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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
COMMISSION FILE NO. 1-10308
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CENDANT CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 06-0918165
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9 WEST 57TH STREET
NEW YORK, NY 10019
(Address of principal executive office) (Zip Code)
212-413-1800
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, Par Value $.01 New York Stock Exchange
Income PRIDES(SM) New York Stock Exchange
Growth PRIDES (SM) New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
6.45% Trust Originated Preferred Securities
7 3/4% Notes due 2003
3% Convertible Subordinated Notes Due 2002
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock issued and outstanding and
held by nonaffiliates of the Registrant, based upon the closing price for the
Common Stock on the New York Stock Exchange on February 24, 2000 was
$12,368,280,865. All executive officers and directors of the registrant have
been deemed, solely for the purpose of the foregoing calculation, to be
"affiliates" of the registrant.
The number of shares outstanding of each of the Registrant's classes of
common stock was 725,692,057 as of February 24, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement, dated February 10,
2000, which was mailed to stockholders in connection with the registrant's
special stockholders' meeting to be held March 21, 2000 (the "Special Proxy
Statement") and the registrant's definitive proxy statement to be mailed to
stockholders in connection with our annual stockholders meeting to be held on
May 25, 2000 (the "Annual Proxy Statement") are incorporated by reference into
Part III hereof.
DOCUMENT CONSTITUTING PART OF SECTION 10(A) PROSPECTUS
FOR FORM S-8 REGISTRATION STATEMENTS
This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
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TABLE OF CONTENTS
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ITEM DESCRIPTION PAGE
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PART I
1 Business ................................................................................. 1
2 Properties ............................................................................... 36
3 Legal Proceedings ........................................................................ 37
4 Submission of Matters to a Vote of Security Holders ...................................... 43
PART II
5 Market for the Registrant's Common Equity and Related Stockholder Matters ................ 45
6 Selected Financial Data .................................................................. 46
7 Management's Discussion and Analysis of Financial Condition and Results of Operations 47
7a Quantitative and Qualitative Disclosures about Market Risk ............................... 66
8 Financial Statements and Supplementary Data .............................................. 67
9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................................... 67
PART III
10 Directors and Executive Officers of the Registrant ....................................... 68
11 Executive Compensation ................................................................... 68
12 Security Ownership of Certain Beneficial Owners and Management ........................... 68
13 Certain Relationships and Related Transactions ........................................... 68
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K .......................... 68
Signatures ............................................................................... 69
Index to Exhibits ........................................................................ 71
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PART I
ITEM 1. BUSINESS
Except as expressly indicated or unless the context otherwise requires, the
"Company", "Cendant", "we", "our", or "us" means Cendant Corporation, a Delaware
Corporation, and its subsidiaries.
GENERAL
We are one of the foremost providers of travel related, real estate related
and direct marketing consumer and business services in the world. We were
created through the merger (the "Merger") of HFS Incorporated ("HFS") into CUC
International, Inc. ("CUC") in December 1997 with the resultant corporation
being renamed Cendant Corporation.
We operate in four principal divisions -- travel related services, real
estate related services, direct marketing services and diversified services. Our
businesses provide a wide range of complementary consumer and business services,
which together represent eight business segments. The travel related services
businesses facilitate vacation timeshare exchanges and franchise car rental and
hotel businesses; the real estate related services businesses franchise real
estate brokerage businesses, provide home buyers with mortgages, assist in
employee relocations and provide consumers with relocation, real estate and
home-related products and services through our Move.com network of websites; and
the direct marketing services businesses provide an array of value driven
products and services. Our diversified services businesses include our tax
preparation services franchise, information technology services, car parks in
the United Kingdom and other consumer-related services.
As a franchisor of hotels, residential real estate brokerage offices, car
rental operations and tax preparation services, we license the owners and
operators of independent businesses to use our brand names. We do not own or
operate hotels, real estate brokerage offices, car rental operations or tax
preparation offices. Instead, we provide our franchisee customers with services
designed to increase their revenue and profitability.
Travel Related Services
In our travel segment, we franchise hotels primarily in the mid-priced and
economy markets. We are 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) lodging franchise systems. We own the Avis (Registered
Trademark) worldwide vehicle rental franchise system which, operated by its
franchisees, is the second largest car rental system in the world (based on
total revenues and volume of rental transactions). We currently own
approximately 18% of the capital stock of the largest Avis franchisee, Avis Rent
A Car, Inc. ("ARAC"). We also own Resort Condominiums International, LLC
("RCI"), the world's leading timeshare exchange organization.
Real Estate Related Services
Our real estate division consists of the real estate franchise, Move.com
Group, relocation and mortgage segments. In the real estate franchise segment,
we franchise real estate brokerage offices under the CENTURY 21 (Registered
Trademark) , COLDWELL BANKER (Registered Trademark) and ERA (Registered
Trademark) real estate brokerage franchise systems and are the world's largest
real estate brokerage franchisor. In the Move.com Group Segment, we operate a
popular network of Web sites which offer a wide selection of quality relocation,
real estate and home-related products and services. In the relocation segment,
our Cendant Mobility Services Corporation subsidiary is the largest provider of
corporate relocation services in the world, offering relocation clients a
variety of services in connection with the transfer of a client's employees. In
the mortgage segment, our Cendant Mortgage Corporation ("Cendant Mortgage")
subsidiary 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 mortgage banks.
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Direct Marketing Services
Our direct marketing division is divided into two segments: individual
membership and insurance/ wholesale. The individual membership segment, with
approximately 25 million memberships, provides customers with access to a
variety of discounted products and services in such areas as retail shopping,
travel, auto, dining, and home improvement. The insurance/wholesale segment,
with over 50 million customers, markets and administers insurance products,
primarily accidental death and dismemberment insurance and term life insurance,
and also provides products and services such as checking account enhancement
packages, financial products and discount programs to customers of various
financial institutions. Our direct marketing activities are conducted
principally through our Cendant Membership Services, Inc. subsidiary and certain
of the Company's other wholly-owned subsidiaries, including FISI*Madison
Financial Corporation ("FISI"), Benefit Consultants, Inc. ("BCI") and Cendant
International Membership Services, Ltd. ("CIMS").
Diversified Services
We also provide a variety of other consumer and business services. Our
Jackson Hewitt Inc. ("Jackson Hewitt") subsidiary operates the second largest
tax preparation service system in the United States with locations in 43 states
and franchises a system of approximately 3,000 offices that specialize in
computerized preparation of federal and state individual income tax returns. Our
National Car Parks Limited ("NCP") subsidiary operates car parks throughout the
United Kingdom. We also provide information technology services and other
consumer services.
RECENT DEVELOPMENTS
Strategic Developments
In connection with our previously announced plan to focus on maximizing the
opportunities and growth potential of our existing businesses, we have divested
certain non-strategic businesses and assets and have completed or commenced
certain other strategic initiatives related to the Internet as stated below. The
divestiture program has resulted in the disposition of 18 business units, the
proceeds of which have been partially utilized to repurchase our common stock
and reduce our indebtedness.
Disposition of Businesses
In connection with the aforementioned program, we have completed the
following dispositions during 1999:
Entertainment Publications, Inc. On November 30, 1999, we completed the
disposition of approximately 85% of our Entertainment Publications, Inc.
("EPub") business unit for approximately $281 million in cash. We retained
approximately 15% of EPub's common equity in connection with the transaction.
In addition, we will have a designee on the EPub Board of
Directors.
We account for our investment in EPub using the equity method of accounting
because, in accordance with Accounting Principles Board Opinions No. 18, we
believe that our ownership interest combined with our representation on the
Board of Directors of EPub gives us the ability to exercise significant
influence on EPub. Under the equity method of accounting, our investments will
be increased or reduced to reflect our share of EPub's income or losses.
Green Flag. On November 26, 1999, we completed the disposition of our Green
Flag business unit for approximately $401 million. Green Flag is a roadside
assistance organization based in the United Kingdom, which provides a wide range
of emergency support and rescue services.
North American Outdoor Group. On October 8, 1999, we completed the
disposition of 94% of our North American Outdoor Group ("NAOG") business unit
for approximately $141 million in cash and will retain approximately 6% of
NAOG's equity in connection with the transaction. We account for this investment
in NAOG using the cost method of accounting.
Global Refund Group. On August 24, 1999, we completed the sale of our
Global Refund Group subsidiary ("Global Refund") for approximately $158 million
in cash. Global Refund, formerly known as Europe Tax Free Shopping, was a
value-added tax refund services company.
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Fleet. On June 30, 1999, we completed the disposition of the fleet business
segment ("fleet segment" or "fleet businesses"), which included PHH Vehicle
Management Services Corporation, Wright Express Corporation, The Harpur Group,
Ltd., and other subsidiaries pursuant to an agreement between our PHH
Corporation ("PHH") subsidiary and ARAC. Pursuant to the agreement, ARAC
acquired net assets of the fleet businesses through the assumption and
subsequent repayment of $1.44 billion of intercompany debt and the issuance of
$360 million of convertible preferred stock of Avis Fleet Leasing and Management
Corporation, a wholly-owned subsidiary of ARAC. We account for the convertible
preferred stock using the cost method of accounting.
Cendant Software Corporation. On January 12, 1999, we completed the sale of
our consumer software division, Cendant Software Corporation and its
subsidiaries, to Paris-based Havas SA, a subsidiary of Vivendi SA, for
approximately $770 million in cash.
Other Businesses. During 1999, we completed the dispositions of certain
other businesses, including Central Credit, Inc., Spark Services, Inc.,
Match.com, National Leisure Group, National Library of Poetry and Essex
Corporation. Aggregate consideration received on the dispositions of such
businesses was comprised of $116 million in cash and 1.9 million shares of
common stock of Ticketmaster On-line-City Search, Inc., which we received in the
sale of Match.com.
Internet Developments
As part of our focus on maximizing the opportunities and growth potential
of our existing businesses, we have completed or have pending the following
Internet initiatives:
New Real Estate Portal -- Move.com Group. In January 2000, we launched the
Move.com Internet portal, our flagship relocation, real estate and home-related
products and services Web site. In connection therewith we mailed a proxy
statement on February 10, 2000 to stockholders proposing the creation of a new
class of common stock ("Move.com Stock") to track the performance of the
Move.com Group, a group of businesses, assets and liabilities of Cendant that
are dedicated to providing online relocation, real estate and home-related
products and services. We also filed a registration statement on Form S-3 on
February 14, 2000 in connection with a proposed initial public offering of
Move.com stock in the second quarter of 2000. Move.com Group operates a popular
network of Web sites, including move.com, rent.net, century21.com,
coldwellbanker.com, era.com, seniorhousing.net, corporatehousing.net,
selfstorage.net and welcomewagon.net, which offer a wide selection of quality
relocation, real estate and home-related products and services. Move.com Group
also offers a broad-based distribution platform for its business partners, who
are trying to reach a highly targeted and valued group of consumers at the most
opportune times.
Strategic Alliance. On December 15, 1999, we entered into a strategic
alliance with Liberty Media Corporation ("Liberty Media"). Specifically, we have
agreed to work together with Liberty Media to develop Internet and related
opportunities associated with our travel, mortgage, real estate and direct
marketing businesses. Such efforts may include the creation of joint ventures
between Liberty Media and Cendant as well as additional equity investments in
each others' businesses. However, we can make no assurances that any alliances
or additional equity investments will be made or the timing thereof.
We will also assist Liberty Media in creating, and will receive an equity
participation in, a new venture that will seek to provide broadband video, voice
and data content to our hotels and their guests on a worldwide basis. We will
also pursue opportunities within the cable industry with Liberty Media to
leverage our direct marketing resources and capabilities.
On February 7, 2000, Liberty Media invested $400 million in cash to
purchase 18 million shares of our common stock and a two-year warrant to
purchase approximately 29 million shares of our common stock at an exercise
price of $23.00 per share. The common stock, together with the common stock
underlying the warrant, represents approximately 6.3% of our outstanding shares
after giving effect to the aforementioned transaction. We also announced that
Liberty Media Chairman, John C. Malone, Ph.D., will join our board of directors
and has also committed to purchase one million shares of our common stock for
approximately $17 million in cash.
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Netmarket Group, Inc. Transaction. On September 15, 1999, Netmarket Group,
Inc. ("NGI") began operations as an independent company that pursues the
development of certain interactive businesses formerly within our direct
marketing division. NGI owns, operates and develops the online membership
businesses, which collectively have approximately 1.4 million online members.
Prior to September 15, 1999, our ownership of NGI was restructured into common
stock and preferred stock interests. On September 15, 1999, we donated NGI's
outstanding common stock to a charitable trust, and NGI issued additional shares
of its common stock to certain of its marketing partners. Accordingly, as a
result of the change in ownership of NGI's common stock from us to independent
third parties, NGI's operating results are no longer included in our
Consolidated Financial Statements. We retained the opportunity to participate in
NGI's value through the ownership of convertible preferred stock of NGI, which
is ultimately convertible, at our option, after September 14, 2001, into 78% of
NGI's diluted common shares which has a $5 million annual preferred dividend.
The convertible preferred stock is accounted for using the cost method of
accounting. The preferred stock dividend will be recorded in income if and when
it becomes realizable.
Formation of Cendant Internet Group. On January 31, 2000 we announced the
formation of the Cendant Internet Group ("CIG") to spearhead the convergence of
our offline and online assets. Over the next several months, we expect to
develop a comprehensive Internet plan which delivers several new business
applications and e-enable the Cendant organization. During this time frame, the
Company also expects to enter into related alliances and investments to further
enhance its digital strategy. CIG intends to work closely with Liberty Media and
our operating divisions to achieve this convergence vision.
Class Action Litigation and Government Investigation
Since our April 15, 1998 announcement of the discovery of accounting
irregularities in the former CUC business units, approximately 70 lawsuits
claiming to be class actions, two lawsuits claiming to be brought derivatively
on our behalf and several individual lawsuits and arbitration proceedings have
been filed against us and, among others, our predecessor, HFS, and several
current and former officers and directors of Cendant and HFS. These lawsuits
assert, among other things, various claims under the federal securities laws
including claims under sections 11, 12 and 15 of the Securities Act of 1933 and
sections 10(b), 14(a) and 20(a) of and Rules 10b-5 and 14a-9 under the
Securities Exchange Act of 1934 and state, statutory and common laws, including
claims that financial statements previously issued by us allegedly were false
and misleading that these statements allegedly caused the price of our
securities to be artificially inflated. SEE "ITEM 3. LEGAL PROCEEDINGS".
In addition, the staff of the Securities and Exchange Commission (the
"SEC") and the United States Attorney for the District of New Jersey are
conducting investigations relating to the accounting irregularities. The SEC
staff has advised us that its inquiry should not be construed as an indication
by the SEC or its staff that any violations of law have occurred. As a result of
the findings from our internal investigations, we made all adjustments
considered necessary which are reflected in our previously filed restated
financial statements. Although we can provide no assurances that additional
adjustments will not be necessary as a result of these government
investigations, we do not expect that additional adjustments will be necessary.
On December 7, 1999, we announced that we reached a preliminary agreement
to settle the principal securities class action pending against us in the U.S.
District Court in Newark, New Jersey relating to the aforementioned class action
lawsuits. Under the agreement, we would pay the class members approximately
$2.85 billion in cash, an increase from approximately $2.83 billion previously
reported. The increase is a result of continued negotiation toward definitive
documents relating to additional costs to be paid to the plaintiff class. The
settlement remains subject to execution of a definitive settlement agreement and
approval by the U.S. District Court. If the preliminary settlement is not
approved by the U.S. District Court, we can make no assurances that the final
outcome or settlement of such proceedings will not be for an amount greater than
that set forth in the preliminary agreement. We currently plan to fund the
settlement through the use of available cash, the issuance of debt securities
and/or the issuance of equity securities. We intend to finance the cost of the
settlement so as to maintain our investment grade ratings.
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Settlement of PRIDES Class Action Litigation
On March 17, 1999, we entered into a stipulation of settlement in the
PRIDES action and the court subsequently granted the settlement its approval.
Under the settlement stipulation, in return for the release of all claims
arising from any purchase of current FELINE PRIDES on or before April 15, 1998,
we are obligated to issue up to 29,161,474 Rights with a stated theoretical
value of $11.71 each. Each class member who does not opt out and who submits a
timely and valid proof of claim will be entitled to one Right for each current
FELINE PRIDES held at the close of business on April 15, 1998. For example, if a
person owned 100 FELINE PRIDES on April 15, 1998, such person would be entitled
to 100 rights. Under the settlement stipulation, until February 14, 2001 we will
issue two new FELINE PRIDES to every person who delivers to us three Rights and
two current FELINE PRIDES. For example, if a holder of rights exchanges three
rights together with two current Income PRIDES, they will receive two new Income
PRIDES. If a holder of rights exchanges three rights together with two Growth
PRIDES, they will receive two New Growth PRIDES. The terms of the new FELINE
PRIDES will be the same as the currently outstanding PRIDES, except that the
conversion rate will be revised so that, at the time the Rights are distributed,
each of the new PRIDES will have a value equal to $17.57 more than each original
PRIDES, based upon a generally accepted valuation model. The settlement does not
resolve claims based upon purchases of current FELINE PRIDES after April 16,
1998.
Based on the settlement, we recorded an after tax charge of approximately
$228 million, or $0.26 per diluted share, which is $351 million pre-tax, in the
fourth quarter of 1998. We recorded an increase in additional paid-in capital of
$350 million offset by a decrease in retained earnings of $228 million,
resulting in a net increase in shareholders' equity of $122 million as a result
of the prospective issuance of the common stock. As a result, the settlement
should not reduce net book value. In addition, the settlement is not expected to
reduce 2000 earnings per share unless our common stock price materially
appreciates. SEE "ITEM 3. LEGAL PROCEEDINGS" for a more detailed description of
the settlement.
* * *
We continually explore and conduct discussions with regard to acquisitions
and other strategic corporate transactions in our industries and in other
franchise, franchisable or service businesses. As part of this regular on-going
evaluation of acquisition opportunities, we currently are engaged in a number of
separate, unrelated preliminary discussions concerning possible acquisitions.
The purchase price for the possible acquisitions may be paid in cash, through
the issuance of our common stock (which would increase the number of our common
stock outstanding) or other securities of the Company, borrowings, or a
combination thereof. Prior to consummating any such possible acquisition, we
will need, among other things, to initiate and complete satisfactorily our due
diligence investigations; 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. No assurance can be given with respect to the timing, likelihood or
business effect of any possible transaction. In the past, we have been involved
in both relatively small acquisitions and acquisitions which have been
significant.
FINANCIAL INFORMATION
Financial information about our business segments may be found in Note 24
to our Consolidated Financial Statements presented in Item 8 of this Annual
Report on Form 10-K and incorporated herein by reference.
FORWARD LOOKING STATEMENTS
We make statements about our future results in this Annual Report on Form
10-K that may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
our current expectations and the current economic environment. We caution you
that these statements are not guarantees of future performance. They involve a
number of risks and uncertainties that are difficult to predict. Our actual
results could differ materially from those expressed or implied in the
forward-looking statements. Important assumptions and other important factors
that could cause our actual results to differ materially from those in the
forward-looking statements, include, but are not limited to:
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o the resolution or outcome of the pending litigation and government
investigations relating to the previously announced accounting
irregularities;
o uncertainty as to our future profitability and our ability to integrate
and operate successfully acquired businesses and the risks associated
with such businesses;
o our ability to successfully implement our plan to create a tracking
stock for our new real estate portal (described in "Businesses and
Recent Developments");
o our ability to develop and implement operational and financial systems
to manage rapidly growing operations;
o competition in our existing and potential future lines of business;
o our ability to obtain financing on acceptable terms to finance our
growth strategy and for us to operate within the limitations imposed by
financing arrangements; and
o the effect of changes in current interest rates.
We derived the forward-looking statements in this Annual Report on Form
10-K (including the documents incorporated by reference in this Annual Report on
Form 10-K) from the foregoing factors and from other factors and assumptions,
and the failure of such assumptions to be realized as well as other factors may
also cause actual results to differ materially from those projected. We assume
no obligation to publicly correct or update these forward-looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting such forward-looking statements or if we later become aware that they
are not likely to be achieved.
PRINCIPAL EXECUTIVE OFFICE
Our principal executive offices are located at 9 West 57th Street, New
York, New York 10019 (telephone number: (212) 413-1800).
TRAVEL DIVISION
TRAVEL SEGMENT
The Travel Segment consists of our lodging franchise services, timeshare
exchange, and Avis car rental franchise businesses and represented approximately
21%, 20% and 23% of our revenue for the years ended December 31, 1999, 1998 and
1997, respectively.
LODGING FRANCHISE BUSINESS
GENERAL. The lodging industry can be divided into three broad segments
based on price and services: luxury or upscale, which typically charge room
rates above $82 per night; middle market, with room rates generally between $55
and $81 per night; and economy, where room rates generally are less than $54 per
night. Of our franchised brand names, Ramada, Howard Johnson and Wingate Inn
compete principally in the middle market segment and Days Inn, Knights Inn,
Super 8, Travelodge and Villager Lodge ("Villager") compete primarily in the
economy segment.
As franchisor of lodging facilities, we provide a number of services
designed to directly or indirectly increase hotel occupancy rates, revenue and
profitability, the most important of which is a centralized brand-specific
reservation system. Similarly, brand awareness derived from nationally
recognized brand names, supported by national advertising and marketing
campaigns, can increase the desirability of a hotel property to prospective
guests. We believe that, in general, national franchise brands with a greater
number of hotels enjoy greater brand awareness among potential hotel guests, and
thus are perceived as more valuable by existing and prospective franchisees than
brands with a lesser number of properties. Franchise brands can also increase
franchisee property occupancy through national direct sales programs to
businesses, associations and affinity groups.
In determining whether to affiliate with a national franchise brand, hotel
operators compare the costs of affiliation (including the capital expenditures
and operating costs required to meet a brand's quality,
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technology and operating standards, plus the ongoing payment of franchise
royalties and assessments for the reservations system and marketing programs)
with the increase in gross room revenue and decrease in certain expenses
anticipated to be derived from brand membership. Other benefits to brand
affiliation include group purchasing services, training programs, design and
construction advice, and other franchisee support services, all of which provide
the benefits of a national lodging services organization to operators of
independently-owned hotels. We believe that, in general, franchise affiliations
are viewed as enhancing the value of a hotel property by providing economic
benefits to the property.
The fee and cost structure of our lodging business provides significant
opportunities for us to increase earnings by increasing the number of franchised
properties. Hotel franchisors, such as our Company, derive substantially all of
their revenue from continuing franchise fees. Continuing franchise fees are
comprised of two components, a royalty portion and a marketing and reservations
portion, both of which are normally charged by the franchisor as a percentage of
the franchisee's gross room revenue. The royalty portion of the franchise fee is
intended to cover the operating expenses of the franchisor, such as expenses
incurred in quality assurance, administrative support and other franchise
services and to provide the franchisor with operating profits. The
marketing/reservations portion of the franchise fee is intended to reimburse the
franchisor for the expenses associated with providing such franchise services as
a central reservations system, national media advertising and certain training
programs.
Our franchisees are dispersed geographically which minimizes the exposure
to any one hotel owner or geographic region. Of the more than 6,300 properties
and 4,576 franchisees in our systems, no individual hotel owner accounts for
more than 2% of our lodging revenue.
We entered the lodging franchise business in July 1990 with the acquisition
of the Howard Johnson franchise system and the rights to operate the U.S. Ramada
franchise system. We acquired the Days Inn franchise system in January 1992, the
Super 8 franchise system in April 1993, the Villager Lodge franchise system in
November 1994, the Knights Inn franchise system in August 1995 and the
Travelodge franchise system in January 1996. Each of these acquisitions has
increased our earnings per share. We continue to seek opportunities to acquire
or license additional hotel franchise systems, including established brands in
the upscale segment of the market, where we are not currently represented. See
"Lodging Franchise Growth" below.
LODGING FRANCHISE GROWTH. Growth of the franchise systems through the sale
of long-term franchise agreements to operators of existing and newly constructed
hotels is the leading source of revenue and earnings growth in our lodging
franchise business. Franchises are terminated primarily for not paying the
required franchise fees and/or not maintaining compliance with brand quality
assurance standards required pursuant to the applicable franchise agreement.
LODGING FRANCHISE SALES. We market franchises principally to independent
hotel and motel owners, as well as to owners whose property affiliation with
other hotel brands can be terminated. We believe that our existing franchisees
also represent a significant potential market because many own, or may own in
the future, other hotels, which can be converted to our brand names.
Accordingly, a significant factor in our sales strategy is maintaining the
satisfaction of our existing franchisees by providing quality services.
We employ a national franchise sales force consisting of approximately 88
salespeople and sales management personnel, which is divided into several brand
specific sales groups, with regional offices around the country. The sales force
is compensated primarily through commissions. In order to provide broad
marketing of our brands, sales referrals are made among the sales groups and a
referring salesperson is entitled to a commission for a referral which results
in a franchise sale.
We seek to expand our franchise systems and provide marketing and other
franchise services to franchisees on an international basis through a series of
master license agreements with internationally based developers and franchisors.
As of December 31, 1999, our franchising subsidiaries (other than Ramada) have
entered into international master licensing agreements for part or all of
approximately 80 countries on six continents. The agreements typically include
minimum development requirements and require payment of an initial development
fee in connection with the execution of the license agreement as well as
recurring franchise fees.
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LODGING FRANCHISE SYSTEMS. The following is a summary description of our
lodging franchise systems. Information reflects properties that are open and
operating and is presented as of December 31, 1999.
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PRIMARY AVG. ROOMS # OF # OF DOMESTIC
BRAND MARKET SERVED PER PROPERTY PROPERTIES ROOMS INTERNATIONAL*
----- ------------- ------------ ---------- ----- --------------
<S> <C> <C> <C> <C> <C>
Days Inn Lower Economy 86 1,888 162,472 International(1)
Howard Johnson Mid-market 102 497 50,489 International(2)
Knights Inn Lower Economy 80 233 18,609 International(3)
Ramada Mid-market 126 1,047 131,603 Domestic
Super 8 Economy 61 1,893 115,318 International(4)
Travelodge Upper Economy 84 575 48,111 International(5)
Villager Lodge Lower Economy 83 105 8,748 International(6)
Wingate Upper Mid-market 95 77 7,280 International(6)
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Total 6,315 542,630
</TABLE>
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* Description of rights owned or licensed.
(1) Includes properties in Mexico, Canada, China, South Africa, India,
Uruguay, Philippines, Colombia, Czech Republic and UK.
(2) Includes properties in Mexico, Canada, Colombia, Israel, Venezuela, Malta,
U.A.E., Dominican Republic, Egypt, Equator, Argentina, Jordan and UK.
(3) Includes properties in Canada.
(4) Includes properties in Canada and Singapore.
(5) Includes properties in Canada and Mexico.
(6) No international properties currently open and operating.
OPERATIONS -- LODGING. Our organization is designed to provide a high level
of service to our franchisees while maintaining a controlled level of overhead
expense. In the lodging segment, expenses related to marketing and reservations
services are budgeted to match anticipated marketing and reservation fees each
year.
CENTRAL RESERVATIONS SYSTEMS. Unlike many other franchise businesses (such
as restaurants), the lodging business is characterized by remote purchasing
through travel agencies and through use by consumers of toll-free telephone
numbers and the Internet. Each of our reservation systems is independently
operated, focusing on its specific brand and franchise system, and is comprised
of one or more nationally advertised toll-free telephone numbers, reservation
agents who accept inbound calls, a computer operation that processes
reservations, and automated links which accept reservations from travel agents
and other travel providers, such as airlines, and which report reservations made
through the system to each franchisee property. Each reservation agent handles
reservation requests and inquiries for only one of our franchise systems and
there is no "cross selling" of franchise systems to consumers. We maintain seven
reservations centers that are located in Knoxville and Elizabethton, Tennessee;
Phoenix, Arizona; Winner and Aberdeen, South Dakota; Orangeburg, South Carolina
and Saint John, New Brunswick, Canada.
Each brand maintains an Internet Web site to acquaint viewers with the
brand and its properties. Each property has its own series of information pages.
Each brand also accepts reservations over the Internet from the brand's own Web
site and other Internet Web sites equipped with compatible booking devices. In
1999, the brand Web sites had 64.7 million page views and booked an aggregate of
649,253 roomnights from Internet booking sources, compared with 33.7 million
page views and 226,782 roomnights booked in 1998, increases of 91.9% and 186.3%,
respectively.
LODGING FRANCHISE AGREEMENTS. Our lodging franchise agreements grant the
right to utilize one of the brand names associated with our lodging franchise
systems to lodging facility owners or operators under long-term franchise
agreements. An annual average of 2.0% of our existing franchise agreements are
scheduled to expire from January 1, 2000 through December 31, 2006, with no more
than 2.6% (in 2002) scheduled to expire in any one of those years.
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The current standard agreements generally are for 15-year terms for
converted properties and 20-year terms for newly constructed properties and
generally require, among other obligations, franchisees to pay a minimum initial
fee based on property size and type, as well as continuing franchise fees
comprised of royalty fees and marketing/reservation fees based on gross room
revenues.
Under the terms of the standard franchise agreements in effect at December
31, 1999, franchisees are typically required to pay recurring fees comprised of
a royalty portion and a reservation/marketing portion, calculated as a
percentage of annual gross room revenue that range from 7.0% to 8.8%. We
discount fees from the standard rates from time to time and under certain
circumstances.
Our typical franchise agreement is terminable by us upon the franchisee's
failure to maintain certain quality standards, to pay franchise fees or other
charges or to meet other specified obligations. In the event of such
termination, we are typically entitled to be compensated for lost revenue in an
amount equal to the franchise fees accrued during periods specified in the
respective franchise agreements which are generally between one and five years.
The lodging franchise agreements are terminable by the franchisee under certain
limited circumstances. The franchisee may terminate under certain procedures if
the hotel suffers a substantial casualty or condemnation. Some franchisees and
the franchisors have negotiated certain mutual termination rights, which usually
may be exercised only on specific anniversary dates of the hotel's opening, and
only if certain conditions precedent are met. The Lodging Division also has a
policy that allows a franchisee to terminate the franchise if its hotel fails to
achieve 50% annual occupancy after certain conditions and waiting periods are
satisfied.
LODGING SERVICE MARKS AND OTHER INTELLECTUAL PROPERTY. The service marks
"Days Inn," "Ramada," "Howard Johnson," "Super 8," "Travelodge" and related
logos are material to our business. We, through our franchisees, actively use
these marks. All of the material marks in each franchise system are registered
(or have applications pending for registration) with the United States Patent
and Trademark Office. We own the marks relating to the Days Inn system, the
Howard Johnson system, the Knights Inn system, the Super 8 system, the
Travelodge system (in North America), the Villager Lodge system and the Wingate
Inn system through our subsidiaries.
We franchise the service mark "Ramada" and related marks and Ramada brands
and logos (the "Ramada Marks") to lodging facility owners in the United States
pursuant to two license agreements (the "Ramada License Agreements") between an
indirect subsidiary of Marriott Corporation ("Licensor") and Ramada Franchise
Systems, Inc. ("RFS"), our wholly-owned subsidiary.
The Ramada License Agreements limit RFS's use of the Ramada Marks to the
U.S. market. The Ramada License Agreements have initial terms terminating on
March 31, 2024. At the end of the initial terms, RFS has the right either (i)
to extend the Ramada License Agreements, (ii) to purchase the Ramada Marks for
their fair market value at the date of purchase, subject to certain minimums
after the initial terms, or (iii) to terminate the Ramada License Agreements.
The Ramada License Agreements require that RFS pay license fees to the Licensor
calculated on the basis of percentages of annual gross room sales, subject to
certain minimums and maximums as specified in each Ramada License Agreement.
RFS received approximately $48 million in royalties from its Ramada franchisees
in 1999 and paid the Licensor approximately $23 million in license fees.
The Ramada License Agreements are subject to certain termination events
relating to, among other things, (i) the failure to maintain aggregate annual
gross room sales minimum amounts stated in the Ramada License Agreements, (ii)
the maintenance by us of a minimum net worth of $50 million (however, this
minimum net worth requirement may be satisfied by a guaranty of an affiliate of
ours with a net worth of at least $50 million or by an irrevocable letter of
credit (or similar form of third-party credit support)), (iii) non-payment of
royalties, (iv) failure to maintain registrations on the Ramada Marks and to
take reasonable actions to stop infringements, (v) failure to pay certain
liabilities specified by the Restructuring Agreement, dated July 15, 1991, by
and among New World Development Co., Ltd. (a predecessor to Licensor), Ramada
International Hotels and Resorts, Inc., Ramada Inc., Franchise System Holdings,
Inc., the Company and RFS and (vi) failure to maintain appropriate hotel
standards of service and quality. A termination of the Ramada License
Agreements would result in the loss of the income
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stream from franchising the Ramada brand names and could result in the payment
by us of liquidated damages equal to three years of license fees. We do not
believe that we will have difficulty complying with all of the material terms
of the Ramada License Agreements.
LODGING COMPETITION. Competition among the national lodging brand
franchisors to grow their franchise systems is intense. Our primary national
lodging brand competitors are the Holiday Inn (Registered Trademark) and Best
Western (Registered Trademark) brands and Choice Hotels, which franchises seven
brands, including the Comfort Inn (Registered Trademark) , Quality Inn
(Registered Trademark) and Econo Lodge (Registered Trademark) brands. Days Inn,
Travelodge and Super 8 properties principally compete with Comfort Inn, Red Roof
Inn (Registered Trademark) , and Econo Lodge in the limited service economy
sector of the market. The chief competitor of Ramada, Howard Johnson and Wingate
Inn properties, which compete in the middle market segment of the hotel
industry, is Holiday Inn (Registered Trademark) and Hampton Inn (Registered
Trademark) . Our Knights Inn and Travelodge brands compete with Motel 6
(Registered Trademark) properties. In addition, a lodging facility owner may
choose not to affiliate with a franchisor but to remain independent.
We believe that competition for the sale of franchises in the lodging
industry is based principally upon the perceived value and quality of the brand
and services offered to franchisees, as well as the nature of those services. We
believe that prospective franchisees value a franchise based upon their view of
the relationship of conversion costs and future charges to the potential for
increased revenue and profitability. The reputation of the franchisor among
existing franchisees is also a factor, which may lead a property owner to select
a particular affiliation. We also believe that the perceived value of its brand
names to prospective franchisees is, to some extent, a function of the success
of its existing franchisees.
The ability of our lodging franchisees to compete in the lodging industry
is important to our prospects for growth, although, because franchise fees are
based on franchisee gross room revenue, our revenue is not directly dependent on
franchisee profitability.
The ability of an individual franchisee to compete may be affected by the
location and quality of its property, the number of competing properties in the
vicinity, its affiliation with a recognized brand name, community reputation and
other factors. A franchisee's success may also be affected by general, regional
and local economic conditions. The effect of these conditions on our results of
operations is substantially reduced by virtue of the diverse geographical
locations of our franchises.
LODGING SEASONALITY. The principal source of lodging revenue for us is
based upon the annual gross room revenue of franchised properties. As a result,
our revenue from the lodging franchise business experiences seasonal lodging
revenue patterns similar to those of the hotel industry wherein the summer
months, because of increases in leisure travel, produce higher revenues than
other periods during the year. Therefore, any occurrence that disrupts travel
patterns during the summer period could have a material adverse effect on the
franchisee's annual performance and effect our annual performance.
TIMESHARE EXCHANGE BUSINESS
GENERAL. Our RCI subsidiary, which we acquired on November 12, 1996, is the
world's largest provider of timeshare vacation exchange opportunities and
timeshare services for more than 2.6 million timeshare households from more than
200 nations and more than 3,500 resorts in more than 90 countries around the
world. RCI's business consists primarily of the operation of an exchange program
for owners of condominium timeshares or whole units at affiliated resorts, the
publication of magazines and other periodicals related to the vacation and
timeshare industry, travel related services, resort management, integrated
software systems and service and consulting services. RCI has significant
operations in North America, Europe, the Middle East, Latin America, Africa,
Australia, and the Pacific Rim. RCI has more than 3,700 employees worldwide.
The resort component of the leisure industry is primarily serviced by two
alternatives for overnight accommodations: commercial lodging establishments and
timeshare resorts. Commercial lodging consists principally of: a) hotels and
motels in which a room is rented on a nightly, weekly or monthly basis for the
duration of the visit and b) rentals of privately-owned condominium units or
homes. Oftentimes, this segment is designed to serve both the leisure and
business traveler. Timeshare resorts present an economical and reliable
alternative to commercial lodging for many vacationers who want to experience
the added benefits associated with ownership. Timeshare resorts are purposely
designed and operated for the needs and enjoyment of the leisure traveler.
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Resort timesharing -- also referred to as vacation ownership -- is the
shared ownership and/or periodic use of property by a number of users or owners
for a defined period of years or in perpetuity. An example of a simple form of
timeshare is a condominium unit that is owned by fifty-one persons, with each
person having the right to use the unit for one week of every year and with one
week set aside for maintenance. In the United States, industry sources estimate
that the average price of such a timeshare is about $11,000, plus a yearly
maintenance fee of approximately $350 per interval owned. Based upon information
published about the industry, we believe that 1999 sales of timeshares exceeded
$6 billion worldwide. Two principal segments make up the timeshare exchange
industry: owners of timeshare interest (consumers) and resort properties
(developers/operators). Industry sources have estimated that the total number of
owner households of timeshare interests is nearly 4.0 million worldwide, while
the total number of timeshare resorts worldwide has been estimated to be nearly
5,000. The timeshare exchange industry derives revenue from annual subscribing
membership fees paid by owners of timeshare interests, fees paid by such owners
for each exchange and fees paid by members and resort affiliates for various
other products and services.
The "RCI Network" provides RCI members who own timeshares at RCI-affiliated
resorts the capability to exchange their timeshare vacation accommodations in
any given year for comparable value accommodations at other RCI-affiliated
resorts. Approximately 1.3 million members of the RCI Network, representing
approximately 50% of the total members of the RCI Network reside outside of the
United States.
RCI provides members of the RCI Network with access to both domestic and
international timeshare resorts, publications regarding timeshare exchange
opportunities and other travel-related services, including discounted purchasing
programs. In 1999, members in the United States paid an average annual
subscribing membership fee of $64 as well as an average exchange fee of
approximately $130 for every exchange arranged by RCI. In 1999, membership and
exchange fees totaled approximately $350 million and RCI arranged more than 2.0
million exchanges.
Developers of resorts affiliated with the RCI Network typically pay the
first year subscribing membership fee for new owner/members upon the sale of the
timeshare interest.
TIMESHARE EXCHANGE BUSINESS GROWTH. The timeshare exchange industry has
experienced significant growth over the past decade. We believe that the factors
driving this growth include the demographic trend toward older, more affluent
Americans who travel more frequently; the entrance of major hospitality and
entertainment companies into timeshare development; a worldwide acceptance of
the timeshare concept; and an increasing focus on leisure activities, family
travel and a desire for value, variety and flexibility in a vacation experience.
We believe that future growth of the timeshare exchange industry will be
determined by general economic conditions both in the U.S. and worldwide, the
public image of the industry, improved approaches to marketing and sales, a
greater variety of products and price points, the broadening of the timeshare
market and a variety of other factors. Accordingly, we cannot predict if future
growth trends will continue at rates comparable to those of the recent past.
One of the key innovations that RCI introduced to the vacation timeshare
industry in 1999 was the Global Points Network ("GPN"). GPN allows members to
use points (rather than a timeshare interval) as the tool for exchange. These
points can then be used for stays at RCI resorts, airfare, car rentals, hotel
stays, cruises and more, providing enormous flexibility for RCI members. GPN is
a creative way to enhance the attractiveness of RCI membership by adapting to
changes in consumer vacation habits which have trended toward shorter, but more
frequent vacations. Initial reaction to GPN has been positive, and the program
will continue to expand in 2000.
OPERATIONS. Our timeshare exchange business is designed to provide high
quality, leisure travel services to its members and cost-effective,
single-source support services to its affiliated timeshare resorts. Most members
are acquired from timeshare developers who purchase an initial RCI subscribing
membership for each buyer at the time the timeshare interval is sold. A small
percentage of members are acquired through direct solicitation activities of
RCI.
MEMBER SERVICES
INTERNATIONAL EXCHANGE SYSTEM. Members are served through a network of call
centers located in more than 16 countries throughout the world. These call
centers are staffed by approximately 2,100
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people. Major regional call and information support centers are located in
Indianapolis, Saint John (Canada), Kettering (England), Cork (Ireland), Mexico
City and Singapore. All members receive a directory that lists resorts
available through the exchange system, a periodic magazine and other
information related to the exchange system and available travel services. These
materials are published in various languages.
TRAVEL SERVICES. In addition to exchange services, RCI's call centers also
engage in telemarketing and cross selling of other ancillary travel and
hospitality services. These services are offered to a majority of members
depending on their location. RCI provides travel services to U.S. members of the
RCI Network through its affiliate, RCI Travel, Inc. ("RCIT"). On a global basis,
RCI provides travel services through entities operating in local jurisdictions
(hereinafter, RCIT and its local entities are referred to as "Travel Agencies").
Travel Agencies provide airline reservations and airline ticket sales to members
in conjunction with the arrangement of their timeshare exchanges, as well as
providing other types of travel services, including hotel accommodations, car
rentals, cruises and tours. Travel Agencies also from time to time offer travel
packages utilizing resort developers' unsold inventory to generate both revenue
and prospective timeshare purchasers to affiliated resorts.
RESORT SERVICES. Growth of the timeshare business is dependent on the sale
of timeshare units by affiliated resorts. RCI affiliates consist of
international brand names and independent developers, owners' associations and
vacation clubs. We believe that national lodging and hospitality companies are
attracted to the timeshare concept because of the industry's relatively low
product cost and high profit margins, and the recognition that timeshare resorts
provide an attractive alternative to the traditional hotel-based vacation and
allow the hotel companies to leverage their brands into additional resort
markets where demand exists for accommodations beyond traditional rental-based
lodging operations. Today, 7 of every 10 timeshare resorts worldwide are
affiliated with RCI. We also believe that RCI's existing affiliates represent a
significant potential market because many developers and resort managers may
become involved in additional resorts in the future which can be affiliated with
RCI. Accordingly, a significant factor in RCI's growth strategy is maintaining
the satisfaction of its existing affiliates by providing quality support
services.
TIMESHARE CONSULTING. RCI provides worldwide timeshare consulting services
through its affiliate, RCI Consulting, Inc. These services include comprehensive
market research, site selection, strategic planning, community economic impact
studies, resort concept evaluation, financial feasibility assessments, on-site
studies of existing resort developments, and tailored sales and marketing plans.
RESORT MANAGEMENT SOFTWARE. RCI provides computer software systems to
timeshare resorts and developers through its affiliate, Resort Computer
Corporation ("RCC"). RCC provides software that integrates resort functions such
as sales, accounting, inventory, maintenance, dues and reservations. Management
believes that our RCC Premier information software is the only commercially
available technology that can fully support timeshare club operations and points
based reservation systems.
PROPERTY MANAGEMENT. RCI provides resort property management services
through its affiliate, RCI Management, Inc. ("RCIM"). RCIM is a single source
for any and all resort management services, and offers a menu including
hospitality services, a centralized reservations service center, advanced
reservations technology, human resources expertise and owners' association
administration.
TIMESHARE PROPERTY AFFILIATION AGREEMENTS. More than 3,500 timeshare
resorts are affiliated with the RCI Network, of which approximately 1,400
resorts are located in the United States and Canada, more than 1,300 in Europe
and Africa, more than 500 in Mexico and Latin America, and more than 320 in the
Asia-Pacific region. The terms of RCI's affiliation agreement with its
affiliates generally require that the developer enroll each new timeshare
purchaser at the resort as a subscribing member of RCI, license the affiliated
resort to use the RCI name and trademarks for certain purposes, set forth the
materials and services RCI will provide to the affiliate, and generally describe
RCI's expectations of the resort's management. The affiliation agreement also
includes stipulations for representation of the exchange program, minimum
enrollment requirements and treatment of exchange guests. Affiliation agreements
are typically for a term of five years, and automatically renew thereafter for
terms of one to five years
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unless either party takes affirmative action to terminate the relationship. RCI
makes available a wide variety of goods and services to its affiliated
developers, including publications, advertising, sales and marketing materials,
timeshare consulting services, resort management software, travel packaging and
property management services.
RCI LICENSED MARKS AND INTELLECTUAL PROPERTY. The service marks "RCI",
"Resort Condominiums International" and related trademarks and logos are
material to RCI's business. RCI and its subsidiaries actively use the marks. All
of the material marks used in RCI's business are registered (or have
applications pending for registration) with the United States Patent and
Trademark Office as well as major countries worldwide where RCI or its
subsidiaries have significant operations. We own the marks used in RCI's
business.
COMPETITION. The global timeshare exchange industry is comprised of a
number of entities, including resort developers and owners. RCI's largest
competitor is Interval International Inc. ("Interval"), formerly our wholly
owned subsidiary, and a few other smaller firms. Based upon industry sources, we
believe that 98% of the nearly 5,000 timeshare resorts in the world are
affiliated with either RCI or Interval. Based upon 1997 published statistics
(which are the most recent published statistics) and our information, RCI
had over 2.5 million timeshare households that are members, while Interval had
approximately 850,000 timeshare households that are members. Also, in 1997, RCI
confirmed more than 1.8 million exchange transactions while Interval confirmed
approximately 480,000 transactions. As a result, based on 1997 business volume,
RCI services approximately 73% of members and approximately 79% of exchange
transactions. RCI is bound by the terms of a Consent Order issued by the Federal
Trade Commission which restricts the right of RCI to solicit, induce, or attempt
to induce clients of Interval to either terminate or not to renew their existing
Interval contracts. The proposed Consent Order contains certain other
restrictions. The restrictions generally expired on or before December 17, 1999.
SEASONALITY. A principal source of timeshare revenue relates to exchange
services to members. Since members have historically shown a tendency to plan
their vacations in the first quarter of the year, revenues are generally
slightly higher in the first quarter in comparison to other quarters of the
year. The Company cannot predict whether this trend will continue in the future
as the timeshare business expands outside of the United States and Europe, and
as global travel patterns shift with the aging of the world population.
AVIS CAR RENTAL FRANCHISE BUSINESS
GENERAL. On October 17, 1996, we completed the acquisition of all of the
outstanding capital stock of Avis, Inc. which together with its subsidiaries,
licensees and affiliates, operated the Avis Worldwide Vehicle System (the "Avis
System"). As part of our previously announced plan, on September 24, 1997, we
completed the initial public offering of our former subsidiary, ARAC, which
owned and operated the company-owned Avis car rental operations. We currently
own approximately 18% of the outstanding Common Stock of ARAC. We no longer own
or operate any car rental locations but own the Avis brand name and the Avis
System, which we license to our franchisees, including ARAC, the largest Avis
System franchisee.
The Avis System is comprised of approximately 4,200 rental locations,
including locations at the largest airports and cities in the United States and
approximately 160 other countries and territories and a fleet of approximately
431,000 vehicles during the peak season, all of which are operated by
franchisees. Approximately 92.5% of the Avis System rental revenues in the
United States are received from locations operated by ARAC directly or under
agency arrangements, with the remainder being received from locations operated
by independent licensees. The Avis System in Europe, Africa, part of Asia and
the Middle East is operated under franchise by Avis Europe Ltd. ("Avis Europe").
INDUSTRY. The car rental industry provides vehicle rentals to business and
individual customers worldwide. The industry has been composed of two principal
segments: general use (mainly at airport and downtown locations) and local
(mainly at downtown and suburban locations). The car rental industry rents
primarily from on-airport, near-airport, downtown and suburban locations to
business and leisure travelers and to individuals who have lost the use of their
vehicles through accident, theft or breakdown.
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In addition to revenue from vehicle rentals, the industry derives significant
revenue from the sale of rental related products such as insurance, refueling
services and loss damage waivers (a waiver of the franchisee's right to make a
renter pay for damage to the rented car).
Car renters generally are (i) business travelers renting under negotiated
contractual arrangements between specified rental companies and the travelers'
employers, (ii) business travelers who do not rent under negotiated contractual
arrangements (but who may receive discounts through travel, professional or
other organizations), (iii) leisure travelers and (iv) renters who have lost the
use of their own vehicles through accident, theft or breakdown. Contractual
arrangements normally are the result of negotiations between rental companies
and large corporations, based upon rates, billing and service arrangements, and
influenced by reliability and renter convenience. Business travelers who are not
parties to negotiated contractual arrangements and leisure travelers generally
are influenced by advertising, renter convenience and access to special rates
because of membership in travel, professional and other organizations.
AVIS SYSTEM AND WIZARD SYSTEM SERVICES. The Avis System provides Avis
System franchisees access to the benefits of a variety of services, including
(i) comprehensive safety initiatives, including the "Avis Cares" Safe Driving
Program, which offers vehicle safety information, directional assistance such as
satellite guidance, regional maps, weather reports and specialized equipment for
travelers with disabilities; (ii) standardized system identity for rental
location presentation and uniforms; (iii) training program and business
policies, quality of service standards and data designed to monitor service
commitment levels; (iv) marketing/advertising/public relations support for
national consumer promotions including Frequent Flyer/Frequent Stay programs and
the Avis System internet web site; and (v) brand awareness of the Avis System
through the familiar "We try harder" service announcements.
Avis System franchisees are also provided with access to the Wizard System,
a reservations, data processing and information management system for the
vehicle rental business. The Wizard System is linked to all major travel
networks on six continents through telephone lines and satellite communications.
Direct access with other computerized reservations systems allows real-time
processing for travel agents and corporate travel departments. Among the
principal features of the Wizard System are:
o an advanced graphical interface reservation system;
o "Roving Rapid Return," which permits customers who are returning
vehicles to obtain completed charge records from radio-connected "Roving
Rapid Return" agents who complete and deliver the charge record at the
vehicle as it is being returned;
o "Preferred Service," an expedited rental service that provides
customers with a preferred service rental record printed prior to
arrival, a pre-assigned vehicle and fast convenient check out;
o "Wizard on Wheels," which enables the Avis System locations to assign
vehicles and complete rental agreements while customers are being
transported to the vehicle;
o "Flight Arrival Notification," a flight arrival notification system
that alerts the rental location when flights have arrived so that
vehicles can be assigned and paperwork prepared automatically;
o "Avis Link," which automatically identifies the fact that a user of a
major credit card is entitled to special rental rates and conditions,
and therefore sharply reduces the number of instances in which the
Company inadvertently fails to give renters the benefits of negotiated
rate arrangements to which they are entitled;
o interactive interfaces through third-party computerized reservation
systems; and
o sophisticated automated ready-line programs that, among other things,
enable rental agents to ensure that a customer who rents a particular
type of vehicle will receive the available vehicle of that type which
has the lowest mileage.
The Wizard System processes incoming customer calls, during which customers
inquire about locations, rates and availability and place or modify
reservations. In addition, millions of inquiries and
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reservations come to franchisees through travel agents and travel industry
partners, such as airlines. Regardless of where in the world a customer may be
located, the Wizard System is designed to ensure that availability of vehicles,
rates and personal profile information is accurately delivered at the proper
time to the customer's rental destination.
AVIS LICENSED MARKS AND INTELLECTUAL PROPERTY. The service mark "Avis",
related marks incorporating the word "Avis", and related logos are material to
our business. Our subsidiaries, joint ventures and licensees, actively use these
marks. All of the material marks used in Avis's business are registered (or have
applications pending for registration) with the United States Patent and
Trademark Office. We own the marks used in Avis's business. The purposes for
which we are authorized to use the marks include use in connection with
businesses in addition to car rental and related businesses, including, but not
limited to, equipment rental and leasing, hotels, insurance and information
services.
LICENSEES AND LICENSE AGREEMENTS. We have 65 independent licensees that
operate locations in the United States. The largest licensee, ARAC, accounts for
approximately 91% of all United States licensees' rentals. Other than ARAC,
certain licensees in the United States pay us a fee equal to 5% of their total
time and mileage charges, less all customer discounts, of which we are required
to pay 40% for corporate licensee-related programs, while seven licensees pay 8%
of their gross revenue. Licensees outside the United States normally pay higher
fees. Other than ARAC, our United States licensees currently pay 55 cents per
rental agreement for use of certain portions of the Wizard System, and they are
charged for use of other aspects of the Wizard System.
ARAC has entered into a Master License Agreement with the Company, which
grants ARAC the right to operate the Avis vehicle rental business in certain
specified territories. Pursuant to the Master License Agreement, ARAC has
agreed to pay us a monthly base royalty of 3.0% of ARAC's gross revenue. In
addition, ARAC has agreed to pay a supplemental royalty of 1.0 % of gross
revenue payable quarterly in arrears which will increase 0.2% effective January
1, 2001 and will increase 0.1% per year effective August 1, 2001 and in each of
the following two years thereafter to a maximum of 1.5% (the "Supplemental
Fee"). These fees have been paid by ARAC since January 1, 1997. Until the fifth
anniversary of the effective date of the Master License Agreement, the
Supplemental Fee or a portion thereof may be deferred by ARAC if ARAC does not
attain certain financial targets.
In 1997, Avis Europe's previously paidup license for Europe, the Middle
East and Africa was modified to provide for a paid-up license only as to Europe
and the Middle East. Avis Europe will pay us annual royalties for Africa and a
defined portion of Asia which covers the area between 60E longitude and 150E
longitude, excluding Australia, New Zealand and Papua New Guinea. The Avis
Europe license expires on November 30, 2036, unless earlier termination is
effected in accordance with the license terms. Avis Europe also entered into a
Preferred Alliance Agreement with us under which Avis Europe became a preferred
alliance provider for car rentals to RCI customers in Europe, Asia and Africa.
COMPETITION. The vehicle rental industry is characterized by intense price
and service competition. In any given location, franchisees may encounter
competition from national, regional and local companies, many of which,
particularly those owned by the major automobile manufacturers, have greater
financial resources than Avis and us. However, because the Company's royalty
fees are based upon the gross revenue of Avis and the other Avis System
franchisees, our revenue is not directly dependent on franchisee profitability.
The franchisees' principal competitors for commercial accounts in the
United States are the Hertz Corporation ("Hertz") and National Car Rental
System, Inc. ("National"). Principal competitors for unaffiliated business and
leisure travelers in the United States are Budget Rent A Car Corporation, Hertz
and National, and, particularly with regard to leisure travelers, Alamo
Rent-A-Car Inc. In addition, the franchisees compete with a variety of smaller
vehicle rental companies throughout the country.
SEASONALITY. The car rental franchise business is subject to seasonal
variations in customer demand, with the third quarter of the year, which covers
the summer vacation period, representing the peak season for vehicle rentals.
Therefore, any occurrence that disrupts travel patterns during the summer period
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could have a material adverse effect on the franchisee's annual performance and
affect our annual financial performance. The fourth quarter is generally the
weakest financial quarter for the Avis System because there is limited leisure
travel and a greater potential for adverse weather conditions at such time.
FLEET SEGMENT
Pursuant to our program to divest non-strategic businesses and assets, on
June 30, 1999, we completed the disposition of our Fleet Segment for aggregate
consideration of $1.8 billion (see "Recent Developments -- Strategic
Developments"). The following is a description of the Fleet Segment businesses
through June 30, 1999.
GENERAL. Through our former PHH Vehicle Management Services Corporation and
PHH Management Services PLC subsidiaries, we offered a full range of fully
integrated fleet management services to corporate clients and government
agencies. These services included vehicle leasing, advisory services and fleet
management services for a broad range of vehicle fleets. Advisory services
included fleet policy analysis and recommendations, benchmarking, and vehicle
recommendations and specifications. In addition, we provided managerial services
which included ordering and purchasing vehicles, arranging for their delivery
through dealerships located throughout the United States, Canada, the United
Kingdom, Germany and the Republic of Ireland, as well as capabilities throughout
Europe, administration of the title and registration process, as well as tax and
insurance requirements, pursuing warranty claims with vehicle manufacturers and
re-marketing used vehicles. We also offered various leasing plans for our
vehicle leasing programs, financed primarily through the issuance of commercial
paper and medium-term notes and through unsecured borrowings under revolving
credit agreements, securitization financing arrangements and bank lines of
credit.
Through our former PHH Vehicle Management Services and Wright Express
subsidiaries in the United States and our former Harpur Group Limited subsidiary
in the U.K., we also offered fuel and expense management programs to
corporations and government agencies for the effective management and control of
automotive business travel expenses. By utilizing our service cards issued under
the fuel and expense management programs, a client's representatives were able
to purchase various products and services such as gasoline, tires, batteries,
glass and maintenance services at numerous outlets.
We also provided fuel and expense management programs and a centralized
billing service for companies operating truck fleets in each of the United
Kingdom, Republic of Ireland and Germany. Drivers of the clients' trucks were
furnished with courtesy cards together with a directory listing the names of
strategically located truck stops and service stations, which participated in
this program. Service fees were earned for billing, collection and record
keeping services and for assuming credit risk. These fees were paid by the
truck stop or service stations and/or the fleet operator and were based upon
the total dollar amount of fuel purchased or the number of transactions
processed.
PRODUCTS. Our fleet management services were divided into two principal
products: (1) Asset Based Products, and (2) Fee Based Products.
Asset Based Products represented the services our clients require to lease
a vehicle that included vehicle acquisition, vehicle re-marketing, financing,
and fleet management consulting. Open-end leases were the prevalent structure in
North America representing 96% of the total vehicles financed in North America
and 86% of the total vehicles financed worldwide. The open-end leases were
structured on either a fixed rate or floating rate basis (where the interest
component of the lease payment changes month to month based upon an index)
depending upon client preference. The open-end leases were typically structured
with a 12-month minimum lease term, with month to month renewals thereafter. The
typical unit remained under lease for approximately 34 months. A client received
a full range of services in exchange for a monthly rental payment that included
a management fee. The residual risk on the value of the vehicle at the end of
the lease term remained with the lessee under an open-end lease, except for a
small amount that was retained by the lessor.
Closed-end leases were structured with a fixed term with the lessor
retaining the vehicle residual risk. The most prevalent lease terms were 24
months, 36 months, and 48 months. The closed end structure was
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preferred in Europe due to certain accounting regulations. The closed-end lease
structure was utilized by approximately 71% of the vehicles leased in Europe,
but only 14% of the vehicles leased on a worldwide basis. We utilized
independent third party valuations and internal projections to set the
residuals utilized for these leases.
The Fee Based Products were designed to effectively manage costs and
enhance driver productivity. The three main Fee Based Products were Fuel
Services, Maintenance Services and Accident Management. Fuel Services
represented the utilization of our proprietary cards to access fuel through a
network of franchised and independent fuel stations. The cards operated as a
universal card with centralized billing designed to measure and manage costs. In
the United States, Wright Express was the leading fleet fuel cards supplier with
over 125,000 fuel facilities in its network and in excess of 1.6 million cards
issued. Wright Express distributed its fuel cards and related offerings through
three primary channels: (1) the WEX-branded Universal Card, which was issued
directly to fleets by Wright Express, (2) the Private Label Card, under which
Wright Express provided private label fuel cards and related services to
commercial fleet customers of major petroleum companies, and (3) Co-Branded
Marketing, under which Wright Express fuel cards were co-branded and issued in
conjunction with products and services of partners such as commercial vehicle
leasing companies. In the UK, our Harpur Group Limited and Cendant Business
Answers PLC subsidiaries, utilizing the All Star and Dial brands, maintained the
largest independent fueling network with more than 12,000 fueling sites and more
than 1.2 million cards in circulation.
We offered customer vehicle maintenance charge cards that were used to
facilitate repairs and maintenance payments. The vehicle maintenance cards
provided customers with benefits such as (1) negotiated discounts off full
retail prices through our convenient supplier network, (2) access to our
in-house team of certified maintenance experts that monitor each card
transaction for policy compliance, reasonability, and cost effectiveness, and
(3) inclusion of vehicle maintenance card transactions in a consolidated
information and billing database that helps evaluate overall fleet performance
and costs. We maintained an extensive network of service providers in the United
States, Canada, and the United Kingdom to ensure ease of use by the client's
drivers.
We also provided our clients with comprehensive accident management
services such as (1) providing immediate assistance after receiving the initial
accident report from the driver (i.e. facilitating emergency towing services and
car rental assistance, etc.) (2) organizing the entire vehicle appraisal and
repair process through a network of preferred repair and body shops, and (3)
coordinating and negotiating potential accident claims. Customers received
significant benefits from our accident management services such as (1)
convenient coordinated 24-hour assistance from our call center, (2) access to
our leverage with the repair and body shops included in our preferred supplier
network (the largest in the industry), which typically provided customers with
extremely favorable repair terms and (3) expertise of our damage specialists,
who ensured that vehicle appraisals and repairs were appropriate,
cost-efficient, and in accordance with each customer's specific repair policy.
COMPETITIVE CONDITIONS. The principal factors for competition in vehicle
management services were service, quality and price. We were competitively
positioned as a fully integrated provider of fleet management services with a
broad range of product offerings. We ranked second in the United States in the
number of vehicles under management and first in the number of proprietary fuel
and maintenance cards for fleet use in circulation. There were four other major
providers of fleet management service in the United States, hundreds of local
and regional competitors, and numerous niche competitors who focused on only one
or two products and did not offer the fully integrated range of products
provided by us. In the United States, it is estimated that only 45% of fleets
are leased by third party providers.
REAL ESTATE DIVISION
REAL ESTATE FRANCHISE SEGMENT
GENERAL. Our Real Estate Franchise Segment represented approximately 10.6%,
8.6% and 7.9% of our revenue for the years ended December 31, 1999, 1998 and
1997, respectively. In August 1995, we acquired Century 21 Real Estate
Corporation ("CENTURY 21"). CENTURY 21 is the world's largest
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franchisor of residential real estate brokerage offices with approximately
6,300 independently owned and operated franchised offices with approximately
97,000 active sales agents worldwide. In February 1996, we acquired the ERA
franchise system. The ERA system is a leading residential real estate brokerage
franchise system with over 2,500 independently owned and operated franchised
offices and more than 25,000 sales agents worldwide. In May 1996, we acquired
Coldwell Banker Corporation ("COLDWELL BANKER"), the owner of the world's
premier brand for the sale of million-dollar-plus homes and now the third
largest residential real estate brokerage franchise system with approximately
3,000 independently owned and operated franchised offices and approximately
73,000 sales agents worldwide.
We believe that application of our franchisee focused management strategies
and techniques can significantly increase the revenues produced by our real
estate brokerage franchise systems while also increasing the quality and
quantity of services provided to franchisees. We believe that independent real
estate brokerage offices currently affiliate with national real estate
franchisors principally to gain the consumer recognition and credibility of a
nationally known and promoted brand name. Brand recognition is especially
important to real estate brokers since homebuyers are generally infrequent users
of brokerage services and have often recently arrived in an area, resulting in
little ability to benefit from word-of-mouth recommendations.
During 1996, we implemented a preferred alliance program in the real estate
division which seeks to capitalize on the valuable access point the CENTURY 21,
COLDWELL BANKER and ERA brokerage offices provide for service providers who wish
to reach these home buyers and sellers as well as agents and brokers. Preferred
alliances include providers of property and casualty insurance, moving and
storage services, mortgage and title insurance, Internet services, sellers of
furniture, telecommunications and other household goods.
Our real estate brokerage franchisees are dispersed geographically, which
minimizes the exposure to any one broker or geographic region. During 1997, we
acquired a preferred equity interest in NRT Incorporated ("NRT"), a newly formed
corporation created to acquire residential real estate brokerage firms. NRT
acquired the assets of National Realty Trust, the largest franchisee of the
COLDWELL BANKER system, in August 1997. NRT has also acquired other independent
regional real estate brokerage businesses which NRT has converted to COLDWELL
BANKER, CENTURY 21 and ERA franchises. As a result, NRT is the largest
franchisee of our franchise systems, based on gross commissions, and represents
6% of the franchised offices. Of the nearly 12,000 franchised offices in our
real estate brokerage franchise systems, no individual broker, other than NRT,
accounts for more than 1% of our real estate brokerage revenues.
REAL ESTATE FRANCHISE SYSTEMS
CENTURY 21. CENTURY 21 is the world's largest residential real estate
brokerage franchisor, with approximately 6,300 independently owned and operated
franchise offices with more than 97,000 active sales agents located in 24
countries and territories.
The primary component of CENTURY 21's revenue is service fees on
commissions from real estate transactions. Service fees are 6% of gross
commission income. CENTURY 21 franchisees who meet certain levels of annual
gross revenue (as defined in the franchise agreements) are eligible for the
CENTURY 21 Incentive Bonus ("CIB") Program, which results in a rebate payment to
qualifying franchisees determined in accordance with the applicable franchise
agreement (up to 2% of gross commission income in current agreements) of such
annual gross revenue. For 1999, approximately 16% of CENTURY 21 franchisees
qualified for CIB payments and such payments aggregated less than 1% of gross
commissions.
CENTURY 21 franchisees generally contribute 2% (subject to specified
minimums and maximums) of their brokerage commissions each year to the CENTURY
21 National Advertising Fund (the "NAF") which in turn disburses them for local,
regional and national advertising, marketing and public relations campaigns. In
1999, the NAF spent approximately $49 million on advertising and marketing
campaigns.
COLDWELL BANKER. COLDWELL BANKER is the world's premier brand for the sale
of million-dollar-plus homes and the third largest residential real estate
brokerage franchisor, with
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approximately 3,000 independently owned and operated franchise offices in the
United States, Canada and 11 other countries, with approximately 73,000 sales
agents. The primary revenue from the COLDWELL BANKER system is derived from
service and other fees paid by franchisees, including initial franchise fees
and ongoing services. COLDWELL BANKER franchisees pay us annual fees consisting
of ongoing service and advertising fees, which are generally 6.0% and 2.5%,
respectively, of a franchisee's annual gross revenue (subject to annual rebates
to franchisees who achieve certain threshold levels of gross commission income
annually, and to minimums and maximums on advertising fees).
COLDWELL BANKER franchisees who meet certain levels of annual gross revenue
(as defined in the franchise agreements) are eligible for the Performance
Premium Award ("PPA") Program, which results in a rebate payment to qualifying
franchisees determined in accordance with the applicable franchise agreement (up
to 3% in current agreements) of such annual gross revenue. For 1999,
approximately 30% of COLDWELL BANKER franchisees qualified for PPA payments and
such payments aggregated less than 1% of gross commissions.
