall not be performed on such date, but the Purchase Contracts shall
be performed on the immediately following Business Day with the same force and
effect as if performed on the Purchase Contract Settlement Date.
Section 1.13. Counterparts.
This Agreement may be executed in any number of counterparts by the
parties hereto on separate counterparts, each of which, when so executed and
delivered, shall be deemed an original, but all such counterparts shall
together constitute one and the same instrument.
Section 1.14. Inspection of Agreement.
A copy of this Agreement shall be available at all reasonable times
during normal business hours at the Corporate Trust Office for inspection by
any Holder.
ARTICLE II
Certificate Forms
Section 2.1. Forms of Certificates Generally.
The Income PRIDES Certificates (including the form of Purchase
Contract forming part of the Income PRIDES evidenced thereby) shall be in
substantially the form set forth in Exhibit A hereto, with such letters,
numbers or other marks of identification or designation and such legends or
endorsements printed, lithographed
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or engraved thereon as may be required by the rules of any securities exchange
on which the Income PRIDES are listed or any depositary therefor, or as may,
consistently herewith, be determined by the officers of the Company executing
such Income PRIDES Certificates, as evidenced by their execution of the Income
PRIDES Certificates.
The definitive Income PRIDES Certificates shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing the
Income PRIDES evidenced by such Income PRIDES Certificates, consistent with the
provisions of this Agreement, as evidenced by their execution thereof.
The Growth PRIDES Certificates (including the form of Purchase
Contracts forming part of the Growth PRIDES evidenced thereby) shall be in
substantially the form set forth in Exhibit B hereto, with such letters,
numbers or other marks of identification or designation and such legends or
endorsements printed, lithographed or engraved thereon as may be required by
the rules of any securities exchange on which the Growth PRIDES may be listed
or any depositary therefor, or as may, consistently herewith, be determined by
the officers of the Company executing such Growth PRIDES Certificates, as
evidenced by their execution of the Growth PRIDES Certificates.
The definitive Growth PRIDES Certificates shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing the
Growth PRIDES evidenced by such Growth PRIDES Certificates, consistent with the
provisions of this Agreement, as evidenced by their execution thereof.
Every Global Certificate authenticated, executed on behalf of the
Holders and delivered hereunder shall bear a legend in substantially the
following form:
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED
IN THE NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS
CERTIFICATE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE
REGISTERED, AND NO TRANSFER OF THIS CERTIFICATE IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH CLEARING
AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED
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CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT
AGREEMENT.
Section 2.2. Form of Agent's Certificate of Authentication.
The form of the Agent's certificate of authentication of the Income
PRIDES shall be in substantially the form set forth on the form of the Income
PRIDES Certificates.
The form of the Agent's certificate of authentication of the Growth
PRIDES shall be in substantially the form set forth on the form of the Growth
PRIDES Certificates.
ARTICLE III
The Securities
Section 3.1. Title and Terms; Denominations.
The aggregate number of Income PRIDES evidenced by Certificates
authenticated, executed on behalf of the Holders and delivered hereunder is
limited to except for Certificates authenticated, executed and delivered upon
registration of transfer of, in exchange for, or in lieu of, other Certificates
pursuant to Section 3.4, 3.5, 3.10, 3.13, 3.14, 5.9 or 8.5.
The Certificates shall be issuable only in registered form and only in
denominations of a single Income PRIDES or Growth PRIDES and any integral
multiple thereof.
Section 3.2. Rights and Obligations Evidenced by the Certificates.
Each Income PRIDES Certificate shall evidence the number of Income
PRIDES specified therein, with each such Income PRIDES representing the
ownership by the Holder thereof of a beneficial interest in a Preferred
Security or the Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, subject to the Pledge of such Preferred Security or the Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, by such
Holder pursuant to the Pledge Agreement, and the rights and obligations of the
Holder thereof and the Company
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under one Purchase Contract. The Agent as attorney-in-fact for, and on behalf
of, the Holder of each Income PRIDES shall pledge, pursuant to the Pledge
Agreement, the Preferred Security or the Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, forming a part of such Income PRIDES,
to the Collateral Agent and grant to the Collateral Agent a security interest
in the right, title, and interest of such Holder in such Preferred Security or
the Applicable Ownership Interest of the Treasury Portfolio, as the case may
be, for the benefit of the Company, to secure the obligation of the Holder
under each Purchase Contract to purchase the Common Stock of the Company. Prior
to the purchase of shares of Common Stock under each Purchase Contract, such
Purchase Contracts shall not entitle the Holder of an Income PRIDES
Certificates to any of the rights of a holder of shares of Common Stock,
including, without limitation, the right to vote or receive any dividends or
other payments or to consent or to receive notice as stockholders in respect of
the meetings of stockholders or for the election of directors of the Company or
for any other matter, or any other rights whatsoever as stockholders of the
Company.
Each Growth PRIDES Certificate shall evidence the number of Growth
PRIDES specified therein, with each such Growth PRIDES representing the
ownership by the Holder thereof of a 1/20 undivided beneficial interest in a
Treasury Security with a principal amount equal to $1,000 subject to the Pledge
of such Treasury Security by such Holder pursuant to the Pledge Agreement, and
the rights and obligations of the Holder thereof and the Company under one
Purchase Contract. Prior to the purchase, if any, of shares of Common Stock
under the Purchase Contracts, such Growth PRIDES Certificates shall not entitle
the Holders of Growth PRIDES Certificates to any of the rights of a holder of
shares of Common Stock, including, without limitation, the right to vote or
receive any dividends or other payments or to consent or to receive notice as
stockholders in respect of the meetings of stockholders or for the election of
directors of the Company or for any other matter, or any other rights
whatsoever as stockholders of the Company.
Section 3.3. Execution, Authentication, Delivery and Dating.
Subject to the provisions of Sections 3.13 and 3.14 hereof, upon the
execution and delivery of this Agreement, and at any time and from time to time
thereafter, the Company may deliver Certificates executed by the Company to the
Agent for authentication, execution on behalf of the Holders and delivery,
together with its Issuer Order for authentication of such Certificates, and the
Agent in accordance with such Issuer Order shall authenticate, execute on
behalf of the Holders and deliver such Certificates.
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The Certificates shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or one of
its Vice Presidents or Treasurer. The signature of any of these officers on the
Certificates may be manual or facsimile.
Certificates bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did
not hold such offices at the date of such Certificates.
No Purchase Contract evidenced by a Certificate shall be valid until
such Certificate has been executed on behalf of the Holder by the manual
signature of an authorized signatory of the Agent, as such Holder's
attorney-in-fact. Such signature by an authorized signatory of the Agent shall
be conclusive evidence that the Holder of such Certificate has entered into the
Purchase Contracts evidenced by such Certificate.
Each Certificate shall be dated the date of its authentication.
No Certificate shall be entitled to any benefit under this Agreement
or be valid or obligatory for any purpose unless there appears on such
Certificate a certificate of authentication substantially in the form provided
for herein executed by an authorized signatory of the Agent by manual
signature, and such certificate upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder.
Section 3.4. Temporary Certificates.
Pending the preparation of definitive Certificates, the Company shall
execute and deliver to the Agent, and the Agent shall authenticate, execute on
behalf of the Holders, and deliver, in lieu of such definitive Certificates,
temporary Certificates which are in substantially the form set forth in Exhibit
A or Exhibit B hereto, as the case may be, with such letters, numbers or other
marks of identification or designation and such legends or endorsements
printed, lithographed or engraved thereon as may be required by the rules of
any securities exchange on which the Income PRIDES or Growth PRIDES are listed,
or as may, consistently herewith, be determined by the officers of the Company
executing such Certificates, as evidenced by their execution of the
Certificates.
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If temporary Certificates are issued, the Company will cause
definitive Certificates to be prepared without unreasonable delay. After the
preparation of definitive Certificates, the temporary Certificates shall be
exchangeable for definitive Certificates upon surrender of the temporary
Certificates at the Corporate Trust Office, at the expense of the Company and
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Certificates, the Company shall execute and deliver to the
Agent, and the Agent shall authenticate, execute on behalf of the Holder, and
deliver in exchange therefor, one or more definitive Certificates of like tenor
and denominations and evidencing a like number of Income PRIDES or Growth
PRIDES, as the case may be, as the temporary Certificate or Certificates so
surrendered. Until so exchanged, the temporary Certificates shall in all
respects evidence the same benefits and the same obligations with respect to
the Income PRIDES or Growth PRIDES, as the case may be, evidenced thereby as
definitive Certificates.
Section 3.5. Registration; Registration of Transfer and Exchange.
The Agent shall keep at the Corporate Trust Office a register (the
"Income PRIDES Register") in which, subject to such reasonable regulations as
it may prescribe, the Agent shall provide for the registration of Income PRIDES
Certificates and of transfers of Income PRIDES Certificates (the Agent, in such
capacity, the "Income PRIDES Registrar") and a Register (the "Growth PRIDES
Register") in which, subject to such reasonable regulations as it may
prescribe, the Agent shall provide for the registration of the Growth PRIDES
Certificates and transfers of Growth PRIDES Certificates (the Agent, in such
capacity, the "Growth PRIDES Registrar").
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Company shall execute and deliver to the Agent, and
the Agent shall authenticate, execute on behalf of the designated transferee or
transferees, and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of any authorized denominations, like
tenor, and evidencing a like number of Income PRIDES or Growth PRIDES, as the
case may be.
At the option of the Holder, Certificates may be exchanged for other
Certificates, of any authorized denominations and evidencing a like number of
Income PRIDES or Growth PRIDES, as the case may be, upon surrender of the
Certificates to be exchanged at the Corporate Trust Office. Whenever any
Certificates are so surrendered for exchange, the Company shall execute and
deliver
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to the Agent, and the Agent shall authenticate, execute on behalf of the
Holder, and deliver the Certificates which the Holder making the exchange is
entitled to receive.
All Certificates issued upon any registration of transfer or exchange
of a Certificate shall evidence the ownership of the same number of Income
PRIDES or Growth PRIDES, as the case may be, and be entitled to the same
benefits and subject to the same obligations, under this Agreement as the
Income PRIDES or Growth PRIDES, as the case may be, evidenced by the
Certificate surrendered upon such registration of transfer or exchange.
Every Certificate presented or surrendered for registration of
transfer or for exchange shall (if so required by the Agent) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Agent duly executed, by the Holder thereof or its attorney
duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of a Certificate, but the Company and the Agent may require payment
from the Holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates, other than any exchanges pursuant to Sections 3.6 and
8.5 not involving any transfer.
Notwithstanding the foregoing, the Company shall not be obligated to
execute and deliver to the Agent, and the Agent shall not be obligated to
authenticate, execute on behalf of the Holder and deliver any Certificate
presented or surrendered for registration of transfer or for exchange on or
after the Business Day immediately preceding the earlier of the Purchase
Contract Settlement Date or the Termination Date. In lieu of delivery of a new
Certificate, upon satisfaction of the applicable conditions specified above in
this Section and receipt of appropriate registration or transfer instructions
from such Holder, the Agent shall (i) if the Purchase Contract Settlement Date
has occurred, deliver the shares of Common Stock issuable in respect of the
Purchase Contracts forming a part of the Securities evidenced by such
Certificate, (ii) in the case of Income PRIDES, if a Termination Event shall
have occurred prior to the Purchase Contract Settlement Date, transfer the
aggregate Stated Amount of the Preferred Securities or the Treasury Portfolio,
as applicable, evidenced thereby, or (iii) in the case of Growth PRIDES, if a
Termination Event shall have occurred prior to the Purchase Contract Settlement
Date, transfer the Treasury Securities evidenced thereby, in each case subject
to the applicable conditions and in accordance with the applicable provisions
of Article Five hereof.
Section 3.6. Book-Entry Interests.
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The Certificates, on original issuance, will be issued in the form of
one or more, fully registered Global Certificates, to be delivered to the
Depositary by, or on behalf of, the Company. Such Global Certificate shall
initially be registered on the books and records of the Company in the name of
Cede & Co., the nominee of the Depositary, and no Beneficial Owner will receive
a definitive Certificate representing such Beneficial Owner's interest in such
Global Certificate, except as provided in Section 3.9. The Agent shall enter
into an agreement with the Depositary if so requested by the Company. Unless
and until definitive, fully registered Certificates have been issued to
Beneficial Owners pursuant to Section 3.9:
(a) the provisions of this Section 3.6 shall be in full force
and effect;
(b) the Company shall be entitled to deal with the Clearing
Agency for all purposes of this Agreement (including the payment of Contract
Adjustment Payments, if any, and receiving approvals, votes or consents
hereunder) as the Holder of the Securities and the sole holder of the Global
Certificate(s) and shall have no obligation to the Beneficial Owners;
(c) to the extent that the provisions of this Section 3.6
conflict with any other provisions of this Agreement, the provisions of this
Section 3.6 shall control; and
(d) the rights of the Beneficial Owners shall be exercised
only through the Clearing Agency and shall be limited to those established by
law and agreements between such Beneficial Owners and the Clearing Agency
and/or the Clearing Agency Participants. The Clearing Agency will make book
entry transfers among Clearing Agency Participants and receive and transmit
payments of Contract Adjustment Payments to such Clearing Agency Participants.
Section 3.7. Notices to Holders.
Whenever a notice or other communication to the Holders is required to
be given under this Agreement, the Company or the Company's agent shall give
such notices and communications to the Holders and, with respect to any
Securities registered in the name of a Clearing Agency or the nominee of a
Clearing Agency, the Company or the Company's agent shall, except as set forth
herein, have no obligations to the Beneficial Owners.
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Section 3.8. Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Securities, the Company may, in its
sole discretion, appoint a successor Clearing Agency with respect to the
Securities.
Section 3.9. Definitive Certificates.
If (i) a Clearing Agency elects to discontinue its services as
securities depositary with respect to the Securities and a successor Clearing
Agency is not appointed within 90 days after such discontinuance pursuant to
Section 3.8, (ii) the Company elects to terminate the book-entry system through
the Clearing Agency with respect to the Securities, or (iii) there shall have
occurred and be continuing a default by the Company in respect of its
obligations under one or more Purchase Contracts, then upon surrender of the
Global Certificates representing the Book-Entry Interests with respect to the
Securities by the Clearing Agency, accompanied by registration instructions,
the Company shall cause definitive Certificates to be delivered to Beneficial
Owners in accordance with the instructions of the Clearing Agency. The Company
shall not be liable for any delay in delivery of such instructions and may
conclusively rely on and shall be protected in relying on, such instructions.
Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates.
If any mutilated Certificate is surrendered to the Agent, the Company
shall execute and deliver to the Agent, and the Agent shall authenticate,
execute on behalf of the Holder, and deliver in exchange therefor, a new
Certificate at the cost of the Holder, evidencing the same number of Income
PRIDES or Growth PRIDES, as the case may be, and bearing a Certificate number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Agent (i) evidence
to their satisfaction of the destruction, loss or theft of any Certificate, and
(ii) such security or indemnity at the cost of the Holder as may be required by
them to hold each of them and any agent of any of them harmless, then, in the
absence of notice to the Company or the Agent that such Certificate has been
acquired by a bona fide purchaser, the Company shall execute and deliver to the
Agent, and the Agent shall authenticate, execute on behalf of the Holder, and
deliver to the Holder, in lieu of any such destroyed, lost or stolen
Certificate, a new Certificate, evidencing the same number of Income PRIDES or
Growth PRIDES, as the case may be, and bearing a Certificate number not
contemporaneously outstanding.
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Notwithstanding the foregoing, the Company shall not be obligated to
execute and deliver to the Agent, and the Agent shall not be obligated to
authenticate, execute on behalf of the Holder, and deliver to the Holder, a
Certificate on or after the Business Day immediately preceding the earlier of
the Purchase Contract Settlement Date or the Termination Date. In lieu of
delivery of a new Certificate, upon satisfaction of the applicable conditions
specified above in this Section and receipt of appropriate registration or
transfer instructions from such Holder, the Agent shall (i) if the Purchase
Contract Settlement Date has occurred, deliver the shares of Common Stock
issuable in respect of the Purchase Contracts forming a part of the Securities
evidenced by such Certificate, or (ii) if a Termination Event shall have
occurred prior to the Purchase Contract Settlement Date, transfer the Preferred
Securities, the appropriate Applicable Ownership Interest of the Treasury
Portfolio or the Treasury Securities, as the case may be, evidenced thereby, in
each case subject to the applicable conditions and in accordance with the
applicable provisions of Article Five hereof.
Upon the issuance of any new Certificate under this Section, the
Company and the Agent may require the payment by the Holder of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Agent)
connected therewith.
Every new Certificate issued pursuant to this Section in lieu of any
destroyed, lost or stolen Certificate shall constitute an original additional
contractual obligation of the Company and of the Holder in respect of the
Security evidenced thereby, whether or not the destroyed, lost or stolen
Certificate (and the Securities evidenced thereby) shall be at any time
enforceable by anyone, and shall be entitled to all the benefits and be subject
to all the obligations of this Agreement equally and proportionately with any
and all other Certificates delivered hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Certificates.
Section 3.11. Persons Deemed Owners.
Prior to due presentment of a Certificate for registration of
transfer, the Company and the Agent, and any agent of the Company or the Agent,
may treat the Person in whose name such Certificate is registered as the owner
of the Income PRIDES or Growth PRIDES evidenced thereby, for the purpose of
receiving distributions on the Preferred Securities or on the maturing
quarterly interest strips of
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the Treasury Portfolio, as applicable, receiving payments of Contract
Adjustment Payments, performance of the Purchase Contracts and for all other
purposes whatsoever, whether or not any distributions on the Preferred
Securities or the Contract Adjustment Payments payable in respect of the
Purchase Contracts constituting a part of the Income PRIDES or Growth PRIDES
evidenced thereby shall be overdue and notwithstanding any notice to the
contrary, and neither the Company nor the Agent, nor any agent of the Company
or the Agent, shall be affected by notice to the contrary.
Notwithstanding the foregoing, with respect to any Global Certificate,
nothing herein shall prevent the Company, the Agent or any agent of the Company
or the Agent, from giving effect to any written certification, proxy or other
authorization furnished by any Clearing Agency (or its nominee), as a Holder,
with respect to such Global Certificate or impair, as between such Clearing
Agency and owners of beneficial interests in such Global Certificate, the
operation of customary practices governing the exercise of rights of such
Clearing Agency (or its nominee) as Holder of such Global Certificate.
Section 3.12. Cancellation.
All Certificates surrendered for delivery of shares of Common Stock on
or after the Purchase Contract Settlement Date, upon the transfer of Preferred
Securities, the appropriate Applicable Ownership Interest of the Treasury
Portfolio or Treasury Securities, as the case may be, after the occurrence of a
Termination Event or pursuant to an Early Settlement, or upon the registration
of a transfer or exchange of a Security, or a Collateral Substitution or the
re-establishment of an Income PRIDES shall, if surrendered to any Person other
than the Agent, be delivered to the Agent and, if not already cancelled, shall
be promptly cancelled by it. The Company may at any time deliver to the Agent
for cancellation any Certificates previously authenticated, executed and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Certificates so delivered shall, upon Issuer Order, be
promptly cancelled by the Agent. No Certificates shall be authenticated,
executed on behalf of the Holder and delivered in lieu of or in exchange for
any Certificates cancelled as provided in this Section, except as expressly
permitted by this Agreement. All cancelled Certificates held by the Agent shall
be destroyed by the Agent unless otherwise directed by Issuer Order.
If the Company or any Affiliate of the Company shall acquire any
Certificate, such acquisition shall not operate as a cancellation of such
Certificate unless and until such Certificate is delivered to the Agent
cancelled or for cancellation.
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Section 3.13. Establishment or Reestablishment of Growth PRIDES
A Holder may separate the Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as applicable, from
the related Purchase Contracts in respect of an Income PRIDES by substituting
for such Preferred Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, Treasury Securities in an
aggregate principal amount equal to the aggregate Stated Amount of such
Preferred Securities or for the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as applicable (a "Collateral Substitution"), at any time from and
after the date of this Agreement and on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date in the case of the
Preferred Securities and on or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date in the case of the appropriate
Applicable Ownership Interest of the Treasury Portfolio, in each case by (a)
depositing with the Collateral Agent Treasury Securities having an aggregate
principal amount equal to the aggregate Stated Amount of the Preferred
Securities comprising part of such Income PRIDES or for the appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio comprising part of such Income PRIDES, as
the case may be, and (b) (i) in the event that Contract Adjustment Payments are
at a higher rate for Income PRIDES than for Growth PRIDES, by delivering cash
in an amount equal to the excess of the Contract Adjustment Payments that would
have accrued since the last Payment Date through the date of substitution on
the Growth PRIDES being created by the holder, over the Contract Adjustment
Payments that have accrued over the same time period on the related Income
PRIDES, which amount the Agent shall promptly remit to the Company, and (ii)
transferring the related Income PRIDES to the Agent accompanied by a notice to
the Agent, substantially in the form of Exhibit D hereto, stating that the
Holder has transferred the relevant amount of Treasury Securities to the
Collateral Agent and requesting that the Agent instruct the Collateral Agent to
release the Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, underlying such Income
PRIDES, whereupon the Agent shall promptly give such instruction to the
Collateral Agent, substantially in the form of Exhibit C hereto. Upon receipt
of the Treasury Securities described in clause (a) above and the instruction
described in clause (b) above, in accordance with the terms of the Pledge
Agreement, the Collateral Agent will release to the Agent, on behalf of the
Holder, Preferred Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, having a corresponding aggregate
Stated Amount of such Preferred Securities or the appropriate Applicable
Ownership Interest (as specified in
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clause (A) of the definition of such term) of the Treasury Portfolio, as the
case may be, from the Pledge, free and clear of the Company's security interest
therein, and upon receipt thereof the Agent shall promptly:
(i) cancel the related Income PRIDES;
(ii) transfer the Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, to the Holder; and
(iii) authenticate, execute on behalf of such Holder and
deliver a Growth PRIDES Certificate executed by the Company in
accordance with Section 3.3 evidencing the same number of Purchase
Contracts as were evidenced by the cancelled Income PRIDES.
Holders who elect to separate the Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, from the related Purchase Contract and to substitute Treasury
Securities for such Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, shall be
responsible for any fees or expenses payable to the Collateral Agent for its
services as Collateral Agent in respect of the substitution, and the Company
shall not be responsible for any such fees or expenses.
Holders may make Collateral Substitutions (i) only in integral
multiples of 20 Income PRIDES if Preferred Securities are being substituted by
Treasury Securities, or (ii) only in integral multiples of 32,000 Income PRIDES
if the appropriate Applicable Ownership Interests of the Treasury Portfolio are
being substituted by Treasury Securities.
In the event a Holder making a Collateral Substitution pursuant to
this Section 3.13 fails to effect a book-entry transfer of the Income PRIDES or
fails to deliver an Income PRIDES Certificate(s) to the Agent after depositing
Treasury Securities with the Collateral Agent, the Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, constituting a part of such Income PRIDES, and any distributions
on such Preferred Security or the Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, shall be held in the name of the Agent or its
nominee in trust for the benefit of such Holder, until such Income PRIDES is so
transferred or the Income PRIDES Certificate is so delivered, as the case may
be, or, with respect to an Income PRIDES Certificate, such Holder provides
evidence satisfactory to the Company and the
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Agent that such Income PRIDES Certificate has been destroyed, lost or stolen,
together with any indemnity that may be required by the Agent and the Company.
Except as described in this Section 3.13, for so long as the Purchase
Contract underlying an Income PRIDES remains in effect, such Income PRIDES
shall not be separable into its constituent parts, and the rights and
obligations of the Holder in respect of the Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, and Purchase Contract comprising such Income PRIDES may be
acquired, and may be transferred and exchanged, only as an Income PRIDES.
Section 3.14. Establishment or Reestablishment of Income PRIDES.
A Holder of a Growth PRIDES may create or recreate Income PRIDES at
any time (i) on or prior to the fifth Business Day immediately preceding the
Purchase Contract Settlement Date, if a Tax Event Redemption has not occurred,
and (ii) on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date, if a Tax Event Redemption has occurred, in
each case by (a) depositing with the Collateral Agent Preferred Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, having an aggregate Stated Amount in the case of the Preferred
Securities, or an appropriate Applicable Ownership Interest (as defined in
clause (A) of the definition of such term) of the Treasury Portfolio, as the
case may be, equal to the aggregate principal amount of the Treasury Securities
comprising part of the Growth PRIDES and (b) (i) in the event that Contract
Adjustment Payments are at a higher rate for Income PRIDES than for Growth
PRIDES, by delivering to the Agent cash in an amount equal to the excess of the
Contract Adjustment Payments that would have accrued since the last payment
date through the date of substitution on the Income PRIDES being created or
recreated by such holders, over the Contract Adjustment Payments that have
accrued over the same time period on the related Growth PRIDES transferring the
related Growth PRIDES to the Agent accompanied by a notice to the Agent,
substantially in the form of Exhibit D hereto, stating that the Holder has
transferred the relevant amount of Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, to
the Collateral Agent and requesting that the Agent instruct the Collateral
Agent to release the Treasury Securities underlying such Growth PRIDES,
whereupon the Agent shall promptly give such instruction to the Collateral
Agent, substantially in the form of Exhibit C hereto. Upon receipt of the
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, described in clause (a) above and the
instruction described in clause (b) above, in
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accordance with the terms of the Pledge Agreement, the Collateral Agent will
effect the release of the Treasury Securities having a corresponding aggregate
principal amount from the Pledge to the Agent free and clear of the Company's
security interest therein, and upon receipt thereof the Agent shall promptly:
(i) cancel the related Growth PRIDES;
(ii) transfer the Treasury Securities to the Holder; and
(iii) authenticate, execute on behalf of such Holder and
deliver an Income PRIDES Certificate executed by the Company in
accordance with Section 3.3 evidencing the same number of Purchase
Contracts as were evidenced by the cancelled Growth PRIDES.
Holders of Growth PRIDES may establish or reestablish Income PRIDES in
integral multiples of 20 Growth PRIDES for 20 Income PRIDES if a Tax Event
Redemption has not occurred, and in integral multiples of 32,000 Growth PRIDES
for 32,000 Income PRIDES if a Tax Event Redemption has occurred.
Except as provided in this Section 3.14, for so long as the Purchase
Contract underlying a Growth PRIDES remains in effect, such Growth PRIDES shall
not be separable into its constituent parts and the rights and obligations of
the Holder of such Growth PRIDES in respect of the Treasury Security and
Purchase Contract comprising such Growth PRIDES may be acquired, and may be
transferred and exchanged only as a Growth PRIDES.
Section 3.15. Transfer of Collateral upon Occurrence of Termination Event.
Upon the occurrence of a Termination Event and the transfer to the
Agent of the Preferred Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or the Treasury Securities, as the case may
be, underlying the Income PRIDES and the Growth PRIDES pursuant to the terms of
the Pledge Agreement, the Agent shall request transfer instructions with
respect to such Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio or Treasury Securities, as the case may be,
from each Holder by written request mailed to such Holder at its address as it
appears in the Income PRIDES Register or the Growth PRIDES Register, as the
case may be. Upon book-entry transfer of the Income PRIDES or Growth PRIDES or
delivery of an Income PRIDES Certificate or Growth PRIDES Certificate to the
Agent with such transfer instructions, the Agent shall transfer the Preferred
Securities, the Treasury Portfolio
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or Treasury Securities, as the case may be, underlying such Income PRIDES or
Growth PRIDES, as the case may be, to such Holder by book-entry transfer, or
other appropriate procedures, in accordance with such instructions. In the
event a Holder of Income PRIDES or Growth PRIDES fails to effect such transfer
or delivery, the Preferred Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or Treasury Securities, as the case may be,
underlying such Income PRIDES or Growth PRIDES, as the case may be, and any
distributions thereon, shall be held in the name of the Agent or its nominee in
trust for the benefit of such Holder, until such Income PRIDES or Growth PRIDES
are transferred or the Income PRIDES Certificate or Growth PRIDES Certificate
is surrendered or such Holder provides satisfactory evidence that such Income
PRIDES Certificate or Growth PRIDES Certificate has been destroyed, lost or
stolen, together with any indemnity that may be required by the Agent and the
Company.
Section 3.16. No Consent to Assumption.
Each Holder of a Security, by acceptance thereof, shall be deemed
expressly to have withheld any consent to the assumption under Section 365 of
the Bankruptcy Code or otherwise, of the Purchase Contract by the Company,
receiver, liquidator or a person or entity performing similar functions, its
trustee in the event that the Company becomes the debtor under the Bankruptcy
Code or subject to other similar state or federal law providing for
reorganization or liquidation.
ARTICLE IV
The Preferred Securities
Section 4.1. Payment of Distribution; Rights to Distributions Preserved;
Distribution Rate Reset; Notice.
A distribution on any Preferred Security or on the appropriate
Applicable Ownership Interest in the Treasury Portfolio, as the case may be,
which is paid on any Payment Date shall, subject to receipt thereof by the
Agent from the Collateral Agent as provided by the terms of the Pledge
Agreement, be paid to the Person in whose name the Income PRIDES Certificate
(or one or more Predecessor Income PRIDES Certificates) of which such Preferred
Security or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, is a part is registered at the close of business
on the Record Date for such Payment Date.
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Each Income PRIDES Certificate evidencing Preferred Securities
delivered under this Agreement upon registration of transfer of or in exchange
for or in lieu of any other Income PRIDES Certificate shall carry the rights to
distributions accrued and unpaid, and to accrue distributions, which were
carried by the Preferred Securities underlying such other Income PRIDES
Certificate.
In the case of any Income PRIDES with respect to which Cash Settlement
of the underlying Purchase Contract is effected on the Business Day immediately
preceding the Purchase Contract Settlement Date pursuant to prior notice, or
with respect to which Early Settlement of the underlying Purchase Contract is
effected on a Early Settlement Date, or with respect to which a Collateral
Substitution is effected, in each case on a date that is after any Record Date
and on or prior to the next succeeding Payment Date, distributions on the
Preferred Securities or on the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, underlying such Income PRIDES otherwise
payable on such Payment Date shall be payable on such Payment Date
notwithstanding such Cash Settlement or Early Settlement or Collateral
Substitution, and such distributions shall, subject to receipt thereof by the
Agent, be payable to the Person in whose name the Income PRIDES Certificate (or
one or more Predecessor Income PRIDES Certificates) was registered at the close
of business on the Record Date. Except as otherwise expressly provided in the
immediately preceding sentence, in the case of any Income PRIDES with respect
to which Cash Settlement or Early Settlement of the underlying Purchase
Contract is effected on the Business Day immediately preceding the Purchase
Contract Settlement Date or an Early Settlement Date, as the case may be, or
with respect to which a Collateral Substitution has been effected,
distributions on the related Preferred Securities or on the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
that would otherwise be payable after the Purchase Contract Settlement Date or
Early Settlement Date shall not be payable hereunder to the Holder of such
Income PRIDES; provided, however, that to the extent that such Holder continues
to hold the separated Preferred Securities that formerly comprised a part of
such Holder's Income PRIDES, such Holder shall be entitled to receive the
distributions on such separated Preferred Securities.
The applicable Coupon Rate on the Preferred Securities on and after
the Purchase Contract Settlement Date will be reset on the third Business Day
immediately preceding the Purchase Contract Settlement Date to the Reset Rate
(such Reset Rate to be in effect on and after the purchase Contract Settlement
Date). On the Reset Announcement Date the Reset Spread and the Two-Year
Benchmark Treasury to be used to determine the Reset Rate will be announced by
the Company. On the Business Day immediately following the Reset Announcement
Date, the
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Preferred Securities Holders will be notified of such Reset Spread and Two-Year
Benchmark Treasury by the Company. Such notice shall be sufficiently given to
Holders of Preferred Securities if published in an Authorized Newspaper in The
City of New York.
Not later than 7 calendar days nor more than 15 calendar days prior to
the Reset Announcement Date, the Company will notify the DTC or its nominee (or
any successor Clearing Agency or its nominee) by first-class mail, postage
prepaid, to notify the Beneficial Owners or Clearing Agency Participants
holding Income PRIDES or Growth PRIDES, of such Reset Announcement Date and the
procedures to be followed by such Holders of Income PRIDES who intend to settle
their obligation under the Purchase Contract with separate cash on the Purchase
Contract Settlement Date.
Section 4.2. Notice and Voting.
Under the terms of the Pledge Agreement, the Agent will be entitled to
exercise the voting and any other consensual rights pertaining to the Preferred
Securities pledged with the Collateral Agent but only to the extent instructed
by the Holders as described below. Upon receipt of notice of any meeting at
which holders of Preferred Securities are entitled to vote or upon any
solicitation of consents, waivers or proxies of holders of Preferred
Securities, the Agent shall, as soon as practicable thereafter, mail to the
Holders of Income PRIDES a notice (a) containing such information as is
contained in the notice or solicitation, (b) stating that each Holder on the
record date set by the Agent therefor (which, to the extent possible, shall be
the same date as the record date for determining the holders of Preferred
Securities entitled to vote) shall be entitled to instruct the Agent as to the
exercise of the voting rights pertaining to the Preferred Securities underlying
their Income PRIDES and (c) stating the manner in which such instructions may
be given. Upon the written request of the Holders of Income PRIDES on such
record date, the Agent shall endeavor insofar as practicable to vote or cause
to be voted, in accordance with the instructions set forth in such requests,
the maximum number of Preferred Securities as to which any particular voting
instructions are received. In the absence of specific instructions from the
Holder of an Income PRIDES, the Agent shall abstain from voting the Preferred
Security underlying such Income PRIDES. The Company hereby agrees, if
applicable, to solicit Holders of Income PRIDES to timely instruct the Agent in
order to enable the Agent to vote such Preferred Securities and the Trust shall
covenant to such effect in the Declaration.
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Section 4.3. Distribution of Debentures; Tax Event Redemption
Upon the occurrence of an Investment Company Event or a liquidation of
the Trust in accordance with the Declaration, a principal amount of Debentures
constituting the assets of the Trust and underlying the Preferred Securities
equal to the aggregate Stated Amount of the Pledged Preferred Securities shall
be delivered to the Collateral Agent in exchange for the Pledged Preferred
Securities. Thereafter, the Debentures will be substituted for the Pledged
Preferred Securities, and will be held by the Collateral Agent in accordance
with the terms of the Pledge Agreement to secure the obligations of each Holder
of an Income PRIDES to purchase the Common Stock of the Company under the
Purchase Contracts constituting a part of such Income PRIDES. Following the
occurrence of an Investment Company Event or a liquidation of the Trust, the
Holders and the Collateral Agent shall have such security interests, rights and
obligations with respect to the Debentures as the Holders and the Collateral
Agent had in respect of the Preferred Securities subject to the Pledge thereof
as provided in Articles II, III, IV, V and VI of the Pledge Agreement, and any
reference herein to the Preferred Securities shall be deemed to be a reference
to such Debentures. The Company may cause to be made in any Income PRIDES
Certificates thereafter to be issued such change in phraseology and form (but
not in substance) as may be appropriate to reflect the liquidation of the Trust
and the substitution of Debentures for Preferred Securities as Collateral.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principle Amount of Debentures
shall be delivered to the Collateral Agent in exchange for the Pledged
Preferred Securities. Thereafter, pursuant to the terms of the Pledge
Agreement, the Collateral Agent will apply an amount equal to the Redemption
Amount of such Redemption Price to purchase on behalf of the Holders of Income
PRIDES the Treasury Portfolio and promptly remit the remaining portion of such
Redemption Price to the Agent for payment to the Holders of such Income PRIDES.
The Treasury Portfolio will be substituted for the Pledged Preferred
Securities, and will be held by the Collateral Agent in accordance with the
terms of the Pledge Agreement to secure the obligation of each Holder of an
Income PRIDES to purchase the Common Stock of the Company under the Purchase
Contract constituting a part of such Income PRIDES. Following the occurrence of
a Tax Event Redemption prior to the Purchase Contract Settlement Date, the
Holders of Income PRIDES and the Collateral Agent shall have such security
interests, rights and obligations with respect to the Treasury Portfolio as the
Holder of Income PRIDES and the Collateral Agent had in respect of the
Preferred Security or Debentures, as the case may be, subject to the Pledge
thereof as
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provided in Articles II, III, IV, V, and VI of the Pledge Agreement, and any
reference herein to the Preferred Security or the Debenture shall be deemed to
be reference to such Treasury Portfolio. The Company may cause to be made in
any Income PRIDES Certificates thereafter to be issued such change in
phraseology and form (but not in substance) as may be appropriate to reflect
the liquidation of the Trust and the substitution of the Treasury Portfolio for
Preferred Securities or Debentures as collateral.
ARTICLE V
The Purchase Contracts
Section 5.1. Purchase of Shares of Common Stock.