In 1999, Coldwell Banker Real Estate Corporation began offering a
commercial only franchise, licensing the Coldwell Banker Commercial trademarks
and systems. Coldwell Banker Commercial franchisees pay annual fees consisting
of ongoing service fees and marketing fees, generally 6% and 1%, respectively,
of their annual gross revenue (subject to annual rebates to franchisees who
achieve certain revenue thresholds annually, and to minimums and maximums on the
marketing fees).
Advertising fees collected from COLDWELL BANKER franchisees are generally
expended on local, regional and national marketing activities, including media
purchases and production, direct mail and promotional activities and other
marketing efforts. In 1999, the COLDWELL BANKER Advertising Funds expended
approximately $21 million for such purposes.
ERA. The ERA franchise system is a leading residential real estate
brokerage franchise system, with more than 2,500 independently owned and
operated franchise offices, and more than 25,000 sales agents located in 20
countries. The primary revenue from the ERA franchise system results from (i)
franchisees' payments of monthly membership fees ranging from $222 to $875 per
month, based on volume, plus $201 per branch and a per transaction fee of
approximately $124, and (ii) for franchise agreements entered into after July
1997, royalty fees equal to 6% of the franchisees' gross revenue. For franchise
agreements dated after July 1997, the Volume Incentive Program may result in a
rebate payment to qualifying franchisees determined in accordance with the
applicable franchise agreement.
In addition to membership fees and transaction fees, franchisees of the ERA
system pay (i) a fixed amount per month, which ranges from $239 to $958, based
on volume, plus an additional $239 per month for each branch office, into the
ERA National Marketing Fund (the "ERA NMF") and (ii) for franchise agreements
entered into after July 1997, a contribution to the ERA NMF equal to 2% of the
franchisees' gross revenues, subject to minimums and maximums. The funds in the
ERA NMF are utilized for local, regional and national marketing activities,
including media purchases and production, direct mail and promotional activities
and other marketing efforts. In 1999, the ERA NMF spent approximately $11
million on marketing campaigns.
REAL ESTATE BROKERAGE FRANCHISE SALES. We market real estate brokerage
franchises primarily to independent, unaffiliated owners of real estate
brokerage companies as well as individuals who are interested in establishing
real estate brokerage businesses. We believe that our existing franchisee base
represents another source of potential growth, as franchisees seek to expand
their existing business to additional markets. Therefore, our sales strategy
focuses on maintaining satisfaction and enhancing the value of the relationship
between the franchisor and the franchisee.
Our real estate brokerage franchise systems employ a national franchise
sales force consisting of approximately 125 salespersons and sales management
personnel, which is divided into separate sales organizations for the CENTURY
21, COLDWELL BANKER and ERA systems. These sales organizations are compensated
primarily through commissions on sales concluded. Members of the sales forces
are also encouraged to provide referrals to the other sales forces when
appropriate.
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OPERATIONS -- REAL ESTATE BROKERAGE. Our brand name marketing programs for
the real estate brokerage business generally focus on increasing brand
awareness, in order to increase the likelihood of potential homebuyers and home
sellers engaging franchise brokers' services. Each brand has a dedicated
marketing staff in order to develop the brand's marketing strategy while
maintaining brand integrity. The corporate marketing services department
provides services related to production and implementation of the marketing
strategy developed by the brand marketing staffs.
Each brand provides its franchisees and their sales associates with
training programs that have been developed by such brand. The training programs
include mandatory programs instructing the franchisee and/or the sales associate
on how to best utilize the methods of the particular system and additional
optional training programs that expand upon such instruction. Each brand's
training department is staffed with instructors experienced in both real estate
practice and instruction. In addition, we have established regional support
personnel who provide consulting services to the franchisees in their respective
regions.
Each system provides a series of awards to brokers and their sales
associates who are outstanding performers in each year. These awards signify the
highest levels of achievement within each system and provide a significant
incentive for franchisees to attract and retain sales associates.
Each system provides its franchisees with referrals of potential customers,
which referrals are developed from sources both within and outside of the
system.
Through our Cendant Supplier Services operations, we provide our
franchisees with volume purchasing discounts for products, services, furnishings
and equipment used in real estate brokerage operations. In addition to the
preferred alliance programs described hereinafter, Cendant Supplier Services
establishes relationships with vendors and negotiates discounts for purchases by
its customers. We do not maintain inventory, directly supply any of the products
or, generally, extend credit to franchisees for purchases. See "COMBINED
OPERATIONS -- Preferred Alliance and Co-Marketing Arrangements" below.
REAL ESTATE BROKERAGE FRANCHISE AGREEMENTS. Our real estate brokerage
franchise agreements grant the franchises the right to utilize one of the brand
names associated with our real estate brokerage franchise systems to real estate
brokers under franchise agreements.
Our current form of franchise agreement for all real estate brokerage
brands is terminable by us for the franchisee's failure to pay fees thereunder
or other charges or for other material defaults under the franchise agreement.
In the event of such termination, the Century 21 and ERA agreements generally
provide that we are entitled to be compensated for lost revenues in an amount
equal to the average monthly franchise fees calculated for the remaining term of
the agreement. Pre-1996 agreements do not provide for liquidated damages of this
sort. See "CENTURY 21," "COLDWELL BANKER" and "ERA" above for more information
regarding the commissions and fees payable under our franchise agreements.
NRT is the largest franchisee, based on gross commission income, for our
real estate franchise systems. NRT's status as a franchisee is governed by
franchise agreements (the "Franchise Agreements") with our wholly owned
subsidiaries (the "Real Estate Franchisors") pursuant to which NRT has the
non-exclusive right to operate as part of the COLDWELL BANKER, ERA and CENTURY
21 real estate franchise systems at locations specified in the Franchise
Agreements. In February 1999, NRT entered into new fifty year franchise
agreements with the Real Estate Franchisors. These agreements require NRT to pay
royalty fees and advertising fees of 6.0% and 2.0% (2.5% for its COLDWELL BANKER
offices), respectively, on its annual gross revenues. Lower royalty fees apply
in certain circumstances. The Franchise Agreements generally provide
restrictions on NRT's ability to close offices beyond certain limits.
REAL ESTATE BROKERAGE SERVICE MARKS. The service marks "CENTURY 21,"
"COLDWELL BANKER," and "ERA" and related logos are material to our business.
Through our franchisees, we actively use these marks. All of the material marks
in each franchise system are registered (or have applications pending for
registration) with the United States Patent and Trademark Office. The marks used
in the real estate brokerage systems are owned by us through our subsidiaries.
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COMPETITION. Competition among the national real estate brokerage brand
franchisors to grow their franchise systems is intense. The chief competitors to
our real estate brokerage franchise systems are the Prudential, GMAC Real Estate
(also known as Better Homes & Gardens) and RE/MAX real estate brokerage brands.
In addition, a real estate broker may choose to affiliate with a regional chain
or not to affiliate with a franchisor but to remain independent.
We believe that competition for the sale of franchises in the real estate
brokerage industry is based principally upon the perceived value and quality of
the brand and services offered to franchisees, as well as the nature of those
services. We also believe that the perceived value of its brand names to
prospective franchisees is, to some extent, a function of the success of its
existing franchisees.
The ability of our real estate brokerage franchisees to compete in the
industry is important to our prospects for growth, although, because franchise
fees are based on franchisee gross commissions or volume, our revenue is not
directly dependent on franchisee profitability.
The ability of an individual franchisee to compete may be affected by the
location and quality of its office, the number of competing offices in the
vicinity, its affiliation with a recognized brand name, community reputation and
other factors. A franchisee's success may also be affected by general, regional
and local economic conditions. The effect of these conditions on our results of
operations is substantially reduced by virtue of the diverse geographical
locations of our franchises. At December 31, 1999, the combined real estate
franchise systems had approximately 8,300 franchised brokerage offices in the
United States and nearly 12,000 offices worldwide. The real estate franchise
systems have offices in 34 countries and territories in North and South America,
Europe, Asia, Africa and Australia.
SEASONALITY. The principal sources of our real estate segment revenue are
based upon the timing of residential real estate sales, which are lower in the
first calendar quarter each year, and relatively level the other three quarters
of the year. As a result, our revenue from the real estate brokerage segment of
its business is less in the first calendar quarter of each year.
MOVE.COM GROUP SEGMENT
GENERAL. Move.com Group operates a popular network of Web sites, which
offer a wide selection of quality relocation, real estate and home-related
products and services. We seek to improve the often stressful and demanding
moving experience by providing a one-source, "friend-in-need" solution before,
during and after the move. Move.com Group strives to establish strong, long-term
relationships with consumers by offering quality products and services for each
phase of the moving process from finding a home to improving an existing home.
Move.com Group also provides a multi-channel distribution platform for its
business partners, who are trying to reach a highly targeted and valued group of
consumers at the most opportune times. Move.com Group currently generates the
following types of revenue from its business partners: listing subscription
fees, advertising and sponsorship fees, e-commerce transaction fees and website
management fees. During 1999, Move.com Group represented an immaterial part of
our business operations. On December 31, 1999, Move.com Group had 178 full-time
employees.
The Internet is revolutionizing the way in which businesses and consumers
interact, share information and consummate transactions. According to
International Data Corporation, or IDC, the number of Internet users worldwide
will grow to approximately 502 million by the end of 2003 from approximately 196
million in 1999. The Internet places at consumers' fingertips an unprecedented
amount of information and offers a convenient way for them to select and order
products and services. The rapid growth in users combined with the Internet's
unique ability to connect a broad range of consumers and businesses is driving
growth in electronic commerce. IDC estimates that the total value of Internet
commerce will increase to $1.3 trillion in 2003 from $111 billion in 1999.
MOVE.COM NETWORK. The move.com network is comprised of the following Web
sites that offer quality relocation, real estate and home-related content and
services.
Move.com. Move.com is Move.com Group's Internet portal and flagship site.
Move.com is dedicated to providing consumers a one-stop solution for their
relocation, real estate and home-related needs before, during and after a move.
Move.com combines home and rental housing listings, mortgage
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services and numerous moving and home-related services to help make moves
easier, less stressful, more efficient and enjoyable. Move.com offers content
and services through planning, renting, buying, selling, moving and living site
tabs.
Rent.net. Rent Net is a leading online rental and relocation guide and
advertising source for the apartment industry, representing properties and
relocation services in more than 3,000 cities across North America. Rent Net's
paying advertising clients include managers and owners of over 13,000 apartment
communities representing over 3 million apartment units in all 50 states and
Canada. Rent Net provides rental listings containing detailed property
descriptions, photographs, floor plans, 360- virtual tours, and direct
communication links to rental property managers. According to Media Metrix, Rent
Net was the most visited Web site for real estate rental listings, based on
unique visitors, during 1999, including December 1999, the most recently
measured period.
Seniorhousing.net. Senior Housing Net provides the move.com network with a
directory of over 750 retirement communities, assisted living facilities and
nursing homes containing detailed property descriptions, photographs, floor
plans, 360- virtual tours and direct communication links to onsite managers.
Corporatehousing.net. Corporate Housing Net is the leading online directory
and advertising source for the temporary/corporate housing industry, with over
400 local and national listing providers across the United States and Canada.
Through Corporate Housing Net, users are able to access detailed property
information, including photos, floor plans and available amenities, and may
contact leasing agents via e-mail, fax or phone.
Selfstorage.net. Self Storage Net is the leading online directory and
advertising source for the self storage industry, with listings for over 3,000
storage facilities across the United States and Canada. Through Self Storage
Net, users are able to access descriptions of facilities, photos and maps, as
well as direct communication links to facility owners or managers.
Century21.com. Century21.com is the official Web site for the CENTURY21
(Registered Trademark) real estate franchise system. The CENTURY21 (Registered
Trademark) franchise system is comprised of over 6,300 independently owned and
operated offices with approximately 97,000 brokers and agents worldwide, in more
than 24 countries and territories. The CENTURY21 (Registered Trademark)
franchise system provides the move.com network with home listings and brand
exposure. Move.com Group manages the Web site's maintenance and technical
support and acts as an advertising placement agent.
Coldwellbanker.com. Coldwellbanker.com is the official Web site for the
COLDWELL BANKER (Registered Trademark) real estate franchise system. The
COLDWELL BANKER (Registered Trademark) franchise system has over 3,000
independently owned and operated real estate offices with more than 73,000 sales
associates throughout the United States, Canada and 11 other countries. The
COLDWELL BANKER (Registered Trademark) franchise system provides the move.com
network with listings of residential and vacation properties and brand exposure.
Move.com Group manages the Web site's maintenance and technical support and acts
as an advertising placement agent.
Era.com. Era.com is the official Web site for the ERA (Registered
Trademark) real estate franchise system. The ERA (Registered Trademark)
franchise system is comprised of more than 2,500 independently owned and
operated offices with approximately 25,000 sales associates worldwide. The ERA
(Registered Trademark) franchise system provides the move.com network with
residential property listings and brand exposure. Move.com Group manages the Web
site's maintenance and technical support and acts as an advertising placement
agent.
Welcomewagon.com. Welcomewagon.com is the official Web site of Welcome
Wagon/Getko. Welcomewagon.com provides the move.com network with local community
information, including a directory of more than 40,000 local merchants and
service providers nationwide.
COMPETITION. The market for online relocation and real estate-related
services is relatively new, intensely competitive and rapidly changing. Move.com
Group's success will depend on its ability to continue to provide comprehensive,
timely and useful information to attract and maintain both consumers and
business partners.
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Move.com Group believes that the primary competitive factors in attracting
consumers to the move.com network are: (i) brand recognition; (ii) quality,
depth, breadth and presentation of content and services; (iii) functionality;
(iv) ease-of-use; and (v) quality and reliability of service.
Move.com Group believes that the principal competitive factors in
attracting advertisers and content providers to the move.com network are: (i)
amount of traffic and user demographics; (ii) quality of service; (iii) ability
to provide targeted audience and quality leads that become customers; (iv)
cost-effectiveness of advertising on the move.com network; and (v) ability to
integrate content and purchase opportunities.
Move.com Group's main existing and potential competitors for consumers and
advertisers include: (i) Web sites offering home or apartment listings together
with other related services, such as apartments.com, cyberhomes.com,
homehunter.com, homestore.com, homeseekers.com, homeadvisor.com, iown.com,
newhomenetwork.com and realestate.com; (ii) online services or websites
targeting buyers and sellers of real estate properties and financial services
companies, offering real estate-related products and services; (iii) general
purpose consumer Web sites, search engine providers, and websites maintained by
Internet service providers that offer relocation, real estate or home-related
content; (iv) traditional forms of media such as radio, television, newspapers
and magazines; and (v) offline relocation, real estate and home-related product
and service companies.
Move.com Group believes its various competitive advantages, including its
affiliation with Cendant's real estate franchise systems and its proprietary
database and content will permit it to compete favorably with its competitors.
However, many of Move.com Group's existing competitors, as well as a number of
potential new competitors, have great name recognition, larger existing consumer
bases and significantly greater financial, technical and marketing resources.
Move.com Group may not be able to compete successfully for consumers, clients
and staff and increased competition could result in price reductions, reduced
margins or loss of market share, any of which could materially adversely affect
its business, results of operations and financial condition.
RELOCATION SEGMENT
GENERAL. Our Relocation Segment represented approximately 8%, 8% and 9% of
our revenue for the years ended December 31, 1999, 1998 and 1997, respectively.
Our Cendant Mobility Services Corporation ("Cendant Mobility") subsidiary is the
largest provider of employee relocation services in the world. Our Cendant
Mobility subsidiary assists more than 100,000 transferring employees annually,
including over 17,000 employees internationally each year in 106 countries and
2,000 destination locations. At December 31, 1999, we employed approximately
2,400 people in our relocation business.
SERVICES. The employee relocation business offers a variety of services in
connection with the transfer of our clients' employees. The relocation services
provided to our customers primarily include evaluation, inspection and selling
of transferees' homes or purchasing a transferee's home, issuing equity advances
(generally guaranteed by the corporate client), certain home management
services, assistance in locating a new home at the transferee's destination,
consulting services and other related services.
Corporate clients pay a fee for the services performed. Another source of
revenue is interest on equity advances and broker referral fees. Substantially,
all costs associated with such services are reimbursed by the corporate client,
including, if necessary, repayment of equity advances and reimbursement of
losses on the sale of homes purchased in most cases (other than government
clients). As a result of the obligations of most corporate clients to reimburse
Cendant Mobility for losses on resale and guarantee repayment of equity
advances, our exposure on such items is limited to the credit risk of the
corporate clients of our relocation businesses and not on the potential changes
in value of residential real estate. We believe such risk is minimal, due to the
credit quality of the corporate clients of our relocation subsidiaries. In
transactions where we assume the risk for losses on the sale of homes, which
comprise approximately 5% of net revenue, we control all facets of the resale
process, thereby limiting our exposure.
The homesale program service is the core service for many domestic and
international programs. This program provides employees guaranteed offers for
their homes and assists clients in the management of
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employees' productivity during their relocation. Cendant Mobility allows clients
to outsource their relocation programs by providing clients with professional
support for planning and administration of all elements of their relocation
programs. The majority of new proposals involve outsourcing due to corporate
downsizing, cost containment, and increased need for expense tracking.
Our relocation accounting services supports auditing, reporting, and
disbursement of all relocation-related expense activity.
Our group move management department provides coordination for moves
involving a large number of employees over a short period of time. Services
include planning, communications, analysis, and assessment of the move. Policy
consulting provides customized consultation and policy review, as well as
industry data, comparisons and recommendations. Cendant Mobility also has
developed and/or customized numerous non-traditional services including
outsourcing of all elements of relocation programs, moving services, and spouse
counseling.
Our moving service, with over 63,000 shipments annually, provides support
for all aspects of moving an employee's household goods. We also handle
insurance and claim assistance, invoice auditing, and control the quality of van
line, driver, and overall service.
Our marketing assistance service provides assistance to transferees in the
marketing and sale of their own home. A Cendant Mobility professional assists in
developing a custom marketing plan and monitors its implementation through the
broker. The Cendant Mobility contact also acts as an advocate, with the local
broker, for employees in negotiating offers which helps clients' employees
benefit from the highest possible price for their homes.
Our affinity services provide value-added real estate and relocation
services to organizations with established members and/or customers.
Organizations, such as insurance and airline companies that have established
members offer our affinity services' to their members at no cost. This service
helps the organizations attract new members and to retain current members.
Affinity services provide home buying and selling assistance, as well as
mortgage assistance and moving services to members of applicable organizations.
Personal assistance is provided to over 53,000 individuals with approximately
22,000 real estate transactions annually.
Our international assignment service provides a full spectrum of services
for international assignees. This group coordinates the services previously
discussed; however, they also assist with immigration support, candidate
assessment, intercultural training, language training, and repatriation
coaching.
VENDOR NETWORKS. Cendant Mobility provides relocation services through
various vendor networks that meet the superior service standards and quality
deemed necessary by Cendant Mobility to maintain its leading position in the
marketplace. We have a real estate broker network of approximately 350 principal
brokers and 700 associate brokers. Our van line, insurance, appraisal and
closing networks allow us to receive discounts while maintaining control over
the quality of service provided to clients' transferees.
COMPETITIVE CONDITIONS. The principal methods of competition within
relocation services are service, quality and price. In the United States, there
are two major national providers of such services. We are the market leader in
the United States and second in the United Kingdom.
SEASONALITY. Our principal sources of relocation service revenue are based
upon the timing of transferee moves, which are lower in the first and last
quarter each year, and at the highest levels in the second and third quarters.
MORTGAGE SEGMENT
GENERAL. Our Mortgage Segment represented approximately 7%, 7% and 4% of
our revenue for the years ended December 31, 1999, 1998 and 1997, respectively.
Through our Cendant Mortgage Corporation ("Cendant Mortgage") subsidiary, we are
the ninth largest originator of residential first mortgage loans in the United
States, and, on a retail basis, we are the sixth largest originator in 1999. We
offer services consisting of the origination, sale and servicing of residential
first mortgage loans. A full line of
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first mortgage products are marketed to consumers through relationships with
corporations, affinity groups, financial institutions, real estate brokerage
firms, including CENTURY 21, COLDWELL BANKER and ERA franchisees, and other
mortgage banks. Cendant Mortgage is a centralized mortgage lender conducting its
business in all 50 states. At December 31, 1999, Cendant Mortgage had
approximately 4,200 employees.
Cendant Mortgage customarily sells all mortgages it originates to
investors (which include a variety of institutional investors) either as
individual loans, as mortgage backed securities or as participation
certificates issued or guaranteed by Fannie Mae Corp., the Federal Home Loan
Mortgage Corporation or the Government National Mortgage Association. Cendant
Mortgage also services mortgage loans. We earn revenue from the sale of the
mortgage loans to investors, as well as from fees earned on the servicing of
the loans for investors. Mortgage servicing consists of collecting loan
payments, remitting principal and interest payments to investors, holding
escrow funds for payment of mortgage related expenses such as taxes and
insurance, and otherwise administering our mortgage loan servicing portfolio.
Cendant Mortgage offers mortgages through the following platforms:
o Internet. Mortgage information is offered to consumers through a web
interface that is owned by Cendant Mortgage. The Web Interface was
completed in 1999 and contains educational materials, rate quotes and
a full mortgage application. This content is made available to the
customers of partner organizations. Partners include Century 21,
Coldwell Banker, ERA, Cendant Mobility, Mellon Bank, US Bank, BET, GFN
and Move.com Group. In addition, we have developed and launched our own
online brand -- InstaMortgage.com in 1999. Applications from online
customers are processed via our teleservices platform.
o Teleservices. Mortgages are offered to consumers through an 800 -- number
Teleservices operation based in New Jersey under programs for real estate
organizations (Phone In-Move In(Registered Trademark)), private label
programs for financial institutions, and for relocation clients in
conjunction with the operations of Cendant Mobility. The teleservices
operation provides us with retail mortgage volume that contributes to
Cendant Mortgage ranking as the sixth largest retail originator in
1999 according to "Inside Mortgage Finance".
o Point of Sale. Mortgages are offered to consumers through field sales
professionals with all processing, underwriting and other origination
activities based in New Jersey. These field sales professionals
generally are located in real estate offices around the United States
and are equipped with software to obtain product information, quote
interest rates and prepare a mortgage application with the consumer.
o Wholesale/Correspondent. We purchase closed loans from financial
institutions and mortgage banks after underwriting the loans. Financial
institutions include banks, thrifts and credit unions. Such institutions
are able to sell their closed loans to a large number of mortgage
lenders and generally base their decision to sell to Cendant Mortgage on
price, product menu and/or underwriting. We also have
wholesale/correspondent originations with mortgage banks affiliated with
real estate brokerage organizations.
STRATEGY. Our strategy is to increase market share by expanding all of our
sources of business with emphasis on purchase mortgage volume through our
teleservice. Phone In-Move In (Registered Trademark) and Internet (Log In-Move
In (Registered Trademark) programs Phone In-Move In (Registered Trademark) was
developed for real estate firms in 1997 and has been established in over 5,600
real estate offices at December 31, 1999. We are well positioned to expand our
financial institutions business channel by working with financial institutions
which desire to outsource their mortgage originations operations to Cendant
Mortgage. We also will expand our relocation mortgage volume through increased
linkage with Cendant Mobility. Each of these market share growth opportunities
is driven by our low cost teleservices platform, which is centralized in
Mt. Laurel, New Jersey. The competitive advantages of using a centralized,
efficient and high quality teleservices platform allows us to capture a higher
percentage of the highly fragmented mortgage market more cost effectively.
COMPETITIVE CONDITIONS. The principal methods of competition in mortgage
banking services are service, quality, products and price. There are an
estimated 20,000 national, regional or local providers of
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mortgage banking services across the United States. Cendant Mortgage has
increased its mortgage origination market share in the United States to 1.8% in
1999 from 0.9% in 1998. The market share leader reported a 7.3% market share in
the United States according to "Inside Mortgage Finance" for 1999. Competitive
Conditions can also be impacted by shifts in consumer preference for variable
rate mortgages from fixed rate mortgages. Consumer demand for variable rate
mortgages has increased in the second half of 1999.
SEASONALITY. The principal sources of mortgage services segment revenue
are based principally on the timing of mortgage origination activity, which is
based upon the timing of residential real estate sales. Real estate sales are
lower in the first calendar quarter each year and relatively level the other
three quarters of the year. As a result, our revenue from the mortgage services
business is less in the first calendar quarter of each year.
DIRECT MARKETING DIVISION
Our direct marketing division is divided into two segments: individual
membership and insurance/ wholesale. The individual membership segment, with
approximately 25 million memberships, provides customers with access to a
variety of discounted products and services in such areas as retail shopping,
travel, auto and home improvement. The individual membership products and
services are designed to enhance customer loyalty by delivering value to the
customer. The insurance/wholesale segment, with nearly 31 million customers,
markets and administers insurance products, primarily accidental death and
dismemberment insurance, and also provides products and services such as
checking account enhancement packages, financial products and discount programs
to customers of various financial institutions. The direct marketing activities
are conducted principally through our Cendant Membership Services, Inc.
subsidiary and certain of our other wholly owned subsidiaries, including FISI,
BCI and CIMS.
We derive our direct marketing revenue principally from membership service
fees, insurance premiums and product sales. We solicit members and customers
for many of our programs by direct marketing and by using a direct sales force
to call on financial institutions, companies, associations and other groups.
Some of our individual memberships and those of Netmarket are available online
to interactive computer users via major online services and the Internet's World
Wide Web. See "Direct Marketing Distribution Channels".
INDIVIDUAL MEMBERSHIP SEGMENT
Our Individual Membership segment represented approximately 18%, 17% and
18% of our revenues for the years ended December 31, 1999, 1998 and 1997,
respectively. We affiliate with business partners such as leading financial
institutions, retailers, and oil companies to offer membership as an enhancement
to their credit card, charge card or other customers. Participating institutions
generally receive commissions on initial and renewal memberships, based on a
percentage of the net membership fees. Individual memberships are marketed,
primarily using direct marketing techniques, through participating institutions
with us generally paying for the marketing costs to solicit the prospective
members. The member pays us and our business partners directly for the service
and, in most instances, the member is billed via a credit card. Membership fees
vary depending upon the particular membership program, and annual fees generally
range from $49 to $79 per year. Most of our memberships are for one-year
renewable terms, and members are generally entitled to unlimited use during the
membership period of the service for which the members have subscribed. Members
generally may cancel their memberships and obtain a full refund (or, in some
cases, on a pro rata basis) at any point during the membership term. Most of the
services may be accessed either through the Internet (online) or through the
mail or by telephone (offline).
OFFLINE PRODUCTS
Individual membership programs offer consumers discounts on over 500,000
Products and services by providing shop at home convenience in areas such as
retail shopping, travel, automotive, dining and home improvement. Membership
programs include among others Shoppers Advantage (Registered Trademark) ,
Travelers Advantage (Registered Trademark) , AutoVantage (Registered Trademark),
Credit Card Guardian (Registered Trademark) , and PrivacyGuard (Registered
Trademark) , along with other membership programs. A brief description of the
different types of membership programs is as follows:
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Shopping. Shoppers Advantage (Registered Trademark) is a discount shopping
program whereby we provide product price information and home shopping services
to our members. Our merchandise database contains information on over 100,000
brand name products, including a written description of the product, the
manufacturer's suggested retail price, the vendor's price, features and
availability. All of these products may be purchased through our independent
vendor network. Vendors include manufacturers, distributors and retailers
nationwide. Individual members are entitled to an unlimited number of toll free
calls seven days a week to our shopping consultants, who access the merchandise
database to obtain the lowest available fully delivered cost from participating
vendors for the product requested and accept any orders that the member may
place. We inform the vendor providing the lowest price of the member's order and
that vendor then delivers the requested product directly to the member. We act
as a conduit between our members and the vendors; accordingly, we do not
maintain an inventory of products.
As part of our individual member Shoppers Advantage (Registered
Trademark) program, we distribute catalogs four to ten times per year to
certain members. In addition, we automatically extend the manufacturer's
warranty on all products purchased through the Shoppers Advantage (Registered
Trademark) program and offer a low price guarantee. Generally, with the
Shoppers Advantage (Registered Trademark) membership program, there is a
product feature whereby a member receives an automatic 2-year extended warranty
protection on any product purchased through the Shoppers Advantage (Registered
Trademark) service (which means that this membership service will
automatically extend the manufacturer's U.S. warranty to 2 years from the date
of purchase of the particular product in question). There is a similar feature
for the CompleteHome (Registered Trademark) membership service (now being
renamed as the Homeowner Savings Network) and for members of the Family
Funsaver Club (Registered Trademark) .
Travel. Travelers Advantage (Registered Trademark) is a discount travel
service program whereby our Cendant Travel, Inc. ("Cendant Travel") subsidiary
(one of the ten largest full service travel agencies in the U.S.), obtains
information on schedules and rates for major scheduled airlines, hotel chains
and car rental agencies from the American Airlines Sabre (Registered
Trademark) Reservation System. In addition, we maintain our own database
containing information on tours, travel packages and short notice travel
arrangements. Members book their reservations through Cendant Travel, which
earns commissions (ranging from 5%-25%) on all travel sales from the providers
of the travel services. Certain Travelers Advantage (Registered Trademark)
members can earn cash awards from Cendant Travel equal to a specified
percentage (generally 5%) of the price of travel arrangements purchased by the
member through Cendant Travel. Travel members may book their reservations by
making toll-free telephone calls seven days a week, generally twenty-four hours
a day to agents at Cendant Travel. Cendant Travel provides its members with
special negotiated rates on many air, car and hotel bookings. Cendant Travel's
agents reserve the lowest air, hotel and car rental fares available for the
members' travel requests and offer a low price guarantee on such fares.
Auto. Our auto service, AutoVantage (Registered Trademark) , offers
members comprehensive new car summaries and preferred prices on new domestic
and foreign cars purchased through our independent dealer network (which
includes over 1,800 dealer franchises); discounts on maintenance, tires and
parts at more than 25,000 locations, including over 35 chains, including
nationally known names, such as Goodyear (Registered Trademark) and Firestone
(Registered Trademark) , plus regional chains and independent locations; and
used car valuations. AutoVantage Gold (Registered Trademark) offers members
additional services including road and tow emergency assistance 24 hours a day
in the United States and trip routing.
Credit Card Registration. Our Credit Card Guardian (Registered Trademark)
and "Hot-Line" services enable consumers to register their credit and debit
cards with us so that the account numbers of these cards may be kept securely
in one place. If the member notifies us that any of these credit or debit cards
are lost or stolen, we will notify the issuers of these cards, arrange for them
to be replaced and reimburse the member for certain amounts for which the card
issuer may hold the member liable.
PrivacyGuard Service. The PrivacyGuard (Registered Trademark) and
Credentials (Registered Trademark) services provide members with a comprehensive
and understandable means of monitoring key personal information. The service
offers a member access to information in certain key areas including: credit
history and monitoring, driving records maintained by state motor vehicle
authorities, and medical files maintained by third parties. This service is
designed to assist members in obtaining and monitoring information concerning
themselves that is used by third parties in making decisions such as granting or
denying credit or setting insurance rates.
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Buyers Advantage. The Buyers Advantage (Registered Trademark) service
extends the manufacturer's warranty on products purchased by the member. This
service also rebates 20% of repair costs and offers members price protection by
refunding any difference between the price the member paid for an item and its
reduced price, should the item be sold at a lower price within sixty days after
purchase. In addition, the service offers return guarantee protection by
refunding the purchase price of an item that the member wishes to return.
Home-Related Services. The Homeowner Savings Network service is designed
to save members time and money in maintaining and improving their homes.
Members can order do-it-yourself "How-To Guides" or call the service for a
tradesperson referral. Tradespersons are available in all 50 states through a
toll-free phone line. Members also receive discounts ranging from 10% to 50%
off on a full range of home-related products and services.
Family FunSaver Club. The Family FunSaver Club (Registered Trademark)
provides its members with a variety of benefits, including the opportunity to
inquire about and purchase family travel services and family related products,
the opportunity to buy new cars at a discount, a discounted family dining
program and a Family Values Guide offering coupon savings on family related
products such as movie tickets, casual restaurants, and theme parks.
Health Services. The HealthSaver (Service Mark) membership provides
discounts ranging from 10% to 60% off retail prices on prescription drugs,
eyewear, eye care, dental care, selected health-related services and fitness
equipment, including sporting goods. Members may also purchase prescription and
over-the-counter drugs through the mail.
Other Clubs. Our former North American Outdoor Group, Inc. subsidiary
("NAOG") owned and operated the North American Hunting Club (Registered
Trademark) , the North American Fishing Club (Registered Trademark) , the
Handyman Club of America (Registered Trademark) , the National Home Gardening
Club (Registered Trademark) and the PGA Tour Partners Club (Registered
Trademark) , among others. Members of these clubs received fulfillment kits,
discounts on related goods and services, magazines and other benefits. In
October 8, 1999, we completed the disposition of 94% of NAOG for approximately
$141 million and we retained an equity interest in NAOG of approximately 6%
(see "Recent Developments").
ONLINE PRODUCTS
Until September 15, 1999, we operated Netmarket (www.netmarket.com), our
flagship online, membership-based, value-oriented consumer site which offers
discounts on over 500,000 products and services. Netmarket offers discounted
shopping and other benefits to both members and non-members, with members
receiving preferred pricing, access to special items, cash back benefits, low
price guarantees and extended warranties on certain items. In addition,
Netmarket and/or the Individual Membership business also offer the following
online products and services: AutoVantage (Registered Trademark) , Travelers
Advantage (Registered Trademark) and PrivacyGuard (Registered Trademark)
membership programs and Haggle Zone (Registered Trademark) and Fair Agent
(Registered Trademark) consumer services. As part of our internet strategy, on
September 15, 1999, we donated Netmarket Group, Inc.'s (the owner of our
online membership businesses) outstanding common stock to a charitable trust,
and Netmarket issued additional shares of its common stock to certain of its
marketing partners. Accordingly, as a result of the change in ownership in
Netmarket common stock from us to an independent third party, Netmarket's
operating results are no longer included in our Consolidated Financial
Statements. We retained the opportunity to participate in Netmarket's value
through the ownership of the convertible preferred stock of Netmarket, which is
ultimately exchangeable, at our option, into at least 78% of Netmarket's diluted
common shares. (See "Recent Developments -- Internet Developments").
Prior to its sale in 1999, we operated Match.com, Inc. ("Match"), a
leading matchmaking service on the Internet, servicing over 100,000 consumers.
Subscriptions to the Match service range from approximately $10 per month to
just under $60 for one year.
INSURANCE/WHOLESALE SEGMENT
Our Insurance/Wholesale segment represented approximately 11%, 10% and 11%
of our revenues for the years ended December 31, 1999, 1998 and 1997,
respectively. We affiliate with financial institutions,
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including credit unions and banks, to offer their respective customer base
competitively priced insurance products, primarily accidental death and
dismemberment insurance and term life insurance, as well as an array of services
associated with the Individual Membership segment.
ENHANCEMENT PACKAGE SERVICE. Primarily through our FISI subsidiary, we
sell enhancement packages for financial institution consumer and business
checking and deposit account holders. FISI's financial institution clients
select a customized package of our products and services and then usually adds
its own services (such as unlimited check writing privileges, personalized
checks, cashiers' or travelers' checks without issue charge, or discounts on
safe deposit box charges or installment loan interest rates). With our
marketing and promotional assistance, the financial institution then offers the
complete package of account enhancements to its checking account holders as a
special program for a monthly fee. Most of these financial institutions choose
a standard enhancement package, which generally includes $10,000 of accidental
death and dismemberment insurance, travel discounts and a nationwide check
cashing service. Others may include our shopping and credit card registration
services, a financial newsletter or pharmacy, eyewear or entertainment
discounts as enhancements. The accidental death and dismemberment coverage is
underwritten under group insurance policies with independent insurers. We
continuously seek to develop new enhancement features, which may be added to
any package at an additional cost to the financial institution. We generally
charge a financial institution client an initial fee to implement this program
and monthly fees thereafter based on the number of customer accounts
participating in that financial institution's program. Our enhancement packages
are designed to enable a financial institution to generate additional fee
income, because the institution should be able to charge participating accounts
more than the combined costs of the services it provides and the payments it
makes to us.
Primarily through our National Card Control Inc. ("NCCI") subsidiary, we
also sell enhancement services to credit card issuers who make these services
available to their credit card holders to foster increased product usage and
loyalty. NCCI's clients create a customized package of our products and
services. These enhancements include loyalty products, such as frequent
flyer/buyer programs, as well as shopping, travel, concierge, insurance and
credit card registration services. Like FISI, NCCI generally charges its credit
card issuer clients an initial fee to implement the program and monthly fees
thereafter, based on the number of accounts participating in that institution's
program.
INSURANCE PRODUCTS. Through our BCI subsidiary, we serve as a third party
administrator for marketing accidental death insurance throughout the country
to the customers of BCI's financial institution clients. This accidental death
and dismemberment insurance is often combined with our other services to
enhance their value. These products are generally marketed through direct mail
solicitations, which generally offer $1,000 of accidental death insurance at no
cost to the customers and the opportunity to choose additional coverage of up
to $300,000. The annual premium generally ranges from $10 to $250. BCI also
acts as an administrator for term life, graded term life and hospital accident
insurance. BCI's insurance products and other services are offered through
banks and credit unions to their account holders.
DIRECT MARKETING DISTRIBUTION CHANNELS
We market our Individual Membership and Insurance/Wholesale products
through a variety of distribution channels. The consumer is ultimately reached
in the following ways: 1) at financial institutions or other associations
through direct marketing; 2) at financial institutions or other associations
through a direct sales force, participating merchants or general advertising;
and 3) through companies and various other entities.
Some of our and Netmarket's individual memberships, such as shopping,
travel, privacy guard and auto services, are available to computer users via
online services and the Internet's World Wide Web. These users are solicited
primarily through major online services such as America Online, traditional
offline direct marketing channels, major destination sites on the World Wide
Web, such as portals, and through our affinity partners. We believe that our and
Netmarket's interactive members account for approximately 4% of our total
members. Strategic alliances have been formed with online services and various
other companies, including many of the major Internet portals.
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DIRECT MARKETING INTERNATIONAL OPERATIONS
Individual Membership and Insurance/Wholesale. Our Cendant International
Membership Services subsidiary has developed the international distribution of
enhancement package services and insurance products together with certain
individual memberships including shopping, auto and payment card protection.
As of December 31, 1999, Cendant International Membership Services had
expanded its international membership and customer base to approximately
thirteen million individuals. This base is driven by retail and wholesale
membership through over 35 major banks in Europe and Asia, as well as through
other distribution channels. We also have exclusive licensing agreements
covering the use of our merchandising systems in Australia, Japan and certain
other Asian countries under which licensees paid initial license fees and agree
to pay royalties to us on membership fees, access fees and merchandise service
fees paid to them. Royalties to us from these licenses were less than 1% of our
direct marketing revenues and profits in the years ended December 31, 1999,
1998 and 1997, respectively.
The economic impact of currency exchange rate movements on our business is
complex because it is linked to variability in real growth, inflation, interest
rates and other factors. Because we operate in a mix of services and numerous
countries, management believes currency exposures are fairly well diversified.
See Item 7A: "Quantitative and Qualitative Disclosures About Market Risk".
DIRECT MARKETING SEASONALITY
Our direct marketing businesses are generally not seasonal.
DIRECT MARKETING COMPETITION
Individual Membership. We believe that there are competitors, which offer
membership programs similar to ours, and some of these entities, which include
large retailers, travel agencies, insurance companies and financial service
institutions, have financial resources, product availability, technological
capabilities or customer bases that may be greater than ours. To date, we have
been able to compete effectively with such competitors. However, there can be
no assurances that we will continue to be able to do so. In addition, we
compete with traditional methods of merchandising that enjoy widespread
consumer acceptance, such as catalog and in-store retail shopping and shopping
clubs (with respect to our discount shopping service), and travel agents (with
respect to our discount travel service). Our systems are, for the most part,
not protected by patent.
Insurance/Wholesale. Each of our account enhancement services competes
with similar services offered by other companies, including insurance
companies. Many of the competitors are large and more established, with greater
resources and financial capabilities than ours. Finally, in attempting to
attract any relatively large financial institution as a client, we also may
from time to time compete with that institution's in-house marketing staff and
the institution's perception that it could establish programs with comparable
features and customer appeal without paying for the services of an outside
provider.
DIVERSIFIED SERVICES DIVISION
Our Diversified Services Division represented approximately 20%, 21% and
18% of our revenue for the years ended December 31, 1999, 1998 and 1997,
respectively.
CONTINUING OPERATIONS
TAX PREPARATION BUSINESS. In January 1998, we acquired Jackson Hewitt,
Inc. ("Jackson Hewitt") the second largest tax preparation service in the United
States. The Jackson Hewitt franchise system is comprised of a 43-state network
(plus the District of Columbia) with approximately 3,000 offices operating under
the trade name "Jackson Hewitt Tax Service". Office locations range from
stand-alone store front offices to offices within Wal-Mart Stores, Inc. and
Montgomery Ward & Co., Inc. locations. Through the use of proprietary
interactive tax preparation software, we are engaged in the preparation and
electronic filing of federal and state individual income tax returns. During
1999, Jackson Hewitt prepared approximately 1.38 million tax returns, which
represented an increase of 17% from the approximately 1.18 million tax returns
it prepared during 1998. To complement our tax preparation
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services, we also offer accelerated check refunds and refund anticipation loans
to our tax preparation customers. We believe that the application of our focused
management strategies and techniques for franchise systems to the Jackson Hewitt
network can increase revenue produced by the Jackson Hewitt franchise system
while also increasing the quality and quantity of services provided to
franchisees.
Tax Services of America. During 1999, Jackson Hewitt, in conjunction with
two of its largest franchisees, created an independent joint venture, Tax
Services of America ("TSA") to maximize Jackson Hewitt's ability to add
independent tax preparation firms to its franchise system. Cendant initially
invested $5 million and approximately 80 company owned stores, and currently
has a 48% interest in the form of convertible preferred stock. TSA currently
has over 200 offices and is expected to prepare over 140,000 tax returns during
the 2000 filing season. TSA's primary objective is to grow by acquiring
independent tax preparation firms in areas where TSA is licensed to operate and
convert them to the Jackson Hewitt system.
NATIONAL CAR PARKS. Our National Car Parks ("NCP") subsidiary operates
commercial car parks in the UK and Europe, with over 60 years experience of
owning and/or managing a portfolio of nearly 500 car parks, mostly located in
city and town centers and at airports.
NCP owns or operates nearly 500 car parks across the UK and has
approximately 2,500 full and part-time employees. NCP provides a high-quality,
professional service, developing a total solution for its customers and for
organizations such as town and city administrations that wish to develop modern
and professionally managed parking and traffic management facilities, tailored
towards local business.
NCP owns and operates car parks in over 100 city and town centers
throughout the UK, most of which are regularly patrolled and many of which have
closed-circuit television surveillance. NCP is the only car park manager that
can provide the motorist with such a comprehensive geographical coverage and
such levels of investment in secured facilities. In addition, NCP is a leader
in on-airport car parking at UK airports, with over 31,000 car parking spaces
in facilities close to passenger terminals at ten airports across the UK.
Booking facilities are available through NCP's telesales service for convenient
car parking reservation at these airports, with free courtesy coach transfers
to and from airport terminals at most locations.
The brand name NCP is registered in the UK as a trademark. Furthermore,
the NCP trademark is in the process of being registered in the rest of the
European Community.
NCP's business has a distinct seasonal trend with revenue from parking in
city and town centers being closely associated with levels of retail business.
Therefore, peaks in revenue are experienced particularly around the Christmas
period. In respect of the airport parking side of the business, seasonal peaks
are experienced in line with summer vacations.
NCP's main competition is from non-commercial, local government
authorities who usually choose to operate car parking facilities themselves in
their respective cities and towns.
There is increasing government regulation over all aspects of transport
within the UK. Therefore, an objective of NCP is to work together with its
customers, local and national government and other service organizations in
order to maintain the mutually beneficial partnership between motorists and
city center environment.
INFORMATION TECHNOLOGY SERVICES. Our WizCom International, Ltd. ("WizCom")
subsidiary owns and operates the Wizard System more fully described under
"TRAVEL SERVICES -- Avis Car Rental Franchise Business -- Avis System and
Wizard System" above. In 1995, Budget Rent A Car Corporation ("Budget") entered
into a computer services agreement with WizCom that provides Budget with
certain reservation system computer services that are substantially similar to
computer services provided to the Avis System. WizCom has also entered into
agreements with hotel and other rental car companies to provide travel related
reservation and distribution system services.
OTHER SERVICES. Operating under the trade name "Welcome Wagon", we
distribute complimentary welcoming packages which provide new homeowners and
other consumers throughout the United States
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and Canada with discounts for local merchants. These activities are conducted
through our Welcome Wagon International Inc. and Getko Group, Inc. subsidiaries.
We are exploring opportunities to leverage the assets and the distribution
channels of such subsidiaries.
DIVESTED BUSINESSES
ENTERTAINMENT PUBLICATIONS BUSINESS. In November 1999, we completed the
disposition of approximately 85% of EPub for approximately $281 million in
cash. In connection with the transaction, we will retain an equity interest in
EPub of approximately 15% (see "Recent Developments"). In addition, we will
have a designee on the EPub Board of Directors.
Through our EPub subsidiary, we offered discount programs in specific
markets throughout North America and certain international markets and enhanced
our Individual Membership and Insurance/ Wholesale segment products. We
believe that EPub is the largest marketer of discount program books of this
type in the United States. EPub has a sales force of approximately 1,100 people
with approximately 800 people soliciting schools and approximately 300 people
soliciting merchants.
EPub solicits restaurants, hotels, theaters, sporting events, retailers
and other businesses which agree to offer services and/or merchandise at
discount prices (primarily on a two-for-the-price-of-one or 50% discount
basis). EPub sells discount programs under its Entertainment (Registered
Trademark) , Entertainment (Registered Trademark) Values, Gold C (Registered
Trademark) and other trademarks, which typically provide discount offers to
individuals in the form of local discount coupon books. These books typically
contain coupons and/or a card entitling individuals to hundreds of discount
offers from participating establishments. Targeting middle to upper income
consumers, many of EPub's products also contain selected discount travel
offers, including offers for hotels, car rentals, airfare, cruises and tourist
attractions. More than 70,000 merchants with over 275,000 locations participate
in these programs. EPub also uses this national base of merchants to develop
other products, most notably, customized discount programs for major
corporations. These programs also may contain additional discount offers,
specifically designed for customized discount programs.
EPub's discount coupon books are sold annually by geographic area.
Customers are solicited primarily through schools and community groups that
distribute the discount coupon books and retain a portion of the proceeds for
their nonprofit causes. To a lesser extent, distribution occurs through
corporations as an employee benefit or customer incentive, as well as through
retailers and directly to the public. The discount coupon books are generally
provided to schools and community groups on a consignment basis. Customized
discount programs are distributed primarily by major corporations as loyalty
incentives for their current customers and/or as premiums to attract new
customers.
While prices of local discount coupon books vary, the customary price for
Entertainment (Registered Trademark) , Entertainment (Registered Trademark)
Values and Gold C (Registered Trademark) coupon books range between $10 and
$45. Customized discount programs are generally sold at significantly lower
prices. In 1998, over nine million for Entertainment (Registered Trademark) ,
Entertainment (Registered Trademark) Values and Gold C (Registered Trademark)
and other trademarked local coupon books were published in North America.
Sally Foster, Inc., a subsidiary of EPub, provides elementary and middle
schools and selected youth community groups with gift-wrap and other seasonal
products for sale in their fund-raising efforts. EPub uses the same sales force
that sells the discount coupon books to schools, attempting to combine the sale
of gift-wrap and the sale of discount coupon books. In addition, EPub has a
specialized Sally Foster sales force.
GREEN FLAG. In November 1999, we completed the disposition of our Green
Flag business unit for approximately $401 million in cash.
Green Flag is an assistance group in the UK providing a wide range of
emergency, support and rescue services to millions of drivers and home owners
in the UK through its Green Flag Motor, Green Flag Truck and Green Flag Home
services. Green Flag has approximately 900 full and part-time employees.
Using a well established network of 6,000 mechanics and 1,500 fully
equipped garages, Green Flag Motor provides roadside recovery and assistance
services to over 3.5 million members who can choose from five levels of cover.
A distinctive feature of the Green Flag Motor service is its partnership with
independent operators who provide emergency assistance to motorists throughout
the UK and Europe.
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Using a network of specialists allows Green Flag to offer its customers a fast
service in emergency situations. Through regular inspections and strictly
enforced performance measures, Green Flag's teams of operators are able to
deliver reassurance to the customer, as well as a highly reliable service.
In the truck assistance sector, the Green Flag Truck service has developed
to include pay-on-use services in the UK and Europe and a service in the UK
suited to operators who run local delivery businesses. Service is provided
using the same network of independent operators that provide fast and efficient
expertise for businesses who cannot afford to be off the road.
A network of specialists is also available to provide Green Flag's
Emergency Home Assistance and Property Repair Services. Reassurance is key for
homeowners who take an insured assistance service or choose a pay-on-use
option. Two levels of coverage are available to insure against a wide range of
problems, including central heating, roofing, gas and electrical appliances.
Through its specially selected network of operators, 75% of Green Flag's calls
for assistance are completed within one hour, 90% within two hours.
Green Flag operates in a number of principal markets. Direct services to
the consumer is one route to market, but also through insurance companies, car
manufacturers and dealers and a large number of businesses that sell on Green
Flag assistance services as an optional or a mandatory product linked to their
own service, i.e. with car insurance or via a bank or building society account.
The brand name of 'Green Flag' (together with the LOGO) is registered in
the United Kingdom. There is also a pending registration for a European Union
Community Mark. In addition, we have registered or pending marks for other key
brands used within the business. These include names such as:
Fleetcall/Truckcall/Dialassist/React/ Locator/Home-call and Home Assistance
Services. Also registered is the CHEQUERED SIDE STRIPE used in connection with
the MOTOR Roadside Assistance and Recovery service. (This is a safety device
for use on vehicles, which attend at the roadside.)
Green Flag's operations are seasonally influenced in that the purchase of
motoring assistance follows holiday patterns and used car purchase, as well as
by weather conditions. This has a great impact on call volumes especially in
the winter.
CREDIT INFORMATION BUSINESS. Our former Central Credit Inc. ("CCI")
subsidiary (sold in August 1999) was a gambling patron credit information
business. CCI maintained a database of information provided by casinos
regarding the credit records of casino gaming patrons, and provided, for a fee,
such information and related services to its customers, which primarily
consisted of casinos. See "Recent Developments".
FINANCIAL PRODUCTS. Our former Essex Corporation ("Essex") subsidiary
(sold in January 1999) was a third-party marketer of financial products for
banks, primarily marketing annuities, mutual funds and insurance products
through financial institutions. Essex generally marketed annuities issued by
insurance companies or their affiliates, mutual funds issued by mutual fund
companies or their affiliates, and proprietary mutual funds of banks. Essex's
contracts with the insurance companies whose financial products it distributed
generally entitled Essex to a commission of slightly less than 1% on the
premiums generated through Essex's sale of annuities for these insurance
companies. See "Recent Developments".
TAX REFUND BUSINESS. Through our former Global Refund subsidiary (sold in
August 1999), we assisted travelers to receive valued added tax ("VAT") refunds
in 22 European countries, Canada and Singapore. Global Refund was the world's
leading VAT refund service, with over 125,000 affiliated retailers and seven
million transactions per year. Global Refund operated over 400 cash refund
offices at international airports and other major points of departure and
arrival worldwide. See "Recent Developments".
OTHER DIVESTED SERVICES. Our former Spark Services, Inc. ("Spark")
subsidiary (sold in August 1999) provided database-driven dating services to
over 300 radio stations throughout the United States and Canada. Spark was the
leading provider of dating and personals services to the radio industry. Spark
had also begun to test television distribution of its services through
infomercials, as well as through short form advertising and affiliation deals
with various programs. Consumers paid for Spark's services on a per minute of
usage transaction basis. See "Recent Developments".
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COMBINED OPERATIONS
PREFERRED ALLIANCE AND CO-MARKETING ARRANGEMENTS. We believe that there
are significant opportunities to capitalize on the significant and increasing
amount of aggregate purchasing power and marketing outlets represented by the
businesses in our business units. We initially tapped the potential of these
synergies within the lodging franchise systems in 1993 when we launched our
Preferred Alliance Program, under which hotel industry vendors provide
significant discounts, commissions and co-marketing revenue to hotel
franchisees plus preferred alliance fees to us in exchange for being designated
as the preferred provider of goods or services to the owners of our franchised
hotels or the preferred marketer of goods and services to the millions of hotel
guests who stay in the hotels and customers of our real estate brokerage
franchisees each year.
We currently participate in preferred alliance relationships with more
than 100 companies, including some of the largest corporations in the United
States. The operating profit generated by most new preferred alliance
arrangements closely approximates the incremental revenue produced by such
arrangements since the costs of the existing infrastructure required to
negotiate and operate these programs are largely fixed.
DISCONTINUED OPERATIONS
On August 12, 1998, we announced that our Executive Committee of the Board
of Directors committed to discontinue our consumer software and classified
advertising businesses by disposing of our wholly owned subsidiaries Cendant
Software Corporation ("Software") and Hebdo Mag International, Inc. ("Hebdo
Mag"). On December 15, 1998, we completed the sale of Hebdo Mag
to a company organized by Hebdo Mag management for approximately $450 million,
including approximately $315 million in cash and 7.1 million shares of our
common stock. On January 12, 1999, we completed the sale of Software to Paris
based Havas SA, a subsidiary of Vivendi SA, for $770 million in cash.
SOFTWARE. Our former Software subsidiary offered consumer software in
various multimedia forms, predominately on CD-ROM for personal computers. The
Software unit was one of the largest personal computer consumer software groups
in the world, and a leader in entertainment, educational and personal
productivity software. It included Sierra On-Line, Inc., Blizzard Entertainment
and Knowledge Adventure, Inc., and offered such titles as Diablo, Starcraft,
You Don't Know Jack, King's Quest, JumpStart, Math Blaster, Reading Blaster and
many others. These products were offered through a variety of distribution
channels, including specialty retailers, mass merchandisers, discounters and
schools.
CLASSIFIED ADVERTISING. Our former Hebdo Mag subsidiary was a publisher
of over 180 titles and distributor of classified advertising information with
operations in fifteen countries including Canada, France, Sweden, Hungary,
Taiwan, the United States, Italy, Russia, the Netherlands, Australia, Argentina
and Spain. Hebdo Mag was involved in the publication, printing and
distribution, via print and electronic media, of branded classified advertising
information products. Hebdo Mag had also expanded into other related business
activities, including the distribution of third-party services and classified
advertising web sites.
REGULATION
DIRECT MARKETING REGULATION. We market our products and services through a
number of distribution channels including telemarketing, direct mail and
online. These channels are regulated on the state and federal level and we
believe that these activities will increasingly be subject to such regulation.
Such regulation may limit our ability to solicit new members or to offer one or
more products or services to existing members.
A number of our products and services (such as Travelers Advantage
(Registered Trademark) and certain insurance products) are also subject to
state and local regulations. We believe that such regulations do not have a
material impact on our business or revenues.
In November 1999, the Federal Gramm-Leach-Bliley Act became law. This
statute, among other things, modernized the regulatory structure affecting the
delivery of financial services to consumers.
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Pursuant to this statute, additional requirements and limitations were adopted
relating to the sharing by financial institutions of certain customer
information with third parties such as our Direct Marketing division. Such
additional requirements and limitations will take effect in November 2000, at
the earliest, following the adoption of implementing regulation by the various
federal agencies which are charged with enforcing these matters. We do not
believe that this legislation will have a material impact on our business and
we were generally supportive of this legislation because we believe that it
adequately protects the legitimate privacy rights of the customers of those
financial institutions who partner with us in our marketing efforts, but does
so without unduly harming our own marketing efforts. We are also aware of, and
we are actively monitoring the status of, certain proposed privacy-related
state legislation that might be passed in the future; it is unclear at this
point what effect, if any, such state legislation might have on our business.
FRANCHISE REGULATION. The sale of franchises is regulated by various state
laws, as well as by the Federal Trade Commission (the "FTC"). The FTC requires
that franchisors make extensive disclosure to prospective franchisees but does
not require registration. Although no assurance can be given, proposed changes
in the FTC's franchise rule should have no adverse impact on our franchised
businesses. A number of states require registration or disclosure in connection
with franchise offers and sales. In addition, several states have "franchise
relationship laws" or "business opportunity laws" that limit the ability of the
franchisor to terminate franchise agreements or to withhold consent to the
renewal or transfer of these agreements. While our franchising operations have
not been materially adversely affected by such existing regulation, we cannot
predict the effect of any future federal or state legislation or regulation.
REAL ESTATE REGULATION. The federal Real Estate Settlement Procedures Act
(RESPA) and state real estate brokerage laws restrict payments which real
estate brokers and mortgage brokers and other parties may receive or pay in
connection with the sales of residences and referral of settlement services
(e.g., mortgages, homeowners insurance, title insurance). Such laws may to some
extent restrict preferred alliance arrangements involving our real estate
brokerage franchisees, mortgage business and relocation business. Our mortgage
banking services business is also subject to numerous federal, state and local
laws and regulations, including those relating to real estate settlement
procedures, fair lending, fair credit reporting, truth in lending, federal and
state disclosure, and licensing. Currently, there are local efforts in certain
states which could limit referral fees to our relocation business.
It is a common practice for online mortgage and real estate-related
companies to enter into advertising, marketing and distribution arrangements
with other Internet companies and websites whereby the mortgage and real
estate-related companies pay fees for advertising, marketing and distribution
services and other goods and facilities. The applicability of RESPA's referral
fee prohibitions to the compensation provisions of these arrangements is
unclear and the Department of Housing and Urban Development has provided no
guidance to date on the subject. Although Move.com Group believes that it has
structured its relationships with Internet advertisers to ensure compliance
with RESPA, some level of risk is inherent absent amendments to the law or
regulations, or clarification from regulators.
TIMESHARE EXCHANGE REGULATION. Our timeshare exchange business is subject
to foreign, federal, state and local laws and regulations including those
relating to taxes, consumer credit, environmental protection and labor matters.
In addition, we are subject to state statutes in those states regulating
timeshare exchange services, and must prepare and file annually, with
regulators in states that require it, the "RCI Disclosure Guide to Vacation
Exchange". We are not subject to those state statutes governing the development
of timeshare condominium units and the sale of timeshare interests, but such
statutes directly affect the members and resorts that participate in the RCI
Network. Therefore, the statutes indirectly impact our timeshare exchange
business.
INTERNET REGULATION. Although Move.com Group's and other business units'
operations on the Internet are not currently regulated by any government agency
in the United States beyond regulations discussed above and applicable to
businesses generally, it is likely that a number of laws and regulations may be
adopted governing the Internet. In addition, existing laws may be interpreted
to apply to the
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Internet in ways not currently applied. Regulatory and legal requirements are
subject to change and may become more restrictive, making Move.com Group's
compliance more difficult or expensive or otherwise restricting its ability to
conduct its business as it is now conducted.
EMPLOYEES
As of December 31, 1999, we employed approximately 28,000 persons
fulltime. Management considers our employee relations to be satisfactory.
ITEM 2. PROPERTIES
Our principal executive offices are located in leased space and located at
9 West 57th Street, New York, NY 10019 with a lease term expiring in 2013. Many
of our general corporate functions are conducted at a building owned by us and
located at 6 Sylvan Way, Parsippany, New Jersey 07054 and at a building leased
by us and located at 1 Sylvan Way, Parsippany, New Jersey 07054 with a lease
term expiring in 2008.
Our travel segment has three properties which we own, a 166,000 square
foot facility in Virginia Beach, Virginia which serves as a satellite
administrative and reservations facility for Wizcom and ARAC, a 200,000 square
foot facility in Carmel, Indiana which serves as an administrative office for
RCI and a property located in Kettering, UK which is the European office for
RCI. The travel segment also leases space for its reservations centers and data
warehouse in Winner and Aberdeen, South Dakota; Phoenix, Arizona; Knoxville and
Elizabethtown, Tennessee; Tulsa and Drumright, Oklahoma; Indianapolis, Indiana;
Orangeburg, South Carolina and St. John and Fredericton, New Brunswick, Canada
pursuant to leases that expire in 2000, 2004, 2007, 2004, 2002, 2001, 2000,
2001, 2008, 2009 and 2009, respectively. The Tulsa and Drumright, Oklahoma and
St. John and Fredericton, New Brunswick, Canada locations serves as an Avis car
rental reservations centers. In addition, the travel segment has 14 leased
offices spaces located within the United States and an additional 37 leased
spaces in various countries outside the United States.
The real estate franchise segment leases approximately seven properties in
various locations that function as sales offices, three of which are shared
with the travel segment.
The individual membership segment has its principal offices located in
Stamford and Trumbull, Connecticut. The individual membership segment leases
space for several of its call centers in Aurora, Colorado; Richmond, Virginia;
Westerville, Ohio; Nashville, Tennessee; Moore, Oklahoma; Houston and
Arlington, Texas; and Great Falls, Montana pursuant to leases that expire in
2000, 2007, 2005, 2006, 2003, 2005, 2000 and 2004, respectively. We also own
one building located in Cheyenne, Wyoming which serves as a call center. In
addition, the individual membership segment has leased smaller space in various
locations for business unit and ancillary needs.
The relocation segment has their main corporate operations located in
three leased buildings in Danbury, Connecticut with lease terms expiring in
2008, 2005 and 2004. There are also six regional offices located in Walnut
Creek, California; Oak Brook, Chicago, and Schaumburg, Illinois; Las Colinas,
Texas and Mission Viejo, California which provide operation support services
for the region pursuant to leases that expire in 2004, 2003, 2004, 2001 and
2003, respectively. We own the office in Mission Viejo. International offices
are located in Swindon, UK and Hong Kong, China, pursuant to leases that expire
in 2013 and 2001, respectively.
The mortgage segment has centralized its operations to one main area
occupying various leased offices in Mt. Laurel, New Jersey for a total of
approximately 885,000 square feet. The lease terms expire over the next five
years. Regional sales offices are located in Englewood, Colorado and Santa
Monica, California, pursuant to leases that expire in 2002 and 2005,
respectively.
The insurance/wholesale segment leases domestic space in Brentwood,
Tennessee; San Carlos, California; and Richmond, Virginia with lease terms
ending in 2002, 2003 and 2007, respectively. In addition, there are ten leased
locations internationally that function as sales and administrative offices for
CIMS with the main office located in Portsmouth, UK.
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The Move.com Group segment occupies two leased offices in San Francisco,
with lease terms ending in 2003 and 2006.
We also own property in Westbury, New York and lease space in Garden City,
New York and Parsippany, New Jersey that supports the Diversified Services
Segment. The Garden City and Parsippany locations are the main operation and
administrative centers for Wizcom and Jackson Hewitt, respectively. In
addition, there are approximately nineteen leased office locations in the
United States. Internationally, we lease office space in the United Kingdom and
own one building in Birmingham, UK to support the National Car Parks business
unit.
We believe that such properties are sufficient to meet our present needs
and we do not anticipate any difficulty in securing additional space, as
needed, on acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
A. CLASS ACTION AND OTHER LITIGATION AND GOVERNMENT INVESTIGATIONS
Since our April 15, 1998 announcement of the discovery of accounting
irregularities in the former CUC business units, and prior to the date of this
Annual Report on Form 10-K, approximately 70 lawsuits claiming to be class
actions, two lawsuits claiming to be brought derivatively on our behalf and
several other lawsuits and arbitration proceedings have been filed in various
courts against us and other defendants.
In re: Cendant Corporation Litigation, Master File No. 98-1664 (WHW)
(D.N.J.) (the "Securities Action"), is a consolidated action consisting of over
sixty constituent class action lawsuits, that were originally filed in the
United States District Court for the District of New Jersey, the District of
Connecticut, and the Eastern District of Pennsylvania. The Securities Action is
brought on behalf of all persons who acquired securities of the Company and
CUC, except our PRIDES securities, between May 31, 1995 and August 28, 1998.
The Court granted the lead plaintiffs' unopposed motion for class certification
on January 27, 1999. Named as defendants are the Company; twenty-eight current
and former officers and directors of the Company, CUC and HFS; and Ernst &
Young LLP ("Ernst & Young"), CUC's former independent accounting firm.
The Amended and Consolidated Class Action Complaint in the Securities
Action alleges that, among other things, the lead plaintiffs and members of the
class were damaged when they acquired securities of the Company and CUC
because, as a result of accounting irregularities, the Company's and CUC's
previously issued financial statements were materially false and misleading,
and the allegedly false and misleading financial statements caused the prices
of the Company's and CUC's securities to be inflated artificially. The Amended
and Consolidated Complaint alleges violations of Sections 11, 12(a)(2), and 15
of the Securities Act of 1933 (the "Securities Act") and Sections 10(b), 14(a),
20(a), and 20A of the Securities Exchange Act of 1934 (the "Exchange Act").
Lead plaintiffs in the Securities Action seek damages for themselves in
unspecified amounts.
On December 14, 1998, the lead plaintiffs in the Securities Action moved
for partial summary judgment, on liability only, against the Company on the
claims under Section 11 of the Securities Act. The lead plaintiffs adjourned
this motion, however, without prejudice to their right to re-notice the motion
at a subsequent time.
On January 25, 1999, the Company answered the Amended Consolidated
Complaint and asserted Cross-Claims against Ernst & Young. The Company's
Cross-Claims allege that Ernst & Young failed to follow professional standards
to discover, and recklessly disregarded, the accounting irregularities, and is
therefore liable to the Company for damages in unspecified amounts. The
Cross-Claims assert claims for breaches of Ernst & Young's audit agreements
with the Company, negligence, breaches of fiduciary duty, fraud, and
contribution.
On March 26, 1999, Ernst & Young filed Cross-Claims against the Company
and certain of the Company's present and former officers and directors,
alleging that any failure to discover the accounting irregularities was caused
by misrepresentations and omissions made to Ernst & Young in the course of its
audits and other reviews of the Company's financial statements. Ernst & Young's
Cross-Claims assert
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claims for breach of contract, fraud, fraudulent inducement, negligent
misrepresentation and contribu- tion. Damages in unspecified amounts are sought
for the costs to Ernst & Young associated with defending the various shareholder
lawsuits and for harm to Ernst & Young's reputation.
On December 7, 1999, we announced that we reached a preliminary agreement
to settle the Securities Action. (See "Litigation Settlements" below and Note 17
to the Consolidated Financial Statements).
Welch & Forbes, Inc. v. Cendant Corp., et al., No. 98-2819 (WHW) (the
"PRIDES Action") is a class action filed on June 15, 1998 and brought on behalf
of purchasers of the Company's PRIDES securities between February 24 and July
15, 1998. The PRIDES Action is a consolidation of Welch & Forbes, Inc. v.
Cendant Corp., et. al. with seven other class action lawsuits filed on behalf
of purchasers of PRIDES. Named as defendants are the Company; Cendant Capital
I, a statutory business trust formed by the Company to participate in the
offering of PRIDES securities; seventeen current and former officers and
directors of the Company, CUC and HFS; Ernst & Young; and the underwriters for
the PRIDES offering, Merrill Lynch & Co.; Merrill Lynch, Pierce, Fenner & Smith
Incorporated; and Chase Securities Inc.
The allegations in the Amended Consolidated Complaint in the PRIDES Action
are substantially similar to those in the Securities Action, and violations of
Sections 11, 12(a)(2) and 15 of the Securities Act and Sections 10(b) and 20(a)
of the Exchange Act are asserted. Damages in unspecified amounts are sought.
On November 11, 1998, the plaintiffs in the PRIDES Action brought motions
for (i) certification of a proposed class of PRIDES purchasers; (ii) summary
judgment against the Company on liability under Section 11 of the Securities
Act; and (iii) an injunction requiring the Company to place $300 million in a
trust account for the benefit of the PRIDES investors pending final resolution
of their claims. These motions were withdrawn in connection with a partial
settlement of the PRIDES Action (see Litigation Settlements below and Note 5 to
the Consolidated Financial Statements).
Semerenko v. Cendant Corp., et al., Civ. Action No. 98-5384 (D.N.J.) and
P. Schoenfield Asset ManagementLLC v. Cendant Corp., et al., (Civ. Action No.
98-4734) (D.N.J.) (the "ABI Actions") were initially commenced in October and
November of 1998, respectively, on behalf of a putative class of persons who
purchased securities of American Bankers Insurance Group, Inc. ("ABI") between
January 1998 and October 13, 1998. Named as defendants are the Company, four
former CUC officers and directors, and Ernst & Young. The complaints in the ABI
actions, as amended on February 8, 1999, assert violations of Sections 10(b),
14(e) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder.
Plaintiffs allege that they purchased shares of ABI common stock at artificially
inflated prices due to the accounting irregularities after we announced a cash
tender offer for 51% of ABI's outstanding shares of common stock in January
1998. Plaintiffs also allege that after the disclosure of the accounting
irregularities, we misstated our intention to complete the tender offer and a
second step merger pursuant to which the remaining shares of ABI stock were to
be acquired by us. Plaintiffs seek, among other things, unspecified compensatory
damages. The Company and the other defendants filed motions to dismiss the ABI
Actions on March 10, 1999. The United States District Court for the District of
New Jersey found that the complaints failed to state a claim upon which relief
could be granted and, accordingly, dismissed the complaints by order dated April
30, 1999. Plaintiff's appeal of the dismissal is scheduled to be argued before
the United States Court of Appeals for the Third Circuit on March 21, 2000.
B. OTHER LITIGATION
Prior to April 15, 1999, actions making substantially similar allegations
to the allegations in the Securities Action were filed by various plaintiffs on
their own behalf in the United States District Courts for the District of New
Jersey, the Eastern and Central Districts of California, the Southern District
of Florida, the Eastern District of Louisiana, the District of Connecticut and
the Eastern District of Wisconsin. The Company filed motions before the
Judicial Panel on Multidistrict Litigation (the "JPML") to transfer to the
District of New Jersey, for consolidation with the Securities Action, the
actions filed in judicial districts other than the District of New Jersey. The
motions to transfer were granted in August and
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September, 1999. The District of New Jersey has granted the Company's motion to
dismiss two of these transferred actions: Stewart v. Cendant Corp., originally
filed in the District of Connecticut, and Wyatt v. Cendant Corp., originally
filed in the Southern District of Florida.
The Company has filed Cross-Claims against Ernst & Young in three of the
remaining transferred actions: McLaughlin v. Cendant Corp., originally filed in
the District of New Jersey; Yeager v. Cendant Corp. and Alexander v. Cendant
Corp. both originally filed in the Central District of California. Ernst & Young
has filed counterclaims and Cross-Claims against the Company in each of these
actions.
Among the actions transferred is Reliant Trading and Shepherd Trading Ltd.
v. Cendant Corp., originally filed in the Eastern District of Wisconsin. The
plaintiffs in Reliant allegedly purchased certain 4-3/4% Senior Notes
originally issued by HFS and claim to have converted these notes to shares of
Cendant common stock in April 1998, before our April 15, 1998 announcement
concerning the accounting irregularities. Plaintiffs seek, among other things,
rescission of the conversion of the notes, unspecified compensatory damages
resulting form the conversion, and additional unspecified damages resulting
from the original purchase of the notes at allegedly artificially inflated
prices.
On November 2, 1999, the Company moved for judgment on the pleadings
dismissing the Securities Act claims asserted against it. On December 10, 1999,
the parties filed a stipulation dismissing with prejudice claims of violations
of Sections 11, 12 and 15 of the Securities Act against all defendants and
claims of violations of Sections 10(b) and 20 of the Exchange Act against
certain present and former Cendant directors. On December 14, 1999, plaintiffs
filed a first Amended Complaint alleging violations of Section 10(b) of the
Exchange Act and breach of contract against the Company and violations of
Sections 10(b) and 20 of the Exchange Act against certain former and present
officers and directors of The Company. On January 14, 2000, the Company filed
an answer denying all material allegations in the First Amended Complaint.
Additionally, various counterclaims, cross-claims and third-party claims exist
between Ernst & Young and the Company and certain of its present and former
officers and directors.
Another action transferred to the District of New Jersey is Daystar
Special Situations Fund, L.P. and Daystar LLC v. Cendant Corp., originally filed
in the Southern District of New York in July 1999 to the District of New Jersey.
Plaintiffs in Daystar, allege that after disclosure of the accounting
irregularities by us in April 1998 certain material misstatements were made
regarding the full extent of the accounting irregularities. Plaintiffs allege
that they relied on such statements in purchasing over 3 million shares of
Cendant stock in April, May and June 1998. Plaintiffs seek, among other things,
damages in excess of $35 million. On October 26, 1999, all of the defendants,
including the Company, filed a motion to dismiss the Complaint. On November 29,
1999, the motion to dismiss was denied. On December 23, 1999, the Company filed
an answer denying all material allegations in the Complaint.
Kennilworth Partners, L.P. et al., v. Cendant Corp., et al., 98 Civ. 8939
(DC) (the "Kennilworth Action") was filed on December 18, 1998 on behalf of
three investment companies. Named as defendants are the Company; thirty of its
present and former officers and directors; HFS; and Ernst & Young. The
complaint in the Kennilworth Action, as amended on January 26, 1999, alleges
that the plaintiffs purchased convertible notes issued by HFS pursuant to an
indenture dated February 28, 1996 and were damaged when they converted their
notes into shares of common stock in the Company shortly prior to the Company's
April 15, 1998 announcement. The amended complaint asserts violations of
Sections 11, 12 and 15 of the Securities Act and Sections 10(b) and 20 of the
Exchange Act; a common-law breach of contract claim is also asserted. Damages
are sought in an amount estimated to be in excess of $13.6 million. On April
29, 1999, the Company moved to dismiss the Securities Act claims brought
against it. On August 10, 1999, the District Court dismissed plaintiffs' claims
under Sections 11 and 12(2) of the Securities Act against us and all of the
other defendants and dismissed the claims under Section 10(b) of the Exchange
Act against the individual officers and directors and Ernst & Young. On August
23, 1999, the Company filed an Answer and Affirmative Defenses, in which it
denied all material allegations in the amended complaint. In January 2000,
plaintiffs filed a Second Amended Complaint, asserting claims against Cendant
under Section 10(b) of the Exchange Act and for breach of contract.
Kevlin, et al v. Cendant Corp., No. C-98-12602-B (the "Kevlin Action"),
was commenced in December 1998 in the County Court of Dallas County, Texas.
According to the complaint, plaintiffs are
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former shareholders of an entity known as Kevlin Services, Inc. In 1996, a
subsidiary of Cendant acquired all of the assets of Kevlin Services, Inc. in
exchange for approximately 1,155,733 shares of common stock of CUC International
Inc. According to the complaint, plaintiffs were to receive CUC shares worth
$26,370,000 and instead received shares worth substantially less than that
amount due to the impact of the accounting irregularities on the market price
for CUC common stock. Plaintiffs have asserted claims against Cendant, its
subsidiary and Ernst & Young for fraud, negligent misrepresentation, breach of
duty of good faith and fair dealing, breach of contract, conspiracy, negligence
and gross negligence. Plaintiffs seek compensatory and exemplary damages in
unspecified amounts. Cendant and its subsidiary have filed a general denial to
the allegations in the complaint. The parties have commenced discovery in this
case.
Raymond H. Stanton II and Raymond H. Stanton III v. Cendant Corp. is an
arbitration proceeding filed by Raymond H. Stanton II and Raymond H. Stanton
III, former owners of Dine-A-Mate, Inc. The Demand for Arbitration alleges that
the Stantons sold Dine-A-Mate stock to CUC in September 1996 in exchange for
929,930 shares of CUC common stock. The Demand alleges that due to the
accounting irregularities the price of CUC stock was artificially inflated at
the time and asserts claims for fraud, fraudulent inducement, breach of
warranty, and violation of Sections 18(a) and 10(b) of the Exchange Act. The
Stantons seek, among other things, damages equal to the differences between
$33,314,736 (the alleged value of the transaction) and the actual value of the
CUC stock they received in the sale, and punitive damages on their claims for
fraud and fraudulent inducement. The arbitration hearing is scheduled to take
place on May 2-5, 2000.
Janice G. Davidson and Robert M. Davidson v. Cendant Corp. (JAMS/Endispute -Los
Angeles No. 122002145) is an arbitration proceeding filed on December 17, 1998,
by Janice G. and Robert M. Davidson, former majority shareholders of a
California-based computer software firm acquired by the Company in a July 1996
stock merger (the "Davidson Merger"). The Davidsons' Demand for Arbitration
purported to assert claims against Cendant in connection with the Davidson
Merger and a May 1997 settlement agreement settling all disputes arising out of
the Davidson Merger (the "Davidson Settlement"). The Demand asserts claims for:
(i) securities fraud under federal, state and common law theories relating to
the Davidson Merger, through which the Davidsons received approximately
21,670,000 common shares of CUC stock and options on CUC stock in exchange for
all of their Davidson & Associates, Inc. common shares, based upon CUC's
accounting irregularities and alleged misrepresentations concerning the
Davidsons' employment as CUC executives; (ii) wrongful taking of trust property
based on fraud in connection with the Davidson Merger; (iii) unjust enrichment,
in connection with the Davidson Merger; (iv) rescission of the Davidson
Settlement for fraud under the federal securities laws, California Corporations
Code, and common law, and on grounds of unilateral mistake, failure of
consideration, and prejudice to the public interest; and (v) damages under the
Settlement Agreement for fraud in connection with the grant of CUC stock
options to the Davisdons under that Agreement. The Demand seeks unspecified
compensatory and punitive damages and a declaratory judgment that the Davidsons
are entitled to rescind the Davidson Settlement and that the claims in the
Demand are arbitrable.
Cendant answered the Demand on January 12, 1999, denying all of the
material allegations in the Demand, and also filed a Complaint for Injunctive
and Declaratory Relief against the Davidsons in the United States District
Court for the Central District of California (the "Cendant Complaint"), seeking
to enjoin the arbitration on the grounds that the parties to the Davidson
Settlement agreed therein not to arbitrate ten of the eleven claims contained
in the Demand, and that the arbitration clauses under which the Davidsons bring
their claims are inapplicable to the dispute. In February 1999, Cendant filed a
Motion for Preliminary Injunction seeking to enjoin the arbitration proceedings
pending the court's final resolution of the dispute on the merits. The
Davidsons filed a motion to dismiss the Cendant Complaint or for summary
judgment. On April 14, 1999, the court entered an order granting summary
judgment in favor of the Davidsons, denying Cendant's Motion for Preliminary
Injunction and dismissing the Cendant Complaint. The Company's appeal from this
order is pending before the United States Court of Appeals for the Ninth
Circuit. The arbitration has been stayed by agreement of the parties until the
Ninth Circuit issues a mandate on the appeal, except discovery is proceeding on
whether the Davidson Settlement should be rescinded.
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On April 14, 1999, the Davidsons filed a complaint in the United States
District Court for the Central District of California against Cendant alleging
essentially the same claims asserted in the Demand. The complaint seeks
unspecified compensatory and punitive damages, and was filed purportedly to
toll the statue of limitations pending arbitration of the claims in the Demand.
Cendant's motion to transfer this case to the District Court of New Jersey was
granted by JPML on August 12, 1999.
Deutch v. Silverman, et al., No. 98-1998 (WHW) (the "Deutch Action"), is a
purported shareholder derivative action, purportedly filed on behalf of, and
for the benefit of the Company. The Deutch Action was commenced on April 27,
1998 in the District of New Jersey against certain of the Company's current and
former directors and officers; The Bear Stearns Companies, Inc.; Bear Stearns &
Co., Inc.; and, as a nominal party, the Company. The complaint in the Deutch
Action, as amended on December 7, 1998, alleges that certain individual
officers and directors of the Company breached their fiduciary duties by
selling shares of the Company's stock while in possession of non-public
material information concerning the accounting irregularities. The complaint
also alleges that the individual officers and directors breached their
fiduciary duties and committed acts of gross negligence by, among other things,
causing and/or allowing the Company to make a series of false and misleading
statements regarding the Company's financial condition, earnings and growth;
entering into an agreement to acquire ABI and later paying $400 million to ABI
in connection with termination of that agreement; re-pricing certain stock
options previously granted to certain Company executives; and entering into
certain severance and other agreements with Walter Forbes, the Company's former
Chairman, last summer under which Mr. Forbes received approximately $51 million
from the Company pursuant to an employment agreement we had entered into with
him in connection with the Cendant Merger. Damages are sought on behalf of
Cendant in unspecified amounts. The Company and the other defendants each moved
to dismiss the Deutch Action. On August 8, 1999, the Court dismissed certain
claims against some of the individual officers and directors and all claims
against the Bear Stearns defendants. The Court denied the Company's motion to
dismiss. On August 23, 1999, the Company filed its Answer and Affirmative
Defenses to the Complaint, in which it denied all of the material allegations
in the Complaint. On February 4, 2000, plaintiff moved for partial summary
judgment against the individual defendants, seeking damages in the amount of
$2.83 billion. The motion is scheduled to be heard on March 27, 2000.
Corwin v. Silverman et al., No. 16347-NC (the "Corwin Action"), was filed
on April 28, 1998 in the Court of Chancery for the State of Delaware. The
Corwin Action is purportedly brought derivatively, on behalf of the Company,
and as a class action, on behalf of all shareholders of HFS who exchanged their
HFS shares for CUC shares in connection with the Merger. The Corwin Action
names as defendants HFS and twenty-eight individuals who are or were directors
of the Company and HFS. The complaint in the Corwin Action, as amended on July
28, 1998, alleges that HFS and its directors breached their fiduciary duties of
loyalty, good faith, care and candor in connection with the Cendant Merger, in
that they failed to properly investigate the operations and financial
statements of CUC before approving the Merger at an allegedly inadequate price.
The amended complaint also alleges that the Company's directors breached their
fiduciary duties by entering into an employment agreement with our former
Chairman, Walter A. Forbes, in connection with the Merger that purportedly
amounted to corporate waste. The Corwin Action seeks, among other things,
rescission of the Merger and compensation for all losses and damages allegedly
suffered in connection therewith. On October 7, 1998, Cendant filed a motion to
dismiss the Corwin Action or, in the alternative, for a stay of the Corwin
Action pending determination of the Deutch Action. On June 30, 1999, the Court
of Chancery for the State of Delaware stayed the Corwin Action pending a
determination of the Deutch Action.
The SEC and the United States Attorney for the District of New Jersey are
conducting investigations relating to accounting irregularities. The SEC staff
has advised us that its inquiry should not be construed as an indication by the
SEC or its staff that any violations of law have occurred. As a result of the
findings from our internal investigations, we made all adjustments considered
necessary which are reflected in previously filed financial statements.
Although we can provide no assurances that additional adjustments will not be
necessary as a result of these government investigations, we do not expect that
additional adjustments will be necessary.
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C. LITIGATION SETTLEMENTS.
Settlement of Common Stock Class Action Litigation
On December 7, 1999, the Company announced that it reached a preliminary
agreement to settle the principal securities class action pending against the
Company in the U.S. District Court in Newark, New Jersey relating to the
aforementioned class action lawsuits. Under the agreement, the Company would pay
the class members approximately $2.85 billion in cash, an increase from
approximately $2.83 billion previously reported. The increase is a result of
continued negotiation toward definitive documents relating to additional costs
to be paid to the plaintiff class. The settlement remains subject to execution
of a definitive settlement agreement and approval by the U.S. District Court. If
the preliminary settlement is not approved by the U.S. District Court, the
Company can make no assurances that the final outcome or settlement of such
proceedings will not be for an amount greater than that set forth in the
preliminary agreement. We currently plan to fund the settlement through the use
of available cash, the issuance of debt securities and/or the issuance of equity
securities. We intend to finance the cost of the settlement so as to maintain
our investment grade ratings. Please see the Company's Form 8-K, dated December
7, 1999, for a description of the preliminary agreement to settle the common
stock class action litigation.
The proposed settlements do not encompass all litigation asserting claims
associated with the accounting irregularities. We do not believe that it is
feasible to predict or determine the final outcome or resolution of these
unresolved proceedings. An adverse outcome from such unresolved proceedings
could be material with respect to earnings in any given reporting period.
However, the Company does not believe that the impact of such unresolved
proceedings should result in a material liability to the Company in relation to
its consolidated financial position or liquidity.
Settlement of PRIDES Class Action Litigation
On March 17, 1999, we entered into a stipulation of settlement with the
plaintiff's counsel representing the class of holders of our PRIDES securities
who purchased their securities on or prior to April 15, 1998 ("eligible
persons") to settle their class action lawsuit against us. Under the
stipulation of settlement, eligible persons will receive a new security -- a
Right -- for each PRIDES security held on April 15, 1998. For example, if a
person held 100 PRIDES on April 15, 1998, they would receive 100 Rights.
Current holders of PRIDES will not receive any Rights (unless they also held
PRIDES on April 15, 1998). We had originally announced a preliminary agreement
in principle to settle such lawsuit on January 7, 1999. The final agreement
maintained the basic structure and accounting treatment as the preliminary
agreement.
Based on the settlement agreement, we recorded an after tax charge of
approximately $228 million, or $0.26 per share ($351 million pre-tax), in the
fourth quarter of 1998 associated with the settlement agreement in principle to
settle the PRIDES securities class action. We recorded an increase in
additional paid-in capital of $350 million offset by a decrease in retained
earnings of $228 million resulting in a net increase in shareholders' equity of
$122 million as a result of the prospective issuance of the Rights. As a
result, the settlement should not reduce net book value. In addition the
settlement is not expected to reduce 1999 earnings per share unless our common
stock price materially appreciates.
At any time during the life of the Rights, holders of Rights may (a) sell
them or (b) exercise them by delivering to us three Rights together with two
PRIDES in exchange for two new PRIDES (the "New PRIDES"). For example, if a
holder of Rights exchanges three rights together with two current Income
PRIDES, they will receive two New Income PRIDES. If a holder of Rights
exchanges three Rights together with two Growth PRDIDES, they will receive two
New Growth PRIDES. The terms of the New PRIDES will be the same as the
currently outstanding PRIDES, except that the conversion rate will be revised
so that, at the time the Rights are distributed, each of the New PRIDES will
have a value equal to $17.57 more than each original PRIDES, based upon a
generally accepted valuation model. Based upon the closing price per share of
$17.78 of our Common Stock (calculated based on the average closing price per
share of our common stock for the five day period ended February 18, 2000), the
effect of the issuance of the New PRIDES will be to distribute approximately 18
million more shares of our common stock when the mandatory purchase of our
common stock associated with the PRIDES occurs in February of 2001.
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<PAGE>
The settlement agreement also requires us to offer to sell 4 million
additional PRIDES (having identical terms to currently outstanding PRIDES) (the
"Additional PRIDES") at "theoretical value" to holders of Rights for cash.
Theoretical value will be based on the same valuation model utilized to set the
conversion rate of the New PRIDES. The offering of Additional PRIDES will be
made only pursuant to a prospectus filed with the SEC. We currently expect to
use the proceeds of such an offering to repurchase our common stock and for
other general corporate purposes. The arrangement to offer Additional PRIDES is
designed to enhance the trading value of the Rights by removing up to 6 million
Rights from circulation via exchanges associated with the offering. If holders
of Rights do not acquire all such PRIDES, they will be offered to the public.
Under the settlement agreement, we have also agreed to file a shelf
registration statement for an additional 15 million PRIDES, which could be
issued by us at any time for cash. However, during the last 30 days prior to
the expiration of the Rights in February 2001, we will be required to make
these additional PRIDES available to holders of Rights at a price in cash equal
to 105% of the theoretical value of the additional PRIDES as of a specified
date. The PRIDES, if issued, would have the same terms as the currently
outstanding PRIDES and could be used to exercise Rights.
On June 15, 1999, the United States District Court for the District of New
Jersey entered an order and judgment approving the settlement and awarding fees
to counsel to the class.
One objector, who objected to a portion of the settlement notice
concerning fees to be sought by counsel to the class, and the amount of fees
sought by counsel to the class, has filed an appeal to the U.S. Court of
Appeals for the Third Circuit from the order and judgement approving the
settlement. Cendant believes this appeal is without merit. Counsel for the
plaintiff class has moved to dismiss this appeal. This motion is pending before
the Third Circuit.
On September 7, 1999, Cendant moved the District Court for an order
disallowing claims by purported class members seeking a total of approximately
4 million Rights pursuant to the settlement, on the grounds that such claims
were filed untimely and/or not supported by appropriate documentation. On
October 6, 1999, the District Court of New Jersey heard oral argument on the
Company's motion. On October 20, 1999, the Court issued an opinion and order
directing Lead Counsel to submit additional documentation regarding the
disputed claims. On January 14, 2000, the Court issued an order identifying
those claims allowed to participate in the settlement and those claims that
were disallowed. By stipulation and order dated February 23, 2000, the parties
agreed to distribute, and the court approved distribution of, Rights in respect
of the undisputed claims, which the Company expects to commence on or about
March 10, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held an annual meeting of our shareholders on May 27, 1999, pursuant to
a Notice of Annual Meeting and Proxy Statement dated March 31, 1999, a copy of
which has been filed previously with the Securities and Exchange Commission, at
which our shareholders considered and approved the election of five directors
for a term of three years, certain amendments to the Company's Amended and
Restated By-Laws, a stockholder's proposal relating to the classification of
the Board of Directors and ratification of Deloitte & Touche LLP as auditors.
The results of such matters are as follows:
Proposal 1: To elect five directors for a three-year term and until their
successors are duly elected and qualified.
Results: For Withheld
Leonard S. Coleman 686,861,976 27,440,360
Robert E. Nederlander 670,402,315 43,909,021
Leonard Schutzman 687,009,774 27,292,562
Robert F. Smith 686,256,727 27,292,562
Craig R. Stapleton 687,791,909 26,510,429
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Proposal 2: To ratify and approve the appointment of Deloitte & Touche LLP as
the Company's Independent Auditors for the year ending December 31, 1999.
Results: For Against Abstain
711,006,803 1,612,783 1,682,750
Proposal 3: To approve and adopt certain amendments to the Company's Amended
and Restated By-Laws.
Results: For Against Abstain
702,522,495 8,532,611 3,247,230
Proposal 4: A stockholder's proposal relating to the classification of the
Board of Directors.
Results: For Against Abstain
289,422,825 265,624,48 56,308,894
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
MARKET PRICE ON COMMON STOCK
Our Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "CD". At January 24, 2000 the number of stockholders of record was
approximately 9,598. The following table sets forth the quarterly high and low
sales prices per share as reported by the NYSE for 1999 and 1998 based on a
year ended December 31.
1999 HIGH LOW
---- ---- ---
First Quarter .................. $22 7/16 $15 5/16
Second Quarter ................. 20 3/4 15 1/2
Third Quarter .................. 22 5/8 17
Fourth Quarter ................. 26 9/16 14 9/16
1998 HIGH LOW
---- ---- ---
First Quarter .................. $41 $32 7/16
Second Quarter ................. 41 3/8 18 9/16
Third Quarter .................. 22 7/16 10 7/16
Fourth Quarter ................. 20 5/8 7 1/2
On February 24, 2000, the last sale price of our Common Stock on the NYSE
was $17 1/8 per share.
DIVIDEND POLICY
We expect to retain our earnings for the development and expansion of its
business and the repayment of indebtedness and do not anticipate paying
dividends on Common Stock in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS
NET REVENUES $ 5,402 $ 5,284 $ 4,240 $ 3,238 $ 2,616
-------- -------- -------- -------- -------
Operating expense 1,795 1,870 1,322 1,183 1,025
Marketing and reservation expense 1,017 1,158 1,032 911 744
General and administrative expense 671 666 636 341 283
Depreciation and amortization expense 371 323 238 146 100
Other charges 3,032(1) 838(2) 704(3) 109(4) 97(5)
Interest expense, net 199 114 51 14 17
Net gain on dispositions of businesses (1,109) -- -- -- --
Provision (benefit) for income taxes (406) 104 191 220 143
Minority interest, net of tax 61 51 -- -- --
---------- --------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (229) $ 160 $ 66 $ 314 $ 207
========== ========= ========= ========= =========
INCOME (LOSS) FROM CONTINUING OPERATIONS PER SHARE:
Basic $ (0.30) $ 0.19 $ 0.08 $ 0.41 $ 0.30
Diluted (0.30) 0.18 0.08 0.39 0.28
FINANCIAL POSITION
Total assets $ 15,149 $20,217 $14,073 $ 12,763 $ 8,520
Long-term debt 2,445 3,363 1,246 781 336
Assets under management and mortgage
programs 2,726 7,512 6,444 5,729 4,956
Debt under management and mortgage
programs 2,314 6,897 5,603 5,090 4,428
Mandatorily redeemable preferred
securities issued by subsidiary holding
solely senior debentures issued by the
Company 1,478 1,472 -- -- --
Shareholders' equity 2,206 4,836 3,921 3,956 1,898
OTHER INFORMATION (6)
Cash flows provided by (used in):
Operating activities $ 3,032 $ 808 $ 1,213 $ 1,493 $ 1,144
Investing activities 1,860 (4,352) (2,329) (3,091) (1,789)
Financing activities (4,788) 4,690 901 1,781 661
</TABLE>
- ----------
(1) Represents charges of (i) $2,894 million ($1,839 million, after tax or
$2.45 per diluted share) associated with the preliminary agreement to
settle the principal shareholder securities class action suit, (ii) $7
million ($4 million, after tax or $0.01 per diluted share) in connection
with the termination of the proposed acquisition of RAC Motoring
Services, (iii) $21 million ($13 million, after tax or $0.02 per diluted
share) of investigation-related costs, (iv) $87 million ($49 million,
after tax or $0.07 per diluted share) comprised principally of an $85
million ($48 million, after tax or $0.06 per diluted share) charge
incurred in conjunction with the Netmarket Group, Inc. transaction and
(v) $23 million ($15 million, after tax or $0.02 per diluted share) of
additional charges to fund an irrevocable contribution to an independent
technology trust responsible for completing the transition of the
Company's lodging franchisees to a Company sponsored property management
system.
(2) Represents charges of (i) $351 million ($228 million, after tax or $0.26
per diluted share) associated with the agreement to settle the PRIDES
securities class action suit, (ii) $433 million ($282 million, after tax
or $0.32 per diluted share) for the costs of terminating the proposed
acquisitions of American Bankers Insurance Group, Inc. and Providan Auto
and Home Insurance Company, and (iii) $121 million ($79 million, after
tax or $0.09 per diluted share) for investigation-related costs,
including incremental financing costs, and executive terminations. Such
charges are partially offset by a net credit of $67 million ($44 million,
after tax or $0.05 per diluted share) associated with changes to the
estimate of previously recorded merger-related costs and other unusual
charges.
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(3) Represents merger-related costs and other unusual charges of $704 million
($505 million, after tax or $0.58 per diluted share) primarily associated
with the merger of HFS Incorporated and CUC International Inc. and the
merger with PHH Corporation ("PHH") in April 1997.
(4) Represents merger-related costs and other unusual charges of $109 million
($70 million, after tax or $0.09 per diluted share) substantially related
to the Company's August 1996 merger with Ideon Group, Inc. ("Ideon").
(5) Represents a provision of $97 million ($62 million after tax or $0.08 per
diluted share) for costs related to the abandonment of certain Ideon
development efforts and the restructuring of certain Ideon operations.
(6) There were no dividends declared during the periods presented above
except for PHH and Ideon, which declared and paid dividends to their
shareholders prior to their respective mergers with the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are one of the foremost providers of real estate related, travel related and
direct marketing consumer and business services in the world. We were created
through the December 1997 merger (the "Cendant Merger") of HFS Incorporated
("HFS") and CUC International Inc. ("CUC"). We provide business services to our
customers, many of which are consumer services companies, and also provide
fee-based services directly to consumers, generally without owning the assets
or sharing the risks associated with the underlying businesses of our customers
or collaborative partners.
We operate in four principal divisions -- travel related services, real estate
related services, direct marketing services and diversified services. Our
businesses provide a wide range of complementary consumer and business
services, which together represent eight business segments. The travel related
services businesses facilitate vacation timeshare exchanges and franchise car
rental and hotel businesses; the real estate related services businesses
franchise real estate brokerage businesses, provide home buyers with mortgages,
assist in employee relocation and provide consumers with relocation, real
estate and home-related products and services through the move.com network of
Web sites; and the direct marketing services businesses, provide an array of
value driven products and services. Our diversified services include our tax
preparation services franchise, information technology services, car parking
facility services and other consumer-related services.
As a franchisor of hotels, real estate brokerage offices, car rental operations
and tax preparation services, we license the owners and operators of independent
businesses to use our brand names. We do not own or operate hotels, real estate
brokerage offices, car rental operations or tax preparation offices (except for
certain company-owned Jackson Hewitt Inc. offices, which we intend to
franchise). Instead, we provide our franchisee customers with services designed
to increase their revenue and profitability.
In connection with our previously announced program to focus on maximizing the
opportunities and growth potential of our existing businesses, we divested
several non-strategic businesses and assets and have completed or commenced
certain other strategic initiatives related to our Internet businesses. Pursuant
to such program, we completed the dispositions of North American Outdoor Group,
Global Refund Group, the fleet business segment, Central Credit, Inc., Spark
Services, Inc., Match.com, National Leisure Group, National Library of Poetry,
Essex Corporation, Cendant Software Corporation, Hebdo Mag International, Inc.,
the Green Flag Group and Entertainment Publications, Inc. As a result of the
divestitures program, we divested former CUC businesses representing
approximately 45% of CUC's revenues in 1997, the year in which CUC merged with
HFS (see "Liquidity and Capital Resources -- Divestitures").
In addition to the above mentioned divestitures, we have recently initiated
certain Internet strategies outlined below.
On September 30, 1999, we announced that our Board of Directors approved a new
series of Cendant common stock to track the performance of the Move.com Group,
an operator of a popular network of Web sites, which offer a wide selection of
quality relocation, real estate and home-related products and services. The
Move.com Group will integrate and enhance the online efforts of our
residential real estate brands and those of our other real estate business
units drawing on the success of our RentNet, Inc.
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("RentNet") online apartment guide model. The Move.com Group commenced
operations in the third quarter of 1999 with the move.com Internet site, our
flagship site, becoming functional during January 2000. Prior to the formation
of the Move.com Group, RentNet's historical financial information was included
in our individual membership segment. We have filed a definitive proxy with the
Securities and Exchange Commission, which contains financial details as well as
more specific plans concerning the transaction. If we obtain shareholder
approval for the tracking stock, we currently intend to issue such tracking
stock in a public offering in the second quarter of 2000.
The Move.com Group currently generates the following types of revenue from its
business partners: listing subscription fees, advertising fees, e-commerce
transaction fees and Web site management fees. In addition to the move.com site
itself, the Move.com Group assets include RentNet, our online apartment rental
business acquired in January 1996 and previously included in our individual
membership segment, National Home Connections, LLC, a facilitator of connecting
and disconnecting utilities, processor of address changes and facilitator of
moving related services and products, which was acquired in May 1999, and the
assets of MetroRent, an online provider of apartment rental listings for
buildings with 25 or fewer units, which was acquired in December 1999.
On September 15, 1999, we donated Netmarket Group, Inc., ("NGI") outstanding
common stock to a charitable trust and NGI began operations as an independent
company that will pursue the development of certain interactive businesses
formerly within our direct marketing division. For a detailed discussion
regarding the NGI transaction, see "Merger -- Related Costs and Other Unusual
Charges (Credits) -- 1999."
The following discussion should be read in conjunction with the information
contained in our Consolidated Financial Statements and accompanying Notes
thereto included elsewhere herein.
CONSOLIDATED OPERATIONS -- 1999 VS. 1998
REVENUES
Revenues increased $118 million (2%) in 1999 over 1998, which reflected growth
in substantially all of our reportable operating segments despite the effects of
dispositions of non-strategic businesses. Significant contributing factors which
gave rise to such revenue growth included an increase in the amount of royalty
fees received from our franchised brands within both our travel and real estate
franchise segments and an increase in loan servicing revenues within our
mortgage segment. In addition, we experienced growth and efficiencies within our
direct marketing businesses. Revenues in 1999 included the full year operating
results of our car park subsidiary, which was acquired in April 1998, compared
to the post acquisition period in 1998. A detailed discussion of revenue trends
from 1998 to 1999 is included in the section entitled "Results of Reportable
Operating Segments -- 1999 vs. 1998."
OTHER CHARGES
LITIGATION SETTLEMENTS. On December 7, 1999, we reached a preliminary agreement
to settle the principal securities class actions pending against us, other than
certain claims relating to FELINE PRIDES securities discussed below. As a result
of the settlement, we recorded a pre-tax charge of approximately $2.89 billion,
an increase from approximately $2.87 billion previously reported. The increase
is primarily the result of continued negotiation toward definitive documents
relating to additional costs to be paid to the plaintiff class. This settlement
is subject to final documentation and court approval (see "Liquidity and Capital
Resources -- Litigation").
During 1998, we reached a final agreement to settle a class action lawsuit that
was brought on behalf of the holders of the FELINE PRIDES. As a result of the
settlement, we recorded a pre-tax charge of $351 million.
TERMINATION OF PROPOSED ACQUISITIONS. During 1999, we announced our intention
not to proceed with the acquisition of RAC Motoring Services and recorded a $7
million charge in connection with the write-off of acquisition costs. During
1998, we recorded a $433 million charge in connection with the termination of
the proposed acquisitions of American Bankers Insurance Group, Inc. and
Providian Auto and Home Insurance Company.
48
<PAGE>
INVESTIGATION-RELATED COSTS. During 1999 and 1998, we incurred
investigation-related costs of $21 million and $33 million, respectively, in
connection with our discovery and announcement of accounting irregularities on
April 15, 1998.
MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES (CREDITS). During 1999 and 1998,
we recorded merger-related costs and other unusual charges (credits) of $110
million and ($67) million, respectively (see "Merger-Related Costs and Other
Unusual Charges (Credits)").
OTHER CHARGES. During 1998, we incurred other charges of $53 million and $35
million in connection with the termination of certain of our former executives
and investigation-related financing costs, respectively.
For a detailed discussion regarding Other Charges, see Note 5 to the
Consolidated Financial Statements.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $48 million (15%) in 1999 over
1998 as a result of incremental amortization of goodwill and other intangible
assets from 1998 acquisitions and capital spending primarily to support growth
and enhance marketing opportunities in our businesses, partially offset by the
impact of the disposal of non-strategic businesses.
INTEREST EXPENSE AND MINORITY INTEREST
Interest expense, net increased $85 million (75%) in 1999 over 1998 primarily
as a result of an increase in the average debt balances outstanding and a
nominal increase in the cost of funds. In addition, the composition of average
debt balances during 1999 included longer term fixed rate debt carrying higher
interest rates as compared to 1998. The weighted average interest rate on
long-term debt increased to 6.4% in 1999 from 6.2% in 1998. Minority interest,
net of tax increased $10 million (20%). Minority interest, net of tax is
primarily related to distributions payable in cash on our FELINE PRIDES and the
trust preferred securities issued in February 1998.
NET GAIN ON DISPOSITIONS OF BUSINESSES
During 1999, we recorded a net gain of $1.1 billion in connection with the
disposition of certain non-strategic businesses. For a detailed discussion
regarding such dispositions, see "Liquidity and Capital Resources --
Divestiture Program."
PROVISION (BENEFIT) FOR INCOME TAXES
Our effective tax rate increased to a benefit of 70.7% in 1999 from an expense
of 33.2% in 1998 primarily due to the impact of the disposition of our fleet
businesses which was accounted for as a tax-free merger. Accordingly, nominal
income taxes were provided on the net gain realized upon such disposition.
DISCONTINUED OPERATIONS
Pursuant to our program to divest non-strategic businesses and assets, we
disposed of our consumer software and classified advertising businesses in
January 1999 and December 1998, respectively. During 1998, we recorded a $405
million gain, net of tax, on the disposal of discontinued operations, which
included our classified advertising and consumer software businesses. During
1999, we recorded an additional $174 million gain, net of tax, on the sale of
discontinued operations, related to the disposition of our consumer software
business, coincident with the closing of the transaction and in connection with
certain post-closing adjustments. Loss from discontinued operations, net of
tax, was $25 million in 1998. For a detailed discussion regarding discontinued
operations, see Note 4 to the Consolidated Financial Statements.
RESULTS OF REPORTABLE OPERATING SEGMENTS -- 1999 VS. 1998
The underlying discussions of each segment's operating results focuses on
Adjusted EBITDA, which is defined as earnings before non-operating interest,
income taxes, depreciation, amortization, and minority
49
<PAGE>
interest, adjusted to exclude net gains on dispositions of businesses and
certain other charges which are of a non-recurring or unusual nature and are
not included in assessing segment performance or are not segment-specific. Our
management believes such discussion is the most informative representation of
how management evaluates performance. However, our presentation of Adjusted
EBITDA may not be comparable with similar measures used by other companies. For
additional information, including a description of the services provided in
each of our reportable operating segments, see Note 24 to the Consolidated
Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
ADJUSTED EBITDA
REVENUES ADJUSTED EBITDA MARGIN
------------------------------ -------------------------------- ------------------
1999 1998 % CHANGE 1999 (1) 1998 (2) % CHANGE 1999 1998
--------- --------- ---------- ---------- ---------- ---------- -------- ---------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Travel $1,148 $1,063 8% $ 586 $ 542 8% 51% 51%
Individual Membership 972 920 6% 127 (59) * 13% (6%)
Insurance/Wholesale 575 544 6% 180 138 30% 31% 25%
Real Estate Franchise 571 456 25% 424 349 21% 74% 77%
Relocation 415 444 (7%) 122 125 (2%) 29% 28%
Mortgage 397 353 12% 182 188 (3%) 46% 53%
Move.com Group 18 10 80% (22) 1 * * 10%
Diversified Services 1,099 1,107 (1%) 239 132 81% 22% 12%
Fleet 207 387 * 81 174 * 39% 45%
------ ------ ------ ------
Total $5,402 $5,284 2% $1,919 $1,590 21% 36% 30%
====== ====== ====== ======
</TABLE>
- ----------
* Not meaningful.
(1) Excludes (i) a charge of $2.9 billion associated with the preliminary
agreement to settle the principal shareholder securities class action
suit, (ii) a charge of $7 million in connection with the termination of
the proposed acquisition of RAC Motoring Services, (iii) a charge of $21
million of investigation-related costs, (iv) a charge of $87 million
primarily incurred in connection with the Netmarket Group, Inc.
transaction, (v) $23 million of additional charges to fund an irrevocable
contribution to an independent technology trust responsible for
completing the transition of the Company's lodging franchisees to a
Company sponsored property management system and (vi) a credit of $1.1
billion for the net gain on the dispositions of businesses.
(2) Excludes (i) a charge of $351 million associated with the agreement to
settle the PRIDES securities class action suit, (ii) charges of $433
million for the costs of terminating the proposed acquisitions of
American Bankers Insurance Group, Inc. and Providian Auto and Home
Insurance Company, (iii) charges of $121 million for
investigation-related costs, including incremental financing costs, and
executive terminations and (iv) a net credit of $67 million associated
with changes to the estimate of previously recorded merger-related costs
and other unusual charges.
TRAVEL
Revenues and Adjusted EBITDA increased $85 million (8%) and $44 million (8%),
respectively, in 1999 compared to 1998. Franchise fees increased $39 million
(7%) in 1999, consisting of increases in lodging and car rental franchise fees
of $26 million (7%) and $13 million (8%), respectively. Our franchise
businesses experienced growth in 1999 compared to 1998 primarily due to
increases in the amount of weighted average available rooms (24,000 incremental
rooms domestically) and car rental days. Timeshare subscriptions and exchange
revenues increased $18 million (5%), primarily as a result of increased volume.
Also contributing to the revenue and Adjusted EBITDA increases was an $11
million bulk timeshare exchange transaction in 1999, largely offset by a $7
million decrease in gains from the sale of portions of our equity investment in
Avis Rent A Car, Inc. ("ARAC"). The Adjusted EBITDA margin remained unchanged at
51% in 1999. Total expenses increased $40 million (8%), primarily due to
increased volume; however, such increase included a $19 million increase in
marketing and reservation fund expenses associated with our lodging franchise
business unit that was offset by increased marketing and reservation revenues
received from franchisees.
INDIVIDUAL MEMBERSHIP
Revenues and Adjusted EBITDA increased $52 million (6%) and $186 million,
respectively, in 1999 compared to 1998. The Adjusted EBITDA margin improved to
positive 13% from negative 6% for the
50
<PAGE>
same periods. The revenue growth is principally due to a greater number of
members added year over year and increases in the average price of a membership.
The increase in the Adjusted EBITDA margin is primarily due to the revenue
increases, since many of the infrastructure costs associated with providing
services to members are not dependent on revenue volume, and reduction in
solicitation spending, as we further refined the targeted audiences for our
direct marketing efforts and achieved greater efficiencies in reaching potential
new members. Beginning September 15, 1999, certain of individual membership's
online businesses were no longer consolidated into our operations as a result
of the NGI transaction. In October 1999, we completed the divestiture of our
North American Outdoor Group ("NAOG") business unit. The operating results of
our former online membership businesses and NAOG were included through their
respective disposition dates in 1999 versus being included for the full year in
1998. The divested businesses accounted for a net increase in revenues and
Adjusted EBITDA of $11 million and $21 million, respectively in 1999 versus
1998. Excluding the operating results of our former online businesses and NAOG,
revenues and Adjusted EBITDA increased $41 million and $165 million,
respectively, in 1999 over 1998 and the Adjusted EBITDA margin increased to
positive 18% from negative 3%. Additionally, revenues and Adjusted EBITDA in
1999 were incrementally benefited $13 million and $5 million, respectively, by
the April 1998 acquisition of a company that, among other services, provides
members with access to their personal credit information.
INSURANCE/WHOLESALE
Revenues and Adjusted EBITDA increased $31 million (6%) and $42 million (30%),
respectively, in 1999 compared to 1998 primarily due to customer growth, which
resulted from increases in affiliations with financial institutions. The
increase in affiliations with financial institutions was attributable
principally to international expansion, while the Adjusted EBITDA increase was
due to improved profitability in international markets as well as a $25 million
expense decrease related to longer amortization periods for certain customer
acquisition costs as a result of a change in accounting estimate. International
revenues and Adjusted EBITDA increased $28 million (23%) and $15 million
(164%), respectively, primarily due to a 37% increase in customers. The
Adjusted EBITDA margin increased to 31% in 1999 from 25% in 1998. The Adjusted
EBITDA margin for domestic operations was 37% in 1999, versus 31% in 1998. The
Adjusted EBITDA margin for international operations was 16% for 1999, versus 7%
in 1998. Domestic operations, which represented 74% of segment revenues in
1999, generated higher Adjusted EBITDA margins than international operations as
a result of continued expansion costs incurred internationally to penetrate new
markets. International operations, however, have become increasingly profitable
as they have expanded over the last two years.
REAL ESTATE FRANCHISE
Revenues and Adjusted EBITDA increased $115 million (25%) and $75 million
(21%), respectively, in 1999 compared to 1998. Royalty fees for the CENTURY 21
(Registered Trademark) , COLDWELL BANKER (Registered Trademark) and ERA
(Registered Trademark) franchise brands collectively increased by $67 million
(17%) primarily as a result of a 5% increase in home sale transactions by
franchisees and an 8% increase in the average price of homes sold. Home sales
by franchisees benefited from strong existing domestic home sales for the
majority of 1999, as well as from expansion of our franchise system. Existing
domestic home sales are expected to decline compared to 1999 as a result of
increases in interest rates. Declining home sales will impact royalty income
since royalty income is based on gross commission income earned by agents and
brokers on the sale of homes. These declines are expected to be partially
offset by increases in other areas of our business, such as real estate
franchise sales and higher home resale prices. Beginning in the second quarter
of 1999, the financial results of the advertising funds for the COLDWELL BANKER
and ERA brands were consolidated into the results of the real estate franchise
segment, increasing revenues by $31 million and expenses by a like amount, with
no impact on Adjusted EBITDA. Revenues in 1999 benefited from $20 million
generated from the sale of portions of our preferred stock investment in NRT
Incorporated ("NRT"), the independent company we helped form in 1997 to serve
as a consolidator of residential real estate brokerages. Since most costs
associated with the real estate franchise business do not vary significantly
with revenues, the increases in revenues, exclusive of the aforementioned
consolidation of the advertising funds, contributed to an improvement of the
Adjusted EBITDA margin to 79% in 1999 from 77% in 1998.
51
<PAGE>
RELOCATION
Revenues and Adjusted EBITDA decreased $29 million (7%) and $3 million (2%),
respectively, in 1999 compared with 1998 and the Adjusted EBITDA margin
increased to 29% in 1999 from 28% in 1998. Operating results in 1999 benefited
from a $13 million increase in referral fees and international relocation
service revenue, offset by a comparable decline in home sales revenue. Total
expenses decreased $26 million (8%), which included $15 million in cost savings
from regional operations, technology and telecommunications, and $11 million in
reduced expenses resulting from reduced government home sales and the sale of
an asset management company in the third quarter of 1998. The asset management
company contributed 1998 revenues and Adjusted EBITDA of $21 million and $16
million, respectively. In 1999, revenues and Adjusted EBITDA benefited from the
sale of a minority interest in an insurance subsidiary, which resulted in $7
million of additional revenue and Adjusted EBITDA. In 1998, revenues and
Adjusted EBITDA also benefited from an improvement in receivable collections,
which permitted an $8 million reduction in billing reserve requirements.
MORTGAGE
Revenues increased $44 million (12%) and Adjusted EBITDA decreased $6 million
(3%), respectively, in 1999 compared with 1998. The increase in revenues
resulted from a $32 million increase in loan servicing revenues and a $12
million increase in loan closing revenues. The average servicing portfolio
increased $10 billion (29%), with the average servicing fee increasing
approximately seven basis points because of a reduction in the rate of
amortization on servicing assets. The reduced rate of amortization was caused
by higher mortgage interest rates in 1999. Total mortgage closing volume in
1999 was $25.6 billion, a decline of $400 million from 1998. However, purchase
mortgage volume (mortgages for home buyers) increased $3.7 billion (24%) to
$19.1 billion, offset by a $4.2 billion decline in mortgage refinancing volume.
Moreover, purchase mortgage volume from the teleservices business (Phone In --
Move In) and Internet business (Log In -- Move In) increased $4.7 billion
(63%), primarily because of increased purchase volume from our real estate
franchisees. Industry origination volume is expected to be lower in 2000
compared to 1999 as a result of recent increases in interest rates and reduced
refinancing volume. We expect to offset lower refinancing volume with increased
purchase mortgage volume in 2000. The Adjusted EBITDA margin decreased from 53%
in 1998 to 46% in 1999. Adjusted EBITDA decreased in 1999 because of a $17
million increase in expenses incurred within servicing operations for the larger
of the increase in the average servicing portfolio and other expense increases
for technology, infrastructure and teleservices to support capacity for volume
anticipated in future periods. We anticipate that increased costs to support
future volume will negatively impact Adjusted EBITDA through the first six
months of 2000.
MOVE.COM GROUP
Move.com Group provides a broad range of quality relocation, real estate, and
home-related products and services through its flagship portal site, move.com,
and the move.com network. Revenues increased $8 million (80%) to $18 million,
while Adjusted EBITDA decreased $23 million to a loss of $22 million in 1999
compared to 1998. These results reflect our increased investment in marketing
and development of the portal and retention bonus paid to Move.com Group
employees.
DIVERSIFIED SERVICES
Revenues decreased $8 million (1%) and Adjusted EBITDA increased $107 million
(81%), in 1999 compared to 1998. The April 1998 acquisition of National Car Park
("NCP") subsidiary, contributed incremental revenues and Adjusted EBITDA of $103
million and $48 million, respectively, in 1999 over 1998. Also contributing to
an increase in revenues and Adjusted EBITDA in 1999 was $39 million of
incremental income from investments and $13 million of revenues recognized in
connection with a litigation settlement. The aforementioned revenue increases
were partially offset by the impact of disposed operations, including Essex
Corporation ("Essex") in January 1999, National Leisure Group and National
Library of Poetry ("NLP") in May 1999, Spark Services, Inc. and Global Refund
Group in August 1999, Central Credit, Inc. in September 1999 and Entertainment
Publications, Inc. ("EPub") and
52
<PAGE>
Green Flag Group ("Green Flag") in November 1999. The operating results of
disposed businesses were included through their respective disposition dates in
1999 versus being included for the full year in 1998 (except for Green Flag
which was acquired in April 1998). Accordingly, revenues from divested
businesses were incrementally less in 1999 by $138 million while Adjusted EBITDA
improved $15 million. The increase in Adjusted EBITDA in 1999 over 1998 also
reflects offsetting reductions in preferred alliance revenues and corporate
expenses.
FLEET
On June 30, 1999, we completed the disposition of our fleet business segment
(see "Liquidity and Capital Resources -- Divestiture Program -- Fleet).
Revenues and Adjusted EBITDA were $207 million and $81 million, respectively,
in the first six months of 1999 and $387 million and $174 million, respectively,
for the full year in 1998.
CONSOLIDATED OPERATIONS -- 1998 VS. 1997
REVENUES
Revenues increased $1.0 billion (25%) in 1998 over 1997, which reflected growth
in substantially all of our reportable operating segments. Significant
contributing factors which gave rise to such increases included substantial
growth in the volume of mortgage services provided and an increase in the
amount of royalty fees received from our franchised brands, principally within
the real estate franchise segment.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $85 million (36%) in 1998 over
1997 as a result of incremental amortization of goodwill and other intangible
assets from 1998 acquisitions and increased capital spending primarily to
accommodate growth in our businesses.
OTHER CHARGES
We recorded a $351 million charge in connection with an agreement to settle a
class action lawsuit that was brought on behalf of the holders of our Income
and Growth FELINE PRIDES securities who purchased their securities on or prior
to April 15, 1998. In addition, we recorded a $433 million charge related to
the termination of proposed acquisitions, a $53 million charge related to the
termination of certain of our former executives, and charges of $33 million and
$35 million, respectively, of investigation-related costs and
investigation-related financing costs. In addition, we recorded merger-related
and other unusual charges (credits) of ($67) million and $704 million during
1998 and 1997, respectively. For a more detailed discussion of such charges
(credits) see "Merger-Related Costs and Other Unusual Charges (Credits)" and
Note 5 to the Consolidated Financial Statements.
INTEREST EXPENSE AND MINORITY INTEREST
Interest expense, net increased $63 million (124%) in 1998 over 1997 primarily
as a result of incremental average borrowings during 1998 and a nominal
increase in the cost of funds. We primarily used debt to finance $2.9 billion
of acquisitions and investments during 1998, which resulted in an increase in
the average debt balance outstanding as compared to 1997. The weighted average
interest rate on long-term debt increased from 6.0% in 1997 to 6.2% in 1998. In
addition to interest expense on long-term debt, we also incurred $51 million of
minority interest, net of tax, primarily related to the preferred dividends
payable in cash on our FELINE PRIDES and trust preferred securities issued in
March 1998.
PROVISION FOR INCOME TAXES
Our effective tax rate was reduced to 33.2% in 1998 from 74.3% in 1997 due to
the non-deductibility of a significant amount of unusual charges recorded
during 1997 and the favorable impact in 1998 of reduced
53
<PAGE>
rates in international tax jurisdictions in which we commenced business
operations during 1998. The 1997 effective income tax rate included a tax
benefit on 1997 unusual charges, which were deductible at an effective rate of
only 29.1%. Excluding unusual charges, the effective income tax rate on income
from continuing operations in 1997 was 40.6%.
DISCONTINUED OPERATIONS
Pursuant to our program to divest non-strategic businesses and assets, we
committed to discontinue our consumer software and classified advertising
businesses in August 1998 and subsequently sold such businesses in January 1999
and December 1998, respectively. We recorded a $405 million gain, net of tax on
the disposition of such businesses in 1998. Loss from discontinued operations,
net of tax was $25 million in 1998 compared to $26 million in 1997.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In August 1998, we changed our accounting policy with respect to revenue and
expense recognition for our membership businesses, effective January 1, 1997,
and recorded a non-cash after-tax charge of $283 million to account for the
cumulative effect of an accounting change.
RESULTS OF REPORTABLE OPERATING SEGMENTS -- 1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
ADJUSTED EBITDA
REVENUES ADJUSTED EBITDA MARGIN
------------------------------ ---------------------------------- --------------------
1998 1997 % CHANGE 1998 (1) 1997 (2) % CHANGE 1998 1997
--------- --------- ---------- ---------- ------------ ---------- --------- ----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Travel $1,063 $ 971 9% $ 542 $ 467 16% 51% 48%
Individual Membership 920 773 19% (59) 6 * (6%) 1%
Insurance/Wholesale 544 483 13% 138 111 24% 25% 23%
Real Estate Franchise 456 335 36% 349 227 54% 77% 68%
Relocation 444 402 10% 125 93 34% 28% 23%
Mortgage 353 179 97% 188 75 151% 53% 42%
Move.com Group 10 6 67% 1 (1) 200% 10% (17%)
Diversified Services 1,107 767 44% 132 151 (13%) 12% 20%
Fleet 387 324 19% 174 121 44% 45% 37%
------ ------ ------ -------
Total $5,284 $4,240 25% $1,590 $1,250 27% 30% 29%
====== ====== ====== =======
</TABLE>
- ----------
* Not meaningful.
(1) Excludes (i) a charge of $351 million associated with the agreement to
settle the PRIDES securities class action suit, (ii) charges of $433
million for the costs of terminating the proposed acquisitions of
American Bankers Insurance Group, Inc. and Providian Auto and Home
Insurance Company, (iii) charges of $121 million for
investigation-related costs, including incremental financing costs, and
executive terminations and (iv) a net credit of $67 million associated
with changes to the estimate of previously recorded merger-related costs
and other unusual charges.
(2) Excludes unusual charges of $704 million primarily associated with the
Cendant Merger and the PHH Merger.
TRAVEL
Revenues and Adjusted EBITDA increased $92 million (9%) and $75 million (16%),
respectively, in 1998 over 1997. Contributing to the revenue and Adjusted
EBITDA increase was a $35 million (7%) increase in franchise fees, consisting
of increases of $23 million (6%) and $12 million (8%) in lodging and car rental
franchise fees, respectively. Our franchise businesses experienced increases
during 1998 in worldwide available rooms (29,800 incremental rooms,
domestically), revenue per available room, car rental days
54
<PAGE>
and average car rental rates per day. Timeshare subscription and exchange
revenue increased $27 million (9%) as a result of a 7% increase in average
membership volume and a 4% increase in the number of exchanges. Also
contributing to the revenue and Adjusted EBITDA increase was $16 million of
incremental fees received from preferred alliance partners seeking access to
our franchisees and their customers, $13 million of fees generated from the
execution of international master license agreements and an $18 million gain on
our sale of one million shares of ARAC common stock in 1998. The aforementioned
drivers supporting increases in revenues and Adjusted EBITDA were partially
offset by a $37 million reduction in the equity in earnings of our investment in
the car rental operations of ARAC as a result of reductions in our ownership
percentage in such investment during 1997 and 1998. A $17 million (7%) increase
in marketing and reservation costs resulted in the $17 million increase in total
expenses while other operating expenses were relatively flat due to leveraging
our corporate infrastructure among more businesses, which contributed to an
improvement in the Adjusted EBITDA margin from 48% in 1997 to 51% in 1998.
INDIVIDUAL MEMBERSHIP
Revenues increased $147 million (19%) in 1998 over 1997 while Adjusted EBITDA
and Adjusted EBITDA margin decreased $65 million and 7 percentage points,
respectively, for the same period. The revenue growth was primarily
attributable to an incremental $28 million associated with an increase in the
average price of a membership, $26 million of increased billings as a result of
incremental marketing arrangements, primarily with telephone and mortgage
companies, and $36 million from the acquisition of a company in April 1998
that, among other services, provides members access to their personal credit
information. Also contributing to the revenue growth are increased product
sales and service fees, which are offered and provided to individual members.
The reduction in Adjusted EBITDA and the Adjusted EBITDA margin is a direct
result of a $104 million (25%) increase in membership solicitation costs. We
increased our marketing efforts during 1998 to solicit new members and as a
result increased our gross average annual membership base by approximately 3
million members (11%) at December 31, 1998, compared to the prior year. The
growth in members during 1998 resulted in increased servicing costs during 1998
of approximately $33 million (13%). While the costs of soliciting and acquiring
new members were expensed in 1998, the revenue associated with these new
members will not begin to be recognized until 1999, upon expiration of the
membership period.
INSURANCE/WHOLESALE
Revenues and Adjusted EBITDA increased $61 million (13%) and $27 million (24%),
respectively, in 1998 over 1997, primarily due to customer growth. This growth
generally resulted from increases in affiliations with financial institutions.
Domestic operations, which comprised 77% of segment revenues in 1998, generated
higher Adjusted EBITDA margins than the international businesses as a result of
continued expansion costs incurred internationally to penetrate new markets.
Domestic revenues and Adjusted EBITDA increased $25 million (6%) and $24
million (22%), respectively. Revenue growth, which resulted from an increase in
customers, also contributed to an improvement in the overall Adjusted EBITDA
margin from 23% in 1997 to 25% in 1998, as a result of the absorption of such
increased volume by the existing domestic infrastructure. International
revenues and Adjusted EBITDA increased $36 million (41%) and $3 million (54%),
respectively, due primarily to a 42% increase in customers while the Adjusted
EBITDA margin remained relatively flat at 7%.
REAL ESTATE FRANCHISE
Revenues and Adjusted EBITDA increased $121 million (36%) and $122 million
(54%), respectively, in 1998 over 1997. Royalty fees collectively increased for
our CENTURY 21, COLDWELL BANKER and ERA franchise brands by $102 million (35%)
as a result of a 20% increase in home sales by franchisees and a 13% increase
in the average price of homes sold. Home sales by franchisees benefited from
existing home sales in the United States reaching a record 5 million units in
1998, according to data from the National Association of Realtors, as well as
from expansion of our franchise systems. Because many costs
55
<PAGE>
associated with the real estate franchise business, such as franchise support
and information technology, do not vary directly with home sales volumes or
royalty revenues, the increase in royalty revenues contributed to an
improvement in the Adjusted EBITDA margin from 68% to 77%.
RELOCATION
Revenues and Adjusted EBITDA increased $42 million (10%) and $32 million (34%),
respectively, in 1998 over 1997. The Adjusted EBITDA margin improved from 23%
to 28%. The primary source of revenue growth was a $29 million increase in
revenues from the relocation of government employees. We also experienced
growth in the number of relocation-related services provided to client
corporations and in the number of household goods moves handled, partially
offset by lower home sale volumes. The divestiture of certain niche-market
property management operations accounted for other revenue of $8 million.
Expenses associated with government relocations increased in conjunction with
the volume and revenue growth, but economies of scale and a reduction in
overhead and administrative expenses permitted the reported improvement in the
Adjusted EBITDA margin.
MORTGAGE
Revenues and Adjusted EBITDA increased $174 million (97%) and $113 million
(151%), respectively, in 1998 over 1997, primarily due to strong mortgage
origination growth and average fee improvement. The Adjusted EBITDA margin
improved from 42% to 53%. Mortgage origination grew across all lines of
business, including increased refinancing activity and a shift to more
profitable sale and processing channels and was responsible for substantially
all of the segment's revenue growth. Mortgage closings increased $14.3 billion
(122%) to $26.0 billion and average origination fees increased 12 basis points,
resulting in a $180 million increase in origination revenues. Although the
servicing portfolio grew $9.6 billion (36%), net servicing revenue was
negatively impacted by average servicing fees declining 7 basis points due to
the increased refinancing levels in the 1998 mortgage market, which shortened
the servicing asset life and increased amortization charges. Consequently, net
servicing revenues decreased $9 million, partially offset by a $6 million
increase in the sale of servicing rights. Operating expenses increased in all
areas, reflecting increased hiring and expansion of capacity in order to
support continued growth; however, revenue growth marginally exceeded such
infrastructure enhancements.
MOVE.COM GROUP
Revenues and Adjusted EBITDA increased $4 million (67%) and $2 million (200%),
respectively, in 1998 compared to 1997, primarily due to increases in listings,
prices and the addition of new sponsors on the RentNet site. Offsetting the
increase in revenue were increases in expenses primarily related to selling and
marketing, product development and personnel costs. The revenues and expenses
include only the operations of RentNet, which has been attributed to the
Move.com Group. RentNet was previously included in our individual membership
segment.
DIVERSIFIED SERVICES
Revenues increased $340 million (44%), while Adjusted EBITDA decreased $19
million (13%). Revenues increased primarily from acquired NCP, Green Flag and
Jackson Hewitt Inc. operations, which contributed $410 million and $54 million
to 1998 revenues and Adjusted EBITDA, respectively. The revenue increase
attributable to 1998 acquisitions was partially offset by a $140 million
reduction in revenues associated with the operations of certain of our
ancillary businesses which were sold during 1997, including Interval
International, Inc. ("Interval"), which contributed $121 million to 1997
revenues.
The revenue increase did not translate into increases in Adjusted EBITDA
primarily due to asset write-offs, dispositions of certain ancillary business
operations and approximately $8 million of incremental operating costs
associated with establishing a consolidated worldwide data center. We wrote-off
$37 million of impaired goodwill associated with NLP, and $13 million of
certain of our equity investments in interactive membership businesses.
Adjusted EBITDA in 1997 associated with aforementioned
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disposed ancillary operations included $27 million from Interval and $18
million related to services formerly provided to the casino industry. Our NCP,
Green Flag and Jackson Hewitt Inc. subsidiaries contributed $93 million and $27
million to 1998 Adjusted EBITDA, respectively.
FLEET
On June 30, 1999, we completed the disposition of our fleet business segment for
aggregate consideration of $1.8 billion (see "Liquidity and Capital Resources --
Divestiture Program -- Fleet"). Fleet business segment revenues and Adjusted
EBITDA increased $63 million (19%) and $53 million (44%), respectively, in 1998
over 1997, contributing to an improvement in the Adjusted EBITDA margin from 37%
to 45%. We acquired The Harpur Group Ltd. ("Harpur"), a fuel card and vehicle
management company in the United Kingdom ("UK"), on January 20, 1998. Harpur
contributed incremental revenues and Adjusted EBITDA in 1998 of $32 million and
$21 million, respectively. The revenue increase is further attributable to a 12%
increase in fleet leasing fees and a 31% increase in service fee revenue. The
fleet leasing revenue increase is due to a 5% increase in pricing and a 7%
increase in the number of vehicles leased, while the service fee revenue
increase is the result of a 40% increase in number of fuel cards and vehicle
maintenance cards partially offset by a 7% decline in pricing. The Adjusted
EBITDA margin improvement reflects streamlining of costs at newly acquired
Harpur and a leveraging of our corporate infrastructure among more businesses.
MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES (CREDITS)
1999. On September 15, 1999, Netmarket Group, Inc. began operations as an
independent company that pursues the development of certain interactive
businesses formerly within our direct marketing division. NGI owns, operates and
develops the online membership businesses, including Netmarket.com, Travelers
Advantage, Auto Vantage, Privacy Guard and Hagglezone.com, which collectively
have approximately 1.4 million online members. Prior to September 15, 1999, our
ownership of NGI was restructured into common stock and preferred stock
interests. On September 15, 1999 (the "donation date"), we donated NGI's
outstanding common stock to a charitable trust (the "Trust"), and NGI issued
additional shares of its common stock to certain of its marketing partners. The
structure allows NGI to use its equity to attract, retain and incent employees
and permits NGI to pursue strategic alliances and acquisitions and to make
operational and strategic decisions without the need to consider the impact of
those decisions on Cendant. In addition, the contribution establishes a
charitable foundation that may enhance our image in the marketplace. Although no
assurances can be given, we believe the donation of NGI to a separate autonomous
entity will increase the likelihood that NGI will be successful and increase in
value thereby increasing the value of our investment. Our shareholders should
benefit from the potential increased value of NGI. The beneficiaries of the
Trust include The Inner City Games Foundation, the Susan G. Komen Breast Cancer
Foundation, Inc. and Community Funds, Inc. The fair market value of NGI common
stock on the donation date was estimated to be approximately $20 million. We
retained the opportunity to participate in NGI's value through the ownership of
convertible preferred stock of NGI, which is ultimately convertible, at our
option, beginning September 14, 2001, into approximately 78% of NGI's diluted
common shares. The convertible preferred stock is accounted for using the cost
method of accounting. The convertible preferred stock has a $5 million annual
preferred dividend, which will be recorded in income if and when it becomes
realizable. Accordingly, as a result of the change in ownership of NGI's common
stock from us to independent third parties, prospective from the donation date,
NGI's operating results are no longer included in our Consolidated Financial
Statements. Subsequent to our contribution of NGI's common stock to the Trust,
we provided a development advance of $77 million to NGI, which is contingently
repayable to us if certain financial targets related to NGI are achieved. The
purpose of the development advance was to provide NGI with the funds necessary
to develop Internet related products and systems, that if successful, would
significantly increase the value of NGI. Without these funds, NGI would not have
sufficient funds for development activities contemplated in its business plans.