Each Purchase Contract shall, unless an Early Settlement has occurred
in accordance with Section 5.9 hereof, obligate the Holder of the related
Security to purchase, and the Company to sell, on the Purchase Contract
Settlement Date at a price equal to the Stated Amount (the "Purchase Price"), a
number of newly issued shares of Common Stock equal to the Settlement Rate
unless, on or prior to the Purchase Contract Settlement Date, there shall have
occurred a Termination Event with respect to the Security of which such
Purchase Contract is a part. The "Settlement Rate" is equal to (a) if the
Applicable Market Value (as defined below) is equal to or greater than $_____
(the "Threshold Appreciation Price"), _____ shares of Common Stock per Purchase
Contract, (b) if the Applicable Market Value is less than the Threshold
Appreciation Price, but is greater than $_____, the number of shares of Common
Stock equal to the Stated Amount divided by the Applicable Market Value and (c)
if the Applicable Market Value is less than or equal to $_____, _____ shares of
Common Stock per Purchase Contract, in each case subject to adjustment as
provided in Section 5.6 (and in each case rounded upward or downward to the
nearest 1/10,000th of a share). As provided in Section 5.10, no fractional
shares of Common Stock will be issued upon settlement of Purchase Contracts.
The "Applicable Market Value" means the average of the Closing Price
per share of Common Stock on each of the 20 consecutive Trading Days ending on
the third Trading Day immediately preceding the Purchase Contract Settlement
Date. The "Closing Price" of the Common Stock on any date of determination
means the closing sale price (or, if no closing price is reported, the last
reported sale price) of
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the Common Stock on the New York Stock Exchange (the "NYSE") on such date or,
if the Common Stock is not listed for trading on the NYSE on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional securities
exchange, as reported by The Nasdaq Stock Market, or, if the Common Stock is
not so reported, the last quoted bid price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or, if such bid price is not available, the market value of the
Common Stock on such date as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Company. A "Trading
Day" means a day on which the Common Stock (A) is not suspended from trading on
any national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the
national or regional securities exchange or association or over-the-counter
market that is the primary market for the trading of the Common Stock.
Each Holder of an Income PRIDES or a Growth PRIDES, by its acceptance
thereof, irrevocably authorizes the Agent to enter into and perform the related
Purchase Contract on its behalf as its attorney-in-fact (including the
execution of Certificates on behalf of such Holder), agrees to be bound by the
terms and provisions thereof, covenants and agrees to perform its obligations
under such Purchase Contracts, and consents to the provisions hereof,
irrevocably authorizes the Agent as its attorney-in-fact to enter into and
perform the Pledge Agreement on its behalf as its attorney-in-fact, and
consents to and agrees to be bound by the Pledge of the Preferred Securities,
the Treasury Portfolio or the Treasury Securities pursuant to the Pledge
Agreement; provided that upon a Termination Event, the rights of the Holder of
such Security under the Purchase Contract may be enforced without regard to any
other rights or obligations. Each Holder of an Income PRIDES or a Growth
PRIDES, by its acceptance thereof, further covenants and agrees, that, to the
extent and in the manner provided in Section 5.4 and the Pledge Agreement, but
subject to the terms thereof, payments in respect of the Stated Amount of the
Preferred Securities or the Proceeds of the Treasury Securities or the Treasury
Portfolio on the Purchase Contract Settlement Date shall be paid by the
Collateral Agent to the Company in satisfaction of such Holder's obligations
under such Purchase Contract and such Holder shall acquire no right, title or
interest in such payments.
Upon registration of transfer of a Certificate, the transferee shall
be bound (without the necessity of any other action on the part of such
transferee), under the terms of this Agreement, the Purchase Contracts
underlying such Certificate and the
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Pledge Agreement and the transferor shall be released from the obligations
under this Agreement, the Purchase Contracts underlying the Certificates so
transferred and the Pledge Agreement. The Company covenants and agrees, and
each Holder of a Certificate, by its acceptance thereof, likewise covenants and
agrees, to be bound by the provisions of this paragraph.
Section 5.2. Contract Adjustment Payments.
Subject to Section 5.3 herein, the Company shall pay, on each Payment
Date, the Contract Adjustment Payments payable in respect of each Purchase
Contract to the Person in whose name a Certificate (or one or more Predecessor
Certificates) is registered at the close of business on the Record Date next
preceding such Payment Date. The Contract Adjustment Payments will be payable
at the office of the Agent in The City of New York maintained for that purpose
or, at the option of the Company, by check mailed to the address of the Person
entitled thereto at such Person's address as it appears on the Income PRIDES
Register or Growth PRIDES Register.
Upon the occurrence of a Termination Event, the Company's obligation
to pay Contract Adjustment Payments (including any accrued or Deferred Contract
Adjustment Payments) shall cease.
Each Certificate delivered under this Agreement upon registration of
transfer of or in exchange for or in lieu of (including as a result of a
Collateral Substitution or the re-establishment of an Income PRIDES) any other
Certificate shall carry the rights to Contract Adjustment Payments accrued and
unpaid, and to accrue Contract Adjustment Payments, which were carried by the
Purchase Contracts underlying such other Certificates.
Subject to Section 5.9, in the case of any Security with respect to
which Early Settlement of the underlying Purchase Contract is effected on an
Early Settlement Date that is after any Record Date and on or prior to the next
succeeding Payment Date, Contract Adjustment Payments, if any, otherwise
payable on such Payment Date shall be payable on such Payment Date
notwithstanding such Early Settlement, and such Contract Adjustment Payments
shall be paid to the Person in whose name the Certificate evidencing such
Security (or one or more Predecessor Certificates) is registered at the close
of business on such Record Date. Except as otherwise expressly provided in the
immediately preceding sentence, in the case of any Security with respect to
which Early Settlement of the underlying Purchase Contract is effected on an
Early Settlement Date, Contract Adjustment Payments that would
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otherwise be payable after the Early Settlement Date with respect to such
Purchase Contract shall not be payable.
The Company's obligations with respect to Contract Adjustment
Payments, will be subordinated and junior in right of payment to the Company's
obligations under any Senior Indebtedness.
Section 5.3. Deferral of Payment Dates For Contract Adjustment Payments.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments otherwise payable on any Payment Date, but only if the
Company shall give the Holders and the Agent written notice of its election to
defer such payment (specifying the amount to be deferred) at least ten Business
Days prior to the earlier of (i) the next succeeding Payment Date or (ii) the
date the Company is required to give notice of the Record Date or Payment Date
with respect to payment of such Contract Adjustment Payments to the New York
Stock Exchange or other applicable self-regulatory organization or to Holders
of the Securities, but in any event not less than one Business Day prior to
such Record Date. Any Contract Adjustment Payments so deferred shall bear
additional Contract Adjustment Payments thereon at the rate of ____% per annum
(computed on the basis of 360 day year of twelve 30 day months), compounding on
each succeeding Payment Date, until paid in full (such deferred installments of
Contract Adjustment Payments together with the additional Contract Adjustment
Payments accrued thereon, being referred to herein as the "Deferred Contract
Adjustment Payments"). Deferred Contract Adjustment Payments shall be due on
the next succeeding Payment Date except to the extent that payment is deferred
pursuant to this Section. No Contract Adjustment Payments may be deferred to a
date that is after the Purchase Contract Settlement Date. If the Purchase
Contracts are terminated upon the occurrence of a Termination Event, the
Holder's right to receive Contract Adjustment Payments and Deferred Contract
Adjustment Payments will terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each Holder will receive on the Purchase Contract Settlement
Date in lieu of a cash payment a number of shares of Common Stock (in addition
to a number of shares of Common Stock equal to the Settlement Rate) equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to
such Holder divided by (y) the Applicable Market Value.
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In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or
acquisitions of shares of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security outstanding on the date of such event requiring the
Company to purchase capital stock of the Company, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion
of one class or series of the Company's capital stock for another class or
series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan and the
declaration thereunder of a dividend of rights in the future).
No fractional shares of Common Stock will be issued by the Company
with respect to the payment of Deferred Contract Adjustment Payments on the
Purchase Contract Settlement Date. In lieu of fractional shares otherwise
issuable with respect to such payment of Deferred Contract Adjustment Payments,
the Holder will be entitled to receive an amount in cash as provided in Section
5.10.
Section 5.4. Payment of Purchase Price.
(a) (i) Unless a Tax Event Redemption has occurred or a Holder settles
the underlying Purchase Contract through the early delivery of cash to the
Purchase Contract Agent in the manner described in Section 5.9, each Holder of
an Income PRIDES must notify the Agent by use of a notice in substantially the
form of Exhibit E hereto of its intention to pay in cash ("Cash Settlement")
the Purchase Price for the shares of Common Stock to be purchased pursuant to a
Purchase Contract. Such notice shall be made on or prior to 5:00 p.m., New York
City time, on the fifth Business Day immediately preceding the Purchase
Contract Settlement Date. The Agent shall promptly notify the Collateral Agent
of the receipt of such a notice from a Holder intending to make a Cash
Settlement.
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(ii) A Holder of an Income PRIDES who has so notified the
Agent of its intention to make a Cash Settlement is required to pay
the Purchase Price to the Collateral Agent prior to 11:00 a.m., New
York City time, on the Business Day immediately preceding the Purchase
Contract Settlement Date in lawful money of the United States by
certified or cashiers' check or wire transfer, in each case in
immediately available funds payable to or upon the order of the
Company. Any cash received by the Collateral Agent will be invested
promptly by the Collateral Agent in Permitted Investments and paid to
the Company on the Purchase Contract Settlement Date in settlement of
the Purchase Contract in accordance with the terms of this Agreement
and the Pledge Agreement. Any funds received by the Collateral Agent
in respect of the investment earnings from the investment in such
Permitted Investments, will be distributed to the Agent when received
for payment to the Holder.
(iii) If a Holder of an Income PRIDES fails to notify the
Agent of its intention to make a Cash Settlement in accordance with
paragraph (a)(i) above, such failure shall constitute an event of
default and the Holder shall be deemed to have consented to the
disposition of the pledged Preferred Securities pursuant to the
Remarketing as described in paragraph (b) below. If a Holder of an
Income PRIDES does notify the Agent as provided in paragraph (a)(i)
above of its intention to pay the Purchase Price in cash, but fails to
make such payment as required by paragraph (a)(ii) above, such failure
shall also constitute a default; however, the Preferred Securities of
such a Holder will not be remarketed but instead the Collateral Agent,
for the benefit of the Company, will exercise its rights as a secured
party with respect to such Preferred Securities, including those
rights specified in paragraph (c) below.
(b) In order to dispose of the Preferred Securities of Income PRIDES
Holders who have not notified the Agent of their intention to effect a Cash
Settlement as provided in paragraph (a)(i) above, the Company shall engage a
nationally recognized investment bank (the "Remarketing Agent") pursuant to the
Remarketing Agreement to sell such Preferred Securities. In order to facilitate
the remarketing, the Agent shall notify, by 10:00 a.m., New York City time, on
the fourth Business Day immediately preceding the Purchase Contract Settlement
Date, the Remarketing Agent of the aggregate number of Preferred Securities to
be remarketed. Concurrently, the Collateral Agent, pursuant to the terms of the
Pledge Agreement, will present for remarketing such Preferred Securities to the
Remarketing Agent. Upon receipt of such notice from the Agent and such
Preferred Securities from the Collateral Agent, the Remarketing Agent will, on
the third Business Day
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immediately preceding the Purchase Contract Settlement Date, use its reasonable
efforts to remarket such Preferred Securities on such date at a price of
approximately 100.5% (but not less than 100%) of the aggregate stated
liquidation amount of such Preferred Securities, plus accrued and unpaid
distributions (including deferred distributions), if any, thereon. After
deducting as the remarketing fee ("Remarketing Fee") an amount not exceeding 25
basis points (.25%) of the aggregate stated liquidation amount of the
remarketed Preferred Securities from any amount of such proceeds in excess of
the aggregate stated liquidation amount of the remarketed Preferred Securities
plus accrued and unpaid distributions (including any deferred distributions),
if any, then the Remarketing Agent will remit the entire amount of the proceeds
from such remarketing to the Collateral Agent. Such portion of the proceeds,
equal to the aggregate stated liquidation amount of such Preferred Securities,
will automatically be applied by the Collateral Agent, in accordance with the
Pledge Agreement to satisfy in full such Income PRIDES holders' obligations to
pay the Purchase Price for the Common Stock under the related Purchase
Contracts on the Purchase Contract Settlement Date. Any proceeds in excess of
those required to pay the Purchase Price and the Remarketing Fee will be
remitted to the Agent for payment to the Holders of the related Income PRIDES.
Income PRIDES Holders whose Preferred Securities are so remarketed will not
otherwise be responsible for the payment of any Remarketing Fee in connection
therewith. If, in spite of using its reasonable efforts, the Remarketing Agent
cannot remarket the related Preferred Securities of such Holders of Income
PRIDES at a price not less then 100% of the aggregate stated liquidation amount
of such Preferred Securities plus accrued and unpaid distributions (including
deferred distributions), if any, the remarketing will be deemed to have failed
(a "Failed Remarketing") and in accordance with the terms of the Pledge
Agreement the Collateral Agent for the benefit of the Company will exercise its
rights as a secured party with respect to such Preferred Securities, including
those actions specified in paragraph (c) below; provided, that if upon a Failed
Remarketing the Collateral Agent exercises such rights for the benefit of the
Company with respect to such Preferred Securities, any accrued and unpaid
distributions (including any deferred distributions) on such Preferred
Securities will become payable by the Company to the Agent for payment to the
Beneficial Owner of the Income PRIDES to which such Preferred Securities
relates. Such payment will be made by the Company on or prior to 11 a.m. New
York City time on the Purchase Contract Settlement Date in lawful money of the
United States by certified or cashiers' check or wire transfer in immediately
available funds payable to or upon the order of the Agent. The Company will
cause a notice of such Failed Remarketing to be published on the Second
Business Day immediately preceding the Purchase Contract Settlement Date in a
daily newspaper in the English language of general
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circulation in The City of New York, which is expected to be The Wall Street
Journal.
(c) With respect to any Preferred Securities beneficially owned by
Holders who have elected Cash Settlement but failed to deliver cash as required
in (a)(ii) above, or with respect to Preferred Securities which are subject to
a Failed Remarketing, the Collateral Agent for the benefit of the Company
reserves all of its rights as a secured party with respect thereto and, subject
to applicable law and paragraph (h) below, may, among other things, (i) retain
the Preferred Securities in full satisfaction of the Holders obligations under
the Purchase Contracts or (ii) sell the Preferred Securities in one or more
public or private sales.
(d) (i) Unless a Holder of Growth PRIDES or Income PRIDES (if a Tax
Event Redemption has occurred) settles the underlying Purchase Contract through
the early delivery of cash to the Purchase Contract Agent in the manner
described in Section 5.9, each Holder of a Growth PRIDES or Income PRIDES (if a
Tax Event Redemption has occurred) must notify the Agent by use of a notice in
substantially the form of Exhibit E hereto of its intention to pay in cash the
Purchase Price for the shares of Common Stock to be purchased pursuant to a
Purchase Contract on or prior to 5:00 p.m., New York City time, on the second
Business Day immediately preceding the Purchase Contract Settlement Date.
(ii) A Holder of a Growth PRIDES or Income PRIDES (if a Tax
Event Redemption has occurred) who has so notified the Agent of its
intention to make a Cash Settlement in accordance with paragraph
(d)(i) above is required to pay the Purchase Price to the Collateral
Agent prior to 11:00 a.m., New York City time, on the Business Day
immediately preceding the Purchase Contract Settlement Date in lawful
money of the United States by certified or cashiers' check or wire
transfer, in each case in immediately available funds payable to or
upon the order of the Company. Any cash received by the Collateral
Agent will be invested promptly by the Collateral Agent in Permitted
Investments and paid to the Company on the Purchase Contract
Settlement Date in settlement of the Purchase Contract in accordance
with the terms of this Agreement and the Pledge Agreement. Any funds
received by the Collateral Agent in respect of the investment earnings
from the investment in such Permitted Investments will be distributed
to the Agent when received for payment to the Holder.
(iii) If a Holder of a Growth PRIDES fails to notify the
Agent of its intention to make a Cash Settlement in accordance with
paragraph (d)(i)
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above, or if a Holder of an Income PRIDES (if a Tax Event Redemption
has occurred) does notify the Agent as provided in paragraph (d)(i)
above its intention to pay the Purchase Price in cash, but fails to
make such payment as required by paragraph (d)(ii) above, then upon
the maturity of the Pledged Treasury Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, held by the Collateral Agent on the Business Day immediately
prior to the Purchase Contract Settlement Date, the principal amount
of the Treasury Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, received by
the Collateral Agent will be invested promptly in overnight Permitted
Investments. On the Purchase Contract Settlement Date an amount equal
to the Purchase Price will be remitted to the Company as payment
thereof without receiving any instructions from the Holder. In the
event the sum of the proceeds from the related Pledged Treasury
Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, and the investment earnings
earned from such investments is in excess of the aggregate Purchase
Price of the Purchase Contracts being settled thereby, the Collateral
Agent will distribute such excess to the Agent for the benefit of the
Holder of the related Growth PRIDES or Income PRIDES when received.
(e) Any distribution to Holders of excess funds and interest described
above, shall be payable at the office of the Agent in The City of New York
maintained for that purpose or, at the option of the Holder, by check mailed to
the address of the Person entitled thereto at such address as it appears on the
Register.
(f) Unless a Holder settles the underlying Purchase Contract through
the early delivery of cash to the Collateral Agent in the manner described
herein, the Company shall not be obligated to issue any shares of Common Stock
in respect of a Purchase Contract or deliver any certificate therefor to the
Holder unless it shall have received payment in full of the Purchase Price for
the shares of Common Stock to be purchased thereunder in the manner herein set
forth.
(g) Upon Cash Settlement of any Purchase Contract, (i) the Collateral
Agent will in accordance with the terms of the Pledge Agreement cause the
Pledged Preferred Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, or the Pledged Treasury
Securities underlying the relevant Security to be released from the Pledge by
the Collateral Agent free and clear of any security interest of the Company and
transferred to the Agent for delivery to the Holder thereof or its designee as
soon as practicable and (ii) subject to the receipt thereof from the Collateral
Agent, the Agent shall, by book-entry transfer,
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or other appropriate procedures, in accordance with instructions provided by
the Holder thereof, transfer such Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, or
such Treasury Securities (or, if no such instructions are given to the Agent by
the Holder, the Agent shall hold such Preferred Securities or the Treasury
Portfolio, as the case may be, or such Treasury Securities, and any
distribution thereon, in the name of the Agent or its nominee in trust for the
benefit of such Holder).
(h) The obligations of the Holders to pay the Purchase Price are
non-recourse obligations and are payable solely out of any Cash Settlement or
the proceeds of any Collateral Pledged to secure the obligations of the Holders
and in no event will Holders be liable for any deficiency between the proceeds
of Collateral disposition and the Purchase Price.
Section 5.5. Issuance of Shares of Common Stock.
Unless a Termination Event shall have occurred on or prior to the
Purchase Contract Settlement Date or an Early Settlement shall have occurred,
on the Purchase Contract Settlement Date, upon its receipt of payment in full
of the Purchase Price for the shares of Common Stock purchased by the Holders
pursuant to the foregoing provisions of this Article and subject to Section
5.6(b), the Company shall issue and deposit with the Agent, for the benefit of
the Holders of the Outstanding Securities, one or more certificates
representing the newly issued shares of Common Stock registered in the name of
the Agent (or its nominee) as custodian for the Holders (such certificates for
shares of Common Stock, together with any dividends or distributions for which
a record date and payment date for such dividend or distribution has occurred
after the Purchase Contract Settlement Date, being hereinafter referred to as
the "Purchase Contract Settlement Fund") to which the Holders are entitled
hereunder. Subject to the foregoing, upon surrender of a Certificate to the
Agent on or after the Purchase Contract Settlement Date, together with
settlement instructions thereon duly completed and executed, the Holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Common Stock which such Holder is
entitled to receive pursuant to the provisions of this Article Five (after
taking into account all Securities then held by such Holder) together with cash
in lieu of fractional shares as provided in Section 5.10 and any dividends or
distributions with respect to such shares constituting part of the Purchase
Contract Settlement Fund, but without any interest thereon, and the Certificate
so surrendered shall forthwith be cancelled. Such shares shall be registered in
the name of the Holder or the Holder's designee as specified in the settlement
instructions provided by the Holder to the Agent. If any
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shares of Common Stock issued in respect of a Purchase Contract are to be
registered to a Person other than the Person in whose name the Certificate
evidencing such Purchase Contract is registered, no such registration shall be
made unless the Person requesting such registration has paid any transfer and
other taxes required by reason of such registration in a name other than that
of the registered Holder of the Certificate evidencing such Purchase Contract
or has established to the satisfaction of the Company that such tax either has
been paid or is not payable.
Section 5.6. Adjustment of Settlement Rate.
(a) Adjustments for Dividends, Distributions, Stock Splits, Etc.
(1) In case the Company shall pay or make a dividend or other
distribution on the Common Stock in Common Stock, the Settlement Rate, as in
effect at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be increased by dividing such Settlement Rate by a fraction
of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
and the denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
increase to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes of this
paragraph (1), the number of shares of Common Stock at time outstanding shall
not include shares held in the treasury of the Company but shall include any
shares issuable in respect of any scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not pay any dividend or
make any distribution on shares of Common Stock held in the treasury of the
Company.
(2) In case the Company shall issue rights, options or
warrants to all holders of its Common Stock (not being available on an
equivalent basis to Holders of the Securities upon settlement of the Purchase
Contracts underlying such Securities) entitling them, for a period expiring
within 45 days after the record date for the determination of stockholders
entitled to receive such rights, options or warrants, to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price per share of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such rights, options or
warrants (other than pursuant to a dividend reinvestment plan), the Settlement
Rate, in effect at the opening of business on the day following the date fixed
for such determination shall be increased by dividing such Settlement Rate, by
a fraction of
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which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination plus the
number of shares of Common Stock which the aggregate of the offering price of
the total number of shares of Common Stock so offered for subscription or
purchase would purchase at such Current Market Price and the denominator shall
be the number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination plus the number of shares of Common Stock
so offered for subscription or purchase, such increase to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this paragraph (2), the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include any shares issuable in respect of
any scrip certificates issued in lieu of fractions of shares of Common Stock.
The Company shall not issue any such rights, options or warrants in respect of
shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be
subdivided or split into a greater number of shares of Common Stock, the
Settlement Rate, in effect at the opening of business on the day following the
day upon which such subdivision or split becomes effective shall be
proportionately increased, and, conversely, in case outstanding shares of
Common Stock shall each be combined into a smaller number of shares of Common
Stock, the Settlement Rate, in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately reduced, such increase or reduction, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision, split or combination becomes effective.
(4) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (including securities, but excluding any rights or warrants referred to
in paragraph (2) of this Section, any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to in paragraph (1) of this
Section), the Settlement Rate, shall be adjusted so that the same shall equal
the rate determined by dividing the Settlement Rate in effect immediately prior
to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction of which the
numerator shall be the Current Market Price per share of the Common Stock on
the date fixed for such determination less the then fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution filed with the Agent) of the portion of the
assets or
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evidences of indebtedness so distributed applicable to one share of Common
Stock and the denominator shall be such Current Market Price per share of the
Common Stock, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the determination
of stockholders entitled to receive such distribution. In any case in which
this paragraph (4) is applicable, paragraph (2) of this Section shall not be
applicable.
(5) In case the Company shall, (I) by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash that is
distributed in a Reorganization Event to which Section 5.6(b) applies or as
part of a distribution referred to in paragraph (4) of this Section) in an
aggregate amount that, combined together with (II) the aggregate amount of any
other distributions to all holders of its Common Stock made exclusively in cash
within the 12 months preceding the date of payment of such distribution and in
respect of which no adjustment pursuant to this paragraph (5) or paragraph (6)
of this Section has been made and (III) the aggregate of any cash plus the fair
market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) of consideration
payable in respect of any tender or exchange offer by the Company or any of its
subsidiaries for all or any portion of the Common Stock concluded within the 12
months preceding the date of payment of the distribution described in clause
(I) above and in respect of which no adjustment pursuant to this paragraph (5)
or paragraph (6) of this Section has been made, exceeds 15% of the product of
the Current Market Price per share of the Common Stock on the date for the
determination of holders of shares of Common Stock entitled to receive such
distribution times the number of shares of Common Stock outstanding on such
date, then, and in each such case, immediately after the close of business on
such date for determination, the Settlement Rate, shall be increased so that
the same shall equal the rate determined by dividing the Settlement Rate in
effect immediately prior to the close of business on the date fixed for
determination of the stockholders entitled to receive such distribution by a
fraction (i) the numerator of which shall be equal to the Current Market Price
per share of the Common Stock on the date fixed for such determination less an
amount equal to the quotient of (x) the combined amount distributed or payable
in the transactions described in clauses (I), (II) and (III) above and (y) the
number of shares of Common Stock outstanding on such date for determination and
(ii) the denominator of which shall be equal to the Current Market Price per
share of the Common Stock on such date for determination.
(6) In case (I) a tender or exchange offer made by the
Company or any subsidiary of the Company for all or any portion of the Common
Stock shall expire and such tender or exchange offer (as amended upon the
expiration thereof)
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shall require the payment to stockholders (based on the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of Purchased
Shares) of an aggregate consideration having a fair market value (as determined
by the Board of Directors, whose determination shall be conclusive and
described in a Board Resolution) that combined together with (II) the aggregate
of the cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or exchange offer, by the
Company or any subsidiary of the Company for all or any portion of the Common
Stock expiring within the 12 months preceding the expiration of such tender or
exchange offer and in respect of which no adjustment pursuant to paragraph (5)
of this Section or this paragraph (6) has been made and (III) the aggregate
amount of any distributions to all holders of the Company's Common Stock made
exclusively in cash within the 12 months preceding the expiration of such
tender or exchange offer and in respect of which no adjustment pursuant to
paragraph (5) of this Section or this paragraph (6) has been made, exceeds 15%
of the product of the Current Market Price per share of the Common Stock as of
the last time (the "Expiration Time") tenders could have been made pursuant to
such tender or exchange offer (as it may be amended) times the number of shares
of Common Stock outstanding (including any tendered shares) on the Expiration
Time, then, and in each such case, immediately prior to the opening of business
on the day after the date of the Expiration Time, the Settlement Rate, shall be
adjusted so that the same shall equal the rate determined by dividing the
Settlement Rate immediately prior to the close of business on the date of the
Expiration Time by a fraction (i) the numerator of which shall be equal to (A)
the product of (I) the Current Market Price per share of the Common Stock on
the date of the Expiration Time and (II) the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time less (B) the
amount of cash plus the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the transactions
described in clauses (I), (II) and (III) above (assuming in the case of clause
(I) the acceptance, up to any maximum specified in the terms of the tender or
exchange offer, of Purchased Shares), and (ii) the denominator of which shall
be equal to the product of (A) the Current Market Price per share of the Common
Stock as of the Expiration Time and (B) the number of shares of Common Stock
outstanding (including any tendered shares) as of the Expiration Time less the
number of all shares validly tendered and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any such maximum, being referred to
as the "Purchased Shares").
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(7) The reclassification of Common Stock into securities
including securities other than Common Stock (other than any reclassification
upon a Reorganization Event to which Section 5.6(b) applies) shall be deemed to
involve (a) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of stockholders entitled
to receive such distribution" and the "date fixed for such determination"
within the meaning of paragraph (4) of this Section), and (b) a subdivision,
split or combination, as the case may be, of the number of shares of Common
Stock outstanding immediately prior to such reclassification into the number of
shares of Common Stock outstanding immediately thereafter (and the effective
date of such reclassification shall be deemed to be "the day upon which such
subdivision or split becomes effective" or "the day upon which such combination
becomes effective", as the case may be, and "the day upon which such
subdivision, split or combination becomes effective" within the meaning of
paragraph (3) of this Section).
(8) The "Current Market Price" per share of Common Stock on
any day means the average of the daily Closing Prices for the 5 consecutive
Trading Days selected by the Company commencing not more than 30 Trading Days
before, and ending not later than, the earlier of the day in question and the
day before the "ex date" with respect to the issuance or distribution requiring
such computation. For purposes of this paragraph, the term "ex date", when used
with respect to any issuance or distribution, shall mean the first date on
which the Common Stock trades regular way on such exchange or in such market
without the right to receive such issuance or distribution.
(9) All adjustments to the Settlement Rate, shall be
calculated to the nearest 1/10,000th of a share of Common Stock (or if there is
not a nearest 1/10,000th of a share to the next lower 1/10,000th of a share).
No adjustment in the Settlement Rate shall be required unless such adjustment
would require an increase or decrease of at least one percent therein;
provided, however, that any adjustments which by reason of this subparagraph
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. If an adjustment is made to the Settlement Rate
pursuant to paragraph (1), (2), (3), (4), (5), (6), (7) or (10) of this Section
5.6(a), an adjustment shall also be made to the Applicable Market Value solely
to determine which of clauses (a), (b) or (c) of the definition of Settlement
Rate in Section 5.1 will apply on the Purchase Contract Settlement Date. Such
adjustment shall be made by multiplying the Applicable Market Value by a
fraction of which the numerator shall be the Settlement Rate immediately after
such adjustment pursuant to paragraph (1), (2), (3), (4), (5), (6), (7) or (10)
of this Section
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5.6(a) and the denominator shall be the Settlement Rate immediately before such
adjustment; provided, however, that if such adjustment to the Settlement Rate
is required to be made pursuant to the occurrence of any of the events
contemplated by paragraph (1) (2) (3) (4) (5) (7) or (10) of this Section
5.6(a) during the period taken into consideration for determining the
Applicable Market Value, appropriate and customary adjustments shall be made to
the Settlement Rate.
(10) The Company may make such increases in the Settlement
Rate, in addition to those required by this Section, as it considers to be
advisable in order to avoid or diminish any income tax to any holders of shares
of Common Stock resulting from any dividend or distribution of stock or
issuance of rights or warrants to purchase or subscribe for stock or from any
event treated as such for income tax purposes or for any other reasons.
(b) Adjustment for Consolidation, Merger or Other Reorganization
Event. In the event of (i) any consolidation or merger of the Company with or
into another Person (other than a merger or consolidation in which the Company
is the continuing corporation and in which the Common Stock outstanding
immediately prior to the merger or consolidation is not exchanged for cash,
securities or other property of the Company or another corporation), (ii) any
sale, transfer, lease or conveyance to another Person of the property of the
Company as an entirety or substantially as an entirety, (iii) any statutory
exchange of securities of the Company with another Person (other than in
connection with a merger or acquisition) or (iv) any liquidation, dissolution
or winding up of the Company other than as a result of or after the occurrence
of a Termination Event (any such event, a "Reorganization Event"), the
Settlement Rate will be adjusted to provide that each Holder of Securities will
receive on the Purchase Contract Settlement Date with respect to each Purchase
Contract forming a part thereof, the kind and amount of securities, cash and
other property receivable upon such Reorganization Event (without any interest
thereon, and without any right to dividends or distribution thereon which have
a record date that is prior to the Purchase Contract Settlement Date) by a
Holder of the number of shares of Common Stock issuable on account of each
Purchase Contract if the Purchase Contract Settlement Date had occurred
immediately prior to such Reorganization Event assuming such Holder of Common
Stock is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be (any such Person, a "Constituent
Person"), or an Affiliate of a Constituent Person to the extent such
Reorganization Event provides for different treatment of common Stock held by
Affiliates of the Company and non-affiliates and such Holder failed to exercise
his rights of election, if any, as to the kind or amount of securities,
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cash and other property receivable upon such Reorganization Event (provided
that if the kind or amount of securities, cash and other property receivable
upon such Reorganization Event is not the same for each share of Common Stock
held immediately prior to such Reorganization Event by other than a Constituent
Person or an Affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose of
this Section the kind and amount of securities, cash and other property
receivable upon such Reorganization Event by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). In the event of such a Reorganization Event, the Person
formed by such consolidation, merger or exchange or the Person which acquires
the assets of the Company or, in the event of a liquidation or dissolution of
the Company, the Company or a liquidating trust created in connection
therewith, shall execute and deliver to the Agent an agreement supplemental
hereto providing that the Holders of each Outstanding Security shall have the
rights provided by this Section 5.6. Such supplemental agreement shall provide
for adjustments which, for events subsequent to the effective date of such
supplemental agreement, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section. The above provisions of this
Section shall similarly apply to successive Reorganization Events.
Section 5.7. Notice of Adjustments and Certain Other Events.
(a) Whenever the Settlement Rate is adjusted as herein provided, the
Company shall:
(i) forthwith compute the Settlement Rate in accordance with
Section 5.6 and prepare and transmit to the Agent an Officer's
Certificate setting forth the Settlement Rate, the method of
calculation thereof in reasonable detail, and the facts requiring such
adjustment and upon which such adjustment is based; and
(ii) within 10 Business Days following the occurrence of an
event that requires an adjustment to the Settlement Rate pursuant to
Section 5.6 (or if the Company is not aware of such occurrence, as
soon as practicable after becoming so aware), provide a written notice
to the Holders of the Securities of the occurrence of such event and a
statement in reasonable detail setting forth the method by which the
adjustment to the Settlement Rate was determined and setting forth the
adjusted Settlement Rate.
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(b) The Agent shall not at any time be under any duty or
responsibility to any Holder of Securities to determine whether any facts exist
which may require any adjustment of the Settlement Rate, or with respect to the
nature or extent or calculation of any such adjustment when made, or with
respect to the method employed in making the same. The Agent shall not be
accountable with respect to the validity or value (or the kind or amount) of
any shares of Common Stock, or of any securities or property, which may at the
time be issued or delivered with respect to any Purchase Contract; and the
Agent makes no representation with respect thereto. The Agent shall not be
responsible for any failure of the Company to issue, transfer or deliver any
shares of Common Stock pursuant to a Purchase Contract or to comply with any of
the duties, responsibilities or covenants of the Company contained in this
Article.
Section 5.8. Termination Event; Notice.
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay any Contract
Adjustment Payments or Deferred Contract Adjustment Payments, if the Company
shall have such obligation, and the rights and obligations of Holders to
purchase Common Stock, shall immediately and automatically terminate, without
the necessity of any notice or action by any Holder, the Agent or the Company,
if, on or prior to the Purchase Contract Settlement Date, a Termination Event
shall have occurred. Upon and after the occurrence of a Termination Event, the
Securities shall thereafter represent the right to receive the Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, forming a part of such Securities in the case of
Income PRIDES, or Treasury Securities in the case of Growth PRIDES, in
accordance with the provisions of Section 4.3 of the Pledge Agreement. Upon the
occurrence of a Termination Event, the Company shall promptly but in no event
later than two Business Days thereafter give written notice to the Agent, the
Collateral Agent and to the Holders, at their addresses as they appear in the
Register.
Section 5.9. Early Settlement.
(a) Subject to and upon compliance with the provisions of this Section
5.9, at the option of the Holder thereof, Purchase Contracts underlying
Securities, having an aggregate Stated Amount equal to $1,000 or an integral
multiple thereof, may be settled early ("Early Settlement") in the case of
Income PRIDES (unless a Tax Event Redemption has occurred) on or prior to the
fifth Business Day
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immediately preceding the Purchase Contract Settlement Date and in the case of
Growth PRIDES on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date, in each case, as provided herein; provided
however, that if a Tax Event Redemption has occurred and the Treasury Portfolio
has become a component of the Income PRIDES Purchase Contracts, underlying
Income PRIDES may be settled early, on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date, but only in an
aggregate amount of $1,600,000 or in an integral multiple thereof. In order to
exercise the right to effect Early Settlement with respect to any Purchase
Contracts, the Holder of the Certificate evidencing Securities shall deliver
such Certificate to the Agent at the Corporate Trust Office duly endorsed for
transfer to the Company or in blank with the form of Election to Settle Early
on the reverse thereof duly completed and accompanied by payment (payable to
the Company in immediately available funds in an amount (the "Early Settlement
Amount") equal to (i) the product of (A) the Stated Amount times (B) the number
of Purchase Contracts with respect to which the Holder has elected to effect
Early Settlement plus (ii) if such delivery is made with respect to any
Purchase Contracts during the period from the close of business on any Record
Date next preceding any Payment Date to the opening of business on such Payment
Date, an amount equal to the sum of (x) the Contract Adjustment Payments
payable on such Payment Date with respect to such Purchase Contracts plus (y)
in the case of Income PRIDES Certificate, the distributions on the related
Preferred Securities payable on such Payment Date. Except as provided in the
immediately preceding sentence and subject to the second to last paragraph of
Section 5.2, no payment or adjustment shall be made upon Early Settlement of
any Purchase Contract on account of any Contract Adjustment Payments accrued on
such Purchase Contract or on account of any dividends on the Common Stock
issued upon such Early Settlement. If the foregoing requirements are first
satisfied with respect to Purchase Contracts underlying any Securities at or
prior to 5:00 p.m., New York City time, on a Business Day, such day shall be
the "Early Settlement Date" with respect to such Securities and if such
requirements are first satisfied after 5:00 p.m., New York City time, on a
Business Day or on a day that is not a Business Day, the "Early Settlement
Date" with respect to such Securities shall be the next succeeding Business
Day.