Repayment of the advance is therefore solely dependent on the success of the
development efforts. We recorded a charge, inclusive of transaction costs, of
$85 million in connection with the donation of NGI shares to the charitable
trust and the subsequent development advance.
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Additionally in 1999, we incurred $23 million of additional charges to fund an
irrevocable contribution to an independent technology trust responsible for
completing the transition of our lodging franchisees to a Company sponsored
property management system and $2 million of costs (included as a component of
the table below) primarily resulting from further consolidation of European
call centers in Cork, Ireland.
1997. We incurred merger-related costs and other unusual charges ("Unusual
Charges") in 1997 related to continuing operations of $704 million primarily
associated with the Cendant Merger ("the Fourth Quarter 1997 Charge") and the
merger with PHH Corporation ("PHH") in April 1997 (the "PHH Merger" or the
"Second Quarter 1997 Charge").
<TABLE>
<CAPTION>
ACTIVITY
UNUSUAL ------------------------------------ DECEMBER 31,
CHARGES 1997 1998 1999 1999
--------- ---------- ---------- ---------- -------------
(In millions)
<S> <C> <C> <C> <C> <C>
Fourth Quarter 1997 Charge $ 455 $ (258) $ (130) $ (6) $61
Second Quarter 1997 Charge 283 (207) (60) (5) 11
----- ------ ------ ------- ---
Total 738 (465) (190) (11) 72
Reclassification for discontinued
operations (34) 34 -- -- --
----- ------ ------ ------ ---
Total Unusual Charges related to
continuing operations $ 704 $ (431) $ (190) $(11) $72
===== ====== ====== ====== ===
</TABLE>
Fourth Quarter 1997 Charge. We incurred Unusual Charges in the fourth quarter
of 1997 totaling $455 million substantially associated with the Cendant Merger
and our merger in October 1997 with Hebdo Mag International, Inc., a classified
advertising business. Reorganization plans were formulated prior to and
implemented as a result of the mergers. We determined to streamline our
corporate organization functions and eliminate several office locations in
overlapping markets. Our management's plan included the consolidation of
European call centers in Cork, Ireland and terminations of franchised hotel
properties.
Unusual charges included $93 million of professional fees, primarily consisting
of investment banking, legal, and accounting fees incurred in connection with
the mergers. Personnel related costs of $171 million included $73 million of
retirement and employee benefit plan costs, $24 million of restricted stock
compensation, $61 million of severance resulting from consolidations of
European call centers and certain corporate functions and $13 million of other
personnel related costs. We provided for 474 employees to be terminated, the
majority of which were severed. Business termination costs of $78 million
consisted of a $48 million impairment write down of hotel franchise agreement
assets associated with a quality upgrade program and $30 million of costs
incurred to terminate a contract which may have restricted us from maximizing
opportunities afforded by the Cendant Merger. Facility related and other
unusual charges of $113 million included $70 million of irrevocable
contributions to independent technology trusts for the direct benefit of
lodging and real estate franchisees, $16 million of building lease termination
costs and a $22 million reduction in intangible assets associated with our
wholesale annuity business for which impairment was determined in 1997. During
1999 and 1998, we recorded a net adjustment of $2 million and ($27) million,
respectively, to Unusual Charges with a corresponding increase (decrease) in
liabilities primarily as a result of a change in the original estimate of costs
to be incurred. We made cash payments of $8 million, $103 million and $152
million during 1999, 1998 and 1997, respectively, related to the Fourth Quarter
1997 Charge. Liabilities of $61 million remained at December 31, 1999, which
were primarily attributable to future severance costs and executive termination
benefits, which we anticipate that such liabilities will be settled upon
resolution of related contingencies.
Second Quarter 1997 Charge. We incurred $295 million of Unusual Charges in the
second quarter of 1997 primarily associated with the PHH Merger. During the
fourth quarter of 1997, as a result of changes in estimate, we adjusted certain
merger-related liabilities, which resulted in a $12 million credit to Unusual
Charges. Reorganization plans were formulated in connection with the PHH Merger
and were implemented upon consummation. The PHH Merger afforded us, at such
time, an opportunity to rationalize our combined corporate, real estate and
travel-related businesses, and enabled our corre-
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sponding support and service functions to gain organizational efficiencies and
maximize profits. We initiated a plan just prior to the PHH Merger to close
hotel reservation call centers, combine travel agency operations and continue
the downsizing of fleet operations by reducing headcount and eliminating
unprofitable products. In addition, we initiated plans to integrate our
relocation, real estate franchise and mortgage origination businesses to
capture additional revenues through the referral of one business unit's
customers to another. We also formalized a plan to centralize the management
and headquarters functions of our corporate relocation business unit
subsidiaries. Such initiatives resulted in write-offs of abandoned systems and
leasehold assets commencing in the second quarter of 1997. The aforementioned
reorganization plans included the elimination of PHH corporate functions and
facilities in Hunt Valley, Maryland.
Unusual charges included $30 million of professional fees, primarily comprised
of investment banking, accounting and legal fees incurred in connection with
the PHH Merger. Personnel related costs of $154 million were associated with
employee reductions necessitated by the planned and announced consolidation of
our corporate relocation service businesses worldwide as well as the
consolidation of corporate activities. Personnel related charges also included
termination benefits such as severance, medical and other benefits and provided
for retirement benefits pursuant to pre-existing contracts resulting from a
change in control. Business termination charges of $56 million, which were
comprised of $39 million of costs to exit certain activities primarily within
our fleet management business (including $36 million of asset write-offs
associated with exiting certain activities), a $7 million termination fee
associated with a joint venture that competed with the PHH Mortgage Services
business (presently Cendant Mortgage Corporation) and $10 million of costs to
terminate a marketing agreement with a third party in order to replace the
function with internal resources. Facility related and other charges totaling
$43 million included costs associated with contract and lease terminations,
asset disposals and other charges incurred in connection with the consolidation
and closure of excess office space. During the year ended December 31, 1998, we
recorded a net credit of $40 million to Unusual Charges with a corresponding
reduction to liabilities primarily as a result of a change in the original
estimate of costs to be incurred. We made cash payments of $5 million, $28
million and $150 million during 1999, 1998 and 1997, respectively, related to
the Second Quarter 1997 Charge. Liabilities of $11 million remained at December
31, 1999, which are attributable to future severance and lease termination
payments. We anticipate that severance will be paid in installments through
April 2003 and lease terminations will be paid in installments through August
2002.
LIQUIDITY AND CAPITAL RESOURCES
STRATEGIC ALLIANCE
On December 15, 1999, we entered into a strategic alliance with Liberty Media
Corporation ("Liberty Media") to develop Internet and related opportunities
associated with our travel, mortgage, real estate and direct marketing
businesses. Such efforts may include the creation of joint ventures with
Liberty Media and others as well as additional equity investments in each
others businesses.
We will also assist Liberty Media in creating, and will receive an equity
participation in, a new venture that will seek to provide broadband video,
voice and data content to our hotels and their guests on a worldwide basis. We
will also pursue opportunities within the cable industry with Liberty Media to
leverage our direct marketing resources and capabilities.
On February 7, 2000, Liberty Media invested $400 million in cash to purchase 18
million shares of our common stock and a two-year warrant to purchase
approximately 29 million shares of our common stock at an exercise price of
$23.00 per share. The common stock, together with the common stock underlying
the warrant, represents approximately 6.3% of our outstanding shares after
giving effect to the aforementioned transaction. Liberty Media's Chairman, John
C. Malone, Ph.D., will join our Board of Directors and has also committed to
purchase one million shares of our common stock for approximately $17 million in
cash.
PENDING ISSUANCE OF TRACKING STOCK
Our shareholders are scheduled to vote on March 21, 2000 for a proposal to
authorize the issuance of a new series of our common stock ("tracking stock").
The tracking stock is intended to track the
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performance of the Move.com Group. There is currently no common stock
outstanding related to the Move.com Group. We filed a proxy statement with the
SEC, which contains detailed financial information as well as more specific
plans concerning the transaction. Although the Move.com Group stock is intended
to track the performance of the Move.com Group, holders, if any, will be
subject to all of the risks associated with an investment in the Company and
all of its businesses, assets and liabilities. The tracking stock offering, if
approved by the shareholders, will enable us to sell all or part of the
Move.com Group stock in one or more private or public financings and perhaps
create a public trading market for the Move.com Group stock. The use of
proceeds from future offerings are at the discretion of the Company's Board of
Directors. In the third quarter of 1999, the Company began reporting the
results of the Move.com Group as a separate business segment. See Note 24 --
Segment Information -- Move.com Group for a description of the services
provided.
OTHER
In September 1999, we entered into an agreement with Chatham Street Holdings,
LLC ("Chatham") pursuant to which Chatham was granted the right, until
September 30, 2001, to purchase up to 1.6 million shares of Move.com Group
stock for approximately $16.02 per share. In addition, for every two shares of
Move.com Group stock purchased by Chatham pursuant to the agreement, Chatham
will be entitled to receive a warrant to purchase one share of Move.com Group
stock at a price equal to $64.08 per share and a warrant to purchase one share
of Move.com Group stock at a price equal to $128.16 per share. The shareholders
of Chatham are also shareholders of NRT. See Note 21 to the Consolidated
Financial Statements for a detailed discussion of NRT.
DIVESTITURE PROGRAM
In 1999, we completed our program to divest non-strategic businesses and
assets, which began in the third quarter of 1998. Proceeds have been primarily
used to repurchase our common stock and reduce our indebtedness. As a result of
the divestiture program, we divested former CUC businesses representing 45% of
CUC's revenues in 1997, the year in which CUC merged with HFS.
ENTERTAINMENT PUBLICATIONS, INC. On November 30, 1999, we completed the sale of
approximately 85% of our EPub unit for $281 million in cash. We retained
approximately 15% of EPub's common equity in connection with the transaction. In
addition, we will have a designee on EPub's Board of Directors. We account for
our investment in EPub using the equity method. We realized a net gain of
approximately $156 million ($78 million, after tax).
GREEN FLAG. On November 26, 1999, we completed the sale of our Green Flag
business unit for approximately $401 million in cash, including dividends of
$37 million. We realized a net gain of approximately $27 million ($8 million,
after tax).
FLEET. On June 30, 1999, we completed the disposition of our fleet business
segment ("fleet segment" or "fleet businesses") to ARAC. Pursuant to the
agreement, ARAC acquired the net assets of the fleet businesses through the
assumption and subsequent repayment of $1.44 billion of intercompany debt and
the issuance to us of $360 million of convertible preferred stock of Avis Fleet
Leasing and Management Corporation ("Avis Fleet"), a wholly-owned subsidiary of
ARAC. Coincident to the closing of the transaction, ARAC refinanced the assumed
debt under management programs which was payable to us. Accordingly, we
received additional consideration from ARAC comprised of $3.0 billion of cash
proceeds and a $30 million receivable. We realized a net gain on the
disposition of the fleet business segment of $881 million ($866 million, after
tax) of which $715 million ($702 million, after tax) was recognized at the time
of closing and $166 million ($164 million, after tax) was deferred at the date
of disposition. The fleet segment disposition was structured as a tax-free
reorganization and, accordingly, no tax provision has been recorded on a
majority of the gain. However, pursuant to a recent interpretive ruling, the
Internal Revenue Service ("IRS") has taken the position that similarly
structured transactions do not qualify as tax-free reorganizations under
Internal Revenue Code Section 368(a)(1)(A). If the transaction is not
considered a tax-free reorganization, the resultant incremental liability could
range between $10 million and $170 million depending upon certain factors
including utilization of tax attributes and contractual
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indemnification provisions. Notwithstanding the IRS interpretive ruling, we
believe that, based upon analysis of current tax law, our position would
prevail, if challenged.
OTHER BUSINESSES. During 1999, we completed the dispositions of certain
businesses, including NAOG, Central Credit, Inc., Global Refund Group, Spark
Services, Inc., Match.com, National Leisure Group and NLP. Aggregate
consideration received on the dispositions of such businesses was comprised of
approximately $407 million in cash, including dividends of $21 million and $43
million in marketable securities. The Company realized a net gain of $202
million ($81 million, after tax) on the dispositions of these businesses.
FINANCING (EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAM FINANCING)
We have sufficient liquidity and access to liquidity through various sources,
including our ability to access public equity and debt markets and financial
institutions. We currently have a $750 million term loan facility with a
syndicate of financial institutions. In addition, we also have committed
back-up facilities totaling $1.8 billion, which are currently undrawn and
available, with the exception of $5 million of letters of credit. Furthermore,
we also had $2.55 billion of availability under existing shelf registration
statements at December 31, 1999 which was subsequently reduced by $400 million
in connection with the Liberty Media transaction. Our long-term debt, including
current portion, was $2.8 billion at December 31, 1999 and consisted of (i)
approximately $2.1 billion of publicly issued fixed rate debt comprised of $400
million of 7 1/2% senior notes, $1,148 million of 7 3/4% senior notes and $547
million of 3% convertible subordinated notes and (ii) $750 million of
borrowings under a term loan facility. On January 21, 2000, we redeemed all
outstanding 7 1/2% senior notes at a redemption price of 100.695% of par, plus
accrued interest, using available cash. Our credit facilities contain certain
restrictive covenants, including restrictions on indebtedness of material
subsidiaries, mergers, limitations on liens, liquidations and sale and
leaseback transactions, and require the maintenance of certain financial
ratios.
FINANCING RELATED TO MANAGEMENT AND MORTGAGE PROGRAMS
Our PHH subsidiary operates our mortgage and relocation services businesses as
a separate public reporting entity and supports the origination of mortgages
and advances under relocation contracts primarily by issuing commercial paper
and medium term notes and maintaining secured obligations. Such financing is
not classified based on contractual maturities, but rather is included in
liabilities under management and mortgage programs rather than long-term debt
since such debt corresponds directly with high quality related assets. PHH
continues to pursue opportunities to reduce its borrowing requirements by
securitizing increasing amounts of its high quality assets. Additionally, we
entered into a revolving sales agreement, under which an unaffiliated buyer
(the "Buyer"), Bishops Gate Residential Mortgage Trust, a special purpose
entity, committed to purchase, at our option, mortgage loans originated by us
on a daily basis, up to the Buyer's asset limit of $2.1 billion. Under the
terms of this sale agreement, we retain the servicing rights on the mortgage
loans sold to the Buyer and arrange for the sale or securitization of the
mortgage loans into the secondary market. The Buyer retains the right to select
alternative sale or securitization arrangements. At December 31, 1999 and 1998,
we were servicing approximately $813 million and $2.0 billion, respectively, of
mortgage loans owned by the Buyer.
PHH debt is issued without recourse to the parent company. Our PHH subsidiary
expects to continue to maximize its 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. 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. Depending upon asset growth and financial market
conditions, our PHH subsidiary utilizes the United States commercial paper
markets, public and private debt markets, as well as other cost-effective
short-term instruments. Augmenting these sources, our PHH subsidiary will
continue to manage outstanding debt with the potential sale or transfer of
managed assets to third parties while retaining fee-related servicing
responsibility. At December 31, 1999, aggregate borrowings were comprised of
commercial paper, medium-term notes, secured obligations and other borrowings
of $0.6 billion, $1.3 billion, $0.3 billion, and $0.1 billion, respectively.
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PHH filed a shelf registration statement with the SEC, effective March 2, 1998,
for the aggregate issuance of up to $3.0 billion of medium-term note debt
securities. These securities may be offered from time to time, together or
separately, based on terms to be determined at the time of sale. As of December
31, 1999, PHH had approximately $375 million of availability remaining under
this shelf registration statement. Proceeds from future offerings will continue
to be used to finance assets PHH manages for its clients and for general
corporate purposes.
SECURED OBLIGATIONS
In December 1999, our PHH subsidiary renewed its 364 day financing agreement
to sell mortgage loans under an agreement to repurchase such mortgages. The
agreement is collateralized by the underlying mortgage loans held in
safekeeping by the custodian to the agreement. The total commitment under this
agreement is $500 million and is renewable on an annual basis at the discretion
of the lender in accordance with the securitization agreement. Mortgage loans
financed under this agreement at December 31, 1999 and 1998 totaled $345
million and $378 million, respectively.
We are currently in the process of creating a new securitization facility to
purchase interests in the rights to payment related to our relocation
receivables. Although no assurances can be given, we expect that such facility
will be in place by the end of the first quarter of 2000.
OTHER
To provide additional financial flexibility, PHH's current policy is to ensure
that minimum committed facilities aggregate 100 percent of the average amount of
outstanding commercial paper. As of December 31, 1999, PHH maintained $2.5
billion of unsecured committed credit facilities, which were provided by
domestic and foreign banks. On February 28, 2000, PHH reduced these facilities
to $1.5 billion to reflect reduced borrowing needs of PHH after the disposition
of its fleet businesses. The facilities consist of a $750 million revolving
credit maturing in February 2001 and a $750 million revolving credit maturing in
February 2005. Our management closely evaluates not only the credit of the banks
but also the terms of the various agreements to ensure ongoing availability. The
full amount of PHH's committed facilities at December 31, 1999 was undrawn and
available. Our management believes that our current policy provides adequate
protection should volatility in the financial markets limit PHH's access to
commercial paper or medium-term notes funding. PHH continuously seeks additional
sources of liquidity to accommodate PHH asset growth and to provide further
protection from volatility in the financial markets.
In the event that the public debt market is unable to meet PHH's funding needs,
we believe that PHH has appropriate alternative sources to provide adequate
liquidity, including current and potential future securitized obligations and
its revolving credit facilities.
On July 10, 1998, PHH entered into a Supplemental Indenture No. 1 (the
"Supplemental Indenture") with a bank, as trustee, under the Senior Indenture
dated as of June 5, 1997, which formalizes PHH's policy of limiting the payment
of dividends and the outstanding principal balance of loans to us to 40% of
consolidated net income (as defined in the Supplemental Indenture) for each
fiscal year. The Supplemental Indenture prohibits PHH from paying dividends or
making loans to us if upon giving effect to such dividends and/or loan, PHH's
debt to equity ratio exceeds 8 to 1, at the time of the dividend or loan, as
the case may be.
LITIGATION
Since the April 15, 1998 announcement of the discovery of accounting
irregularities in the former business units of CUC, approximately 70 lawsuits
claiming to be class actions, two lawsuits claiming to be brought derivatively
on our behalf and several individual lawsuits and arbitration proceedings have
been commenced in various courts and other forums against us and other
defendants by or on behalf of persons claiming to have purchased or otherwise
acquired securities or options issued by CUC or us between May 1995 and August
1998. The Court has ordered consolidation of many of the actions.
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In addition, in October 1998, an action claiming to be a class action was filed
against us and four of our former officers and directors by persons claiming to
have purchased American Bankers' stock between January and October 1998. The
complaint claimed that we made false and misleading public announcements and
filings with the SEC in connection with our proposed acquisition of American
Bankers allegedly in violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and that the plaintiff and the alleged class
members purchased American Bankers' securities in reliance on these public
announcements and filings at inflated prices. On April 30, 1999, the United
States District Court for New Jersey found that the class action failed to
state a claim upon which relief could be granted and, accordingly, dismissed
the complaint. The plaintiff has appealed the District Court's findings to the
U.S. Court of Appeals for the Third Circuit as such appeal is pending.
The SEC and the United States Attorney for the District of New Jersey are
conducting investigations relating to the matters referenced above. The SEC
advised us that its inquiry should not be construed as an indication by the SEC
or its staff that any violations of law have occurred. As a result of the
findings from our internal investigations, we made all adjustments considered
necessary which are reflected in our previously filed restated financial
statements for the years ended 1997, 1996 and 1995 and for the six months ended
June 30, 1998. Although we can provide no assurances that additional
adjustments will not be necessary as a result of these government
investigations, we do not expect that additional adjustments will be necessary.
As previously disclosed, we reached a final agreement with plaintiffs' counsel
representing the class of holders of our PRIDES securities who purchased their
securities on or prior to April 15, 1998 to settle their class action lawsuit
against us through the issuance of a new "Right" for each PRIDES security held.
See Notes 5 and 13 to the Consolidated Financial Statements for a more detailed
description of the settlement.
On December 7, 1999, we announced that we reached a preliminary agreement to
settle the principal securities class action pending against us in the U.S.
District Court in Newark, New Jersey relating to the common stock class action
lawsuits. Under the agreement, we would pay the class members approximately
$2.85 billion in cash, an increase from approximately $2.83 billion previously
reported. The increase is a result of continued negotiation toward definitive
documents relating to additional costs to be paid to the plaintiff class. The
settlement remains subject to execution of a definitive settlement agreement and
approval by the U.S. District Court. If the preliminary settlement is not
approved by the U.S. District Court, we can make no assurances that the final
outcome or settlement of such proceedings will not be for an amount greater than
that set forth in the preliminary agreement.
The proposed settlements do not encompass all litigation asserting claims
associated with the accounting irregularities. We do not believe that it is
feasible to predict or determine the final outcome or resolution of these
unresolved proceedings. An adverse outcome from such unresolved proceedings
could be material with respect to earnings in any given reporting period.
However, we do not believe that the impact of such unresolved proceedings should
result in a material liability to our consolidated financial position or
liquidity.
Our plan to finance the settlement reflects the existence of a range of
financing alternatives which we have considered to be potentially available. At
a minimum, these alternatives entail using various combinations of (i)
available cash, (ii) debt securities and/or (iii) equity securities. The choice
among alternatives will depend on numerous factors, including the timing of the
actual settlement payment, the relative costs of various securities, our cash
balance, our projected post-settlement cash flows and market conditions.
CREDIT RATINGS
Our long-term debt credit ratings are BBB with Standard & Poor's Corporations
("Standard & Poor's"), Baa1 with Moody's Investors Service Inc. ("Moody's"),
and BBB+ with Duff & Phelps Credit Rating Co. ("Duff & Phelps"). Our short-term
debt ratings are P2 with Moody's, and D2 with Duff & Phelps.
Following the execution of our agreement to dispose of our fleet segment, Fitch
IBCA lowered PHH's long-term debt rating from A+ to A and affirmed PHH's
short-term debt rating at F1, and Standard & Poor's affirmed PHH's long-term
and short-term debt ratings at A-/A2. Also, in connection with the
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closing of the transaction, Duff & Phelps lowered PHH's long-term debt rating
from A+ to A and PHH's short-term debt rating was reaffirmed at D1. Moody's
lowered PHH's long-term debt rating from A3 to Baa1 and affirmed PHH's
short-term debt rating at P2. (A security rating is not a recommendation to buy,
sell or hold securities and is subject to revision or withdrawal at any time.).
COMMON SHARE REPURCHASES
During 1999, our Board of Directors authorized an additional $1.8 billion of
our common stock to be repurchased under our common share repurchase program,
increasing the total authorized amount that can be repurchased under the
program to $2.8 billion. As of December 31, 1999, we repurchased a total of
$2.0 billion (104 million shares) of our common stock under the program.
Subsequent to December 31, 1999, we repurchased an additional $132 million (6
million shares) of our common stock under the repurchase program as of February
24, 2000.
In July 1999, pursuant to a Dutch Auction self-tender offer to our shareholders,
we purchased 50 million shares of our common stock at a price of $22.25 per
share.
CASH FLOWS (1999 VS. 1998)
We generated $3.0 billion of cash flows from operations in 1999 representing a
$2.2 billion increase from 1998. The increase in cash flows from operations was
primarily due to a $1.2 billion increase in net income as adjusted for
discontinued operations activity, net gain on dispositions of businesses and
non-cash charges. Additionally, the increase in cash flows from operations was
due to a $2.1 billion net reduction in mortgage loans held for sale, which
reflects larger loan sales to the secondary markets in proportion to loan
originations.
We generated $1.9 billion in cash flows from investing activities in 1999
representing a $6.2 billion increase from 1998. The incremental cash flows in
1999 from investing activities was primarily attributable to a $3.2 billion
increase in net proceeds from the sale of subsidiaries, primarily related to
the fleet businesses, and a $2.6 billion decrease in cash used in
acquisition-related activity (acquisitions in 1998 included NCP, Green Flag and
Jackson Hewitt). Additionally, we invested $227 million less cash in management
and mortgage programs primarily due to the disposition of the fleet businesses.
We used net cash of $4.8 billion in financing activities in 1999 compared to
providing net cash of $4.7 billion from such activities in 1998. The increase
of $9.5 billion of cash flows used in financing activities during 1999 included
$2.6 billion incremental repurchases of common stock in 1999 and a $3.1 billion
decrease in proceeds from borrowings in 1999 over 1998. Additionally, we issued
the FELINES PRIDES in 1998 for proceeds of approximately $1.5 billion. Net cash
used in the financing of management and mortgage programs increased $2.7
billion primarily due to repayments of borrowings.
CAPITAL EXPENDITURES
In 1999, $277 million was invested in property and equipment to support
operational growth and enhance marketing opportunities. In addition,
technological improvements were made to improve operating efficiencies. Capital
spending in 1999 included the development of integrated business systems and
other investments in information systems within several of our segments as well
as additions to car park properties for NCP.
OTHER INITIATIVES
We continue to explore ways to increase efficiencies and productivity and to
reduce the cost structures of our respective businesses. Such actions could
include downsizing, consolidating, restructuring or other related efforts,
which we anticipate would be funded through current operations. No assurances
may be given that any plan of action will be undertaken or completed.
YEAR 2000
The following disclosure is a Year 2000 readiness disclosure statement pursuant
to the Year 2000 Readiness and Disclosure Act:
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In order to minimize or eliminate the effect of the Year 2000 risk on our
business systems and applications, we identified, evaluated, implemented and
tested changes to our computer systems, applications and software necessary to
achieve Year 2000 compliance. Our computer systems and equipment successfully
transitioned to the Year 2000 with no significant issues. We continue to keep
our Year 2000 project management in place to monitor latent problems that could
surface at key dates or events in the future. We do not anticipate any
significant problems related to these events. The total cost of our Year 2000
compliance plan was approximately $54 million. We expensed and capitalized the
costs to complete the compliance plan in accordance with appropriate accounting
policies.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137 "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities", issued in
June 1998, to fiscal years commencing after June 15, 2000. SFAS No. 133
requires that all derivatives be recorded in the Consolidated Balance Sheets as
assets or liabilities and measured at fair value. If the derivative does not
qualify as a hedging instrument, changes in fair value are to be recognized in
net income. If the derivative does qualify as a hedging instrument, changes in
fair value are to be recognized either in net income or other comprehensive
income consistent with the asset or liability being hedged. We have developed
an implementation plan to adopt SFAS No. 133. Completion of the implementation
plan and determination of the impact of adopting SFAS No. 133 is expected to be
completed by the fourth quarter of 2000. We will adopt SFAS No. 133 on January
1, 2001, as required.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements." SAB No. 101 draws upon the existing accounting rules and explains
those rules, by analogy, to other transactions that the existing rules do not
specifically address. In accordance with SAB No. 101, we will revise certain
revenue recognition policies regarding the recognition of non-refundable
one-time fees and the recognition of pro rata refundable subscription revenues.
We will adopt SAB No. 101 on January 1, 2000, as required, and will record a
non-cash after-tax charge of approximately $56 million to account for the
cumulative effect of the accounting change.
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FORWARD LOOKING STATEMENTS
We make statements about our future results in this Annual Report that may
constitute "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on our
current expectations and the current economic environment. We caution you that
these statements are not guarantees of future performance. They involve a
number of risks and uncertainties that are difficult to predict. Our actual
results could differ materially from those expressed our implied in the
forward-looking statements. Important assumptions and other important factors
that could cause our actual results to differ materially from those in the
forward-looking statements, include, but are not limited to:
o the resolution or outcome of the pending litigation and government
investigations relating to the previously announced accounting
irregularities;
o uncertainty as to our future profitability and our ability to integrate
and operate successfully acquired businesses and the risks associated
with such businesses;
o our ability to successfully implement our plan to create a tracking stock
for our new real estate portal;
o our ability to develop and implement operational and financial systems
to manage rapidly growing operations;
o competition in our existing and potential future lines of business;
o our ability to obtain financing on acceptable terms to finance our
growth strategy and for us to operate within the limitations imposed by
financing arrangements; and
o the effect of changes in current interest rates.
We derived the forward-looking statements in this Annual Report from the
foregoing factors and from other factors and assumptions, and the failure of
such assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. We assume no obligation to
publicly correct or update these forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting such
forward-looking statements or if we later become aware that they are not likely
to be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses various financial instruments, particularly interest rate and
currency swaps, forward delivery commitments, futures and options contracts and
currency forwards, to manage and reduce the interest rate risk related
specifically to its committed mortgage pipeline, mortgage loan inventory,
mortgage servicing rights, mortgage-backed securities, and debt. Such financial
instruments are also used to manage and reduce the foreign currency exchange
rate risk related to its foreign currency denominated translational and
transactional exposures. The Company is exclusively an end user of these
instruments, which are commonly referred to as derivatives. The Company does
not engage in trading, market-making, or other speculative activities in the
derivatives markets. The Company's derivative financial instruments are
designated as hedges of underlying exposures, as those instruments demonstrate
high correlation in relation to the asset or transaction being hedged. More
detailed information about these financial instruments is provided in Notes 15
and 16 to the Consolidated Financial Statements.
Interest and currency rate risks are the principal market exposures of the
Company.
o Interest rate movements in one country as well as relative interest rate
movements between countries can materially impact the Company's
profitability. The Company's primary interest rate exposure is to interest
rate fluctuations in the United States, specifically long-term U.S.
Treasury and mortgage interest rates due to their impact on mortgagor
prepayments, mortgage loans held for sale, and anticipated mortgage
production arising from commitments issued and LIBOR and commercial paper
interest rates due to their impact on variable rate borrowings. The Company
anticipates that such interest rates will remain a primary market exposure
of the Company for the foreseeable future.
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<PAGE>
o The Company's primary foreign currency rate exposure is to exchange rate
fluctuations of the British pound sterling. The Company anticipates that
such foreign currency exchange rate will remain a primary market exposure
of the Company for the foreseeable future.
The Company assesses its market risk based on changes in interest and foreign
currency exchange rates utilizing a sensitivity analysis. The sensitivity
analysis measures the potential loss in earnings, fair values, and cash flows
based on a hypothetical 10% change (increase and decrease) in interest and
currency rates.
The Company uses a discounted cash flow model in determining the fair market
value of investment in leases and leased vehicles, relocation receivables,
equity advances on homes, mortgages, commitments to fund mortgages, mortgage
servicing rights and mortgage-backed securities. The primary assumptions used
in these models are prepayment speeds and discount rates. In determining the
fair market value of mortgage servicing rights and mortgage-backed securities,
the models also utilize credit losses and mortgage servicing revenues and
expenses as primary assumptions. In addition, for commitments to fund
mortgages, the borrowers propensity to close their mortgage loan under the
commitment is used as a primary assumption. For mortgages and commitments to
fund mortgages forward delivery contracts and options, the Company uses an
option-adjusted spread ("OAS") model in determining the impact of interest rate
shifts. The Company also utilizes the OAS model to determine the impact of
interest rate shifts on mortgage servicing rights and mortgage-backed
securities. The primary assumption in an OAS model is the implied market
volatility of interest rates and prepayment speeds and the same primary
assumptions used in determining fair market value.
The Company uses a duration-based model in determining the impact of interest
rate shifts on its debt portfolio and interest rate derivatives portfolios. The
primary assumption used in these models is that a 10% increase or decrease in
the benchmark interest rate produces a parallel shift in the yield curve across
all maturities.
The Company uses a current market pricing model to assess the changes in the
value of the U.S. dollar on foreign currency denominated derivatives and
monetary assets and liabilities. The primary assumption used in these models is
a hypothetical 10% weakening or strengthening of the U.S. dollar against all
currency exposures of the Company at December 31, 1999 and 1998.
The Company's total market risk is influenced by a wide variety of factors
including the volatility present within the markets and the liquidity of the
markets. There are certain limitations inherent in the sensitivity analyses
presented. While probably the most meaningful analysis permitted, these "shock
tests" are constrained by several factors, including the necessity to conduct
the analysis based on a single point in time and the inability to include the
complex market reactions that normally would arise from the market shifts
modeled.
The Company used December 31, 1999 and 1998 market rates on its instruments to
perform the sensitivity analyses separately for each of the Company's market
risk exposures -- interest and currency rate instruments. The estimates are
based on the market risk sensitive portfolios described in the preceding
paragraphs and assume instantaneous, parallel shifts in interest rate yield
curves and exchange rates.
The Company has determined that the impact of a 10% change in interest and
foreign currency exchange rates and prices on its earnings, fair values and
cash flows would not be material.
While these results may be used as benchmarks, they should not be viewed as
forecasts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Financial Statement Index commencing on page
F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required herein has been previously reported on our Form 10-K/A
for the year ended December 31, 1997.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the Company's Special Proxy Statement under
the section "Executive Officers" and the information contained in the Annual
Proxy Statement under the Sections titled "Election of Directors", "Executive
Officers" and "Compliance with Section 16(a) of the Exchange Act" are
incorporated herein by reference in response to this item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Company's Special Proxy Statement under
the section titled "Executive Compensation and Other Information" is
incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Company's Special Proxy Statement under
the section titled "Security Ownership of Certain Beneficial Owners and
Management" is incorporated herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Company's Annual Proxy Statement under
the section titled "Certain Relationships and Related Transactions" is
incorporated herein by reference in response to this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14(A)(1) FINANCIAL STATEMENTS
See Financial Statements and Financial Statements Index commencing on page
F-1 hereof.
ITEM 14(A)(3) EXHIBITS
See Exhibit Index commencing on page E-1 hereof.
ITEM 14(B) REPORTS ON FORM 8-K
On October 5, 1999, we filed a current report on Form 8-K to report under
Item 5 a plan to create a tracking stock to track the performance of Move.com
Group.
On October 21, 1999, we filed a current report on Form 8-K to report under
Item 5 third quarter 1999 financial results.
On December 2, 1999, we filed a current report on Form 8-K to report under
Item 5 the completion of our divestiture program.
On December 7, 1999, we filed a current report on Form 8-K to report under
Item 5 a preliminary settlement of the common stock class action litigation.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CENDANT CORPORATION
By: /s/ James E. Buckman
-----------------------------------
James E. Buckman
Vice Chairman and General Counsel
Date: February 29, 2000
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Henry R. Silverman Chairman of the Board, President, February 29, 2000
- ------------------------- Chief Executive Officer and
(Henry R. Silverman) Director
/s/ James E. Buckman Vice Chairman, General Counsel and February 29, 2000
- ------------------------- Director
(James E. Buckman)
/s/ Stephen P. Holmes Vice Chairman and Director February 29, 2000
- -------------------------
(Stephen P. Holmes)
/s/ Michael P. Monaco Vice Chairman and Director February 29, 2000
- -------------------------
(Michael P. Monaco)
/s/ David M. Johnson Senior Executive Vice President and February 29, 2000
- ------------------------- Chief Financial Officer (Principal
(David M. Johnson) Financial Officer)
/s/ Jon F. Danski Executive Vice President and Chief February 29, 2000
- ------------------------- Accounting Officer (Principal
(Jon F. Danski) Accounting Officer)
/s/ Robert D. Kunisch Director February 29, 2000
- -------------------------
(Robert D. Kunisch)
Director February 29, 2000
- -------------------------
(John D. Snodgrass)
/s/ Leonard S. Coleman Director February 29, 2000
- -------------------------
(Leonard S. Coleman)
Director February 29, 2000
- -------------------------
(Martin L. Edelman)
/s/ Dr. Carole G. Hankin Director February 29, 2000
- -------------------------
(Dr. Carole G. Hankin)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ---------- ------------------
<S> <C> <C>
Director February 29, 2000
- -------------------------
(The Rt. Hon. Brian Mulroney,
P.C., L.L.D)
Director February 29, 2000
- -------------------------
(Robert W. Pittman)
/s/ Leonard Schutzman Director February 29, 2000
- -------------------------
(Leonard Schutzman)
/s/ Robert F. Smith Director February 29, 2000
- -------------------------
(Robert F. Smith)
/s/ Robert E. Nederlander Director February 29, 2000
- -------------------------
(Robert E. Nederlander)
</TABLE>
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<PAGE>
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated March 23, 1998 among the Company, Season
Acquisition Corp. and American Bankers Insurance Group, Inc. (incorporated by
reference to Exhibit C2 to the Schedule 14D-1 (Amendment 31), dated March 23, 1998,
filed by the Company and Season Acquisition Corp.)*
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Post Effective Amendment No. 2 on Form
S-8 to the Registration Statement on Form S-4, No. 333-34517, dated December 17,
1997)*
3.2 Amended and Restated ByLaws of the Company (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K dated August 4, 1998)*
4.1 Form of Stock Certificate (filed as Exhibit 4.1 to the Company's Registration
Statement, No. 33-44453, on Form S-4 dated December 19, 1991)*
4.2 Indenture dated as of February 11, 1997, between CUC International Inc. and Marine
Midland Bank, as trustee (filed as Exhibit 4(a) to the Company's Report on Form 8-K
filed February 13, 1997)*
4.3 Indenture between HFS Incorporated and Continental Bank, National Association, as
trustee (Incorporated by reference to HFS Incorporated's Registration Statement on
Form S-1 (Registration No. 33-71736), Exhibit No. 4.1)*
4.4 Indenture dated as of February 28, 1996 between HFS Incorporated and First Trust of
Illinois, National Association, as trustee (Incorporated by reference to HFS
Incorporated's Current Report on Form 8-K dated March 8, 1996, Exhibit 4.01)*
4.5 Supplemental Indenture No. 1 dated as of February 28, 1996 between HFS
Incorporated and First Trust of Illinois, National Association, as trustee (Incorporated
by reference to HFS Incorporated's Current Report on Form 8-K dated March 8, 1996,
Exhibit 4.02)*
4.6 Indenture, dated as of February 24, 1998, between the Company and The Bank of
Nova Scotia Trust Company of New York, as Trustee (Incorporated by reference to
Exhibit 4.4 to the Company's Current Report on Form 8-K dated March 6, 1998)*
4.7 First Supplemental Indenture dated February 24, 1998, between the Company and The
Bank of Nova Scotia Trust Company of New York, as Trustee (Incorporated by
reference to Exhibit 4.5 to the Company's Current Report on Form 8-K, dated
March 6, 1998)*
4.8 Amended and Restated Declaration of Trust of Cendant Capital I. (Incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March 6,
1998)*
4.9 Preferred Securities Guarantee Agreement dated March 2, 1998, between by Cendant
Corporation and Wilmington Trust Company. (Incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K dated March 6, 1998)*
4.10 Purchase Contract Agreement (including as Exhibit A the form of the Income PRIDES
and as Exhibit B the form of the Growth PRIDES), dated March 2, 1998, between
Cendant Corporation and The First National Bank of Chicago (Incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated March 6,
1998)*
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------- --------------------------------------------------------------------------------------
<S> <C>
4.11 Purchase Agreement (including as Exhibit A the form of the Warrant for the Purchase
of Shares of Common Stock), dated December 15, 1999, between Cendant Corporation
and Liberty Media Corporation.
Material Contracts, Management Contracts, Compensatory Plans and Arrangements (filed
as an Exhibit to the Company's Form 10-K/A for the year ended December 31, 1998).*
10.1 (a) Agreement with Henry R. Silverman, dated June 30, 1996 and as amended through
December 17, 1997 (filed as Exhibit 10.6 to the Company's Registration Statement on
Form S-4, Registration No. 333-34571)*
10.1 (b) Amendment to Agreement with Henry R. Silverman, dated December 31, 1998 (filed as
an Exhibit to the Company's Form 10-K for the year ended December 31, 1998).*
10.1 (c) Amendment to Agreement with Henry R. Silverman, dated August 2, 1999.
10.2 (a) Agreement with Stephen P. Holmes, dated September 12, 1997 (filed as Exhibit 10.7 to
the Company's Registration Statement on Form S-4, Registration No. 333-34571)*
10.2 (b) Amendment to Agreement with Stephen P. Holmes, dated January 11, 1999 (filed as an
Exhibit to the Company's Form 10-K for the year ended December 31, 1998).*
10.3 (a) Agreement with Michael P. Monaco, dated September 12, 1997 (filed as Exhibit 10.8 to
the Company's Registration Statement on Form S-4, Registration No. 333-34571)*
10.3 (b) Amendment to Agreement with Michael Monaco, dated December 23, 1998 (filed as an
Exhibit to the Company's Form 10-K for the year ended December 31, 1998).*
10.4 (a) Agreement with James E. Buckman, dated September 12, 1997 (filed as Exhibit 10.9 to
the Company's Registration Statement on Form S-4, Registration No. 333-34571)*
10.4 (b) Amendment to Agreement with James E. Buckman, dated January 11, 1999 (filed as an
Exhibit to the Company's Form 10-K for the year ended December 31, 1998).*
10.5 1987 Stock Option Plan, as amended (filed as Exhibit 10.16 to the Company's Form
10-Q for the period ended October 31, 1996)*
10.6 1990 Directors Stock Option Plan, as amended (filed as Exhibit 10.17 to the Company's
Form 10-Q for the period ended October 31, 1996)*
10.7 1992 Directors Stock Option Plan, as amended (filed as Exhibit 10.18 to the Company's
Form 10-Q for the period ended October 31, 1996)*
10.8 1994 Directors Stock Option Plan, as amended (filed as Exhibit 10.19 to the Company's
Form 10-Q for the period ended October 31, 1996)*
10.9 1997 Stock Option Plan (filed as Exhibit 10.23 to the Company's Form 10-Q for the
period ended April 30, 1997)*
10.10 1997 Stock Incentive Plan (filed as Appendix E to the Joint Proxy Statement/
Prospectus included as part of the Company's Registration Statement, No. 333-34517,
on Form S-4 dated August 28, 1997)*
10.11 HFS Incorporated's Amended and Restated 1993 Stock Option Plan (Incorporated by
reference to HFS Incorporated's Registration Statement on Form S-8 (Registration
No. 33-83956), Exhibit 4.1)*
10.12(a) First Amendment to the Amended and Restated 1993 Stock Option Plan dated May 5,
1995. (Incorporated by reference to HFS Incorporated's Registration Statement on
Form S-8 (Registration No. 33-094756), Exhibit 4.1)*
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------------- -------------------------------------------------------------------------------------
<S> <C>
10.12(b) Second Amendment to the Amended and Restated 1993 Stock Option Plan dated
January 22, 1996. (Incorporated by reference to the HFS Incorporated's Annual Report
on Form 10-K for fiscal year ended December 31, 1995, Exhibit 10.21(b))*
10.12(c) Third Amendment to the Amended and Restated 1993 Stock Option Plan dated
January 22, 1996. (Incorporated by reference to the HFS Incorporated's Annual Report
on Form 10-K for fiscal year ended December 31, 1995, Exhibit 10.21(c))*
10.12(d) Fourth Amendment to the Amended and Restated 1993 Stock Option Plan dated
May 20, 1996. (Incorporated by reference to HFS Incorporated's Registration
Statement on Form S-8 (Registration No. 333-06733), Exhibit 4.5)*
10.12(e) Fifth Amendment to the Amended and Restated 1993 Stock Option Plan dated
July 24, 1996 (Incorporated by reference to the HFS Incorporated's Annual Report on
Form 10-K for fiscal year ended December 31, 1995, Exhibit 10.21(e))*
10.12(f) Sixth Amendment to the Amended and Restated 1993 Stock Option Plan dated
September 24, 1996 (Incorporated by reference to the HFS Incorporated's Annual
Report on Form 10-K for fiscal year ended December 31, 1995, Exhibit 10.21(e))*
10.12(g) Seventh Amendment to the Amended and Restated 1993 Stock Option Plan dated as
of April 30, 1997 (Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, Exhibit 10.17(g))*
10.12(h) Eighth Amendment to the Amended and Restated 1993 Stock Option Plan dated as of
May 27, 1997 (Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, Exhibit 10.17(h))*
10.13 HFS Incorporated's 1992 Incentive Stock Option Plan and Form of Stock Option
Agreement. (Incorporated by reference to HFS Incorporated's Registration Statement
on Form S-1 (Registration No. 33-51422), Exhibit No. 10.6)*
10.14 Cendant Corporation 1992 Employee Stock Plan (Incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-8 dated January 29,
1998 (Registration No. 333-45183))*
10.15 Cendant Corporation Deferred Compensation Plan (filed as an Exhibit to the Company's
Form 10-K for the year ended December 31, 1998).*
10.16 Agreement and Plan of Merger, by and among HFS Incorporated, HJ Acquisition
Corp. and Jackson Hewitt, Inc., dated as of November 19, 1997. (Incorporated by
reference to Exhibit 10.1 to HFS Incorporated's Current Report on Form 8-K dated
August 14, 1997, File No. 111402)*
10.17 Form of Underwriting Agreement for Debt Securities (Incorporated by reference to
Exhibit 1.1 to the Company's Registration Statement on Form S-3, Registration
No. 333-45227)*
10.18 Underwriting Agreement dated February 24, 1998 among the Company, Cendant
Capital I, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Chase Securities Inc. (Incorporated by reference to the Company's Form 8-K dated
March 6, 1998, Exhibit 1.1)*
10.19 Registration Rights Agreement dated as of February 11, 1997, between CUC
International Inc. and Goldman, Sachs & Co. (for itself and on behalf of the other
purchasers party thereto)(filed as Exhibit 4(b) to the Company's Report on Form 8-K
filed February 13, 1997)*
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------------- ---------------------------------------------------------------------------------------
<S> <C>
10.20 Agreement and Plan of Merger between CUC International Inc. and HFS
Incorporated, dated as of May 27, 1997 (filed as Exhibit 2.1 to the Company's Report
on Form 8-K filed on May 29, 1997)*
10.21(a) $750,000,000 Five Year Revolving Credit and Competitive Advance Facility Agreement,
dated as of October 2, 1996, among the Company, the several banks and other financial
institutions from time to time parties thereto and The Chase Manhattan Bank, as
Administrative Agent and CAF Agent (Incorporated by reference to Exhibit (b)(1) to
the Schedule 14-D1 filed by the Company on January 27, 1998, File No. 531838)*
10.21(b) Amendment, dated as of October 30, 1998, to the Five Year Competitive Advance and
Revolving Credit Agreement, dated as of October 2, 1998, by and among the Company,
the general institutions, parties thereto and The Chase Manhattan Bank, as
Administrative Agent (Incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K dated February 10, 1999)*
10.22(a) $1,250,000 364-Day Revolving Credit and Competitive Advance Facility Agreement,
dated October 2, 1996, as amended and restated through October 30, 1998, among the
Company, the several banks and other financial institutions from time to time parties
thereto, and The Chase Manhattan Bank, as Administrative Agent and as Lead
Manager (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K dated
November 5, 1998).*
10.22(b) Amendment, dated as of February 4, 1999, to the Five-Year Competitive Advance and
Revolving Credit Agreement and the 364-Day Competitive Advance and Revolving
Credit Agreement among the Company, the lenders therein and The Chase Manhattan
Bank, as Administrative Agent (Incorporated by reference to Exhibit 99.2 to the
Company's Form 8-K dated February 16, 1999)*.
10.23 Distribution Agreement, dated March 5, 1998, among the Company, Bear, Stearns &
Co., Inc., Chase Securities Inc., Lehman Brothers and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by reference to the
Company's Current Report on Form 8-K, dated March 10, 1998)*
10.24(a) 364-Day Credit Agreement Among PHH Corporation, PHH Vehicle Management
Services, Inc., the Lenders, the Chase Manhattan Bank, as Administrative Agent and
the Chase Manhattan Bank of Canada, as Canadian Agent, Dated February 28, 2000.
10.24(b) Five-year Credit Agreement ("PHH Five-year Credit Agreement") among PHH
Corporation, the Lenders, and Chase Manhattan Bank, as Administrative Agent, dated
February 28, 2000.
10.25 Indenture between the Company and Bank of New York, Trustee, dated as of May 1,
1992 (Incorporated by reference from Exhibit 4(a)(iii) to Registration Statement
33-48125)*
10.26 Indenture between the Company and First National Bank of Chicago, Trustee, dated as
of March 1, 1993 (Incorporated by reference from Exhibit 4(a)(i) to Registration
Statement 33-59376)*
10.27 Indenture between the Company and First National Bank of Chicago, Trustee, dated as
of June 5, 1997 (Incorporated by reference from Exhibit 4(a) to Registration Statement
333-27715)*
10.28 Indenture between the Company and Bank of New York, Trustee dated as of June 5,
1997 (Incorporated by reference from Exhibit 4(a)(11) to Registration Statement
333-27715)*
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------------------------------
<S> <C>
10.29 Distribution Agreement between the Company and CS First Boston Corporation;
Goldman, Sachs & Co.; Merrill Lynch & Co.; Merrill Lynch, Pierce, Fenner & Smith,
Incorporated; and J.P. Morgan Securities, Inc. dated November 9, 1995 (Incorporated
by reference from Exhibit 1 to Registration Statement 33-63627)*
10.30 Distribution Agreement between the Company and Credit Suisse; First Boston
Corporation; Goldman Sachs & Co. and Merrill Lynch & Co., dated June 5, 1997 filed
as Exhibit 1 to Registration Statement 333-27715*
10.31 Distribution Agreement, dated March 2, 1998, among PHH Corporation, Credit Suisse
First Boston Corporation, Goldman Sachs & Co., Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith, Incorporated and J.P. Morgan Securities, Inc., filed as Exhibit
1 to Form 8-K dated March 3, 1998, File No. 107797*
10.32 Registration Rights Agreement, dated as of November 12, 1996, by and between HFS
Incorporated and Ms. Christel DeHaan (Incorporated by reference to HFS
Incorporated's Registration Statement on Form S-3 (Registration No. 333-17371),
Exhibit 2.2)*
10.33 License Agreement dated as of September 18, 1989 amended and restated as of
July 15, 1991 between Franchise System Holdings, Inc. and Ramada Franchise Systems,
Inc. (Incorporated by reference to HFS Incorporated's Registration Statement on
Form S-1 (Registration No. 33-51422), Exhibit No. 10.2)*
10.34 Restructuring Agreement dated as of July 15, 1991 by and among New World
Development Co., Ltd., Ramada International Hotels & Resorts, Inc. Ramada Inc.,
Franchise System Holdings, Inc., HFS Incorporated and Ramada Franchise Systems,
Inc. (Incorporated by reference to HFS Incorporated's Registration Statement on
Form S-1 (Registration No. 33-51422), Exhibit No. 10.3)*
10.35 License Agreement dated as of November 1, 1991 between Franchise Systems
Holdings, Inc. and Ramada Franchise Systems, Inc. (Incorporated by reference to HFS
Incorporated's Registration Statement on Form S-1 (Registration No. 33-51422),
Exhibit No. 10.4)*
10.36 Amendment to License Agreement, Restructuring Agreement and Certain Other
Restructuring Documents dated as of November 1, 1991 by and among New World
Development Co., Ltd., Ramada International Hotels & Resorts, Inc., Ramada Inc.,
Franchise System Holdings, Inc., HFS Incorporated and Ramada Franchise Systems,
Inc. (Incorporated by reference to HFS Incorporated's Registration Statement on
Form S-1 (Registration No. 33-51422), Exhibit No. 10.5)*
10.37 Master License Agreement dated July 30, 1997, among HFS Car Rental, Inc., Avis
Rent A Car System, Inc. and Wizard Co. (Incorporated by reference to HFS
Incorporated Form 10-Q for the quarter ended June 30, 1997, Exhibit 10.1)*
10.38 Term Loan Agreement, dated as of February 9, 1999, among Cendant Corporation, as
Borrower, the Lenders referred therein, Bank of America NT & SA, as Syndication
Agent, Barclays Bank, PLC, The Bank of Nova Scotia, Credit Lyonnais New York
Branch, as CoDocumentation Agents, First Union National Bank, and The Industrial
Bank of Japan, Limited, New York Branch, as Managing Agents, Credit Suisse First
Boston, The Sumitomo Bank, Limited, New York Branch, Banque Paribas, as
CoAgents and The Chase Manhattan Bank, as Administrative Agent (incorporated by
reference to Cendant Corporation's Form 8-K dated February 16, 1999 (File
No. 110308)).*
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------------------------------
<S> <C>
10.39 Internet Cooperation Agreement, dated October 1, 1999, between CompleteHome Operations,
Inc. and Century 21 Real Estate Corporation. (incorporated by reference to Cendant
Corporation Form 10-K/A dated February 4, 2000)*
10.40 Internet Cooperation Agreement, dated October 1, 1999, between CompleteHome Operations,
Inc. and Coldwell Banker Real Estate Corporation. (incorporated by reference to Cendant
Corporation Form 10-K/A dated February 4, 2000)*
10.41 Internet Cooperation Agreement, dated October 1, 1999, between CompleteHome Operations,
Inc. and ERA Franchise Systems, Inc. (incorporated by reference to Cendant
Corporation Form 10-K/A dated February 4, 2000)*
10.42 Internet Cooperation Agreement dated September 30, 1999 between CompleteHome.com, Inc.
and Getko Group, Inc. (incorporated by reference to Cendant Corporation Form 10-K/A
dated February 4, 2000)*
10.43 Move.com, Inc. 1999 Stock Option Plan (Incorporated by reference to Company's
Definitive Proxy Statement dated February 10, 2000)*
10.44 Cendant Corporation 1999 Non-Employee Directors Deferred Compensation Plan
10.45 Agreement with Samuel L. Katz, dated April 1, 1999.
12 Statement Re: Computation of Consolidated Ratio to Earnings to Fixed Charges
16.1 Letter re: change in certifying accountant (Incorporated by reference to the Company's
Form 8-K dated January 27, 1998)*
16.2 Letter re: change in certifying accountant of a significant subsidiary (Incorporated by
reference to the Company's Form 8-K dated May 18, 1998)*
21 Subsidiaries of Registrant
23 Consent of Deloitte & Touche LLP
27 Financial data schedule
</TABLE>
- ----------
* Incorporated by reference.
76
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report F-2
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999,
1998 and 1997 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cendant Corporation
We have audited the accompanying consolidated balance sheets of Cendant
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998
and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1999. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of recognizing revenue and
membership solicitation costs for its individual membership business.
/s/ Deloitte & Touche LLP
New York, New York
February 28, 2000
F-2
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
REVENUES
Membership and service fees, net $ 5,183 $ 5,081 $ 4,083
Fleet leasing (net of depreciation and interest costs of $670,
$1,279 and $1,205) 30 89 60
Other 189 114 97
------- ------- -------
Net revenues 5,402 5,284 4,240
------- ------- -------
EXPENSES
Operating 1,795 1,870 1,322
Marketing and reservation 1,017 1,158 1,032
General and administrative 671 666 636
Depreciation and amortization 371 323 238
Other charges:
Litigation settlement and related costs 2,894 351 --
Termination of proposed acquisitions 7 433 --
Executive terminations -- 53 --
Investigation-related costs 21 33 --
Merger-related costs and other unusual charges (credits) 110 (67) 704
Investigation-related financing costs -- 35 --
Interest, net 199 114 51
------- ------- -------
Total expenses 7,085 4,969 3,983
------- ------- -------
Net gain on dispositions of businesses 1,109 -- --
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST (574) 315 257
Provision (benefit) for income taxes (406) 104 191
Minority interest, net of tax 61 51 --
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS (229) 160 66
Discontinued operations:
Loss from discontinued operations, net of tax -- (25) (26)
Gain on sale of discontinued operations, net of tax 174 405 --
------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (55) 540 40
Extraordinary gain, net of tax -- -- 26
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (55) 540 66
Cumulative effect of accounting change, net of tax -- -- (283)
------- ------- -------
NET INCOME (LOSS) $ (55) $ 540 $ (217)
======= ======= =======
INCOME (LOSS) PER SHARE
BASIC
Income (loss) from continuing operations $ (0.30) $ 0.19 $ 0.08
Loss from discontinued operations -- (0.03) (0.03)
Gain on sale of discontinued operations 0.23 0.48 --
Extraordinary gain -- -- 0.03
Cumulative effect of accounting change -- -- (0.35)
------- ------- -------
NET INCOME (LOSS) $ (0.07) $ 0.64 $ (0.27)
======= ======= =======
DILUTED
Income (loss) from continuing operations $ (0.30) $ 0.18 $ 0.08
Loss from discontinued operations -- (0.03) (0.03)
Gain on sale of discontinued operations 0.23 0.46 --
Extraordinary gain -- -- 0.03
Cumulative effect of accounting change -- -- (0.35)
------- ------- -------
NET INCOME (LOSS) $ (0.07) $ 0.61 $ (0.27)
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,164 $ 1,009
Receivables (net of allowance for doubtful accounts of $68 and $123) 1,026 1,535
Deferred income taxes 1,427 467
Deferred membership commission costs 193 253
Other current assets 782 909
Net assets of discontinued operations -- 374
-------- -------
Total current assets 4,592 4,547
-------- -------
Property and equipment (net of accumulated depreciation of $390
and $491) 1,347 1,433
Franchise agreements (net of accumulated amortization of $216 and $169) 1,410 1,363
Goodwill (net of accumulated amortization of $297 and $248) 3,271 3,923
Other intangibles (net of accumulated amortization of $143 and $117) 662 757
Other assets 1,141 682
-------- -------
Total assets exclusive of assets under programs 12,423 12,705
-------- -------
Assets under management and mortgage programs
Relocation receivables 530 659
Mortgage loans held for sale 1,112 2,416
Mortgage servicing rights 1,084 636
Net investment in leases and leased vehicles -- 3,801
-------- -------
2,726 7,512
-------- -------
TOTAL ASSETS $ 15,149 $20,217
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and other current liabilities $ 1,279 $ 1,518
Current portion of debt 400 --
Shareholder litigation settlement and related costs 2,892 --
Deferred income 1,039 1,354
-------- -------
Total current liabilities 5,610 2,872
-------- -------
Deferred income 413 234
Long-term debt 2,445 3,363
Other noncurrent liabilities 373 202
-------- -------
Total liabilities exclusive of liabilities under programs 8,841 6,671
-------- -------
Liabilities under management and mortgage programs
Debt 2,314 6,897
Deferred income taxes 310 341
-------- -------
2,624 7,238
-------- -------
Mandatorily redeemable preferred securities issued by subsidiary holding
solely senior debentures issued by the Company 1,478 1,472
-------- -------
Commitments and contingencies (Note 17)
Shareholders' equity
Preferred stock, $.01 par value -- authorized 10 million shares; none
issued and outstanding -- --
Common stock, $.01 par value -- authorized 2 billion shares; issued
870,399,635 and 860,551,783 shares 9 9
Additional paid-in capital 4,102 3,863
Retained earnings 1,425 1,480
Accumulated other comprehensive loss (42) (49)
Treasury stock, at cost, 163,818,148 and 27,270,708 shares (3,288) (467)
-------- -------
Total shareholders' equity 2,206 4,836
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,149 $20,217
======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (55) $ 540 $ (217)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities from continuing operations:
Loss from discontinued operations, net of tax -- 25 26
Gain on sale of discontinued operations, net of tax (174) (405) --
Extraordinary gain on sale of subsidiary, net of tax -- -- (26)
Cumulative effect of accounting change, net of tax -- -- 283
Asset impairments and termination benefits -- 63 --
Net gain on dispositions of businesses (1,109) -- --
Litigation settlement and related costs 2,894 351 --
Merger-related costs and other unusual charges (credits) 110 (67) 704
Payments of merger-related costs and other unusual charges (135) (158) (318)
Depreciation and amortization 371 323 238
Proceeds from sales of trading securities 180 136 --
Purchases of trading securities (146) (182) --
Deferred income taxes 252 (111) (24)
Net change in assets and liabilities from continuing operations:
Receivables (193) (126) (96)
Deferred membership commission costs 60 (87) --
Income taxes receivable (133) (98) (84)
Accounts payable and other current liabilities (500) 96 (87)
Deferred income (88) 82 135
Other, net (303) (54) (55)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING
OPERATIONS EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAMS 1,031 328 479
--------- --------- ---------
Management and mortgage programs:
Depreciation and amortization 698 1,260 1,122
Origination of mortgage loans (25,025) (26,572) (12,217)
Proceeds on sale and payments from mortgage loans
held for sale 26,328 25,792 11,829
--------- --------- ---------
2,001 480 734
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING
OPERATIONS 3,032 808 1,213
--------- --------- ---------
INVESTING ACTIVITIES
Property and equipment additions (277) (355) (155)
Proceeds from sales of marketable securities 741 -- 506
Purchases of marketable securities (672) -- (458)
Investments (18) (24) (273)
Net assets acquired (net of cash acquired) and
acquisition-related payments (205) (2,852) (567)
Net proceeds from dispositions of businesses 3,509 314 224
Other, net 47 107 (109)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FROM
CONTINUING OPERATIONS EXCLUSIVE OF MANAGEMENT AND MORTGAGE
PROGRAMS 3,125 (2,810) (832)
--------- --------- ---------
</TABLE>
F-5
<PAGE>
CENDANT CORPORATIONAND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ --------------
<S> <C> <C> <C>
Management and mortgage programs:
Investment in leases and leased vehicles $ (2,378) $ (2,447) $(2,069)
Payments received on investment in leases and leased
vehicles 1,529 987 589
Proceeds from sales and transfers of leases and leased
vehicles to third parties 75 183 186
Equity advances on homes under management (7,608) (6,484) (6,845)
Repayment on advances on homes under
management 7,688 6,624 6,863
Additions to mortgage servicing rights (727) (524) (270)
Proceeds from sales of mortgage servicing rights 156 119 49
-------- -------- -------
(1,265) (1,542) (1,497)
-------- -------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FROM
CONTINUING OPERATIONS 1,860 (4,352) (2,329)
-------- -------- -------
FINANCING ACTIVITIES
Proceeds from borrowings 1,719 4,809 67
Principal payments on borrowings (2,213) (2,596) (174)
Issuance of convertible debt -- -- 544
Issuance of common stock 127 171 132
Repurchases of common stock (2,863) (258) (171)
Proceeds from mandatorily redeemable preferred
securities issued by subsidiary holding solely senior
debentures issued by the Company -- 1,447 --
Other, net -- -- (7)
-------- -------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES FROM
CONTINUING OPERATIONS EXCLUSIVE OF MANAGEMENT AND
MORTGAGE PROGRAMS (3,230) 3,573 391
-------- -------- ---------
Management and mortgage programs:
Proceeds received for debt repayment in connection
with disposal of fleet segment 3,017 -- --
Proceeds from debt issuance or borrowings 5,263 4,300 2,816
Principal payments on borrowings (7,838) (3,090) (1,693)
Net change in short-term borrowings (2,000) (93) (613)
-------- -------- ---------
(1,558) 1,117 510
-------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES FROM
CONTINUING OPERATIONS (4,788) 4,690 901
-------- -------- ---------
Effect of changes in exchange rates on cash and cash
equivalents 51 (16) 15
-------- -------- ---------
Net cash used in discontinued operations -- (188) (181)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents 155 942 (381)
Cash and cash equivalents, beginning of period 1,009 67 448
-------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,164 $ 1,009 $ 67
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments $ 451 $ 543 $ 375
======== ======== =========
Income tax payments (refunds), net $ (46) $ (23) $ 265
======== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
----------------- PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME STOCK EQUITY
-------- -------- ------------ ------------ --------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 808 $ 8 $2,843 $1,186 $ (6) $ (75) $3,956
COMPREHENSIVE LOSS:
Net loss -- -- -- (217) -- --
Currency translation
adjustment -- -- -- -- (28) --
Unrealized loss on
marketable securities,
net of tax of $2 -- -- -- -- (4) --
TOTAL COMPREHENSIVE LOSS -- -- -- -- -- -- (249)
Issuance of common stock 6 -- 46 -- -- -- 46
Exercise of stock options 11 -- 133 -- -- (18) 115
Tax benefit from exercise of
stock options -- -- 94 -- -- -- 94
Amortization of restricted stock -- -- 28 -- -- -- 28
Cash dividends declared -- -- -- (7) -- -- (7)
Adjustment to reflect change in
fiscal year from Cendant
Merger -- -- -- (22) -- -- (22)
Conversion of convertible notes 20 -- 151 -- -- -- 151
Repurchase of common stock -- -- -- -- -- (171) (171)
Retirement of treasury stock (7) -- (190) -- -- 190 --
Other -- -- (20) -- -- -- (20)
--- --- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1997 838 8 3,085 940 (38) (74) 3,921
COMPREHENSIVE INCOME:
Net income -- -- -- 540 -- -- --
Currency translation
adjustment -- -- -- -- (11) -- --
TOTAL COMPREHENSIVE INCOME -- -- -- -- -- -- 529
Exercise of stock options 17 1 168 -- -- -- 169
Tax benefit from exercise of
stock options -- -- 147 -- -- -- 147
Conversion of convertible notes 6 -- 114 -- -- -- 114
Repurchase of common stock -- -- -- -- -- (258) (258)
Mandatorily redeemable
preferred securities
issued by subsidiary
holding solely senior
debentures issued by the
Company -- -- (66) -- -- -- (66)
Common stock received as
consideration in sale of
discontinued operations -- -- -- -- -- (135) (135)
Rights issuable -- -- 350 -- ---- -- 350
Other -- -- 65 -- -- -- 65
--- --- ------ ------ ----- ------ ------
BALANCE AT DECEMBER 31, 1998 861 $ 9 $3,863 $1,480 $ (49) $ (467) $4,836
</TABLE>
F-7
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
----------------- PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME/(LOSS) STOCK EQUITY
-------- -------- ------------ ---------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 861 $ 9 $3,863 $1,480 $ (49) $ (467) $ 4,836
COMPREHENSIVE LOSS:
Net loss -- -- -- (55) -- --
Currency translation
adjustment -- -- -- -- (69) --
Unrealized gain on
marketable securities,
net of tax of $22 -- -- -- -- 37 --
Reclassification adjustments,
net of tax of $13 -- -- -- -- 39 --
TOTAL COMPREHENSIVE LOSS -- -- -- -- -- -- (48)
Exercise of stock options 9 -- 81 -- -- 42 123
Tax benefit from exercise of
stock options -- -- 52 -- -- -- 52
Repurchase of common stock -- -- -- -- -- (2,863) (2,863)
Modifications of stock option
plans due to dispositions of
businesses -- -- 83 -- -- -- 83
Rights issuable -- -- 22 -- -- -- 22
Other -- -- 1 -- -- -- 1
--- --- ------ ------ ----- -------- --------
BALANCE AT DECEMBER 31, 1999 870 $ 9 $4,102 $1,425 $ (42) $ (3,288) $ 2,206
=== === ====== ====== ===== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Cendant Corporation is a global provider of a wide range of complementary
consumer and business services. The Consolidated Financial Statements include
the accounts of Cendant Corporation and its wholly-owned subsidiaries
(collectively, "the Company" or "Cendant"). In presenting the Consolidated
Financial Statements, management makes estimates and assumptions that
affect reported amounts and related disclosures. Estimates, by their
nature, are based on judgement and available information. As such, actual
results could differ from those estimates. Certain reclassifications have
been made to prior year amounts to conform to the current year
presentation. Unless otherwise noted, all dollar amounts presented are in
Millions, except per share amounts.