(b) Upon Early Settlement of Purchase Contracts by a Holder of the
related Securities, the Company shall issue, and the Holder shall be entitled
to receive, _____ shares of Common Stock on account of each Purchase Contract
as to which Early Settlement is effected (the "Early Settlement Rate");
provided, however, that upon the Early Settlement of the Purchase Contracts,
the Holder of such related Securities will forfeit the right to receive any
Deferred Contract Adjustment Payments. The Early Settlement Rate shall be
adjusted in the same manner and at
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the same time as the Settlement Rate is adjusted. As promptly as practicable
after Early Settlement of Purchase Contracts in accordance with the provisions
of this Section 5.9, the Company shall issue and shall deliver to the Agent at
the Corporate Trust Office a certificate or certificates for the full number of
shares of Common Stock issuable upon such Early Settlement together with
payment in lieu of any fraction of a share, as provided in Section 5.10.
(c) No later than the third Business Day after the applicable Early
Settlement Date the Company shall cause (i) the shares of Common Stock issuable
upon Early Settlement of Purchase Contracts to be issued and delivered, and
(ii) the related Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, in the case of Income PRIDES, or the
related Treasury Securities, in the case of Growth PRIDES, to be released from
the Pledge by the Collateral Agent and transferred, in each case to the Agent
for delivery to the Holder thereof or its designee.
(d) Upon Early Settlement of any Purchase Contracts, and subject to
receipt of shares of Common Stock from the Company and the Preferred
Securities, the appropriate Applicable Ownership Interest of the Treasury
Portfolio or Treasury Securities, as the case may be, from the Collateral
Agent, as applicable, the Agent shall, in accordance with the instructions
provided by the Holder thereof on the applicable form of Election to Settle
Early on the reverse of the Certificate evidencing the related Securities, (i)
transfer to the Holder the Preferred Securities, Treasury Portfolio or Treasury
Securities, as the case may be, forming a part of such Securities, and (ii)
deliver to the Holder a certificate or certificates for the full number of
shares of Common Stock issuable upon such Early Settlement together with
payment in lieu of any fraction of a share, as provided in Section 5.10.
(e) In the event that Early Settlement is effected with respect to
Purchase Contracts underlying less than all the Securities evidenced by a
Certificate, upon such Early Settlement the Company shall execute and the Agent
shall authenticate, countersign and deliver to the Holder thereof, at the
expense of the Company, a Certificate evidencing the Securities as to which
Early Settlement was not effected.
Section 5.10. No Fractional Shares.
No fractional shares or scrip representing fractional shares of Common
Stock shall be issued or delivered upon settlement on the Purchase Contract
Settlement Date or upon Early Settlement of any Purchase Contracts. If
Certificates evidencing more than one Purchase Contract shall be surrendered
for settlement at one time by
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the same Holder, the number of full shares of Common Stock which shall be
delivered upon settlement shall be computed on the basis of the aggregate
number of Purchase Contracts evidenced by the Certificates so surrendered.
Instead of any fractional share of Common Stock which would otherwise be
deliverable upon settlement of any Purchase Contracts on the Purchase Contract
Settlement Date or upon Early Settlement, the Company, through the Agent, shall
make a cash payment in respect of such fractional interest in an amount equal
to the value of such fractional shares times the Applicable Market Value. The
Company shall provide the Agent from time to time with sufficient funds to
permit the Agent to make all cash payments required by this Section 5.10 in a
timely manner.
Section 5.11. Charges and Taxes.
The Company will pay all stock transfer and similar taxes attributable
to the initial issuance and delivery of the shares of Common Stock pursuant to
the Purchase Contracts and in payment of any Deferred Contract Adjustment
Payments; provided, however, that the Company shall not be required to pay any
such tax or taxes which may be payable in respect of any exchange of or
substitution for a Certificate evidencing a Security or any issuance of a share
of Common Stock in a name other than that of the registered Holder of a
Certificate surrendered in respect of the Securities evidenced thereby, other
than in the name of the Agent, as custodian for such Holder, and the Company
shall not be required to issue or deliver such share certificates or
Certificates unless or until the Person or Persons requesting the transfer or
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
ARTICLE VI
Remedies
Section 6.1. Unconditional Right of Holders to Receive Contract Adjustment
Payments and to Purchase Common Stock.
In the event that Contract Adjustment Payments shall constitute a
component of Income PRIDES or Growth PRIDES, the Holder of any Income PRIDES or
Growth PRIDES shall have the right, which is absolute and unconditional
(subject to the right of the Company to defer payment thereof pursuant to
Section 5.3, the prepayment of Contract Adjustment Payments pursuant to Section
5.9(a) and to the
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forfeiture of any Deferred Contract Adjustment Payments upon Early Settlement
pursuant to Section 5.9(b) or upon the occurrence of a Termination Event), to
receive payment of each installment of the Contract Adjustment Payments with
respect to the Purchase Contract constituting a part of such Security on the
respective Payment Date for such Security and to purchase Common Stock pursuant
to such Purchase Contract and, in each such case, to institute suit for the
enforcement of any such payment and right to purchase Common Stock, and such
rights shall not be impaired without the consent of such Holder.
Section 6.2. Restoration of Rights and Remedies.
If any Holder has instituted any proceeding to enforce any right or
remedy under this Agreement and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company and such Holder shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of such
Holder shall continue as though no such proceeding had been instituted.
Section 6.3. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates in the last
paragraph of Section 3.10, no right or remedy herein conferred upon or reserved
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.4. Delay or Omission Not Waiver.
No delay or omission of any Holder to exercise any right or remedy
upon a default shall impair any such right or remedy or constitute a waiver of
any such right. Every right and remedy given by this Article or by law to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by such Holders.
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Section 6.5. Undertaking for Costs.
All parties to this Agreement agree, and each Holder of Income PRIDES
or Growth PRIDES, by its acceptance of such Income PRIDES or Growth PRIDES
shall be deemed to have agreed, that any court may in its discretion require,
in any suit for the enforcement of any right or remedy under this Agreement, or
in any suit against the Agent for any action taken, suffered or omitted by it
as Agent, the filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; provided that the provisions of
this Section shall not apply to any suit instituted by the Company, to any suit
instituted by the Agent, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of distributions on
any Preferred Securities or Contract Adjustment Payments, if any, on any
Purchase Contract on or after the respective Payment Date therefor in respect
of any Security held by such Holder, or for enforcement of the right to
purchase shares of Common Stock under the Purchase Contracts constituting part
of any Security held by such Holder.
Section 6.6. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Agreement; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Agent or the Holders, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
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ARTICLE VII
The Agent
Section 7.1. Certain Duties and Responsibilities.
(a) (1) The Agent undertakes to perform, with respect to the
Securities, such duties and only such duties as are specifically set forth in
this Agreement and the Pledge Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Agent; and
(2) in the absence of bad faith or negligence on its part,
the Agent may, with respect to the Securities, conclusively rely, as
to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the
Agent and conforming to the requirements of this Agreement, but in the
case of any certificates or opinions which by any provision hereof are
specifically required to be furnished to the Agent, the Agent shall be
under a duty to examine the same to determine whether or not they
conform to the requirements of this Agreement.
(b) No provision of this Agreement shall be construed to relieve the
Agent from liability for its own negligent action, its own negligent failure to
act, or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the
effect of Subsection (a) of this Section;
(2) the Agent shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Agent was negligent in ascertaining the pertinent facts; and
(3) no provision of this Agreement shall require the Agent to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if adequate indemnity is not
provided to it.
(c) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Agent shall be subject to the provisions of this
Section.
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(d) The Agent is authorized to execute and deliver the Pledge
Agreement in its capacity as Agent.
Section 7.2. Notice of Default.
Within 30 days after the occurrence of any default by the Company
hereunder of which a Responsible Officer of the Agent has actual knowledge, the
Agent shall transmit by mail to the Company and the Holders of Securities, as
their names and addresses appear in the Register, notice of such default
hereunder, unless such default shall have been cured or waived.
Section 7.3. Certain Rights of Agent.
Subject to the provisions of Section 7.1:
(a) the Agent may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by an Officer's Certificate, Issuer Order or Issuer
Request, and any resolution of the Board of Directors of the Company may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Agreement the Agent shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Agent (unless other evidence be
herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate of the Company;
(d) the Agent may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Agent shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of
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indebtedness or other paper or document, but the Agent, in its discretion, may
make reasonable further inquiry or investigation into such facts or matters
related to the execution, delivery and performance of the Purchase Contracts as
it may see fit, and, if the Agent shall determine to make such further inquiry
or investigation, it shall be given a reasonable opportunity to examine the
books, records and premises of the Company, personally or by agent or attorney;
and
(f) the Agent may execute any of the powers hereunder or perform any
duties hereunder either directly or by or through agents or attorneys or an
Affiliate and the Agent shall not be responsible for any misconduct or
negligence on the part of any agent or attorney or an Affiliate appointed with
due care by it hereunder.
Section 7.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Certificates shall be taken
as the statements of the Company and the Agent assumes no responsibility for
their accuracy. The Agent makes no representations as to the validity or
sufficiency of either this Agreement or of the Securities, or of the Pledge
Agreement or the Pledge. The Agent shall not be accountable for the use or
application by the Company of the proceeds in respect of the Purchase
Contracts.
Section 7.5. May Hold Securities.
Any Registrar or any other agent of the Company, or the Agent and its
Affiliates, in their individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with the Company, the Collateral
Agent or any other Person with the same rights it would have if it were not
Registrar or such other agent, or the Agent.
Section 7.6. Money Held in Custody.
Money held by the Agent in custody hereunder need not be segregated
from the other funds except to the extent required by law or provided herein.
The Agent shall be under no obligation to invest or pay interest on any money
received by it hereunder except as otherwise agreed in writing with the
Company.
Section 7.7. Compensation and Reimbursement.
The Company agrees:
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(1) to pay to the Agent from time to time reasonable
compensation for all services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to
reimburse the Agent upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Agent in accordance
with any provision of this Agreement (including the reasonable
compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify the Agent and any predecessor Agent for, and
to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of its duties
hereunder, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
Section 7.8. Corporate Agent Required; Eligibility.
There shall at all times be an Agent hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having (or being a member of a bank
holding company having) a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority and having
a Corporate Trust Office in the Borough of Manhattan, The City of New York, if
there be such a corporation in the Borough of Manhattan, The City of New York,
qualified and eligible under this Article and willing to act on reasonable
terms. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Agent shall cease to be eligible in accordance with the provisions
of this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 7.9. Resignation and Removal; Appointment of Successor.
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(a) No resignation or removal of the Agent and no appointment of a
successor Agent pursuant to this Article shall become effective until the
acceptance of appointment by the successor Agent in accordance with the
applicable requirements of Section 7.10.
(b) The Agent may resign at any time by giving written notice thereof
to the Company 60 days prior to the effective date of such resignation. If the
instrument of acceptance by a successor Agent required by Section 7.10 shall
not have been delivered to the Agent within 30 days after the giving of such
notice of resignation, the resigning Agent may petition any court of competent
jurisdiction for the appointment of a successor Agent.
(c) The Agent may be removed at any time by Act of the Holders of a
majority in number of the Outstanding Securities delivered to the Agent and the
Company.
(d) if at any time
(1) the Agent fails to comply with Section 310(b) of the TIA,
as if the Agent were an indenture trustee under an indenture qualified
under the TIA, after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Agent shall cease to be eligible under Section 7.8
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(3) the Agent shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Agent or of its
property shall be appointed or any public officer shall take charge or
control of the Agent or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Agent, or (ii) any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Agent and
the appointment of a successor Agent.
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(e) If the Agent shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Agent for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Agent and
shall comply with the applicable requirements of Section 7.10. If no successor
Agent shall have been so appointed by the Company and accepted appointment in
the manner required by Section 7.10, any Holder who has been a bona fide Holder
of a Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Agent.
(f) The Company shall give, or shall cause such successor Agent to
give, notice of each resignation and each removal of the Agent and each
appointment of a successor Agent by mailing written notice of such event by
first-class mail, postage prepaid, to all Holders as their names and addresses
appear in the applicable Register. Each notice shall include the name of the
successor Agent and the address of its Corporate Trust Office.
Section 7.10. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Agent, every
such successor Agent so appointed shall execute, acknowledge and deliver to the
Company and to the retiring Agent an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Agent shall become
effective and such successor Agent, without any further act, deed or
conveyance, shall become vested with all the rights, powers, agencies and
duties of the retiring Agent; but, on the request of the Company or the
successor Agent, such retiring Agent shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Agent all the
rights, powers and trusts of the retiring Agent and shall duly assign, transfer
and deliver to such successor Agent all property and money held by such
retiring Agent hereunder.
(b) Upon request of any such successor Agent, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Agent all such rights, powers and agencies
referred to in paragraph (a) of this Section.
(c) No successor Agent shall accept its appointment unless at the time
of such acceptance such successor Agent shall be qualified and eligible under
this Article.
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Section 7.11. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Agent may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Agent shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Agent, shall be the successor of the Agent hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Certificates shall have been
authenticated and executed on behalf of the Holders, but not delivered, by the
Agent then in office, any successor by merger, conversion or consolidation to
such Agent may adopt such authentication and execution and deliver the
Certificates so authenticated and executed with the same effect as if such
successor Agent had itself authenticated and executed such Securities.
Section 7.12. Preservation of Information; Communications to Holders.
(a) The Agent shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders received by the Agent in its
capacity as Registrar.
(b) If three or more Holders (herein referred to as "applicants")
apply in writing to the Agent, and furnish to the Agent reasonable proof that
each such applicant has owned a Security for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their
rights under this Agreement or under the Securities and is accompanied by a
copy of the form of proxy or other communication which such applicants propose
to transmit, then the Agent shall, mail to all the Holders copies of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Agent of the materials to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
such mailing.
Section 7.13. No Obligations of Agent.
Except to the extent otherwise provided in this Agreement, the Agent
assumes no obligations and shall not be subject to any liability under this
Agreement, the Pledge Agreement or any Purchase Contract in respect of the
obligations of the Holder of any Security thereunder. The Company agrees, and
each Holder of a Certificate, by his acceptance thereof, shall be deemed to
have agreed, that the
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Agent's execution of the Certificates on behalf of the Holders shall be solely
as agent and attorney-in-fact for the Holders, and that the Agent shall have no
obligation to perform such Purchase Contracts on behalf of the Holders, except
to the extent expressly provided in Article Five hereof.
Section 7.14. Tax Compliance.
(a) The Agent, on its own behalf and on behalf of the Company, will
comply with all applicable certification, information reporting and withholding
(including "backup" withholding) requirements imposed by applicable tax laws,
regulations or administrative practice with respect to (i) any payments made
with respect to the Securities or (ii) the issuance, delivery, holding,
transfer, redemption or exercise of rights under the Securities. Such
compliance shall include, without limitation, the preparation and timely filing
of required returns and the timely payment of all amounts required to be
withheld to the appropriate taxing authority or its designated agent.
(b) The Agent shall comply with any written direction received from
the Company with respect to the application of such requirements to particular
payments or Holders or in other particular circumstances, and may for purposes
of this Agreement rely on any such direction in accordance with the provisions
of Section 7.1(a)(2) hereof.
(c) The Agent shall maintain all appropriate records documenting
compliance with such requirements, and shall make such records available, on
written request, to the Company or its authorized representative within a
reasonable period of time after receipt of such request.
ARTICLE VIII
Supplemental Agreements
Section 8.1. Supplemental Agreements Without Consent of Holders.
Without the consent of any Holders, the Company and the Agent, at any
time and from time to time, may enter into one or more agreements supplemental
hereto, in form satisfactory to the Company and the Agent, for any of the
following purposes:
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(1) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the covenants of
the Company herein and in the Certificates; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Agent; or
(4) to make provision with respect to the rights of Holders
pursuant to the requirements of Section 5.6(b); or
(5) to cure any ambiguity, to correct or supplement any
provisions herein which may be inconsistent with any other provisions
herein, or to make any other provisions with respect to such matters
or questions arising under this Agreement, provided such action shall
not adversely affect the interests of the Holders.
Section 8.2. Supplemental Agreements with Consent of Holders.
With the consent of the Holders of not less than a majority of the
outstanding Purchase Contracts voting together as one Class, by Act of said
Holders delivered to the Company and the Agent, the Company, when authorized by
a Board Resolution, and the Agent may enter into an agreement or agreements
supplemental hereto for the purpose of modifying in any manner the terms of the
Purchase Contracts, or the provisions of this Agreement or the rights of the
Holders in respect of the Securities; provided, however, that, except as
contemplated herein, no such supplemental agreement shall, without the consent
of the Holder of each Outstanding Security affected thereby,
(1) change any Payment Date;
(2) change the amount or the type of Collateral required to
be Pledged to secure a Holder's Obligations under the Purchase
Contract, impair the right of the Holder of any Purchase Contract to
receive distributions on the related Collateral (except for the rights
of Holders of Income PRIDES to substitute the Treasury Securities for
the Pledge Preferred Securities or the rights of holders of Growth
PRIDES to substitute Preferred Securities for the
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Pledged Treasury Securities) or otherwise adversely affect the
Holder's rights in or to such Collateral or adversely alter the rights
in or to such Collateral;
(3) reduce any Contract Adjustment Payments or any Deferred
Contract Adjustment Payment, or change any place where, or the coin or
currency in which, any Contract Adjustment Payments is payable;
(4) impair the right to institute suit for the enforcement of
any Purchase Contract;
(5) reduce the number of shares of Common Stock to be
purchased pursuant to any Purchase Contract, increase the price to
purchase shares of Common Stock upon settlement of any Purchase
Contract, change the Purchase Contract Settlement Date or otherwise
adversely affect the Holder's rights under any Purchase Contract; or
(6) reduce the percentage of the outstanding Purchase
Contracts the consent of whose Holders is required for any such
supplemental agreement;
provided, that if any amendment or proposal referred to above would adversely
affect only the Income PRIDES or the Growth PRIDES, then only the affected
class of Holder as of the record date for the Holders entitled to vote thereon
will be entitled to vote on such amendment or proposal, and such amendment or
proposal shall not be effective except with the consent of Holders of not less
than a majority of such class.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental agreement, but it
shall be sufficient if such Act shall approve the substance thereof.
Section 8.3. Execution of Supplemental Agreements.
In executing, or accepting the additional agencies created by, any
supplemental agreement permitted by this Article or the modifications thereby
of the agencies created by this Agreement, the Agent shall be entitled to
receive and (subject to Section 7.1) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental agreement
is authorized or permitted by this Agreement. The Agent may, but shall not be
obligated to, enter into any such supplemental agreement which affects the
Agent's own rights, duties or immunities under this Agreement or otherwise.
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Section 8.4. Effect of Supplemental Agreements.
Upon the execution of any supplemental agreement under this Article,
this Agreement shall be modified in accordance therewith, and such supplemental
agreement shall form a part of this Agreement for all purposes; and every
Holder of Certificates theretofore or thereafter authenticated, executed on
behalf of the Holders and delivered hereunder shall be bound thereby.
Section 8.5. Reference to Supplemental Agreements.
Certificates authenticated, executed on behalf of the Holders and
delivered after the execution of any supplemental agreement pursuant to this
Article may, and shall if required by the Agent, bear a notation in form
approved by the Agent as to any matter provided for in such supplemental
agreement. If the Company shall so determine, new Certificates so modified as
to conform, in the opinion of the Agent and the Company, to any such
supplemental agreement may be prepared and executed by the Company and
authenticated, executed on behalf of the Holders and delivered by the Agent in
exchange for Outstanding Certificates.
ARTICLE IX
Consolidation, Merger, Sale or Conveyance
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey
Property Except Under Certain Conditions.
The Company covenants that it will not merge or consolidate with any
other Person or sell, assign, transfer, lease or convey all or substantially
all of its properties and assets to any Person or group of affiliated Persons
in one transaction or a series of related transactions, unless (i) either the
Company shall be the continuing corporation, or the successor (if other than
the Company) shall be a corporation organized and existing under the laws of
the United States of America or a State thereof or the District of Columbia and
such corporation shall expressly assume all the obligations of the Company
under the Purchase Contracts, this Agreement and the Pledge Agreement by one or
more supplemental agreements in form reasonably satisfactory to the Agent and
the Collateral Agent, executed and delivered to the Agent and the Collateral
Agent by such corporation, and (ii) the Company or such successor corporation,
as the case may be, shall not, immediately after such merger
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or consolidation, or such sale, assignment, transfer, lease or conveyance, be
in default in the performance of any covenant or condition hereunder, under any
of the Securities or under the Pledge Agreement.
Section 9.2. Rights and Duties of Successor Corporation.
In case of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance and upon any such assumption by a successor corporation in
accordance with Section 9.1, such successor corporation shall succeed to and be
substituted for the Company with the same effect as if it had been named herein
as the Company. Such successor corporation thereupon may cause to be signed,
and may issue either in its own name or in the name of Cendant Corporation any
or all of the Certificates evidencing Securities issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Agent; and, upon the order of such successor corporation, instead of the
Company, and subject to all the terms, conditions and limitations in this
Agreement prescribed, the Agent shall authenticate and execute on behalf of the
Holders and deliver any Certificates which previously shall have been signed
and delivered by the officers of the Company to the Agent for authentication
and execution, and any Certificate evidencing Securities which such successor
corporation thereafter shall cause to be signed and delivered to the Agent for
that purpose. All the Certificates so issued shall in all respects have the
same legal rank and benefit under this Agreement as the Certificates
theretofore or thereafter issued in accordance with the terms of this Agreement
as though all of such Certificates had been issued at the date of the execution
hereof.
In case of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance such change in phraseology and form (but not in substance)
may be made in the Certificates evidencing Securities thereafter to be issued
as may be appropriate.
Section 9.3. Opinion of Counsel Given to Agent.
The Agent, subject to Sections 7.1 and 7.3, shall receive an Opinion
of Counsel as conclusive evidence that any such consolidation, merger, sale,
assignment, transfer, lease or conveyance, and any such assumption, complies
with the provisions of this Article and that all conditions precedent to the
consummation of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance have been met.
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ARTICLE X
Covenants
Section 10.1. Performance Under Purchase Contracts.
The Company covenants and agrees for the benefit of the Holders from
time to time of the Securities that it will duly and punctually perform its
obligations under the Purchase Contracts in accordance with the terms of the
Purchase Contracts and this Agreement.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New
York an office or agency where Certificates may be presented or surrendered for
acquisition of shares of Common Stock upon settlement of the Purchase Contracts
on the Purchase Contract Settlement Date or Early Settlement and for transfer
of Collateral upon occurrence of a Termination Event, where Certificates may be
surrendered for registration of transfer or exchange, for a Collateral
Substitution or re-establishment of an Income PRIDES and where notices and
demands to or upon the Company in respect of the Securities and this Agreement
may be served. The Company will give prompt written notice to the Agent of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Agent with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office, and the Company hereby appoints the Agent as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where Certificates may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company will
give prompt written notice to the Agent of any such designation or rescission
and of any change in the location of any such other office or agency. The
Company hereby designates as the place of payment for the Securities the
Corporate Trust Office and appoints the Agent at its Corporate Trust Office as
paying agent in such city.
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Section 10.3. Company to Reserve Common Stock.
The Company shall at all times prior to the Purchase Contract
Settlement Date reserve and keep available, free from preemptive rights, out of
its authorized but unissued Common Stock the full number of shares of Common
Stock issuable against tender of payment in respect of all Purchase Contracts
constituting a part of the Securities evidenced by Outstanding Certificates.
Section 10.4. Covenants as to Common Stock.
The Company covenants that all shares of Common Stock which may be
issued against tender of payment in respect of any Purchase Contract
constituting a part of the Outstanding Securities will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable.
Section 10.5. Statements of Officer of the Company as to Default.
The Company will deliver to the Agent, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officer's
Certificate, stating whether or not to the best knowledge of the signer thereof
the Company is in default in the performance and observance of any of the
terms, provisions and conditions hereof, and if the Company shall be in
default, specifying all such defaults and the nature and status thereof of
which such Officer may have knowledge.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
CENDANT CORPORATION
By:____________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO, as
Purchase Contract Agent
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT A
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED IN THE
NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF
THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.
Unless this Certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) to the
Company or its agent for registration of transfer, exchange or payment, and any
Certificate issued is registered in the name of Cede & Co., or such other name
as requested by an authorized representative of The Depository Trust Company,
and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered
owner hereof, Cede & Co., has an interest herein.
No. _____ Cusip No.
Number of Income PRIDES _______
Form of Face of Income PRIDES Certificate
____% Income PRIDES
This Income PRIDES Certificate certifies that ___________ is the
registered Holder of the number of Income PRIDES set forth above. Each Income
PRIDES represents (i) either (a) beneficial ownership by the Holder of one
____% Trust Originated Preferred Security (the "Preferred Security") of Cendant
Capital I, a Delaware statutory business trust (the "Trust"), having a stated
liquidation amount of $50, subject to the Pledge of such Preferred Security by
such Holder pursuant to the Pledge Agreement or (b) upon the occurrence of a
Tax Event Redemption prior to the Purchase Contract Settlement Date, the
appropriate Applicable Ownership Interest of the Treasury Portfolio, subject to
the Pledge of such Applicable Ownership Interest of the Treasury Portfolio by
such Holder pursuant to the Pledge
<PAGE>
Agreement, and (ii) the rights and obligations of the Holder under one Purchase
Contract with Cendant Corporation, a Delaware corporation (the "Company"). All
capitalized terms used herein which are defined in the Purchase Contract
Agreement have the meaning set forth therein.
Pursuant to the Pledge Agreement, the Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, constituting part of each Income PRIDES evidenced hereby have been
pledged to the Collateral Agent, for the benefit of the Company, to secure the
obligations of the Holder under the Purchase Contract comprising a portion of
such Income PRIDES.
The Pledge Agreement provides that all payments of the Stated Amount
of or the appropriate Applicable Ownership Interest (as specified in clause (A)
of the definition of such term) in the Treasury Portfolio, as the case may be,
or cash distributions on, any Pledged Preferred Securities (as defined in the
Pledge Agreement) or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, constituting part of the Income PRIDES
received by the Collateral Agent shall be paid by the Collateral Agent by wire
transfer in same day funds (i) in the case of (A) cash distributions with
respect to Pledged Preferred Securities or the appropriate Applicable Ownership
Interest (as specified in clause (B) of the definition of such term) of the
Treasury Portfolio, as the case may be, and (B) any payments of the Stated
Amount or the appropriate Applicable Ownership Interest (as specified in clause
(A) of the definition of such terms) of the Treasury Portfolio, as the case may
be, with respect to any Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, that have
been released from the Pledge pursuant to the Pledge Agreement, to the Agent to
the account designated by the Agent, no later than 2:00 p.m., New York City
time, on the Business Day such payment is received by the Collateral Agent
(provided that in the event such payment is received by the Collateral Agent on
a day that is not a Business Day or after 12:30 p.m., New York City time, on a
Business Day, then such payment shall be made no later than 10:30 a.m., New
York City time, on the next succeeding Business Day) and (ii) in the case of
payments of the Stated Amount or the appropriate Applicable Ownership Interest
(as specified in clause (A) of the definition of such term) in the Treasury
Portfolio, as the case may be, of any Pledged Preferred Securities or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) in the Treasury Portfolio, as the case may be, to the
Company on the Purchase Contract Settlement Date (as defined herein) in
accordance with the terms of the Pledge Agreement, in full satisfaction of the
respective obligations of the Holders of the Income PRIDES of which such
Pledged Preferred Securities or the Treasury Portfolio, as the case may
A-2
<PAGE>
be, are a part under the Purchase Contracts forming a part of such Income
PRIDES. Distributions on any Preferred Security or the appropriate Applicable
Ownership Interest (as specified in clause (B) of the definition of such term)
of the Treasury Portfolio, as the case may be, forming part of an Income PRIDES
evidenced hereby which are payable quarterly in arrears on February 16, May 16,
August 16 and November 16 each year, commencing ______________, 1998 (a
"Payment Date"), shall, subject to receipt thereof by the Agent from the
Collateral Agent, be paid to the Person in whose name this Income PRIDES
Certificate (or a Predecessor Income PRIDES Certificate) is registered at the
close of business on the Record Date for such Payment Date.
Each Purchase Contract evidenced hereby obligates the Holder of this
Income PRIDES Certificate to purchase, and the Company to sell, on
____________, 2001 (the "Purchase Contract Settlement Date"), at a price equal
to $50 (the "Stated Amount"), a number of shares of Common Stock, no par value
("Common Stock"), of the Company, equal to the Settlement Rate, unless on or
prior to the Purchase Contract Settlement Date there shall have occurred a
Termination Event or an Early Settlement with respect to the Income PRIDES of
which such Purchase Contract is a part, all as provided in the Purchase
Contract Agreement and more fully described on the reverse hereof. The purchase
price (the "Purchase Price") for the shares of Common Stock purchased pursuant
to each Purchase Contract evidenced hereby, if not paid earlier, shall be paid
on the Purchase Contract Settlement Date by application of payment received in
respect of the Stated Amount or the appropriate Applicable Ownership Interest
(as specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as the case may be, of the Pledged Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, pledged to secure the obligations under such Purchase Contract of
the Holder of the Income PRIDES of which such Purchase Contract is a part.
The Company shall pay, on each Payment Date, in respect of each
Purchase Contract forming part of an Income PRIDES evidenced hereby an amount
(the "Contract Adjustment Payments") equal to % per annum of the Stated Amount,
computed on the basis of a 360 day year of twelve 30 day months, subject to
deferral at the option of the Company as provided in the Purchase Contract
Agreement and more fully described on the reverse hereof. Such Contract
Adjustment Payments shall be payable to the Person in whose name this Income
PRIDES Certificate (or a Predecessor Income PRIDES Certificate) is registered
at the close of business on the Record Date for such Payment Date.
A-3
<PAGE>
Distributions on the Preferred Securities or the appropriate
Applicable Ownership Interest (as specified in clause (B) of the definition of
such term) of the Treasury Portfolio, as the case may be, and Contract
Adjustment Payments will be payable at the office of the Agent in The City of
New York or, at the option of the Company, by check mailed to the address of
the Person entitled thereto as such address appears on the Income PRIDES
Register.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Agent by manual signature, this Income PRIDES Certificate shall not be
entitled to any benefit under the Pledge Agreement or the Purchase Contract
Agreement or be valid or obligatory for any purpose.
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
CENDANT CORPORATION
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to
obligations of such Holder under the
Purchase Contracts evidenced hereby)
By: THE FIRST NATIONAL BANK OF CHICAGO,
not individually but solely
as Attorney-in-Fact of such Holder
-------------------------------
By:
Name:
Title:
Dated:
<PAGE>
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Income PRIDES Certificates referred to in the
within mentioned Purchase Contract Agreement.
By: THE FIRST NATIONAL BANK OF CHICAGO, as
Purchase Contract Agent
By:
------------------------------
Authorized Officer
<PAGE>
(Form of Reverse of Income PRIDES Certificate)
Each Purchase Contract evidenced hereby is governed by a Purchase
Contract Agreement, dated as of _______ ___, 1998 (as may be supplemented from
time to time, the "Purchase Contract Agreement"), between the Company and The
First National Bank of Chicago, as Purchase Contract Agent (herein called the
"Agent"), to which Purchase Contract Agreement and supplemental agreements
thereto reference is hereby made for a description of the respective rights,
limitations of rights, obligations, duties and immunities thereunder of the
Agent, the Company, and the Holders and of the terms upon which the Income
PRIDES Certificates are, and are to be, executed and delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Income PRIDES Certificate to purchase, and the Company to sell, on the Purchase
Contract Settlement Date at a price equal to the Stated Amount (the "Purchase
Price"), a number of shares of Common Stock of the Company equal to the
Settlement Rate, unless, on or prior to the Purchase Contract Settlement Date,
there shall have occurred a Termination Event with respect to the Security of
which such Purchase Contract is a part or an Early Settlement shall have
occurred. The "Settlement Rate" is equal to (a) if the Applicable Market Value
(as defined below) is equal to or greater than $ (the "Threshold Appreciation
Price"), shares of Common Stock per Purchase Contract, (b) if the Applicable
Market Value is less than the Threshold Appreciation Price but is greater than
$ , the number of shares of Common Stock per Purchase Contract equal to the
Stated Amount divided by the Applicable Market Value and (c) if the Applicable
Market Amount is less than or equal to $ , shares of Common Stock per Purchase
Contract, in each case subject to adjustment as provided in the Purchase
Contract Agreement. No fractional shares of Common Stock will be issued upon
settlement of Purchase Contracts, as provided in the Purchase Contract
Agreement.
Each Purchase Contract evidenced hereby, which is settled either
through Early Settlement or Cash Settlement, shall obligate the Holder of the
related Income PRIDES to purchase at the Purchase Price, and the Company to
sell, a number of newly issued shares of Common Stock equal to the Early
Settlement Rate or the Settlement Rate, as applicable.
The "Applicable Market Value" means the average of the Closing Price
per share of Common Stock on each of the 20 consecutive Trading Days ending on
the third Trading Day immediately preceding the Purchase Contract Settlement
Date.
A-7
<PAGE>
The "Closing Price" of the Common Stock on any date of determination means the
closing sale price (or, if no closing price is reported, the last reported sale
price) of the Common Stock on the New York Stock Exchange (the "NYSE") on such
date or, if the Common Stock is not listed for trading on the NYSE on any such
date, as reported in the composite transactions for the principal United States
securities exchange on which the Common Stock is so listed, or if the Common
Stock is not so listed on a United States national or regional securities
exchange, as reported by The Nasdaq Stock Market, or, if the Common Stock is
not so reported, the last quoted bid price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or, if such bid price is not available, the market value of the
Common Stock on such date as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Company. A "Trading
Day" means a day on which the Common Stock (A) is not suspended from trading on
any national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the
national or regional securities exchange or association or over-the-counter
market that is the primary market for the trading of the Common Stock.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Income PRIDES Certificate shall pay the Purchase Price for the
shares of Common Stock purchased pursuant to each Purchase Contract evidenced
hereby by effecting a Cash Settlement, or an Early Settlement or from the
proceeds of a remarketing of the related Pledged Preferred Securities of such
holders. A Holder of Income PRIDES who does not elect, on or prior to 5:00 p.m.
New York City time on the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, to make an effective Cash Settlement or an Early
Settlement, shall pay the Purchase Price for the shares of Common Stock to be
issued under the related Purchase Contract from the Proceeds of the sale of the
related Pledged Preferred Securities held by the Collateral Agent. Such sale
will be made by the Remarketing Agent pursuant to the terms of the Remarketing
Agreement and the Remarketing Underwriting Agreement on the third Business Day
immediately preceding the Purchase Contract Settlement Date. If, as provided in
the Purchase Contract Agreement, upon the occurrence of a Failed Remarketing
the Collateral Agent, for the benefit of the Company, exercises its rights as a
secured creditor with respect to the Pledged Preferred Securities related to
this Income PRIDES certificate, any accrued and unpaid distributions (including
deferred distributions) on such Pledged Preferred Securities will become
payable by the Company to the holder of this Income PRIDES Certificate in the
manner provided for in the Purchase Contract Agreement.
A-8
<PAGE>
The Company shall not be obligated to issue any shares of Common Stock
in respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment in full of the aggregate purchase
price for the shares of Common Stock to be purchased thereunder in the manner
herein set forth.
Each Purchase Contract evidenced hereby and all obligations and rights
of the Company and the Holder thereunder shall terminate if a Termination Event
shall have occurred. Upon the occurrence of a Termination Event, the Company
shall give written notice to the Agent and to the Holders, at their addresses
as they appear in the Income PRIDES Register. Upon and after the occurrence of
a Termination Event, the Collateral Agent shall release the Pledged Preferred
Security (as defined in the Pledge Agreement) or the appropriate Applicable
Ownership Interest of the Treasury Portfolio forming a part of each Income
PRIDES, or the Liquidation Distribution received in respect of such Pledged
Preferred Security, from the Pledge. An Income PRIDES shall thereafter
represent the right to receive the Preferred Security or the appropriate
Applicable Ownership Interest of the Treasury Portfolio forming a part of such
Income PRIDES, or the Liquidation Distribution received in respect of such
Preferred Security, in accordance with the terms of the Purchase Contract
Agreement and the Pledge Agreement.
Under the terms of the Pledge Agreement, the Agent will be entitled to
exercise the voting and any other consensual rights pertaining to the Pledged
Preferred Securities. Upon receipt of notice of any meeting at which holders of
Preferred Securities are entitled to vote or upon the solicitation of consents,
waivers or proxies of holders of Preferred Securities, the Agent shall, as soon
as practicable thereafter, mail to the Income PRIDES holders a notice (a)
containing such information as is contained in the notice or solicitation, (b)
stating that each Income PRIDES holder on the record date set by the Agent
therefor (which, to the extent possible, shall be the same date as the record
date for determining the holders of Preferred Securities entitled to vote)
shall be entitled to instruct the Agent as to the exercise of the voting rights
pertaining to the Preferred Securities constituting a part of such holder's
Income PRIDES and (c) stating the manner in which such instructions may be
given. Upon the written request of the Income PRIDES Holders on such record
date, the Agent shall endeavor insofar as practicable to vote or cause to be
voted, in accordance with the instructions set forth in such requests, the
maximum number of Preferred Securities as to which any particular voting
instructions are received. In the absence of specific instructions from the
Holder of an Income PRIDES, the Agent shall abstain from voting the Preferred
Security evidenced by such Income PRIDES.