INVESTMENTS IN AFFILIATES
Investments in affiliates over which the Company has significant influence
but not a controlling interest are carried on the equity basis of
accounting.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION
Property and equipment is depreciated based upon a straight-line method over
the estimated useful lives of the related assets. Amortization of leasehold
improvements is computed utilizing the straight-line method over the
estimated useful lives of the related assets or the lease term, if shorter.
Franchise agreements for hotel, real estate brokerage, car rental and tax
return preparation services are amortized on a straight-line basis over the
estimated periods to be benefited, ranging from 12 to 40 years.
GOODWILL
Goodwill, which represents the excess of cost over fair value of net assets
acquired, is amortized on a straight-line basis over the estimated periods
to be benefited, substantially ranging from 25 to 40 years.
Other intangibles are amortized on a straight-line method over the
estimated periods to be benefited.
ASSET IMPAIRMENT
The Company periodically evaluates the recoverability of its investments,
intangible assets and long-lived assets, comparing the respective carrying
values to the current and expected future cash flows, on an undiscounted
basis, to be generated from such assets. Property and equipment is evaluated
separately within each business. The recoverability of goodwill and
franchise agreements is evaluated on a separate basis for each acquisition
and franchise brand, respectively. Any enterprise goodwill and franchise
agreements are also evaluated using the undiscounted cash flow method.
Based on an evaluation of its intangible assets and in connection with the
Company's regular forecasting processes during 1998, the Company determined
that $37 million of goodwill associated with a Company subsidiary, National
Library of Poetry, was permanently impaired. In addition, the Company had
equity investments in various businesses, which were generating negative
cash flows and were unable to access sufficient liquidity through equity or
debt offerings. As a result, the Company wrote off $13 million of such
investments in 1998. The aforementioned impairments impacted the Company's
diversified services segment and are classified as operating expenses in the
Consolidated Statements of Operations.
F-9
<PAGE>
REVENUE RECOGNITION AND BUSINESS OPERATIONS
Franchising. Franchise revenue principally consists of royalties, as well as
marketing and reservation fees, which are based on a percentage of
franchisee revenue. Royalty, marketing, and reservation fees are accrued as
the underlying franchisee revenue is earned. Franchise revenue also includes
initial franchise fees, which are recognized as revenue when all material
services or conditions relating to the sale have been substantially
performed, which is generally when a franchised unit is opened.
Timeshare. Timeshare revenue principally consists of exchange fees and
subscription revenue. Exchange fees are recognized as revenue when the
exchange request has been confirmed to the subscribing members. Subscription
revenue represents the fees from subscribing members. There is no separate
fee charged for the participation in the timeshare exchange network.
Subscription revenue, net of related procurement costs, is deferred upon
receipt and recognized as revenue over the subscription period during which
delivery of publications and other services are provided to the subscribing
members. Subscriptions are cancelable and refundable on a prorata basis.
Subscription procurement costs are expensed as incurred. Such costs were $31
million for each of the years ended December 31, 1999 and 1998 and $27
million for the year ended December 31, 1997.
Individual Membership. Membership revenue is generally recognized upon the
expiration of the membership period. Memberships are generally cancelable
for a full refund of the membership fee during the entire membership period,
generally one year. Certain memberships are subject to a pro rata refund.
Revenues for such memberships are recognized ratably over the membership
period.
Insurance/Wholesale. Commissions received from the sale of third party
accidental death and dismemberment insurance are recognized over the
underlying policy period. The Company also receives a share of the excess of
premiums paid to insurance carriers less claims experience to date, claims
incurred but not reported and carrier management expenses. Such profit
commissions are accrued based on claims experience to date, including an
estimate of claims incurred but not reported.
During 1999, the Company changed the amortization period for customer
acquisition costs related to accidental death and dismemberment insurance
products, which resulted in a reduction in expenses of $16 million ($10
million, after tax or $0.01 per diluted share). The change was based upon
new information becoming available to determine customer retention rates.
Relocation. Relocation services provided by the Company include facilitating
the purchase and resale of the transferee's residence, providing equity
advances on the transferee's residence and home management services. The
home is purchased under a contract of sale and the Company obtains a deed to
the property; however, it does not generally record the deed or transfer
title. Transferring employees are provided equity advances on the home based
on their ownership equity of the appraised home value. The mortgage is
generally retired concurrently with the advance of the equity and the
purchase of the home. Based on its client agreements, the Company is given
parameters under which it negotiates for the ultimate sale of the home. The
gain or loss on resale is generally borne by the client corporation. In
certain transactions, the Company will assume the risk of loss on the sale
of homes; however, in such transactions, the Company will control all facets
of the resale process, thereby, limiting its exposure.
While homes are held for resale, the amount funded for such homes carry an
interest charge computed at a floating rate. Direct costs of managing the
home during the period the home is held for resale, including property taxes
and repairs and maintenance, are generally borne by the client corporation.
The client corporation generally advances funds to cover a portion of such
carrying costs.
Revenues and related costs associated with the purchase and resale of a
transferee's residence are recognized as services are provided. Relocation
services revenue is generally recorded net of costs reimbursed by client
corporations and interest expense incurred to fund the purchase of a
transferee's residence. Revenue for other fee-based programs, such as home
marketing assistance, household goods moves, and destination services are
recognized over the periods in which the services are provided and the
related expenses are incurred.
F-10
<PAGE>
Mortgage. Loan origination fees, commitment fees paid in connection with the
sale of loans, and certain direct loan origination costs associated with
loans are deferred until such loans are sold. Mortgage loans are recorded at
the lower of cost or market value on an aggregate basis. Sales of mortgage
loans are generally recorded on the date a loan is delivered to an investor.
Gains or losses on sales of mortgage loans are recognized based upon the
difference between the selling price and the carrying value of the related
mortgage loans sold. See Note 9 -- Mortgage Loans Held For Sale.
Fees received for servicing loans owned by investors are credited to income
when earned. Costs associated with loan servicing are charged to expense as
incurred.
Mortgage servicing rights ("MSRs") are amortized over the estimated life of
the related loan portfolio in proportion to projected net servicing
revenues. Such amortization is recorded as a reduction of net servicing
revenue in the Consolidated Statements of Operations. The Company estimates
future prepayment rates based on current interest rate levels, other
economic conditions and market forecasts, as well as relevant
characteristics of the servicing portfolio, such as loan types, interest
rate stratification, and recent prepayment experience. Gains or losses on
the sale of MSRs are recognized when title and all risks and rewards have
irrevocably passed to the buyer and there are no significant unresolved
contingencies. See Note 10 -- Mortgage Servicing Rights.
Fleet. The Company primarily leased its vehicles under three standard
arrangements: open-end operating leases, closed-end operating leases or
open-end finance leases (direct financing leases). Each lease was either
classified as an operating lease or a direct financing lease, as defined.
Lease revenues were recognized based on rentals. Revenues from fleet
management services other than leasing were recognized over the period in
which services were provided and the related expenses were incurred. See Note
3 -- Dispositions and Acquisitions of Businesses.
ADVERTISING EXPENSES
Advertising costs, including direct response advertising related to
membership programs, are generally expensed in the period incurred.
Advertising expenses for the years ended December 31, 1999, 1998 and 1997
were $589 million, $685 million and $574 million, respectively.
CHANGE IN ACCOUNTING POLICY
In August 1998, the Company changed its accounting policy with respect to
revenue and expense recognition for its membership businesses, effective
January 1, 1997. Prior to such adoption, the Company recorded deferred
membership income, net of estimated cancellations, at the time members were
billed (upon expiration of the free trial period), which was recognized as
revenue ratably over the membership term and modified periodically based on
actual cancellation experience. In addition, membership acquisition and
renewal costs, which related primarily to membership solicitations, were
capitalized as direct response advertising costs due to the Company's
ability to demonstrate that the direct response advertising resulted in
future economic benefits. Such costs were amortized on a straight-line basis
as revenues were recognized (over the average membership period).
The Company concluded that when membership fees are fully refundable during
the entire membership period, membership revenue should be recognized at the
end of the membership period upon the expiration of the refund offer. The
Company further concluded that non-refundable solicitation costs should be
expensed as incurred since such costs are not recoverable if membership fees
are refunded. The Company adopted such accounting policy effective January
1, 1997 and accordingly, recorded a non-cash charge of $450 million ($283
million, after tax) on such date to account for the cumulative effect of the
accounting change.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137 "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities",
issued in June 1998, to fiscal years commencing after June 15, 2000. SFAS
No. 133 requires that all derivatives be recorded in the Consolidated
Balance Sheets as assets or liabilities and measured at fair
F-11
<PAGE>
value. If the derivative does not qualify as a hedging instrument, changes
in fair value are to be recognized in net income. If the derivative does
qualify as a hedging instrument, changes in fair value are to be recognized
either in net income or other comprehensive income consistent with the asset
or liability being hedged. The Company has developed an implementation plan
to adopt SFAS No. 133. Completion of the implementation plan and
determination of the impact of adopting SFAS No. 133 is expected to be
completed by the fourth quarter of 2000. The Company will adopt SFAS No. 133
on January 1, 2001, as required.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements." SAB No. 101 draws upon the existing accounting rules and
explains those rules, by analogy, to other transactions that the existing
rules do not specifically address. In accordance with SAB No. 101, the
Company will revise certain revenue recognition policies regarding the
recognition of non-refundable one-time fees and the recognition of pro rata
refundable subscription revenues. The Company will adopt SAB No. 101 on
January 1, 2000, as required, and will record a non-cash charge of
approximately $89 million ($56 million, after tax) to account for the
cumulative effect of the accounting change.
2. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed based solely on the weighted
average number of common shares outstanding during the period. Diluted EPS
further reflects all potential dilution of common stock, including the
assumed exercise of stock options and warrants using the treasury method,
and convertible debt. At December 31, 1999, 183 million stock options (with
a weighted average exercise price of $15.24 per option) and 2 million stock
warrants (with a weighted average exercise price of $16.77 per warrant) were
outstanding and antidilutive. At December 31, 1998 and 1997, 38 million
stock options (with a weighted average exercise price of $29.58 per option)
and 54 million stock options (with a weighted average exercise price of
$31.16 per option), respectively, were outstanding and antidilutive.
Therefore, such options and warrants were excluded from the computation of
diluted EPS. In addition, the Company's 3% convertible subordinated notes
convertible into 18 million shares of Company common stock were antidultive;
therefore, such notes were excluded from the computation of diluted EPS at
December 31, 1999, 1998 and 1997. Diluted weighted average shares were
calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Weighted average shares for basic EPS 751 848 811
Stock options -- 32 41
--- --- ---
Weighted average shares for diluted EPS 751 880 852
=== === ===
</TABLE>
3. DISPOSITIONS AND ACQUISITIONS OF BUSINESSES
DISPOSITIONS
Entertainment Publications, Inc. On November 30, 1999, the Company completed
the sale of approximately 85% of its Entertainment Publications, Inc.
("EPub") business unit for $281 million in cash. The Company retained
approximately 15% of EPub's common equity in connection with the transaction.
In addition, the Company has a designee on EPub's Board of Directors. The
Company accounts for its investment in EPub using the equity method. The
Company realized a net gain of approximately $156 million ($78 million,
after tax). EPub is a marketer and publisher of coupon books and discount
programs which provides customers with unique products and services that
are designed to enhance a customer's purchasing power.
Green Flag. On November 26, 1999, the Company completed the sale of its
Green Flag business unit for approximately $401 million in cash, including
dividends of $37 million. The Company realized a net gain of approximately
$27 million ($8 million, after tax). Green Flag is a roadside assistance
organization based in the UK, which provides a wide range of emergency
support and rescue services.
F-12
<PAGE>
Fleet. On June 30, 1999, the Company completed the disposition of the fleet
business segment ("fleet segment" or "fleet businesses") pursuant to an
agreement between PHH Corporation ("PHH"), a wholly-owned subsidiary of the
Company, and Avis Rent A Car, Inc. ("ARAC"). Pursuant to the agreement, ARAC
acquired the net assets of the fleet businesses through the assumption and
subsequent repayment of $1.44 billion of intercompany debt and the issuance
of $360 million of convertible preferred stock of Avis Fleet Leasing and
Management Corporation ("Avis Fleet"), a wholly-owned subsidiary of ARAC.
Coincident with the closing of the transaction, ARAC refinanced the assumed
debt under management programs which was payable to the Company.
Accordingly, the Company received additional consideration from ARAC
comprised of $3.0 billion of cash proceeds and a $30 million receivable.
The convertible preferred stock of Avis Fleet is convertible into common
stock of ARAC at the Company's option upon the satisfaction of certain
conditions, including the per share price of ARAC Class A common stock
equaling or exceeding $50 per share and the fleet segment attaining certain
EBITDA (earnings before interest, income taxes, depreciation and
amortization) thresholds, as defined. There are additional circumstances
upon which the shares of Avis Fleet convertible preferred stock are
automatically or mandatorily convertible into ARAC common stock.
The Company realized a net gain on the disposition of the fleet business
segment of $881 million ($866 million, after tax) of which $715 million
($702 million, after tax) was recognized at the time of closing and $166
million ($164 million, after tax) was deferred at the date of disposition.
The realized gain is net of approximately $90 million of transaction costs.
The Company deferred the portion of the realized net gain, which was
equivalent to its common equity ownership percentage in ARAC at the time of
closing. The deferred gain is being recognized into income over forty years,
which is consistent with the period ARAC is amortizing the goodwill
generated from the transaction and is included within other revenue in the
Consolidated Statements of Operations ($2 million in 1999). During 1999, the
Company recognized $9 million of the deferred portion of the realized net
gain due to the sale of a portion of the Company's ownership of ARAC. The
deferred net gain is included in deferred income as presented in the
Consolidated Balance Sheet at December 31, 1999. The fleet segment
disposition was structured as a tax-free reorganization and, accordingly, no
tax provision has been recorded on a majority of the gain. However, pursuant
to a recent interpretive ruling, the Internal Revenue Service ("IRS") has
taken the position that similarly structured transactions do not qualify as
tax-free reorganizations under the Internal Revenue Code Section
368(a)(1)(A). If the transaction is not considered a tax-free
reorganization, the resultant incremental liability could range between $10
million and $170 million depending upon certain factors including
utilization of tax attributes and contractual indemnification provisions.
Notwithstanding the IRS interpretive ruling, the Company believes that,
based upon analysis of current tax law, its position would prevail, if
challenged.
Other 1999 Dispositions. The Company completed the dispositions of certain
businesses, including North American Outdoor Group, Central Credit, Inc.,
Global Refund Group, Spark Services, Inc., Match.com, National Leisure Group
and National Library of Poetry. Aggregate consideration received on such
dispositions was comprised of approximately $407 million in cash, including
dividends of $21 million, and $43 million in marketable securities. The
Company realized a net gain of $202 million ($81 million, after tax) on the
dispositions of these businesses.
Interval International Inc. On December 17, 1997, as directed by the Federal
Trade Commission in connection with a merger, the Company sold all of the
outstanding shares of its timeshare exchange businesses, Interval
International Inc. ("Interval"), for net proceeds of $240 million less
transaction related costs amortized as services were provided. The Company
recognized a gain on the sale of Interval of $77 million ($26 million, after
tax) was reflected as an extraordinary gain in the Consolidated Statements
of Operations.
ACQUISITIONS
During 1998, the Company completed the acquisitions of National Parking
Corporation Limited ("NPC"), The Harpur Group Ltd. ("Harpur"), Jackson
Hewitt Inc. ("Jackson Hewitt") and certain other entities, which were
accounted for using the purchase method of accounting. Accordingly, assets
F-13
<PAGE>
acquired and liabilities assumed were recorded at their fair values. The
excess of purchase price over the fair value of the underlying net assets
acquired was allocated to goodwill. During 1999 and 1998, the Company
recorded additional goodwill of $50 million and $100 million, respectively,
in satisfaction of a contingent purchase liability to the seller of Resort
Condominiums International, Inc., a Company acquired in 1996. The operating
results of such acquired entities are included in the Company's
Consolidated Statements of Operations since the respective dates of
acquisition. The following table presents information about the
acquisitions.
<TABLE>
<CAPTION>
JACKSON
NPC HARPUR HEWITT OTHER
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Cash paid $1,638 $206 $476 $564
Fair value of identifiable net assets
acquired (1) 590 51 99 218
------ ---- ---- ----
Goodwill $1,048 $155 $377 $346
====== ==== ==== ====
Goodwill benefit period (years) 40 40 40 25 to 40
====== ==== ==== ========
</TABLE>
(1) Cash acquired in connection with these acquisitions was $58 million.
4. DISCONTINUED OPERATIONS
On January 12, 1999, the Company completed the sale of Cendant Software
Corporation ("CDS"), a developer, publisher and distributor of educational
and entertainment software, for net cash proceeds of $770 million. The
Company realized a net gain of $323 million ($372 million, after tax) on the
disposition of CDS, of which $299 million ($174 million, after tax) was
recognized during 1999 and $24 million ($198 million, after tax) was
recognized during 1998, substantially in the form of a tax benefit and
corresponding deferred tax asset.
On December 15, 1998, the Company completed the sale of Hebdo Mag
International, Inc. ("Hebdo Mag"), a publisher and distributor of classified
advertising information. The Company received $315 million in cash and 7
million shares of Company common stock valued at $135 million (approximately
$19 per share market value) on the date of sale. The Company recognized a
net gain of $155 million ($207 million, after tax) on the sale of Hebdo Mag
partially in the form of a tax benefit.
Summarized financial data of discontinued operations for the years ended
December 31, consisted of:
<TABLE>
<CAPTION>
CDS HEBDO MAG
-------------------- -------------------
1998 1997 1998 1997
--------- -------- ------ ----------
<S> <C> <C> <C> <C>
Net revenues $ 346 $434 $202 $209
===== ==== ==== ====
Income (loss) before income
taxes $ (57) $ (6) $ 17 $ (4)
Provision (benefit) for income
taxes (23) 2 8 (1)
Extraordinary loss from early
extinguishment of debt, net of
$5 million tax benefit -- -- -- (15)
----- ---- ---- ----
Net income (loss) $ (34) $ (8) $ 9 $(18)
===== ==== ==== ====
</TABLE>
The Company allocated $20 million of interest expense to discontinued
operations for the year ended December 31, 1998. Such interest expense
represents the cost of funds associated with businesses acquired by the
discontinued business segments at an interest rate consistent with the
Company's consolidated effective borrowing rate.
F-14
<PAGE>
Net assets of CDS at December 31, 1998 were comprised of current assets of
$285 million, goodwill of $106 million, other assets of $88 million and
total liabilities of $105 million.
5. OTHER CHARGES
LITIGATION SETTLEMENTS
Common Stock Litigation Settlement. On December 7, 1999, the Company reached
a preliminary agreement to settle the principal securities class action
pending against the Company, other than certain claims relating to FELINE
PRIDES securities discussed below. This settlement is subject to final
documentation and court approval. See Note 17 -- Commitments and
Contingencies.
FELINE PRIDES Litigation Settlement. On March 17, 1999, the Company reached
a final agreement (the "FELINE PRIDES settlement") to settle the class
action lawsuit that was brought on behalf of the holders of Income or Growth
FELINE PRIDES ("PRIDES") securities who purchased their securities on or
prior to April 15, 1998. See Note 13 -- Mandatorily Redeemable Trust
Preferred Securities Issued by Subsidiary Holding Solely Senior Debentures
Issued by the Company.
TERMINATION OF PROPOSED ACQUISITIONS
On February 4, 1999, the Company announced its intention not to proceed with
the acquisition of RAC Motoring Services ("RACMS") due to certain conditions
imposed by the UK Secretary of State of Trade and Industry that the Company
determined not to be commercially feasible and therefore unacceptable. In
connection with such termination, the Company wrote off $7 million of
deferred acquisition costs.
On October 13, 1998, the Company and American Bankers Insurance Group, Inc.
("American Bankers") terminated an agreement which provided for the
Company's acquisition of American Bankers. In connection with this
agreement, the Company made a $400 million cash payment to American Bankers
and wrote-off $32 million of costs, primarily professional fees, resulting
in a total charge of $432 million.
On October 5, 1998, the Company announced the termination of an agreement to
acquire Providian Auto and Home Insurance Company. In connection with the
termination of this agreement, the Company wrote off $1 million of costs.
EXECUTIVE TERMINATIONS
The Company incurred $53 million of costs on July 28, 1998 related to the
termination of certain former executives, principally Walter A. Forbes, who
resigned as Chairman and as a member of the Board of Directors. Aggregate
benefits given to Mr. Forbes resulted in a charge of $51 million, comprised
of $38 million in cash payments and approximately one million Company stock
options, with a fair value of $13 million, as calculated by the
Black-Scholes model. Such options were immediately vested and expire on July
28, 2008. The main benefit to the Company from Mr. Forbes' termination was
the resolution of the division of governance issues that existed at the time
between the members of the Board of Directors formerly associated with CUC
International, Inc. ("CUC") and the members of the Board of Directors
formerly associated with HFS Incorporated ("HFS").
INVESTIGATION-RELATED COSTS
The Company incurred professional fees, public relations costs and other
miscellaneous expenses of $21 million and $33 million during 1999 and 1998,
respectively, in connection with accounting irregularities and resulting
investigations into such matters.
INVESTIGATION-RELATED FINANCING COSTS
In connection with the Company's discovery and announcement of accounting
irregularities on April 15, 1998 and the corresponding lack of audited
financial statements, the Company was temporarily prohibited from accessing
public debt markets. As a result, the Company paid $28 million in fees
associated with waivers and various financing arrangements. Additionally,
during 1998, the Company exercised its option to redeem its 4 3/4%
Convertible Senior Notes (the "4 3/4% Notes"). At such time, the Company
anticipated that all holders of the 4 3/4% Notes would elect to convert the
F-15
<PAGE>
4 3/4% Notes to Company common stock. However, at the time of redemption,
holders of the 4 3/4% Notes elected not to convert the 4 3/4% Notes to
Company common stock resulting in the Company redeeming such notes at a
premium. Accordingly, the Company recorded a $7 million loss on such
redemption.
1999 MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES
On September 15, 1999, Netmarket Group, Inc. ("NGI") began operations as an
independent company that pursues the development of certain interactive
businesses formerly within the Company's direct marketing division. NGI
owns, operates and develops the online membership businesses, which
collectively have approximately 1.4 million online members. Prior to
September 15, 1999, the Company's ownership of NGI was restructured into
common stock and preferred stock interests. On September 15, 1999 (the
"donation date"), the Company donated NGI's outstanding common stock to a
charitable trust, and NGI issued additional shares of its common stock to
certain of its marketing partners. The fair market value of the NGI common
stock on the donation date was approximately $20 million. Accordingly, as a
result of the change in ownership of NGI's common stock from the Company to
independent third parties, prospective from the donation date, NGI's
operating results are no longer included in the Company's Consolidated
Financial Statements. The Company retained an ownership interest in a
convertible preferred stock of NGI, which is ultimately convertible, at the
Company's option, beginning September 14, 2001, into approximately 78% of
NGI's diluted common shares. The convertible preferred stock is accounted
for using the cost method of accounting. The convertible preferred stock
has a $5 million annual preferred dividend, which will be recorded in
income if and when it becomes realizable. Subsequent to the Company's
contribution of NGI's common stock to the charitable trust, the Company
provided a development advance of $77 million to NGI, which is contingently
repayable to the Company if certain financial targets related to NGI are
achieved. The purpose of the development advance was to provide NGI with
the funds necessary to develop Internet related products and systems, that
if successful, would significantly increase the value of NGI. Without these
funds, NGI would not have sufficient funds for development activities
contemplated in its business plans. Repayment of the advance is therefore
solely dependent on the success of the development efforts. The Company
recorded a charge, inclusive of transaction costs, of $85 million in
connection with the donation of NGI shares to the charitable trust and the
subsequent development advance.
During 1999, the Company incurred $23 million of additional charges to fund
an irrevocable contribution to the independent technology trust responsible
for completing the transition of the Company's lodging franchisees to a
Company sponsored property management system and $2 million of costs
primarily resulting from further consolidation of European call centers in
Cork, Ireland which are included below as a component of the 1999 adjustment
activity for the Fourth Quarter 1997 Charge.
1997 MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES (CREDITS)
Fourth Quarter 1997 Charge. The Company incurred unusual charges ("Unusual
Charges") in the fourth quarter of 1997 totaling $455 million substantially
associated with the merger of HFS and CUC (the "Cendant Merger") and the
merger in October 1997 with Hebdo Mag. Reorganization plans were formulated
prior to and implemented as a result of the mergers. The Company determined
to streamline its corporate organization functions and eliminate several
office locations in overlapping markets. Management's plan included the
consolidation of European call centers in Cork, Ireland and terminations of
franchised hotel properties. Liabilities associated with Unusual Charges are
classified as a component of accounts payable and other current liabilities.
The reduction of such liabilities from inception is summarized by category
of expenditure as follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
1997
UNUSUAL 1997 1998 1998
CHARGES REDUCTIONS REDUCTIONS ADJUSTMENTS
--------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Professional fees $ 93 $ (43) $ (38) $(10)
Personnel related 171 (45) (61) (4)
Business terminations 78 (78) 1 (1)
Facility related and
other 113 (92) (5) (12)
----- ------ ----- ----
Total Unusual Charges 455 (258) (103) (27)
Reclassification for
discontinued
operations (18) 18 -- --
----- ------ ----- ----
Total Unusual Charges
related to continuing
operations $ 437 $ (240) $(103) $(27)
===== ====== ===== ====
<CAPTION>
1999 ACTIVITY
BALANCE AT ------------------------ BALANCE AT
DECEMBER 31, CASH DECEMBER 31,
1998 PAYMENTS ADJUSTMENTS 1999
-------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Professional fees $ 2 $(1) $ -- $ 1
Personnel related 61 (5) 3 59
Business terminations --- --- ---- ---
Facility related and
other 4 (2) (1) 1
--- --- ---- ---
Total Unusual Charges 67 (8) 2 61
Reclassification for
discontinued
operations -- -- -- --
--- --- ---- ---
Total Unusual Charges
related to continuing
operations $67 $(8) $ 2 $61
=== === ==== ===
</TABLE>
Professional fees primarily consisted of investment banking, legal and
accounting fees incurred in connection with the mergers. Personnel related
costs included $73 million of retirement and employee benefit plan costs,
$24 million of restricted stock compensation, $61 million of severance
resulting from consolidations of European call centers and certain corporate
functions and $13 million of other personnel related costs. The Company
provided for 474 employees to be terminated, substantially all of which have
been severed. Business termination costs consisted of a $48 million
impairment write-down of hotel franchise agreement assets associated with a
quality upgrade program and $30 million of costs incurred to terminate a
contract which may have restricted the Company from maximizing opportunities
afforded by the Cendant Merger. Facility related and other unusual charges
included $70 million of irrevocable contributions to independent technology
trusts for the direct benefit of lodging and real estate franchisees, $16
million of building lease termination costs, and a $22 million reduction in
intangible assets associated with the Company's wholesale annuity business
for which impairment was determined in 1997. During 1999 and 1998, the
Company recorded a net adjustment of $2 million and ($27) million,
respectively, to Unusual Charges with a corresponding increase (decrease) to
liabilities primarily as a result of a change in the original estimate of
costs to be incurred. Such adjustments to original estimates were recorded
in the periods in which events occurred or information became available
requiring accounting recognition. Liabilities of $61 million remained at
December 31, 1999, which were primarily attributable to future severance
costs and executive termination benefits, which the Company anticipates that
such liabilities will be settled upon resolution of related contingencies.
Second Quarter 1997 Charge. The Company incurred $295 million of Unusual
Charges in the second quarter of 1997 primarily associated with the merger
of HFS with PHH in April 1997 (the "PHH Merger"). During the fourth quarter
of 1997, as a result of changes in estimates, the Company adjusted certain
merger-related liabilities, which resulted in a $12 million credit to
Unusual Charges. Reorganization plans were formulated in connection with the
PHH Merger and were implemented upon consummation. The PHH Merger afforded
the combined company, at such time, an opportunity to rationalize its
combined corporate, real estate and travel related businesses, and enabled
the corresponding support and service functions to gain organizational
efficiencies and maximize profits. Management initiated a plan just prior to
the PHH Merger to close hotel reservation call centers, combine travel
agency operations and continue the downsizing of fleet operations by
reducing headcount and eliminating unprofitable products. In addition,
management initiated plans to integrate its relocation, real estate
franchise and mortgage origination businesses to capture additional revenue
through the referral of one business unit's customers to another. Management
also formalized a plan to centralize the management and headquarter
functions of the world's largest, second largest and other company-owned
corporate relocation business unit subsidiaries. Such initiatives resulted
in write-offs of abandoned systems and leasehold assets commencing in the
second quarter 1997. The aforementioned reorganization plans provided for
560 job reductions, which included the elimination
F-17
<PAGE>
of PHH corporate functions and facilities in Hunt Valley, Maryland. The
reduction of liabilities from inception is summarized by category of
expenditure as follows:
<TABLE>
<CAPTION>
1997
UNUSUAL 1997 1998 1998
CHARGES REDUCTIONS REDUCTIONS ADJUSTMENTS
--------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Professional fees $ 30 $ (29) $ -- $ (1)
Personnel related 154 (112) (13) (19)
Business terminations 56 (52) 3 (6)
Facility related and
other 43 (14) (10) (14)
----- ------ ----- -----
Total Unusual Charges 283 (207) (20) (40)
Reclassification for
discontinued
operations (16) 16 -- --
----- ------ ----- -----
Total Unusual Charges
related to continuing
operations $ 267 $ (191) $ (20) $(40)
===== ====== ===== =====
<CAPTION>
1999 ACTIVITY
BALANCE AT ------------------------ BALANCE AT
DECEMBER 31, CASH DECEMBER 31,
1998 PAYMENTS ADJUSTMENTS 1999
-------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Professional fees $ -- $ -- $ -- $ --
Personnel related 10 (2) -- 8
Business termination 1 (1) -- --
Facility related a
other 5 (2) -- 3
---- ------ ---- ----
Total Unusual Charges 16 (5) -- 11
Reclassification for
discontinued
operations -- -- -- --
---- ----- ---- ----
Total Unusual Charges
related to continuing
operations $ 16 $(5) $ -- $ 11
==== ===== ==== ====
</TABLE>
Professional fees were primarily comprised of investment banking,
accounting, and legal fees incurred in connection with the PHH Merger.
Personnel related costs were associated with employee reductions
necessitated by the planned and announced consolidation of the Company's
corporate relocation service businesses worldwide as well as the
consolidation of corporate activities. Personnel related charges also
included termination benefits such as severance, medical and other benefits
and provided for retirement benefits pursuant to pre-existing contracts
resulting from a change in control. Business terminations were comprised of
$39 million of costs to exit certain activities primarily within the
Company's fleet management business (including $36 million of asset
write-offs associated with exiting certain activities), a $7 million
termination fee associated with a joint venture that competed with the PHH
Mortgage Services business (now Cendant Mortgage Corporation) and $10
million of costs to terminate a marketing agreement with a third party in
order to replace the function with internal resources. Facility related and
other charges included costs associated with contract and lease
terminations, asset disposals and other charges incurred in connection with
the consolidation and closure of excess office space.
The Company had substantially completed the aforementioned second quarter
1997 restructuring activities at December 31, 1998. During the year ended
December 31, 1998, the Company recorded a net adjustment of $40 million to
Unusual Charges with a corresponding reduction to liabilities primarily as a
result of a change in the original estimate of costs to be incurred. Such
adjustments to original estimates were recorded in the periods in which
events occurred or information became available requiring accounting
recognition. Liabilities of $11 million remained at December 31, 1999, which
were attributable to future severance and lease termination payments. The
Company anticipates that severance will be paid in installments through
April 2003 and the lease terminations will be paid in installments through
August 2002.
F-18
<PAGE>
6. PROPERTY AND EQUIPMENT -- NET
Property and equipment -- net consisted of:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1999 1998
------------- -------- ---------
<S> <C> <C> <C>
Land -- $ 145 $ 153
Building and leasehold improvements 5 - 50 703 752
Furniture, fixtures and equipment 3 - 10 889 1,019
------ ------
1,737 1,924
Less accumulated depreciation and amortization 390 491
------ ------
$1,347 $1,433
====== ======
</TABLE>
7. OTHER INTANGIBLES -- NET
Other intangibles -- net consisted of:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
BENEFIT PERIODS ----------------
IN YEARS 1999 1998
---------------- ------ -------
<S> <C> <C> <C>
Avis trademark 40 $402 $402
Other trademarks 40 161 171
Customer lists 3 - 10 154 163
Other 3 - 25 88 138
---- ----
805 874
Less accumulated amortization 143 117
---- ----
$662 $757
==== ====
</TABLE>
8. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Accounts payable $ 320 $ 456
Merger and acquisition obligations 127 153
Accrued payroll and related 263 208
Advances from relocation clients 80 60
Other 489 641
------ ------
$1,279 $1,518
====== ======
</TABLE>
9. MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale represent mortgage loans originated by the
Company and held pending sale to permanent investors. The Company sells
loans insured or guaranteed by various government sponsored entities and
private insurance agencies. The insurance or guaranty is provided primarily
on a non-recourse basis to the Company, except where limited by the Federal
Housing Administration and Veterans Administration and their respective loan
programs. At December 31, 1999 and 1998, mortgage loans sold with recourse
amounted to approximately $52 million and $58 million, respectively. The
Company believes adequate allowances are maintained to cover any potential
losses.
The Company has a revolving sales agreement, under which an unaffiliated
buyer, Bishops Gate Residential Mortgage Trust, a special purpose entity
(the "Buyer"), committed to purchase, at the Company's option, mortgage
loans originated by the Company on a daily basis, up to the Buyer's asset
F-19
<PAGE>
limit of $2.1 billion. Under the terms of this sale agreement, the Company
retains the servicing rights on the mortgage loans sold to the Buyer and
arranges for the sale or securitization of the mortgage loans into the
secondary market. The Buyer retains the right to select alternative sale or
securitization arrangements. At December 31, 1999 and 1998, the Company was
servicing approximately $813 million and $2.0 billion, respectively, of
mortgage loans owned by the Buyer.
10. MORTGAGE SERVICING RIGHTS
Capitalized MSRs consisted of:
<TABLE>
<CAPTION>
MSRS ALLOWANCE TOTAL
---------- ----------- ------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 290 $(1) $ 289
Additions to MSRs 252 -- 252
Amortization (96) -- (96)
Write-down/provision -- (4) (4)
Sales (33) -- (33)
Deferred hedge, net 19 -- 19
Reclassification of mortgage-related securities (54) -- (54)
------ --- -----
BALANCE, DECEMBER 31, 1997 378 (5) 373
Additions to MSRs 475 -- 475
Additions to hedge 49 -- 49
Amortization (82) -- (82)
Write-down/recovery -- 5 5
Sales (99) -- (99)
Deferred hedge, net (85) -- (85)
------ --- -----
BALANCE, DECEMBER 31, 1998 636 -- 636
Additions to MSRs 698 (5) 693
Additions to hedge 23 -- 23
Amortization (118) -- (118)
Write-down/recovery -- 5 5
Sales (161) -- (161)
Deferred hedge, net 6 -- 6
------ --- ------
BALANCE, DECEMBER 31, 1999 $1,084 $-- $1,084
====== === ======
</TABLE>
The value of the Company's MSRs is sensitive to changes in interest rates.
The Company uses a hedge program to manage the associated financial risks
of loan prepayments. The Company uses certain derivative financial
instruments, primarily interest rate floors, interest rate swaps, principal
only swaps, futures and options on futures to administer its hedge program.
Premiums paid/received on the acquired derivative instruments are
capitalized and amortized over the life of the contracts. Gains and losses
associated with the hedge instruments are deferred and recorded as
adjustments to the basis of the MSRs. In the event the performance of the
hedge instruments do not meet the requirements of the hedge program,
changes in the fair value of the hedge instruments will be reflected in the
Consolidated Statement of Operations in the current period. Deferrals under
the hedge programs are allocated to each applicable stratum of MSRs based
upon its original designation and included in the impairment measurement.
For purposes of performing its impairment evaluation, the Company
stratifies its portfolio on the basis of interest rates of the underlying
mortgage loans. The Company measures impairment for each stratum by
comparing estimated fair value to the recorded book value. The Company
records amortization expense in proportion to and over the period of the
projected net servicing revenue. Temporary impairment is recorded through a
valuation allowance in the period of occurrence.
F-20
<PAGE>
11. LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Term Loan Facilities $ 750 $1,250
7 1/2% Senior Notes 400 400
7 3/4% Senior Notes 1,148 1,148
3% Convertible Subordinated Notes 547 545
Other -- 20
------ ------
2,845 3,363
Less current portion 400 --
------ ------
$2,445 $3,363
====== ======
</TABLE>
TERM LOAN FACILITIES
On May 29, 1998, the Company entered into a 364 day term loan agreement
with a syndicate of financial institutions which provided for borrowings
of $3.25 billion (the "Term Loan Facility"). The Term Loan Facility
incurred interest based on the London Interbank Offered Rate ("LIBOR")
plus a margin of approximately 87.5 basis points. At December 31, 1998,
borrowings under the Term Loan Facility of $1.25 billion were classified
as long-term based on the Company's intent and ability to refinance such
borrowings on a long-term basis.
On February 9, 1999, the Company replaced the Term Loan Facility with a
two year term loan facility (the "New Facility") which provided for
borrowings of $1.25 billion with a syndicate of financial institutions.
The Company used $1.25 billion of the proceeds from the New Facility to
refinance the outstanding borrowings under the Term Loan Facility. At
December 31, 1999, outstanding borrowings under the New Facility were $750
million. The New Facility bears interest at a rate of LIBOR plus a margin
of 100 basis points and is payable in five consecutive quarterly
installments beginning on the first anniversary of the closing date. The
New Facility contains certain restrictive covenants, which are
substantially similar to and consistent with the covenants in effect for
the Company's existing revolving credit agreements discussed below. The
weighted average interest rate on the New Facility was 6.2% at December
31, 1999.
7 1/2% AND 7 3/4% SENIOR NOTES
In November 1998, the Company issued $1.55 billion of Senior Notes (the
"Notes") in two tranches consisting of $400 million principal amount of 7
1/2% Senior Notes due December 1, 2000 (see Note 26 -- Subsequent Events
-- Debt Redemption) and $1.15 billion principal amount of 7 3/4% Senior
Notes due December 1, 2003. The Notes may be redeemed, in whole or in
part, at any time at the option of the Company at a redemption price plus
accrued interest to the date of redemption. The redemption price is equal
to the greater of (i) the face value of the Notes or (ii) the sum of the
present values of the remaining scheduled payments discounted at the
treasury rate plus a spread as defined in the indenture.
3% CONVERTIBLE SUBORDINATED NOTES
During 1997, the Company completed a public offering of $550 million
principal amount of 3% Convertible Subordinated Notes (the "3% Notes") due
2002. Each $1,000 principal amount of 3% Notes is convertible into 32.65
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.
F-21
<PAGE>
CREDIT FACILITIES
The Company's credit facilities consist of (i) a $750 million, five year
revolving credit facility (the "Five Year Revolving Credit Facility") and
(ii) a $1.0 billion, 364 day revolving credit facility (the "364 Day
Revolving Credit Facility") (collectively the "Revolving Credit
Facilities"). The 364 Day Revolving Credit Facility will mature on October
17, 2000, 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. Borrowings under 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 75 basis points. The
Company is required to pay a per annum facility fee of .175% and .15% of
the average daily unused commitments under the Five Year Revolving Credit
Facility and 364 Day 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
debt rating agencies. Letters of credit of $5 million were outstanding
under the Five Year Revolving Credit Facility at December 31, 1999. The
Revolving Credit Facilities contain certain restrictive covenants
including restrictions on indebtedness of material subsidiaries, mergers,
limitations on liens, liquidations and sale and leaseback transactions,
and requires the maintenance of certain financial ratios. There were no
outstanding borrowings related to the above-mentioned credit facilities at
December 31, 1999 and 1998.
DEBT MATURITIES
The aggregate maturities of debt are as follows: 2000, $400 million; 2001,
$750 million; 2002, $547 million; and 2003, $1,148 million.
12. LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS
Borrowings to fund assets under management and mortgage programs, which
are not classified based on contractual maturities since such debt
corresponds directly with assets under management and mortgage programs,
consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Commercial paper $ 619 $2,484
Medium-term notes 1,248 2,338
Secured obligations 345 1,902
Other 102 173
------ ------
$2,314 $6,897
====== ======
</TABLE>
COMMERCIAL PAPER
Commercial paper, which matures within 180 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 were 6.7% and 6.1% at December 31, 1999 and 1998,
respectively.
MEDIUM-TERM NOTES
Medium-term notes primarily represent unsecured loans, which mature
through 2002. The weighted average interest rates on such medium-term
notes were 6.4% and 5.6% at December 31, 1999 and 1998, respectively.
SECURED OBLIGATIONS
The Company maintains separate financing facilities, the outstanding
borrowings under which are secured by corresponding assets under
management and mortgage programs. The collective weighted average interest
rates on such facilities were 7.0% and 5.8% at December 31, 1999 and 1998,
respectively. Such secured obligations are described below.
Mortgage Facility. In December 1999, the Company renewed its 364 day
financing agreement to sell mortgage loans under an agreement to repurchase
such mortgages. This agreement is collateralized by the underlying mortgage
loans held in safekeeping by the custodian to the
F-22
<PAGE>
agreement. The total commitment under this agreement is $500 million and is
renewable on an annual basis at the discretion of the lender. Mortgage
loans financed under this agreement at December 31, 1999 and 1998 totaled
$345 million and $378 million, respectively, and are included in mortgage
loans held for sale in the Consolidated Balance Sheets.
Relocation Facilities. The Company entered into a 364 day asset
securitization agreement effective December 1998 under which an
unaffiliated buyer committed to purchase an interest in the right to
payments related to certain Company relocation receivables. The revolving
purchase commitment provided for funding up to a limit of $325 million and
was renewable on an annual basis at the discretion of the lender in
accordance with the securitization agreement. Under the terms of this
agreement, the Company retained the servicing rights related to the
relocation receivables. This facility matured and $248 million was repaid
on December 22, 1999. At December 31, 1998, the Company was servicing $248
million of assets, which were funded under this agreement.
The Company also maintained an asset securitization agreement with a
separate unaffiliated buyer, which had a purchase commitment up to a limit
of $350 million. The terms of this agreement were similar to the
aforementioned facility with the Company retaining the servicing rights on
the right of payment. This facility matured and $85 million was repaid on
October 5, 1999. At December 31, 1998, the Company was servicing $171
million of assets eligible for purchase under this agreement.
Fleet Facilities. In December 1998, the Company entered into two secured
financing transactions each expiring five years from the effective
agreement date. Loans were funded by commercial paper conduits in the
amounts of $500 million and $604 million and were secured by leased assets
(specified beneficial interests in a trust which owned the leased vehicles
and the leases) totaling $600 million and $725 million. In connection with
the disposition of the fleet segment, all secured financing arrangements
were repaid.
OTHER
Other liabilities under management and mortgage programs are principally
comprised of unsecured borrowings under uncommitted short-term lines of
credit and other bank facilities, all of which mature in 2000. The
weighted average interest rates on such debt were 6.8% and 5.5% at
December 31, 1999 and 1998, respectively.
Interest incurred on borrowings used to finance fleet leasing activities
was $89 million for the year ended December 31, 1999 and $177 million for
each of the years ended December 31, 1998 and 1997 and is included net
within fleet leasing revenues in the Consolidated Statements of
Operations. Interest related to equity advances on homes was $24 million,
$27 million and $32 million for the years ended December 31, 1999, 1998
and 1997, respectively. Interest related to origination and mortgage
servicing activities was $109 million, $139 million and $78 million for
the years ended December 31, 1999, 1998 and 1997, respectively. Interest
expense incurred on borrowings used to finance both equity advances on
homes and mortgage servicing activities are recorded net within membership
and service fee revenues in the Consolidated Statements of Operations.
As of December 31, 1999, the Company, through its PHH subsidiary,
maintained $2.5 billion in committed and unsecured credit facilities,
which were backed by domestic and foreign banks. The facilities were
comprised of $1.25 billion of syndicated lines of credit maturing in March
2000 and $1.25 billion of syndicated lines of credit maturing in 2002.
Under such credit facilities, the Company paid annual commitment fees of $4
million for the year ended December 31, 1999 and $2 million for each of the
years ended December 31, 1998 and 1997. The full amount of the Company's
committed facility was undrawn and available at December 31, 1999 and 1998.
13. MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES ISSUED BY SUBSIDIARY
HOLDING SOLELY SENIOR DEBENTURES ISSUED BY THE COMPANY
On March 2, 1998, Cendant Capital I (the "Trust"), a wholly-owned
consolidated subsidiary of the Company, issued 30 million FELINE PRIDES
and 2 million trust preferred securities and received approximately $1.5
billion in gross proceeds in connection with such issuance. The Trust then
F-23
<PAGE>
invested the proceeds in 6.45% Senior Debentures due 2003 (the
"Debentures") issued by the Company, which represents the sole asset of
the Trust. The obligations of the Trust related to the FELINE PRIDES and
trust preferred securities are unconditionally guaranteed by the Company
to the extent the Company makes payments pursuant to the Debentures. Upon
the issuance of the FELINE PRIDES and trust preferred securities, the
Company recorded a liability of $43 million with a corresponding reduction
to shareholders' equity equal to the present value of the total future
contract adjustment payments to be made under the FELINE PRIDES. The
FELINE PRIDES, upon issuance, consisted of 28 million Income PRIDES and 2
million Growth PRIDES (Income PRIDES and Growth PRIDES hereinafter
referred to as "PRIDES"), each with a face amount of $50 per PRIDES. The
Income PRIDES consist of trust preferred securities and forward purchase
contracts under which the holders are required to purchase common stock
from the Company in February 2001. The Growth PRIDES consist of zero
coupon U.S. Treasury securities and forward purchase contracts under which
the holders are required to purchase common stock from the Company in
February 2001. The stand alone trust preferred securities and the trust
preferred securities forming a part of the Income PRIDES, each with a face
amount of $50, bear interest, in the form of preferred stock dividends, at
the annual rate of 6.45% payable in cash. Such preferred stock dividends
of $96 million ($60 million, after tax) and $80 million ($49 million,
after tax) for the years ended December 31, 1999 and 1998, respectively,
are presented as minority interest, net of tax in the Consolidated
Statements of Operations. Payments under the forward purchase contract
forming a part of the Income PRIDES will be made by the Company in the
form of a contract adjustment payment at an annual rate of 1.05%. Payments
under the forward purchase contract forming a part of the Growth PRIDES
will be made by the Company in the form of a contract adjustment payment
at an annual rate of 1.30%. The forward purchase contracts require the
holder to purchase a minimum of 1.04 shares and a maximum of 1.35 shares
of Company common stock per PRIDES security depending upon the average of
the closing price per share of the Company's common stock for a 20
consecutive day period ending in mid-February of 2001. The Company has the
right to defer the contract adjustment payments and the payment of
interest on the Debentures to the Trust. Such election will subject the
Company to certain restrictions, including restrictions on making dividend
payments on its common stock until all such payments in arrears are
settled.
Under the terms of the FELINE PRIDES settlement discussed in Note 5, only
holders who owned PRIDES at the close of business on April 15, 1998 will
be eligible to receive a new additional "Right" for each PRIDES security
held. Right holders may (i) sell them or (ii) exercise them by delivering
to the Company three Rights together with two PRIDES in exchange for two
new PRIDES (the "New PRIDES"), for a period beginning upon distribution of
the Rights and concluding upon expiration of the Rights (February 2001).
The terms of the New PRIDES will be the same as the original PRIDES except
that the conversion rate will be revised so that, at the time the Rights
are distributed, each New PRIDES will have a value equal to $17.57 more
than each original PRIDES, or, in the aggregate, approximately $351
million. Accordingly, the Company recorded a non-cash charge of $351
million in the fourth quarter of 1998 with an increase in additional
paid-in capital and accrued liabilities of $350 million and $1 million,
respectively, based on the prospective issuance of the Rights.
The FELINE PRIDES settlement also requires the Company to offer to sell 4
million additional PRIDES (having identical terms to currently outstanding
PRIDES) to holders of Rights for cash, at a value which will be based on
the valuation model that was utilized to set the conversion rate of the
New PRIDES. The offering of additional PRIDES will be made only pursuant
to a prospectus filed with the SEC. The arrangement to offer additional
PRIDES is designed to enhance the trading value of the Rights by removing
up to 6 million Rights from circulation via exchanges associated with the
offering and to enhance the open market liquidity of New PRIDES by
creating 4 million New PRIDES via exchanges associated with the offering.
If holders of Rights do not acquire all such PRIDES, they will be offered
to the public. Under the settlement agreement, the Company also agreed to
file a shelf registration statement for an additional 15 million special
PRIDES, which could be issued by the Company at any time for cash.
However, during the last 30 days prior to the expiration of the Rights in
February 2001, the Company will be required to make these additional
F-24
<PAGE>
PRIDES available to holders of Rights at a price in cash equal to 105% of
their theoretical value. The special PRIDES, if issued, would have the
same terms as the currently outstanding PRIDES and could be used to
exercise Rights. Based on an average market price of $17.78 per share of
Company common stock (calculated based on the average closing price per
share of Company common stock for the consecutive five-day period ended
February 18, 2000), the effect of the issuance of the New PRIDES will be
to distribute approximately 18 million more shares of Company common stock
when the mandatory purchase of Company common stock associated with the
PRIDES occurs in February 2001.
14. SHAREHOLDERS' EQUITY
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The after-tax components of accumulated other comprehensive income (loss)
are as follows:
<TABLE>
<CAPTION>
UNREALIZED ACCUMULATED
CURRENCY GAINS/(LOSSES) OTHER
TRANSLATION ON MARKETABLE COMPREHENSIVE
ADJUSTMENT SECURITIES INCOME/(LOSS)
------------- ---------------- --------------
<S> <C> <C> <C>
Beginning balance, January 1, 1997 $(10) $ 4 $ (6)
Current-period change (28) (4) (32)
---- --- -----
Ending balance, December 31, 1997 (38) -- (38)
Current-period change (11) -- (11)
---- --- -----
Ending balance, December 31, 1998 (49) -- (49)
Current-period change (9) 16 7
------- --- -----
Ending balance, December 31, 1999 $(58) $16 $ (42)
====== === =====
</TABLE>
The currency translation adjustments are not currently adjusted for income
taxes since they relate to indefinite investments in foreign subsidiaries.
SHARE REPURCHASES
During 1999, the Company's Board of Directors authorized an additional
$1.8 billion of Company common stock to be repurchased under a common
share repurchase program, increasing the total authorized amount to be
repurchased under the program to $2.8 billion. The Company executed this
program through open market purchases or privately negotiated
transactions, subject to bank credit facility covenants and certain rating
agency constraints. As of December 31, 1999, the Company repurchased
approximately $2.0 billion (104 million shares) of Company common stock
under the program.
In July 1999, pursuant to a Dutch Auction self-tender offer to the Company's
shareholders, the Company purchased 50 million shares of its common stock at
a price of $22.25 per share.
1998 EMPLOYEE STOCK PURCHASE PLAN
On December 1, 1998, the Company's Board of Directors amended and restated
the 1998 Employee Stock Purchase Plan (the "Plan"), which enables eligible
employees to purchase shares of common stock from the Company at 85% of
the fair market value on the first business day of each calendar quarter.
The Company reserved 2.5 million shares of Company common stock in
connection with the Plan.
PENDING ISSUANCE OF TRACKING STOCK
The shareholders of Cendant are scheduled to vote on March 21, 2000 for a
proposal (the "Tracking Stock Proposal") to authorize the issuance of a
new series of Cendant common stock ("tracking stock"). The tracking stock
is intended to reflect the performance of the Move.com Group, a group of
businesses owned by the Company offering a wide selection of quality
relocation, real estate and home-related products and services through a
network of Web sites. Before the tracking stock is first issued, the
Company's existing common stock will be re-designated as CD Stock and that
stock will be intended to reflect the performance of the Company's other
businesses (the "Cendant Group"). The Tracking Stock Proposal will allow
the Company to amend and restate its charter to increase the number of
authorized shares of common stock from 2.0 billion to 2.5 billion
initially comprised of
F-25
<PAGE>
2.0 billion shares of CD Stock and 500 million shares of the Move.com
Group stock. In connection with the announcement of the Tracking Stock
Proposal, the Move.com Group results are reported as a separate business
segment. See Note 24 -- Segment Information for a description of the
services provided by the Move.com Group. Although the issuance of the
Move.com Group stock is intended to track the performance of the Move.com
Group, holders, if any, will still be subject to all the risks associated
with an investment in the Company and all of its businesses, assets and
liabilities.
The Company expects to issue shares of Move.com Group stock in one or more
private or public financings. The specific terms of the financing,
including whether they are private or public, the amount of the Move.com
Group stock issued, and the timing of the financings, will depend upon the
number of shares of the Move.com stock sold and whether the Company elects
to contribute the net proceeds of such financings to the equity of the
Move.com Group or the Company.
OTHER
In September 1999, the Company entered into an agreement with Chatham
Street Holdings, LLC ("Chatham") pursuant to which Chatham was granted the
right, until September 30, 2001, to purchase up to 1.6 million shares of
Move.com Group stock for approximately $16.02 per share. In addition, for
every two shares of Move.com Group stock purchased by Chatham pursuant to
the agreement, Chatham will be entitled to receive a warrant to purchase
one share of Move.com Group stock at a price equal to $64.08 per share and
a warrant to purchase one share of Move.com Group stock at a price equal
to $128.16 per share. The shareholders of Chatham are also shareholders of
NRT Incorporated ("NRT"). See Note 21 -- Related Party Transactions for a
detailed discussion of NRT.
15. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments as part of its overall
strategy to manage its exposure to market risks associated with
fluctuations in interest rates, foreign currency exchange rates, prices of
mortgage loans held for sale, anticipated mortgage loan closings arising
from commitments issued and changes in value of MSRs. The Company performs
analyses on an on-going basis to determine that a high correlation exists
between the characteristics of derivative instruments and the assets or
transactions being hedged. As a matter of policy, the Company does not
engage in derivative activities for trading or speculative purposes. 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 anticipate
non-performance by any of the counterparties and no material loss would be
expected from such non-performance.
INTEREST RATE SWAPS
The Company enters into interest rate swap agreements to modify the
contractual costs of debt financing. The swap agreements correlate the
terms of the assets to the maturity and rollover of the debt by
effectively matching a fixed or floating interest rate with the stipulated
revenue stream generated from the portfolio of assets being funded.
Amounts to be paid or received under interest rate swap agreements are
accrued as interest rates change and are recognized as an adjustment to
interest expense in the Consolidated Statements of Operations. The
Company's hedging activities had an immaterial effect on interest expense
and the Company's weighted average borrowing rate for the year ended
December 31, 1999. For the years ended December 31, 1998 and 1997, the
Company's hedging activities increased interest expense by $2 million and
$4 million, respectively, but had an immaterial effect on its weighted
average borrowing rate. The following table summarizes the maturity and
weighted average rates of the Company's interest rate swaps relating to
liabilities under management and mortgage programs at December 31:
F-26
<PAGE>
<TABLE>
<CAPTION>
NOTIONAL WEIGHTED AVERAGE WEIGHTED AVERAGE SWAP
AMOUNT RECEIVE RATE PAY RATE MATURITIES (1)
--------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
1999
Medium-term notes $ 610 5.57% 6.29% 2000
======
1998
Commercial paper $ 355 4.92% 5.84% 1999-2006
Medium-term notes 931 5.27% 5.04% 1999-2000
Canada commercial paper 90 5.52% 5.27% 1999-2002
Sterling liabilities 662 6.26% 6.62% 1999-2002
Deutsche mark liabilities 32 3.24% 4.28% 1999-2001
------
$2,070
======
</TABLE>
----------
(1) Interest rate swaps held during 1998, with maturities ranging from
1999 through 2006, were assumed by ARAC in 1999 in connection with the
disposition of the Company's fleet segment.
FOREIGN EXCHANGE CONTRACTS
In order to manage its exposure to fluctuations in foreign currency
exchange rates, the Company enters into foreign exchange contracts on a
selective basis. Such contracts are primarily utilized to hedge
intercompany loans to foreign subsidiaries and certain monetary assets and
liabilities denominated in currencies other than the U.S. dollar. The
Company also hedges certain anticipated transactions denominated in
foreign currencies. The principal currency hedged by the Company is the
British pound sterling. Gains and losses on foreign currency hedges
related to intercompany loans are deferred and recognized upon maturity of
the underlying loan in the Consolidated Statements of Operations. Gains
and losses on foreign currency hedges of anticipated transactions are
recognized in the Consolidated Statements of Operations, on a
mark-to-market basis, as exchange rates change.
OTHER FINANCIAL INSTRUMENTS
With respect to both mortgage loans held for sale and anticipated mortgage
loan closings arising from commitments issued, the Company is exposed to
the risk of adverse price fluctuations primarily due to changes in
interest rates. The Company uses forward delivery contracts and option
contracts to reduce such risk. Market value gains and losses on such
positions used as hedges are deferred and considered in the valuation of
cost or market value of mortgage loans held for sale.
With respect to the mortgage servicing portfolio, the Company acquired
certain derivative financial instruments, primarily interest rate floors,
interest rate swaps, principal only swaps, futures and options on futures
to manage the associated financial impact of interest rate movements.
16. 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
Fair value at December 31, 1999 and 1998 was $286 million and $267
million, respectively, and is based upon quoted market prices or
investment advisor estimates and approximates carrying value. Realized
gains or losses on marketable securities are calculated on a specific
identification basis. The Company reported realized gains in other
revenues in the Consolidated Statements of Operations of $65 million, $27
million and $18 million for the years ended December 31, 1999, 1998 and
1997, respectively (which included the change in net unrealized holding
gains on trading securities of $8 million and $16 million in 1999 and
1998, respectively).
RELOCATION RECEIVABLES
Fair value approximates carrying value due to the short-term nature of the
relocation receivables.
F-27
<PAGE>
PREFERRED STOCK INVESTMENTS
Fair value approximates carrying value of the preferred stock investments.
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 net of mortgage-related positions. The value of embedded
MSRs has been considered in determining fair value.
MORTGAGE SERVICING RIGHTS
Fair value is estimated by discounting future net servicing cash flows
associated with the underlying securities using discount rates that
approximate current market rates and externally published prepayment
rates, adjusted, if appropriate, for individual portfolio characteristics.
DEBT
Fair value of the Company's Senior Notes, Convertible Subordinated Notes
and medium-term notes are estimated based on quoted market prices or
market comparables.
MANDATORILY REDEEMABLE PREFERRED SECURITIES ISSUED BY SUBSIDIARY HOLDING
SOLELY SENIOR DEBENTURES ISSUED BY THE COMPANY
Fair value is estimated based on quoted market prices and incorporates the
settlement of the FELINE PRIDES litigation and the resulting modification
of terms (see Note 5 -- Other Charges).
INTEREST RATE SWAPS, FOREIGN EXCHANGE CONTRACTS, AND OTHER FINANCIAL
INSTRUMENTS
Fair value 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-28
<PAGE>
The carrying amounts and fair values of material financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ---------------------------------
NOTIONAL/ ESTIMATED NOTIONAL/ ESTIMATED
CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR
AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
----------- ---------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS UNDER MANAGEMENT AND MORTGAGE
PROGRAMS
Mortgage loans held for sale -- 1,112 1,124 -- 2,416 2,463
Mortgage servicing rights -- 1,084 1,202 -- 636 788
- -------------------------------------------------------------------------------------------------------------------
DEBT
Current portion of debt -- 400 402 -- -- --
Long-term debt -- 2,445 2,443 -- 3,363 3,351
- -------------------------------------------------------------------------------------------------------------------
OFF BALANCE SHEET DERIVATIVES RELATING TO
LONG-TERM DEBT
Foreign exchange forwards -- -- -- 1 -- --
OTHER OFF BALANCE SHEET DERIVATIVES
Foreign exchange forwards 173 -- (1) 48 -- --
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES UNDER MANAGEMENT AND
MORTGAGE PROGRAMS
Debt -- 2,314 2,314 -- 6,897 6,895
- -------------------------------------------------------------------------------------------------------------------
MANDATORILY REDEEMABLE PREFERRED
SECURITIES ISSUED BY SUBSIDIARY HOLDING
SOLELY SENIOR DEBENTURES ISSUED BY THE
COMPANY -- 1,478 1,113 -- 1,472 1,333
- -------------------------------------------------------------------------------------------------------------------
OFF BALANCE SHEET DERIVATIVES RELATING TO
LIABILITIES UNDER MANAGEMENT AND
MORTGAGE PROGRAMS
Interest rate swaps
in a gain position 161 -- -- 696 -- 8
in a loss position 449 -- 1 1,374 -- (12)
Foreign exchange forwards 21 -- -- 349 -- --
- -------------------------------------------------------------------------------------------------------------------
MORTGAGE-RELATED POSITIONS
Forward delivery commitments (a) 2,434 6 20 5,057 3 (4)
Option contracts to sell (a) 440 2 3 701 9 4
Option contracts to buy (a) 418 1 -- 948 5 1
Commitments to fund mortgages 1,283 -- 1 3,155 -- 35
Commitments to complete
securitizations (a) 813 -- (2) 2,031 -- 14
Constant maturity treasury floors (b) 4,420 57 13 3,670 44 84
Interest rate swaps (b)
in a gain position 100 -- -- 575 -- 35
in a loss position 250 -- (26) 200 -- (1)
Treasury futures (b) 152 -- (5) 151 -- (1)
Principal only swaps (b) 324 -- (15) 66 -- 3
</TABLE>
- ----------
(a) Carrying amounts and gains (losses) on these mortgage-related positions
are already included in the determination of respective carrying
amounts and fair values of mortgage loans held for sale. Forward
delivery commitments are used to manage price risk on sale of all
mortgage loans to end investors, including commitments to complete
securitizations on loans held by an unaffiliated buyer as described in
Note 9 -- Mortgage Loans Held for Sale.
(b) Carrying amounts and gains (losses) on these mortgage-related positions
are capitalized and recorded as a component of MSRs. Gains (losses) on
such positions are included in the determination of the respective
carrying amounts and fair value of MSRs.
F-29
<PAGE>
17. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has noncancelable operating leases covering various facilities
and equipment, which primarily expire through the year 2005. Rental expense
for the years ended December 31, 1999, 1998 and 1997 was $200 million, $178
million and $91 million, respectively. The Company incurred contingent
rental expenses in 1999 and 1998 of $49 million and $44 million,
respectively, which is included in total rental expense, principally based
on rental volume or profitability at certain parking facilities. The
Company has been granted rent abatements for varying periods on certain
facilities. Deferred rent relating to those abatements is amortized on a
straight-line basis over the applicable lease terms. Commitments under
capital leases are not significant.
In 1998, the Company entered into an agreement with an independent third
party to sell and leaseback vehicles subject to operating leases. Pursuant
to the agreement, the net carrying value of the vehicles sold was $101
million. Since the net carrying value of these vehicles was equal to their
sales price, no gain or loss was recognized on the sale. The lease
agreement was for a minimum lease term of 12 months with three one-year
renewal options. For the years ended December 31, 1999 and 1998, the total
rental expense incurred by the Company under this lease was $13 million and
$18 million, respectively. In connection with the disposition of the fleet
businesses, the Company elected not to execute its renewal option thereby
terminating the lease agreement.
Future minimum lease payments required under noncancelable operating leases
as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
----------- ------
<S> <C>
2000 $103
2001 89
2002 74
2003 62
2004 56
Thereafter 112
----
$496
====
</TABLE>
LITIGATION
Class Action Litigation and Government Investigations. Since the April 15,
1998 announcement of the discovery of accounting irregularities in former
CUC International Inc., approximately 70 lawsuits claiming to be class
actions, two lawsuits claiming to be brought derivatively on the Company's
behalf and several individual lawsuits and arbitration proceedings have
been commenced in various courts and other forums against the Company and
other defendants by or on behalf of persons claiming to have purchased or
otherwise acquired securities or options issued by CUC or the Company
between May 1995 and August 1998. The Court has ordered consolidation of
many of the actions.
The SEC and the United States Attorney for the District of New Jersey are
also conducting investigations relating to the matters referenced above.
The SEC advised the Company that its inquiry should not be construed as an
indication by the SEC or its staff that any violations of law have
occurred. As a result of the findings from the Company's internal
investigations, the Company made all adjustments considered necessary by
the Company which are reflected in its previously filed restated financial
statements for the years ended 1995, 1996 and 1997 and for the six months
ended June 30, 1998. Although the Company can provide no assurances that
additional adjustments will not be necessary as a result of these
government investigations, the Company does not expect that additional
adjustments will be necessary.
As previously disclosed, the Company reached a final agreement with
plaintiff's counsel representing the class of holders of its PRIDES
securities who purchased their securities on or prior to April 15, 1998 to
settle their class action lawsuit against the Company through the issuance
of a new "Right" for each PRIDES security held. (See Notes 5 and 13 for a
more detailed description of the settlement).
F-30
<PAGE>
On December 7, 1999, the Company announced that it reached a preliminary
agreement to settle the principal securities class action pending against
the Company in the U.S. District Court in Newark, New Jersey relating to
the common stock class action lawsuits. Under the agreement, the Company
would pay the class members approximately $2.85 billion in cash, an
increase from approximately $2.83 billion previously reported. The increase
is a result of continued negotiation toward definitive documents relating to
additional costs to be paid to the plaintiff class. The settlement remains
subject to execution of a definitive settlement agreement and approval by
the U.S. District Court. If the preliminary settlement is not approved by
the U.S. District Court, the Company can make no assurances that the final
outcome or settlement of such proceedings will not be for an amount greater
than that set forth in the preliminary agreement.
The proposed settlements do not encompass all litigation asserting claims
associated with the accounting irregularities. The Company does not believe
that it is feasible to predict or determine the final outcome or resolution
of these unresolved proceedings. An adverse outcome from such unresolved
proceedings could be material with respect to earnings in any given reporting
period. However, the Company does not believe that the impact of such
unresolved proceedings should result in a material liability to the Company
in relation to its consolidated financial position or liquidity.
Other pending litigation. The Company and its subsidiaries are involved in
pending litigation in the usual course of business. In the opinion of
management, such other litigation will not have a material adverse effect
on the Company's consolidated financial position, results of operations or
cash flows.
18. INCOME TAXES
The income tax provision (benefit) consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Current
Federal $ 306 $ (159) $155
State 9 1 24
Foreign 44 56 29
------ ------ ----
359 (102) 208
------ ------ ----
Deferred
Federal (748) 176 (17)
State (24) 29 (3)
Foreign 7 1 3
------ ------ ----
(765) 206 (17)
------ ------ ----
Provision (benefit) for income taxes $ (406) $ 104 $191
====== ====== ====
</TABLE>
Pre-tax income (loss) for domestic and foreign operations consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---------- ------ ------
<S> <C> <C> <C>
Domestic $ (793) $ 78 $184
Foreign 219 237 73
------ ---- ----
Pre-tax income (loss) $ (574) $315 $257
====== ==== ====
</TABLE>
F-31
<PAGE>
Deferred income tax assets and liabilities are comprised of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
CURRENT DEFERRED INCOME TAX ASSETS
Merger and acquisition-related liabilities $ 17 $ 53
Accrued liabilities and deferred income 348 323
Excess tax basis on assets held for sale -- 190
Provision for doubtful accounts 23 14
Deferred membership acquisition costs -- 3
Shareholder litigation settlement and related costs 1,058 --
Net operating loss carryforward 75 --
------ ----
Current deferred income tax assets 1,521 583
------ ----
CURRENT DEFERRED INCOME TAX LIABILITIES
Insurance retention refund 18 21
Franchise acquisition costs 10 7
Other 66 88
------ ----
Current deferred income tax liabilities 94 116
------ ----
CURRENT NET DEFERRED INCOME TAX ASSET $1,427 $467
====== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
--------- --------
<S> <C> <C>
NONCURRENT DEFERRED INCOME TAX ASSETS
Deductible goodwill -- taxable poolings $ -- $ 49
Merger and acquisition-related liabilities 29 26
Accrued liabilities and deferred income 29 64
Net operating loss carryforward 84 84
State net operating loss carryforward 151 44
Foreign tax credit carryforward 10 --
Other 28 --
Valuation allowance (161) (44)
------ -----
Noncurrent deferred income tax assets 170 223
------ -----
NONCURRENT DEFERRED INCOME TAX LIABILITIES
Depreciation and amortization 476 297
Other -- 3
------ -----
Noncurrent deferred income tax liabilities 476 300
------ -----
NONCURRENT NET DEFERRED INCOME TAX LIABILITY $ 306 $ 77
====== =====
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ -------
<S> <C> <C>
MANAGEMENT AND MORTGAGE PROGRAM DEFERRED INCOME TAX ASSETS
Depreciation $ 7 $ --
Accrued liabilities 11 26
Alternative minimum tax carryforwards -- 2
---- ----
Management and mortgage program deferred income tax assets 18 28
---- ----
MANAGEMENT AND MORTGAGE PROGRAM DEFERRED INCOME TAX LIABILITIES
Depreciation -- 121
Unamortized mortgage servicing rights 328 248
---- ----
Management and mortgage program deferred income tax liabilities 328 369
---- ----
Net deferred income tax liability under management and mortgage
programs $310 $341
==== ====
</TABLE>
Net operating loss carryforwards at December 31, 1999 expire as follows:
2001, $8 million; 2002, $90 million; 2005, $7 million; 2009, $18 million;
2010, $116 million; and 2018, $215 million. The Company also has
alternative minimum tax credit carryforwards of $28 million.
The valuation allowance at December 31, 1999 relates to deferred tax assets
for state net operating loss carryforwards of $151 million and foreign tax
credit carryforwards of $10 million. The valuation allowance will be
reduced when and if the Company determines that the deferred income tax
assets are likely to be realized.
No provision has been made for U.S. federal deferred income taxes on
approximately $225 million of accumulated and undistributed earnings of
foreign subsidiaries at December 31, 1999 since it is the present intention
of management to reinvest the undistributed earnings indefinitely in
foreign operations. In addition, the determination of the amount of
unrecognized U.S. federal deferred income tax liability for unremitted
earnings is not practicable.
The Company's effective income tax rate for continuing operations differs
from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Federal statutory rate (35.0%) 35.0% 35.0%
State and local income taxes, net of federal tax
benefits ( 1.8) 6.2 5.3
Non-deductible merger-related costs -- -- 29.1
Amortization of non-deductible goodwill 2.9 5.9 4.3
Taxes on foreign operations at rates different than
statutory U.S. federal rate ( 5.3) (8.0) 0.3
Nontaxable gain on disposal (31.0) -- --
Recognition of excess tax basis on assets held for sale -- (2.7) --
Other ( 0.5) (3.2) 0.3
----- ---- ----
(70.7%) 33.2% 74.3%
===== ==== ====
</TABLE>
19. STOCK PLANS
Cendant Plans
The 1999 Broad-Based Employee Stock Option Plan (the "Broad-Based Plan"),
as amended, authorizes the granting of up to 60 million shares of Company
common stock through awards of
F-33
<PAGE>
nonqualified stock options (stock options which do not qualify as incentive
stock options as defined under the Internal Revenue Service Code).
Employees (other than executive officers) and independent contractors of
the Company and its affiliates are eligible to receive awards under the
Broad-Based Plan. Options granted under the plan generally have a ten year
term and have vesting periods ranging from 20% to 33% per year.
The 1997 Stock 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 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 or are immediately vested. The Company also maintains two
other stock plans adopted in 1997: 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 have vesting periods
ranging from 20% to 33% per year.
The Company also grants options to employees pursuant to two additional
stock option plans under which the Company may grant options to purchase in
the aggregate up to 80 million shares of Company common stock. Annual
vesting periods under these plans are 20% commencing one year from the
respective grant dates.
At December 31, 1999 there were 56 million shares available for grant under
the Company's stock option plans discussed above.
On September 23, 1998, the Compensation Committee of the Board of Directors
approved a program to effectively reprice certain Company stock options
granted to middle management during December 1997 and the first quarter of
1998. Such options, with exercise prices ranging from $31.38 to $37.50,
were effectively repriced on October 14, 1998 at $9.81 per share (the "New
Price"), which was the fair market value (as defined in the option plans)
on the date of such repricing. The Compensation Committee also modified the
terms of certain options held by certain of our executive officers and
senior managers subject to certain conditions including a revocation of 13
million existing options. Additionally, a management equity ownership
program was adopted requiring these executive officers and senior managers
to acquire Company common stock at various levels commensurate with their
respective compensation levels. The option modifications were accomplished
by canceling existing options, with exercise prices ranging from $16.78 to
$34.31, and issuing a lesser amount of options at the New Price and, with
respect to certain options of executive officers and senior managers, at
prices above the New Price, specifically $12.27 and $20.00. Additionally,
certain options replacing options that were fully vested provide for
vesting ratably over four years beginning January 1, 1999.
Move.com Group Plan
On October 29, 1999, the Board of Directors of Move.com, Inc. (a company
included within the Move.com Group) adopted the Move.com, Inc. 1999 Stock
Option Plan (the "Move.com Plan"), as amended January 13, 2000, which
authorizes the granting of up to 6 million shares of Move.com, Inc. common
stock. All active employees of Move.com Group and its affiliates are
eligible to be granted options under the Move.com Plan. Options under the
Move.com Plan generally have a 10 year term and are exercisable at 33% per
year commencing one year from the grant date. On October 29, 1999,
approximately 2.5 million options to purchase shares of common stock of
Move.com, Inc. were granted to employees of Move.com, Inc. under the
Move.com Plan (the "Existing Grants") at a
F-34
<PAGE>
weighted average exercise price of $11.56. Such options were all
outstanding and not vested at December 31, 1999. Subject to the approval of
the stockholders of the Company (i) the Move.com Plan and Existing Grants
will be ratified and assumed by the Company, (ii) all Existing Grants will
be equitably adjusted to become options of Move.com Group stock (see Note
14 -- Shareholders' Equity -- Pending Issuance of Tracking Stock for a
description of the Move.com Group stock proposal) and (iii) the remaining
shares available to be issued in connection with the grant of options under
the Move.com Plan will be equitably adjusted to become shares of Move.com
Group stock.
The annual activity of Cendant's stock option plans consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVG. EXERCISE AVG. EXERCISE AVG. EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------------- --------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
(Shares in millions)
Balance at beginning of year 178 $ 14.64 172 $ 18.66 118 $ 11.68
Granted
Equal to fair market value 30 18.09 84 19.16 78 27.94
Greater than fair market
value 1 16.04 21 17.13 -- --
Canceled (13) 19.91 (82) 29.36 (6) 27.29
Exercised (13) 9.30 (17) 10.01 (14) 7.20
PHH Conversion (1) -- -- -- (4) --
--- --- ---
Balance at end of year 183 15.24 178 14.64 172 18.66
=== === ===
</TABLE>
- ----------
(1) In connection with the PHH Merger, all unexercised PHH stock options
were canceled and converted into 2 million shares of Company common
stock.
The Company utilizes the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" and applies Accounting Principles
Board ("APB") Opinion No. 25 and related interpretations in accounting for
its stock option plans to employees. Under APB No. 25, because the exercise
prices of the Company's employee stock options are equal to or greater than
the market prices of the underlying Company stock on the date of grant, no
compensation expense is recognized.
Had the Company elected to recognize and measure compensation expense for
its stock option plans to employees 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 (loss) and per share data would have
been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ---------------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
---------- ----------- ---------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (55) $ (213) $ 540 $ 393 $ (217)(1) $ (664)(1)
Basic income (loss) per share (0.07) (0.28) 0.64 0.46 (0.27) (0.82)
Diluted income (loss) per share (0.07) (0.28) 0.61 0.46 (0.27) (0.82)
</TABLE>
- ----------
(1) Includes incremental compensation expense of $335 million ($205
million, after tax) or $.25 per basic and diluted share as a result of
the immediate vesting of HFS options upon consummation of the Cendant
Merger.
F-35
<PAGE>
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 1999, 1998 and 1997:
<TABLE>
<CAPTION>
CENDANT MOVE.COM GROUP
----------------------------------------------- ---------------
1999 1998 1997 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Dividend yield -- -- -- --
Expected volatility 60.0% 55.0% 32.5% 60.0%
Risk-free interest rate 6.4% 4.9% 5.6% 6.4%
Expected holding period 6.2 years 6.3 years 7.8 years 6.2 years
</TABLE>
The weighted average grant date fair value of Company and Move.com stock
options granted during the year ended December 31, 1999 were $11.36 and
$7.28, respectively. The weighted average grant date fair value of Company
stock options granted during the year ended December 31, 1998, which were
repriced with exercise prices equal to and higher than the underlying stock
price at the date of repricing, were $19.69 and $18.10, respectively. The
weighted average grant date fair value of the stock options granted during
the year ended December 31, 1998 which were not repriced was $10.16. The
weighted average grant date fair value of Company stock options granted
during the year ended December 31, 1997 was $13.71.
The table below summarizes information regarding Company stock options
outstanding and exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- --------------------
WEIGHTED AVG. WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
(Shares in millions) CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
- -------------------------- -------- --------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
$.01 to $10.00 79 5.9 $ 7.36 53 $ 6.20
$10.01 to $20.00 60 8.0 16.83 21 15.89
$20.01 to $30.00 23 7.2 22.93 19 23.14
$30.01 to $40.00 21 7.8 32.00 16 31.88
-- ---
183 7.0 15.24 109 14.77
=== ===
</TABLE>
20. EMPLOYEE BENEFIT PLANS
The Company sponsors several defined contribution pension 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 specified in the
plans. The Company's cost for contributions to these plans was $31 million,
$24 million and $16 million for the years ended December 31, 1999, 1998
and 1997, respectively.
The Company's PHH subsidiary maintains a domestic non-contributory defined
benefit pension plan covering eligible employees of PHH and its
subsidiaries employed prior to July 1, 1997. Additionally, the Company
sponsors contributory defined benefit pension plans in certain United
Kingdom subsidiaries with participation in the plans at the employees'
option. Under both the domestic and foreign plans, benefits are based on an
employee's years of credited service and a percentage of final average
compensation.
The Company's policy for all plans is to contribute amounts sufficient to
meet the minimum requirements plus other amounts as deemed appropriate. The
projected benefit obligations of the plans were $145 million and $196
million and plan assets, at fair value, were $147 million and $162 million
at December 31, 1999 and 1998, respectively. The net pension cost and
recorded liability were not material to the accompanying Consolidated
Financial Statements.
During 1999, the Company recognized a net curtailment gain of $10 million
as a result of the disposition of its fleet business segment and the
freezing of pension benefits related to the Company's PHH subsidiary
defined benefit pension plan.
F-36
<PAGE>
21. RELATED PARTY TRANSACTIONS
NRT INCORPORATED
The Company maintains a relationship with NRT, a corporation created to
acquire residential real estate brokerage firms. On February 9, 1999, the
Company executed new agreements with NRT, which among other things,
increased the term of each of the three franchise agreements under which
NRT operates from 40 years to 50 years. NRT is party to other agreements
and arrangements with the Company and its subsidiaries. Under these
agreements, the Company acquired $182 million of NRT preferred stock (and
may be required to acquire up to an additional $81 million of NRT preferred
stock). Certain officers of the Company serve on the Board of Directors of
NRT. The Company recognized preferred dividend income of $16 million, $15
million and $5 million during the years ended December 31, 1999, 1998 and
1997, respectively, which are included in other revenue in the Consolidated
Statements of Operations. During 1999, approximately $8 million of the
preferred dividend income increased the basis of the underlying preferred
stock investment. Additionally, the Company sold preferred shares and
recognized a gain of $20 million during 1999, which is also included in
other revenue in the Consolidated Statements of Operations. During 1999,
1998 and 1997, total franchise royalties earned by the Company from NRT and
its predecessors were $172 million, $122 million and $61 million,
respectively.
The Company, at its election, will participate in NRT's acquisitions by
acquiring up to an aggregate $946 million (plus an additional $500 million
if certain conditions are met) of intangible assets, and in some cases
mortgage operations of real estate brokerage firms acquired by NRT. As of
December 31, 1999, the Company acquired $537 million of such mortgage
operations and intangible assets, primarily franchise agreements associated
with real estate brokerage companies acquired by NRT, which brokerage
companies will become subject to the NRT 50-year franchise agreements. In
February 1999, NRT and the Company entered into an agreement whereby the
Company made an upfront payment of $30 million to NRT for services to be
provided by NRT to the Company related to the identification of potential
acquisition candidates, the negotiation of agreements and other services in
connection with future brokerage acquisitions by NRT. Such fee is
refundable in the event the services are not provided.
AVIS RENT A CAR INC.
The Company continues to maintain an equity interest in ARAC. During 1999
and 1998, the Company sold approximately two million and one million
shares, respectively, of Avis Rent A Car Inc. common stock and recognized a
pre-tax gain of approximately $11 million and $18 million, respectively,
which is included in other revenue in the Consolidated Statements of
Operations. The Company recorded its equity in the earnings of ARAC, which
amounted to $18 million, $14 million and $51 million for the years ended
December 31, 1999, 1998 and 1997, respectively, as a component of other
revenue in the Consolidated Statements of Operations. On June 30, 1999, in
connection with the Company's disposition of its fleet segment, the Company
received, as part of the total consideration, $360 million of preferred
stock in a subsidiary of ARAC and additional consideration of a $30 million
receivable (see Note 3 -- Dispositions and Acquisitions of Businesses). The
Company received dividends of $9 million, which increased the basis of the
underlying preferred stock investment. Such amount is included as a
component of other revenue in the Consolidated Statements of Operations. At
December 31, 1999, the Company's interest in ARAC was approximately 18%.
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. During
1999, 1998 and 1997, total franchise royalties earned by the Company from
ARAC were $102 million, $92 million and $82 million, respectively. 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. As of December 31, 1999 and 1998, the Company had accounts
receivable of $34 million and $26 million, respectively, due from ARAC.
Certain officers of the Company serve on the Board of Directors of ARAC.
F-37
<PAGE>
22. FRANCHISING AND MARKETING/RESERVATION ACTIVITIES
Revenues from franchising activities include royalty revenues and initial
franchise fees charged to lodging properties, car rental locations, tax
preparation offices and real estate brokerage offices upon execution of a
franchise contract.
Franchised outlet revenues are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Royalty revenues $839 $703 $574
Initial franchise fees 37 45 26
</TABLE>
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 revenues. Marketing 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 fees revenues included marketing and reservation
fees of $280 million, $228 million and $215 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
Franchised outlet information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998 (1) 1997
-------- ---------- -------
<S> <C> <C> <C>
Franchised units in operation 22,719 22,471 18,876
Backlog (franchised units sold but not yet
opened) 1,478 2,063 1,547
</TABLE>
- ----------
(1) Approximately 2,000 franchised units were acquired in connection with
the acquisition of Jackson Hewitt Inc.
23. NET INVESTMENT IN LEASES AND LEASED VEHICLES
Net investment in leases and leased vehicles were disposed of during 1999
in connection with the disposition of the Company's fleet business segment
(see Note 3 -- Dispositions and Acquisitions of Businesses). In 1998,
vehicles were leased primarily to corporate fleet users for initial periods
of twelve months or more under either operating or direct financing lease
agreements. Vehicles under operating leases were amortized using the
straight-line method over the expected lease term. The Company's experience
indicated that the full term of the leases varied considerably due to
extensions beyond the minimum lease term.
The Company had two types of operating leases. Under one type, open-end
operating leases, resale of the vehicles upon termination of the lease was
generally for the account of the lessee except for a minimum residual value
which the Company had guaranteed. The Company's experience had been that
vehicles under this type of lease agreement were sold for amounts exceeding
the residual value guarantees. Maintenance and repairs of vehicles under
these agreements were the responsibility of the lessee. The original cost
and accumulated depreciation of vehicles under this type of operating lease
was $5.3 billion and $2.6 billion, respectively, at December 31, 1998.
Under the second type of operating lease, closed-end operating leases,
resale of the vehicles on termination of the lease was for the account of
the Company. The lessee generally paid for or
F-38
<PAGE>
provided maintenance, vehicle licenses and servicing. The original cost and
accumulated depreciation of vehicles under these agreements were $1.0
billion and $191 million, respectively, at December 31, 1998. The Company,
based on historical experience and an assessment of the used vehicle
market, established an allowance in the amount of $14 million for potential
losses on residual values on vehicles under these leases at December 31,
1998.
Under the direct financing lease agreements, the minimum lease term was 12
months with a month-to-month renewal option thereafter. In addition, resale
of the vehicles upon termination of the lease was for the account of the
lessee. Maintenance and repairs of these vehicles were the responsibility
of the lessee.
Open-end operating leases and direct financing leases generally had a
minimum lease term of 12 months with monthly renewal options thereafter.
Closed-end operating leases typically had a longer term, usually 24 months
or more, but were cancelable under certain conditions.
Gross leasing revenues, which were included in fleet leasing revenues in
the Consolidated Statements of Operations, consisted of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------ --------- ---------
<S> <C> <C> <C>
Operating leases $683 $1,330 $1,223
Direct financing leases, primarily interest 17 38 42
---- ------ ------
$700 $1,368 $1,265
==== ====== ======
</TABLE>
Net investment in leases and leased vehicles consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
<S> <C>
Vehicles under open-end operating leases $2,726
Vehicles under closed-end operating leases 822
Direct financing leases 252
Accrued interest on leases 1
------
$3,801
======
</TABLE>
24. SEGMENT INFORMATION
Management evaluates each segment's performance on a stand-alone basis
based on a modification of earnings before interest, income taxes,
depreciation, amortization, and minority interest. For this purpose,
Adjusted EBITDA is defined as earnings before non-operating interest,
income taxes, depreciation, amortization and minority interest, adjusted to
exclude net gains on dispositions of businesses and certain other charges
which are of a non-recurring or unusual nature and not measured in
assessing segment performance or are not segment specific. The Company
determined its operating segments based primarily on the types of services
it provides, the consumer base to which marketing efforts are directed and
the methods used to sell services. The Company disposed of its fleet
segment on June 30, 1999, and the Company added Move.com Group as a
reportable operating segment, thereby maintaining the eight reportable
operating segments which collectively comprise the Company's continuing
operations. Included in the Move.com Group are RentNet, Inc., ("RentNet"),
acquired during January 1996, National Home Connections, LLC, acquired in
May 1999, and the assets of MetroRent, acquired in December 1999. Prior to
the formation of the Move.com Group, RentNet's historical financial
information was included in the Company's individual membership segment.
The Company reclassified the financial results of RentNet for the years
ended December 31, 1998 and 1997. Inter-segment net revenues were not
significant to the net revenues of any one segment. A description of the
services provided within each of the Company's reportable operating
segments is as follows:
F-39
<PAGE>
TRAVEL
Travel services include the franchising of lodging properties and car
rental locations, as well as vacation/timeshare exchange services. As a
franchiser of guest lodging facilities and car rental agency locations, the
Company licenses the independent owners and operators of hotels and car
rental agencies to use its brand names. Operation and administrative
services are provided to franchisees, which include access to a national
reservation system, national advertising and promotional campaigns,
co-marketing programs and volume purchasing discounts. As a provider of
vacation and timeshare exchange services, the Company enters into
affiliation agreements with resort property owners/developers (the
developers) to allow owners of weekly timeshare intervals (the subscribers)
to trade their owned weeks with other subscribers. In addition, the Company
provides publications and other travel-related services to both developers
and subscribers.
INDIVIDUAL MEMBERSHIP
Individual membership provides customers with access to a variety of
services and discounted products in such areas as retail shopping, travel,
auto, dining, home improvement, and credit information. The Company
affiliates with business partners, such as leading financial institutions
and retailers, to offer membership as an enhancement to their credit card
customers. Individual memberships are marketed primarily using direct
marketing techniques.
INSURANCE/WHOLESALE
Insurance/Wholesale markets and administers competitively priced insurance
products, primarily accidental death and dismemberment insurance and term
life insurance. The Company also provides services such as checking account
enhancement packages, various financial products and discount programs to
financial institutions, which in turn provide these services to their
customers. The Company affiliates with financial institutions, including
credit unions and banks, to offer their respective customer bases such
products and services.
REAL ESTATE FRANCHISE
The Company licenses the owners and operators of independent real estate
brokerage businesses to use its brand names. Operational and administrative
services are provided to franchisees, which are designed to increase
franchisee revenue and profitability. Such services include advertising and
promotions, referrals, training and volume purchasing discounts.
RELOCATION
Relocation services are provided to client corporations for the transfer of
their employees. Such services include appraisal, inspection and selling of
transferees' homes, providing equity advances to transferees (generally
guaranteed by the corporate customer), purchase of a transferee's home
which is sold within a specified time period for a price which is at least
equivalent to the appraised value, certain home management services,
assistance in locating a new home at the transferee's destination,
consulting services and other related services.
MORTGAGE
Mortgage services primarily include the origination, sale and servicing of
residential mortgage loans. Revenues are earned from the sale of mortgage
loans to investors as well as from fees earned on the servicing of loans
for investors. The Company markets a variety of mortgage products to
consumers through relationships with corporations, affinity groups,
financial institutions, real estate brokerage firms and other mortgage
banks.
Mortgage services customarily sells all mortgages it originates to
investors (which include a variety of institutional investors) either as
individual loans, as mortgage-backed securities or as participation
certificates issued or guaranteed by Fannie Mae, the Federal Home Loan
Mortgage Corporation or the Government National Mortgage Association while
generally retaining mortgage servicing rights. Mortgage servicing consists
of collecting loan payments, remitting principal and interest payments to
investors, holding escrow funds for payment of mortgage-related expenses
such as taxes and insurance, and otherwise administering the Company's
mortgage loan servicing portfolio.
F-40
<PAGE>
MOVE.COM GROUP
Move.com Group provides a broad range of quality relocation, real estate,
and home-related products and services through its flagship portal site,
move.com, and the move.com network. The Move.com Group integrates and
enhances the online efforts of the Company's residential real estate brand
names and those of the Company's other real estate business units.
DIVERSIFIED SERVICES
In addition to the previously described business segments, the Company also
derives revenues from providing a variety of other consumer and business
products and services which include the Company's tax preparation services
franchise, information technology services, car park facility services,
welcoming packages to new homeowners, and other consumer-related services.
FLEET
The fleet segment provided fleet and fuel card related products and
services to corporate clients and government agencies. These services
included management and leasing of vehicles, fuel card payment and
reporting and other fee-based services for clients' vehicle fleets. The
Company leased vehicles primarily to corporate fleet users under operating
and direct financing lease arrangements.
SEGMENT INFORMATION
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INDIVIDUAL INSURANCE/ REAL ESTATE
TOTAL TRAVEL(1) MEMBERSHIP WHOLESALE FRANCHISE
--------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 5,402 $1,148 $972 $575 $ 571
Adjusted EBITDA 1,919 586 127 180 424
Depreciation and amortization 371 97 26 19 59
Segment assets 15,149 3,186 662 393 2,102
Capital expenditures 277 53 25 19 --
</TABLE>
<TABLE>
<CAPTION>
MOVE.COM DIVERSIFIED
RELOCATION MORTGAGE GROUP SERVICES (2) FLEET
------------ ---------- ---------- -------------- ------
<S> <C> <C> <C> <C> <C>
Net revenues $ 415 $ 397 $ 18 $1,099 $207
Adjusted EBITDA 122 182 (22) 239 81
Depreciation and amortization 17 19 2 117 15
Segment assets 1,033 2,817 22 4,934 --
Capital expenditures 21 48 2 86 23
-------------------------------------------------------------------------------------------------------
</TABLE>
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL INSURANCE/ REAL ESTATE
TOTAL TRAVEL(1) MEMBERSHIP WHOLESALE FRANCHISE
--------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 5,284 $1,063 $ 920 $544 $ 456
Adjusted EBITDA 1,590 542 (59) 138 349
Depreciation and amortization 323 88 22 14 53
Segment assets 19,843 2,762 830 372 2,014
Capital expenditures 355 78 27 17 6
</TABLE>
<TABLE>
<CAPTION>
MOVE.COM DIVERSIFIED
RELOCATION MORTGAGE GROUP SERVICES FLEET
------------ ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 444 $ 353 $10 $1,107 $ 387
Adjusted EBITDA 125 188 1 132 174
Depreciation and amortization 17 9 2 96 22
Segment assets 1,130 3,504 9 4,525 4,697
Capital expenditures 70 36 1 62 58
-------------------------------------------------------------------------------------------------------
</TABLE>
F-41
<PAGE>
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL INSURANCE/ REAL ESTATE
TOTAL TRAVEL(1) MEMBERSHIP WHOLESALE FRANCHISE
--------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 4,240 $ 971 $773 $483 $ 335
Adjusted EBITDA 1,250 467 6 111 227
Depreciation and amortization 238 82 17 11 44
Segment assets 13,800 2,602 833 357 1,827
Capital expenditures 155 37 11 6 13
</TABLE>
<TABLE>
<CAPTION>
MOVE.COM DIVERSIFIED
RELOCATION MORTGAGE GROUP SERVICES FLEET
------------ ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 402 $ 179 $ 6 $767 $ 324
Adjusted EBITDA 93 75 (1) 151 121
Depreciation and amortization 8 5 1 54 16
Segment assets 1,009 2,233 7 806 4,126
Capital expenditures 23 16 1 24 24
</TABLE>
- ----------
(1) Net revenues and Adjusted EBITDA include the equity in earnings from
the Company's investment in ARAC of $18 million, $14 million and $51
million in 1999, 1998 and 1997, respectively. Net revenues and
Adjusted EBITDA for 1999 and 1998 include a pre-tax gain of $11
million and $18 million, respectively, as a result of the 1999 and
1998 sale of a portion of the Company's equity interest. Segment
assets include such equity method investment in the amount of $118
million, $139 million and $124 million at December 31, 1999, 1998 and
1997, respectively.
(2) Net revenues include a $23 million gain on the sales of car park
facilities. Segment assets include the Company's equity investment of
$17 million in EPub.
Provided below is a reconciliation of Adjusted EBITDA and total assets for
reportable segments to the consolidated amounts.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Adjusted EBITDA for reportable segments $ 1,919 $ 1,590 $ 1,250
Other charges:
Litigation settlement and related costs 2,894 351 --
Termination of proposed acquisitions 7 433 --
Executive terminations -- 53 --
Investigation-related costs 21 33 --
Merger-related costs and other unusual charges (credits) 110 (67) 704
Investigation-related financing costs -- 35 --
Depreciation and amortization 371 323 238
Interest, net 199 114 51
Net gain on dispositions of businesses 1,109 -- --
------- ------- -------
Consolidated income (loss) before income taxes and minority
interest $ (574) $ 315 $ 257
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total assets for reportable segments $15,149 $19,843 $13,800
Net assets of discontinued operations -- 374 273
------- ------- -------
Consolidated total assets $15,149 $20,217 $14,073
======= ======= =======
</TABLE>
F-42
<PAGE>
GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
UNITED UNITED ALL OTHER
TOTAL STATES KINGDOM COUNTRIES
--------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
1999
Net revenues $ 5,402 $ 4,363 $ 748 $ 291
Assets 15,149 11,722 3,215 212
Long-lived assets 1,347 590 723 34
1998
Net revenues $ 5,284 $ 4,277 $ 696 $ 311
Assets 20,217 16,251 3,707 259
Long-lived assets 1,433 646 768 (1) 19
1997
Net revenues $ 4,240 $ 3,669 $ 232 $ 339
Assets 14,073 12,749 1,015 309
Long-lived assets 545 478 49 18
</TABLE>
- ----------
(1) Includes $691 million of property and equipment acquired in
connection with the NPC acquisition.
Geographic segment information is classified based on the geographic
location of the subsidiary. Long-lived assets are comprised of property and
equipment.
25. SELECTED QUARTERLY FINANCIAL DATA -- (UNAUDITED)
Provided below is the selected unaudited quarterly financial data for 1999
and 1998. The underlying per share information is calculated from the
weighted average shares outstanding during each quarter, which may
fluctuate based on quarterly income levels, market prices, and share
repurchases. Therefore, the sum of the quarters per share information may
not equal the total year amounts.
<TABLE>
<CAPTION>
1999
------------------------------------------------------
FIRST (2) SECOND (3) THIRD (4) FOURTH (5)
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 1,318 $1,391 $1,410 $ 1,283
------- ------ ------ --------
Income (loss) from continuing operations (1) $ 169 $ 874 $ 209 $ (1,481)
Gain (loss) on sale of discontinued operations,
net of tax (6) 193 (12) (7) --
------- ------ ------- --------
Net income (loss) $ 362 $ 862 $ 202 $ (1,481)
======= ====== ====== ========
Per share information:
Basic
Income (loss) from continuing operations $ 0.21 $ 1.14 $ 0.29 $ (2.08)
Net income (loss) $ 0.45 $ 1.12 $ 0.28 $ (2.08)
Weighted average shares (in millions) 800 770 726 711
Diluted
Income (loss) from continuing operations $ 0.20 $ 1.06 $ 0.27 $ (2.08)
Net income (loss) $ 0.43 $ 1.05 $ 0.26 $ (2.08)
Weighted average shares (in millions) 854 824 780 711
Common Stock Market Prices:
High $22 7/16 $20 3/4 $22 5/8 $ 26 9/16
Low $15 5/16 $15 1/2 $17 $ 14 9/16
</TABLE>
F-43
<PAGE>
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
FIRST (7) SECOND (8) THIRD (9) FOURTH (10)
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 1,129 $1,278 $ 1,458 $ 1,419
------- ------ ------- -------
Income (loss) from continuing operations $ 184 $ 155 $ 123 $ (302)
Loss from discontinued operations, net of
tax (11) (2) (12) --
Gain on sale of discontinued operations,
net of tax (6) -- -- -- 405
------- ------ ------- -------
Net income $ 173 $ 153 $ 111 $ 103
======= ====== ======= =======
Per share information:
Basic
Income (loss) from continuing
operations $ 0.22 $ 0.18 $ 0.14 $ (0.36)
Net income $ 0.21 $ 0.18 $ 0.13 $ 0.12
Weighted average shares (in millions) 839 851 851 850
Diluted
Income (loss) from continuing
operations $ 0.21 $ 0.18 $ 0.14 $ (0.36)
Net income $ 0.20 $ 0.18 $ 0.13 $ 0.12
Weighted average shares (in millions) 909 901 877 850
Common Stock Market Prices:
High $ 41 $41 3/8 $22 7/16 $ 20 5/8
Low $32 7/16 $18 9/16 $10 7/16 $ 7 1/2
</TABLE>
- ----------
(1) Includes net gains associated with the dispositions of businesses of
$750 million, $75 million and $284 million for the second, third, and
fourth quarters, respectively (see Note 3 -- Dispositions and
Acquisitions of Businesses).
(2) Includes charges of $7 million ($4 million, after tax or $0.01 per
diluted share) in connection with the termination of the proposed
acquisition of RACMS and $2 million ($1 million, after tax) for
investigation -- related costs.
(3) Includes charges of $23 million ($15 million, after tax or $0.02 per
diluted share) of additional charges to fund an irrevocable
contribution to an independent technology trust responsible for
completing the transition of the Company's lodging franchisees to a
Company sponsored property management system and $6 million ($4
million, after tax) for investigation-related costs.
(4) Includes charges of $87 million ($49 million, after tax or $0.07 per
diluted share) incurred primarily in conjunction with the NGI
transaction and $5 million ($3 million, after tax) for
investigation-related costs.
(5) Includes charges of $2,894 million ($1,839 million, after tax or
$2.59 per diluted share) associated with the preliminary agreement to
settle the principal shareholder securities class action suit and $8
million ($5 million, after tax or $0.01 per diluted share) of
investigation-related costs. Such charges were partially offset by a
$2 million ($1 million, after tax) credit associated with changes to
the estimate of previously recorded merger-related costs and other
unusual charges.
(6) Represents gains associated with the sales of Hebdo Mag and CDS (see
Note 4 -- Discontinued Operations).
(7) Includes a charge of $3 million ($2 million, after tax) for
investigation-related costs, including incremental financing costs,
and executive terminations.
(8) Includes a charge of $32 million ($20 million, after tax or $0.02 per
diluted share) for investigation-related costs, including incremental
financing costs, and executive terminations. Such charge was partially
offset by a credit of $27 million ($19 million, after tax or $0.02 per
diluted share) associated with changes to the estimate of previously
recorded merger-related costs and other unusual charges.
(9) Includes a charge of $76 million ($49 million, after tax or $0.06 per
share) for investigation-related costs, including incremental
financing costs, and executive terminations.
(10) Includes charges of (i) $433 million ($282 million, after tax or
$0.33 per diluted share) for the costs of terminating the proposed
acquisitions of American Bankers and Providian, (ii) $351 million
($228 million, after tax or $0.27 per diluted share) associated with
the agreement to settle the PRIDES securities class action suit and
(iii) $13 million ($10 million, after tax or $0.01 per diluted share)
for investigation-related costs, including incremental financing
costs, and executive terminations. Such charges were partially offset
by a credit of $43 million ($27 million, after tax or $0.03 per
diluted share) associated with changes to the estimate of previously
recorded merger-related costs and other unusual charges.
F-44
<PAGE>
26. SUBSEQUENT EVENTS
PHH CREDIT FACILITIES
On February 28, 2000, PHH reduced the availability of its unsecured
committed credit facilities from $2.5 billion to $1.5 billion to reflect
the reduced borrowing needs of PHH as a result of the disposition of its
fleet businesses.
DEBT REDEMPTION
On January 21, 2000, the Company redeemed all outstanding 7-1/2% Senior
Notes at a redemption price of 100.695% of par plus accrued interest.
SHARE REPURCHASES
Subsequent to December 31, 1999, the Company repurchased an additional
$132 million (6 million shares) of its common stock under its repurchase
program as of February 24, 2000.
STRATEGIC ALLIANCE
On December 15, 1999, the Company entered into a strategic alliance with
Liberty Media Corporation ("Liberty Media") to develop Internet and related
opportunities associated with the Company's travel, mortgage, real estate
and direct marketing businesses. Such efforts may include the creation of
joint ventures with Liberty Media and others as well as additional equity
investments in each others businesses.
The Company will also assist Liberty Media in creating, and will receive an
equity participation in, a new venture that will seek to provide broadband
video, voice and data content to the Company's hotels and their guests on a
worldwide basis. The Company will also pursue opportunities within the
cable industry with Liberty Media to leverage the Company's direct
marketing resources and capabilities.
On February 7, 2000, Liberty Media invested $400 million in cash to
purchase 18 million shares of Company common stock and a two-year warrant
to purchase approximately 29 million shares of Company common stock at an
exercise price of $23.00 per share. The common stock, together with the
common stock underlying the warrant, represents, approximately 6.3% of our
outstanding shares after giving effect to the aforementioned transaction.
Liberty Media's Chairman, John C. Malone, Ph.D., will join the Company's
Board of Directors and has also committed to purchase one million shares of
the Company's common stock for approximately $17 million in cash.
----------------
F-45
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
August 2, 1999
Mr. Henry R. Silverman
Cendant Corporation
9 West 57th Street, 37th Floor
New York, New York 10019
Dear Mr. Silverman:
Reference is hereby made to that certain employment
agreement, dated as of June 30, 1996, as amended to date, by and between Cendant
Corporation (formerly HFS Incorporated) (the "Company") and you (the
"Agreement"). Capitalized terms used in this letter shall have the meanings
assigned to them in the Agreement unless otherwise defined herein. For good and
valid consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and you therefore agree that the Agreement is hereby
amended as follows, effective as of August 2, 1999.
1. A new Section 4(h) is hereby added to the Agreement, to
read as follows:
"(h) Life Insurance Benefits. The Company shall acquire, and
throughout the period ending August 31, 2009 (or, if earlier, the date
of Executive's death) shall cause to remain in effect (notwithstanding
the previous termination or expiration of this Agreement), one or more
term life insurance policies on the life of the Executive in the
aggregate face amount of $100 million. Payment of all premiums under
such policies shall be the sole responsibility of the Company.
Executive shall have the right to designate the beneficiary or
beneficiaries under such policies."
<PAGE>
Mr. Henry R. Silverman
August 2, 1999
Page 2
2. A new Section 6(a)(v) is hereby added to the Agreement, to
read as follows:
"(v) Certain Lifetime Benefits and Obligations. If the
Executive's employment is terminated by the Company, other than as set
forth in paragraphs (i) or (iii) of this Section 6(a), or if the
Executive voluntarily resigns his employment under this Agreement in
connection with a breach of this Agreement by the Company or at the
expiration of the term of this Agreement, then (1) the Company shall
provide to the Executive, for the remainder of his life on a basis no
less favorable than was provided to him during his employment, the
facilities, services and other perquisites provided to Executive by the
Company (including, but not limited to, office and clerical support,
executive transportation services (including use of the corporate owned
or leased aircraft or charter equivalent thereof on identical terms as
those in effect during Executive's employment by the Company),
security services, continued access to other general facilities and
services and reimbursement for any properly documented business
expenses incurred on behalf of the Company), and (2) for the remainder
of his life, the Executive shall keep himself reasonably available to
render such advice and perform such consulting services on behalf of
the Company as may be reasonably requested by the chief executive
officer of the Company (provided that the Executive shall not be
required to render such advice or perform such services on more than
thirty (30) days in any calendar year), in consideration for which the
Executive shall receive monthly payments from the Company in the amount
of
<PAGE>
Mr. Henry R. Silverman
August 2, 1999
Page 3
$30,000 (which amount shall be adjusted annually to reflect the
increase in the Consumer Price Index for the preceding calendar year)."
This letter is intended to constitute an amendment to the Agreement
and, as amended hereby, the Agreement shall remain in full force and effect. In
order to evidence your agreement with the provisions of this letter, please sign
and return the enclosed copy of this letter, which shall constitute a binding
agreement between us.
CENDANT CORPORATION
By:______________________
Name:
Title:
Accepted and Agreed to as
of the date first above
written:
- -------------------------
Henry R. Silverman
<PAGE>
EXECUTION COPY
--------------
364-DAY COMPETITIVE ADVANCE AND
REVOLVING CREDIT AGREEMENT
Dated as of March 4, 1997, as amended
and restated through February 28, 2000
among
PHH CORPORATION
as Borrower
and
THE LENDERS REFERRED TO HEREIN
and
THE CHASE MANHATTAN BANK, as Administrative Agent
================================================================================
CHASE SECURITIES INC., Arranger and Book Manager
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS...............................................................1
2. THE LOANS................................................................15
SECTION 2.1. Commitments.............................................15
SECTION 2.2. Loans...................................................16
SECTION 2.3. Use of Proceeds.........................................17
SECTION 2.4. Competitive Bid Procedure...............................17
SECTION 2.5. Revolving Credit Borrowing Procedure....................20
SECTION 2.6. Refinancings............................................20
SECTION 2.7. Fees....................................................21
SECTION 2.8. Repayment of Loans; Evidence of Debt....................22
SECTION 2.9. Interest on Loans.......................................23
SECTION 2.10. Interest on Overdue Amounts............................23
SECTION 2.11. Alternate Rate of Interest.............................24
SECTION 2.12. Termination and Reduction of Commitments...............24
SECTION 2.13. Prepayment of Loans....................................25
SECTION 2.14. Eurocurrency Reserve Costs.............................25
SECTION 2.15. Reserve Requirements; Change in Circumstances..........26
SECTION 2.16. Change in Legality.....................................28
SECTION 2.17. Reimbursement of Lenders...............................28
SECTION 2.18. Pro Rata Treatment.....................................29
SECTION 2.19. Right of Setoff........................................30
SECTION 2.20. Manner of Payments.....................................30
SECTION 2.21. Withholding Taxes......................................31
SECTION 2.22. Certain Pricing Adjustments............................32
SECTION 2.23. [Intentionally Deleted.]...............................33
SECTION 2.24. Extension of Maturity Date.............................33
3. REPRESENTATIONS AND WARRANTIES OF BORROWER...............................34
SECTION 3.1. Corporate Existence and Power...........................35
SECTION 3.2. Corporate Authority and No Violation....................35
SECTION 3.3. Governmental and Other Approval and Consents............35
SECTION 3.4. Financial Statements of Borrower........................35
SECTION 3.5. No Material Adverse Change..............................36
SECTION 3.7. Copyrights, Patents and Other Rights....................36
SECTION 3.8. Title to Properties.....................................36
-i-
<PAGE>
Page
----
SECTION 3.9. Litigation..............................................36
SECTION 3.10. Federal Reserve Regulations............................36
SECTION 3.11. Investment Company Act.................................37
SECTION 3.12. Enforceability.........................................37
SECTION 3.13. Taxes..................................................37
SECTION 3.14. Compliance with ERISA..................................37
SECTION 3.15. Disclosure.............................................38
SECTION 3.16. Environmental Liabilities..............................38
SECTION 3.17. Year 2000 Matters......................................38
4. CONDITIONS OF LENDING....................................................38
SECTION 4.1. Conditions Precedent to Effectiveness...................38
(a) Loan Documents.................................................38
(b) Corporate Documents for the ...................................38
(c) Financial Statements...........................................39
(d) Opinions of Counsel............................................39
(e) No Material Adverse Change.....................................39
(f) Payment of Fees................................................39
(g) Closing Date Payments..........................................39
(h) Litigation.....................................................39
(i) Officer's Certificate..........................................39
SECTION 4.2. Conditions Precedent to Each Loan.......................40
(a) Notice.........................................................40
(b) Representations and Warranties.................................40
(c) No Event of Default............................................40
5. AFFIRMATIVE COVENANTS....................................................40
SECTION 5.1. Financial Statements, Reports, etc. ....................40
SECTION 5.2. Corporate Existence; Compliance with Statutes...........42
SECTION 5.3. Insurance...............................................42
SECTION 5.4. Taxes and Charges.......................................42
SECTION 5.5. ERISA Compliance and Reports............................43
SECTION 5.6. Maintenance of and Access to Books and
Records; Examinations..................................43
SECTION 5.7. Maintenance of Properties...............................43
6. NEGATIVE COVENANTS.......................................................44
SECTION 6.1. Limitation on Material Subsidiary Indebtedness..........44
SECTION 6.2. [Intentionally deleted].................................45
SECTION 6.3. Limitation on Transactions with Affiliates..............45
SECTION 6.4. Consolidation, Merger, Sale of Assets...................45
SECTION 6.5. Limitations on Liens....................................46
SECTION 6.6. Sale and Leaseback......................................47
-ii-
<PAGE>
Page
----
SECTION 6.7. Consolidated Net Worth..................................47
SECTION 6.8. Ratio of Indebtedness To Consolidated Net Worth.........48
SECTION 6.9. Accounting Practices....................................48
SECTION 6.10. Restrictions Affecting Subsidiaries....................48
Section 6.11. [Intentionally Deleted].................................48
SECTION 6.12. Limitation on Mortgage Repurchase Indebtedness.........48
7. EVENTS OF DEFAULT........................................................48
8. THE ADMINISTRATIVE AGENT.................................................51
SECTION 8.1. Administration by Administrative Agent..................51
SECTION 8.2. Advances and Payments...................................51
SECTION 8.3. Sharing of Setoffs and Cash Collateral..................52
SECTION 8.4. Notice to the Lenders...................................52
SECTION 8.5. Liability of the Administrative Agent...................52
SECTION 8.6. Reimbursement and Indemnification.......................53
SECTION 8.7. Rights of Administrative Agent..........................54
SECTION 8.8. Independent Investigation by Lenders....................54
SECTION 8.9. Notice of Transfer......................................54
SECTION 8.10. Successor Administrative Agent.........................54
9. MISCELLANEOUS............................................................55
SECTION 9.1. Notices.................................................55
SECTION 9.2. Survival of Agreement, Representations
and Warranties, etc. .................................55
SECTION 9.3. Successors and Assigns; Syndications;
Loan Sales; Participations............................55
SECTION 9.4. Expenses; Documentary Taxes.............................59
SECTION 9.5. Indemnity...............................................59
SECTION 9.6. CHOICE OF LAW...........................................60
SECTION 9.7. No Waiver...............................................60
SECTION 9.8. Extension of Maturity...................................60
SECTION 9.9. Amendments, etc. .......................................60
SECTION 9.10. Severability...........................................61
SECTION 9.11. SERVICE OF PROCESS; WAIVER OF JURY TRIAL...............61
SECTION 9.12. Headings...............................................62
SECTION 9.13. Execution in Counterparts..............................62
SECTION 9.14. Entire Agreement.......................................62
SECTION 9.15. Foreign Currency Judgments.............................63
SECTION 9.16. [Intentionally Deleted].................................63
SECTION 9.17. Language...............................................63
SECTION 9.18. [Intentionally Deleted].................................63
SECTION 9.19. European Economic And Monetary Union...................63
-iii-
<PAGE>
SCHEDULES
1.1A Lenders, Addresses and Commitments
1.1B Available Foreign Currencies
6.1 Existing Material Subsidiary Indebtedness
6.5 Existing Liens
EXHIBITS
A-1 Form of Revolving Credit Note
A-2 Form of Competitive Note
B-1 Opinion of In-house Counsel
B-2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
C Form of Assignment and Acceptance
D Form of Compliance Certificate
E-1 Form of Competitive Bid Request
E-2 Form of Competitive Bid Invitation
E-3 Form of Competitive Bid
E-4 Form of Competitive Bid Accept/Reject Letter
F Form of Revolving Credit Borrowing Request
G Form of Extension Request
H Form of Replacement Bank Agreement
<PAGE>
364-DAY COMPETITIVE ADVANCE AND REVOLVING CREDIT
AGREEMENT (the "Agreement"), dated as of March 4, 1997, as amended and restated
through February 28, 2000, among PHH CORPORATION, a Maryland corporation (the
"Borrower"), the Lenders referred to herein and THE CHASE MANHATTAN BANK, a New
York banking corporation, as agent (the "Administrative Agent") for the Lenders.
INTRODUCTORY STATEMENT
The Borrower, certain of the Lenders and the Administrative Agent are
parties to the 364-Day Competitive Advance and Revolving Credit Agreement, dated
as of March 4, 1997, as amended to the date prior to the Closing Date referred
to below (the "Existing Credit Agreement"), pursuant to which the Lenders
established a $1,250,000,000 committed revolving credit facility under which
Revolving Credit Loans (as defined below) may be made to the Borrower. In
addition, pursuant to the Existing Credit Agreement, the Lenders provided to the
Borrower (i) a procedure pursuant to which Lenders may bid on an uncommitted
basis on short-term borrowings by the Borrower and (ii) a multi-currency credit
facility in an amount equal to $500,000,000.
The Borrower has requested that the Maturity Date (as defined below) be
extended to February 26, 2001 and the amount committed under the revolving
credit facility be reduced to $750,000,000 and has requested certain other
amendments to the Existing Credit Agreement.
The Borrower, the Lenders and the Administrative Agent desire to amend and
restate the Existing Credit Agreement pursuant to this Agreement and to continue
the Borrower's payment and performance obligations under the Existing Credit
Agreement, as amended hereby.
Accordingly, the parties hereto hereby agree as follows:
1. DEFINITIONS
For the purposes hereof unless the context otherwise requires, the
following terms shall have the meanings indicated, all accounting terms not
otherwise defined herein shall have the respective meanings accorded to them
under GAAP and all terms defined in the New York Uniform Commercial Code and not
otherwise defined herein shall have the respective meanings accorded to them
therein:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Revolving Credit Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article 2.
<PAGE>
2
"Affiliate" shall mean any Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with, the Borrower. For
purposes of this definition, a Person shall be deemed to be "controlled by"
another if such latter Person possesses, directly or indirectly, power either to
(i) vote 10% or more of the securities having ordinary voting power for the
election of directors of such controlled Person or (ii) direct or cause the
direction of the management and policies of such controlled Person whether by
contract or otherwise.
"Alternate Base Rate" shall mean for any day, a rate per annum (rounded
upwards to the nearest 1/16 of 1% if not already an integral multiple of 1/16 of
1%) equal to the greater of (a) the Prime Rate in effect for such day and (b)
the Federal Funds Effective Rate in effect for such day plus 1/2 of 1%. "Prime
Rate" shall mean the rate per annum publicly announced by the entity which is
the Administrative Agent from time to time as its prime rate in effect at its
principal office in New York City. For purposes of this Agreement, any change in
the Alternate Base Rate due to a change in the Prime Rate shall be effective on
the date such change in the Prime Rate is announced as effective. "Federal Funds
Effective Rate" shall mean, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate, for any reason, including, without limitation, the
inability or failure of the Administrative Agent to obtain sufficient bids or
publications in accordance with the terms hereof, the Alternate Base Rate shall
be determined without regard to clause (b) until the circumstances giving rise
to such inability no longer exist. Any change in the Alternate Base Rate due to
a change in the Federal Funds Effective Rate shall be effective on the effective
date of such change in the Federal Funds Effective Rate.
"Applicable Law" shall mean all provisions of statutes, rules, regulations
and orders of governmental bodies or regulatory agencies applicable to a Person,
and all orders and decrees of all courts and arbitrators in proceedings or
actions in which the Person in question is a party.
"Assessment Rate" shall mean, for any day, the net annual assessment rate
(rounded upwards, if necessary, to the next higher Basis Point) as most recently
reasonably estimated by the Administrative Agent for determining the then
current annual assessment payable by the entity which is the Administrative
Agent to the Federal Deposit Insurance Corporation (or any successor) for
insurance by such Corporation (or such successor) of time deposits made in
Dollars at such entity's domestic offices.
<PAGE>
3
"Asset Securitization Subsidiary" shall mean (i) any Subsidiary engaged
solely in the business of effecting asset securitization transactions permitted
by this Agreement and activities incidental thereto or (ii) any Subsidiary whose
primary purpose is to hold title or ownership interests in mortgages, relocation
assets and related assets under management.
"Assignment and Acceptance" shall mean an agreement in the form of Exhibit
C hereto, executed by the assignor, assignee and the other parties as
contemplated thereby.
"Available Foreign Currencies" shall mean the currencies set forth on
Schedule 1.1B, and any other available and freely-convertible non-Dollar
currency selected by the Borrower and approved (which approval shall not be
unreasonably withheld) in writing by the Administrative Agent.
"Basis Point" shall mean 1/100th of 1%.
"Board" shall mean the Board of Governors of the Federal Reserve System.
"Borrowing" shall mean a group of Loans of a single Interest Rate Type made
by certain Lenders (or in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.4) on a
single date and as to which a single Interest Period is in effect.
"Business Day" shall mean, with respect to any Loan, any day other than a
Saturday, Sunday or other day on which banks in the State of New York are
permitted or required by law to close; provided that when used in connection
with a LIBOR Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in deposits in Dollars or the applicable
Available Foreign Currency on the London Interbank Market (or such other
interbank eurocurrency market where the foreign currency and exchange operations
in respect of Dollars or the applicable Available Foreign Currency, as the case
may be, are then being conducted for delivery on the first day of such Interest
Period).
"Capital Lease" shall mean as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
accordance with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
"Cash Equivalents" shall mean (i) investments in commercial paper maturing
in not more than 270 days from the date of issuance which at the time of
acquisition is rated at least A-1 or the equivalent thereof by S&P, or P-1 or
the equivalent thereof by Moody's, (ii) investments in direct obligations or
obligations which are guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having a maturity of not more than
three years from the date of
<PAGE>
4
acquisition, (iii) investments in certificates of deposit maturing not more than
one year from the date of origin issued by a bank or trust company organized or
licensed under the laws of the United States or any state or territory thereof
having capital, surplus and undivided profits aggregating at least $500,000,000
and A rated or better by S&P or Moody's, (iv) money market mutual funds having
assets in excess of $2,000,000,000, (v) investments in asset-backed or
mortgage-backed securities, including investments in collateralized, adjustable
rate mortgage securities and those mortgage-backed securities which are rated at
least AA by S&P or Aa by Moody's or are of comparable quality at the time of
investment, and (vi) banker's acceptances maturing not more than one year from
the date of origin issued by a bank or trust company organized or licensed under
the laws of the United States or any state or territory thereof and having
capital, surplus and undivided profits aggregating at least $500,000,000, and
rated A or better by S&P or Moody's.
"Change in Control" shall mean (i) the acquisition by any Person or group
(within the meaning of the Securities Exchange Act of 1934, as amended, and the
rules of the Securities and Exchange Commission thereunder as in effect on the
Closing Date), directly or indirectly, beneficially or of record, of ownership
or control of in excess of 50% of the voting common stock of Cendant Corporation
on a fully diluted basis at any time or (ii) if at any time, individuals who at
the Closing Date constituted the Board of Directors of Cendant Corporation
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of Cendant Corporation, as the
case may be, was approved by a vote of the majority of the directors then still
in office who were either directors at the Closing Date or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Cendant Corporation or (iii)
Cendant Corporation shall cease to own, directly or through wholly-owned
Subsidiaries, all of the capital stock of the Borrower, free and clear of any
direct or indirect Liens.
"Chase" shall mean The Chase Manhattan Bank, a New York banking
corporation.
"Closing Date" shall mean the date on which the conditions precedent to the
effectiveness of this Agreement as set forth in Section 4.1 have been satisfied
or waived, which shall in no event be later than February 28, 2000.
"Code" shall mean the Internal Revenue Code of 1986 and the rules and
regulations issued thereunder, as now and hereafter in effect, or any successor
provision thereto.
"commencement of the third stage of EMU" shall mean the date of
commencement of the third stage of EMU or the date on which circumstances arise
which (in the opinion of the Administrative Agent) have substantially the same
effect and result in substantially the same consequences as commencement of the
third stage of EMU as contemplated by the Treaty on European Union.
<PAGE>
5
"Commitment" shall mean, with respect to each Lender, its Commitment to
make Loans to the Borrower pursuant to Section 2.1(a), in an aggregate amount
not to exceed at any time the amount set forth opposite such Lender's name under
the heading "Commitment" on Schedule 1.1A.
"Commitment Expiration Date" shall have the meaning assigned to such term
in Section 2.24(a).
"Commitment Period" shall mean the period from and including the Closing
Date to but not including the Maturity Date or such earlier date on which the
Commitments shall have been terminated in accordance with the terms hereof.
"Commitment Utilization Percentage" shall mean on any day the percentage
equivalent of a fraction (a) the numerator of which is the sum of the aggregate
outstanding principal amount of Revolving Credit Loans and the Dollar Equivalent
Amount of the aggregate outstanding principal amount of Competitive Loans and
(b) the denominator of which is the Total Commitment (or, on any day after
termination of the Commitments, the Total Commitment in effect immediately
preceding such termination).
"Competitive Bid" shall mean an offer by a Lender to make a Competitive
Loan pursuant to Section 2.4 in the form of Exhibit E-3.
"Competitive Bid Accept/Reject Letter" shall mean a notification made by
the Borrower pursuant to Section 2.4(d) in the form of Exhibit E-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
Lender pursuant to Section 2.4(b), (a) in the case of a LIBOR Loan, the Margin
and (b) in the case of a Fixed Rate Loan, the fixed rate of interest offered by
the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to Section 2.4
in the form of Exhibit E-1.
"Competitive Borrowing" shall mean a Borrowing consisting of a Competitive
Loan or concurrent Competitive Loans from the Lender or Lenders whose
Competitive Bids for such Borrowing have been accepted by the Borrower under the
bidding procedure described in Section 2.4.
"Competitive Loan" shall mean a Loan from a Lender to the Borrower pursuant
to the bidding procedure described in Section 2.4. Each Competitive Loan shall
be a LIBOR Competitive Loan or a Fixed Rate Loan.
<PAGE>
6
"Competitive Note" shall have the meaning assigned to such term in Section
2.8.
"Consolidated Assets" shall mean, at any date of determination, the total
assets of the Borrower and its Consolidated Subsidiaries determined in
accordance with GAAP.
"Consolidated Net Income" shall mean, for any period for which such amount
is being determined, the net income (loss) of the Borrower and its Consolidated
Subsidiaries during such period determined on a consolidated basis for such
period taken as a single accounting period in accordance with GAAP, provided
that there shall be excluded (i) income (or loss) of any Person (other than a
Consolidated Subsidiary) in which the Borrower or any of its Consolidated
Subsidiaries has an equity investment or comparable interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Borrower or its Consolidated Subsidiaries by such Person during such period,
(ii) the income (or loss) of any Person accrued prior to the date it becomes a
Consolidated Subsidiary or is merged into or consolidated with the Borrower or
any of its Consolidated Subsidiaries or the Person's assets are acquired by the
Borrower or any of its Consolidated Subsidiaries, (iii) the income of any
Consolidated Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by that Consolidated Subsidiary of the income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Consolidated Subsidiary, (iv) any extraordinary
after-tax gains and (v) any extraordinary pretax losses but only to the extent
attributable to a write-down of financing costs relating to any existing and
future indebtedness.
"Consolidated Net Worth" shall mean, at any date of determination, all
amounts which would be included on a balance sheet of the Borrower and its
Consolidated Subsidiaries under stockholders' equity as of such date in
accordance with GAAP.
"Consolidated Subsidiaries" shall mean all Subsidiaries of the Borrower
that are required to be consolidated with the Borrower for financial reporting
purposes in accordance with GAAP.
"Contractual Obligation" shall mean, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Currency" or "Currencies" shall mean the collective reference to Dollars
and Available Foreign Currencies.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
<PAGE>
7
"Dollar Equivalent Amount" shall mean with respect to (i) any amount of any
Available Foreign Currency on any date, the equivalent amount in Dollars of such
amount of Available Foreign Currency, as determined by the Administrative Agent
using the applicable Exchange Rate and (ii) any amount in Dollars, such amount.
"Dollars" and "$" and "US$" shall mean lawful currency of the United
States.
"EMU" shall mean economic and monetary union as contemplated in the Treaty
on European Union.
"EMU legislation" shall mean legislative measures of the European Council
for the introduction of, changeover to or operation of a single or unified
European currency (whether known as the euro or otherwise), being in part the
implementation of the third stage of EMU.
"Environmental Laws" shall mean any and all federal, provincial, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct concerning, any
Hazardous Material or environmental protection or health and safety, as now or
at any time hereafter in effect, including without limitation, the Clean Water
Act also known as the Federal Water Pollution Control Act, 33 U.S.C. (Section)
1251 et seq., the Clean Air Act, 42 U.S.C. (Section) 7401 et seq., the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (Section) 136 et seq., the
Surface Mining Control and Reclamation Act, 30 U.S.C. (Section) 1201 et seq.,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. (Section) 9601 et seq., the Superfund Amendment and Reauthorization Act
of 1986, Public Law 99-499, 100 Stat. 1613, the Emergency Planning and Community
Right to Know Act, 42 U.S.C. (Section) 11001 et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. (Section) 6901 et seq., the Occupational Safety and
Health Act as amended, 29 U.S.C. (Section) 655 and (Section) 657, together, in
each case, with any amendment thereto, and the regulations adopted and
publications promulgated thereunder and all substitutions thereof.
"Environmental Liabilities" shall mean any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
such Act may be amended, and the regulations promulgated thereunder.
<PAGE>
8
"euro" shall mean the single currency of participating member states of the
European Union.
"euro unit" shall mean the currency unit of the euro.
"Event of Default" shall have the meaning given such term in Article 7.
"Excess Utilization Day" shall mean each day on which the Commitment
Utilization Percentage exceeds 33%.
"Exchange Rate" shall mean (i) with respect to any Available Foreign
Currency other than Canadian Dollars on any date, the rate at which such
Available Foreign Currency may be exchanged into Dollars, as set forth on such
date on the relevant Reuters currency page at or about 11:00 A.M. New York City
time on such date and (ii) with respect to Canadian Dollars, the spot rate at
which Canadian Dollars may be exchanged into U.S. Dollars, as quoted by The Bank
of Canada at approximately 12:00 noon, Toronto time, as set forth on the Reuters
"BOFC" page. In the event that such rate does not appear on any such Reuters
page, the "Exchange Rate" with respect to such Available Foreign Currency shall
be determined by reference to such other publicly available service for
displaying exchange rates as may be agreed upon by the Administrative Agent and
the Borrower or, in the absence of such agreement, such "Exchange Rate" shall
instead be the Administrative Agent's spot rate of exchange in the interbank
market where its foreign currency exchange operations in respect of such
Available Foreign Currency are then being conducted, at or about 10:00 A.M.,
local time, at such date for the purchase of Dollars with such Available Foreign
Currency, for delivery two Business Days later; provided that if at the time of
any such determination, no such spot rate can reasonably be quoted, the
Administrative Agent may use any reasonable method (including obtaining quotes
from three or more market makers for such Available Foreign Currency) as it
deems applicable to determine such rate, and such determination shall be
conclusive absent manifest error (without prejudice to the determination of the
reasonableness of such method).
"Extension Request" means each request by the Borrower made pursuant to
Section 2.24 for the Lenders to extend the Maturity Date, which shall contain
the information in respect of such extension specified in Exhibit G and shall be
delivered to the Administrative Agent in writing.
"Facility Fee" shall have the meaning given such term in Section 2.7.
"Five Year Credit Agreement" shall mean the Five Year Competitive Advance
and Revolving Credit Agreement, dated as of March 4, 1997, as amended from time
to time, among the Borrower, the lenders referred to therein and Chase, as
Administrative Agent.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of Fixed Rate
Loans.
<PAGE>
9
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at a
fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
Competitive Bid.
"Fundamental Documents" shall mean this Agreement, any Revolving Credit
Notes, any Competitive Notes, and any other ancillary documentation which is
required to be, or is otherwise, executed by the Borrower and delivered to the
Administrative Agent in connection with this Agreement.
"GAAP" shall mean generally accepted accounting principles consistently
applied (except for accounting changes in response to FASB releases or other
authoritative pronouncements) provided, however, that all calculations made
pursuant to Sections 6.7 and 6.8 and the related definitions shall have been
computed based on such generally accepted accounting principles as are in effect
on the date hereof.
"Governmental Authority" shall mean any federal, provincial, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case, whether of the United States or
foreign.
"Guaranty" shall mean, as to any Person, any direct or indirect obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, Capital
Lease, dividend or other monetary obligation ("primary obligation") of any other
Person (the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (c) to purchase
property, securities or services, in each case, primarily for the purpose of
assuring the owner of any such primary obligation of the repayment of such
primary obligation or (d) as a general partner of a partnership or a joint
venturer of a joint venture in respect of indebtedness of such partnership or
such joint venture which is treated as a general partnership for purposes of
Applicable Law. The amount of any Guaranty shall be deemed to be an amount equal
to the stated or determinable amount (or portion thereof) of the primary
obligation in respect of which such Guaranty is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder); provided that the
amount of any Guaranty shall be limited to the extent necessary so that such
amount does not exceed the value of the assets of such Person (as reflected on a
consolidated balance sheet of such Person prepared in accordance with GAAP) to
which any creditor or beneficiary of such Guaranty would have recourse.
Notwithstanding the foregoing definition, the term "Guaranty" shall not include
any direct or indirect obligation of a Person as a general partner of a general
partnership or a joint venturer of a joint venture in respect of Indebtedness of
such general partnership or joint venture, to the extent such
<PAGE>
10
Indebtedness is contractually non-recourse to the assets of such Person as a
general partner or joint venturer (other than assets comprising the capital of
such general partnership or joint venture).
"Hazardous Materials" shall mean any flammable materials, explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, or similar materials defined as such in any Environmental Law.