A-9
<PAGE>
Upon the occurrence of an Investment Company Event or liquidation of
the Trust, a principal amount of the Debentures constituting the assets of the
Trust and underlying the Preferred Securities equal to the aggregate Stated
Amount of the Pledged Preferred Securities shall be delivered to the Collateral
Agent in exchange for Pledged Preferred Securities. Thereafter, the Debentures
shall be held by the Collateral Agent to secure the obligations of each Holder
of Income PRIDES to purchase shares of Common Stock under the Purchase
Contracts constituting a part of such Income PRIDES. Following the liquidation
of the Trust, the Holders and the Collateral Agent shall have such security
interests, rights and obligations with respect to the Debentures as the Holders
and the Collateral Agent had in respect of the Pledged Preferred Securities,
and any reference in the Purchase Contract Agreement or Pledge Agreement to the
Preferred Securities shall be deemed to be a reference to the Debentures.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principal Amount of Debentures
shall be delivered to the Collateral Agent in exchange for the Pledged
Preferred Securities. Thereafter, pursuant to the terms of the Pledge
Agreement, the Collateral Agent for the benefit of the Company will apply an
amount equal to the Redemption Amount of such Redemption Price to purchase, the
Treasury Portfolio and promptly remit the remaining portion of such Redemption
Price to the Agent for payment to the Holders of such Income PRIDES.
Following the occurrence of a Tax Event Redemption prior to the
Purchase Contract Settlement Date, the Holders of Income PRIDES and the
Collateral Agent shall have such security interests rights and obligations with
respect to the Treasury Portfolio as the Holder of Income PRIDES and the
Collateral Agent had in respect of the Preferred Security or Debentures, as the
case may be, subject to the Pledge thereof as provided in Articles II, III, IV,
V and VI, of the Pledge Agreement and any reference herein to the Preferred
Security or the Debenture shall be deemed to be reference to such Treasury
Portfolio.
The Income PRIDES Certificates are issuable only in registered form
and only in denominations of a single Income PRIDES and any integral multiple
thereof. The transfer of any Income PRIDES Certificate will be registered and
Income PRIDES Certificates may be exchanged as provided in the Purchase
Contract Agreement. The Income PRIDES Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents
permitted by the Purchase Contract Agreement. No service charge shall be
required for any such
A-10
<PAGE>
registration of transfer or exchange, but the Company and the Agent may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. A holder who elects to substitute a Treasury
Security for Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, thereby creating Growth PRIDES, shall be
responsible for any fees or expenses payable in connection therewith. Except as
provided in the Purchase Contract Agreement, for so long as the Purchase
Contract underlying an Income PRIDES remains in effect, such Income PRIDES
shall not be separable into its constituent parts, and the rights and
obligations of the Holder of such Income PRIDES in respect of the Preferred
Security or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, and Purchase Contract constituting such Income
PRIDES may be transferred and exchanged only as an Income PRIDES. The holder of
an Income PRIDES may substitute for the Pledged Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio securing
its obligation under the related Purchase Contract Treasury Securities in an
aggregate principal amount equal to the aggregate Stated Amount of the Pledged
Preferred Securities or the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) in the Treasury
Portfolio in accordance with the terms of the Purchase Contract Agreement and
the Pledge Agreement. From and after such Collateral Substitution, the Security
for which such Pledged Treasury Securities secures the holder's obligation
under the Purchase Contract shall be referred to as a "Growth PRIDES." A Holder
may make such Collateral Substitution only in integral multiples of 20 Income
PRIDES for 20 Growth PRIDES; provided, however, that if a Tax Event Redemption
has occurred and the Treasury Portfolio has become a component of the Income
PRIDES, a Holder may make such Collateral Substitutions only in integral
multiples of 32,000 Income PRIDES for 32,000 Growth PRIDES. Such Collateral
Substitution may cause the equivalent aggregate principal amount of this
Certificate to be increased or decreased; provided, however, the equivalent
aggregate principal amount outstanding under this Income PRIDES Certificate
shall not exceed $200,000,000. All such adjustments to the equivalent aggregate
principal amount of this Income PRIDES Certificate shall be duly recorded by
placing an appropriate notation on the Schedule attached hereto.
A Holder of Growth PRIDES may create or recreate Income PRIDES by
delivering to the Collateral Agent Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, with a Stated Amount,
in the case of such Preferred Securities, or with the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, in the case of such appropriate Applicable Ownership
Interest of the Treasury Portfolio,
A-11
<PAGE>
equal to the aggregate principal amount of the Pledged Treasury Securities in
exchange for the release of such Pledged Treasury Securities in accordance with
the terms of the Purchase Contract Agreement and the Pledge Agreement.
Subject to the next succeeding paragraph, the Company shall pay, on
each Payment Date, the Contract Adjustment Payments payable in respect of each
Purchase Contract to the Person in whose name the Income PRIDES Certificate
evidencing such Purchase Contract is registered at the close of business on the
Record Date for such Payment Date. Contract Adjustment Payments will be payable
at the office of the Agent in The City of New York or, at the option of the
Company, by check mailed to the address of the Person entitled thereto at such
address as it appears on the Income PRIDES Register.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments otherwise payable on any Payment Date, but only if the
Company shall give the Holders and the Agent written notice of its election to
defer such payment (specifying the amount to be deferred) as provided in the
Purchase Contract Agreement. Any Contract Adjustment Payments so deferred shall
bear additional Contract Adjustment Payments thereon at the rate of ____% per
annum (computed on the basis of a 360 day year of twelve 30 day months),
compounding on each succeeding Payment Date, until paid in full (such deferred
installments of Contract Adjustment Payments, if any, together with the
additional Contract Adjustment Payments accrued thereon, are referred to herein
as the "Deferred Contract Adjustment Payments"). Deferred Contract Adjustment
Payments, if any, shall be due on the next succeeding Payment Date except to
the extent that payment is deferred pursuant to the Purchase Contract
Agreement. No Contract Adjustment Payments may be deferred to a date that is
after the Purchase Contract Settlement Date.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, the Holder of this Income PRIDES Certificate will receive on
the Purchase Contract Settlement Date, in lieu of a cash payment, a number of
shares of Common Stock equal to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to the Holder of this Income PRIDES Certificate
divided by (y) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then until the Deferred Contract Adjustment
A-12
<PAGE>
Payments have been paid, the Company shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or
acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security outstanding on the date of such event requiring the
Company to purchase capital stock of the Company, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion
of one class or series of the Company's capital stock for another class or
series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan and a
declaration thereunder of a dividend of rights in the future).
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay any Contract
Adjustment Payments or any Deferred Contract Adjustment Payments, shall
immediately and automatically terminate, without the necessity of any notice or
action by any Holder, the Agent or the Company, if, on or prior to the Purchase
Contract Settlement Date, a Termination Event shall have occurred. Upon the
occurrence of a Termination Event, the Company shall promptly but in no event
later than two Business Days thereafter give written notice to the Agent, the
Collateral Agent and to the Holders, at their addresses as they appear in the
Income PRIDES Register. Upon and after the occurrence of a Termination Event,
the Collateral Agent shall release the Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
from the Pledge in accordance with the provisions of the Pledge Agreement.
A-13
<PAGE>
Subject to and upon compliance with the provisions of the Purchase
Contract Agreement, at the option of the Holder thereof, Purchase Contracts
underlying Securities having an aggregate Stated Amount equal to $1,000 or an
integral multiple thereof may be settled early ("Early Settlement") as provided
in the Purchase Contract Agreement; provided, however, that if a Tax Event
Redemption has occurred and the Treasury Portfolio has become a component of
the Income PRIDES, Holders may early settle Income PRIDES only in integral
multiples of 32,000 Income PRIDES. In order to exercise the right to effect
Early Settlement with respect to any Purchase Contracts evidenced by this
Income PRIDES Certificate, the Holder of this Income PRIDES Certificate shall
deliver this Income PRIDES Certificate to the Agent at the Corporate Trust
Office duly endorsed for transfer to the Company or in blank with the form of
Election to Settle Early set forth below duly completed and accompanied by
payment in the form of immediately available funds payable to the order of the
Company in an amount (the "Early Settlement Amount") equal to (i) the product
of (A) the Stated Amount times (B) the number of Purchase Contracts with
respect to which the Holder has elected to effect Early Settlement, plus (ii)
if such delivery is made with respect to any Purchase Contracts during the
period from the close of business on any Record Date for any Payment Date to
the opening of business on such Payment Date, an amount equal to the Contract
Adjustment Payments payable on such Payment Date with respect to such Purchase
Contracts. Upon Early Settlement of Purchase Contracts by a Holder of the
related Securities, the Pledged Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio underlying such
Securities shall be released from the Pledge as provided in the Pledge
Agreement and the Holder shall be entitled to receive a number of shares of
Common Stock on account of each Purchase Contract forming part of a Income
PRIDES as to which Early Settlement is effected equal to the Early Settlement
Rate; provided however, that upon the Early Settlement of the Purchase
Contracts, the Holder thereof will forfeit the right to receive any Deferred
Contract Adjustment Payments, if any, on such Purchase Contracts. The Early
Settlement Rate shall initially be equal to shares of Common Stock and shall be
adjusted in the same manner and at the same time as the Settlement Rate is
adjusted as provided in the Purchase Contract Agreement.
Upon registration of transfer of this Income PRIDES Certificate, the
transferee shall be bound (without the necessity of any other action on the
part of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract
Agreement and the Purchase Contracts evidenced hereby and the transferor shall
be released from the obligations under the Purchase Contracts evidenced by this
Income PRIDES Certificate. The Company covenants and agrees, and the Holder, by
its acceptance
A-14
<PAGE>
hereof, likewise covenants and agrees, to be bound by the provisions of this
paragraph.
The Holder of this Income PRIDES Certificate, by its acceptance
hereof, authorizes the Agent to enter into and perform the related Purchase
Contracts forming part of the Income PRIDES evidenced hereby on his behalf as
his attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company or its trustee in the
event that the Company becomes the subject of a case under the Bankruptcy Code,
agrees to be bound by the terms and provisions thereof, covenants and agrees to
perform his obligations under such Purchase Contracts, consents to the
provisions of the Purchase Contract Agreement, authorizes the Agent to enter
into and perform the Pledge Agreement on his behalf as its attorney-in-fact,
and consents to the Pledge of the Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
underlying this Income PRIDES Certificate pursuant to the Pledge Agreement. The
Holder further covenants and agrees, that, to the extent and in the manner
provided in the Purchase Contract Agreement and the Pledge Agreement, but
subject to the terms thereof, payments in respect to the Stated Amount of the
Pledged Preferred Securities, or the appropriate Applicable Ownership Interest
(as specified in clause (A) of the definition of such term) of the Treasury
Portfolio, on the Purchase Contract Settlement Date shall be paid by the
Collateral Agent to the Company in satisfaction of such Holder's obligations
under such Purchase Contract and such Holder shall acquire no right, title or
interest in such payments.
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, and
construed in accordance with, the laws of the State of New York.
The Company, the Agent and its Affiliates and any agent of the Company
or the Agent may treat the Person in whose name this Income PRIDES Certificate
is registered as the owner of the Income PRIDES evidenced hereby for the
purpose of receiving payments of distributions payable quarterly on the
Preferred Securities, receiving payments of Contract Adjustment Payments and
any Deferred Contract Adjustment Payments, performance of the Purchase
Contracts and for all other purposes whatsoever, whether or not any payments in
respect thereof be overdue and
A-15
<PAGE>
notwithstanding any notice to the contrary, and neither the Company, the Agent
nor any such agent shall be affected by notice to the contrary.
The Purchase Contracts shall not, prior to the settlement thereof,
entitle the Holder to any of the rights of a holder of shares of Common Stock.
A copy of the Purchase Contract Agreement is available for inspection
at the offices of the Agent.
A-16
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - ------------Custodian------------
(cust) (minor)
Under Uniform Gifts to Minors Act
------------------------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
Additional abbreviations may also be used though not in the above list.
---------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfer(s) unto
-----------------------------------------------------------
- -------------------------------------------------------------------------------
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Income PRIDES Certificates and all rights thereunder, hereby
irrevocably constituting and appointing
- -------------------------------------------------------------------------------
attorney to transfer said Income PRIDES Certificates on the books of CENDANT
Inc. with full power of substitution in the premises.
Dated: --------------------------
------------------- Signature
NOTICE: The signature to
this assignment must
correspond with the name
as it appears upon the
face of the within Income
PRIDES Certificates in
every particular, without
alteration or enlargement
or any change whatsoever.
Signature Guarantee:
-----------------------
A-17
<PAGE>
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon settlement on or after the Purchase Contract Settlement
Date of the Purchase Contracts underlying the number of Income PRIDES evidenced
by this Income PRIDES Certificate be registered in the name of, and delivered,
together with a check in payment for any fractional share, to the undersigned
at the address indicated below unless a different name and address have been
indicated below. If shares are to be registered in the name of a Person other
than the undersigned, the undersigned will pay any transfer tax payable
incident thereto.
Dated:_________________ _________________________________
Signature
Signature Guarantee:_____________
(if assigned to another person)
If shares are to be registered
in the name of and delivered to REGISTERED HOLDER
a Person other than the Holder,
please (i) print such Person's
name and address and (ii) provide a
guarantee of your signature:
Please print name
and address of
Registered
Holder:
- ---------------------------- ----------------------------
Name Name
- ---------------------------- ----------------------------
Address Address
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
Social Security or other
Taxpayer Identification
Number, if any ----------------------------
A-18
<PAGE>
ELECTION TO SETTLE EARLY
The undersigned Holder of this Income PRIDES Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Income PRIDES evidenced by this Income
PRIDES Certificate specified below. The undersigned Holder directs that a
certificate for shares of Common Stock deliverable upon such Early Settlement
be registered in the name of, and delivered, together with a check in payment
for any fractional share and any Income PRIDES Certificate representing any
Income PRIDES evidenced hereby as to which Early Settlement of the related
Purchase Contracts is not effected, to the undersigned at the address indicated
below unless a different name and address have been indicated below. Pledged
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, deliverable upon such Early Settlement
will be transferred in accordance with the transfer instructions set forth
below. If shares are to be registered in the name of a Person other than the
undersigned, the undersigned will pay any transfer tax payable incident
thereto.
Dated:__________________ _____________________________
Signature
Signature Guarantee:_______________________________
A-19
<PAGE>
Number of Securities evidenced hereby as to which Early Settlement of
the related Purchase Contracts is being elected:
If shares of Common Stock or Income REGISTERED HOLDER
PRIDES Certificates are to be regis-
tered in the name of and delivered to
and Pledged Preferred Securities, or
the Treasury Portfolio, as the case may
be, are to be transferred to a Person
other than the Holder, please print such
Person's name and address:
Please print name
and address of
Registered
Holder:
- ---------------------------- ----------------------------
Name Name
- ---------------------------- ----------------------------
Address Address
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
Social Security or other
Taxpayer Identification
Number, if any ----------------------------
A-20
<PAGE>
Transfer Instructions for Pledged Preferred Securities, or the Treasury
Portfolio, as the case may be, Transferable Upon Early Settlement or a
Termination Event:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A-21
<PAGE>
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global
Certificate have been made:
<TABLE>
<CAPTION>
Principal Amount of
Amount of Amount of this Global Certificate Signature of
decrease in Principal increase in Principal following such decrease authorized officer of
Amount of the Global Amount of the Global or Trustee or Securities
Date Certificate Certificate increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
A-22
<PAGE>
EXHIBIT B
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED IN THE
NAME OF A CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF
THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.
Unless this Certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) to the
Company or its agent for registration of transfer, exchange or payment, and any
Certificate issued is registered in the name of Cede & Co., or such other name
as requested by an authorized representative of The Depository Trust Company,
and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered
owner hereof, Cede & Co., has an interest herein.
No. _______________ Number of Growth PRIDES_____ Cusip No.
Form of Face of Growth PRIDES Certificate
This Growth PRIDES Certificate certifies that __________ is the
registered Holder of the number of Growth PRIDES set forth above. Each Growth
PRIDES represents (i) a 1/20 undivided beneficial ownership interest, of a
Treasury Security having a principal amount at maturity equal to $1,000,
subject to the Pledge of such Treasury Security by such Holder pursuant to the
Pledge Agreement, and (ii) the rights and obligations of the Holder under one
Purchase Contract with Cendant Corporation, a Delaware corporation (the
"Company"). All capitalized terms used herein which are defined in the Purchase
Contract Agreement have the meaning set forth therein.
Pursuant to the Pledge Agreement, the Treasury Securities constituting
part of each Growth PRIDES evidenced hereby have been pledged to the Collateral
Agent, for the benefit of the Company, to secure the obligations of the Holder
under the Purchase Contract comprising a portion of such Growth PRIDES.
Each Purchase Contract evidenced hereby obligates the Holder of this
Growth PRIDES Certificate to purchase, and the Company, to sell, on February
16, 2001 (the "Purchase Contract Settlement Date"), at a price equal to $50
(the "Stated Amount"), a
<PAGE>
number of shares of Common stock, no par value per share ("Common Stock"), of
the Company equal to the Settlement Rate, unless on or prior to the Purchase
Contract Settlement Date there shall have occurred a Termination Event or an
Early Settlement with respect to the Growth PRIDES of which such Purchase
Contract is a part, all as provided in the Purchase Contract Agreement and more
fully described on the reverse hereof. The purchase price for the shares of
Common Stock purchased pursuant to each Purchase Contract evidenced hereby will
be paid by application of the Proceeds from the Treasury Securities pledged to
secure the obligations under such Purchase Contract in accordance with the
terms of the Pledge Agreement.
The Company shall pay on each Payment Date in respect of each
Purchase Contract evidenced hereby an amount (the "Contract Adjustment
Payments") equal to __% per annum of the Stated Amount, computed on the basis
of the actual number of days elapsed in a year of 360 day year of twelve 30 day
months, as the case may be, subject to deferral at the option of the Company as
provided in the Purchase Contract Agreement and more fully described on the
reverse hereof. Such Contract Adjustment Payments shall be payable to the
Person in whose name this Growth PRIDES Certificate (or a Predecessor Growth
PRIDES Certificate) is registered at the close of business on the Record Date
for such Payment Date.
Contract Adjustment Payments will be payable at the office of the
Agent in The City of New York or, at the option of the Company, by check mailed
to the address of the Person entitled thereto as such address appears on the
Growth PRIDES Register.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Agent by manual signature, this Growth PRIDES Certificate shall not be
entitled to any benefit under the Pledge Agreement or the Purchase Contract
Agreement or be valid or obligatory for any purpose.
B-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
CENDANT CORPORATION
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to
obligations of such Holder under
the Purchase Contracts)
By: THE FIRST NATIONAL BANK OF
CHICAGO, not individually but
solely as Attorney-in-Fact of
such Holder
By:
---------------------------
Name:
Title:
Dated:
<PAGE>
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Growth PRIDES referred to in the within-mentioned
Purchase Contract Agreement.
By: THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
By:
----------------------------
Authorized Officer
<PAGE>
(Reverse of
Growth PRIDES Certificate)
Each Purchase Contract evidenced hereby is governed by a Purchase
Contract Agreement, dated as of _______ ___, 1998 (as may be supplemented from
time to time, the "Purchase Contract Agreement") between the Company and The
First National Bank of Chicago, as Purchase Contract Agent (including its
successors thereunder, herein called the "Agent"), to which the Purchase
Contract Agreement and supplemental agreements thereto reference is hereby made
for a description of the respective rights, limitations of rights, obligations,
duties and immunities thereunder of the Agent, the Company and the Holders and
of the terms upon which the Growth PRIDES Certificates are, and are to be,
executed and delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Growth PRIDES Certificate to purchase, and the Company to sell, on the Purchase
Contract Settlement Date at a price equal to the Stated Amount (the "Purchase
Price") a number of shares of Common Stock of the Company equal to the
Settlement Rate, unless on or prior to the Purchase Contract Settlement Date,
there shall have occurred a Termination Event or an Early Settlement with
respect to the Security of which such Purchase Contract is a part. The
"Settlement Rate" is equal to (a) if the Applicable Market Value (as defined
below) is equal to or greater than $ (the "Threshold Appreciation Price"),
shares of Common Stock per Purchase Contract, (b) if the Applicable Market
Value is less than the Threshold Appreciation Price but is greater than $ , the
number of shares of Common Stock per Purchase Contract equal to the Stated
Amount divided by the Applicable Market Value and (c) if the Applicable Market
Amount is less than or equal to $ , then shares of Common Stock per Purchase
Contract, in each case subject to adjustment as provided in the Purchase
Contract Agreement. No fractional shares of Common Stock will be issued upon
settlement of Purchase Contracts, as provided in the Purchase Contract
Agreement.
The "Applicable Market Value" means the average of the Closing Prices
per share of Common Stock on each of the twenty consecutive Trading Days ending
on the third Trading Day immediately preceding the Purchase Contract Settlement
Date. The "Closing Price" of the Common Stock on any date of determination
means the closing sale price (or, if no closing price is reported, the last
reported sale price) of the Common Stock on the New York Stock Exchange (the
"NYSE") on such date or, if the Common Stock is not listed for trading on the
NYSE on any such date, as reported in the composite transactions for the
principal United States securities exchange on which the Common Stock is so
listed, or if the Common Stock is not so listed on a United States national or
regional securities exchange, as reported by The Nasdaq Stock Market, or, if
the Common Stock is not so reported, the last quoted bid price for the Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, or, if such bid price is not available, the
market value of the Common Stock on such date as determined by a nationally
recognized independent investment banking firm retained for this purpose by the
Company. A "Trading Day" means a day on which the Common Stock (A) is not
suspended from
<PAGE>
trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the
Common Stock.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Growth PRIDES Certificate shall pay the Purchase Price for the
shares of Common Stock purchased pursuant to each Purchase Contract evidenced
hereby by effecting either an Early Settlement of each such Purchase Contract
or by applying a principal amount of the Pledged Treasury Securities underlying
such Holder's Growth PRIDES equal to the Stated Amount of such Purchase
Contract to the purchase of the Common Stock.
The Company shall not be obligated to issue any shares of Common Stock
in respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment in full of the aggregate purchase
price for the shares of Common Stock to be purchased thereunder in the manner
herein set forth.
Each Purchase Contract evidenced hereby and all obligations and rights
of the Company and the Holder thereunder shall terminate if a Termination Event
shall have occurred. Upon the occurrence of a Termination Event, the Company
shall give written notice to the Agent and to the Holders, at their addresses
as they appear in the Growth PRIDES Register. Upon and after the occurrence of
a Termination Event, the Collateral Agent shall release the Pledged Treasury
Securities (as defined in the Pledge Agreement) forming a part of each Growth
PRIDES.
The Growth PRIDES Certificates are issuable only in registered form
and only in denominations of a single Growth PRIDES and any integral multiple
thereof. The transfer of any Growth PRIDES Certificate will be registered and
Growth PRIDES Certificates may be exchanged as provided in the Purchase
Contract Agreement. The Growth PRIDES Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents
permitted by the Purchase Contract Agreement. No service charge shall be
required for any such registration of transfer or exchange, but the Company and
the Agent may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. A Holder who elects to
substitute Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, for Treasury
Securities, thereby recreating Income PRIDES, shall be responsible for any fees
or expenses associated therewith. Except as provided in the Purchase Contract
Agreement, for so long as the Purchase Contract underlying a Growth PRIDES
remains in effect, such Growth PRIDES shall not be separable into its
constituent parts, and the rights and obligations of the Holder of such Growth
PRIDES in respect of the Treasury Security and the Purchase Contract
constituting such Growth PRIDES may be transferred and exchanged only as a
Growth PRIDES. A Holder of Growth PRIDES may create or recreate Income PRIDES
by delivering to the Collateral Agent Preferred Securities
B-6
<PAGE>
or the appropriate Applicable Ownership Interest of the Treasury Portfolio,
with a Stated Amount, in the case of such Preferred Securities, or with the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, in the case of such
appropriate Applicable Ownership Interest of the Treasury Portfolio, equal to
the aggregate principal amount of the Pledged Treasury Securities in exchange
for the release of such Pledged Treasury Securities in accordance with the
terms of the Purchase Contract Agreement and the Pledge Agreement. From and
after such substitution, the Holder's Security shall be referred to as an
"Income PRIDES." Such substitution may cause the equivalent aggregate principal
amount of this Certificate to be increased or decreased; provided, however, the
equivalent aggregate principal amount outstanding under this Growth PRIDES
Certificate shall not exceed $200,000,000. All such adjustments to the
equivalent aggregate principal amount of this Growth PRIDES Certificate shall
be duly recorded by placing an appropriate notation on the Schedule attached
hereto.
A Holder of an Income PRIDES may create or recreate a Growth PRIDES by
delivering to the Collateral Agent Treasury Securities in an aggregate
principal amount equal to the aggregate Stated Amount of the Pledged Preferred
Securities or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, as the
case may be, in exchange for the release of such Pledged Preferred Securities
or the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, in accordance with the terms of the Purchase Contract
Agreement and the Pledge Agreement. Any such recreation of a Growth PRIDES may
be effected only in multiples of 20 Income PRIDES for 20 Growth PRIDES;
provided, however, if a Tax Event Redemption has occurred and the Treasury
Portfolio has become a component of the Income PRIDES, a Holder may make such
Collateral Substitution in integral multiples of 32,000 Income PRIDES for
32,000 Growth PRIDES.
Subject to the next succeeding paragraph, the Company shall pay, on
each Payment Date, the Contract Adjustment Payments payable in respect of each
Purchase Contract to the Person in whose name the Growth PRIDES Certificate
evidencing such Purchase Contract is registered at the close of business on the
Record Date for such Payment Date. Contract Adjustment Payments will be payable
at the office of the Agent in The City of New York or, at the option of the
Company, by check mailed to the address of the Person entitled thereto at such
address as it appears on the Growth PRIDES Register.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments otherwise payable on any Payment Date, but only if the
Company shall give the Holders and the Agent written notice of its election to
defer such payment (specifying the amount to be deferred) as provided in the
Purchase Contract Agreement. Any Contract Adjustment Payments so deferred shall
bear additional Contract Adjustment Payments thereon at the rate of ____% per
annum (computed on the basis of a 360 day year of twelve 30 day months),
compounding on each succeeding Payment Date, until paid in full (such deferred
B-7
<PAGE>
installments of Contract Adjustment Payments together with the additional
Contract Adjustment Payments accrued thereon, are referred to herein as the
"Deferred Contract Adjustment Payments"). Deferred Contract Adjustment
Payments, if any, shall be due on the next succeeding Payment Date except to
the extent that payment is deferred pursuant to the Purchase Contract
Agreement. No Contract Adjustment Payments may be deferred to a date that is
after the Purchase Contract Settlement Date.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, the Holder of this Growth PRIDES Certificate will receive on
the Purchase Contract Settlement Date, in lieu of a cash payment, a number of
Shares of Common Stock equal to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to the Holder of the Growth PRIDES Certificate
divided by (y) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or
acquisitions of shares of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security outstanding on the date of such event requiring the
Company to purchase capital stock of the Company, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion
of one class or series of the Company's capital stock for another class or
series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of the Company's capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of the
Company (or rights to acquire capital stock) or repurchases or redemptions of
capital stock solely from the issuance or exchange of capital stock or (v)
redemptions or repurchases of any rights outstanding under a shareholder rights
plan and the declaration thereunder of a dividend of right in the future).
The Purchase Contracts and all obligations and rights of the Company
and the Holders thereunder, including, without limitation, the rights of the
Holders to receive and the obligation of the Company to pay Contract Adjustment
Payments or any Deferred Contract Adjustment Payments, shall immediately and
automatically terminate, without the necessity of any notice or action by any
Holder, the Agent or the Company, if, on or prior to the Purchase Contract
Settlement Date, a Termination Event shall have occurred. Upon the occurrence
of a Termination Event, the Company shall promptly but in no event later than
two business days thereafter give written notice to the Agent, the Collateral
Agent and to the Holders, at their addresses as they appear in the Growth
PRIDES Register. Upon and after
B-8
<PAGE>
the occurrence of a Termination Event, the Collateral Agent shall release the
Treasury Securities from the Pledge in accordance with the provisions of the
Pledge Agreement.
Subject to and upon compliance with the provisions of the Purchase
Contract Agreement, at the option of the Holder thereof, Purchase Contracts
underlying Securities having an aggregate Stated Amount equal to $1,000 or an
integral multiple thereof may be settled early ("Early Settlement") as provided
in the Purchase Contract Agreement. In order to exercise the right to effect
Early Settlement with respect to any Purchase Contracts evidenced by this
Growth PRIDES Certificate, the Holder of this Growth PRIDES Certificate shall
deliver this Growth PRIDES Certificate to the Agent at the Corporate Trust
Office duly endorsed for transfer to the Company or in blank with the form of
Election to Settle Early set forth below duly completed and accompanied by
payment in the form of immediately available funds payable to the order of the
Company in an amount (the "Early Settlement Amount") equal to (i) the product
of (A) the Stated Amount times (B) the number of Purchase Contracts with
respect to which the Holder has elected to effect Early Settlement, plus (ii)
if such delivery is made with respect to any Purchase Contracts during the
period from the close of business on any Record Date for any Payment Date to
the opening of business on such Payment Date, an amount equal to the Contract
Adjustment Payments payable, if any, on such Payment Date with respect to such
Purchase Contracts. Upon Early Settlement of Purchase Contracts by a Holder of
the related Securities, the Pledged Treasury Securities underlying such
Securities shall be released from the Pledge as provided in the Pledge
Agreement and the Holder shall be entitled to receive, a number of shares of
Common Stock on account of each Purchase Contract forming part of a Growth
PRIDES as to which Early Settlement is effected equal to shares of Common Stock
per Purchase Contract (the "Early Settlement Rate"); provided however, that
upon the Early Settlement of the Purchase Contracts, the Holder thereof will
forfeit the right to receive any Deferred Contract Adjustment Payments on such
Purchase Contracts. The Early Settlement Rate shall be adjusted in the same
manner and at the same time as the Settlement Rate is adjusted as provided in
the Purchase Contract Agreement.
Upon registration of transfer of this Growth PRIDES Certificate, the
transferee shall be bound (without the necessity of any other action on the
part of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract
Agreement and the Purchase Contracts evidenced hereby and the transferor shall
be released from the obligations under the Purchase Contracts evidenced by this
Growth PRIDES Certificate. The Company covenants and agrees, and the Holder, by
his acceptance hereof, likewise covenants and agrees, to be bound by the
provisions of this paragraph.
The Holder of this Growth PRIDES Certificate, by his acceptance
hereof, authorizes the Agent to enter into and perform the related Purchase
Contracts forming part of the Growth PRIDES evidenced hereby on his behalf as
its attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company
B-9
<PAGE>
or its trustee in the event that the Company becomes the subject of a case
under the Bankruptcy Code, agrees to be bound by the terms and provisions
thereof, covenants and agrees to perform its obligations under such Purchase
Contracts, consents to the provisions of the Purchase Contract Agreement,
authorizes the Agent to enter into and perform the Pledge Agreement on his
behalf as his attorney-in-fact, and consents to the Pledge of the Treasury
Securities underlying this Growth PRIDES Certificate pursuant to the Pledge
Agreement. The Holder further covenants and agrees, that, to the extent and in
the manner provided in the Purchase Contract Agreement and the Pledge
Agreement, but subject to the terms thereof, payments in respect to the Stated
Amount of the Pledged Treasury Securities on the Purchase Contract Settlement
Date shall be paid by the Collateral Agent to the Company in satisfaction of
such Holder's obligations under such Purchase Contract and such Holder shall
acquire no right, title or interest in such payments.
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, and
construed in accordance with, the laws of the State of New York.
The Company, the Agent and its Affiliates and any agent of the Company
or the Agent may treat the Person in whose name this Growth PRIDES Certificate
is registered as the owner of the Growth PRIDES evidenced hereby for the
purpose of receiving payments of interest on the Treasury Securities, receiving
payments of Contract Adjustment Payments and any Deferred Contract Adjustment
Payments, performance of the Purchase Contracts and for all other purposes
whatsoever, whether or not any payments in respect thereof be overdue and
notwithstanding any notice to the contrary, and neither the Company, the Agent
nor any such agent shall be affected by notice to the contrary.
The Purchase Contracts shall not, prior to the settlement thereof,
entitle the Holder to any of the rights of a holder of shares of Common Stock.
A copy of the Purchase Contract Agreement is available for inspection
at the offices of the Agent.
B-10
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - ------------Custodian------------
(cust) (minor)
Under Uniform Gifts to Minors Act
---------------------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
Additional abbreviations may also be used though not in the above list.
---------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
---------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Growth PRIDES Certificates and all rights thereunder,
hereby irrevocably constituting and appointing
- -------------------------------------------------------------------------------
attorney to transfer said Growth PRIDES Certificates on the books of Cendant
with full power of substitution in the premises.
Dated: _________________ __________________________
Signature
NOTICE: The signature to
this assignment must
correspond with the name
as it appears upon the
face of the within Growth
PRIDES Certificates in
every particular, without
alteration or enlargement
or any change whatsoever.
Signature Guarantee:__________________
B-11
<PAGE>
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon settlement on or after the Purchase Contract Settlement
Date of the Purchase Contracts underlying the number of Growth PRIDES evidenced
by this Growth PRIDES Certificate be registered in the name of, and delivered,
together with a check in payment for any fractional share, to the undersigned
at the address indicated below unless a different name and address have been
indicated below. If shares are to be registered in the name of a Person other
than the undersigned, the undersigned will pay any transfer tax payable
incident thereto.
Dated:_______________________ ______________________________
Signature
Signature Guarantee:
If shares are to be registered
in the name of and delivered REGISTERED HOLDER
to a Person other than the
Holder, please print such
Person's name and address:
Please print name
and address of
Registered
Holder:
- ---------------------------- ----------------------------
Name Name
- ---------------------------- ----------------------------
Address Address
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
Social Security or other
Taxpayer Identification
Number, if any ----------------------------
B-12
<PAGE>
ELECTION TO SETTLE EARLY
The undersigned Holder of this Growth PRIDES Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Growth PRIDES evidenced by this Growth
PRIDES Certificate specified below. The option to effect Early Settlement may
be exercised only with respect to Purchase Contracts underlying Growth PRIDES
with an aggregate Stated Amount equal to $1,000 or an integral multiple
thereof. The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon such Early Settlement be registered in the name of, and
delivered, together with a check in payment for any fractional share and any
Growth PRIDES Certificate representing any Growth PRIDES evidenced hereby as to
which Early Settlement of the related Purchase Contracts is not effected, to
the undersigned at the address indicated below unless a different name and
address have been indicated below. Pledged Treasury Securities deliverable upon
such Early Settlement will be transferred in accordance with the transfer
instructions set forth below. If shares are to be registered in the name of a
Person other than the undersigned, the undersigned will pay any transfer tax
payable incident thereto.
Dated:______________________ __________________________
Signature
Signature Guarantee: _________________________
B-13
<PAGE>
Number of Securities evidenced hereby as to which Early Settlement of
the related Purchase Contracts is being elected:
If shares of Common Stock of Growth REGISTERED HOLDER
PRIDES Certificates are to be regis-
tered in the name of and delivered to
and Pledged Treasury Securities are to
be transferred to a Person other than
the Holder, please print such Person's
name and address:
Please print name
and address of
Registered
Holder:
- ---------------------------- ----------------------------
Name Name
- ---------------------------- ----------------------------
Address Address
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
Social Security or other
Taxpayer Identification
Number, if any ----------------------------
Transfer Instructions for Pledged Treasury Securities Transferable
Upon Early Settlement or a Termination Event:
- ------------------------------------
- ------------------------------------
- ------------------------------------
B-14
<PAGE>
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global
Certificate have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of of this Global Signature of
decrease in increase in Certificate authorized
Principal Amount Principal Amount following such officer of Trustee
of the Global of the Global decrease or or Securities
Date Certificate Certificate increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
B-15
<PAGE>
EXHIBIT C
INSTRUCTION FROM PURCHASE CONTRACT AGENT TO
COLLATERAL AGENT
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10010-2697
Attention: Corporate Trust Administration Department
Re: FELINE PRIDES of Cendant Corporation (the "Company"),
and Cendant Capital I
We hereby notify you in accordance with Section 4.1 of the
Pledge Agreement, dated as of _______ ___, 1998, among the Company, yourselves,
as Collateral Agent, and ourselves, as Purchase Contract Agent and as
attorney-in-fact for the holders of [Income PRIDES] [Growth PRIDES] from time
to time, that the holder of securities listed below (the "Holder") has elected
to substitute [$_____ aggregate [principal amount] of Treasury Securities]
[$_______ Stated Amount of Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be,] in exchange
for the [Pledged Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be,] [Pledged Treasury
Securities] held by you in accordance with the Pledge Agreement and has
delivered to us a notice stating that the Holder has Transferred [Treasury
Securities] [Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be,] to you, as Collateral
Agent. We hereby instruct you, upon receipt of such [Pledged Treasury
Securities] [Pledged Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be], and upon the
payment by such Holder of any applicable fees, to release the [Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be,] [Treasury Securities] related to such [Income
PRIDES] [Growth PRIDES] to us in accordance with the Holder's instructions.
Date:____________________ _________________________________
By:______________________________
Name:
Title:
Signature Guarantee:_____________
<PAGE>
Please print name and address of Registered Holder electing to substitute
[Treasury Securities] [Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be,] for the
[Pledged Preferred Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be,] [Pledged Treasury Securities]:
_____________________________ _____________________________
Name Social Security or other Taxpayer
Identification Number, if any
_____________________________
Address
_____________________________
_____________________________
C-2
<PAGE>
EXHIBIT D
INSTRUCTION TO PURCHASE CONTRACT AGENT
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
Re: FELINE PRIDES of Cendant Corporation (the "Company"),
and Cendant Capital I
The undersigned Holder hereby notifies you that it has
delivered to The Chase Manhattan Bank, as Collateral Agent, $_______ aggregate
principal amount of [Treasury Securities] [Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be,] in exchange for the [Pledged Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be,] [Pledged Treasury Securities] held by the Collateral Agent, in
accordance with Section 4.1 of the Pledge Agreement, dated _______ ___, 1998,
between you, the Company and the Collateral Agent. The undersigned Holder has
paid the Collateral Agent all applicable fees relating to such exchange. The
undersigned Holder hereby instructs you to instruct the Collateral Agent to
release to you on behalf of the undersigned Holder the [Pledged Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be,] [Pledged Treasury Securities] related to such
[Income PRIDES] [Growth PRIDES].
Date:____________________ _________________________________
By:______________________________
Signature Guarantee:_____________
Dated:
Please print name and address of Registered Holder:
_________________________ _________________________________
Name Social Security or other Taxpayer
Identification Number, if any
Address
_________________________
_________________________
_________________________
<PAGE>
EXHIBIT E
NOTICE TO SETTLE BY SEPARATE CASH
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
Re: FELINE PRIDES of Cendant Corporation (the "Company"),
and Cendant Capital I
The undersigned Holder hereby irrevocably notifies you in
accordance with Section 5.4 of the Purchase Contract Agreement, dated as of
______ ___, 1998 among the Company, yourselves, as Purchase Contract Agent and
as Attorney-in-Fact for the Holders of the Purchase Contracts, that such Holder
has elected to pay to the Collateral Agent, on or prior to 11:00 a.m. New York
City time, on the Business Day immediately preceding the Purchase Contract
Settlement Date, (in lawful money of the United States by [certified or
cashiers check or] wire transfer, in each case in immediately available funds),
$_________ as the Purchase Price for the shares of Common Stock issuable to
such Holder by the Company under the related Purchase Contract on the Purchase
Contract Settlement Date. The undersigned Holder hereby instructs you to notify
promptly the Collateral Agent of the undersigned Holders election to make such
cash settlement with respect to the Purchase Contracts related to such Holder's
[Income PRIDES] [Growth PRIDES].
Date:____________________ _________________________________
By:______________________________
Signature Guarantee:_____________
Dated:
Please print name and address of Registered Holder:
_________________________ _________________________________
Name Social Security or other Taxpayer
Identification Number, if any
Address
_________________________
_________________________
_________________________
<PAGE>
CENDANT CORPORATION,
THE CHASE MANHATTAN BANK,
as Collateral Agent
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
FORM OF PLEDGE AGREEMENT
Dated as of , 1998
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions....................................................2
Section 2. Pledge; Control and Perfection.................................7
Section 2.1. The Pledge.....................................................7
Section 2.2. Control and Perfection.........................................9
Section 3. Distributions on Pledged Collateral...........................10
Section 4. Substitution, Release, Repledge and
Settlement of Preferred Securities............................12
Section 4.1. Substitution of Preferred Securities and
the Establishment of Growth PRIDES............................12
Section 4.2. Pledge of Preferred Securities and Re-
establishment of Income PRIDES................................13
Section 4.3. Termination Event.............................................14
Section 4.4. Cash Settlement...............................................15
Section 4.5. Early Settlement..............................................17
Section 4.6. Application of Proceeds Settlement. .........................17
Section 5. Voting Rights -- Preferred Securities.........................19
Section 6. Rights and Remedies; Distribution of the
Debentures; Tax Event Redemption..............................20
Section 6.1. Rights and Remedies of the Collateral
Agent.........................................................20
Section 6.2. Distribution of the Debentures; Tax Event
Redemption....................................................22
Section 6.3. Substitutions. ...............................................23
Section 7. Representations and Warranties;
i
<PAGE>
Page
Covenants.....................................................23
Section 7.1. Representations and Warranties................................23
Section 7.2. Covenants.....................................................24
Section 8. The Collateral Agent..........................................25
Section 8.1. Appointment, Powers and Immunities............................25
Section 8.2. Instructions of the Company...................................26
Section 8.3. Reliance by Collateral Agent..................................26
Section 8.4. Rights in Other Capacities....................................27
Section 8.5. Non-Reliance on Collateral Agent..............................27
Section 8.6. Compensation and Indemnity....................................28
Section 8.7. Failure to Act................................................28
Section 8.8. Resignation of Collateral Agent...............................29
Section 8.9. Right to Appoint Agent or Advisor.............................30
Section 8.10. Survival......................................................30
Section 8.11. Exculpation...................................................30
Section 9. Amendment.....................................................30
Section 9.1. Amendment Without Consent of Holders..........................30
Section 9.2. Amendment with Consent of Holders.............................31
Section 9.3. Execution of Amendments.......................................32
Section 9.4. Effect of Amendments..........................................32
Section 9.5. Reference to Amendments.......................................32
Section 10. Miscellaneous.................................................33
Section 10.1. No Waiver.....................................................33
ii
<PAGE>
Page
Section 10.2. Governing Law................................................33
Section 10.3. Notices......................................................33
Section 10.4. Successors and Assigns.......................................34
Section 10.5. Counterparts.................................................34
Section 10.6. Severability.................................................34
Section 10.7. Expenses, etc................................................34
Section 10.8. Security Interest Absolute...................................35
EXHIBIT A INSTRUCTION TO COLLATERAL AGENT
EXHIBIT B INSTRUCTION TO PURCHASE CONTRACT AGENT
iii
<PAGE>
PLEDGE AGREEMENT
FORM OF PLEDGE AGREEMENT, dated as of , 1998 (this
"Agreement"), among Cendant Corporation, a Delaware corporation (the
"Company"), The Chase Manhattan Bank, a New York banking corporation, not
individually but solely as collateral agent (in such capacity, together with
its successors in such capacity, the "Collateral Agent") and in its capacity as
a "securities intermediary" as defined in Section 8-102(a)(14) of the Code (as
defined herein) (in such capacity, together with its successors in such
capacity, the "Securities Intermediary"), and The First National Bank of
Chicago, not individually but solely as purchase contract agent and as
attorney-in-fact of the Holders (as defined in the Purchase Contract Agreement)
from time to time of the Securities (as hereinafter defined) (in such capacity,
together with its successors in such capacity, the "Purchase Contract Agent")
under the Purchase Contract Agreement (as hereinafter defined).
RECITALS
The Company and the Purchase Contract Agent are parties to the
Purchase Contract Agreement, dated as of the date hereof (as modified and
supplemented and in effect from time to time, the "Purchase Contract
Agreement"), pursuant to which there may be issued up to FELINE PRIDES and %
Trust Originated Preferred Securities (the "Preferred Securities" and, together
with the FELINE PRIDES, the "Securities").
The FELINE PRIDES will initially consist of (A) ,000,000 units
(referred to as "Income PRIDES") with a Stated Amount, per Income PRIDES, of
$50 (the "Stated Amount") and (B) at least 2,000,000 units (referred to as
"Growth PRIDES") with a face amount, per Growth PRIDES, equal to the Stated
Amount. Each Income PRIDES will initially consist of a unit comprised of (a) a
stock purchase contract (a "Purchase Contract") under which (i) the holder will
purchase from the Company on , 2001 (the "Purchase Contract Settlement
Date"), for an amount of cash equal to the Stated Amount, a number of newly
issued shares of common stock, $0.01 par value per share (the "Common Stock"),
of the Company equal to the Settlement Rate and (ii) the Company will pay the
holder Contract Adjustment Payments at the rate of % of the
<PAGE>
Stated Amount per annum and (b) either beneficial ownership of a Trust
Preferred Security or upon the occurrence of a Tax Event Redemption the
Applicable Ownership Interest of the Treasury Portfolio. Each Growth PRIDES
will initially consist of a unit comprised of (a) a Purchase Contract under
which (i) the holder will purchase from the Company on the Purchase Contract
Settlement Date, for an amount in cash equal to the Stated Amount, a number of
newly issued shares of Common Stock of the Company, equal to the Settlement
Rate, and (ii) the Company will pay the holder Contract Adjustment Payments, at
the rate of % of the Stated Amount per annum, and (b) a 1/20 undivided
beneficial interest in a % zero-coupon U.S. Treasury Security (CUSIP No. )
having a principal amount equal to $1,000 and maturing on , 2001
(the "Treasury Securities").
Pursuant to the terms of the Purchase Contract Agreement and the
Purchase Contracts, the Holders, from time to time, of the Securities have
irrevocably authorized the Purchase Contract Agent, as attorney-in-fact of such
Holders, among other things, to execute and deliver this Agreement on behalf of
such Holders and to grant the pledge provided hereby of the Preferred
Securities and any Treasury Securities delivered in exchange therefor to secure
each Holder's obligations under the related Purchase Contract, as provided
herein and subject to the terms hereof. Upon such pledge, the Preferred
Securities will be beneficially owned by the Holders but will be owned of
record by the Purchase Contract Agent subject to the Pledge hereunder.
Accordingly, the Company, the Collateral Agent, the Securities
Intermediary and the Purchase Contract Agent, on its own behalf and as
attorney-in-fact of the Holders from time to time of the Securities, agree as
follows:
Section 1. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the
singular;
(b) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this
2
<PAGE>
Agreement as a whole and not to any particular Article, Section or
other subdivision;
(c) the following terms have the meanings assigned to them in the
Purchase Contract Agreement: (i) Act, (ii) Agent, (iii) Board
Resolution, (iv) Cash Settlement, (v) Certificate, (vi) Common Stock,
(vii) Contract Adjustment Payments, (viii) Debentures, (ix) Early
Settlement, (x) Early Settlement Amount, (xi) Early Settlement Date,
(xii) Failed Remarketing, (xiii) Holder, (xiv) Opinion of Counsel,
(xv) Outstanding Securities, (xvi) Purchase Agreement, (xvii) Purchase
Contract, (xviii) Purchase Contract Settlement Date, (xix) Purchase
Price, (xx) Remarketing Agent, (xxi) Remarketing Agreement, (xxii)
Remarketing Underwriting Agreement, (xxiii) Settlement Rate, and
(xxiv) Termination Event; and
(d) the following terms have the meanings assigned to them in the
Declaration: (i) Applicable Ownership Interest (ii) Applicable
Principal Amount, (iii) Institutional Trustee, (iv) Investment Company
Event,(v) Primary Treasury Dealer, (vi) Quotation Agent, (vii)
Redemption Amount, (viii) Redemption Price, (ix) Tax Event, (x) Tax
Event Redemption, (xi) Tax Event Redemption Date, (xii) Treasury
Portfolio, (xiii) Treasury Portfolio Purchase Price.
"Agreement" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more agreements
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Bankruptcy Code" means title 11 of the United States Code, or any
other law of the United States that from time to time provides a uniform system
of bankruptcy laws.
"Business Day" means any day other than a Saturday, a Sunday or any
other day on which banking institutions in The City of New York (in the State
of New York) are permitted or required by any applicable law to close.
3
<PAGE>
"Cash" means any coin or currency of the United States as at the time
shall be legal tender for payment of public and private debts.
"Code" has the meaning specified in Section 6.1 hereof.
"Collateral" has the meaning specified in Section 2.1 hereof.
"Collateral Account" means the trust account (number ) maintained
at The Chase Manhattan Bank in the name "The First National Bank of Chicago",
as Purchase Contract Agent on behalf of the holders of certain securities of
Cendant Capital I, Collateral Account subject to the security interest of The
Chase Manhattan Bank, as Collateral Agent, for the benefit of Cendant
Corporation, as pledgee and any successor account.
"Collateral Agent" has the meaning specified in the first paragraph of
this instrument.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor shall have become such, and
thereafter "Company" shall mean such successor.
"Debenture Trustee" means The Bank of Nova Scotia Trust Company of New
York, as trustee under the Indenture until a successor is appointed thereunder,
and thereafter means such successor trustee.
"Declaration" means the Amended and Restated Declaration of Trust,
dated as of , 1998, among the Company as sponsor, the trustees named therein
and the holders from time to time of undivided beneficial interests in the
assets of the Trust.
"Intermediary" means any entity that in the ordinary course of its
business maintains securities accounts for others and is acting in that
capacity.
"Permitted Investments" means any one of the following which shall
mature not later than the next succeeding Business Day (i) any evidence of
indebtedness with an original maturity of 365 days or less issued, or directly
and fully guaranteed or insured, by the United
4
<PAGE>
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof or such indebtedness constitutes a general obligation of it); (ii)
deposits, certificates of deposit or acceptances with an original maturity of
365 days or less of any institution which is a member of the Federal Reserve
System having combined capital and surplus and undivided profits of not less
than US$ 200.0 million at the time of deposit; (iii) investments with an
original maturity of 365 days or less of any Person that is fully and
unconditionally guaranteed by a bank referred to in clause (ii); (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States Government; (v) investments in commercial paper,
other than commercial paper issued by the Company or its affiliates, of any
corporation incorporated under the laws of the United States or any State
thereof, which commercial paper has a rating at the time of purchase at least
equal to "A-1" by Standard & Poor's Ratings Services or at least equal to "P-1"
by Moody's Investors Service, Inc.; and (vi) investments in money market funds
registered under the Investment Company Act of 1940, as amended, rated in the
highest applicable rating category by S&P or Moody's.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge" has the meaning specified in Section 2.1 hereof.
"Pledged Preferred Securities" has the meaning specified in Section
2.1 hereof.
"Pledged Treasury Securities" has the meaning specified in Section 2.1
hereof.
"Preferred Securities" has the meaning specified in the Recitals.
5
<PAGE>
"Proceeds" means all interest, dividends, cash, instruments,
securities, financial assets (as defined in ss. 8-102(a)(9) of the Code) and
other property from time to time received, receivable or otherwise distributed
upon the sale, exchange, collection or disposition of the Collateral or any
proceeds thereof.
"Purchase Contract" has the meaning specified in the Recitals.
"Purchase Contract Agent" has the meaning specified in the first
paragraph of this Agreement.
"Purchase Contract Agreement" has the meaning specified in the
Recitals.
"Securities" has the meaning specified in the Recitals.
"Securities Intermediary" has the meaning specified in the first
paragraph of this Agreement.
"Security Entitlement" has the meaning set forth in Section
8-102(a)(17) of the Code.
"Stated Amount" has the meaning specified in the Recitals.
"TRADES" means the Treasury/Reserve Automated Debt Entry System
maintained by the Federal Reserve Bank of New York pursuant to the TRADES
Regulations.
"TRADES Regulations" means the regulations of the United States
Department of the Treasury, published at 31 C.F.R. Part 357, as amended from
time to time. Unless otherwise defined herein, all terms defined in the TRADES
Regulations are used herein as therein defined.
"Transfer" means, with respect to the Collateral and in accordance
with the instructions of the Collateral Agent, the Purchase Contract Agent or
the Holder, as applicable:
(i) in the case of Collateral consisting of securities which cannot
be delivered by book-entry or which the parties agree are to be
delivered in physical form, delivery in appro-
6
<PAGE>
priate physical form to the recipient accompanied by any duly
executed instruments of transfer, assignments in blank, transfer
tax stamps and any other documents necessary to constitute a
legally valid transfer to the recipient;
(ii) in the case of Collateral consisting of securities maintained in
book-entry form by causing a "securities intermediary" (as
defined in Section 8-102(a)(14) of the Code) to (i) credit a
"securities entitlement" (as defined in Section 8-102(a)(17) of
the Code) with respect to such securities to a "securities
account" (as defined in Section 8-501(a) of the Code) maintained
by or on behalf of the recipient and (ii) to issue a confirmation
to the recipient with respect to such credit.
"Treasury Security" means a zero-coupon U.S. Treasury Security (Cusip
Number 91280 AZ0) which are the principal strips of the 7 3/4% U.S. Treasury
Securities which mature on February 15, 2001.
"Trust" has the meaning specified in the Recitals.
"Value" with respect to any item of Collateral on any date means, as
to (i) a Preferred Security, the Stated Amount, (ii) Cash, the face amount
thereof and (iii) Treasury Securities, the aggregate principal amount thereof
at maturity.
Section 2. Pledge; Control and Perfection.
Section 2.1. The Pledge. The Holders from time to time acting through
the Purchase Contract Agent, as their attorney-in-fact, hereby pledge and grant
to the Collateral Agent, for the benefit of the Company, as collateral security
for the performance when due by such Holders of their respective obligations
under the related Purchase Contracts, a security interest in (i) all of the
right, title and interest of such Holders (a) in the Preferred Securities
constituting a part of the Securities and all Proceeds thereof and any Treasury
Securities delivered in exchange for such Preferred Securities in accordance
with Section 4 hereof, in each case that have been Transferred
7
<PAGE>
to or received by the Collateral Agent and not released by the Collateral Agent
to such Holders under the provisions of this Agreement (the "Collateral"); (b)
in payments made by Holders pursuant to Section 4.4; (c) in the Collateral
Account and all securities, financial assets and other property credited
thereto and all Security Entitlements related thereto; (d) in any Debentures
delivered to the Collateral Agent upon the occurrence of an Investment Company
Event or a liquidation of the Trust as provided in Section 6.2; (e) in the
Treasury Portfolio purchased on behalf of the Holders of Income PRIDES by the
Collateral Agent upon the occurrence of a Tax Event Redemption as provided in
Section 6.2 and (f) all proceeds of the foregoing. Prior to or concurrently
with the execution and delivery of this Agreement, the Purchase Contract Agent,
on behalf of the initial Holders of the Income PRIDES, shall cause the
Preferred Securities comprising a part of the Income PRIDES to be delivered to
the Collateral Agent for the benefit of the Company by physically delivering
such securities to the Collateral Agent endorsed in blank and the Collateral
Agent delivering such securities to the Securities Intermediary and causing the
Securities Intermediary to credit the Collateral Account with such securities
and send the Collateral Agent a confirmation of the deposit of such securities.
In the event a Holder of Income PRIDES so elects, such Holder may Transfer
Treasury Securities to the Collateral Agent for the benefit of the Company in
exchange for the release by the Collateral Agent on behalf of the Company of
Preferred Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, with an aggregate stated liquidation
amount equal to the aggregate principal amount of the Treasury Securities so
Transferred, in the case of Preferred Securities, or with an appropriate
Applicable Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio equal to the aggregate principal amount of
the Treasury Securities so transferred, in the event that a Tax Event
Redemption has occurred, to the Purchase Contract Agent on behalf of such
Holder. Treasury Securities and the Treasury Portfolio, as applicable, shall be
Transferred to the Collateral Account maintained by the Collateral Agent at the
Securities Intermediary by book-entry transfer to the Collateral Account in
accordance with the TRADES Regulations and other applicable law and by the
notation by the Securities Intermediary on its books that
8
<PAGE>
a Security Entitlement with respect to such Treasury Securities or Treasury
Portfolio, has been credited to the Collateral Account. For purposes of
perfecting the Pledge under applicable law, including, to the extent
applicable, the TRADES Regulations or the Uniform Commercial Code as adopted
and in effect in any applicable jurisdiction, the Collateral Agent shall be the
agent of the Company as provided herein. The pledge provided in this Section
2.1 is herein referred to as the "Pledge" and the Preferred Securities (or the
Debentures that are delivered pursuant to Section 6.2 hereof) or Treasury
Securities subject to the Pledge, excluding any Preferred Securities (or the
Debentures that are delivered pursuant to Section 6.2 hereof) or Treasury
Securities released from the Pledge as provided in Section 4 hereof, are
hereinafter referred to as "Pledged Preferred Securities" or the "Pledged
Treasury Securities," respectively. Subject to the Pledge and the provisions of
Section 2.2 hereof, the Holders from time to time shall have full beneficial
ownership of the Collateral. Whenever directed by the Collateral Agent acting
on behalf of the Company, the Securities Intermediary shall have the right to
reregister the Preferred Securities or any other securities held in physical
form in its name.
Except as may be required in order to release Preferred Securities in
connection with a Holder's election to convert its investment from an Income
PRIDES to a Growth PRIDES, or except as otherwise required to release
securities as specified herein, neither the Collateral Agent nor the Securities
Intermediary shall relinquish physical possession of any certificate evidencing
a Preferred Security prior to the termination of this Agreement. If it becomes
necessary for the Securities Intermediary to relinquish physical possession of
a certificate in order to release a portion of the Preferred Securities
evidenced thereby from the Pledge, the Securities Intermediary shall use its
best efforts to obtain physical possession of a replacement certificate
evidencing any Preferred Securities remaining subject to the Pledge hereunder
registered to it or endorsed in blank within fifteen days of the date it
relinquished possession. The Securities Intermediary shall promptly notify the
Company and the Collateral Agent of the Securities Intermediary's failure to
obtain possession of any such replacement certificate as required hereby.
9
<PAGE>
Section 2.2. Control and Perfection. In connection with the Pledge
granted in Section 2.1, and subject to the other provisions of this Agreement,
the Holders from time to time acting through the Purchase Contract Agent, as
their attorney-in-fact, hereby authorize and direct the Securities Intermediary
(without the necessity of obtaining the further consent of the Purchase
Contract Agent or any of the Holders), and the Securities Intermediary agrees,
to comply with and follow any instructions and entitlement orders (as defined
in ss. 8-102(a)(8) of the Code) that the Collateral Agent on behalf of the
Company may give in writing with respect to the Collateral Account, the
Collateral credited thereto and any security entitlements with respect to any
thereof. Such instructions and entitlement orders may, without limitation,
direct the Securities Intermediary to transfer, redeem, sell, liquidate,
assign, deliver or otherwise dispose of the Preferred Securities, the Treasury
Securities, the Treasury Portfolio, and any Security Entitlements with respect
thereto and to pay and deliver any income, proceeds or other funds derived
therefrom to the Company. The Holders from time to time acting through the
Purchase Contract Agent hereby further authorize and direct the Collateral
Agent, as agent of the Company, to itself issue instructions and entitlement
orders, and to otherwise take action, with respect to the Collateral Account,
the Collateral credited thereto and any security entitlements with respect
thereto, pursuant to the terms and provisions hereof, all without the necessity
of obtaining the further consent of the Purchase Contract Agent or any of the
Holders. The Collateral Agent shall be the Agent of the Company and shall act
as directed in writing by the Company. Without limiting the generality of the
foregoing, the Collateral Agent shall issue entitlement orders to the
Securities Intermediary when and as directed by the Company.
Section 3. Distributions on Pledged Collateral. So long as the
Purchase Contract Agent is the registered owner of the Pledged Preferred
Securities, it shall receive all payments thereon. If the Pledged Preferred
Securities are reregistered, such that the Collateral Agent becomes the
registered holder, all payments of the Stated Amount of or, if applicable, the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, or cash distributions on,
the Pledged Preferred
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Securities or on the appropriate Applicable Ownership Interest (as specified in
clause (B) of the definition of such term) of the Treasury Portfolio, as the
case may be, and all payments of the principal of, or cash distributions on,
any Pledged Treasury Securities received by the Collateral Agent that are
properly payable hereunder shall be paid by the Collateral Agent by wire
transfer in same day funds:
(i) In the case of (A) cash distributions with respect to the
Pledged Preferred Securities or the appropriate Applicable Ownership
Interest (as specified in clause (B) of the definition of such term)
of the Treasury Portfolio, as the case may be, and (B) any payments of
the Stated Amount or, if applicable, the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of
such term) of the Treasury Portfolio with respect to any Preferred
Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, that have been released from
the Pledge pursuant to Section 4.3 hereof, to the Purchase Contract
Agent, for the benefit of the relevant Holders of Securities, to the
account designated by the Purchase Contract Agent for such purpose, no
later than 2:00 p.m., New York City time, on the Business Day such
payment is received by the Collateral Agent (provided that in the
event such payment is received by the Collateral Agent on a day that
is not a Business Day or after 12:30 p.m., New York City time, on a
Business Day, then such payment shall be made no later than 10:30
a.m., New York City time, on the next succeeding Business Day);
(ii) In the case of any principal payments with respect to any
Treasury Securities that have been released from the Pledge pursuant
to Section 4.3 hereof, to the Holders of the Growth PRIDES to the
accounts designated by them in writing for such purpose no later than
2:00 p.m., New York City time, on the Business Day such payment is
received by the Collateral Agent (provided that in the event such
payment is received by the Collateral Agent on a day that is not a
Business Day or after 12:30 p.m., New York City time, on a Business
Day, then such payment
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shall be made no later than 10:30 a.m., New York City time, on
the next succeeding Business Day); and
(iii) In the case of payments of the Stated Amount of any
Pledged Preferred Securities or the appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, as the case may be, or the principal of any
Pledged Treasury Securities, to the Company on the Purchase Contract
Settlement Date in accordance with the procedure set forth in Section
4.6(a) or 4.6(b) hereof, in full satisfaction of the respective
obligations of the Holders under the related Purchase Contracts.
All payments received by the Purchase Contract Agent as provided herein shall
be applied by the Purchase Contract Agent pursuant to the provisions of the
Purchase Contract Agreement. If, notwithstanding the foregoing, the Purchase
Contract Agent shall receive any payments of the Stated Amount or, if
applicable, the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) on account of any Preferred Security
or the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable that, at the time of such payment, is a Pledged Preferred Security
or the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, or a Holder of a Growth PRIDES shall receive any payments of
principal on account of any Treasury Securities that, at the time of such
payment, are Pledged Treasury Securities, the Purchase Contract Agent or such
Holder shall hold the same as trustee of an express trust for the benefit of
the Company (and promptly deliver the same over to the Company) for application
to the obligations of the Holders under the related Purchase Contracts, and the
Holders shall acquire no right, title or interest in any such payments of
Stated Amount or principal so received.
Section 4. Substitution, Release, Repledge and Settlement of Preferred
Securities.
Section 4.1. Substitution of Preferred Securities and the Creation of
Growth PRIDES or Income PRIDES.
At any time on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement
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Date (unless a Tax Event Redemption has occurred), a Holder of Income PRIDES
shall have the right to substitute Treasury Securities for the Pledged
Preferred Securities securing such Holder's obligations under the Purchase
Contract(s) comprising a part of its Income PRIDES in integral multiples of 20
Income PRIDES by (a) Transferring to the Collateral Agent Treasury Securities
having a Value equal to the Stated Amount of the Pledged Preferred Securities
to be released and (b)(i) in the event that Contract Adjustment Payments are at
a higher rate for Growth PRIDES than for Income PRIDES, delivering cash in an
amount equal to the excess of the Contract Adjustment Payments that would have
accrued since the last Payment Date through the date of substitution on the
Growth PRIDES being created by the holder, over the Contract Adjustment
Payments that have accrued over the same time period on the related Income
PRIDES, which amount the Purchase Contract Agent shall promptly remit to the
Company, and (ii) delivering the related Income PRIDES to the Purchase Contract
Agent, accompanied by a notice, substantially in the form of Exhibit B hereto,
to the Purchase Contract Agent stating that such Holder has Transferred
Treasury Securities to the Collateral Agent pursuant to clause (a) above
(stating the Value of the Treasury Securities Transferred by such Holder) and
requesting that the Purchase Contract Agent instruct the Collateral Agent to
release from the Pledge the Pledged Preferred Securities related to such Income
PRIDES. The Purchase Contract Agent shall instruct the Collateral Agent in the
form provided in Exhibit A; provided, however, that if a Tax Event Redemption
has occurred and the Treasury Portfolio has become a component of the Income
PRIDES, Holders of Income PRIDES may make such substitution only in integral
multiples of 32,000 Income PRIDES at any time on or prior to the second
Business Day immediately preceding the Purchase Contract Settlement Date. Upon
receipt of Treasury Securities from a Holder of Income PRIDES and the related
instruction from the Purchase Contract Agent, the Collateral Agent shall
release the Pledged Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, and shall
promptly Transfer such Pledged Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
free and clear of any lien, pledge or security interest created hereby, to the
Purchase Contract Agent.
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(B) At any time on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date (unless a Tax Event Redemption
has occurred), a Holder of Growth PRIDES shall have the right to establish or
reestablish Income PRIDES consisting of the Purchase Contracts and Preferred
Securities in integral multiples of 20 Income PRIDES by (a) Transferring to the
Collateral Agent Preferred Securities having a Stated Amount equal to the
Stated Amount of the Pledged Treasury Securities to be released and (b)(i) in
the event that Contract Adjustment Payments are at a higher rate for Income
PRIDES than for Growth PRIDES, holders of Growth PRIDES wishing to recreate
Income PRIDES will also be required to deliver cash in an amount equal to the
excess of the Contract Adjustment Payments that would have accrued since the
last payment date through the date of substitution on the Income PRIDES being
recreated by such holders, over the Contract Adjustment Payments that have
accrued over the same time period on the related Growth PRIDES and (ii)
delivering the related Growth PRIDES to the Purchase Contract Agent,
accompanied by a notice, substantially in the form of Exhibit B hereto, to the
Purchase Contract Agent stating that such Holder has transferred Preferred
Securities to the Collateral Agent pursuant to clause (a) above and requesting
that the Purchase Contract Agent instruct the Collateral Agent to release from
the Pledge the Pledged Treasury Securities related to such Growth PRIDES. The
Purchase Contract Agent shall instruct the Collateral Agent in the form
provided in Exhibit A; provided, however, that if a Tax Event Redemption has
occurred and the Treasury Portfolio has become a component of the Income
PRIDES, Holders of Growth PRIDES may make such substitution only in integral
multiples of 32,000 Growth PRIDES, at any time on or prior to the Business Day
immediately preceding the Purchase Contract Settlement Date. Upon receipt of
the Preferred Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be, from such Holder and the
instruction from the Purchase Contract Agent, the Collateral Agent shall
release the Treasury Securities and shall promptly Transfer such Treasury
Securities, free and clear of any lien, pledge or security interest created
hereby, to the Purchase Contract Agent.
Section 4.2. Pledge of Preferred Securities and Reestablishment of
Income PRIDES or Growth PRIDES.
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At any time on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date (unless a Tax Event Redemption
has occurred), a Holder of Income PRIDES shall have the right to substitute
Treasury Securities for the Pledged Preferred Securities securing such Holder's
obligations under the Purchase Contract(s) comprising a part of its Income
PRIDES in integral multiples of 20 Income PRIDES by (a) Transferring to the
Collateral Agent Treasury Securities having a Value equal to the Stated Amount
of the Pledged Preferred Securities to be released and (b)(i) in the event that
Contract Adjustment Payments are at a higher rate for Growth PRIDES than for
Income PRIDES, delivering cash in an amount equal to the excess of the Contract
Adjustment Payments that would have accrued since the last Payment Date through
the date of substitution on the Growth PRIDES being created by the holder, over
the Contract Adjustment Payments that have accrued over the same time period on
the related Income PRIDES, which amount the Purchase Contract Agent shall
promptly remit to the Company, and (ii) delivering the related Income PRIDES to
the Purchase Contract Agent, accompanied by a notice, substantially in the form
of Exhibit B hereto, to the Purchase Contract Agent stating that such Holder
has Transferred Treasury Securities to the Collateral Agent pursuant to clause
(a) above (stating the Value of the Treasury Securities Transferred by such
Holder) and requesting that the Purchase Contract Agent instruct the Collateral
Agent to release from the Pledge the Pledged Preferred Securities related to
such Income PRIDES. The Purchase Contract Agent shall instruct the Collateral
Agent in the form provided in Exhibit A; provided, however, that if a Tax Event
Redemption has occurred and the Treasury Portfolio has become a component of
the Income PRIDES, Holders of Income PRIDES may make such substitution only in
integral multiples of 32,000 Income PRIDES at any time on or prior to the
second Business Day immediately preceding the Purchase Contract Settlement
Date. Upon receipt of Treasury Securities from a Holder of Income PRIDES and
the related instruction from the Purchase Contract Agent, the Collateral Agent
shall release the Pledged Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, and shall
promptly Transfer such Pledged Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
free and clear of any lien, pledge or
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security interest created hereby, to the Purchase Contract Agent.
(B) At any time on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date (unless a Tax Event Redemption
has occurred), a Holder of Growth PRIDES shall have the right to establish or
reestablish Income PRIDES consisting of the Purchase Contracts and Preferred
Securities in integral multiples of 20 Income PRIDES by (a) Transferring to the
Collateral Agent Preferred Securities having a Stated Amount equal to the
Stated Amount of the Pledged Treasury Securities to be released and (b) (i) in
the event that Contract Adjustment Payments are at a higher rate for Income
PRIDES than for Growth PRIDES, holders of Growth PRIDES wishing to recreate
Income PRIDES will also be required to deliver cash in an amount equal to the
excess of the Contract Adjustment Payments that would have accrued since the
last payment date through the date of substitution on the Income PRIDES being
recreated by such holders, over the Contract Adjustment Payments that have
accrued over the same time period on the related Growth PRIDES and (ii)
delivering the related Growth PRIDES to the Purchase Contract Agent,
accompanied by a notice, substantially in the form of Exhibit B hereto, to the
Purchase Contract Agent stating that such Holder has transferred Preferred
Securities to the Collateral Agent pursuant to clause (a) above and requesting
that the Purchase Contract Agent instruct the Collateral Agent to release from
the Pledge the Pledged Treasury Securities related to such Growth PRIDES. The
Purchase Contract Agent shall instruct the Collateral Agent in the form
provided in Exhibit A; provided, however, that if a Tax Event Redemption has
occurred and the Treasury Portfolio has become a component of the Income
PRIDES, Holders of Growth PRIDES may make such substitution only in integral
multiples of 32,000 Growth PRIDES, at any time on or prior to the Business Day
immediately preceding the Purchase Contract Settlement Date. Upon receipt of
the Preferred Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be, from such Holder and the
instruction from the Purchase Contract Agent, the Collateral Agent shall
release the Treasury Securities and shall promptly Transfer such Treasury
Securities, free and clear of any lien, pledge or security interest created
hereby, to the Purchase Contract Agent.
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Section 4.3. Termination Event. Upon receipt by the Collateral Agent
of written notice from the Company or the Purchase Contract Agent that there
has occurred a Termination Event, the Collateral Agent shall release all
Collateral from the Pledge and shall promptly Transfer any Pledged Preferred
Securities (or the Applicable Ownership Interest of the Treasury Portfolio if a
Tax Event Redemption has occurred) and Pledged Treasury Securities to the
Purchase Contract Agent for the benefit of the Holders of the Income PRIDES and
the Growth PRIDES, respectively, free and clear of any lien, pledge or security
interest or other interest created hereby.
If such Termination Event shall result from the Company's becoming a
debtor under the Bankruptcy Code, and if the Collateral Agent shall for any
reason fail promptly to effectuate the release and Transfer of all Pledged
Preferred Securities, the Treasury Portfolio or of the Pledged Treasury
Securities, as the case may be, as provided by this Section 4.3, the Purchase
Contract Agent shall (i) use its best efforts to obtain an opinion of a
nationally recognized law firm reasonably acceptable to the Collateral Agent to
the effect that, as a result of the Company's being the debtor in such a
bankruptcy case, the Collateral Agent will not be prohibited from releasing or
Transferring the Collateral as provided in this Section 4.3, and shall deliver
such opinion to the Collateral Agent within ten days after the occurrence of
such Termination Event, and if (y) the Purchase Contract Agent shall be unable
to obtain such opinion within ten days after the occurrence of such Termination
Event or (z) the Collateral Agent shall continue, after delivery of such
opinion, to refuse to effectuate the release and Transfer of all Pledged
Preferred Securities, of the Treasury Portfolio or of the Pledged Treasury
Securities, as the case may be, as provided in this Section 4.3, then the
Purchase Contract Agent shall within fifteen days after the occurrence of such
Termination Event commence an action or proceeding in the court with
jurisdiction of the Company's case under the Bankruptcy Code seeking an order
requiring the Collateral Agent to effectuate the release and transfer of all
Pledged Preferred Securities, of the Treasury Portfolio or of the Pledged
Treasury Securities, as the case may be, as provided by this Section 4.3 or
(ii) commence an action or proceeding like that described in subsection (i)(z)
hereof within ten days after the occurrence of such Termination Event.
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Section 4.4. Cash Settlement. (a) Upon receipt by the Collateral Agent
of (i) a notice from the Purchase Contract Agent promptly after the receipt by
the Purchase Contract Agent of such notice that a Holder of an Income PRIDES or
Growth PRIDES has elected, in accordance with the procedures specified in
Section 5.4(a)(i) or (d)(i) of the Purchase Contract Agreement, respectively,
to settle its Purchase Contract with cash and (ii) payment by such Holder on or
prior to 11:00 a.m., New York City time, on the Business Day immediately
preceding the Purchase Contract Settlement Date in lawful money of the United
States by certified or cashiers' check or wire transfer in immediately
available funds payable to or upon the order of the Company, then the
Collateral Agent shall, upon the written direction of the Purchase Contract
Agent, promptly invest any Cash received from a Holder in connection with a
Cash Settlement in Permitted Investments. Upon receipt of the proceeds upon the
maturity of the Permitted Investments on the Purchase Contract Settlement Date,
the Collateral Agent shall pay the portion of such proceeds and deliver any
certified or cashiers' checks received, in an aggregate amount equal to the
Purchase Price, to the Company on the Purchase Contract Settlement Date, and
shall distribute any funds in respect of the interest earned from the Permitted
Investments to the Purchase Contract Agent for payment to the relevant Holders.