"Indebtedness" shall mean (i) all indebtedness, obligations and other
liabilities of the Borrower and its Subsidiaries which are, at the date as of
which Indebtedness is to be determined, includable as liabilities in a
consolidated balance sheet of the Borrower and its Subsidiaries, other than (x)
accounts payable and accrued expenses, (y) advances from clients obtained in the
ordinary course of the relocation management services business of the Borrower
and its Subsidiaries and (z) current and deferred income taxes and other similar
liabilities, plus (ii) without duplicating any items included in Indebtedness
pursuant to the foregoing clause (i), the maximum aggregate amount of all
liabilities of the Borrower or any of its Subsidiaries under any Guaranty,
indemnity or similar undertaking given or assumed of, or in respect of, the
indebtedness, obligations or other liabilities, assets, revenues, income or
dividends of any Person other than the Borrower or one of its Subsidiaries and
(iii) all other obligations or liabilities of the Borrower or any of its
Subsidiaries in relation to the discharge of the obligations of any Person other
than the Borrower or one of it Subsidiaries.
"Interest Payment Date" shall mean, with respect to any Borrowing, the last
day of the Interest Period applicable thereto and, in the case of a LIBOR
Borrowing with an Interest Period of more than three months' duration or a Fixed
Rate Borrowing with an Interest Period of more than 90 days' duration, each day
that would have been an Interest Payment Date had successive Interest Periods of
three months' duration or 90 days' duration, as the case may be, been applicable
to such Borrowing, and, in addition, the date of any refinancing or conversion
of a Borrowing with, or to, a Borrowing of a different Interest Rate Type.
"Interest Period" shall mean (a) as to any LIBOR Borrowing, the period
commencing on the date of such Borrowing, and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3, 6 or, subject to each Lender's
approval, 12 months thereafter, as the Borrower may elect, (b) as to any ABR
Borrowing, the period commencing on the date of such Borrowing and ending on the
earliest of (i) the next succeeding March 31, June 30, September 30 or December
31, (ii) the Maturity Date and (iii) the date such Borrowing is refinanced with
a Borrowing of a different Interest Rate Type in accordance with Section 2.6 or
is prepaid in accordance with Section 2.13, and (c) as to any Fixed Rate
Borrowing, the period commencing on the date of such Borrowing and ending on the
date specified in the Competitive Bids in which the offer to make the Fixed Rate
Loans comprising such Borrowing were extended, which shall not be earlier than
seven days after the date of such Borrowing or later than 360 days after the
date of such
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11
Borrowing; provided that with respect to Loans made by an Objecting Lender, no
Interest Period with respect to such Objecting Lender's Loans shall end after
such Objecting Lender's Commitment Expiration Date; and provided, further, that
(i) if any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless, in
the case of LIBOR Loans only, such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day and (ii) no Interest Period with respect to any
LIBOR Borrowing or Fixed Rate Borrowing may be selected which would result in
the aggregate amount of LIBOR Loans and Fixed Rate Loans having Interest Periods
ending after any day on which a Commitment reduction is scheduled to occur being
in excess of the Total Commitment scheduled to be in effect after such date.
Interest shall accrue from, and including, the first day of an Interest Period
to, but excluding, the last day of such Interest Period.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement or other similar financial agreement or
arrangement.
"Interest Rate Type" when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined.
"Lender and "Lenders" shall mean the financial institutions whose names
appear on the signature pages hereof and any assignee of a Lender pursuant to
Section 9.3(b).
"Lending Office" shall mean, with respect to any of the Lenders, the branch
or branches (or affiliate or affiliates) from which any such Lender's LIBOR
Loans, Fixed Rate Loans or ABR Loans, as the case may be, are made or maintained
and for the account of which all payments of principal of, and interest on, such
Lender's LIBOR Loans, Fixed Rate Loans or ABR Loans are made, as notified to the
Administrative Agent from time to time.
"LIBOR" shall mean, with respect to any LIBOR Borrowing for any Interest
Period, an interest rate per annum (rounded upwards, if necessary, to the next
Basis Point) equal to the rate at which deposits in Dollars or the applicable
Available Foreign Currency, as the case may be, approximately equal in principal
amount to (a) in the case of a Revolving Credit Borrowing, Chase's portion of
such LIBOR Borrowing and (b) in the case of a Competitive Borrowing, a principal
amount that would have been Chase's portion of such Competitive Borrowing had
such Competitive Borrowing been a Revolving Credit Borrowing, and for a maturity
comparable to such Interest Period, are offered to the principal London office
of Chase in immediately available funds in the London Interbank Market (or such
other interbank eurocurrency market where the foreign currency and exchange
operations in respect of Dollars or such applicable Available Foreign Currency,
as the case may be, are then being conducted for delivery on the first day of
such Interest Period) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period.
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12
"LIBOR Borrowing" shall mean a Borrowing comprised of LIBOR Loans.
"LIBOR Competitive Loan" shall mean any Competitive Loan bearing interest
at a rate determined by reference to LIBOR in accordance with the provisions of
Article 2.
"LIBOR Loan" shall mean any LIBOR Competitive Loan or LIBOR Revolving
Credit Loan.
"LIBOR Revolving Credit Loan" shall mean any Loan (other than a Competitive
Loan) bearing interest at a rate determined by reference to LIBOR in accordance
with the provisions of Article 2.
"LIBOR Spread" shall mean, at any date or any period of determination, the
LIBOR Spread that would be in effect on such date or during such period pursuant
to the chart set forth in Section 2.22 based on the rating of the Borrower's
senior unsecured long-term debt.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever (including any conditional sale or other
title retention agreement, any lease in the nature thereof or agreement to give
any financing statement under the Uniform Commercial Code of any jurisdiction).
"Loan" shall mean a Competitive Loan or a Revolving Credit Loan, whether
made as a LIBOR Loan, an ABR Loan or a Fixed Rate Loan, as permitted hereby.
"Margin" shall mean, as to any LIBOR Competitive Loan, the margin
(expressed as a percentage rate per annum in the form of a decimal to four
decimal places) to be added to, or subtracted from, LIBOR in order to determine
the interest rate applicable to such Loan, as specified in the Competitive Bid
relating to such Loan.
"Margin Stock" shall be as defined in Regulation U of the Board.
"Material Adverse Effect" shall mean a material adverse effect on the
business, assets, operations or condition, financial or otherwise, of the
Borrower and its Subsidiaries taken as a whole.
"Material Subsidiary" shall mean any Subsidiary of the Borrower which
together with its Subsidiaries at the time of determination had assets
constituting 10% or more of Consolidated Assets, accounts for 10% or more of
Consolidated Net Worth, or accounts for 10% or more of the revenues of the
Borrower and its Consolidated Subsidiaries for the Rolling Period immediately
preceding the date of determination.
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13
"Maturity Date" shall mean February 26, 2001 or such later date as shall be
determined pursuant to the provisions of Section 2.24 with respect to
non-Objecting Lenders.
"Moody's" shall mean Moody's Investors Service Inc.
"Multiemployer Plan" shall mean a plan described in Section 3(37) of ERISA.
"national currency unit " shall mean the unit of currency (other than a
euro unit) of a participating member state. "non-Objecting Lender" shall mean
any Lender that is not an Objecting Lender.
"Notes" shall mean the Competitive Notes and the Revolving Credit Notes.
"Objecting Lender" shall mean any Lender that does not consent to the
extension of the Maturity Date pursuant to Section 2.24.
"Obligations" shall mean the obligation of the Borrower to make due and
punctual payment of principal of, and interest on (including post-petition
interest, whether or not allowed), the Loans, the Facility Fee, the Utilization
Fee and all other monetary obligations of the Borrower to the Administrative
Agent or any Lender under this Agreement, the Notes or the Fundamental Documents
or with respect to any Interest Rate Protection Agreements entered into between
the Borrower or any of its Subsidiaries and any Lender.
"Original Closing Date" shall mean March 4, 1997.
"Participant" shall have the meaning assigned to such term in Section
9.3(g).
"participating member state " shall mean each state so described in any EMU
legislation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Encumbrances" shall mean Liens permitted under Section 6.5.
"Person" shall mean any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
"Plan" shall mean an employee pension benefit plan described in Section
3(2) of ERISA, other than a Multiemployer Plan.
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14
"Pro Forma Basis" shall mean, in connection with any transaction for which
a determination on a Pro Forma Basis is required to be made hereunder, that such
determination shall be made (i) after giving effect to any issuance of
Indebtedness, any acquisition, any disposition or any other transaction (as
applicable) and (ii) assuming that the issuance of Indebtedness, acquisition,
disposition or other transaction and, if applicable, the application of any
proceeds therefrom, occurred at the beginning of the most recent Rolling Period
ending at least thirty (30) days prior to the date on which such issuance of
Indebtedness, acquisition, disposition or other transaction occurred.
"Reportable Event" shall mean any reportable event as defined in Section
4043(c) of ERISA, other than a reportable event as to which provision for 30-day
notice to the PBGC would be waived under applicable regulations had the
regulations in effect on the Closing Date been in effect on the date of
occurrence of such reportable event.
"Required Lenders" shall mean at any time, Lenders holding Commitments
representing (in Dollar amounts) 51% or more of the Total Commitment, except
that (i) for purposes of determining the Lenders entitled to declare the
principal of and the interest on the Loans and the Notes and all other amounts
payable hereunder or thereunder to be forthwith due and payable pursuant to
Article 7 and (ii) at all times after the termination of the Total Commitment in
its entirety, "Required Lenders" shall mean Lenders holding 51% or more of the
aggregate principal amount of the Loans at the time outstanding.
"Revolving Credit Borrowing" shall mean a Borrowing consisting of
simultaneous Revolving Credit Loans from each of the Lenders.
"Revolving Credit Borrowing Request" shall mean a request made pursuant to
Section 2.5 in the form of Exhibit F.
"Revolving Credit Loans" shall mean the Loans made by the Lenders to the
Borrower pursuant to a notice given by the Borrower under Section 2.5(a). Each
Revolving Credit Loan shall be a LIBOR Revolving Credit Loan or an ABR Loan.
"Revolving Credit Note" shall have the meaning assigned to such term in
Section 2.8.
"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.
"S&P" shall mean Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate
<PAGE>
15
of the maximum reserve percentages (including any marginal, special, emergency
or supplemental reserves) expressed as a decimal established by the Board and
any other banking authority to which the Administrative Agent or any Lender is
subject, for Eurocurrency Liabilities (as defined in Regulation D of the Board)
(or, at any time when such Lender may be required by the Board or by any other
Governmental Authority, whether within the United States or in another relevant
jurisdiction, to maintain reserves against any other category of liabilities
which includes deposits by reference to which LIBOR is determined as provided in
this Agreement or against any category of extensions of credit or other assets
of such Lender which includes any such LIBOR Loans). Such reserve percentages
shall include those imposed under Regulation D of the Board. LIBOR Loans shall
be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to
be subject to such reserve requirements without benefit of or credit for
proration, exceptions or offsets which may be available from time to time to any
Lender under Regulation D of the Board. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Subsidiary" shall mean with respect to any Person, any corporation,
association, joint venture, partnership or other business entity (whether now
existing or hereafter organized) of which at least a majority of the voting
stock or other ownership interests having ordinary voting power for the election
of directors (or the equivalent) is, at the time as of which any determination
is being made, owned or controlled by such Person or one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower.
"Supermajority Lenders" shall mean Lenders which have Commitments
representing at least 75% of the aggregate Dollar amount of the Commitments.
"Target Operating Day" shall mean any day that is not (a) a Saturday or
Sunday, (b) Christmas Day or New Year's Day or (c) any other day on which the
Trans-European Real-time Gross Settlement Operating System (or any successor
settlement system) is not operating (as determined by the Administrative Agent).
"Total Commitment" shall mean, at any time, the aggregate amount of the
Lenders' Commitments as in effect at such time.
"Treaty on European Union" shall mean the Treaty of Rome of March 25, 1957,
as amended by the Single European Act 1986 and the Maastricht Treaty (which was
signed at Maastricht on February 7, 1992, and came into force on November 1,
1993), as amended from time to time.
"United States" shall mean the United States of America.
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16
"Utilization Fee" shall have the meaning given such term in Section 2.7.
"Working Day" shall mean any Business Day on which dealings in foreign
currencies and exchange between banks may be carried on in London, England and
in New York, New York.
2. THE LOANS
SECTION 2.1 Commitments.
(a) Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Lender agrees, severally
and not jointly, to make Revolving Credit Loans to the Borrower in Dollars, at
any time and from time to time on and after the Original Closing Date and until
the earlier of the Maturity Date and the termination of the Commitment of such
Lender, in an aggregate principal amount at any time outstanding not to exceed
such Lender's Commitment plus the outstanding Dollar Equivalent Amount by which
the Competitive Loans outstanding at such time shall be deemed to have used such
Lender's Commitment pursuant to Section 2.18, subject, however, to the condition
that at no time shall (i) the sum of (A) the outstanding aggregate principal
amount of all Revolving Credit Loans made by all Lenders plus the outstanding
aggregate principal Dollar Equivalent Amount of all Competitive Loans made by
the Lenders exceed (ii) the Total Commitment. During the Commitment Period, the
Borrower may use the Commitments of the Lenders by borrowing, prepaying the
Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof.
(b) [Intentionally Deleted].
(c) [Intentionally Deleted].
(d) The Commitments of the Lenders may be terminated or reduced from time
to time pursuant to Section 2.12 or Article 7.
SECTION 2.2. Loans.
(a) Each Loan, shall be made as part of a Borrowing from the Lenders
ratably in accordance with their respective applicable Commitments; provided
that the failure of any Lender, to make any Loan, shall not in itself relieve
any other Lender, of its obligation to lend hereunder (it being understood,
however, that no Lender shall be responsible for the failure of any other Lender
to make any Loan required to be made by such other Lender). Each Competitive
Loan shall be made in accordance with the procedures set forth in Section 2.4.
The Loans comprising any Borrowing shall be (i) in the case of Competitive Loans
and LIBOR Loans, in an aggregate principal Dollar Equivalent Amount that is an
integral multiple of $5,000,000 and not less than $10,000,000 and (ii) in the
case of ABR Loans, in an aggregate principal amount that is an integral multiple
of $500,000 and not less than
<PAGE>
17
$5,000,000 (or if less, an aggregate principal amount equal to the remaining
balance of the available Total Commitment).
(b) Each Competitive Borrowing shall be comprised entirely of LIBOR
Competitive Loans or Fixed Rate Loans, each Borrowing shall be comprised
entirely of LIBOR Revolving Credit Loans or ABR Loans, as the Borrower may
request pursuant to Section 2.4 or 2.5, as applicable. Each Lender may at its
option make any LIBOR Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan, provided that any exercise of such
option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement and the applicable Note. Borrowings
of more than one Interest Rate Type may be outstanding at the same time;
provided that the Borrower shall not be entitled to request any Borrowing that,
if made, would result in an aggregate of more than twenty (20) separate Loans
(other than Competitive Loans) of any Lender being outstanding hereunder at any
one time. For purposes of the calculation required by the immediately preceding
sentence, LIBOR Revolving Credit Loans having different Interest Periods or
having been made in different Currencies, regardless of whether they commence on
the same date, shall be considered separate Loans and all Loans of a single
Interest Rate Type made on a single date shall be considered a single Loan if
such Loans have a common Interest Period.
(c) (i) Subject to Section 2.6, each Lender shall make each Loan to be made
by it hereunder on the proposed date thereof by making funds available at the
office of the Administrative Agent specified in Section 9.1 for credit to PHH
Corporation Clearing Account, Account No. 323-5-11260 (Reference: PHH
Corporation Credit Agreement dated as of March 4, 1997) or as otherwise directed
by the Administrative Agent no later than 1:00 P.M. New York City time in the
case of Loans other than ABR Loans, and 4:00 P.M. New York City time in the case
of ABR Loans, in each case, in immediately available funds. Upon receipt of the
funds to be made available by the Lenders to fund any Borrowing hereunder, the
Administrative Agent shall disburse such funds by depositing them into an
account of the Borrower maintained with the Administrative Agent. Competitive
Loans shall be made by the Lender or Lenders whose Competitive Bids therefor are
accepted pursuant to Section 2.4 in the amounts so accepted and Loans shall be
made by all the Lenders pro rata in accordance with Section 2.1 and this Section
2.2.
(ii) [Intentionally Deleted].
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Borrowing if the Interest Period requested
with respect thereto would end after the Maturity Date.
SECTION 2.3. Use of Proceeds.
The proceeds of the Loans shall be used for working capital and general
corporate purposes.
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18
SECTION 2.4. Competitive Bid Procedure.
(a) In order to request Competitive Bids, the Borrower shall hand deliver
or telecopy to the Administrative Agent a duly completed Competitive Bid Request
in the form of Exhibit E-1, to be received by the Administrative Agent (i) in
the case of a LIBOR Competitive Borrowing, not later than 2:00 p.m., New York
City time, four Working Days before a proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 2:00 p.m., New York City
time, one Business Day before a proposed Competitive Borrowing. Each Competitive
Bid Request shall specify the requested Currency. No ABR Loan shall be requested
in, or made pursuant to, a Competitive Bid Request. A Competitive Bid Request
that does not conform substantially to the format of Exhibit E-1 may be rejected
in the Administrative Agent's sole discretion, and the Administrative Agent
shall promptly notify the Borrower of such rejection by telecopier. Such request
for Competitive Bids shall in each case refer to this Agreement and specify (i)
whether the Borrowing then being requested is to be a LIBOR Borrowing or a Fixed
Rate Borrowing, (ii) the date of such Borrowing (which shall be a Business Day
in the case of a Fixed Rate Borrowing and a Working Day in the case of a LIBOR
Competitive Borrowing) and the aggregate principal Dollar Equivalent Amount
thereof, which shall be in a minimum principal Dollar Equivalent Amount of
$10,000,000 and in an integral multiple of $5,000,000, and (iii) the Interest
Period with respect thereto (which may not end after the Maturity Date).
Promptly after its receipt of a Competitive Bid Request that is not rejected as
aforesaid, the Administrative Agent shall invite by telecopier (in the form set
forth in Exhibit E-2) the Lenders to bid, on the terms and subject to the
conditions of this Agreement, to make Competitive Loans pursuant to such
Competitive Bid Request.
(b) Each Lender may, in its sole discretion, make one or more Competitive
Bids to the Borrower responsive to a Competitive Bid Request. Each Competitive
Bid by a Lender must be received by the Administrative Agent via telecopier, in
the form of Exhibit E-3, (i) in the case of a LIBOR Competitive Borrowing, not
later than 9:30 a.m., New York City time, three Working Days before a proposed
Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later
than 9:30 a.m., New York City time, on the day of a proposed Competitive
Borrowing. Multiple Competitive Bids will be accepted by the Administrative
Agent. Competitive Bids that do not conform substantially to the format of
Exhibit E-3 may be rejected by the Administrative Agent after conferring with,
and upon the instruction of, the Borrower, and the Administrative Agent shall
notify the Lender making such nonconforming Competitive Bid of such rejection as
soon as practicable. Each Competitive Bid shall refer to this Agreement and
specify (i) the principal Dollar Equivalent Amount (which shall be in a minimum
principal Dollar Equivalent Amount of $10,000,000 and in an integral multiple of
$5,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the Borrower) of the Competitive Loan or Loans that the
applicable Lender is willing to make to the Borrower, (ii) the Competitive Bid
Rate or Rates at which such Lender is prepared to make such Competitive Loan or
Loans and (iii) the Interest Period or Interest Periods with respect thereto. If
any Lender shall elect not to make a Competitive Bid, such Lender shall so
notify the Administrative Agent via telecopier (i) in the case of LIBOR
Competitive Loans, not later than 9:30 a.m., New York City time, three Working
Days before a proposed Competitive Borrowing and (ii) in
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19
the case of Fixed Rate Loans, not later than 9:30 a.m., New York City time, on
the day of a proposed Competitive Borrowing; provided that failure by any Lender
to give such notice shall not cause such Lender to be obligated to make any
Competitive Loan as part of such proposed Competitive Borrowing. A Competitive
Bid submitted by a Lender pursuant to this paragraph (b) shall be irrevocable.
(c) The Administrative Agent shall promptly notify the Borrower by
telecopier of all the Competitive Bids made, the Competitive Bid Rate or Rates
and the principal amount of each Competitive Loan in respect of which a
Competitive Bid was made and the identity of the Lender that made each
Competitive Bid. The Administrative Agent shall send a copy of all Competitive
Bids to the Borrower for its records as soon as practicable after completion of
the bidding process set forth in this Section 2.4.
(d) The Borrower may in its sole and absolute discretion, subject only to
the provisions of this paragraph (d), accept or reject any Competitive Bid
referred to in paragraph (c) above. The Borrower shall notify the Administrative
Agent by telephone, promptly confirmed by telecopier in the form of a
Competitive Bid Accept/Reject Letter whether and to what extent it has decided
to accept or reject any or all of the Competitive Bids referred to in paragraph
(c) above, (i) in the case of a LIBOR Competitive Borrowing, not later than
10:30 a.m., New York City time, three Working Days before a proposed Competitive
Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:30
a.m., New York City time, on the day of a proposed Competitive Borrowing;
provided that (A) the failure by the Borrower to give such notice shall be
deemed to be a rejection of all the Competitive Bids referred to in paragraph
(c) above, (B) the Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if the Borrower has decided to reject a
Competitive Bid made at a lower Competitive Bid Rate, (C) the aggregate amount
of the Competitive Bids accepted by the Borrower shall not exceed the principal
amount specified in the Competitive Bid Request, (D) if the Borrower shall
accept a Competitive Bid or Competitive Bids made at a particular Competitive
Bid Rate but the amount of such Competitive Bid or Competitive Bids shall cause
the total amount of Competitive Bids to be accepted by the Borrower to exceed
the amount specified in the Competitive Bid Request, then the Borrower shall
accept a portion of such Competitive Bid or Competitive Bids in an amount equal
to the amount specified in the Competitive Bid Request less the amount of all
other Competitive Bids accepted at lower Competitive Bid Rates with respect to
such Competitive Bid Request (it being understood that acceptance in the case of
multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata
in accordance with the amount of each such Competitive Bid at such Competitive
Bid Rate), (E) except pursuant to clause (D) above, no Competitive Bid shall be
accepted for a Competitive Loan unless such Competitive Loan is in a minimum
principal Dollar Equivalent Amount of $10,000,000 and an integral multiple of
$5,000,000 and (F) the Borrower may not accept Competitive Bids for Competitive
Loans in any Currency other than the Currency specified in the related
Competitive Bid Request; and provided, further, that if a Competitive Loan must
be in an amount less than the Dollar Equivalent Amount of $10,000,000 because of
the provisions of clause (D) above, such Competitive Loan shall be in a minimum
principal Dollar Equivalent Amount of $1,000,000 or any integral multiple
thereof, and in calculating the pro rata allocation of acceptances of portions
of
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20
multiple Competitive Bids at a particular Competitive Bid Rate pursuant to
clause (D), the amounts shall be rounded to the Dollar Equivalent Amount of
integral multiples of $1,000,000 in a manner that shall be in the discretion of
the Borrower. A notice given by the Borrower pursuant to this paragraph (d)
shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding Lender
whether its Competitive Bid has been accepted (and if so, in what amount and at
what Competitive Bid Rate) by telecopy sent by the Administrative Agent, and
each successful bidder will thereupon become bound, subject to the other
applicable conditions hereof, to make the Competitive Loan in respect of which
its Competitive Bid has been accepted in the applicable Currency.
(f) If the Administrative Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such Competitive Bid directly to the
Borrower one quarter of an hour earlier than the latest time at which the other
Lenders are required to submit their Competitive Bids to the Administrative
Agent pursuant to paragraph (b) above.
(g) All notices required by this Section 2.4 shall be given in accordance
with Section 9.1.
SECTION 2.5. Revolving Credit Borrowing Procedure.
(a) In order to effect a Revolving Credit Borrowing, the Borrower shall
hand deliver or telecopy to the Administrative Agent a Borrowing notice in the
form of Exhibit F (a) in the case of a Borrowing of a LIBOR Revolving Credit
Loan, not later than 2:00 p.m., New York City time, three Working Days before a
proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than 2:00
p.m., New York City time, on the day of a proposed Borrowing. No Fixed Rate Loan
or LIBOR Competitive Loan shall be requested or made pursuant to a Revolving
Credit Borrowing Request. Such notice shall be irrevocable and shall in each
case specify (a) whether the Borrowing then being requested is to be a Borrowing
of a LIBOR Revolving Credit Loan or an ABR Borrowing, (b) the date of such
Revolving Credit Borrowing (which shall be a Working Day) and the amount thereof
and (c) if such Borrowing is to be a Borrowing of LIBOR Revolving Credit Loans,
the Interest Period with respect thereto. If no election as to the Interest Rate
Type of a Revolving Credit Borrowing is specified in any such notice, then the
requested Revolving Credit Borrowing shall be an ABR Borrowing. If no Interest
Period with respect to any Borrowing of LIBOR Revolving Credit Loans is
specified in any such notice, then the Borrower shall be deemed to have selected
an Interest Period of one month's duration. If the Borrower shall not have given
notice in accordance with this Section 2.5 of its election to refinance a
Revolving Credit Borrowing prior to the end of the Interest Period in effect for
such Borrowing, then the Borrower shall (unless such Borrowing is repaid at the
end of such Interest Period) be deemed to have given notice of an election to
refinance such Borrowing with an ABR Borrowing. The Administrative Agent shall
promptly advise the Lenders, of any notice given pursuant to this Section 2.5
and of each such Lender's portion of the requested Revolving Credit Borrowing.
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21
(b) [Intentionally Deleted].
SECTION 2.6. Refinancings.
The Borrower may refinance all or any part of any Borrowing made by it with
a Borrowing of the same or a different Interest Rate Type made pursuant to
Section 2.4 or pursuant to a notice under Section 2.5, subject to the conditions
and limitations set forth herein and elsewhere in this Agreement, including
refinancings of Competitive Borrowings with Revolving Credit Borrowings in
Dollars and Revolving Credit Borrowings in Dollars with Competitive Borrowings;
provided that at any time after the occurrence, and during the continuation, of
a Default or an Event of Default, a Revolving Credit Borrowing of Dollars or
portion thereof may only be refinanced with an ABR Borrowing. Any Borrowing or
part thereof so refinanced shall be deemed to be repaid in accordance with
Section 2.8 with the proceeds of a new Borrowing hereunder and the proceeds of
the new Borrowing, to the extent they do not exceed the principal amount of the
Borrowing being refinanced, shall not be paid by the applicable Lenders to the
Administrative Agent or by the Administrative Agent to the Borrower pursuant to
Section 2.2(c); provided that (a) if the principal amount extended by a Lender
in a refinancing is greater than the principal amount extended by such Lender in
the Borrowing being refinanced, then such Lender shall pay such difference to
the Administrative Agent for distribution to the Lenders described in clause (b)
below, (b) if the principal amount extended by a Lender in the Borrowing being
refinanced is greater than the principal amount being extended by such Lender in
the refinancing, the Administrative Agent shall return the difference to such
Lender out of amounts received pursuant to clause (a) above, and (c) to the
extent any Lender fails to pay the Administrative Agent amounts due from it
pursuant to clause (a) above, any Loan or portion thereof being refinanced with
such amounts shall not be deemed repaid in accordance with Section 2.8 and, to
the extent of such failure, the Borrower shall pay such amount to the
Administrative Agent as required by Section 2.10; and (d) to the extent the
Borrower fails to pay to the Administrative Agent any amounts due in accordance
with Section 2.8 as a result of the failure of a Lender to pay the
Administrative Agent any amounts due as described in clause (c) above, the
portion of any refinanced Loan deemed not repaid shall be deemed to be
outstanding solely to the Lender which has failed to pay the Administrative
Agent amounts due from it pursuant to clause (a) above to the full extent of
such Lender's portion of such Loan.
SECTION 2.7. Fees.
(a) The Borrower agrees to pay to each Lender, through the Administrative
Agent, on each March 31, June 30, September 30 and December 31, and on the date
on which the Commitment of such Lender shall be terminated as provided herein, a
facility fee (a "Facility Fee") at the rate per annum from time to time in
effect in accordance with Section 2.22, on the amount of the Commitment of such
Lender, whether used or unused, during the preceding quarter (or shorter period
commencing with the Closing Date, or ending with the Maturity Date or any date
on which the Commitment of such Lender shall be terminated). All Facility Fees
shall be computed on the basis of the actual number of days elapsed in a year of
360 days. The Facility Fee due to each Lender shall commence to accrue on
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22
the Original Closing Date, shall be payable in arrears and shall cease to accrue
on the earlier of the Maturity Date and the termination of the Commitment of
such Lender as provided herein.
(b) The Borrower agrees to pay to each Lender, through the Administrative
Agent, on each March 31, June 30, September 30 and December 31, and on the date
on which the Commitment of such Lender shall be terminated as provided herein, a
utilization fee (a "Utilization Fee") at a rate per annum equal to .125% for
each day on which the Commitment Utilization Percentage exceeds 33%, which fee
shall accrue on the daily amount of the Commitment of such Lender (whether used
or unused) for each Excess Utilization Day during the period from and including
the Closing Date to but excluding the date on which such Commitment terminates;
provided that, if such Lender continues to have any outstanding Loans after its
Commitment terminates, then such Utilization Fee shall continue to accrue on the
daily aggregate principal amount of such Lender's Loans for each Excess
Utilization Day from and including the date on which its Commitment terminates
to but excluding the date on which such Lender ceases to have any outstanding
Loans. All Utilization Fees shall be computed on the basis of the actual number
of days elapsed in a year of 360 days and shall be payable in arrears.
(c) The Borrower agrees to pay the Administrative Agent, for its own
account, the fees at the times and in the amounts provided for in the letter
agreement dated February 25, 2000 among the Borrower, Chase and Chase Securities
Inc.
(d) All fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders. Once paid, none of the fees shall be refundable under any
circumstances.
SECTION 2.8. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Revolving Credit Loan of such Lender on the Maturity Date (or
such earlier date on which the Revolving Credit Loans become due and payable
pursuant to Article 7); provided that the Revolving Credit Loans made by
Objecting Lenders shall be repaid as provided in Section 2.24. The Borrower
hereby further agrees to pay to the Administrative Agent interest on the unpaid
principal amount of the Revolving Credit Loans from time to time outstanding
from the date hereof until payment in full thereof at the rates per annum, and
on the dates, set forth in Section 2.9.
(b) The Borrower unconditionally promises to pay to the Administrative
Agent, for the account of each Lender that makes a Competitive Loan, on the last
day of the Interest Period applicable to such Competitive Loan, the principal
amount of such Competitive Loan. The Borrower further unconditionally promises
to pay interest on each such Competitive Loan for the period from and including
the date of Borrowing of such Competitive Loan on the unpaid principal amount
thereof from time to time outstanding at the applicable rate per annum
determined as provided in, and payable as specified in, Section 2.9.
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23
(c) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(d) The Administrative Agent shall maintain the Register pursuant to
Section 9.3(e), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, the Interest Rate Type
thereof and each Interest Period, if any, applicable thereto, (ii) the amount of
any principal or interest due and payable or to become due and payable from each
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(e) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.8(c) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided that the failure of any
Lender or the Administrative Agent to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of the
Borrower to repay (with applicable interest) the Loans made to the Borrower by
such Lender in accordance with the terms of this Agreement.
(f) The Borrower agrees that, upon the request to the Administrative Agent
by any Lender, the Borrower will execute and deliver to such Lender a promissory
note of the Borrower evidencing the Loans of such Lender, substantially in the
form of Exhibit A-1 with appropriate insertions as to date and principal amount
(a "Revolving Credit Note").
(g) The Borrower agrees that, upon the request to the Administrative Agent
by any Lender, the Borrower will execute and deliver to such Lender a promissory
note of the Borrower evidencing the Competitive Loans of such Lender,
substantially in the form of Exhibit A-2 with appropriate insertions as to date,
principal amount and Currency (a "Competitive Note").
SECTION 2.9. Interest on Loans.
(a) Subject to the provisions of Section 2.10, the Loans comprising each
LIBOR Borrowing shall bear interest at a rate per annum equal to (i) in the case
of each LIBOR Revolving Credit Loan, LIBOR for the Interest Period in effect for
such Borrowing plus the applicable LIBOR Spread from time to time in effect and
(ii) in the case of each LIBOR Competitive Loan, LIBOR for the Interest Period
in effect for such Borrowing plus or minus the Margin offered by the Lender
making such Loan and accepted by the Borrower pursuant to Section 2.4. Interest
on each LIBOR Borrowing shall be payable on each applicable Interest Payment
Date.
(b) Subject to the provisions of Section 2.10, the Loans comprising each
ABR Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be when determined
by reference to the Prime Rate and over a
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24
year of 360 days at all other times) at a rate per annum equal to the Alternate
Base Rate plus the applicable margin therefor from time to time in effect in
accordance with Section 2.22.
(c) Subject to the provisions of Section 2.10, each Fixed Rate Loan shall
bear interest at a rate per annum (computed on the basis of the actual number of
days elapsed over a year of 360 days) equal to the fixed rate of interest
offered by the Lender making such Loan and accepted by the Borrower pursuant to
Section 2.4.
(d) Interest on each Loan shall be payable in arrears on each Interest
Payment Date applicable to such Loan. The LIBOR or the Alternate Base Rate for
each Interest Period or day within an Interest Period shall be determined by the
Administrative Agent and such determination shall be conclusive absent manifest
error.
SECTION 2.10. Interest on Overdue Amounts.
If the Borrower shall default in the payment of the principal of, or
interest on, any Loan or any other amount becoming due hereunder, the Borrower
shall on demand from time to time pay interest, to the extent permitted by
Applicable Law, on such defaulted amount up to (but not including) the date of
actual payment (after as well as before judgment) at a rate per annum computed
on the basis of the actual number of days elapsed over a year of 365 or 366
days, as applicable, in the case of amounts bearing interest determined by
reference to the Prime Rate and a year of 360 days in all other cases, equal to
(a) in the case of the remainder of the then current Interest Period for any
LIBOR Loan or Fixed Rate Loan, the rate applicable to such Loan under Section
2.9 plus 2% per annum and (b) in the case of any other amount, the rate that
would at the time be applicable to an ABR Loan under Section 2.9 plus 2% per
annum plus the applicable margin for ABR Loans in effect from time to time in
accordance with Section 2.22.
SECTION 2.11. Alternate Rate of Interest.
In the event the Administrative Agent shall have determined that deposits
in Dollars or the applicable Available Foreign Currency in the amount of the
requested principal amount of any LIBOR Loan are not generally available in the
London Interbank Market (or such other interbank eurocurrency market where the
foreign currency and exchange operations in respect of Dollars or such
applicable Available Foreign Currency, as the case may be, are then being
conducted for delivery on the first day of such Interest Period), or that the
rate at which such deposits are being offered will not adequately and fairly
reflect the cost to any Lender of making or maintaining its portion of such
LIBOR Loans during such Interest Period, or that reasonable means do not exist
for ascertaining LIBOR, the Administrative Agent shall, as soon as practicable
thereafter, give written or telecopier notice of such determination to the
Borrower and the Lenders. In the event of any such determination, until the
Administrative Agent shall have determined that circumstances giving rise to
such notice no longer exist, (a) any request by the Borrower for a LIBOR
Competitive Borrowing pursuant to Section 2.4 shall be of no force and effect
and shall be denied by the Administrative Agent and (b) any request by the
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25
Borrower for a LIBOR Borrowing pursuant to Section 2.5 shall be deemed to be a
request for an ABR Loan. Each determination by the Administrative Agent
hereunder shall be conclusive absent manifest error.
SECTION 2.12. Termination and Reduction of Commitments.
(a) The Commitments of all of the Lenders shall be automatically terminated
on the Maturity Date.
(b) Subject to Section 2.13(b), upon at least three Business Days' prior
irrevocable written or telecopy notice to the Administrative Agent (which shall
promptly notify each Lender), the Borrower may at any time in whole permanently
terminate, or from time to time in part permanently reduce, the Commitments;
provided that (i) each partial reduction shall be in an integral multiple of
$1,000,000 and in a minimum principal amount of $10,000,000 and (ii) the
Borrower shall not be entitled to make any such termination or reduction that
would reduce a type of Commitment to an amount less than the sum of the
aggregate outstanding principal Dollar Equivalent Amount of the related Loans.
(c) Each reduction in a type of Commitment hereunder shall be made ratably
among the applicable Lenders in accordance with their respective Commitments.
The Borrower shall pay to the Administrative Agent for the account of the
applicable Lenders on the date of each termination or reduction in a type of
Commitment, the Facility Fees and the Utilization Fees on the amount of the
Commitments so terminated or reduced accrued to the date of such termination or
reduction.
SECTION 2.13. Prepayment of Loans.
(a) Prior to the Maturity Date, the Borrower shall have the right at any
time to prepay any Revolving Credit Borrowing, in whole or in part, subject to
the requirements of Section 2.17 but otherwise without premium or penalty, upon
prior written or telecopy notice to the Administrative Agent (which shall
promptly notify each Lender) before 2:00 p.m. New York City time of at least one
Business Day in the case of an ABR Loan and of at least three Working Days in
the case of a LIBOR Loan; provided that each such partial prepayment shall be in
a minimum aggregate principal Dollar Equivalent Amount of $1,000,000 or a whole
multiple in excess thereof. The Borrower shall not have the right to prepay any
Competitive Borrowing without the consent of the relevant Lender.
(b) On any date when the sum of the Dollar Equivalent Amount of the
aggregate outstanding Loans (after giving effect to any Borrowings effected on
such date) exceeds the Total Commitment, the Borrower shall make a mandatory
prepayment of the Loans in such amount as may be necessary so that the Dollar
Equivalent Amount of the aggregate amount of outstanding Loans after giving
effect to such prepayment does not exceed the Total Commitment then in effect.
Any prepayments required by this paragraph shall be applied to outstanding ABR
Loans up to the full amount thereof before they are applied to outstanding LIBOR
Loans.
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26
(c) Each notice of prepayment pursuant to this Section 2.13 shall specify
the specific Borrowing(s), the prepayment date and the aggregate principal
amount of each Borrowing to be prepaid, shall be irrevocable and shall commit
the Borrower to prepay such Borrowing(s) by the amount stated therein. All
prepayments under this Section 2.13 shall be accompanied by accrued interest on
the principal amount being prepaid to the date of prepayment and any amounts due
pursuant to Section 2.17.
SECTION 2.14. Eurocurrency Reserve Costs.
The Borrower shall pay to the Administrative Agent for the account of each
Lender, so long as such Lender shall be required under regulations of the Board
to maintain reserves with respect to liabilities or assets consisting of, or
including, Eurocurrency Liabilities (as defined in Regulation D of the Board)
(or, at any time when such Lender may be required by the Board or by any other
Governmental Authority, whether within the United States or in another relevant
jurisdiction, to maintain reserves against any other category of liabilities
which includes deposits by reference to which LIBOR is determined as provided in
this Agreement or against any category of extensions of credit or other assets
of such Lender which includes any such LIBOR Loans), additional interest on the
unpaid principal amount of each LIBOR Loan made to the Borrower by such Lender,
from the date of such Loan until such Loan is paid in full, at an interest rate
per annum equal at all times during the Interest Period for such Loan to the
remainder obtained by subtracting (i) LIBOR for such Interest Period from (ii)
the rate obtained by multiplying LIBOR as referred to in clause (i) above by the
Statutory Reserves of such Lender for such Interest Period. Such additional
interest shall be determined by such Lender and notified to the Borrower (with a
copy to the Administrative Agent) not later than five Business Days before the
next Interest Payment Date for such Loan, and such additional interest so
notified to the Borrower by any Lender shall be payable to the Administrative
Agent for the account of such Lender on each Interest Payment Date for such
Loan.
SECTION 2.15. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement any change in Applicable Law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) (i) shall subject any Lender to, or increase the net amount of, any tax,
levy, impost, duty, charge, fee, deduction or withholding with respect to any
Loan, or shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Loan made by such Lender or any other fees or
amounts payable hereunder (other than (x) taxes imposed on the overall net
income of such Lender by the jurisdiction in which such Lender has its principal
office or its applicable Lending Office or by any political subdivision or
taxing authority therein (or any tax which is enacted or adopted by such
jurisdiction, political subdivision or taxing authority as a direct substitute
for any such taxes) or (y) any tax, assessment, or other governmental charge
that would not have been imposed but for the failure of any Lender to comply
with any certification, information, documentation or other reporting
requirement), (ii) shall impose, modify or deem applicable any reserve, special
deposit or similar
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27
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender, or (iii) shall impose on any Lender or eurocurrency
market any other condition affecting this Agreement or any Loan made by such
Lender, and the result of any of the foregoing shall be to increase the cost to
such Lender of making or maintaining any Loan or to reduce the amount of any sum
received or receivable by such Lender hereunder (whether of principal, interest
or otherwise) in respect thereof by an amount deemed in good faith by such
Lender to be material, then the Borrower shall pay such additional amount or
amounts as will compensate such Lender for such increase or reduction to such
Lender upon demand by such Lender.
(b) If, after the date of this Agreement, any Lender shall have determined
in good faith that the adoption after the date hereof of or any change after the
date hereof in any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change in the interpretation or administration thereof
by any Governmental Authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender (or
any Lending Office of such Lender) with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such Lender's holding company, if any, as a consequence of its obligations
hereunder to a level below that which such Lender (or its holding company) could
have achieved but for such applicability, adoption, change or compliance (taking
into consideration such Lender's policies or the policies of its holding
company, as the case may be, with respect to capital adequacy) by an amount
deemed by such Lender to be material, then, from time to time, the Borrower
shall pay to the Administrative Agent for the account of such Lender (or its
holding company) such additional amount or amounts as will compensate such
Lender for such reduction upon demand by such Lender.
(c) A certificate of a Lender setting forth in reasonable detail (i) such
amount or amounts as shall be necessary to compensate such Lender as specified
in paragraph (a) or (b) above, as the case may be, and (ii) the calculation of
such amount or amounts referred to in the preceding clause (i), shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay the Administrative Agent for the account of such Lender the
amount shown as due on any such certificate within 10 Business Days after its
receipt of the same.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any Interest Period shall not constitute a
waiver of such Lender's rights to demand compensation for any increased costs or
reduction in amounts received or receivable or reduction in return on capital
with respect to such Interest Period or any other Interest Period. The
protection of this Section 2.15 shall be available to each Lender regardless of
any possible contention of invalidity or inapplicability of the law, regulation
or condition which shall have been imposed.
(e) Each Lender agrees that, as promptly as practicable after it becomes
aware of the occurrence of an event or the existence of a condition that (i)
would cause it to incur any increased cost
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under this Section 2.15, Section 2.16 or Section 2.21 or (ii) would require the
Borrower to pay an increased amount under this Section 2.15, Section 2.16 or
Section 2.21, it will use reasonable efforts to notify the Borrower of such
event or condition and, to the extent not inconsistent with such Lender's
internal policies, will use its reasonable efforts to make, fund or maintain the
affected Loans of such Lender through another Lending Office of such Lender if
as a result thereof the additional monies which would otherwise be required to
be paid or the reduction of amounts receivable by such Lender thereunder in
respect of such Loans would be materially reduced, or any inability to perform
would cease to exist, or the increased costs which would otherwise be required
to be paid in respect of such Loans pursuant to this Section 2.15, Section 2.16
or Section 2.21 would be materially reduced or the taxes or other amounts
otherwise payable under this Section 2.15, Section 2.16 or Section 2.21 would be
materially reduced, and if, as determined by such Lender, in its sole reasonable
discretion, the making, funding or maintaining of such Loans through such other
Lending Office would not otherwise materially adversely affect such Loans.
(f) In the event any Lender shall have delivered to the Borrower a notice
that LIBOR Loans are no longer available from such Lender pursuant to Section
2.16, that amounts are due to such Lender pursuant to paragraph (c) above, that
any of the events designated in paragraph (e) above have occurred or that a
Lender shall not be rated at least BBB by S&P and Baa2 by Moody's, the Borrower
may (but subject in any such case to the payments required by Section 2.17),
provided that there shall exist no Default or Event of Default, upon at least
five Business Days' prior written or telecopier notice to such Lender and the
Administrative Agent, but not more than 30 days after receipt of notice from
such Lender, identify to the Administrative Agent a lending institution
reasonably acceptable to the Administrative Agent which will purchase the
Commitment, the amount of outstanding Loans from the Lender providing such
notice and such Lender shall thereupon assign its Commitment, any Loans owing to
such Lender and the Notes held by such Lender to such replacement lending
institution pursuant to Section 9.3. Such notice shall specify an effective date
for such assignment and at the time thereof, the Borrower shall pay all accrued
interest, Facility Fees, Utilization Fees and all other amounts (including
without limitation all amounts payable under this Section and Sections 2.21, 9.4
and 9.5) owing hereunder to such Lender as at such effective date for such
assignment.
SECTION 2.16. Change in Legality.
(a) Notwithstanding anything to the contrary herein contained, if any
change in any law or regulation or in the interpretation thereof by any
Governmental Authority charged with the administration or interpretation thereof
shall make it unlawful for any Lender to make or maintain any LIBOR Loan or to
give effect to its obligations as contemplated hereby, then, by written notice
to the Borrower and to the Administrative Agent, such Lender may:
(i) declare that LIBOR Loans will not thereafter be made by such Lender
hereunder, whereupon such Lender shall not submit a Competitive Bid in
response to a request for LIBOR Competitive Loans and the Borrower shall be
prohibited from requesting LIBOR
<PAGE>
29
Revolving Credit Loans from such Lender hereunder unless such declaration is
subsequently withdrawn; and
(ii) require that all outstanding LIBOR Loans (in Dollars) made by it
be converted to ABR Loans in which event (A) all such LIBOR Loans shall be
automatically converted to ABR Loans as of the effective date of such notice
as provided in Section 2.16(b) and (B) all payments and prepayments of
principal which would otherwise have been applied to repay the converted
LIBOR Loans shall instead be applied to repay the ABR Loan resulting from the
conversion of such LIBOR Loans.
(b) For purposes of this Section 2.16, a notice to the Borrower by any
Lender pursuant to Section 2.16(a) shall be effective on the date of receipt
thereof by the Borrower.
SECTION 2.17. Reimbursement of Lenders.
(a) The Borrower shall reimburse each Lender on demand for any loss
incurred or to be incurred by it in the reemployment of the funds released (i)
by any prepayment (for any reason, including any refinancing) of any LIBOR or
Fixed Rate Loan if such Loan is repaid other than on the last day of the
applicable Interest Period for such Loan or (ii) in the event that after the
Borrower delivers a notice of borrowing under Section 2.5 in respect of LIBOR
Revolving Credit Loans or a Competitive Bid Accept/Reject Letter under Section
2.4(d), pursuant to which it has accepted Competitive Bids of one or more of the
Lenders, the applicable Loan is not made on the first day of the Interest Period
specified by the Borrower for any reason other than (I) a suspension or
limitation under Section 2.16 of the right of the Borrower to select a LIBOR
Loan or (II) a breach by a Lender of its obligations hereunder. In the case of
such failure to borrow, such loss shall be the amount as reasonably determined
by such Lender as the excess, if any, of (A) the amount of interest which would
have accrued to such Lender on the amount not borrowed, at a rate of interest
equal to the interest rate applicable to such Loan pursuant to Section 2.9, for
the period from the date of such failure to borrow to the last day of the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow, over (B) the amount realized by such Lender in reemploying
the funds not advanced during the period referred to above. In the case of a
payment other than on the last day of the Interest Period for a Loan, such loss
shall be the amount of the excess, if any, of (A) the amount of interest which
would have accrued on the amount so paid at a rate of interest equal to the
interest rate applicable to such Loan pursuant to Section 2.9, for the period
from the date of such payment to the last day of the then current Interest
Period for such Loan, over (B) an amount equal to the product of (x) the amount
of the Loan so paid times (y) the current daily yield on U.S. Treasury
Securities (at such date of determination) with maturities approximately equal
to the remaining Interest Period for such Loan times (z) the number of days
remaining in the Interest Period for such Loan. Each Lender shall deliver to the
Borrower from time to time one or more certificates setting forth the amount of
such loss (and in reasonable detail the manner of computation thereof) as
determined by such Lender, which certificates shall be conclusive absent
manifest error. The Borrower shall pay to the Administrative
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30
Agent for the account of each Lender the amount shown as due on any certificate
within thirty (30) days after its receipt of the same.
(b) In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.13(a), the
Borrower on demand by any Lender shall pay to the Administrative Agent for the
account of such Lender any amounts required to compensate such Lender for any
loss incurred by such Lender as a result of such failure to prepay, including,
without limitation, any loss, cost or expenses incurred by reason of the
acquisition of deposits or other funds by such Lender to fulfill deposit
obligations incurred in anticipation of such prepayment. Each Lender shall
deliver to the Borrower and the Administrative Agent from time to time one or
more certificates setting forth the amount of such loss (and in reasonable
detail the manner of computation thereof) as determined by such Lender, which
certificates shall be conclusive absent manifest error.
SECTION 2.18. Pro Rata Treatment.
Except as permitted under Sections 2.14, 2.15(c), 2.15(f), 2.16, 2.17, 2.24
and 4.1(g), each Borrowing, each reduction of the aggregate Commitments shall be
allocated pro rata among the Lenders in accordance with their respective
Commitments (or, if such Commitments shall have expired or been terminated, in
accordance with the respective principal amount of their Loans) and each payment
or prepayment of principal of any Borrowing and each payment of interest on the
Loans shall be allocated pro rata in accordance with the respective principal
amount of the Loans then held by the Lenders. Each payment of principal of any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective principal
amounts of their outstanding Competitive Loans comprising such Borrowing. Each
payment of interest on any Competitive Borrowing shall be allocated pro rata
among the Lenders participating in such Borrowing in accordance with the
respective amounts of accrued and unpaid interest on their outstanding
Competitive Loans comprising such Borrowing. For purposes of determining the
available Commitments of the Lenders at any time, each outstanding Competitive
Borrowing shall be deemed to have utilized the Commitments of the Lenders
(including those Lenders that shall not have made Loans as part of such
Competitive Borrowing) pro rata in accordance with such respective Commitments.
Each Lender agrees that in computing such Lender's portion of any Borrowing to
be made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing computed in accordance with Section 2.1,
to the next higher or lower whole Dollar amount.
SECTION 2.19. Right of Setoff.
If any Event of Default shall have occurred and be continuing and any
Lender shall have requested the Administrative Agent to declare the Loans
immediately due and payable pursuant to Article 7, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
Applicable Law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by such Lender and any
other indebtedness at any time owing by such Lender to, or for the credit or the
account of, each Borrower, against any of and all the
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31
obligations now or hereafter existing under this Agreement and the Loans held by
such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement or such Loans and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Borrower after any such
setoff and application made by such Lender, but the failure to give such notice
shall not affect the validity of such setoff and application. The rights of each
Lender under this Section 2.19 are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have and are subject to
the provisions of Section 8.2.
SECTION 2.20. Manner of Payments.
All payments by the Borrower hereunder and under the Notes shall be made in
Dollars or other applicable Currency in immediately available funds, without
setoffs, deductions or counterclaims, at the office of the Administrative
Agent's Agent Bank Services Department, One Chase Manhattan Plaza, New York, New
York 10081, Attention: Maggie Swales, for credit to PHH Corporation Clearing
Account, Account No. 323-5-11260 (Reference: PHH Corporation Credit Agreement
dated March 4, 1997) or as otherwise directed by the Borrower (with the consent
of the Administrative Agent, which consent shall not be unreasonably withheld)
no later than 4:30 p.m., New York City time, on the date on which such payment
shall be due. Interest in respect of any Loan hereunder shall accrue from and
including the date of such Loan to, but excluding, the date on which such Loan
is paid or refinanced with a Loan of a different Interest Rate Type.
SECTION 2.21. Withholding Taxes.
(a) Prior to the date of the initial Loans hereunder, and from time to time
thereafter if requested by the Borrower or the Administrative Agent or required
because, as a result of a change in Applicable Law or a change in circumstances
or otherwise, a previously delivered form or statement becomes incomplete or
incorrect in any material respect, each Lender organized under the laws of a
jurisdiction outside the United States shall provide, if applicable, the
Administrative Agent and the Borrower with complete, accurate and duly executed
forms or other statements prescribed by a Governmental Authority certifying such
Lender's exemption, if any, from, or entitlement to a reduced rate, if any, of,
withholding taxes (including backup withholding taxes) with respect to all
payments to be made to such Lender hereunder and under the Notes.
(b) The Borrower and the Administrative Agent shall be entitled to deduct
and withhold any and all present or future taxes or withholdings, and all
liabilities with respect thereto, from payments hereunder or under the Notes, if
and to the extent that the Borrower or the Administrative Agent in good faith
determines that such deduction or withholding is required by Applicable Law,
including, without limitation, any applicable treaty. In the event the Borrower
or the Administrative Agent shall so determine that deduction or withholding of
taxes is required, it shall advise the affected Lender as to the basis of such
determination prior to actually deducting and withholding such taxes. In the
event the Borrower or the Administrative Agent shall so deduct or withhold taxes
from amounts
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32
payable hereunder, it (i) shall pay to or deposit with the appropriate taxing
authority in a timely manner the full amount of taxes it has deducted or
withheld; (ii) shall provide evidence of payment of such taxes to, or the
deposit thereof with, the appropriate taxing authority and a statement setting
forth the amount of taxes deducted or withheld, the applicable rate, and any
other information or documentation reasonably requested by the Lenders from whom
the taxes were deducted or withheld; and (iii) shall forward to such Lenders any
receipt for such payment or deposit of the deducted or withheld taxes as may be
issued from time to time by the appropriate taxing authority. Unless the
Borrower and the Administrative Agent have received forms or other documents
satisfactory to them indicating that payments hereunder or under the Notes are
not subject to withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty, the Borrower or the Administrative Agent may withhold
taxes from such payments at the applicable statutory rate in the case of
payments to or for any Lender.
(c) Each Lender agrees (i) that as between it and the Borrower or the
Administrative Agent, it shall be the Person to deduct and withhold taxes, and
to the extent required by law it shall deduct and withhold taxes, on amounts
that such Lender may remit to any other Person(s) by reason of any undisclosed
transfer or assignment of an interest in this Agreement to such other Person(s)
pursuant to paragraph (g) of Section 9.3 and (ii) to indemnify the Borrower and
the Administrative Agent and any of their officers, directors, agents, or
employees against, and to hold them harmless from, any tax, interest, additions
to tax, penalties, reasonable counsel and accountants' fees, disbursements or
payments arising from the assertion by any appropriate taxing authority of any
claim against them relating to a failure to withhold taxes as required by
Applicable Law with respect to amounts described in clause (i) of this paragraph
(c).
(d) Each assignee of a Lender's interest in this Agreement in conformity
with Section 9.3 shall be bound by this Section 2.21, so that such assignee will
have all of the obligations and provide all of the forms and statements and all
indemnities, representations and warranties required to be given under this
Section 2.21.
(e) In the event that any withholding taxes shall become payable as a
result of any change in any statute, treaty, ruling, determination or regulation
occurring after the Initial Date (as defined below) in respect of any sum
payable hereunder or under any other Fundamental Document to any Lender or the
Administrative Agent (i) the sum payable by the Borrower shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.21) such
Lender or the Administrative Agent (as the case may be) receives an amount equal
to the sum it would have received had no such deductions been made, (ii) the
Borrower, the Lender or the Administrative Agent (as the case may be) shall make
such deductions and (iii) the Borrower, the Lender or the Administrative Agent
(as the case may be) shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with Applicable Law. For purposes of
this Section 2.21, the term "Initial Date" shall mean (i) in the case of the
Administrative Agent, the date hereof, (ii) in the case of each Lender as of the
date hereof, the date hereof and (iii) in the case of any other Lender, the
effective date of the Assignment and Acceptance pursuant to which it became a
Lender.
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33
SECTION 2.22. Certain Pricing Adjustments.
The Facility Fee and the applicable LIBOR Spread in effect from time to
time shall be determined in accordance with the following table:
S&P/Moody's Rating
Equivalent of the Applicable
Borrower's senior Facility Fee LIBOR Spread
unsecured long-term debt (in Basis Points) (in Basis Points)
- ------------------------ ----------------- -----------------
A/A2 or better 8.0 29.5
A-/A3 10.0 40.0
BBB+/Baa1 12.5 50.0
BBB/Baa2 15.0 60.0
BBB-/Baa3 17.5 70.0
BB+/Ba1 or worse 32.5 117.5
In the event the S&P rating on the Borrower's senior unsecured long-term
debt is not equivalent to the Moody's rating on such debt, the higher rating
will determine the Facility Fee and applicable LIBOR Spread, unless the S&P and
Moody's ratings are more than one level apart, in which case the rating one
level below the higher rating will be determinative. In the event that the
Borrower's senior unsecured long-term debt is rated by only one of S&P and
Moody's (for any reason, including if S&P or Moody's shall cease to be in the
business of rating corporate debt obligations) or if the rating system of either
S&P or Moody's shall change, then an amendment shall be negotiated in good faith
(and shall be effective only upon approval by the Borrower and the Supermajority
Lenders) to the references to specific ratings in the table above to reflect
such changed rating system or the unavailability of ratings from such rating
agency (including an amendment to provide for the substitution of an equivalent
or successor ratings agency). In the event that the Borrower's senior unsecured
long-term debt is not rated by either S&P or Moody's, then the Facility Fee and
the applicable LIBOR Spread shall be deemed to be calculated as if the lowest
rating category set forth above applied. Any increase in the Facility Fee or the
applicable LIBOR Spread determined in accordance with the foregoing table shall
become effective on the date of announcement or publication by the Borrower or
the applicable rating agency of a reduction in such rating or, in the absence of
such announcement or publication, on the effective date of such decreased
rating, or on the date of any request by the Borrower to either rating agency
not to rate its senior unsecured long-term debt or on the date either of such
rating agencies announces it shall no longer rate the Borrower's senior
unsecured long-term debt. Any decrease in the Facility Fee or applicable LIBOR
Spread shall be effective on the date of announcement or publication by either
of such rating agencies of an increase in rating or in the absence
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34
of announcement or publication on the effective date of such increase in rating.
The applicable margin for ABR Loans shall be 1% less than the applicable LIBOR
Spread (but not less than 0%).
SECTION 2.23. [Intentionally Deleted.]
SECTION 2.24. Extension of Maturity Date. (a) Not less than 60 days and not
more than 90 days prior to the Maturity Date then in effect, provided that no
Event of Default shall have occurred and be continuing, the Borrower may request
an extension of the Maturity Date then in effect by submitting to the
Administrative Agent an Extension Request containing the information in respect
of such extension specified in Exhibit G, which the Administrative Agent shall
promptly furnish to each Lender. Each Lender shall, not less than 30 days and
not more than 60 days prior to such Maturity Date then in effect, notify the
Borrower and the Administrative Agent of its election to grant or not to grant
the extension as requested in such Extension Request. Notwithstanding any
provision of this Agreement to the contrary, any notice by any Lender of its
willingness to extend the Maturity Date shall be revocable by such Lender in its
sole and absolute discretion at any time prior to the date which is 30 days
prior to such Maturity Date then in effect. If the Supermajority Lenders shall
approve in writing the extension of the Maturity Date requested in such
Extension Request, the Maturity Date shall automatically and without any further
action by any Person be extended for the period specified in such Extension
Request; provided that (i) each extension pursuant to this Section 2.24 shall be
for a maximum of 364 days and (ii) the Commitment of any Lender which does not
consent in writing to such extension not less than 30 days and not more than 60
days prior to such Maturity Date then in effect (an "Objecting Lender") shall,
unless earlier terminated in accordance with this Agreement, expire on the
Maturity Date in effect on the date of such Extension Request (such Maturity
Date, if any, referred to as the "Commitment Expiration Date" with respect to
such Objecting Lender). If not less than 30 days and not more than 60 days prior
to such Maturity Date then in effect, the Supermajority Lenders shall not
approve in writing the extension of the Maturity Date requested in an Extension
Request, the Maturity Date shall not be extended pursuant to such Extension
Request. The Administrative Agent shall promptly notify (y) the Lenders and the
Borrower of any extension of the Maturity Date pursuant to this Section 2.24 and
(z) the Borrower and any other Lender of any Lender which becomes an Objecting
Lender.
(b) Loans (including any principal, interest, fees and other amounts due
hereunder) owing to any Objecting Lender on the Commitment Expiration Date with
respect to such Lender shall be repaid in full on or before such Commitment
Expiration Date.
(c) The Borrower shall have the right, so long as no Event of Default has
occurred and is then continuing, upon giving notice to the Administrative Agent
and the Objecting Lender in accordance with Section 2.13, to prepay in full the
Loans of the Objecting Lenders, together with accrued interest thereon, any
amounts payable pursuant to Sections 2.9, 2.10, 2.14, 2.15, 2.17, 2.21, 9.4 and
9.5, any accrued and unpaid Facility Fee and any accrued and unpaid Utilization
Fee or other amounts payable to it hereunder and/or, upon giving not less than
three Business Days' notice to the
<PAGE>
Objecting Lenders and the Administrative Agent, to cancel in whole or in part
the Commitments of the Objecting Lenders.
(d) The Borrower may, with the consent of the Administrative Agent,
designate one or more financial institutions to act as a Lender hereunder in
place of any Objecting Lender, and upon the execution of an agreement
substantially in the form of Exhibit H by each such Objecting Lender (who hereby
agrees to execute such agreement), such replacement financial institution and
the Administrative Agent, such replacement financial institution shall become
and be a Lender hereunder with all the rights and obligations it would have had
if it had been named on the signature pages hereof, and having for all such
financial institutions aggregate Commitments of no greater than the whole of the
Commitment of the Objecting Lender in place of which such financial institutions
were designated; provided that the Facility Fees, the Utilization Fees, interest
and other payments to the Lenders due hereunder shall accrue for the account of
each such financial institution from the date of replacement pursuant to such
agreement. The Administrative Agent shall notify the Lenders of the execution of
any such agreement, the name of the financial institution executing such
agreement and the amount of such financial institution's Commitment.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER
In order to induce the Lenders to enter into this Agreement and to make the
Loans, the Borrower makes the following representations and warranties to the
Administrative Agent and the Lenders, all of which shall survive the execution
and delivery of this Agreement, the issuance of the Notes and the making of the
Loans:
SECTION 3.1. Corporate Existence and Power.
The Borrower and its Subsidiaries have been duly organized and are validly
existing in good standing under the laws of their respective jurisdictions of
incorporation and are in good standing or have applied for authority to operate
as a foreign corporation in all jurisdictions where the nature of their
properties or business so requires it and where a failure to be in good standing
as a foreign corporation would have a Material Adverse Effect. The Borrower has
the corporate power to execute, deliver and perform its obligations under this
Agreement and the other Fundamental Documents and other documents contemplated
hereby and to borrow hereunder.
SECTION 3.2. Corporate Authority and No Violation.
The execution, delivery and performance of this Agreement and the other
Fundamental Documents and the borrowings hereunder (a) have been duly authorized
by all necessary corporate action on the part of the Borrower, (b) will not
violate any provision of any Applicable Law applicable to the Borrower or any of
its Subsidiaries or any of their respective properties or assets, (c) will not
violate any provision of the Certificate of Incorporation or By-Laws of the
Borrower or any of its
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36
Subsidiaries, or any Contractual Obligation of the Borrower or any of its
Subsidiaries, (d) will not be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under, any
material indenture, agreement, bond, note or instrument and (e) will not result
in the creation or imposition of any Lien upon any property or assets of the
Borrower or any of its Subsidiaries other than pursuant to this Agreement or any
other Fundamental Document.
SECTION 3.3. Governmental and Other Approval and Consents.
No action, consent or approval of, or registration or filing with, or any
other action by, any governmental agency, bureau, commission or court is
required in connection with the execution, delivery and performance (including
the making of borrowings) by the Borrower of this Agreement or the other
Fundamental Documents.
SECTION 3.4. Financial Statements of Borrower.
The (a) audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries as of December 31, 1997 and December 31, 1998, and (b)
unaudited consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of September 30, 1999, in each case, together with the related
unaudited statements of income, shareholders' equity and cash flows for the
periods then ended fairly present the financial position of the Borrower and its
Consolidated Subsidiaries as at the dates indicated and the results of
operations and cash flows for the periods indicated in conformity with GAAP
subject to normal year-end adjustments in the case of such quarterly financial
statements.
SECTION 3.5. No Material Adverse Change.
Since December 31, 1998 there has been no material adverse change in the
business, assets, operations or condition, financial or otherwise, of the
Borrower and its Subsidiaries taken as a whole; provided that the foregoing
representation is made solely as of the Closing Date.
SECTION 3.6. [Intentionally Deleted].
SECTION 3.7. Copyrights, Patents and Other Rights.
Each of the Borrower and its Subsidiaries owns, or is licensed to use, all
trademarks, tradenames, service marks, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Borrower and its Subsidiaries does not infringe upon the rights of any other
Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
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37
SECTION 3.8. Title to Properties.
Each of the Borrower and its Material Subsidiaries will have at the Closing
Date good title or valid leasehold interests to each of the properties and
assets reflected on the balance sheets referred to in Section 3.4, except for
minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties for their intended
purposes, and all such properties and assets will be free and clear of Liens,
except Permitted Encumbrances.
SECTION 3.9. Litigation.
There are no lawsuits or other proceedings pending (including, but not
limited to, matters relating to environmental liability), or, to the knowledge
of the Borrower, threatened, against or affecting the Borrower or any of its
Subsidiaries or any of their respective properties, by or before any
Governmental Authority or arbitrator, which could reasonably be expected to have
a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries is
in default with respect to any order, writ, injunction, decree, rule or
regulation of any Governmental Authority, which default would have a Material
Adverse Effect.
SECTION 3.10. Federal Reserve Regulations.
Neither the Borrower nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock. No part of the proceeds of
the Loans will be used, whether immediately, incidentally or ultimately, for any
purpose violative of or inconsistent with any of the provisions of Regulation T,
U or X of the Board.
SECTION 3.11. Investment Company Act.
The Borrower is not, and will not during the term of this Agreement be, (x)
an "investment company", within the meaning of the Investment Company Act of
1940, as amended or (y) subject to regulation under the Public Utility Holding
Company Act of 1935 or the Federal Power Act.
SECTION 3.12. Enforceability.