(b) If a Holder of an Income PRIDES fails to notify the Agent of its
intention to make a Cash Settlement in accordance with paragraph 5.4(a)(i) of
the Purchase Contract Agreement, such failure shall constitute an event of
default under the Purchase Contract Agreement and hereunder, and the Holder
shall be deemed to have consented to the disposition of the pledged Preferred
Securities pursuant to the remarketing as described in paragraph 5.4(b) of the
Purchase Contract Agreement, which is incorporated herein by reference. If a
Holder of an Income PRIDES does notify the Agent as provided in paragraph
5.4(a)(i) of the Purchase Contract Agreement of its intention to pay the
Purchase Price in cash, but fails to make such payment as required by paragraph
5.4(a)(ii) of the Purchase Contract Agreement, the Preferred Securities of such
a Holder will not be remarketed but instead the Collateral Agent, for the
benefit of the Company, will exercise its rights as a secured party with
respect to such Preferred Securities at the direction of
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the Company to retain or dispose of the Collateral in accordance with
applicable law. In addition, in the event of a Failed Remarketing as described
in paragraph 5.4(b) of the Purchase Contract Agreement, such Failed Remarketing
shall constitute an event of default hereunder by such Holder and the
Collateral Agent, for the benefit of the Company, will also exercise its rights
as a secured party with respect to such Preferred Securities at the direction
of the Company to retain or dispose of the Collateral in accordance with
applicable law.
(c) If a Holder of a Growth PRIDES fails to notify the Purchase
Contract Agent of such Holder's intention to make a Cash Settlement in
accordance with paragraph 5.4(d)(i) of the Purchase Contract Agreement, or if a
Holder of an Income PRIDES does notify the Agent as provided in paragraph
(d)(i) of the Purchase Contract Agreement of its intention to pay the Purchase
Price in cash, but fails to make such payment as required by paragraph
5.4(d)(ii) of the Purchase Contract Agreement, such failure shall constitute an
event of default hereunder by such Holder and upon the maturity of any Pledged
Treasury Securities or the Treasury Portfolio, if any, held by the Collateral
Agent on the Business Day immediately preceding the Purchase Contract
Settlement Date, the principal amount of the Pledged Treasury Securities or the
Treasury Portfolio received by the Collateral Agent shall, upon written
direction of the Purchase Contract Agent, be invested promptly in Permitted
Investments. On the Purchase Contract Settlement Date, an amount equal to the
Purchase Price will be remitted to the Company as payment thereof. In the event
the sum of the proceeds from the related Pledged Treasury Securities or the
Treasury Portfolio, as the case may be, and the investment earnings earned from
such investments is in excess of the aggregate Purchase Price of the Purchase
Contracts being settled thereby, the Collateral Agent will distribute such
excess to the Purchase Contract Agent for the benefit of the Holder of the
related Growth PRIDES or Income PRIDES when received.
Section 4.5. Early Settlement. Upon written notice to the Collateral
Agent by the Purchase Contract Agent that one or more Holders of Securities
have elected to effect Early Settlement of their respective obligations under
the Purchase Contracts forming a part of such Securities in accordance with the
terms of the Purchase
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Contracts and the Purchase Contract Agreement (setting forth the number of such
Purchase Contracts as to which such Holders have elected to effect Early
Settlement), and that the Purchase Contract Agent has received from such
Holders, and paid to the Company as confirmed in writing by the Company, the
related Early Settlement Amounts pursuant to the terms of the Purchase
Contracts and the Purchase Contract Agreement and that all conditions to such
Early Settlement have been satisfied, then the Collateral Agent shall release
from the Pledge, (a) Pledged Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio in the case of a Holder of Income
PRIDES or (b) Pledged Treasury Securities in the case of a Holder of Growth
PRIDES, as the case may be, with a principal amount equal to the product of (i)
the Stated Amount times (ii) the number of such Purchase Contracts as to which
such Holders have elected to effect Early Settlement and shall Transfer all
such Pledged Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio or Pledged Treasury Securities, as the case
may be, free and clear of the Pledge created hereby, to the Purchase Contract
Agent for the benefit of the Holders.
Section 4.6. Application of Proceeds Settlement. (a) In the event a
Holder of Income PRIDES (if a Tax Event Redemption has not occurred) has not
elected to make an effective Cash Settlement by notifying the Purchase Contract
Agent in the manner provided for in paragraph 5.4(a)(i) in the Purchase
Contract Agreement or has not made an Early Settlement of the Purchase
Contract(s) underlying its Income PRIDES, such Holder shall be deemed to have
elected to pay for the shares of Common Stock to be issued under such Purchase
Contract(s) from the Proceeds of the related Pledged Preferred Securities. The
Collateral Agent shall, by 10:00 a.m., New York City time, on the fourth
Business Day immediately preceding the Purchase Contract Settlement Date,
without any instruction from such Holder of Income PRIDES, present the related
Pledged Preferred Securities to the Remarketing Agent for remarketing. Upon
receiving such Pledged
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Preferred Securities, the Remarketing Agent, pursuant to the terms of the
Remarketing Agreement and the Remarketing Underwriting Agreement, will use its
reasonable efforts to remarket such Pledged Preferred Securities on such date
at a price not less than approximately 100.5% of the aggregate Stated Amount of
such Pledged Preferred Securities, plus accrued and unpaid distributions
(including deferred distributions), if any, thereon. After deducting as the
Remarketing Fee an amount not exceeding 25 basis points (.25%) of the aggregate
Stated Amount of the Pledged Preferred Securities from any amount of such
Proceeds in excess of the aggregate Stated Amount, plus such accrued and unpaid
distributions (including deferred distributions) of the remarketed Pledged
Preferred Securities, the Remarketing Agent will remit the entire amount of the
Proceeds of such remarketing to the Collateral Agent. On the Purchase Contract
Settlement Date, the Collateral Agent shall apply that portion of the Proceeds
from such remarketing equal to the aggregate Stated Amount, plus such accrued
and unpaid distributions (including deferred distributions) of such Pledged
Preferred Securities, to satisfy in full the obligations of such Holders of
Income PRIDES to pay the Purchase Price to purchase the Common Stock under the
related Purchase Contracts. The remaining portion of such Proceeds, if any,
shall be distributed by the Collateral Agent to the Purchase Contract Agent for
payment to the Holders. If the Remarketing Agent advises the Collateral Agent
in writing that it cannot remarket the related Pledged Preferred Securities of
such Holders of Income PRIDES at a price not less than 100% of the aggregate
Stated Amount of such Pledged Preferred Securities plus any accrued and unpaid
distributions (including deferred distributions), thus resulting in a Failed
Remarketing and an event of default under the Purchase Contract Agreement and
hereunder, the Collateral Agent, for the benefit of the Company will, at the
written direction of the Company, retain or dispose of the Pledged Preferred
Securities in accordance with applicable law and satisfy in full, from any such
disposition or retention, such Holder's obligation to pay the Purchase Price
for the Common Stock.
(b) In the event a Holder of Growth PRIDES or Income PRIDES (if a Tax
Event Redemption has occurred) has not made an Early Settlement of the Purchase
Contract(s) underlying its Growth PRIDES or Income PRIDES, such Holder shall be
deemed to have elected to pay for the shares of Common Stock to be issued under
such Purchase Contract(s) from the Proceeds of the related Pledged Treasury
Securities or the Treasury Portfolio, as the case may be. On the Business Day
immediately prior to the Purchase Contract Settlement Date, the Collateral
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Agent shall, at the written direction of the Purchase Contract Agent, invest
the Cash proceeds of the maturing Pledged Treasury Securities or the Treasury
Portfolio, as the case may be, in overnight Permitted Investments. Without
receiving any instruction from any such Holder of Growth PRIDES or Income
PRIDES, the Collateral Agent shall apply the Proceeds of the related Pledged
Treasury Securities or Treasury Portfolio to the settlement of such Purchase
Contracts on the Purchase Contract Settlement Date.
In the event the sum of the Proceeds from the related Pledged Treasury
Securities or Treasury Portfolio and the investment earnings from the
investment in overnight Permitted Investments is in excess of the aggregate
Purchase Price of the Purchase Contracts being settled thereby, the Collateral
Agent shall distribute such excess, when received, to the Purchase Contract
Agent for the benefit of the Holders.
(c) Pursuant to the Remarketing Agreement and subject to the terms of
the Remarketing Underwriting Agreement, on or prior to the Business Day
immediately preceding the Purchase Contract Settlement Date, but no earlier
than the Business Day immediately preceding the Purchase Contract Settlement
Date, holders of separate Preferred Securities which are not components of
Income PRIDES may elect to have their Preferred Securities remarketed by
delivering their Preferred Securities along with a notice of such election to
the Collateral Agent. The Collateral Agent will hold such Preferred Securities
in an account separate from the collateral account in which the Pledged
Securities will be held. Holders of Preferred Securities electing to have their
Preferred Securities remarketed will also have the right to withdraw such
election by written notice to the Collateral Agent on or prior to the Business
Day immediately preceding the Purchase Contract Settlement Date, upon which
notice the Collateral Agent will return such Preferred Securities to such
holders. On the fourth Business Day immediately preceding the Purchase Contract
Settlement Date, the Collateral Agent will deliver the Preferred Securities to
the Remarketing Agent for remarketing. The Remarketing Agent will use its
reasonable efforts to remarket such Preferred Securities on such date at a
price of approximately 100.5% of the aggregate stated liquidation amount of
such Preferred
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Securities, plus accrued and unpaid distributions (including deferred
distributions), if any, thereon. The portion of the proceeds from such
remarketing equal to the aggregate stated liquidation amount of such Preferred
Securities will automatically be remitted by the Remarketing Agent to the
Collateral Agent for the benefit of such Preferred Securities holders. In
addition, after deducting as the Remarketing Fee an amount not exceeding 25
basis points (.25%) of the aggregate stated liquidation amount of the
remarketed securities, from any amount of such proceeds in excess of the
aggregate stated liquidation amount of the remarketed Trust Preferred
Securities plus any accrued and unpaid distributions (including deferred
distributions, if any), the Remarketing Agent will remit to the Collateral
Agent the remaining portion of the proceeds, if any, for the benefit of such
holder. If, despite using its reasonable efforts, the Remarketing Agent advises
the Collateral Agent in writing that it cannot remarket the related Preferred
Securities of such holders at a price not less than 100% of the aggregate
stated liquidation amount of such Preferred Securities plus accrued and unpaid
distributions (including deferred distributions) and thus resulting in a Failed
Remarketing, the Remarketing Agent will promptly return such Trust Preferred
Securities to the Collateral Agent to release to such holders.
Section 5. Voting Rights -- Preferred Securities. The Purchase
Contract Agent may exercise, or refrain from exercising, any and all voting and
other consensual rights pertaining to the Pledged Preferred Securities or any
part thereof for any purpose not inconsistent with the terms of this Agreement
and in accordance with the terms of the Purchase Contract Agreement; provided,
that the Purchase Contract Agent shall not exercise or, as the case may be,
shall not refrain from exercising such right if, in the judgment of the
Company, such action would impair or otherwise have a material adverse effect
on the value of all or any of the Pledged Preferred Securities; and provided,
further, that the Purchase Contract Agent shall give the Company and the
Collateral Agent at least five days' prior written notice of the manner in
which it intends to exercise, or its reasons for refraining from exercising,
any such right. Upon receipt of any notices and other communications in respect
of any Pledged Preferred Securities, including notice of any meeting at which
holders of Preferred Securities are entitled to
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vote or solicitation of consents, waivers or proxies of holders of Preferred
Securities, the Collateral Agent shall use reasonable efforts to send promptly
to the Purchase Contract Agent such notice or communication, and as soon as
reasonably practicable after receipt of a written request therefor from the
Purchase Contract Agent, execute and deliver to the Purchase Contract Agent
such proxies and other instruments in respect of such Pledged Preferred
Securities (in form and substance satisfactory to the Collateral Agent) as are
prepared by the Purchase Contract Agent with respect to the Pledged Preferred
Securities.
Section 6. Rights and Remedies; Distribution of the Debentures; Tax
Event Redemption
Section 6.1. Rights and Remedies of the Collateral Agent. (a) In
addition to the rights and remedies specified in Section 4.4 hereof or
otherwise available at law or in equity, after an event of default hereunder,
the Collateral Agent shall have all of the rights and remedies with respect to
the Collateral of a secured party under the Uniform Commercial Code as in
effect in the State of New York (the "Code") (whether or not the Code is in
effect in the jurisdiction where the rights and remedies are asserted) and the
TRADES Regulations and such additional rights and remedies to which a secured
party is entitled under the laws in effect in any jurisdiction where any rights
and remedies hereunder may be asserted. Without limiting the generality of the
foregoing, such remedies may include, to the extent permitted by applicable
law, (i) retention of the Pledged Preferred Securities or other Collateral in
full satisfaction of the Holders obligations under the Purchase Contracts or
(ii) sale of the Pledged Preferred Securities or other Collateral in one or
more public or private sales.
(b) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, in the event the Collateral Agent is unable
to make payments to the Company on account of the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio or on account of principal payments of any Pledged
Treasury Securities as provided in Section 3 hereof in satisfaction of the
obligations of the Holder of the Securities of which such Pledged Treasury
Securities, or the appro-
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priate Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio, as applicable, is a
part under the related Purchase Contracts, the inability to make such payments
shall constitute an event of default hereunder and the Collateral Agent shall
have and may exercise, with reference to such Pledged Treasury Securities, or
such appropriate Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio, as applicable, and such
obligations of such Holder, any and all of the rights and remedies available to
a secured party under the Code and the TRADES Regulations after default by a
debtor, and as otherwise granted herein or under any other law.
(c) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, the Collateral Agent is hereby irrevocably
authorized to receive and collect all payments of (i) the Stated Amount of or,
cash distributions on, the Pledged Preferred Securities, (ii) the principal
amount of the Pledged Treasury Securities, or (iii) the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, subject, in each case, to the provisions of Section
3, and as otherwise granted herein.
(d) The Purchase Contract Agent and each Holder of Securities, in the
event such Holder becomes the Holder of a Growth PRIDES, agrees that, from time
to time, upon the written request of the Collateral Agent, the Purchase
Contract Agent or such Holder shall execute and deliver such further documents
and do such other acts and things as the Collateral Agent may reasonably
request in order to maintain the Pledge, and the perfection and priority
thereof, and to confirm the rights of the Collateral Agent hereunder. The
Purchase Contract Agent shall have no liability to any Holder for executing any
documents or taking any such acts requested by the Collateral Agent hereunder,
except for liability for its own negligent act, its own negligent failure to
act or its own willful misconduct.
Section 6.2. Distribution of the Debentures; Tax Event Redemption.
Upon the occurrence of an Investment Company Event or a liquidation of the
Trust, a principal amount of the Debentures constituting the assets of the
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Trust and underlying the Preferred Securities equal to the aggregate Stated
Amount of the Pledged Preferred Securities shall be delivered to the Collateral
Agent in exchange for the Pledged Preferred Securities. In the event the
Collateral Agent receives such Debentures in respect of Pledged Preferred
Securities upon the occurrence of an Investment Company Event or liquidation of
the Trust, the Collateral Agent shall Transfer the Debentures to the Collateral
Account in the manner specified herein for Pledged Preferred Securities to
secure the obligations of the Holders of Income PRIDES to purchase the
Company's Common Stock under the related Purchase Contracts. Thereafter, the
Collateral Agent shall have such security interests, rights and obligations
with respect to the Debentures as it had in respect of the Pledged Preferred
Securities as provided in Articles II, III, IV, V and VI hereof, and any
reference herein to the Pledged Preferred Securities shall be deemed to be
referring to such Debentures.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principal Amount of Debentures
shall be delivered to the Collateral Agent by the Institutional Trustee or upon
a dissolution of the Trust and the distribution of the related Debentures by
the Debenture Trustee on or prior to 12:30 p.m., New York City time, by check
or wire transfer in immediately available funds at such place and at such
account as may be designated by the Collateral Agent in exchange for the
Pledged Preferred Securities or Debentures, as the case may be. In the event
the Collateral Agent receives such Redemption Price, the Collateral Agent will,
at the written direction of the Company, apply an amount equal to the
Redemption Amount of such Redemption Price to purchase from the Quotation
Agent, the Treasury Portfolio and promptly remit the remaining portion of such
Redemption Price to the Purchase Contract Agent for payment to the Holders of
Income PRIDES. The Collateral Agent shall Transfer the Treasury Portfolio to
the Collateral Account in the manner specified herein for Pledged Preferred
Securities to secure the obligation of all Holders of Income PRIDES to purchase
Common Stock of the Company under the Purchase Contracts constituting a part of
such Income PRIDES, in substitution for the Pledged Preferred Securities.
Thereafter the Collateral Agent shall have
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such security interests, rights and obligations with respect to the Treasury
Portfolio as it had in respect of the Pledged Preferred Securities or
Debentures, as the case may be, as provided in Articles II, III, IV, V, and VI,
and any reference herein to the Pledged Preferred Securities or the Debentures
shall be deemed to be reference to such Treasury Portfolio.
Section 6.3. Substitutions. Whenever a Holder has the right to
substitute Treasury Securities, Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
for Collateral held by the Collateral Agent, such substitution shall not
constitute a novation of the security interest created hereby.
Section 7. Representations and Warranties; Covenants.
Section 7.1. Representations and Warranties. The Holders from time to
time, acting through the Purchase Contract Agent as their attorney-in-fact (it
being understood that the Purchase Contract Agent shall not be liable for any
representation or warranty made by or on behalf of a Holder), hereby represent
and warrant to the Collateral Agent, which representations and warranties shall
be deemed repeated on each day a Holder Transfers Collateral that:
(a) such Holder has the power to grant a security interest in
and lien on the Collateral;
(b) such Holder is the sole beneficial owner of the Collateral
and, in the case of Collateral delivered in physical form,
is the sole holder of such Collateral and is the sole
beneficial owner of, or has the right to Transfer, the
Collateral it Transfers to the Collateral Agent, free and
clear of any security interest, lien, encumbrance, call,
liability to pay money or other restriction other than the
security interest and lien granted under Section 2 hereof;
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(c) upon the Transfer of the Collateral to the Collateral
Account, the Collateral Agent, for the benefit of the
Company, will have a valid and perfected first priority
security interest therein (assuming that any central
clearing operation or any Intermediary or other entity not
within the control of the Holder involved in the Transfer of
the Collateral, including the Collateral Agent, gives the
notices and takes the action required of it hereunder and
under applicable law for perfection of that interest and
assuming the establishment and exercise of control pursuant
to Section 2.2 hereof); and
(d) the execution and performance by the Holder of its
obligations under this Agreement will not result in the
creation of any security interest, lien or other encumbrance
on the Collateral other than the security interest and lien
granted under Section 2 hereof or violate any provision of
any existing law or regulation applicable to it or of any
mortgage, charge, pledge, indenture, contract or undertaking
to which it is a party or which is binding on it or any of
its assets.
Section 7.2. Covenants. The Holders from time to time, acting through
the Purchase Contract Agent as their attorney-in-fact (it being understood that
the Purchase Contract Agent shall not be liable for any covenant made by or on
behalf of a Holder), hereby covenant to the Collateral Agent that for so long
as the Collateral remains subject to the Pledge:
(a) neither the Purchase Contract Agent nor such Holders will
create or purport to create or allow to subsist any
mortgage, charge, lien, pledge or any other security
interest whatsoever over the Collateral or any part of it
other than pursuant to this Agreement; and
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(b) neither the Purchase Contract Agent nor such Holders will
sell or otherwise dispose (or attempt to dispose) of the
Collateral or any part of it except for the beneficial
interest therein, subject to the pledge hereunder,
transferred in connection with the Transfer of the
Securities.
Section 8. The Collateral Agent. It is hereby agreed as follows:
Section 8.1. Appointment, Powers and Immunities. The Collateral Agent
shall act as agent for the Company hereunder with such powers as are
specifically vested in the Collateral Agent by the terms of this Agreement,
together with such other powers as are reasonably incidental thereto. The
Collateral Agent: (a) shall have no duties or responsibilities except those
expressly set forth in this Agreement and no implied covenants or obligations
shall be inferred from this Agreement against the Collateral Agent, nor shall
the Collateral Agent be bound by the provisions of any agreement by any party
hereto beyond the specific terms hereof; (b) shall not be responsible for any
recitals contained in this Agreement, or in any certificate or other document
referred to or provided for in, or received by it under, this Agreement, the
Securities or the Purchase Contract Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement
(other than as against the Collateral Agent), the Securities or the Purchase
Contract Agreement or any other document referred to or provided for herein or
therein or for any failure by the Company or any other Person (except the
Collateral Agent) to perform any of its obligations hereunder or thereunder or
for the perfection, priority or, except as expressly required hereby,
maintenance of any security interest created hereunder; (c) shall not be
required to initiate or conduct any litigation or collection proceedings
hereunder (except pursuant to directions furnished under Section 8.2 hereof,
subject to Section 8.6 hereof); (d) shall not be responsible for any action
taken or omitted to be taken by it hereunder or under any other document or
instrument referred to or provided for herein or in connection herewith or
therewith, except for its own negligence or willful misconduct; and (e) shall
not be required to advise any party as to selling or retain-
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<PAGE>
ing, or taking or refraining from taking any action with respect to, any
securities or other property deposited hereunder. Subject to the foregoing,
during the term of this Agreement, the Collateral Agent shall take all
reasonable action in connection with the safekeeping and preservation of the
Collateral hereunder.
No provision of this Agreement shall require the Collateral Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder. In no event shall the Collateral
Agent be liable for any amount in excess of the Value of the Collateral.
Notwithstanding the foregoing, the Collateral Agent and Securities Intermediary
in its individual capacity hereby waive any right of setoff, bankers lien,
liens or perfection rights as securities intermediary or any counterclaim with
respect to any of the Collateral.
Section 8.2. Instructions of the Company. The Company shall have the
right, by one or more instruments in writing executed and delivered to the
Collateral Agent, to direct the time, method and place of conducting any
proceeding for the realization of any right or remedy available to the
Collateral Agent, or of exercising any power conferred on the Collateral Agent,
or to direct the taking or refraining from taking of any action authorized by
this Agreement; provided, however, that (i) such direction shall not conflict
with the provisions of any law or of this Agreement and (ii) the Collateral
Agent shall be adequately indemnified as provided herein. Nothing in this
Section 8.2 shall impair the right of the Collateral Agent in its discretion to
take any action or omit to take any action which it deems proper and which is
not inconsistent with such direction.
Section 8.3. Reliance by Collateral Agent. Each of the Securities
Intermediary and the Collateral Agent shall be entitled to rely upon any
certification, order, judgment, opinion, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telex or
facsimile) believed by it to be genuine and correct and to have been signed or
sent by or on behalf of the proper Person or Persons (without being required to
determine the correctness of any fact stated therein), and upon advice and
statements of legal counsel and other experts selected by the Collateral Agent
and
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the Securities Intermediary. As to any matters not expressly provided for by
this Agreement, the Collateral Agent and the Securities Intermediary shall in
all cases be fully protected in acting, or in refraining from acting, hereunder
in accordance with instructions given by the Company in accordance with this
Agreement.
Section 8.4. Rights in Other Capacities. The Collateral Agent and the
Securities Intermediary and their affiliates may (without having to account
therefor to the Company) accept deposits from, lend money to, make their
investments in and generally engage in any kind of banking, trust or other
business with the Purchase Contract Agent and any Holder of Securities (and any
of their respective subsidiaries or affiliates) as if it were not acting as the
Collateral Agent, and the Collateral Agent and its affiliates may accept fees
and other consideration from the Purchase Contract Agent and any Holder of
Securities without having to account for the same to the Company; provided that
each of the Securities Intermediary and the Collateral Agent covenants and
agrees with the Company that it shall not accept, receive or permit there to be
created in favor of itself and shall take no affirmative action to permit there
to be created in favor of any other Person, any security interest, lien or
other encumbrance of any kind in or upon the Collateral.
Section 8.5. Non-Reliance on Collateral Agent. Neither the Securities
Intermediary nor the Collateral Agent shall be required to keep itself informed
as to the performance or observance by the Purchase Contract Agent or any
Holder of Securities of this Agreement, the Purchase Contract Agreement, the
Securities or any other document referred to or provided for herein or therein
or to inspect the properties or books of the Purchase Contract Agent or any
Holder of Securities. The Collateral Agent shall not have any duty or
responsibility to provide the Company with any credit or other information
concerning the affairs, financial condition or business of the Purchase
Contract Agent or any Holder of Securities (or any of their respective
affiliates) that may come into the possession of the Collateral Agent or the
Securities Intermediary or any of their respective affiliates.
Section 8.6. Compensation and Indemnity. The Company agrees: (i) to
pay the Collateral Agent from time
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to time such compensation as shall be agreed in writing between the Company and
the Collateral Agent for all services rendered by it hereunder and (ii) to
indemnify the Collateral Agent and the Securities Intermediary for, and to hold
each of them harmless from and against, any loss, liability or reasonable
out-of-pocket expense incurred without negligence, willful misconduct or bad
faith on its part, arising out of or in connection with the acceptance or
administration of its powers and duties under this Agreement, including the
reasonable out-of-pocket costs and expenses (including reasonable fees and
expenses of counsel) of defending itself against any claim or liability in
connection with the exercise or performance of such powers and duties.
Section 8.7. Failure to Act. In the event of any ambiguity in the
provisions of this Agreement or any dispute between or conflicting claims by or
among the parties hereto or any other Person with respect to any funds or
property deposited hereunder, the Collateral Agent shall be entitled, after
prompt notice to the Company and the Purchase Contract Agent, at its sole
option, to refuse to comply with any and all claims, demands or instructions
with respect to such property or funds so long as such dispute or conflict
shall continue, and the Collateral Agent shall not be or become liable in any
way to any of the parties hereto for its failure or refusal to comply with such
conflicting claims, demands or instructions. The Collateral Agent shall be
entitled to refuse to act until either (i) such conflicting or adverse claims
or demands shall have been finally determined by a court of competent
jurisdiction or settled by agreement between the conflicting parties as
evidenced in a writing, satisfactory to the Collateral Agent or (ii) the
Collateral Agent shall have received security or an indemnity satisfactory to
the Collateral Agent sufficient to save the Collateral Agent harmless
from and against any and all loss, liability or reasonable out-of-pocket
expense which the Collateral Agent may incur by reason of its acting. The
Collateral Agent may in addition elect to commence an interpleader action or
seek other judicial relief or orders as the Collateral Agent may deem
necessary. Notwithstanding anything contained herein to the contrary, the
Collateral Agent shall not be required to take any action that is in its
opinion contrary to law or to the terms of this Agreement, or which would in
its
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opinion subject it or any of its officers, employees or directors to liability.
Section 8.8. Resignation of Collateral Agent. Subject to the
appointment and acceptance of a successor Collateral Agent as provided below,
(a) the Collateral Agent may resign at any time by giving notice thereof to the
Company and the Purchase Contract Agent as attorney-in-fact for the Holders of
Securities, (b) the Collateral Agent may be removed at any time by the Company
and (c) if the Collateral Agent fails to perform any of its material
obligations hereunder in any material respect for a period of not less than 20
days after receiving written notice of such failure by the Purchase Contract
Agent and such failure shall be continuing, the Collateral Agent may be removed
by the Purchase Contract Agent. The Purchase Contract Agent shall promptly
notify the Company of any removal of the Collateral Agent pursuant to clause
(c) of the immediately preceding sentence. Upon any such resignation or
removal, the Company shall have the right to appoint a successor Collateral
Agent. If no successor Collateral Agent shall have been so appointed and shall
have accepted such appointment within 30 days after the retiring Collateral
Agent's giving of notice of resignation or such removal, then the retiring
Collateral Agent may petition any court of competent jurisdiction for the
appointment of a successor Collateral Agent. The Collateral Agent shall be a
bank which has an office in New York, New York with a combined capital and
surplus of at least $750,000,000. Upon the acceptance of any appointment as
Collateral Agent hereunder by a successor Collateral Agent, such successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Collateral Agent, and the
retiring Collateral Agent shall take all appropriate action to transfer any
money and property held by it hereunder (including the Collateral) to such
successor Collateral Agent. The retiring Collateral Agent shall, upon such
succession, be discharged from its duties and obligations as Collateral Agent
hereunder. After any retiring Collateral Agent's resignation hereunder as
Collateral Agent, the provisions of this Section 8 shall continue in effect for
its benefit in respect of any actions taken or omitted to be taken by it while
it was acting as the Collateral Agent.
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Section 8.9. Right to Appoint Agent or Advisor. The Collateral Agent
shall have the right to appoint agents or advisors in connection with any of
its duties hereunder, and the Collateral Agent shall not be liable for any
action taken or omitted by, or in reliance upon the advice of, such agents or
advisors selected in good faith. The appointment of agents pursuant to this
Section 8.9 shall be subject to prior consent of the Company, which consent
shall not be unreasonably withheld.
Section 8.10. Survival. The provisions of this Section 8 shall survive
termination of this Agreement and the resignation or removal of the Collateral
Agent.
Section 8.11. Exculpation. Anything in this Agreement to the contrary
notwithstanding, in no event shall the Collateral Agent or the Securities
Intermediary or their officers, employees or agents be liable under this
Agreement to any third party for indirect, special, punitive, or consequential
loss or damage of any kind whatsoever, including lost profits, whether or not
the likelihood of such loss or damage was known to the Collateral Agent or the
Securities Intermediary, or any of them, incurred without any act or deed that
is found to be attributable to gross negligence or willful misconduct on the
part of the Collateral Agent or the Securities Intermediary.
Section 9. Amendment.
Section 9.1. Amendment Without Consent of Holders. Without the consent
of any Holders, the Company, the Collateral Agent and the Purchase Contract
Agent, at any time and from time to time, may amend this Agreement, in form
satisfactory to the Company, the Collateral Agent and the Purchase Contract
Agent, for any of the following purposes:
(1) to evidence the succession of another Person to the Company,
and the assumption by any such successor of the covenants of the
Company; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company so long as such covenants or such surrender do not adversely
affect the validity, perfection or priori-
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ty of the security interests granted or created hereunder; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Collateral Agent, Securities Intermediary or
Purchase Contract Agent; or
(4) to cure any ambiguity, to correct or supplement any
provisions herein which may be inconsistent with any other such
provisions herein, or to make any other provisions with respect to
such matters or questions arising under this Agreement, provided such
action shall not adversely affect the interests of the Holders.
Section 9.2. Amendment with Consent of Holders. With the consent of
the Holders of not less than a majority of the Purchase Contracts at the time
outstanding, by Act of said Holders delivered to the Company, the Purchase
Contract Agent or the Collateral Agent, as the case may be, the Company, when
duly authorized, the Purchase Contract Agent and the Collateral Agent may amend
this Agreement for the purpose of modifying in any manner the provisions of
this Agreement or the rights of the Holders in respect of the Securities;
provided, however, that no such supplemental agreement shall, without the
consent of the Holder of each Outstanding Security adversely affected thereby,
(1) change the amount or type of Collateral underlying a Security
(except for the rights of holders of Income PRIDES to substitute the
Treasury Securities for the Pledged Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio,
as the case may be, or the rights of Holders of Growth PRIDES to
substitute Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as applicable, for the
Pledged Treasury Securities), impair the right of the Holder of any
Security to receive distributions on the underlying Collateral or
otherwise adversely affect the Holder's rights in or to such
Collateral; or
(2) otherwise effect any action that would require the consent of
the Holder of each Outstand-
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ing Security affected thereby pursuant to the Purchase Contract
Agreement if such action were effected by an agreement supplemental
thereto; or
(3) reduce the percentage of Purchase Contracts the consent of
whose Holders is required for any such amendment.
It shall not be necessary for any Act of Holders under this Section to approve
the particular form of any proposed amendment, but it shall be sufficient if
such Act shall approve the substance thereof.
Section 9.3. Execution of Amendments. In executing any amendment
permitted by this Section, the Collateral Agent and the Purchase Contract Agent
shall be entitled to receive and (subject to Section 6.1 hereof, with respect
to the Collateral Agent, and Section 7.1 of the Purchase Contract Agreement,
with respect to the Purchase Contract Agent) shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Agreement and that all conditions
precedent, if any, to the execution and delivery of such amendment have been
satisfied.
Section 9.4. Effect of Amendments. Upon the execution of any amendment
under this Section, this Agreement shall be modified in accordance therewith,
and such amendment shall form a part of this Agreement for all purposes; and
every Holder of Certificates theretofore or thereafter authenticated, executed
on behalf of the Holders and delivered under the Purchase Contract Agreement
shall be bound thereby.
Section 9.5. Reference to Amendments. Security Certificates
authenticated, executed on behalf of the Holders and delivered after the
execution of any amendment pursuant to this Section may, and shall if required
by the Collateral Agent or the Purchase Contract Agent, bear a notation in form
approved by the Purchase Contract Agent and the Collateral Agent as to any
matter provided for in such amendment. If the Company shall so determine, new
Security Certificates so modified as to conform, in the opinion of the
Collateral Agent, the Purchase Contract Agent and the Company, to any such
amendment may be prepared and executed by the Company and authenticated,
executed on behalf of the Holders and
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delivered by the Purchase Contract Agent in accordance with the Purchase
Contract Agreement in exchange for Outstanding Security Certificates.
Section 10. Miscellaneous.
Section 10.1. No Waiver. No failure on the part of the Collateral
Agent or any of its agents to exercise, and no course of dealing with respect
to, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise by the
Collateral Agent or any of its agents of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. The remedies herein are cumulative and are not
exclusive of any remedies provided by law.
Section 10.2. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Without
limiting the foregoing, the above choice of law is expressly agreed to by the
Securities Intermediary, the Collateral Agent and the Holders from time to time
acting through the Purchase Contract Agent, as their attorney-in-fact, in
connection with the establishment and maintenance of the Collateral Account.
The Company, the Collateral Agent and the Holders from time to time of the
Securities, acting through the Purchase Contract Agent as their
attorney-in-fact, hereby submit to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
state court sitting in New York City for the purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby. The Company, the Collateral Agent and the Holders from time to time of
the Securities, acting through the Purchase Contract Agent as their
attorney-in-fact, irrevocably waive, to the fullest extent permitted by
applicable law, any objection which they may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum.
Section 10.3. Notices. All notices, requests, consents and other
communications provided for herein (including, without limitation, any
modifications of, or
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waivers or consents under, this Agreement) shall be given or made in writing
(including, without limitation, by telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the
signature pages hereof or, as to any party, at such other address as shall be
designated by such party in a notice to the other parties. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have
been duly given when transmitted by telecopier or personally delivered or, in
the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
Section 10.4. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Company, the Collateral Agent and the Purchase Contract Agent, and the Holders
from time to time of the Securities, by their acceptance of the same, shall be
deemed to have agreed to be bound by the provisions hereof and to have ratified
the agreements of, and the grant of the Pledge hereunder by, the Purchase
Contract Agent.
Section 10.5. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument, and any of the parties hereto may execute this Agreement
by signing any such counterpart.
Section 10.6. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (i) the other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in order to carry out the
intentions of the parties hereto as nearly as may be possible and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction
shall not affect the validity or enforceability of such provision in any other
jurisdiction.
Section 10.7. Expenses, etc. The Company agrees to reimburse the
Collateral Agent for: (a) all reasonable out-of-pocket costs and expenses of
the Collateral Agent (including, without limitation, the reasonable fees and
expenses of counsel to the Collateral Agent), in connection with (i) the
negotiation, preparation, execution and delivery or performance of this
Agreement and (ii) any
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modification, supplement or waiver of any of the terms of this Agreement; (b)
all reasonable costs and expenses of the Collateral Agent (including, without
limitation, reasonable fees and expenses of counsel) in connection with (i) any
enforcement or proceedings resulting or incurred in connection with causing any
Holder of Securities to satisfy its obligations under the Purchase Contracts
forming a part of the Securities and (ii) the enforcement of this Section 10.7;
and (c) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any other document referred to herein and all costs, expenses,
taxes, assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated
hereby.
Section 10.8. Security Interest Absolute. All rights of the Collateral
Agent and security interests hereunder, and all obligations of the Holders from
time to time hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any provision of
the Purchase Contracts or the Securities or any other agreement or
instrument relating thereto;
(b) any change in the time, manner or place of payment of, or any
other term of, or any increase in the amount of, all or any of the
obligations of Holders of Securities under the related Purchase
Contracts, or any other amendment or waiver of any term of, or any
consent to any departure from any requirement of, the Purchase
Contract Agreement or any Purchase Contract or any other agreement or
instrument relating thereto; or
(c) any other circumstance which might otherwise constitute a
defense available to, or discharge of, a borrower, a guarantor or a
pledgor.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
CENDANT CORPORATION
By:
---------------------------------
Name:
Title:
Address for Notices:
CENDANT CORPORATION
6 Sylvan Way
Parsippany, New Jersey 07054
Attention: Chief Financial Officer
Telecopy: (973) 496-5984
THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent and as
attorney-in-fact of the Holders
from time to time of the Securities
By:
---------------------------------
Name:
Title:
Address for Notices:
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust
Administration
Telecopy: (312) 407-1708
<PAGE>
THE CHASE MANHATTAN BANK,
as Collateral Agent and as
Securities Intermediary
By:
---------------------------------
Name:
Title:
Address for Notices:
The Chase Manhattan Bank
450 West 33rd Street
New York, NY 10001-2697
Attention: Corporate Trust
Administration Department
Telecopy: (212) 946-8160
<PAGE>
EXHIBIT A
INSTRUCTION FROM PURCHASE CONTRACT AGENT TO COLLATERAL AGENT
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, NY 10010-2697
Attention: Corporate Trust Administration Department
Re: FELINE PRIDES of Cendant Corporation (the
"Company"), and Cendant Capital I
We hereby notify you in accordance with Section 4.1 of the Pledge
Agreement, dated as of __, 1998, (the "Pledge Agreement") among the Company,
yourselves, as Collateral Agent, and ourselves, as Purchase Contract Agent and
as attorney-in-fact for the holders of [Income PRIDES] [Growth PRIDES] from
time to time, that the holder of securities listed below (the "Holder") has
elected to substitute [$_____ aggregate principal amount of Treasury
Securities] [$_______Stated Amount of Preferred Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio] in exchange for an
equal Value of [Pledged Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio] [Pledged Treasury Securities]
held by you in accordance with the Pledge Agreement and has delivered to us a
notice stating that the Holder has Transferred [Treasury Securities] [Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio] to you, as Collateral Agent. We hereby instruct you, upon receipt of
such [Pledged Treasury Securities] [Pledged Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio], to
release the [Preferred Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio] [Treasury Securities] related to such
[Income PRIDES] [Growth PRIDES] to us in accordance with the Holder's
instructions. Capitalized terms used herein but not defined shall have the
meaning set forth in the Pledge Agreement.
Date:_____________ ___________________________
By:______________________
Name:
Title:
Signature Guarantee:_____________
<PAGE>
Please print name and address of Registered Holder electing to substitute
[Treasury Securities] [Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio] for the [Pledged Preferred
Securities or the Treasury Portfolio] [Pledged Treasury Securities]:
- --------------------------- ------------------------------
Name Social Security or other
Taxpayer Identification Number,
if any
- ---------------------------
Address
- ---------------------------
- ---------------------------
<PAGE>
EXHIBIT B
INSTRUCTION TO PURCHASE CONTRACT AGENT
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
Re: FELINE PRIDES of Cendant Corporation (the
"Company"), and Cendant Capital I
The undersigned Holder hereby notifies you that it has delivered to
The Chase Manhattan Bank, as Collateral Agent, [$_______ aggregate principal
amount of Treasury Securities] [$ aggregate Stated Amount of Preferred
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio of the appropriate Applicable Ownership Interest of the Treasury
Portfolio] in exchange for an equal Value of [Pledged Preferred Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio]
[Pledged Treasury Securities] held by the Collateral Agent (the "Pledge
Agreement"), in accordance with Section 4.1 of the Pledge Agreement, dated ,
1998, between you, the Company and the Collateral Agent. The undersigned Holder
hereby instructs you to instruct the Collateral Agent to release to you on
behalf of the undersigned Holder the [Pledged Preferred Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio] [Pledged
Treasury Securities] related to such [Income PRIDES] [Growth PRIDES].
Capitalized terms used herein but not defined shall have the meaning set forth
in the Pledge Agreement.
Dated:_____________ _________________________
Signature
Signature Guarantee:_______________
<PAGE>
Please print name and address of Registered Holder:
- ------------------------- -----------------------------
Name Social Security or other
Taxpayer Identification
- ------------------------- Number, if any
Address
- -------------------------
- -------------------------
- -------------------------
<PAGE>
FORM OF FIRST SUPPLEMENTAL INDENTURE
Dated as of , 1998
between
CENDANT CORPORATION,
AS ISSUER
and
THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK,
AS TRUSTEE
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
ARTICLE I
DEFINITIONS...................................................1
SECTION 1.1. Definition of Terms....................................................................1
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES..................................3
SECTION 2.1. Designation and Principal Amount.......................................................3
SECTION 2.2. Maturity...............................................................................3
SECTION 2.3. Form and Payment.......................................................................3
SECTION 2.4. Global Debenture.......................................................................4
SECTION 2.5. Interest...............................................................................5
ARTICLE III
REDEMPTION OF THE DEBENTURES...........................................5
SECTION 3.1. Tax Event Redemption...................................................................6
SECTION 3.2. Redemption Procedure for Debentures....................................................6
SECTION 3.3. No Sinking Fund........................................................................6
SECTION 3.4. Option to Put Debentures...............................................................6
SECTION 3.5. Repurchase Procedure for Debentures....................................................6
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD.......................................7
SECTION 4.1. Extension of Interest Payment Period...................................................7
SECTION 4.2. Notice of Extension....................................................................8
SECTION 4.3. Limitation of Transactions.............................................................8
ARTICLE V
EXPENSES.....................................................8
SECTION 5.1. Payment of Expenses....................................................................8
SECTION 5.2. Payment Upon Resignation or Removal....................................................9
ARTICLE VI
NOTICE......................................................9
SECTION 6.1. Notice by the Company..................................................................9
ARTICLE VII
FORM OF DEBENTURE...............................................10
SECTION 7.1. Form of Debenture.....................................................................10
i
<PAGE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES..........................................18
SECTION 8.1. Original Issue of Debentures..........................................................18
ARTICLE IX
MISCELLANEOUS.................................................18
SECTION 9.1. Ratification of Indenture.............................................................18
SECTION 9.2. Trustee Not Responsible for Recitals..................................................18
SECTION 9.3. Governing Law.........................................................................18
SECTION 9.4. Separability..........................................................................18
SECTION 9.5. Counterparts..........................................................................18
SECTION 9.6. Preferred Securities Guarantee and Declaration........................................18
</TABLE>
ii
<PAGE>
FORM OF FIRST SUPPLEMENTAL INDENTURE, dated as of , 1998
(the "First Supplemental Indenture"), between CENDANT CORPORATION, a
corporation duly organized and existing under the laws of the State of
Delaware, (the "Company"), and The Bank of Nova Scotia Trust Company of New
York, as trustee (the "Trustee").
WHEREAS, the Company executed and delivered the indenture dated as of
, 1998 (the "Base Indenture"), to the Trustee to provide for
the future issuance of the Company's Senior unsecured debentures, notes or
other evidence of indebtedness (the "Securities"), to be issued from time to
time in one or more series as might be determined by the Company under the Base
Indenture;
WHEREAS, pursuant to the terms of the Base Indenture, the Company
desires to provide for the establishment of a new series of its Securities to
be known as its ___% Debentures due , 2003 (the "Debentures"),
the form and substance of such Debentures and the terms, provisions and
conditions thereof to be set forth as provided in the Base Indenture and this
First Supplemental Indenture (together, the "Indenture");
WHEREAS, Cendant Capital, a Delaware statutory business trust (the
"Trust"), has offered to the public its ___% Trust Originated Preferred
Securities (the "Preferred Securities"), representing preferred, undivided
beneficial interests in the assets of the Trust, and proposes to invest the
proceeds from such offering, together with the proceeds of the issuance and
sale by the Trust to the Company of its ___% Trust Originated Common Securities
(the "Common Securities" and together with the Preferred Securities, the "Trust
Securities"), in the Debentures; and
WHEREAS, the Company has requested that the Trustee execute and
deliver this First Supplemental Indenture and all requirements necessary to
make this First Supplemental Indenture a valid instrument in accordance with
its terms, and to make the Debentures, when executed by the Company and
authenticated and delivered by the Trustee, the valid obligations of the
Company and all acts and things necessary have been done and performed to make
this First Supplemental Indenture enforceable in accordance with its terms, and
the execution and delivery of this First Supplemental Indenture has been duly
authorized in all respects:
NOW THEREFORE, in consideration of the purchase and acceptance of the
Debentures by the Holders thereof, and for the purpose of setting forth, as
provided in the Indenture, the form and substance of the Debentures and the
terms, provisions and conditions thereof, the Company covenants and agrees with
the Trustee as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Indenture has the same meaning when used in
this First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental Indenture has
the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) headings are for convenience of reference only and do not affect
interpretation;
(e) the following terms have the meanings given to them in the
Declaration: (i) Authorized Newspaper; (ii) Business Day; (iii) Clearing
Agency; (iv) Delaware Trustee; (v) DTC; (vi) FELINE PRIDES; (vii) Growth
PRIDES;
<PAGE>
(viii) Income PRIDES; (xix) Institutional Trustee; (x) Investment Company
Event; (xi) Preferred Security Certificate; (xii) Pricing Agreement; (xiii)
Purchase Agreement; (xiv) Regular Trustees; (xv) Reset Agent; (xvi) Reset
Announcement Date; (xvii) Reset Spread; (xviii) Two-Year Benchmark Treasury;
and (xix) Treasury Securities.
(f) the following terms have the meanings given to them in this
Section 1.11(f):
"Applicable Principal Amount" means either (i) if the Tax Event
Redemption Date occurs prior to February 16, 2001, the aggregate principal
amount of the Debentures corresponding to the aggregate stated liquidation
amount of the Preferred Securities which are components of Income PRIDES on the
Tax Event Redemption Date or (ii) if the Tax Event Redemption occurs on or
after February 16, 2001, the aggregate principal amount of the Debentures
corresponding to the aggregate stated liquidation amount of the Preferred
Securities outstanding on such Tax Event Redemption Date.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"Debentures Redemption Price" shall have the meaning set forth in
Section 3.4.
"Declaration" means the Amended and Restated Declaration of Trust of
Cendant Capital I, a Delaware statutory business trust, dated as of ,
1998.
"Deferred Interest" shall have the meaning set forth in Section 4.1
hereof.
"Dissolution Event" means that, as a result of the occurrence and
continuation of a Tax Event, an Investment Company Event or otherwise, the
Trust is to be dissolved in accordance with the Declaration, and, except in the
case of a Tax Event Redemption, the Debentures held by the Institutional
Trustee are to be distributed to the holders of the Trust Securities issued by
the Trust pro rata in accordance with the Declaration.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Failed Remarketing" shall have the meaning set forth in Section
5.4(b) of the Purchase Contract Agreement.
"Global Debentures" shall have the meaning set forth in Section 2.4.
"Non Book-Entry Preferred Securities" shall have the meaning set forth
in Section 2.4 .
"Purchase Contract" shall have the meaning set forth in the Purchase
Contract Agreement, dated as of , 1998, between the Company and The
First National Bank of Chicago, as purchase contract agent.
"Purchase Contract Settlement Date" means , 2001.
"Put Option" shall have the meaning set forth in Section 3.4.
"Quotation Agent" means (i) Merrill Lynch Government Securities, Inc.
and its respective successors, provided, however, that if the foregoing shall
cease to be a Primary Treasury Dealer, the Company shall substitute therefor
another Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer
selected by the Company.
"Redemption Amount" means for each Debenture, the product of (i) the
principal amount of such Debenture and (ii) a fraction whose numerator is the
Treasury Portfolio Purchase Price and whose denominator is the Applicable
Principal Amount of the Treasury Portfolio.
2
<PAGE>
"Tax Event" means the receipt by the Trust of an opinion of a
nationally recognized independent tax counsel experienced in such matters to
the effect that, as a result of (a) any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein affecting taxation, (b) any amendment to or change in an interpretation
or application of such laws or regulations by any legislative body, court,
governmental agency or regulatory authority or (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the generally accepted position on the date the
Trust Securities are issued, which amendment or change is effective or which
interpretation or pronouncement is announced on or after the date of issuance
of the Trust Securities under the Declaration, there is more than an
insubstantial risk that (i) interest payable by the Company on the Debentures
would not be deductible, in whole or in part, by the Company for federal income
tax purposes or (ii) the Trust would be subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
"Tax Event Redemption Date" shall have the meaning set forth in
Section 3.1 hereof.
"Treasury Portfolio" means with respect to the Applicable Principal
Amount of Debentures (a) if the Tax Event Redemption Date occurs prior to
February 16, 2001, a portfolio of zero-coupon U.S. Treasury Securities
consisting of (i) principal or interest strips of U.S. Treasury Securities
which mature on or prior to February 15, 2001 in an aggregate amount equal to
the Applicable Principal Amount and (ii) with respect to each scheduled
interest payment date on the Debentures that occurs after the Tax Event
Redemption Date principal or interest strips of U.S. Treasury Securities which
mature on or prior to such date in an aggregate amount equal to the aggregate
interest payment that would be due on the Applicable Principal Amount of the
Debentures on such date, and (b) if the Tax Event Redemption Date occurs after
February 16, 2001, a portfolio of zero-coupon U.S. Treasury Securities con
sisting of (i) principal or interest strips of U.S. Treasury Securities which
mature on or prior to February 15, 2003 in an aggregate amount equal to the
Applicable Principal Amount and (ii) with respect to each scheduled interest
payment date on the Debentures that occurs after the Tax Event Redemption Date
interest or principal strips of such U.S. Treasury Securities which mature on
or prior to such date in an aggregate amount equal to the aggregate interest
payment that would be due on the Applicable Principal Amount of the Debentures
on such date.
"Treasury Portfolio Purchase Price" means the lowest aggregate price
quoted by a primary U.S. government securities dealer in New York City (a
"Primary Treasury Dealer") to the Quotation Agent on the third Business Day
immediately preceding the Tax Event Redemption Date for the purchase of the
Treasury Portfolio for settlement on the Tax Event Redemption Date.
(g) the following terms shall have the meanings given to them in the
Purchase Contract: Collateral Agent.
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1. Designation and Principal Amount.
There is hereby authorized a series of Securities designated the ___%
Debentures (the "Debentures") due , 2003, limited in aggregate
principal amount to $ , which amount shall be as set forth in any
written order of the Company for the authentication and delivery of Debentures
pursuant to Section of the Base Indenture.
SECTION 2.2. Maturity. The Maturity Date will be .
SECTION 2.3. Form and Payment.
3
<PAGE>
Except as provided in Section 2.4, the Debentures shall be issued in
fully registered certificated form without interest coupons bearing identical
terms. Principal and interest on the Debentures issued in certificated form
will be payable, the transfer of such Debentures will be registrable and such
Debentures will be exchangeable for Debentures bearing identical terms and
provisions at the office or agency of the Institutional Trustee; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Holder at such address as shall appear in the Security
Register. Notwithstanding the foregoing, so long as the Holder of any
Debentures is the Institutional Trustee, the payment of the principal of and
interest (including Compounded Interest and expenses and taxes of the Trust set
forth in Section 4.1 hereof, if any) on such Debentures held by the
Institutional Trustee will be made at such place and to such account as may be
designated by the Institutional Trustee.
SECTION 2.4. Global Debenture.
(a) In connection with a Dissolution Event,
(i) the Debentures in certificated form may be presented to
the Trustee by the Institutional Trustee in exchange for a global Debenture in
an aggregate principal amount equal to the aggregate principal amount of all
outstanding Debentures (a "Global Debenture"), to be registered in the name of
the Clearing Agency, or its nominee, and delivered by the Institutional Trustee
to the Clearing Agency for crediting to the accounts of its participants
pursuant to the instructions of the Regular Trustees. The Company upon any such
presentation shall execute a Global Debenture in such aggregate principal
amount and deliver the same to the Trustee for authentication and delivery in
accordance with the Indenture. Payments on the Debentures issued as a Global
Debenture will be made to the Clearing Agency; and
(ii) if any Preferred Securities are held in non book-entry
certificated form, the Debentures in certificated form may be presented to the
Trustee by the Institutional Trustee and any Preferred Security Certificate
which represents Preferred Securities other than Preferred Securities held by
the Clearing Agency or its nominee ("Non Book-Entry Preferred Securities") will
be deemed to represent beneficial interests in the Debentures presented to the
Trustee by the Institutional Trustee having an aggregate principal amount equal
to the aggregate liquidation amount of the Non Book-Entry Preferred Securities
until such Preferred Security Certificates are presented to the Security
Registrar for transfer or reissuance at which time such Preferred Security
Certificates will be cancelled and a Debenture, registered in the name of the
holder of the Preferred Security Certificate or the transferee of the holder of
such Preferred Security Certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the Preferred
Security Certificate cancelled, will be executed by the Company and delivered
to the Trustee for authentication and delivery in accordance with the Indenture
to such holder. On issue of such Debentures, Debentures with an equivalent
aggregate principal amount that were presented by the Institutional Trustee to
the Trustee will be deemed to have been cancelled.
(b) Unless and until it is exchanged for the Debentures in registered
form, a Global Debenture may be transferred, in whole but not in part, only to
another nominee of the Clearing Agency, or to a successor Clearing Agency
selected or approved by the Company or to a nominee of such successor Clearing
Agency.
(c) If at any time the Clearing Agency notifies the Company that it is
unwilling or unable to continue as a Clearing Agency or if at any time the
Clearing Agency for such series shall no longer be registered or in good
standing under the Securities Exchange Act of 1934, as amended, or other
applicable statute or regulation, and a successor Clearing Agency for such
series is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such condition, as the case may be,
the Company will execute, and, subject to Article III of the Indenture, the
Trustee, upon written notice from the Company, will authenticate and deliver
the Debentures in definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Debenture in exchange for such Global Debenture. In
addition, the Company may at any time determine that the Debentures shall no
longer be represented by Global Debenture. In such event the Company will
execute, and subject to Section 3.3 of the Base Indenture, the Trustee, upon
receipt of an Officer's
4
<PAGE>
Certificate evidencing such determination by the Company, will authenticate and
deliver the Debentures in definitive registered form without coupons, in
authorized denominations, and in an aggregate principal amount equal to the
principal amount of the Global Debenture in exchange for such Global Debenture.
Upon the exchange of the Global Debenture for such Debentures in definitive
registered form without coupons, in authorized denominations, the Global
Debenture shall be cancelled by the Trustee. Such Debentures in definitive
registered form issued in exchange for the Global Debenture shall be registered
in such names and in such authorized denominations as the Clearing Agency,
pursuant to instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee. The Trustee shall deliver such Securities to the
Clearing Agency for delivery to the Persons in whose names such Securities are
so registered.
SECTION 2.5. Interest.
(a) Each Debenture will bear interest initially at the rate of ___%
per annum (the "Coupon Rate") from the original date of issuance until February
15, 2001, and at the Reset Rate thereafter until the principal thereof becomes
due and payable, and on any overdue principal and (to the extent that payment
of such interest is enforceable under applicable law) on any overdue
installment of interest at the rate of ___% until February 15, 2001 and at the
Reset Rate thereafter, compounded quarterly, payable (subject to the provisions
of Article IV herein) quarterly in arrears on February 16, May 16, August 16
and November 16 of each year (each, an "Interest Payment Date") commencing on
February 16, 1998, to the Person in whose name such Debenture or any
predecessor Debenture is registered, at the close of business on the Regular
Record Date for such interest installment, which, in respect of (i) Debentures
of which the Institutional Trustee is the Holder and the Preferred Securities
are in book-entry only form or (ii) a Global Debenture, shall be the close of
business on the Business Day next preceding that Interest Payment Date.
Notwithstanding the foregoing sentence, if (i) the Debentures are held by the
Institutional Trustee and the Preferred Securities are no longer in book-entry
only form or (ii) the Debentures are not represented by a Global Debenture, the
Company may select a Regular Record Date for such interest installment which
shall be more than one Business Day but less than 60 Business Days prior to an
Interest Payment Date.
(b) The Coupon Rate on the Debentures will be reset on the third
Business Day immediately preceding the Purchase Contract Settlement Date to the
Reset Rate (which Reset Rate will become effective on and after the Purchase
Contract Settlement Date). On the tenth (10) Business Day immediately preceding
the Purchase Contract Settlement Date, the Reset Announcement Date, the Reset
Spread and the relevant Two-Year Benchmark Treasury will be announced by the
Company. On the Business Day immediately following such Reset Announcement
Date, the Holders of Debentures will be notified of such Reset Spread and
Two-Year Benchmark Treasury by the Company. Such notice shall be sufficiently
given to such Holders of Debentures if published in an Authorized Newspaper.
(c) Not later than seven calendar days nor more than 15 calendar days
immediately preceding the Reset Announcement Date, the Company will request
that the Clearing Agency or its nominee (or any successor Clearing Agency or
its nominee) or the Institutional Trustee, notify the Holders of Debentures of
such Reset Announcement Date and the procedures to be followed by such holders
of Debentures wishing to settle the related Purchase Contract with separate
cash on the Business Day immediately preceding the Purchase Contract Settlement
Date.
(d) The amount of interest payable for any period will be computed on
the basis of a 360-day year consisting of twelve 30-day months. Except as
provided in the following sentence, the amount of interest payable for any
period shorter than a full quarterly period for which interest is computed,
will be computed on the basis of the actual number of days elapsed in such a
90-day period. In the event that any date on which interest is payable on the
Debentures is not a Business Day, then payment of interest payable on such date
will be made on the next succeeding day which is a Business Day (and without
any interest or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
5
<PAGE>
ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1. Tax Event Redemption.
If a Tax Event shall occur and be continuing, the Company may, at its
option, redeem the Debentures in whole (but not in part) at any time at a
Redemption Price per Debenture equal to the Redemption Amount plus accrued and
unpaid interest thereon, including Compounded Interest and the expenses and
taxes of the Trust set forth in Section 4.1 hereof, if any, to the date of such
redemption (the "Tax Event Redemption Date"). If, following the occurrence of a
Tax Event, the Company exercises its option to redeem the Debentures, then the
proceeds of such redemption, if distributed to the Institutional Trustee as the
sole Holder of such Debentures, will be applied by the Institutional Trustee to
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Debentures so redeemed, at the Redemption
Price. If, following the occurrence of a Tax Event, the Company exercises its
option to redeem the Debentures, the Company shall appoint the Quotation Agent
to assemble the Treasury Portfolio in consultation with the Company. Notice of
any redemption will be mailed at least 30 days but not more than 60 days before
the Tax Event Redemption Date to each registered Holder of the Debentures to be
prepaid at its registered address. Unless the Company defaults in payment of
the Redemption Price, on and after the redemption date interest shall cease to
accrue on such Debentures.
SECTION 3.2. Redemption Procedure for Debentures.
Payment of the Redemption Price to each Holder of Debentures shall be
made by the Paying Agent, no later than 12:00 noon, New York City time, on the
Tax Event Redemption Date, by check or wire transfer in immediately available
funds at such place and to such account as may be designated by each such
Holder of Debentures, including the Institutional Trustee or the Collateral
Agent, as the case may be. If the Trustee holds immediately available funds
sufficient to pay the Redemption Price of the Debentures (or, if the Company is
acting as Paying Agent or the Institutional Trustee has received the Redemption
Price), then, on such Tax Event Redemption Date, such Debentures will cease to
be outstanding and interest thereon will cease to accrue, whether or not such
Debentures have been received by the Company, and all other rights of the
Holder in respect of the Debentures shall terminate and lapse (other than the
right to receive the Redemption Price upon delivery of such Debentures but
without interest on such Redemption Price).
SECTION 3.3. No Sinking Fund.
The Debentures are not entitled to the benefit of any sinking fund.
SECTION 3.4. Option to Put Debentures.
If a Failed Remarketing has occurred, each Holder of Debentures who
holds such Debentures on the day immediately following the Purchase Contract
Settlement Date shall have the right (the "Put Option") on or after the
Business Day immediately following the Purchase Contract Settlement Date, upon
at least three Business Days' prior notice, to require the Company to
repurchase such Holder's Debentures on March 2, 2001 (the "Put Option Exercise
Date"), either in whole or in part, at a repayment price per Debenture equal to
$50, plus accrued and unpaid interest, if any, thereon to the date of payment
including deferred interest, if any (the "Debenture Repayment Price").
SECTION 3.5. Repurchase Procedure for Debentures.
(a) In order for the Debentures to be repurchased on the Put
Option Exercise Date, the Company must receive on or prior to 5:00 p.m. New
York City time on the third Business Day immediately preceding the Put Option
Exercise Date, at the principal executive offices of Cendant Corporation in
Parsippany, New Jersey, the
6
<PAGE>
Debentures to be repurchased with the form entitled "Option to Elect Repayment"
on the reverse of or otherwise accompanying such Debentures duly completed. Any
such notice received by the Trustee shall be irrevocable. All questions as to
the validity, eligibility (including time of receipt) and acceptance of the
Debentures for repayment shall be determined by the Company, whose
determination shall be final and binding.
(b) Payment of the Debentures Repayment Price to Holders of
Debentures shall be made through the Trustee, subject to the Trustee's receipt
of payment from the Company in accordance with the terms of the Inden ture
either through the Trustee or the Company acting as Paying Agent, no later than
12:00 noon, New York City time, on the Put Option Exercise Date, and to such
account as may be designated by such Holders. If the Trustee holds immediately
available funds sufficient to pay the Debentures Repayment Price of the
Debentures presented for repayment (or, if the Company is acting as Paying
Agent and the Institutional Trustee has received the Debentures Repayment
Price), then, immediately prior to the close of business on the Business Day
immediately preceding the Put Option Exercise Date, such Debentures will cease
to be outstanding and interest thereon will cease to accrue, whether or not
such Debentures have been received by the Company, and all other rights of the
Holder in respect of the Debentures, including the Holder's right to require
the Company to repay such Debentures, shall terminate and lapse (other than the
right to receive the Debentures Repayment Price upon delivery of such
Debentures but without interest on such Debentures Repayment Price). Neither
the Trustee nor the Company will be required to register or cease to be
registered the transfer of any Debentures for which repayment has been elected.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period.
The Company shall have the right at any time, and from time to time,
during the term of the Debentures, to defer payments of interest by extending
the interest payment period of such Debentures for a period not extending, in
the aggregate, beyond the Maturity Date of the Debentures (the "Extended
Interest Payment Period"), during which Extended Interest Payment Period no
interest shall be due and payable. To the extent permitted by applicable law,
interest, the payment of which has been deferred because of the extension of
the interest payment period pursuant to this Section 4.1, will bear interest
thereon at the rate of ___% until February 15, 2001, and at the Reset Rate
thereafter compounded quarterly for each quarter of the Extended Interest
Payment Period ("Compounded Interest"). At the end of the Extended Interest
Payment Period, the Company shall pay all interest accrued and unpaid on the
Debentures, including any expenses and taxes of the Trust set forth in Section
5.1 hereof and Compounded Interest (together, "Deferred Interest") that shall
be payable to the Holders of the Debentures in whose names the Debentures are
registered in the Security Register on the first record date after the end of
the Extended Interest Payment Period; provided, however, that during any such
Extended Interest Payment Period, (a) the Company shall not declare or pay
dividends on or make any distribution with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of the Company in
connection with the satisfaction by the Company of its obligations under any
employee or agent benefit plans or the satisfaction by the Company of its
obligations pursuant to any contract or security outstanding on the date of
such event requiring the Company to purchase capital stock of the Company, (ii)
as a result of a reclassification of the Company's capital stock or the
exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of the
Company (or rights to acquire capital stock) or repurchases or redemptions of
capital stock solely from the issuance or exchange of capital stock or (v)
redemptions or repurchases of any rights outstanding under a shareholder rights
plan and the declaration thereunder of a dividend of rights in the future), (b)
the Company shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities issued by the
Company that rank junior to the Debentures, and (c) the Company shall not make
any guarantee payments with respect to the foregoing (other than payments
pursuant to the
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Guarantee or the Common Securities Guarantee). Prior to the termination of any
Extended Interest Payment Period, the Company may further extend such period,
provided that such period together with all such previous and further
extensions thereof shall not extend beyond the Maturity Date of the Debentures.
Upon the termination of any Extended Interest Payment Period and the payment of
all Deferred Interest then due, the Company may commence a new Extended
Interest Payment Period, subject to the foregoing requirements. No interest
shall be due and payable during an Extended Interest Payment Period, except at
the end thereof, but the Company, at its option, may prepay on any Interest
Payment Date all or any portion of the interest accrued during the then elapsed
portion of an Extended Interest Payment Period.
SECTION 4.2. Notice of Extension.
(a) If the Institutional Trustee is the only registered Holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Regular Trustees, the
Institutional Trustee and the Trustee of its selection of such Extended
Interest Payment Period one Business Day before the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities issued by the
Trust are payable, or (ii) the date the Trust is required to give notice of the
record date, or the date such Distributions are payable, to the New York Stock
Exchange or other applicable self-regulatory organization or to holders of the
Preferred Securities issued by the Trust, but in any event at least one
Business Day before such record date.
(b) If the Institutional Trustee is not the only Holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give the Holders of the Debentures and the Trustee written
notice of its selection of such Extended Interest Payment Period at least 10
Business Days before the earlier of (i) the next succeeding Interest Payment
Date, or (ii) the date the Company is required to give notice of the record or
payment date of such interest payment to the New York Stock Exchange or other
applicable self-regulatory organization or to Holders of the Debentures.
SECTION 4.3. Limitation of Transactions.
If (i) the Company shall exercise its right to defer payment of
interest as provided in Section 4.1, or (ii) there shall have occurred any
Event of Default, as defined in the Indenture, then (a) the Company shall not
declare or pay dividends or make any distribution with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than (i) purchases or acquisitions of capital stock of the
Company in connection with the satisfaction by the Company of its obligations
under any employee or agent benefit plans or the satisfaction by the Company of
its obligations pursuant to any contract or security outstanding on the date of
such event requiring the Company to purchase capital stock of the Company, (ii)
as a result of a reclassification of the Company's capital stock or the
exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of the
Company (or rights to acquire capital stock) or repurchases or redemptions of
capital stock solely from the issuance or exchange of capital stock and (v)
redemptions or repurchases of any rights outstanding under a shareholder rights
plan and the declaration thereunder of a dividend of rights in the future), (b)
the Company shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities issued by the
Company that rank junior to the Debentures, and (c) the Company shall not make
any guarantee payments with respect to the foregoing (other than payments
pursuant to the Guarantee or the Common Securities Guarantee).
8
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ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses.
In connection with the offering, sale and issuance of the Debentures
to the Institutional Trustee and in connection with the sale of the Trust
Securities by the Trust, the Company, in its capacity as borrower with respect
to the Debentures, shall:
(a) pay all costs and expenses relating to the offering, sale and
issuance of the Debentures, including commissions to the underwriters payable
pursuant to the Underwriting Agreement and the Pricing Agreement and
compensation of the Trustee under the Indenture in accordance with the
provisions of Section ___ of the Base Indenture;
(b) pay all costs and expenses of the Trust (including, but not
limited to, costs and expenses relating to the organization of the Trust, the
offering, sale and issuance of the Trust Securities (including commissions to
the underwriters in connection therewith), the fees and expenses of the
Institutional Trustee and the Delaware Trustee, the costs and expenses relating
to the operation of the Trust, including without limitation, costs and expenses
of accountants, attorneys, statistical or bookkeeping services, expenses for
printing and engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the acquisition, financing, and disposition of Trust assets) to which the Trust
might become subject;
(c) be primarily liable for any indemnification obligations arising
with respect to the Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust.
SECTION 5.2. Payment Upon Resignation or Removal.
Upon termination of this First Supplemental Indenture or the Base
Indenture or the removal or resignation of the Trustee pursuant to this Section
5.2, the Company shall pay to the Trustee all amounts accrued to the date of
such termination, removal or resignation. Upon termination of the Declaration
or the removal or resignation of the Delaware Trustee or the Institutional
Trustee, as the case may be, pursuant to Section 5.6 of the Declaration, the
Company shall pay to the Delaware Trustee or the Institutional Trustee, as the
case may be, all amounts accrued to the date of such termination, removal or
resignation.
ARTICLE VI
NOTICE
SECTION 6.1. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Debentures
pursuant to the provisions of this Article VI. Notwithstanding any of the
provisions of the Base Indenture and this First Supplemental Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment of monies to or by the Trustee in
respect of the Debentures pursuant to the provisions of the Base Indenture,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof from the Company or a holder or holders of Senior
Indebtedness or from any trustee therefor and before the receipt of any such
written notice, the Trustee, subject to the provisions of the Base Indenture,
shall
9
<PAGE>
be entitled in all respects to assume that no such facts exist; provided,
however, that if the Trustee shall not have received the notice provided for in
this Article VI at least two Business Days prior to the date upon which by the
terms hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of (or premium, if any) or interest on
any Debenture), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive
such money and to apply the same to the purposes for which they were received,
and shall not be affected by any notice to the contrary that may be received by
it within two Business Days prior to such date.
ARTICLE VII
FORM OF DEBENTURE
SECTION 7.1. Form of Debenture.
The Debentures and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the following forms:
(FORM OF FACE OF DEBENTURE)
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT - This Debenture
is a Global Debenture within the meaning of the Indenture hereinafter referred
to and is registered in the name of the Clearing Agency or a nominee of the
Clearing Agency. This Debenture is exchangeable for Debentures registered in
the name of a person other than the Clearing Agency or its nominee only in the
limited circumstances described in the Indenture, and no transfer of this
Debenture (other than a transfer of this Debenture as a whole by the Clearing
Agency to a nominee of the Clearing Agency or by a nominee of the Clearing
Agency to the Clearing Agency or another nominee of the Clearing Agency) may be
registered except in limited circumstances.
Unless this Debenture is presented by an authorized representative of
The Depository Trust Company (55 Water Street, New York, New York) to the
issuer or its agent for registration of transfer, exchange or payment, and any
Debenture issued is registered in the name of Cede & Co. or such other name as
requested by an authorized representative of The Depository Trust Company and
any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered
owner hereof, Cede & Co., has an interest herein.]
No.
$
CUSIP No.
CENDANT CORPORATION
___% DEBENTURE
DUE FEBRUARY 16, 2003
CENDANT CORPORATION, a Delaware corporation (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to
, the principal sum of ($______________) on February 16, 2003
(such date is hereinafter referred to as the "Maturity Date"), and to pay
interest on said principal sum from , 1998, or from the most recent interest
payment date (each such date, an "Interest Payment Date") to which interest has
been paid or duly provided for, quarterly (subject to deferral as set forth
herein) in arrears on February 16, May
10
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16, August 16 and November 16 of each year, commencing on February 16, 1998,
initially at the rate of ___% per annum until February 15, 2001, and at the
Reset Rate thereafter until the principal hereof shall have become due and
payable, and on any overdue principal and premium, if any, and (without
duplication and to the extent that payment of such interest is enforceable
under applicable law) on any overdue installment of interest at the rate of
___% until February 15, 2001, and at the Reset Date thereafter, compounded
quarterly. The interest rate will be reset on the third business day preceding
February 16, 2001 to the Reset Rate (as determined by the Reset Agent). The
amount of interest payable on any Interest Payment Date shall be computed on
the basis of a 360-day year consisting of twelve 30-day months. In the event
that any date on which interest is payable on this Debenture is not a Business
Day, then payment of interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. The interest installment so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
the Indenture, be paid to the person in whose name this Debenture (or one or
more Predecessor Securities, as defined in said Indenture) is registered at the
close of business on the regular record date for such interest installment
which in the case of a Global Debenture shall be the close of business on the
business day next preceding such Interest Payment Date; provided, however, if
pursuant to the terms of the indenture the Debentures are no longer represented
by a Global Debenture, the Company may select such regular record date for such
interest installment which shall be more than one Business Day but less than 60
Business Days prior to an Interest Payment Date. Any such interest installment
not punctually paid or duly provided for shall forthwith cease to be payable to
the registered Holders on such regular record date and may be paid to the
Person in whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on a special record date to be fixed by the
Trustee for the payment of such defaulted interest, notice whereof shall be
given to the registered Holders of this series of Debentures not less than 10
days prior to such special record date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Debentures may be listed, and upon such notice as may be required
by such exchange all as more fully provided in the Indenture. The principal of
(and premium, if any) and the interest on this Debenture shall be payable at
the office or agency of the Trustee maintained for that purpose in any coin or
currency of the United States of America that at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
registered Holder at such address as shall appear in the Security Register or
by wire transfer to an account appropriately designated by the Holder entitled
thereto. Notwithstanding the foregoing, so long as the Holder of this Debenture
is the Institutional Trustee or the Collateral Agent, the payment of the
principal of (and premium, if any) and interest on this Debenture will be made
at such place and to such account as may be designated in writing by the
Institutional Trustee or the Collateral Agent.
The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, senior and unsecured and will rank in right of
payment on parity with all other senior unsecured obligations of the Company.
This Debenture shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been signed
by or on behalf of the Trustee.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same
effect as though fully set forth at this place.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated
CENDANT CORPORATION
By:
--------------------------------
Name:
Title:
Attest:
By:
--------------------------------
Name:
Title:
12
<PAGE>
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures of the series of Debentures described in the
within-mentioned Indenture.
Dated
-----------------------
- ---------------------------
as Trustee
By
---------------------------
Authorized Signatory
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Securities of the
Company (herein sometimes referred to as the "Securities"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of , 1998 (the "Base Indenture"), duly executed and
delivered between the Company and The First National Bank of Chicago, as
Trustee (the "Trustee") (as supplemented by a First Supplemental Indenture,
dated , 1998), (the Base Indenture as so supplemented, the "Indenture"), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the Holders of
the Securities. By the terms of the Indenture, the Securities are issuable in
series that may vary as to amount, date of maturity, rate of interest and in
other respects as provided in the Indenture. This series of Securities is
limited in aggregate principal amount as specified in said First Supplemental
Indenture.
If a Tax Event shall occur and be continuing, the Company may, at its
option, redeem Debentures in whole (but not in part) at any time at a
Redemption Price per Debenture equal to the Redemption Amount plus accrued and
unpaid interest thereon, including Compounded Interest and expenses and taxes
of the Trust (each as defined herein), if any, to the Tax Event Redemption
Date. The Redemption Price shall be paid to each Holder of the Debenture by the
Company, no later than 12:00 noon, New York City time, on the Tax Event
Redemption Date, by check or wire transfer in immediately available funds, at
such place and to such account as may be designated by each such Holder.
The Debentures are not entitled to the benefit of any sinking fund.
If a Failed Remarketing has occurred, each Holder of this Debenture who
holds this Debenture on the day immediately following the Purchase Contract
Settlement Date shall have the right (the "Put Option") on or after the
Business Day immediately following the Purchase Contract Settlement Date, upon
at least three Business Days' prior notice, to require the Company to
repurchase such Holder's Debentures on March 2, 2001 (the "Put Option Exercise
Date"), either in whole or in part, at a repayment price per Debenture equal to
$50, plus accrued and unpaid interest, if any, thereon to the date of payment
including deferred interest, if any (the "Debenture Repayment Price"). In order
for the Debentures to be so repurchased, the Company must receive, on or prior
to 5:00 p.m. New York City Time on the third Business Day immediately preceding
the Put Option Exercise Date, at the principal executive offices of Cendant
Corporation in Parsippany, New Jersey, the Debentures to be repurchased with
the form entitled "Option to Elect Repayment" on the reverse of or otherwise
accompanying such Debentures duly completed. Any such notice received by the
Trustee shall be irrevocable. All questions as to the validity, eligibility
(including time of receipt)
13
<PAGE>
and acceptance of the Debentures for repayment shall be determined by the
Company, whose determination shall be final and binding. The payment of the
Debentures Repayment Price in respect of such Debentures shall be made, either
through the Trustee or the Company acting as Paying Agent, no later than 12:00
noon, New York City time, on the Put Option Exercise Date.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Debentures of each series affected at the time
outstanding, as defined in the Indenture, to execute supplemental indentures
for the purpose of, among other things, adding any provisions to or changing or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or of modifying the rights of the Holders of the Debentures;
provided, however, that, among other things, no such supplemental indenture
shall (i) reduce the principal amount thereof, or reduce the rate or extend the
time of payment of interest thereon (subject to the Company's right to defer
such payments in the manner set forth herein), or reduce any premium payable
upon the redemption thereof, without the consent of the Holder of each
Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures,
the Holders of which are required to consent to any such supplemental
indenture, without the consent of the Holders of each Debenture then
outstanding and affected thereby. The Indenture also contains provisions
permitting the Holders of a majority in aggregate principal amount of the
Securities of any series at the time outstanding affected thereby, on behalf of
all of the Holders of the Debentures of such series, to waive a Default or
Event of Default with respect to such series, and its consequences, except a
Default or Event of Default in the payment of the principal of or premium, if
any, or interest on any of the Securities of such series. Any such consent or
waiver by the registered Holder of this Debenture (unless revoked as provided
in the Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Debenture and of any Debenture issued in
exchange for or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Debenture at the time and place and at the rate and in the
money herein prescribed.
So long as the Company is not in default in the payment of interest on the
Debenture, the Company shall have the right at any time during the term of the
Debentures from time to time to extend the interest payment period of such
Debentures for a period not extending, in the aggregate, beyond the Maturity
Date of the Debentures (an "Extended Interest Payment Period"). At the end of
an Extended Interest Payment Period, the Company shall pay all interest then
accrued and unpaid (together with the interest thereon at the rate of ___%
until February 15, 2001 and at the Reset Rate thereafter to the extent that
payment of such interest is enforceable under applicable law). In the event
that the Company exercises this right, then (a) the Company shall not declare
or pay dividends or make any distribution with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of the Company in
connection with the satisfaction by the Company of its obligations under any
employee or agent benefit plans or the satisfaction by the Company of its
obligations pursuant to any contract or security outstanding on the date of
such event requiring the Company to purchase capital stock of the Company, (ii)
as a result of a reclassification of the Company's capital stock or the
exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of the
Company (or rights to acquire capital stock) or repurchases or redemptions of
capital stock solely from the issuance or exchange of capital stock or (v)
redemptions or purchases of any rights outstanding under a shareholder rights
plan and the declaration thereunder of a dividend of rights in the future), (b)
the Company shall not make any payment of interest, principal or premium, if
any, or repay, repurchase
14
<PAGE>
or redeem any debt securities issued by the Company that rank junior to the
Debentures, and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than payments pursuant to the Guarantee or the
Common Securities Guarantee). Prior to the termination of any such Extended
Interest Payment Period, the Company may further extend the interest payment
period; provided, that such Extended Interest Payment Period, together with all
such previous and further extensions thereof, may not extend beyond the
Maturity Date of the Debenture. At the termination of any such Extended
Interest Payment Period and upon the payment of all accrued and unpaid interest
and any additional amount then due, the Company may commence a new Extended
Interest Payment Period, subject to the above requirements.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered Holder hereof on the
Security Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee in the City of
Chicago and State of Illinois accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company or the Trustee duly
executed by the registered Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Debentures of authorized denominations
and for the same aggregate principal amount and series will be issued to the
designated transferee or transferees. No service charge will be made for any
such transfer, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any Paying Agent and the Security Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Security Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and
neither the Company nor the Trustee nor any Paying Agent nor any Security
Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, shareholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issuance hereof,
expressly waived and released.
The Indenture imposes certain limitations on the ability of the Company to,
among other things, merge or consolidate with any other Person or sell, assign,
transfer or lease all or substantially all of its properties or assets. All
such covenants and limitations are subject to a number of important
qualifications and exceptions. The Company must report periodically to the
Trustee on compliance with the covenants in the Indenture.
The Debentures of this series are issuable only in registered form without
coupons in denominations of $50 and any integral multiple thereof. This Global
Debenture is exchangeable for Debentures in definitive form only under certain
limited circumstances set forth in the Indenture. As provided in the Indenture
and subject to certain limitations therein set forth, Debentures of this series
so issued are exchangeable for a like aggregate principal amount of Debentures
of this series of a different authorized denomination, as requested by the
Holder surrendering the same.
All terms used in this Debenture that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
15
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Company
to repay $_____ principal amount of the within Debenture, pursuant to its
terms, on the "Put Option Exercise Date," together with any interest thereon
accrued but unpaid to the date of repayment, to the undersigned at:
(Please print or type Name and Address of the Undersigned)
and to issue to the undersigned, pursuant to the terms of the Indenture, a new
Debenture or Debentures representing the remaining aggregate principal amount
of this Debenture.
For this Option to Elect Repayment to be effective, this Indenture with the
Option to Elect Repayment duly completed must be received by the Company at
Cendant Corporation, Attn: Corporate Secretary, 6 Sylvan Way, Parsippany, New
Jersey, no later than 5:00 p.m. on February 27, 2001.
Dated: Signature: ________________________________
Signature Guarantee: _____________________
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of the within Debenture in every particular
without alternation or enlargement or any change whatsoever.
16
<PAGE>
----------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Debenture to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
agent to transfer this Debenture on the books of the Trust. The agent may
substitute another to act for him or her.
Date: ____________________________________
Signature: ________________________________
Signature Guarantee: ______________________
(Sign exactly as your name appears on the other side of this Debenture)
17
<PAGE>
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES
SECTION 8.1. Original Issue of Debentures.
Debentures in the aggregate principal amount of $ may, upon execution
of this First Supplemental Indenture, be executed by the Company and delivered
to the Trustee for authentication, and the Trustee shall thereupon authenticate
and deliver said Debentures to or upon the written order of the Company, signed
by its Chairman, its Vice Chairman, its President, or any Vice President and
its Treasurer or an Assistant Treasurer, without any further action by the
Company.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Ratification of Indenture.
The Indenture as supplemented by this First Supplemental Indenture, is
in all respects ratified and confirmed, and this First Supplemental Indenture
shall be deemed part of the Indenture in the manner and to the extent herein
and therein provided.
SECTION 9.2. Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.
SECTION 9.3. Governing Law.
This First Supplemental Indenture and each Debenture shall be deemed
to be a contract made under the internal laws of the State of New York, and for
all purposes shall be construed in accordance with the laws of said State.
SECTION 9.4. Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture or in the Debentures shall for any reason be held to be
invalid illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this First
Supplemental Indenture or of the Debentures, but this First Supplemental
Indenture and the Debentures shall be construed as if such invalid or illegal
or unenforceable provision had never been contained herein or therein.
SECTION 9.5. Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
SECTION 9.6. Preferred Securities Guarantee and Declaration.
18
<PAGE>
The Preferred Securities Guarantee and the Declaration shall be deemed
to be specifically described in this First Supplemental Indenture for purposes
of clause (i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed by their respective officers
thereunto duly authorized, on the date or dates indicated in the
acknowledgments and as of the day and year first above written.
CENDANT CORPORATION,
as Issuer
By:
----------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA TRUST
COMPANY OF NEW YORK ,
as Trustee
By:
----------------------------
Name:
Title:
20
<PAGE>
FORM OF REMARKETING AGREEMENT
FORM OF REMARKETING AGREEMENT, dated as of _____________, 1998 (the
"Remarketing Agreement") by and between Cendant Corporation, a Delaware
corporation ("Cendant" or the "Company"), Cendant Capital I, a Delaware
statutory business trust (the "Trust"),The First National Bank of Chicago, a
national banking association, not individually but solely as Purchase Contract
Agent and as attorney-in-fact of the holders of Purchase Contracts (each as
defined in the Purchase Contract Agreement (as defined herein)), and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Remarketing Agent").
WITNESSETH:
WHEREAS, the Company will issue an aggregate Stated Amount $ of its
FELINE PRIDES (the "FELINE PRIDES") under the Purchase Contract Agreement,
dated as of ___________ ___, 1998, by and between the Purchase Contract Agent
and the Company (the "Purchase Contract Agreement"); and
WHEREAS, the Trust will issue concurrently in connection with the
issuance of the FELINE PRIDES___% Trust Originated Preferred Securities (the
"Preferred Securities") in an aggregate stated liquidation amount of $ , under
the Amended and Restated Agreement of Trust, dated as of ________ ___, 1998, by
and among the Company, the Regular Trustees, the Delaware Trustee and the
Institutional Trustee (the "Declaration"); and
WHEREAS, the FELINE PRIDES will initially consist of units referred to
as "Income PRIDES" and ____ units referred to as "Growth PRIDES."
WHEREAS, the sole assets of the Trust, $___________________ aggregate
principal amount of ___% Debentures due , 2003 (the "Debentures") of the
Company will be purchased by the Trust from the Company with the proceeds of
the sale of the Preferred Securities and the proceeds of the sale of the common
securities of the Trust (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities"); and
WHEREAS, the Preferred Securities (or upon a dissolution of the Trust
and the distribution of the Debentures as described in the Declaration, such
Debentures) will be pledged pursuant to the Pledge Agreement (the "Pledge
Agreement"), dated as of __________ ___, 1998, by and between the Company, The
Chase Manhattan Bank, as collateral agent (the "Collateral Agent") and the
Purchase Contract Agent, to secure an Income PRIDES holder's obligations under
the related Purchase Contract on the Purchase Contract Settlement Date; and
WHEREAS, the Preferred Securities or the Debentures, as the case may
be, of such Preferred Security or Debenture holders electing to have their
Preferred Securities or Deben tures remarketed, or of such Income PRIDES
holders who have elected not to settle the Purchase Contracts related to their
Income PRIDES from the proceeds of a Cash Settlement and who have not
<PAGE>
early settled their Purchase Contracts, will be remarketed by the Remarketing
Agent on the third Business Day immediately preceding the Purchase Contract
Settlement Date; and
WHEREAS, the applicable distribution rate on the Preferred Securities
(and, thus, the interest rate on the Debentures) that remain outstanding on and
after the Purchase Contract Settlement Date will be reset on the third Business
Day immediately preceding the Purchase Contract Settlement Date, to the Reset
Rate to be determined by the Reset Agent as the rate that such Preferred
Securities (and, thus the Debentures) should bear in order to have an
approximate market value of 100.5% of the aggregate stated liquidation amount
of the Preferred Securities or the aggregate principal amount of the Debentures
on the third Business Day immediately preceding the Purchase Contract
Settlement Date, provided that in the determination of such Reset Rate, the
Company may limit the Reset Spread (a component of the Reset Rate) to be no
higher than 200 basis points (2%); and
WHEREAS, the Company has requested Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to act as the Reset Agent
and as the Remarketing Agent, and as such to perform the services described
herein; and
WHEREAS, Merrill Lynch is willing to act as Reset Agent and
Remarketing Agent and as such to perform such duties on the terms and
conditions expressly set forth herein;
NOW, THEREFORE, for and in consideration of the covenants herein made,
and subject to the conditions herein set forth, the parties hereto agree as
follows:
Section 1. Definitions. Capitalized terms used and not defined in this
Agree ment shall have the meanings assigned to them in the Purchase Contract
Agreement or, if not therein stated, the Declaration or the Pledge Agreement.
Section 2. Appointment and Obligations of Remarketing Agent. The
Company hereby appoints Merrill Lynch and Merrill Lynch hereby accepts such
appointment, (i) as the Reset Agent to determine in consultation with the
Company, in the manner provided for in the Declara tion with respect to the
Trust Securities and the Indenture with respect to the Debentures, the Reset
Rate, that in the opinion of the Reset Agent, will, when applied to the Trust
Securities (and, thus, the Debentures), enable a Trust Security (and, thus, a
Debenture), to have an approximate market value of approximately 100.5% of the
aggregate stated liquidation amount in the case of such Trust Security and the
aggregate principal amount in the case of such Debenture, and (ii) as the
exclusive Remarketing Agent to remarket the Preferred Securities, or the
Debentures, as the case may be, provided that the Company may limit such Reset
Rate to be no higher than the rate on the Two-Year Benchmark Treasury plus 200
basis points (2%), as the case may be, of such Preferred Security or Debenture
holders electing to have their Preferred Securities or Debentures remarketed,
or of such Income PRIDES holders who have not early settled the related
Purchase Contracts and have failed to notify the Purchase Contract Agent, on or
prior to the fifth Business Day immediately preceding the Purchase Contract
Settlement Date, of their intention to settle the related Purchase Contracts
through Cash Settlement, for settlement on the Purchase Contract Settlement
Date, pursuant to the Remarketing Underwriting Agreement with the Company, the
Trust and the Purchase Contract Agent, substantially in the form attached
hereto as Exhibit A (with such changes as the Company, the Purchase Contract
Agent and the Remarketing Agent may agree upon, it being understood that
changes may be necessary in the representations, warranties, covenants and
other provisions of the
2
<PAGE>
Remarketing Underwriting Agreement due to changes in law or facts and
circumstances). Pursuant to the Remarketing Underwriting Agreement, the
Remarketing Agent, either as the sole remarketing underwriter or as the
representative of a syndicate including the Remarketing Agent and one or more
other remarketing underwriters designated by the Remarketing Agent, will agree,
subject to the terms and conditions set forth therein, that the Remarketing
Agent and any such other remarketing underwriters will purchase severally the
Preferred Securities or the Debentures, as the case may be, to be sold by the
holder or holders of Preferred Securities or Income PRIDES on the third
Business Day immediately preceding the Purchase Contract Settlement Date and
use their reasonable efforts to remarket such Preferred Securities or the
Debentures, as the case may be, (such purchase and remarketing being
hereinafter referred to as the "Remarketing"), at a price of approximately
100.5% of such Preferred Securities aggregate stated liquidation amount plus
any accrued and unpaid distributions (including any deferred distributions) and
in the case of Deben tures, at a price of approximately 100.5% of such
Debentures aggregate principal amount plus any accrued and unpaid interest
(including any deferred interest). Notwithstanding the preceding sentence, the
Remarketing Agent shall not remarket any Preferred Securities or Debentures, as
the case may be, for a price less than 100% of the aggregate stated liquidation
amount or aggregate principal amount of such Preferred Securities or
Debentures, respectively, plus accumulated and unpaid distributions or accrued
and unpaid interest, as the case may be. The proceeds of such remarketing shall
be paid to the Collateral Agent in accordance with Section 4.6 of the Pledge
Agreement and Section 5.4 of the Purchase Contract Agreement (each of which
Sections are incorporated herein by reference).
Section 3. Fees. With respect to the Remarketing, the Remarketing
Agent shall retain as Remarketing Fee an amount not exceeding 25 basis points
(.25%), of the aggregate stated liquidation amount of the remarketed securities
from any amount received in connection with such Remarketing in excess of the
aggregate stated liquidation amount or aggregate principal amount of such
remarketed Preferred Securities or Debentures plus any accrued and unpaid
(including deferred) distributions or any accrued and unpaid interest
(including any deferred interest), as the case may be. In addition, the Reset
Agent shall receive from the Company a reasonable and customary fee as the
Reset Agent Fee (the "Reset Agent Fee"); provided, however, that if the
Remarketing Agent shall also act as the Reset Agent, then the Reset Agent shall
not be entitled to receive any such Reset Agent Fee. Payment of such Reset
Agent Fee shall be made by the Company on the third Business Day immediately
preceding the Purchase Contract Settlement Date in immediately available funds
or, upon the instructions of the Reset Agent by certified or official bank
check or checks or by wire transfer.
Section 4. Replacement and Resignation of Remarketing Agent. (a) The
Company may in its absolute discretion replace Merrill Lynch as the Remarketing
Agent and/or as the Reset Agent in its capacity hereunder by giving notice
prior to 3:00 p.m., New York City time, on the eleventh Business Day
immediately prior to the Purchase Contract Settlement Date. Any such
replacement shall become effective upon the Company's appointment of a
successor to perform the services that would otherwise be performed hereunder
by the Remarketing Agent and/or the Reset Agent. Upon providing such notice,
the Company shall use all reasonable efforts to appoint such a successor and to
enter into a remarketing agreement with such successor as soon as reason ably
practicable.
(b) Merrill Lynch may resign at any time and be discharged from its
duties and obligations hereunder as the Remarketing Agent and/or as the Reset
Agent by giving notice prior to
3
<PAGE>
3:00 p.m., New York City time, on the eleventh Business Day immediately prior
to the Purchase Contract Settlement Date. Any such resignation shall become
effective upon the Company's appointment of a successor to perform the services
that would otherwise be performed hereunder by the Remarketing Agent and/or the
Reset Agent. Upon receiving notice from the Remarketing Agent and/or the Reset
Agent that it wishes to resign hereunder, the Company shall appoint such a
successor and enter into a remarketing agreement with it as soon as reasonably
practicable.
Section 5. Dealing in the Securities. The Remarketing Agent, when
acting hereunder or under the Remarketing Underwriting Agreement or acting in
its individual or any other capacity, may, to the extent permitted by law, buy,
sell, hold or deal in any of the Preferred Securities or Debentures, as the
case may be. With respect to any Preferred Securities or Deben tures, as the
case may be, owned by it, the Remarketing Agent may exercise any vote or join
in any action with like effect as if it did not act in any capacity hereunder.
The Remarketing Agent, in its individual capacity, either as principal or
agent, may also engage in or have an interest in any financial or other
transaction with the Company as freely as if it did not act in any capacity
hereunder.
Section 6. Registration Statement and Prospectus. In connection with
the Remarketing, if and to the extent required (in the opinion of counsel for
either the Remarketing Agent or the Company) by applicable law, regulations or
interpretations in effect at the time of such Remarketing, the Company shall
use its reasonable efforts to have a registration statement relating to the
Preferred Securities effective under the Securities Act of 1933 by the third
Business Day immediately preceding the Purchase Contract Settlement Date, shall
furnish a current prospectus and/or prospectus supplement to be used in such
Remarketing by the remarketing underwriter or underwriters under the
Remarketing Underwriting Agreement, and shall pay all expenses relating
thereto.
Section 7. Conditions to the Remarketing Agent's Obligations. (a) The
obligations of the Remarketing Agent and any other remarketing underwriters to
purchase and remarket the Preferred Securities or the Debentures, as the case
may be, shall be subject to the terms and conditions of the Remarketing
Underwriting Agreement.
(b) If at any time during the term of this Agreement, any Indenture
Event of Default or Declaration Event of Default, or event that with the
passage of time or the giving of notice or both would become an Indenture Event
of Default or Declaration Event of Default, has occurred and is continuing
under the Indenture or the Declaration, then the obligations and duties of the
Remarketing Agent under this Agreement shall be suspended until such default or
event has been cured. The Company will cause the Indenture Trustee and the
Institutional Trustee to give the Remarketing Agent notice of all such defaults
and events of which the Trustee is aware.
Section 8. Termination of Remarketing Agreement. This Agreement shall
terminate as to the Remarketing Agent on the effective date of its replacement
pursuant to Section 4(a) hereof or pursuant to Section 4(b) hereof.
Notwithstanding any such termination, the obligations set forth in Section 3
hereof shall survive and remain in full force and effect until all amounts
payable under said Section 3 shall have been paid in full.
4
<PAGE>
Section 9. Remarketing Agent's Performance; Duty of Care. The duties
and obligations of the Remarketing Agent hereunder shall be determined solely
by the express provi sions of this Agreement and the Remarketing Underwriting
Agreement.
Section 10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 11. Term of Agreement. Unless otherwise terminated in
accordance with the provisions hereof and except as otherwise provided herein,
this Agreement shall remain in full force and effect from the date hereof until
the first day thereafter on which no Preferred Securities are outstanding.
Section 12. Successors and Assigns. The rights and obligations of the
Company hereunder may not be assigned or delegated to any other person without
the prior written consent of Merrill Lynch as the Remarketing Agent and/or as
the Reset Agent. The rights and obligations of Merrill Lynch as the Remarketing
Agent and/or as the Reset Agent hereunder may not be assigned or delegated to
any other person without the prior written consent of the Company. This Agree
ment shall inure to the benefit of and be binding upon the Company and Merrill
Lynch as the Remarketing Agent and/or as the Reset Agent and their respective
successors and assigns. The terms "successors" and "assigns" shall not include
any purchaser of Securities merely because of such purchase.
Section 13. Headings. Section headings have been inserted in this
Agreement as a matter of convenience of reference only, and it is agreed that
such section headings are not a part of this Agreement and will not be used in
the interpretation of any provision of this Agreement.
Section 14. Severability. If any provision of this Agreement shall be
held or deemed to be or shall, in fact, be invalid, inoperative or
unenforceable as applied in any particular case in any or all jurisdictions
because it conflicts with any provisions of any constitution, statute, rule or
public policy or for any other reason, such circumstances shall not have the
effect of rendering the provision in question invalid, inoperative or
unenforceable in any other case, circum stances or jurisdiction, or of
rendering any other provision or provisions of this Agreement invalid,
inoperative or unenforceable to any extent whatsoever.
Section 15. Counterparts. This Agreement may be executed in
counterparts, each of which shall be regarded as an original and all of which
shall constitute one and the same document.
Section 16. Amendments. This Agreement may be amended by any
instrument in writing signed by the parties hereto.
Section 17. Notices. Unless otherwise specified, any notices,
requests, consents or other communications given or made hereunder or pursuant
hereto shall be made in writing or transmitted by any standard form of
telecommunication, including telephone, telegraph or telecopy, and confirmed in
writing. All written notices and confirmations of notices by telecommunication
shall be deemed to have been validly given or made when delivered or mailed,
registered or certified mail, return receipt requested and postage prepaid. All
such notices, requests, consents or
5
<PAGE>
other communications shall be addressed as follows: if to the Company, to
Cendant Corporation, 6 Sylvan Way, Parsippany, New Jersey 07054, Attention:
Eric J Bock, Vice President-Legal; if to the Remarketing Agent or Reset Agent
(if Merrill Lynch & Co. is the Remarketing Agent or the Reset Agent), to c/o
Merrill Lynch & Co. at Merrill Lynch World Headquarters, World Financial
Center, North Tower, New York, New York 10281, Attention: David Johnson,
Managing Director, with a copy to Shearman & Sterling, 399 Lexington Avenue,
New York, NY 10022, Attention: Rohan S. Weerasinghe; and if to the Purchase
Contract Agent, to The First National Bank of Chicago, Corporate Trust Services
Division, One First National Plaza, Suite 0126, Chicago, IL 60670-0126, or to
such other address as any of the above shall specify to the other in writing.
6
<PAGE>
IN WITNESS WHEREOF, each of the Company and the Remarketing Agent has
caused this Agreement to be executed in its name and on its behalf by one of
its duly authorized officers as of the date first above written.
CENDANT CORPORATION
By:
--------------------------
Name:
Title:
CENDANT CAPITAL I
By:
--------------------------
Name:
Title:
CONFIRMED AND ACCEPTED:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED
By:
------------------------------
Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO,
not individually but solely as Purchase Contract
Agent and as attorney-in-fact for the holders of
the Purchase Contracts
By:
------------------------------
Name:
Title:
7
<PAGE>
Exhibit A to
Remarketing Agreement
FORM OF REMARKETING UNDERWRITING AGREEMENT
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner, & Smith
Incorporated (the "Remarketing Underwriter") hereby agrees to purchase the
securities (the "Securities") as set forth in Schedule I hereto, that have been
tendered by the holders of the Income PRIDES for sale on February ____, 2001.
1. Definitions. Capitalized terms used and not defined in this
Agreement shall have the meanings assigned to them in the purchase contract
agreement (the "Purchase Contract Agreement"), the pledge agreement (the
"Pledge Agreement"), the underwriting agreement (the "Underwriting Agreement"),
the amended and restated declaration of trust (the "Declaration") and the
indenture (the "Indenture"), each as identified in Schedule I hereto.
2. Registration Statement and Prospectus. If required (in the opinion
of counsel to either the Remarketing Underwriter or the Company) by applicable
law, the Company and the Trust have filed with the Securities and Exchange
Commission, and there has become effective, a registration statement on Form
S-3 (No. 333-45227), including a prospectus, relating to the Securities. Such
registration statement, as amended to the date of this Agreement, is
hereinafter referred to as the "Registration Statement", the prospectus
included in the Registration Statement is hereinafter referred to as the "Basic
Prospectus" and the Basic Prospectus, as amended or supplemented to the date of
this Agreement to relate to the Securities and to the remarketing of the
Securities, is hereinafter referred to as the "Final Prospectus" (including in
each case all documents incorporated by reference).
3. Provisions Incorporated by Reference.
(a) Subject to Section 3(b), the provisions of the following
sections of the Underwriting Agreement shall be incorporated in their entirety
into this Agreement and made applicable to the obligations of the Remarketing
Underwriter, except as explicitly amended hereby: Sections [1, 3, 4, 5, 6 and
7.]
(b) With respect to the provisions of the Underwriting Agreement
incorporated herein, for the purposes hereof, (i) all references therein to the
"Underwriter" or "Underwriters" or the "Representative" or "Representatives",
as the case may be, shall be deemed to refer to the Remarketing Underwriter;
(ii) all references therein to the "Securities" which are the subject thereof
shall be deemed to refer to the Securities as defined herein; (iii) all
references therein to the "Closing Date" shall be deemed to refer to the
Remarketing Closing Date specified in Schedule I hereto (the "Remarketing
Closing Date"); (iv) all references therein to the "Registration Statement" the
"Basic Prospectus" and the "Final Prospectus" shall be deemed to refer to the
Registration Statement, the Basic Prospectus and the Final Prospectus,
respectively, as defined herein;[ (v) reference to the Company in Section 3(i)
thereof is stricken and replaced with the phrase "the registered holder"; (vi)
reference to "Income Prides" and "Shares" in Section 3(m) thereof is stricken
and replaced with either the words "Preferred Securities" or "Debentures", as
applicable; (vii) Sections 3(a) and 3(k) thereof are stricken in their
entirety; (viii) Sections 5(b)(1)(xiii) and 5(b)(2) (iv), (v), (vi), (vii) and
(xi) thereof
A-1
<PAGE>
are stricken in their entirety; (ix) Sections 5(b)(5) and 5(b)(8) are stricken
in their entirety; and (xi) Section 5(j) thereof is stricken in its entirety].
4. Purchase and Sale; Remarketing Underwriting Fee. Subject to the
terms and conditions and in reliance upon the representations and warranties
herein set forth or incorporated herein, the Remarketing Underwriter agrees to
purchase from the registered holder or holders thereof in the manner specified
in Section 5 hereof, the principal amount of Securities set forth in Schedule I
hereto at a purchase price not less than 100% of such Securities, aggregate
stated liquidation amount or aggregate principal amount, as the case may be,
plus any accrued and unpaid distributions or interest, as applicable, thereon.
In connection therewith, the registered holder or holders thereof agree, in the
manner specified in Section 5 hereof, to pay to the Remarketing Underwriter a
Remarketing underwrit ing Fee equal to an amount not exceeding 25 basis points
(.25%), from any amount received in connection from such Remarketing in excess
of the aggregate stated liquidation amount or aggregate principal amount, as
the case may be, of the Securities.
5. Delivery and Payment. Delivery of payment for the remarketed
Securities and payment of the Remarketing Underwriting Fee shall be made on the
Remarketing Closing Date at the location and time specified in Schedule I
hereto (or such later date not later than five business days after such date as
the Remarketing representatives shall designate), which date and time may be
postponed by agreement between the Remarketing Underwriter, the Company, the
Trust and the [registered holder or holders thereof]. Delivery of the
remarketed Securities and payment of the Remarketing [Underwriting] Fee shall
be made to the Remarketing Underwriter [to or upon the order of the [registered
holder or holders of the Remarketed Securities] by certified or official bank
check or checks drawn on or by a New York Clearing House bank and payable in
immediately available funds] [in immediately available funds by wire transfer
to an account or accounts designated by the [Com pany] [Trustee] [registered
holder or holders of the remarketed Securities]] or, if the remarketed
Securities are represented by a Global Security, by any method of transfer
agreed upon by the Remarketing Underwriter and the Depositary for the
Securities under the Declaration or Indenture, as applicable.
[It is understood that any registered holder or, if the Securities are
represented by a Global Security, any beneficial owner, that has an account at
the Remarketing Underwriter and tenders its Securities through such account
will not be required to pay any fee or commission to the Remarketing
Underwriter.]
If the Securities are not represented by a Global Security,
certificates for the Securities shall be registered in such names and
denominations as the Remarking Representatives may request not less than three
full business days in advance of the Remarketing Closing Date, and the Company,
the Trust and the [registered holder or holders thereof] agree to have such
certificates available for inspection, packaging and checking by the
Remarketing Underwriter in New York, New York not later than 1:00 p.m. on the
Business Day prior to the Remarketing Closing Date.
6. Notices. Unless otherwise specified, any notices, requests,
consents or other communications given or made hereunder or pursuant hereto
shall be made in writing or transmitted by any standard form of
telecommunication, including telephone, telegraph or telecopy, and confirmed in
writing. All written notices and confirmations of notices by telecommunication
shall be deemed to have been validly given or made when delivered or mailed,
registered or certified mail, return receipt
A-2
<PAGE>
requested and postage prepaid. All such notices, requests, consents or other
communications shall be addressed as follows: if to the Company, to Cendant
Corporation, 6 Sylvan Way, Parsippany, New Jersey, 07054; if to the Remarketing
Agent or Reset Agent, to c/o Merrill Lynch & Co. at Merrill Lynch World
Headquarters, World Financial Center, North Tower, New York, New York 10281,
Attention: David Johnson, Managing Director, with a copy to Shearman &
Sterling, 399 Lexington Avenue, New York, New York 10022, Attention: Rohan S.
Weerasinghe; and if to the Purchase Contract Agent, to The First National Bank
of Chicago, Corporate Trust Services Division, One First National Plaza, Suite
0126, Chicago, IL 60670-0126, or to such other address as any of the above
shall specify to the other in writing.
A-3
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several Remarketing Underwriters.
Very truly yours,
CENDANT CORPORATION
By:
--------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED
By:
-------------------------------
Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO,
not individually but solely as Purchase Contract
Agent and as attorney-in-fact for the holders of
the Purchase Contracts
By:
-------------------------------
Name:
Title:
A-4
<PAGE>
SCHEDULE I
Purchase Contract Agreement, dated as of
__________ ___, 1998 by and between
Cendant Corporation, a Delaware corporation, and
The First National Bank of Chicago, a national banking
association
Pledge Agreement dated as of ________ ___, 1998
by and between Cendant Corporation, a Delaware
corporation, The First National Bank of Chicago,
a national banking association, and
the Chase Manhattan Bank
Amended and Restated Declaration of Trust dated as
of _______ ___, 1998 of Cendant Capital I,
a Delaware business trust
Indenture dated as of ________ ___,
1998 by and between Cendant Corporation, a Delaware
corporation, and Nova Scotia Trust Company of
New York
First Supplemental Indenture, dated as of __________,
1998 by and between Cendant Corporation, a Delaware
corporation, and The Bank of Nova Scotia Trust Company
of New York
Registration Statement No. 333-45297
Title of Securities: _____% Trust Originated Preferred
Securities of Cendant Capital I
Principal Amount of Securities: $
Underwriting Agreement, dated as of ________ __, 1998, among Cendant
Capital I, and Merrill Lynch & Co. _____________
Remarketing [Underwriting] Fee: % ($ )
Remarketing Closing Date, Time and Location:
A-5
<PAGE>
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) X
-----
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
CENDANT CORPORATION
CENDANT CAPITAL I
(Exact name of obligor as specified in its charter)
Delaware 06-0918165
Delaware 22-3565324
(State of incorporation) (I.R.S. employer identification no.)
9 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
Preferred Securities of Cendant Capital I
(Title of the indenture securities)
===============================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe
each affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
<PAGE>
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by
Section 321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 18th day
of February, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Christopher L. Kaiser By: /s/ Norma P. Closs
------------------------------ -------------------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 18, 1998 By: /s/ Norma P. Closs
------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) X
-----
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
CENDANT CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 06-0918165
(State of incorporation) (I.R.S. employer identification no.)
9 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
Guarantees and backup undertakings of Cendant
Corporation in connection with Preferred Securities of Cendant Capital I
by Cendant Corporation
(Title of the indenture securities)
===============================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe
each affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
<PAGE>
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by
Section 321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 18th day
of February, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Christopher L. Kaiser By: /s/ Norma P. Closs
------------------------------ ------------------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 18, 1998 By: /s/ Norma P. Closs
-------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) X
-----
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
CENDANT CORPORATION
CENDANT CAPITAL II
(Exact name of obligor as specified in its charter)
Delaware 06-0918165
Delaware 22-3565323
(State of incorporation) (I.R.S. employer identification no.)
9 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
Preferred Securities of Cendant Capital II
(Title of the indenture securities)
===============================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe
each affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
<PAGE>
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by
Section 321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 18th day
of February, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Christopher L. Kaiser By: /s/ Norma P. Closs
----------------------------- ------------------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 18, 1998 By: /s/ Norma P. Closs
------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) X
-----
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
CENDANT CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 06-0918165
(State of incorporation) (I.R.S. employer identification no.)
9 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
Guarantees and backup undertakings of Cendant
Corporation in connection with Preferred Securities of Cendant Capital II
by Cendant Corporation
(Title of the indenture securities)
===============================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe
each affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
<PAGE>
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by
Section 321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 18th day
of February, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Christopher L. Kaiser By: /s/ Norma P. Closs
---------------------------- ------------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 18, 1998 By: /s/ Norma P. Closs
------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) X
-----
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
CENDANT CORPORATION
CENDANT CAPITAL III
(Exact name of obligor as specified in its charter)
Delaware 06-0918165
Delaware 22-3565321
(State of incorporation) (I.R.S. employer identification no.)
9 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
Preferred Securities of Cendant Capital III
(Title of the indenture securities)
===============================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe
each affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
<PAGE>
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by
Section 321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 18th day
of February, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Christopher L. Kaiser By: /s/ Norma P. Closs
----------------------------- -------------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 18, 1998 By: /s/ Norma P. Closs
------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) X
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
CENDANT CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 06-0918165
(State of incorporation) (I.R.S. employer identification no.)
9 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
Guarantees and backup undertakings of Cendant
Corporation in connection with Preferred Securities of Cendant Capital III
by Cendant Corporation
(Title of the indenture securities)
===============================================================================
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe
each affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
<PAGE>
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by
Section 321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 18th day
of February, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Christopher L. Kaiser By: /s/ Norma P. Closs
------------------------------- ----------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: February 18, 1998 By: /s/ Norma P. Closs
------------------
Name: Norma P. Closs
Title: Vice President