This Agreement and the other Fundamental Documents when executed will
constitute legal, valid and enforceable obligations (as applicable) of the
Borrower (subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and to general principles of equity).
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38
SECTION 3.13. Taxes.
The Borrower and each of its Subsidiaries have filed or caused to be filed
all federal, provincial, state and local tax returns which are required to be
filed, and have paid or have caused to be paid all taxes as shown on said
returns or on any assessment received by them in writing, to the extent that
such taxes have become due, except (a) as permitted by Section 5.4 or (b) to the
extent that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.14. Compliance with ERISA.
Each of the Borrower and its Subsidiaries is in compliance in all material
respects with the provisions of ERISA and the Code applicable to Plans, and the
regulations and published interpretations thereunder, if any, which are
applicable to it and the applicable laws, rules and regulations of any
jurisdiction applicable to Plans. Neither the Borrower nor any of its
Subsidiaries has, with respect to any Plan established or maintained by it,
engaged in a prohibited transaction which would subject it to a material tax or
penalty on prohibited transactions imposed by ERISA or Section 4975 of the Code.
No liability to the PBGC that is material to the Borrower and its Subsidiaries
taken as a whole has been, or to the Borrower's best knowledge is reasonably
expected to be, incurred with respect to the Plans and there has been no
Reportable Event and no other event or condition that presents a material risk
of termination of a Plan by the PBGC. Neither the Borrower nor any of its
Subsidiaries has engaged in a transaction which would result in the incurrence
of a material liability under Section 4069 of ERISA. As of the Closing Date,
neither the Borrower nor any of its Subsidiaries contributes to a Multiemployer
Plan, and has not incurred any liability that would be material to the Borrower
and its Subsidiaries taken as a whole on account of a partial or complete
withdrawal (as defined in Sections 4203 and 4205 of ERISA, respectively) with
respect to any Multiemployer Plan.
SECTION 3.15. Disclosure.
As of the Closing Date, neither this Agreement nor the Confidential
Information Memorandum dated January 2000, at the time it was furnished,
contained any untrue statement of a material fact or omitted to state a material
fact, under the circumstances under which it was made, necessary in order to
make the statements contained herein or therein not misleading. At the Closing
Date, there is no fact known to the Borrower which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.16. Environmental Liabilities.
Except with respect to any matters, that, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect, neither
the Borrower nor any of its Subsidiaries (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become subject to
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39
any Environmental Liability, (iii) has received notice of any claim with respect
to any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
SECTION 3.17. Year 2000 Matters
To the Borrower's knowledge, the disclosures relating to Year 2000 matters
contained in (i) the Borrower's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, and (ii) the Borrower's Annual Report on Form 10-K for
the year ended December 31, 1998], accurately present, in all material respects,
the status of the Borrower's efforts to address Year 2000 compliance isssues as
of September 30, 1999 and December 31, 1998 respectively.
4. CONDITIONS OF LENDING
SECTION 4.1. Conditions Precedent to Effectiveness.
The effectiveness of this Agreement is subject to the following conditions
precedent:
(a) Loan Documents. The Administrative Agent shall have received this
Agreement and each of the other Fundamental Documents, each executed and
delivered by a duly authorized officer of the Borrower.
(b) Corporate Documents for the Borrower. The Administrative Agent shall
have received, with copies for each of the Lenders, a certificate of the
Secretary or Assistant Secretary of the Borrower dated the date hereof and
certifying (A) that attached thereto is a true and complete copy of the
certificate of incorporation and by-laws of the Borrower as in effect on the
date of such certification; (B) that attached thereto is a true and complete
copy of resolutions adopted by the Board of Directors of the Borrower
authorizing the borrowings hereunder and the execution, delivery and
performance in accordance with their respective terms of this Agreement and
any other documents required or contemplated hereunder; and (C) as to the
incumbency and specimen signature of each officer of the Borrower executing
this Agreement or any other document delivered by it in connection herewith
(such certificate to contain a certification by another officer of the
Borrower as to the incumbency and signature of the officer signing the
certificate referred to in this paragraph (b)).
(c) Financial Statements. The Lenders shall have received the (i) audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries as of and for the fiscal years ended December 31, 1997 and
December 31, 1998 and (ii) unaudited consolidated financial statements of the
Borrower and its Consolidated Subsidiaries as of and for the nine-month
period ended September 30, 1999.
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40
(d) Opinions of Counsel. The Administrative Agent shall have received the
favorable written opinions, dated the date hereof and addressed to the
Administrative Agent and the Lenders, of internal counsel of PHH Corporation
and of Skadden, Arps, Slate, Meagher & Flom LLP, substantially in the form of
Exhibits B-1 and B-2 hereto respectively.
(e) No Material Adverse Change. The Administrative Agent shall be satisfied
that no material adverse change shall have occurred with respect to the
business, assets, operations or condition, financial or otherwise, of the
Borrower and its Consolidated Subsidiaries, taken as a whole, since December
31, 1998.
(f) Payment of Fees. The Administrative Agent shall be satisfied that all
amounts payable to the Arranger, the Administrative Agent and the other
Lenders pursuant hereto or with regard to the transactions contemplated
hereby have been or are simultaneously being paid.
(g) Closing Date Payments. The Borrower and the Lenders shall have made
such payments among themselves on the Closing Date as directed by the
Administrative Agent with the result that, after giving effect thereto, the
outstanding Revolving Credit Loans if any, shall be held by the Lenders pro
rata in accordance with their respective Commitments. The Borrower shall have
paid to the Administrative Agent, for the account of the respective lenders
under the Existing Credit Agreement, all unpaid fees and other amounts
accrued under the Existing Credit Agreement to the Closing Date.
(h) Litigation. No litigation shall be pending or, to the Borrower's
knowledge, threatened which would be likely to have a Material Adverse
Effect, or which could reasonably be expected to materially adversely affect
the ability of the Borrower to fulfill their obligations hereunder or to
otherwise materially impair the interests of the Lenders.
(i) Officer's Certificate. The Administrative Agent shall have received a
certificate of the chief executive officer or chief financial officer or
chief accounting officer of the Borrower certifying, as of the Closing Date,
compliance with the conditions set forth in paragraphs (b) and (c) of Section
4.2.
SECTION 4.2. Conditions Precedent to Each Loan.
The obligation of the Lenders to make each Loan, including the initial Loan
hereunder, is subject to the following conditions precedent:
(a) Notice. The Administrative Agent shall have received a notice with
respect to such Borrowing as required by Article 2 hereof.
<PAGE>
41
(b) Representations and Warranties. The representations and warranties set
forth in Article 3 (other than those set forth in Section 3.5, which shall be
deemed made only on the Closing Date) and in the other Fundamental Documents
shall be true and correct in all material respects on and as of the date of
each Borrowing hereunder (except to the extent that such representations and
warranties expressly relate to an earlier date) with the same effect as if
made on and as of such date; provided that this condition shall not apply to
a Revolving Credit Borrowing which is solely refinancing outstanding
Revolving Credit Loans and which, after giving effect thereto, has not
increased the aggregate amount of outstanding Revolving Credit Loans.
(c) No Event of Default. On the date of each Borrowing hereunder, the
Borrower shall be in material compliance with all of the terms and provisions
set forth herein to be observed or performed and no Event of Default or
Default shall have occurred and be continuing; provided that this condition
shall not apply to a Revolving Credit Borrowing which is solely refinancing
outstanding Revolving Credit Loans and which, after giving effect thereto,
has not increased the aggregate amount of outstanding Revolving Credit Loans.
Each Borrowing shall be deemed to be a representation and warranty by the
Borrower on the date of such Borrowing as to the matters specified in paragraphs
(b) and (c) of this Section.
5. AFFIRMATIVE COVENANTS
For so long as the Commitments shall be in effect or any amount shall
remain outstanding under any Note or unpaid under this Agreement, the Borrower
agrees that, unless the Required Lenders shall otherwise consent in writing, it
will, and will cause each of its Subsidiaries to:
SECTION 5.1. Financial Statements, Reports, etc.
Deliver to each Lender:
(a) As soon as is practicable, but in any event within 100 days after the
end of each fiscal year of the Borrower, (i) either (A) consolidated
statements of income (or operations) and consolidated statements of cash
flows and changes in stockholders' equity of the Borrower and its
Consolidated Subsidiaries for such year and the related consolidated balance
sheets as at the end of such year, or (B) the Form 10K filed by the Borrower
with the Securities and Exchange Commission and (ii) if not included in such
Form 10K, an opinion of independent certified public accountants of
recognized national standing, which opinion shall state that said
consolidated financial statements fairly present the consolidated financial
position and results of operations of the Borrower and its Consolidated
Subsidiaries as at the end of, and for, such fiscal year and that such
financial statements were prepared in accordance with GAAP applied
consistently throughout the periods reflected therein and with prior periods;
<PAGE>
42
(b) As soon as is practicable, but in any event within 60 days after the
end of each of the first three fiscal quarters of each fiscal year, either
(i) the Form 10-Q filed by the Borrower with the Securities and Exchange
Commission or (ii) the unaudited consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries, as at the end of such fiscal quarter, and
the related unaudited statements of income and cash flows for such quarter
and for the period from the beginning of the then current fiscal year to the
end of such fiscal quarter and the corresponding figures as of the end of the
preceding fiscal year, and for the corresponding period in the preceding
fiscal year, in each case, together with a certificate (substantially in the
form of Exhibit D) signed by the chief financial officer, the chief
accounting officer or a vice president responsible for financial
administration of the Borrower to the effect that such financial statements,
while not examined by independent public accountants, reflect, in his opinion
and in the opinion of the Borrower, all adjustments necessary to present
fairly the financial position of the Borrower and its Consolidated
Subsidiaries, as the case may be, as at the end of the fiscal quarter and the
results of their operations for the quarter then ended in conformity with
GAAP consistently applied, subject only to year-end and audit adjustments and
to the absence of footnote disclosure;
(c) Together with the delivery of the statements referred to in paragraphs
(a) and (b) of this Section 5.1, a certificate of the chief financial
officer, chief accounting officer or a vice president responsible for
financial administration of the Borrower, substantially in the form of
Exhibit D hereto (i) stating whether or not the signer has knowledge of any
Default or Event of Default and, if so, specifying each such Default or Event
of Default of which the signer has knowledge and the nature thereof and (ii)
demonstrating in reasonable detail compliance with the provisions of Sections
6.7 and 6.8;
(d) Promptly upon any executive officer of the Borrower or any of its
Subsidiaries obtaining knowledge of the occurrence of any Default or Event of
Default, a certificate of the president, chief financial officer or chief
accounting officer of the Borrower specifying the nature and period of
existence of such Default or Event of Default and what action the Borrower
has taken, is taking and proposes to take with respect thereto; and
(e) Promptly upon any executive officer of the Borrower or any of its
Subsidiaries obtaining knowledge of (i) the institution of any action, suit,
proceeding, investigation or arbitration by any Governmental Authority or
other Person against or affecting the Borrower or any of its Subsidiaries or
any of their assets, or (ii) any material development in any such action,
suit, proceeding, investigation or arbitration (whether or not previously
disclosed to the Lenders), which, in each case might reasonably be expected
to have a Material Adverse Effect, prompt notice thereof and such other
information as may be reasonably available to it (without waiver of any
applicable evidentiary privilege) to enable the Lenders to evaluate such
matters.
<PAGE>
43
SECTION 5.2. Corporate Existence; Compliance with Statutes.
Do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its corporate existence, rights, licenses, permits and
franchises and comply, except where failure to comply, either individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect, with all provisions of Applicable Law, and all applicable restrictions
imposed by any Governmental Authority, and all state and provincial laws and
regulations of similar import; provided that mergers, dissolutions and
liquidations permitted under Section 6.4 shall be permitted.
SECTION 5.3. Insurance.
Maintain with good and reputable insurers insurance in such amounts and
against such risks as are customarily insured against by companies in similar
businesses; provided however, that (a) workmen's compensation insurance or
similar coverage may be effected with respect to its operations in any
particular state or other jurisdiction through an insurance fund operated by
such state or jurisdiction and (b) such insurance may contain self-insurance
retention and deductible levels consistent as such insurance is usually carried
by companies of established reputation and comparable size.
SECTION 5.4. Taxes and Charges.
Duly pay and discharge, or cause to be paid and discharged, before the same
shall become delinquent, all federal, state or local taxes, assessments, levies
and other governmental charges, imposed upon the Borrower or any of its
Subsidiaries or their respective properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies which if unpaid could reasonably be expected to
result in a Material Adverse Effect; provided that any such tax, assessment,
charge, levy or claim need not be paid if the validity or amount thereof shall
currently be contested in good faith by appropriate proceedings and if the
Borrower shall have set aside on its books reserves (the presentation of which
is segregated to the extent required by GAAP) adequate with respect thereto if
reserves shall be deemed necessary by the Borrower in accordance with GAAP; and
provided, further, that the Borrower will pay all such taxes, assessments,
levies or other governmental charges forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security therefor
(unless the same is fully bonded or otherwise effectively stayed).
SECTION 5.5. ERISA Compliance and Reports.
Furnish to the Administrative Agent (a) as soon as possible, and in any
event within 30 days after any executive officer (as defined in Regulation C
under the Securities Act of 1933, as amended) of the Borrower knows that (i) any
Reportable Event with respect to any Plan has occurred, a statement of the chief
financial officer of the Borrower, setting forth details as to such Reportable
Event and the action which it proposes to take with respect thereto, together
with a copy of the notice, if any, required to be filed by the Borrower or any
of its Subsidiaries of such Reportable Event with the
<PAGE>
44
PBGC or (ii) an accumulated funding deficiency has been incurred or an
application has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard or an extension of any amortization
period under Section 412 of the Code with respect to a Plan, a Plan has been or
is proposed to be terminated in a "distress termination" (as defined in Section
4041(c) of ERISA), proceedings have been instituted to terminate a Plan or a
Multiemployer Plan, a proceeding has been instituted to collect a delinquent
contribution to a Plan or a Multiemployer Plan, or either the Borrower or any of
its Subsidiaries will incur any liability (including any contingent or secondary
liability) to or on account of the termination of or withdrawal from a Plan
under Section 4062, 4063 or 4064 of ERISA or the withdrawal or partial
withdrawal from a Multiemployer Plan under Section 4201 or 4204 of ERISA, a
statement of the chief financial officer of the Borrower, setting forth details
as to such event and the action it proposes to take with respect thereto, (b)
promptly upon the reasonable request of the Administrative Agent, copies of each
annual and other report with respect to each Plan and (c) promptly after receipt
thereof, a copy of any notice the Borrower or any of its Subsidiaries may
receive from the PBGC relating to the PBGC's intention to terminate any Plan or
to appoint a trustee to administer any Plan; provided that the Borrower shall
not be required to notify the Administrative Agent of the occurrence of any of
the events set forth in the preceding clauses (a) and (c) unless such event,
individually or in the aggregate, could reasonably be expected to result in a
material liability to the Borrower and its Subsidiaries taken as a whole.
SECTION 5.6. Maintenance of and Access to Books and Records; Examinations.
Maintain or cause to be maintained at all times true and complete books and
records of its financial operations (in accordance with GAAP) and, after the
occurrence and during the continuance of an Event of Default (at a time during
which Loans are outstanding), provide the Administrative Agent and its
representatives access to all such books and records and to any of their
properties or assets during regular business hours, in order that the
Administrative Agent may make such audits and examinations and make abstracts
from such books, accounts and records and may discuss the affairs, finances and
accounts with, and be advised as to the same by, officers and independent
accountants, all as the Administrative Agent may deem appropriate for the
purpose of verifying the various reports delivered pursuant to this Agreement or
for otherwise ascertaining compliance with this Agreement.
SECTION 5.7. Maintenance of Properties.
Keep its properties which are material to its business in good repair,
working order and condition consistent with companies of established reputation
and comparable size.
6. NEGATIVE COVENANTS
For so long as the Commitments shall be in effect or any amount shall
remain outstanding under any Note or unpaid under this Agreement, unless the
Required Lenders shall
<PAGE>
45
otherwise consent in writing, the Borrower agrees that it will not, nor will it
permit any of its Subsidiaries to, directly or indirectly:
SECTION 6.1. Limitation on Material Subsidiary Indebtedness.
Incur, assume or suffer to exist any Indebtedness of any Material
Subsidiary which principally transacts business in the United States, except:
(a) Indebtedness in existence on the date hereof, or required to be
incurred pursuant to a contractual obligation in existence on the date
hereof, which in either case (to the extent not otherwise permitted by
paragraphs (b)-(h) of this Section 6.1), is listed on Schedule 6.1 hereto,
but not any extensions or renewals thereof, unless effected on substantially
the same terms or on terms not more adverse to the Lenders;
(b) purchase money Indebtedness (including Capital Leases) to the extent
permitted under Section 6.5(b);
(c) Indebtedness owing by any Material Subsidiary to the Borrower or any
other Subsidiary;
(d) Indebtedness of any Material Subsidiary of the Borrower issued and
outstanding prior to the date on which such Subsidiary became a Subsidiary of
the Borrower (other than Indebtedness issued in connection with, or in
anticipation of, such Subsidiary becoming a Subsidiary of the Borrower);
provided that immediately prior and on a Pro Forma Basis after giving effect
to, such Person becoming a Subsidiary of the Borrower, no Default or Event of
Default shall occur or then be continuing and the aggregate principal amount
of such Indebtedness, when added to the aggregate outstanding principal
amount of Indebtedness permitted by paragraphs (e) and (f) below, shall not
exceed $125,000,000;
(e) any renewal, extension or modification of Indebtedness under paragraph
(d) above so long (i) as such renewal, extension or modification is effected
on substantially the same terms or on terms which, in the aggregate, are not
more adverse to the Lenders and (ii) the principal amount of such
Indebtedness is not increased;
(f) other Indebtedness of any Material Subsidiary in an aggregate principal
amount which, when added to the aggregate outstanding principal amount of
Indebtedness permitted by paragraphs (d) and (e) above, does not exceed
$125,000,000;
(g) [Intentionally Deleted];
(h) Indebtedness of any Asset Securitization Subsidiary incurred solely to
finance asset securitization transactions as long as (i) such Indebtedness is
unsecured or
<PAGE>
46
is secured solely as permitted by Section 6.5(n), and (ii) the lender (and
any other party) in respect of such Indebtedness has recourse (other than
customary limited recourse based on misrepresentations or failure of such
assets to meet customary eligibility criteria), if any, solely to the assets
securitized in the applicable asset securitization transaction and, if such
Asset Securitization Subsidiary is of the type described in clause (i) of the
definition of "Asset Securitization Subsidiary", the capital stock of such
Asset Securitization Subsidiary; and
(i) Indebtedness consisting of the obligation to repurchase mortgages and
related assets to the extent permitted by Section 6.12.
SECTION 6.2. [Intentionally deleted].
SECTION 6.3. Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate (other
than the Borrower or a wholly-owned Subsidiary of the Borrower) unless such
transaction is (a) otherwise permitted under this Agreement and (b) upon fair
and reasonable terms no less favorable to the Borrower or such Subsidiary, as
the case may be, than it would obtain in a comparable arm's length transaction
with a Person which is not an Affiliate.
SECTION 6.4. Consolidation, Merger, Sale of Assets.
(a) Neither the Borrower nor any of its Material Subsidiaries (in one
transaction or series of transactions) will wind up, liquidate or dissolve its
affairs, or enter into any transaction of merger or consolidation, except any
merger, consolidation, dissolution or liquidation (i) in which the Borrower is
the surviving entity or if the Borrower is not a party to such transaction then
a Subsidiary is the surviving entity, (ii) in which the surviving entity becomes
a Subsidiary of the Borrower immediately upon the effectiveness of such merger,
consolidation, dissolution or liquidation or (iii) in connection with a
transaction permitted by Section 6.4(b); provided that immediately prior to and
on a Pro Forma Basis after giving effect to such transaction no Default or Event
of Default has occurred or is continuing.
(b) Sell or otherwise dispose of all or substantially all of the assets of
the Borrower and its Subsidiaries, taken as a whole; provided that it is
understood for purposes of clarity that this Section 6.4(b) shall not prohibit
or limit in any respect transactions in the ordinary course of business of the
Borrower or any of its Subsidiaries (including but not limited to asset
securitization transactions entered into in the ordinary course of business).
SECTION 6.5. Limitations on Liens.
Suffer any Lien on the property of the Borrower or any of the Material
Subsidiaries which principally transact business in the United States, except:
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47
(a) deposits under worker's compensation, unemployment insurance and social
security laws or to secure statutory obligations or surety or appeal bonds or
performance or other similar bonds in the ordinary course of business, or
statutory Liens of landlords, carriers, warehousemen, mechanics and
materialmen and other similar Liens, in respect of liabilities which are not
yet due or which are being contested in good faith, Liens for taxes not yet
due and payable, and Liens for taxes due and payable, the validity or amount
of which is currently being contested in good faith by appropriate
proceedings and as to which foreclosure and other enforcement proceedings
shall not have been commenced (unless fully bonded or otherwise effectively
stayed);
(b) purchase money Liens granted to the vendor or Person financing the
acquisition of property, plant or equipment if (i) limited to the specific
assets acquired and, in the case of tangible assets, other property which is
an improvement to or is acquired for specific use in connection with such
acquired property or which is real property being improved by such acquired
property; (ii) the debt secured by such Lien is the unpaid balance of the
acquisition cost of the specific assets on which the Lien is granted; and
(iii) such transaction does not otherwise violate this Agreement;
(c) Liens upon real and/or personal property, which property was acquired
after the date of this Agreement (by purchase, construction or otherwise) by
the Borrower or any of its Material Subsidiaries, each of which Liens existed
on such property before the time of its acquisition and was not created in
anticipation thereof; provided that no such Lien shall extend to or cover any
property of the Borrower or such Material Subsidiary other than the
respective property so acquired and improvements thereon;
(d) Liens arising out of attachments, judgments or awards as to which an
appeal or other appropriate proceedings for contest or review are promptly
commenced (and as to which foreclosure and other enforcement proceedings (i)
shall not have been commenced (unless fully bonded or otherwise effectively
stayed) or (ii) in any event shall be promptly fully bonded or otherwise
effectively stayed);
(e) Liens created under any Fundamental Document as contemplated by this
Agreement;
(f) Liens securing Indebtedness of any Material Subsidiary to the Borrower;
(g) [Intentionally Deleted];
(h) mortgage liens existing on homes acquired by the Borrower or any of its
Material Subsidiaries in the ordinary course of their relocation management
business;
<PAGE>
48
(i) other Liens incidental to the conduct of its business or the ownership
of its property and other assets, which do not secure any Indebtedness and
did not otherwise arise in connection with the borrowing of money or the
obtaining of advances or credit and which do not, in the aggregate,
materially detract from the value of its property or other assets or
materially impair the use thereof in the operation of its business;
(j) Liens covering only the property or other assets of any Subsidiary
which principally transacts business outside of the United States;
(k) to the extent not otherwise permitted by this Section 6.5, Liens
existing on the Closing date listed on Schedule 6.5 hereto and any extensions
or renewals thereof;
(l) Liens securing indebtedness in respect of one or more asset
securitization transactions, which indebtedness is not reported on a
consolidated balance sheet of the Borrower and its Subsidiaries, covering
only the assets securitized in the asset securitization transaction financed
by such indebtedness and the capital stock of any special purpose vehicle the
sole purpose of which is to effectuate such asset securitization transaction;
(m) other Liens securing obligations having an aggregate principal amount
not to exceed $100,000,000;
(n) Liens securing Indebtedness and related obligations of an Asset
Securitization Subsidiary in respect of one or more asset securitization
transactions, which Indebtedness is reported on a consolidated balance sheet
of the Borrower and its Subsidiaries, covering only the assets securitized in
the asset securitization transaction financed by such Indebtedness and, if
such Asset Securitization Subsidiary is of the type described in clause (i)
of the definition of "Asset Securitization Subsidiary", the capital stock of
such Asset Securitization Subsidiary; and
(o) Liens on mortgages and related assets securing obligations to
repurchase such mortgages and related assets to the extent such obligations
are permitted by Section 6.12.
SECTION 6.6. Sale and Leaseback.
Enter into any arrangement with any Person or Persons, whereby in
contemporaneous transactions the Borrower or any of its Subsidiaries sells
essentially all of its right, title and interest in a material asset and the
Borrower or any of its Subsidiaries acquires or leases back the right to use
such property except that the Borrower or any of its Subsidiaries may enter into
sale-leaseback transactions relating to assets not in excess of $100,000,000 in
the aggregate on a cumulative basis.
SECTION 6.7. Consolidated Net Worth.
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49
Permit Consolidated Net Worth on the last day of any fiscal quarter to be
less than the sum of (i) $700,000,000 plus (ii) 25% of Consolidated Net Income,
if positive, for each fiscal quarter after September 30, 1999.
SECTION 6.8. Ratio of Indebtedness To Consolidated Net Worth.
Permit, at any time, Indebtedness of the Borrower and its Subsidiaries less
Cash Equivalents (owned by the Borrower or any of its Subsidiaries and free of
Liens (other than Liens securing Indebtedness)) to exceed five (5) times
Consolidated Net Worth.
SECTION 6.9. Accounting Practices.
Establish a fiscal year ending on other than December 31, or modify or
change accounting treatments or reporting practices except as otherwise required
or permitted by GAAP.
SECTION 6.10. Restrictions Affecting Subsidiaries.
Enter into, or suffer to exist, any Contractual Obligation with any Person,
which prohibits or limits the ability of any Material Subsidiary (other than
Asset Securitization Subsidiaries) to (a) pay dividends or make other
distributions or pay any Indebtedness owed to the Borrower or any other
Subsidiary, (b) make loans or advances to the Borrower or any other Subsidiary
or (c) transfer any of its properties or assets to the Borrower or any other
Subsidiary.
Section 6.11. [Intentionally Deleted].
SECTION 6.12. Limitation on Mortgage Repurchase Indebtedness.
Incur, assume or suffer to exist any Indebtedness (other than Indebtedness
of Asset Securitization Subsidiaries incurred to finance asset securitization
transactions permitted by this Agreement) in respect of the repurchase of
mortgages and related assets if the aggregate principal amount of all such
Indebtedness would exceed $900,000,000 at any time.
7. EVENTS OF DEFAULT
In the case of the happening and during the continuance of any of the
following events (herein called "Events of Default"):
(a) any representation or warranty made or deemed made by the Borrower in
this Agreement or any other Fundamental Document or in connection with this
Agreement or with the execution and delivery of the Notes or the Borrowings
hereunder, or any statement or representation made in any report, financial
statement, certificate or other document furnished by or on behalf of the
Borrower or any of its Subsidiaries to the Administrative Agent or any
<PAGE>
50
Lender under or in connection with this Agreement, shall prove to have been
false or misleading in any material respect when made or delivered;
(b) default shall be made in the payment of any principal of or interest on
the Notes or of any fees or other amounts payable by the Borrower hereunder,
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration thereof
or otherwise, and in the case of payments of interest, such default shall
continue unremedied for five Business Days, and in the case of payments other
than of any principal amount of or interest on the Notes, such default shall
continue unremedied for five Business Days after receipt by the Borrower of
an invoice therefor;
(c) default shall be made in the due observance or performance of any
covenant, condition or agreement contained in Section 5.1(c) (with respect to
notice of Default or Events of Default) or Article 6;
(d) default shall be made by the Borrower in the due observance or
performance of any other covenant, condition or agreement to be observed or
performed pursuant to the terms of this Agreement or any other Fundamental
Document and such default shall continue unremedied for thirty (30) days
after the Borrower obtains knowledge of such occurrence;
(e) (i) default in payment shall be made with respect to any Indebtedness
or Interest Rate Protection Agreements of the Borrower or any of its
Subsidiaries where the amount or amounts of such Indebtedness exceeds
$25,000,000 (or its equivalent thereof in any other currency) in the
aggregate; or (ii) default in payment or performance shall be made with
respect to any Indebtedness or Interest Rate Protection Agreements of the
Borrower or any of its Subsidiaries where the amount or amounts of such
Indebtedness or Interest Rate Protection Agreements exceeds $25,000,000 (or
its equivalent thereof in any other currency) in the aggregate, if the effect
of such default is to result in the acceleration of the maturity of such
Indebtedness or Interest Rate Protection Agreement; or (iii) any other
circumstance shall arise (other than the mere passage of time) by reason of
which the Borrower or any Subsidiary of the Borrower is required to redeem or
repurchase, or offer to holders the opportunity to have redeemed or
repurchased, any such Indebtedness or Interest Rate Protection Agreement
where the amount or amounts of such Indebtedness or Interest Rate Protection
Agreement exceeds $25,000,000 (or its equivalent thereof in any other
currency) in the aggregate; provided that clause (iii) shall not apply to
secured Indebtedness or Interest Rate Protection Agreement that becomes due
as a result of a voluntary sale of the property or assets securing such
Indebtedness or Interest Rate Protection Agreement and provided, further,
that clauses (ii) and (iii) shall not apply to any Indebtedness or Interest
Rate Protection Agreement of any Subsidiary issued and outstanding prior to
the date such Subsidiary became a Subsidiary of the Borrower (other than
Indebtedness or Interest Rate Protection Agreement issued in connection with,
or in anticipation of, such Subsidiary becoming a Subsidiary of the Borrower)
if such default or circumstance arises solely as a result of a "change of
control" provision applicable to
<PAGE>
51
such Indebtedness or Interest Rate Protection Agreement which becomes
operative as a result of the acquisition of such Subsidiary by the Borrower
or any of its Subsidiaries;
(f) the Borrower or any of its Material Subsidiaries shall generally not
pay its debts as they become due or shall admit in writing its inability to
pay its debts, or shall make a general assignment for the benefit of
creditors; or the Borrower or any of its Material Subsidiaries shall commence
any case, proceeding or other action seeking to have an order for relief
entered on its behalf as debtor or to adjudicate it a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its property or shall file an answer or other
pleading in any such case, proceeding or other action admitting the material
allegations of any petition, complaint or similar pleading filed against it
or consenting to the relief sought therein; or the Borrower or any Material
Subsidiary thereof shall take any action to authorize any of the foregoing;
(g) any involuntary case, proceeding or other action against the Borrower
or any of its Material Subsidiaries shall be commenced seeking to have an
order for relief entered against it as debtor or to adjudicate it a bankrupt
or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property, and such
case, proceeding or other action (i) results in the entry of any order for
relief against it or (ii) shall remain undismissed for a period of sixty (60)
days;
(h) the occurrence of a Change in Control;
(i) final judgment(s) for the payment of money in excess of $25,000,000 (or
its equivalent thereof in any other currency) shall be rendered against the
Borrower or any of its Subsidiaries which within thirty (30) days from the
entry of such judgment shall not have been discharged or stayed pending
appeal or which shall not have been discharged within thirty (30) days from
the entry of a final order of affirmance on appeal; or
(j) a Reportable Event relating to a failure to meet minimum funding
standards or an inability to pay benefits when due shall have occurred with
respect to any Plan under the control of the Borrower or any of its
Subsidiaries and shall not have been remedied within 45 days after the
occurrence of such Reportable Event, if the occurrence thereof could
reasonably be expected to have a Material Adverse Effect;
then, in every such event and at any time thereafter during the continuance of
such event, the Administrative Agent may or, if directed by the Required
Lenders, shall take either or both of the following actions, at the same or
different times: terminate forthwith the Commitments and/or declare
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52
the principal of and the interest on the Loans and the Notes and all other
amounts payable hereunder or thereunder to be forthwith due and payable,
whereupon the same shall become and be forthwith due and payable, without
presentment, demand, protest, notice of acceleration, notice of intent to
accelerate or other notice of any kind, all of which are hereby expressly
waived, anything in this Agreement or in the Notes to the contrary
notwithstanding; provided that, in the case of a payment of principal default
pursuant to paragraph (b), the Administrative Agent, unless it is directed to do
so by the Required Lenders, will not take either or both of such actions for
three Business Days. If an Event of Default specified in paragraph (f) or (g)
above shall have occurred, the principal of and interest on the Loans and the
Notes and all other amounts payable hereunder or thereunder shall thereupon and
concurrently become due and payable without presentment, demand, protest, notice
of acceleration, notice of intent to accelerate or other notice of any kind, all
of which are hereby expressly waived, anything in this Agreement or the Notes to
the contrary notwithstanding and the Commitments of the Lenders shall thereupon
forthwith terminate.
8. THE ADMINISTRATIVE AGENT
SECTION 8.1. Administration by Administrative Agent.
The general administration of the Fundamental Documents and any other
documents contemplated by this Agreement shall be by the Administrative Agent or
their designees as provided for herein. Each of the Lenders hereby irrevocably
authorizes the Administrative Agent, at its discretion, to take or refrain from
taking such actions as agent on its behalf and to exercise or refrain from
exercising such powers under the Fundamental Documents, the Notes and any other
documents contemplated by this Agreement as are delegated by the terms hereof or
thereof, as appropriate, together with all powers reasonably incidental thereto.
The Administrative Agent shall have no duties or responsibilities except as set
forth in the Fundamental Documents. Any Lender which is a co-agent or lead
manager (as indicated on Schedule 1.1A hereto) for the credit facility hereunder
shall not have any duties or responsibilities except as a Lender hereunder.
SECTION 8.2. Advances and Payments.
(a) On the date of each Loan, the Administrative Agent shall be authorized
(but not obligated) to advance, for the account of each of the applicable
Lenders, the amount of the Loan to be made by it in accordance with this
Agreement. Each of the Lenders hereby authorizes and requests the Administrative
Agent to advance for its account, pursuant to the terms hereof, the amount of
the Loan to be made by it, unless with respect to any Lender, such Lender has
theretofore specifically notified the Administrative Agent that such Lender does
not intend to fund that particular Loan. Each of the Lenders agrees forthwith to
reimburse the Administrative Agent in immediately available funds for the amount
so advanced on its behalf by the Administrative Agent pursuant to the
immediately preceding sentence. If any such reimbursement is not made in
immediately available funds on the same day on which the Administrative Agent
shall have made any such amount available on behalf of any Lender in accordance
with this Section 8.2, such Lender shall pay interest to the Administrative
Agent at a rate
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per annum equal to the Administrative Agent's cost of obtaining overnight funds
in the New York Federal Funds Market. Notwithstanding the preceding sentence, if
such reimbursement is not made by the second Business Day following the day on
which the Administrative Agent shall have made any such amount available on
behalf of any Lender or such Lender has indicated that it does not intend to
reimburse the Administrative Agent, the Borrower shall immediately pay such
unreimbursed advance amount (plus any accrued, but unpaid interest at the rate
per annum equal to the interest rate applicable to such Loan) to the
Administrative Agent.
(b) Any amounts received by the Administrative Agent in connection with
this Agreement or the Loans the application of which is not otherwise provided
for shall be applied, in accordance with each of the Lenders' pro rata interest
therein, first, to pay accrued but unpaid Facility Fees and Utilization Fees,
second, to pay accrued but unpaid interest on the Loans, third, to pay the
principal balance outstanding on the Loans and fourth, to pay other amounts
payable to the Administrative Agent and/or the Lenders. All amounts to be paid
to any of the Lenders by the Administrative Agent shall be credited to the
applicable Lenders, after collection by the Administrative Agent, in immediately
available funds either by wire transfer or deposit in such Lender's
correspondent account with the Administrative Agent, or as such Lender and the
Administrative Agent shall from time to time agree.
SECTION 8.3. Sharing of Setoffs and Cash Collateral.
Each of the Lenders agrees that if it shall, through the operation of
Section 2.19 or the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, including, but not limited to, a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim and received by such Lender
under any applicable bankruptcy, insolvency or other similar law, or otherwise
(other than pursuant to Section 2.15(f) or 2.24), obtain payment in respect of
its Loans as a result of which the unpaid portion of its Loans is
proportionately less than the unpaid portion of any of the other Lenders (a) it
shall promptly purchase at par (and shall be deemed to have thereupon purchased)
from such other Lenders a participation in the Loans of such other Lenders, so
that the aggregate unpaid principal amount of each of the Lenders' Loans and its
participation in Loans of the other Lenders shall be in the same proportion to
the aggregate unpaid principal amount of all Loans then outstanding as the
principal amount of its Loans prior to the obtaining of such payment was to the
principal amount of all Loans outstanding prior to the obtaining of such payment
and (b) such other adjustments shall be made from time to time as shall be
equitable to ensure that the Lenders share such payment pro rata.
SECTION 8.4. Notice to the Lenders.
Upon receipt by the Administrative Agent from the Borrower of any
communication calling for an action on the part of the Lenders, or upon notice
to the Administrative Agent of any Event of Default, the Administrative Agent
will in turn immediately inform the other Lenders in writing (which
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54
shall include telegraphic communications) of the nature of such communication or
of the Event of Default, as the case may be.
SECTION 8.5. Liability of the Administrative Agent.
(a) The Administrative Agent, when acting on behalf of the Lenders may
execute any of its duties under this Agreement by or through its officers,
agents, or employees and neither the Administrative Agent nor its respective
directors, officers, agents, or employees shall be liable to the Lenders or any
of them for any action taken or omitted to be taken in good faith, or be
responsible to the Lenders or to any of them for the consequences of any
oversight or error of judgment, or for any loss, unless the same shall happen
through its gross negligence or willful misconduct. Neither the Administrative
Agent nor its respective directors, officers, agents, and employees shall in any
event be liable to the Lenders or to any of them for any action taken or omitted
to be taken by it pursuant to instructions received by it from the Required
Lenders or in reliance upon the advice of counsel selected by it. Without
limiting the foregoing, neither the Administrative Agent nor any of its
respective directors, officers, employees, or agents shall be responsible to any
of the Lenders for the due execution (other than its own), validity,
genuineness, effectiveness, sufficiency, or enforceability of, or for any
statement, warranty, or representation made by any other Person in, or for the
perfection of any security interest contemplated by, this Agreement or any
related agreement, document or order, or for the designation or failure to
designate this transaction as a "Highly Leveraged Transaction" for regulatory
purposes, or shall be required to ascertain or to make any inquiry concerning
the performance or observance by the Borrower of any of the terms, conditions,
covenants, or agreements of this Agreement or any related agreement or document.
(b) Neither the Administrative Agent nor any of its respective directors,
officers, employees, or agents shall have any responsibility to the Borrower on
account of the failure or delay in performance or breach by any of the Lenders
or the Borrower of any of their respective obligations under this Agreement or
the Notes or any related agreement or document or in connection herewith or
therewith.
(c) The Administrative Agent in such capacities hereunder, shall be
entitled to rely on any communication, instrument, or document reasonably
believed by it to be genuine or correct and to have been signed or sent by a
Person or Persons believed by it to be the proper Person or Persons, and it
shall be entitled to rely on advice of legal counsel, independent public
accountants, and other professional advisers and experts selected by it.
SECTION 8.6. Reimbursement and Indemnification.
Each of the Lenders severally and not jointly agrees (i) to reimburse the
Administrative Agent and the Arranger, in the amount of its proportionate share,
for any reasonable expenses and fees incurred for the benefit of the Lenders
under the Fundamental Documents, including, without limitation, reasonable
counsel fees and compensation of agents and employees paid for services rendered
on
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55
behalf of the Lenders, and any other reasonable expense incurred in connection
with the administration or enforcement thereof not reimbursed by the Borrower or
one of its Subsidiaries; and (ii) to indemnify and hold harmless the
Administrative Agent and the Arranger and any of their directors, officers,
employees, or agents, on demand, in the amount of its proportionate share, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against it
or any of them in any way relating to or arising out of the Fundamental
Documents or any action taken or omitted by it or any of them under the
Fundamental Documents to the extent not reimbursed by the Borrower or one of its
Subsidiaries (except such as shall result from the gross negligence or willful
misconduct of the Person seeking indemnification).
SECTION 8.7. Rights of Administrative Agent.
It is understood and agreed that Chase shall have the same rights and
powers hereunder (including the right to give such instructions) as the other
Lenders and may exercise such rights and powers, as well as its rights and
powers under other agreements and instruments to which it is or may be party,
and engage in other transactions with the Borrower as though it were not an
Administrative Agent on behalf of the Lenders under this Agreement.
SECTION 8.8. Independent Investigation by Lenders.
Each of the Lenders acknowledges that it has decided to enter into this
Agreement and to make the Loans hereunder based on its own analysis of the
transactions contemplated hereby and of the creditworthiness of the Borrower and
agrees that the Administrative Agent shall not bear responsibility therefor.
SECTION 8.9. Notice of Transfer.
The Administrative Agent may deem and treat any Lender which is a party to
this Agreement as the owners of such Lender's respective portions of the Loans
for all purposes, unless and until a written notice of the assignment or
transfer thereof executed by any such Lender shall have been received by the
Administrative Agent and become effective pursuant to Section 9.3.
SECTION 8.10. Successor Administrative Agent.
The Administrative Agent may resign at any time by giving written notice
thereof to the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Administrative Agent from
among the Lenders, with the consent of the Borrower, which will not be
unreasonably withheld. If no successor Administrative Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent's giving of notice of
resignation, the retiring Administrative Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent, which with the consent of the
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56
Borrower, which will not be unreasonably withheld, shall be a commercial bank
organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $500,000,000. Upon
the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article 8 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
9. MISCELLANEOUS
SECTION 9.1. Notices.
Notices and other communications provided for herein shall be in writing
and shall be delivered or mailed (or in the case of telegraphic communication,
if by telegram, delivered to the telegraph company and, if by telex, telecopy,
graphic scanning or other telegraphic communications equipment of the sending
party hereto, delivered by such equipment) addressed, if to the Administrative
Agent or Chase, to it at One Chase Manhattan Plaza, New York, New York 10081,
Attn: Maggie Swales, with a copy to Sandra Miklave, if to the Borrower, to it at
307 International Circle, Hunt Valley, Maryland 21030-1337, Attention: Assistant
Treasurer, with a copy to the General Counsel, or if to a Lender, to it at its
address set forth on Schedule 1.1A (or in its Assignment and Acceptance or other
agreement pursuant to which it became a Lender hereunder), or such other address
as such party may from time to time designate by giving written notice to the
other parties hereunder. All notices and other communications given to any party
hereto in accordance with the provisions of this Agreement shall be deemed to
have been given on the fifth Business Day after the date when sent by registered
or certified mail, postage prepaid, return receipt requested, if by mail, or
when delivered to the telegraph company, charges prepaid, if by telegram, or
when receipt is acknowledged, if by any telecopier or telegraphic communications
equipment of the sender, in each case addressed to such party as provided in
this Section 9.1 or in accordance with the latest unrevoked written direction
from such party.
SECTION 9.2. Survival of Agreement, Representations and Warranties, etc.
All warranties, representations and covenants made by the Borrower herein
or in any certificate or other instrument delivered by it or on its behalf in
connection with this Agreement shall be considered to have been relied upon by
the Administrative Agent and the Lenders and shall survive the making of the
Loans herein contemplated and the issuance and delivery to the Administrative
Agent of the Notes regardless of any investigation made by the Administrative
Agent or the Lenders or on their behalf and shall continue in full force and
effect so long as any amount due or to become due hereunder is outstanding and
unpaid and so long as the Commitments have not been terminated. All statements
in any such certificate or other instrument shall constitute representations and
warranties by the Borrower hereunder.
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SECTION 9.3. Successors and Assigns; Syndications; Loan Sales;
Participations.
(a) Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party (provided that the Borrower may not assign its respective rights hereunder
without the prior written consent of all the Lenders), and all covenants,
promises and agreements by, or on behalf of, the Borrower which are contained in
this Agreement shall inure to the benefit of the successors and assigns of the
Lenders.
(b) Each of the Lenders may (but only with the prior written consent of the
Administrative Agent and the Borrower, which consents shall not be unreasonably
withheld or delayed) assign to one or more banks or other financial institutions
either (i) all or a portion of its interests, rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment and
the same portion of the Loans at the time owing to it and the Notes held by it)
(a "Ratable Assignment") or (ii) all or a portion of its rights and obligations
under and in respect of (A) its Commitment under this Agreement and the same
portion of the Loans (other than Competitive Loans) at the time owing to it or
(B) the Competitive Loans at the time owing to it (including, without
limitation, in the case of any such type of Loan, the same portion of the
associated Note) (a "Non-Ratable Assignment"); provided that (1) each
Non-Ratable Assignment shall be of a constant, and not a varying, percentage of
all of the assigning Lender's rights and obligations in respect of the Loans and
the Commitment (if applicable) which are the subject of such assignment, (2)
each Ratable Assignment shall be of a constant, and not a varying, percentage of
the assigning Lender's rights and obligations under this Agreement, (3) the
amount of the Commitment or Competitive Loans, as the case may be, of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the
Lender) shall be in a minimum Dollar Equivalent Amount of $10,000,000 unless
otherwise agreed by the Borrower and the Administrative Agent and (4) the
parties to each such assignment shall execute and deliver to the Administrative
Agent, for its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with any Note or Notes subject to such
assignment (if required hereunder) and a processing and recordation fee of
$3,500. Upon such execution, delivery, acceptance and recording, and from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be not earlier than five Business Days after the date of
acceptance and recording by the Administrative Agent, (x) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
and (y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of the assigning Lender's rights and obligations under this Agreement,
such assigning Lender shall cease to be a party hereto, but shall continue to be
entitled to the indemnity and expense reimbursement provisions for the period
prior to such Assignment and Acceptance).
(c) [Intentionally Deleted].
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(d) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, the assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in, or in connection with, this
Agreement and any other Fundamental Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Fundamental
Documents or any other instrument or document furnished pursuant hereto or
thereto; (ii) such Lender assignor makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under the Fundamental Documents; (iii) such assignee confirms that
it has received a copy of this Agreement, together with copies of the most
recent financial statements delivered pursuant to Sections 5.1(a) and 5.1(b) (or
if none of such financial statements shall have then been delivered, then copies
of the financial statements referred to in Section 3.4) and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the assigning Lender, the Administrative
Agent, or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee appoints and
authorizes the Administrative Agent, to take such action as agent on its behalf
and to exercise such powers under the Fundamental Documents as are delegated to
the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will be
bound by the provisions of this Agreement and will perform in accordance with
its terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(e) The Administrative Agent, on behalf of the Borrower, shall maintain at
its address at which notices are to be given to it pursuant to Section 9.1, a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders and the Commitment of, and
principal amount of the Loans owing to, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the Administrative Agent and the Lenders may
(and, in the case of any Loan or other obligation hereunder not evidenced by a
Note, shall) treat each Person whose name is recorded in the Register as the
owner of a Loan or other obligation hereunder as the owner thereof for all
purposes of this Agreement and the other Fundamental Documents, notwithstanding
any notice to the contrary. Any assignment of any Loan or other obligation
hereunder not evidenced by a Note shall be effective only upon appropriate
entries with respect thereto being made in the Register. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, any Notes subject to such assignment (if
required hereunder) and the processing and recordation fee, the Administrative
Agent (subject to the right, if any, of the Borrower to require its
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consent thereto) shall, if such Assignment and Acceptance has been completed and
is in the form of Exhibit C hereto, (i) accept such Assignment and Acceptance,
(ii) record the information contained therein in the Register and (iii) give
prompt written notice thereof to the Borrower. If a portion of its Commitment
has been assigned by an assigning Lender, then such Lender shall deliver its
Note in respect of such Commitment, if any, at the same time it delivers the
applicable Assignment and Acceptance to the Administrative Agent. If only
Competitive Loans have been assigned by the assigning Lender, such Lender shall
not be required to deliver its Competitive Note to the Administrative Agent,
unless such Lender no longer holds a Commitment under this Agreement, in which
event such assigning Lender shall deliver its Competitive Note, if any, at the
same time it delivers the applicable Assignment and Acceptance to the
Administrative Agent. Within five Business Days after receipt of the notice, the
Borrower, at its own expense, shall execute and deliver to the applicable
Lenders at their request, either (A) a new Note in respect of the assigned
Commitment to the order of such assignee in an amount equal to the Commitment
assumed by it pursuant to such Assignment and Acceptance and a Competitive Note
to the order of such assignee in an amount equal to the Total Commitment
hereunder, and a new Note in respect of the assigned Commitment to the order of
the assigning Lender in an amount equal to the Commitment retained by it
hereunder, or (B) if Competitive Loans only have been assigned and the assigning
Lender holds a Commitment under this Agreement, then a new Competitive Note to
the order of the assignee Lender in an amount equal to the outstanding principal
amount of the Competitive Loan(s) purchased by it pursuant to the Assignment and
Acceptance, or (C) if Competitive Loans only have been assigned and the
assigning Lender does not hold a Commitment under this Agreement, a new
Competitive Note to the order of such assignee in an amount equal to the
outstanding principal amount of the Competitive Loans(s) purchased by it
pursuant to such Assignment and Acceptance and, a new Competitive Note to the
order of the assigning Lender in an amount equal to the outstanding principal
amount of the Competitive Loans retained by it hereunder. Any new Notes shall be
in an aggregate principal amount equal to the aggregate principal amount of the
Commitments of the respective Lenders. All new Notes shall be dated the date
hereof and shall otherwise be in substantially the forms of Exhibits A-1, and
A-2 hereto, as the case may be.
(g) Each of the Lenders may without the consent of the Borrower or the
Administrative Agent sell participations to one or more banks or other financial
institutions (a "Participant") in all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment and the Loans owing to it and the Note or Notes held by it); provided
that (i) any such Lender's obligations under this Agreement shall remain
unchanged, (ii) such participant shall not be granted any voting rights under
this Agreement, except with respect to matters requiring the consent of each of
the Lenders hereunder, (iii) any such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iv) the
participating banks or other entities shall be entitled to the cost protection
provisions contained in Sections 2.14, 2.15 and 2.17 hereof but a participant
shall not be entitled to receive pursuant to such provisions an amount larger
than its share of the amount to which the Lender granting such participation
would have been entitled to receive, and (v) the Borrower, the Administrative
Agent and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement.
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(h) The Lenders may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 9.3, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrower furnished to the Administrative Agent by or on behalf
of the Borrower.
(i) Each Lender hereby represents that it is a commercial lender or
financial institution which makes loans in the ordinary course of its business
and that it will make the Loans hereunder for its own account in the ordinary
course of such business; provided that, subject to preceding clauses (a) through
(h), the disposition of the Notes or other evidence of Indebtedness held by that
Lender shall at all times be within its exclusive control.
(j) The Borrower consents that any Lender may at any time and from time to
time pledge, or otherwise grant a security interest in, any Loan or any Note
evidencing such Loan (or any part thereof), including any such pledge or grant
to any Federal Reserve Bank, and this Section shall not apply to any such pledge
or grant; provided that no such pledge or grant shall release a Lender from any
of its obligations hereunder or substitute any such assignee for such Lender as
a party hereto.
SECTION 9.4. Expenses; Documentary Taxes.
Whether or not the transactions hereby contemplated shall be consummated,
the Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the
Administrative Agent and the Arranger in connection with the syndication,
preparation, execution, delivery and administration of this Agreement, the
Notes, and the making of the Loans including but not limited to the reasonable
fees and disbursements of Simpson Thacher & Bartlett, counsel to the
Administrative Agent, as well as all reasonable out-of-pocket expenses incurred
by the Lenders in connection with any restructuring or workout of this
Agreement, or the Notes or in connection with the enforcement or protection of
the rights of the Lenders in connection with this Agreement or the Notes or any
other Fundamental Document, and with respect to any action which may be
instituted by any Person against any Lender in respect of the foregoing, or as a
result of any transaction, action or nonaction arising from the foregoing,
including but not limited to the fees and disbursements of any counsel for the
Lenders. Such payments shall be made on the date of execution of this Agreement
and thereafter promptly on demand. The Borrower agrees that it shall indemnify
the Administrative Agent and the Lenders from, and hold them harmless against,
any documentary taxes, assessments or charges made by any Governmental Authority
by reason of the execution and delivery of this Agreement or the Notes or any
other Fundamental Document. The obligations of the Borrower under this Section
shall survive the termination of this Agreement and/or the payment of the Loans
for two years.
SECTION 9.5. Indemnity.
Further, by the execution hereof, the Borrower agrees to indemnify and hold
harmless the Administrative Agent, the Arranger and the Lenders and their
respective directors, officers, employees and agents (each, an "Indemnified
Party") from and against any and all expenses (including
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61
reasonable fees and disbursements of counsel), losses, claims, damages and
liabilities arising out of any claim, litigation, investigation or proceeding
(regardless of whether any such Indemnified Party is a party thereto) in any way
relating to the transactions contemplated hereby, but excluding therefrom all
expenses, losses, claims, damages, and liabilities arising out of or resulting
from the gross negligence or willful misconduct of the Indemnified Party seeking
indemnification, provided that the Borrower shall not be liable for the fees and
expenses of more than one separate firm for all such Indemnified Parties in
connection with any one such action or any separate but substantially similar or
related actions in the same jurisdiction, nor shall the Borrower be liable for
any settlement of any proceeding effected without the Borrower's written
consent, and provided, further, that this Section 9.5 shall not be construed to
expand the scope of the reimbursement obligations specified in Section 9.4. The
obligations of the Borrower under this Section 9.5 shall survive the termination
of this Agreement and/or payment of the Loans.
SECTION 9.6. CHOICE OF LAW.
THIS AGREEMENT AND THE NOTES HAVE BEEN EXECUTED AND DELIVERED IN THE STATE
OF NEW YORK AND SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH, AND
GOVERNED BY, THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE AND, IN THE CASE OF PROVISIONS RELATING TO
INTEREST RATES, ANY APPLICABLE LAWS OF THE UNITED STATES.
SECTION 9.7. No Waiver.
No failure on the part of the Administrative Agent or any Lender to
exercise, and no delay in exercising, any right, power or remedy hereunder or
under the Notes shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.
SECTION 9.8. Extension of Maturity.
Except as otherwise specifically provided in Article 7, should any payment
of principal of or interest on the Notes or any other amount due hereunder
become due and payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day and, in the case of
principal, interest shall be payable thereon at the rate herein specified during
such extension.
SECTION 9.9. Amendments, etc.
No modification, amendment or waiver of any provision of this Agreement or
any other Fundamental Document, and no consent to any departure by the Borrower
herefrom or therefrom, shall in any event be effective unless the same shall be
in writing and signed or consented to in writing by the
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Required Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given; provided that no such
modification or amendment shall without the written consent of each Lender
affected thereby (x) increase the Commitment of a Lender or postpone or waive
any scheduled reduction in the Commitments, (y) alter the stated maturity or
principal amount of any installment of any Loan, or decrease the rate of
interest payable thereon, or the rate at which the Facility Fees or Utilization
Fees are paid or (z) waive a default under Section 7(b) with respect to a
scheduled principal installment of any Loan or scheduled payment of interest or
fees; provided, further, that no such modification or amendment shall without
the written consent of all of the Lenders (i) amend or modify any provision of
this Agreement which provides for the unanimous consent or approval of the
Lenders or (ii) amend this Section 9.9 or the definition of Required Lenders or
Supermajority Lenders. No such amendment or modification may adversely affect
the rights and obligations of the Administrative Agent hereunder without its
prior written consent. No notice to or demand on the Borrower shall entitle the
Borrower to any other or further notice or demand in the same, similar or other
circumstances. Each holder of a Note shall be bound by any amendment,
modification, waiver or consent authorized as provided herein, whether or not a
Note shall have been marked to indicate such amendment, modification, waiver or
consent and any consent by any holder of a Note shall bind any Person
subsequently acquiring a Note, whether or not a Note is so marked.
SECTION 9.10. Severability.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 9.11. SERVICE OF PROCESS; WAIVER OF JURY TRIAL.
(a) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
STATE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT
OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF BROUGHT BY THE
ADMINISTRATIVE AGENT OR A LENDER. THE BORROWER TO THE EXTENT PERMITTED BY
APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS
A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH
COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE
ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR
EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED
<PAGE>
63
IN OR BY SUCH COURT, AND (B) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH
ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS
THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. THE
BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT ITS ADDRESS TO WHICH
NOTICES ARE TO BE GIVEN PURSUANT TO SECTION 9.1. THE BORROWER AGREES THAT ITS
SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR
THE EXPRESS BENEFIT OF THE ADMINISTRATIVE AGENT AND THE LENDERS. FINAL JUDGMENT
AGAINST THE BORROWER IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (A) BY SUIT, ACTION OR PROCEEDING
ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE
OF THE FACT AND THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF THE SUBMITTING PARTY
THEREIN DESCRIBED OR (B) IN ANY OTHER MANNER PROVIDED BY, OR PURSUANT TO, THE
LAWS OF SUCH OTHER JURISDICTION, PROVIDED THAT THE ADMINISTRATIVE AGENT OR A
LENDER MAY AT ITS OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS
AGAINST THE BORROWER OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE
UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE THE BORROWER OR SUCH ASSETS MAY
BE FOUND.
(b) TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED,
EACH PARTY HERETO HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER
AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM
IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT
OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR
OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT THE
PROVISIONS OF THIS SECTION 9.11(b) CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH
THE OTHER PARTIES HAVE RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS
AGREEMENT. THE PARTIES HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION 9.11(b) WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF SUCH OTHER
PARTY TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
SECTION 9.12. Headings.
Section headings used herein are for convenience only and are not to affect
the construction of or be taken into consideration in interpreting this
Agreement.
<PAGE>
64
SECTION 9.13. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall constitute an original, but all of which taken together shall constitute
one and the same instrument.
SECTION 9.14. Entire Agreement.
This Agreement represents the entire agreement of the parties with regard
to the subject matter hereof and the terms of any letters and other
documentation entered into among the Borrower, the Administrative Agent or any
Lender (other than the provisions of the letter agreement dated February 25,
2000, among the Borrower, Chase and Chase Securities Inc., relating to fees and
expenses and syndication issues) prior to the execution of this Agreement which
relate to Loans to be made shall be replaced by the terms of this Agreement.
SECTION 9.15. Foreign Currency Judgments. (a) If, for the purpose of
obtaining judgment in any court, it is necessary to convert a sum due hereunder
in one currency into another currency, the Borrower agrees, to the fullest
extent that it may effectively do so, that the rate of exchange used shall be
that at which in accordance with normal banking procedures in the relevant
jurisdiction the relevant Lender (or agent acting on its behalf) or the
Administrative Agent could purchase the first currency with such other currency
for the first currency on the Business Day immediately preceding the day on
which final judgment is given.
(b) The obligations of the Borrower in respect of any sum due hereunder
shall, notwithstanding any judgment in a currency (the "Judgment Currency")
other than that in which such sum is denominated in accordance with this
Agreement (the "Agreement Currency"), be discharged only to the extent that, on
the Business Day following receipt by any Lender (or agent acting on its behalf)
(the "Applicable Creditor") of any sum adjudged to be so due in the Judgment
Currency, the Applicable Creditor may in accordance with normal banking
procedures in the relevant jurisdiction purchase the Agreement Currency with the
Judgment Currency; if the amount of the Agreement Currency so purchased is less
than the sum originally due to the Applicable Creditor in the Agreement
Currency, the Borrower agrees, as a separate obligation and notwithstanding any
such judgment, to indemnify the Applicable Creditor against such loss, provided,
that if the amount of the Agreement Currency so purchased exceeds the sum
originally due to the Applicable Creditor, the Applicable Creditor agrees to
remit such excess to the Borrower. The obligations of the Borrower contained in
this Section 9.15 shall survive the termination of this Agreement and the
payment of all amounts owing hereunder. Each Borrower shall repay each Loan made
to it, and interest thereon, in the Currency in which such Loan is denominated.
SECTION 9.16. [Intentionally Deleted].
SECTION 9.17. Language. The parties hereto have agreed that this Agreement
as well as any document or instrument relating thereto be drawn up in English
only.
<PAGE>
65
SECTION 9.18. [Intentionally Deleted].
SECTION 9.19. European Economic And Monetary Union.
(a) Effectiveness of Provisions. The provisions of paragraphs (b) to (i)
below (inclusive) shall be effective at and from the commencement of the third
stage of EMU, provided that if and to the extent that any such provision relates
to any state (or the currency of such state) that is not a participating member
state on the commencement of the third stage of EMU, such provision shall become
effective in relation to such state (and the currency of such state) at and from
the date on which such state becomes a participating member state.
(b) Redenomination and Alternative Currencies. Each obligation under this
Agreement of a party to this Agreement which has been denominated in the
national currency unit of a participating member state shall be redenominated
into the euro unit in accordance with EMU legislation, provided that if and to
the extent that any EMU legislation provides that following the commencement of
the third stage of EMU an amount denominated either in the euro or in the
national currency unit of a participating member state and payable within that
participating member state by crediting an account of the creditor can be paid
by the debtor either in the euro unit or in that national currency unit, each
party to this Agreement shall be entitled to pay or repay any such amount either
in the euro unit or in such national currency unit.
(c) Determination of LIBOR. For the purposes of determining the date on
which LIBOR is determined under this Agreement for any Loan denominated in the
euro (or any national currency unit) for any Interest Period therefor,
references in this Agreement to Business Days shall be deemed to be references
to Target Operating Days. In addition, if the Administrative Agent determines
that LIBOR is not displayed on the screen for deposits denominated in the
national currency unit in which any Loans are denominated, LIBOR for such Loans
shall be based upon the rate displayed on the screen for the offering of
deposits denominated in euro units.
(d) Payments to the Administrative Agent. This Agreement shall be construed
so that, in relation to the payment of any amount of euro units or national
currency units, such amount shall be made available to the Administrative Agent
in immediately available, freely transferable, cleared funds to such account
with such bank in Frankfurt am Main, Germany (or such other principal financial
center in such participating member state as the Administrative Agent may from
time to time nominate for this purpose) as the Administrative Agent shall from
time to time nominate for this purpose. This Agreement shall be construed so
that, in relation to the payment of any euro units or national currency units to
be made, the references to "Business Day" therein shall instead refer to "Target
Operating Day."
(e) Payments by the Administrative Agent to the Lenders. Any amount payable
by the Administrative Agent to the Lenders under this Agreement in the currency
of a participating member state shall be paid in the euro unit.
<PAGE>
66
(f) Payments by the Administrative Agent Generally. With respect to the
payment of any amount denominated in the euro or in a national currency unit,
the Administrative Agent shall not be liable to any Borrower or any of the
Lenders in any way whatsoever for any delay, or the consequences of any delay,
in the crediting to any account of any amount required by this Agreement to be
paid by the Administrative Agent if the Administrative Agent shall have taken
all relevant steps to achieve, on the date required by this Agreement, the
payment of such amount in immediately available, freely transferable, cleared
funds (in the euro unit or, as the case may be, in a national currency unit) to
the account of any Lender in the principal financial center in the participating
member state which the Borrower or, as the case may be, such Lender shall have
specified for such purpose. In this paragraph (f), "all relevant steps" means
all such steps as may be prescribed from time to time by the regulations or
operating procedures of such clearing or settlement system as the Administrative
Agent may from time to time determine for the purpose of clearing or settling
payments of the euro.
(g) Basis of Accrual. If the basis of accrual of interest or fees expressed
in this Agreement with respect to the currency of any state that becomes a
participating member state shall be inconsistent with any convention or practice
in the LIBOR market for the basis of accrual of interest or fees in respect of
the euro, such convention or practice shall replace such expressed basis
effective as of and from the date on which such state becomes a participating
member state; provided that if any Loan in the currency of such state is
outstanding immediately prior to such date, such replacement shall take effect,
with respect to such Loan, at the end of the then current Interest Period.
(h) Rounding. Without prejudice and in addition to any method of conversion
or rounding prescribed by the EMU legislation, each reference in this Agreement
to a minimum amount (or an integral multiple thereof) in a national currency
unit to be paid to or by the Administrative Agent shall be replaced by a
reference to such reasonably comparable and convenient amount (or an integral
multiple thereof) in the euro unit as the Administrative Agent may from time to
time specify.
(i) Other Consequential Changes. Without prejudice to the respective
liabilities of the Borrower to the Lenders and the Lenders to the Borrower under
or pursuant to this Agreement, except as expressly provided in this Section
9.19, each provision of this Agreement shall be subject to such reasonable
changes of construction as the Administrative Agent may from time to time
specify to be necessary or appropriate to reflect the introduction of or
changeover to the euro in participating member states. Without limiting the
generality of the foregoing, for each Available Foreign Currency that is a
national currency unit, the relevant display page on the Telerate or Reuter
screen used to determine the LIBOR Rate for applicable Loans in such Available
Foreign Currency shall be determined by the Administrative Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first above written.
PHH CORPORATION
By:
-------------------------------
Title:
Name:
THE CHASE MANHATTAN BANK, individually and
as Administrative Agent
By:
-------------------------------
Title:
Name:
<PAGE>
CREDIT SUISSE FIRST BOSTON
By:
-------------------------------
Title:
Name:
<PAGE>
BANK OF AMERICA N.A.
By:
-------------------------------
Title:
Name:
<PAGE>
BANK OF MONTREAL
By:
-------------------------------
Title:
Name:
<PAGE>
THE BANK OF NEW YORK
By:
-------------------------------
Title:
Name:
<PAGE>
THE BANK OF NOVA SCOTIA
By:
-------------------------------
Title:
Name:
<PAGE>
THE BANK OF TOKYO-MITSUBISHI,
LIMITED, NEW YORK BRANCH
By:
-------------------------------
Title:
Name:
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------------
Title:
Name:
<PAGE>
BANK ONE, NA
By:
-------------------------------
Title:
Name:
<PAGE>
FUJI BANK LTD.
By:
-------------------------------
Title:
Name:
<PAGE>
ALLFIRST BANK
By:
-------------------------------
Title:
Name:
<PAGE>
FIRST UNION NATIONAL BANK
By:
-------------------------------
Title:
Name:
<PAGE>
FLEET BANK
By:
-------------------------------
Title:
Name:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED
NEW YORK BRANCH
By:
-------------------------------
Title:
Name:
<PAGE>
MELLON BANK, N.A.
By:
-------------------------------
Title:
Name:
<PAGE>
NATIONAL WESTMINSTER BANK PLC
By:
-------------------------------
Title:
Name:
<PAGE>
NORTHERN TRUST COMPANY
By:
-------------------------------
Title:
Name:
<PAGE>
ROYAL BANK OF CANADA
By:
-------------------------------
Title:
Name:
<PAGE>
THE SUMITOMO BANK, LIMITED
By:
-------------------------------
Title:
Name:
<PAGE>
WELLS FARGO BANK, N.A.
By:
-------------------------------
Title:
Name:
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:
-------------------------------
Title:
Name:
By:
-------------------------------
Title:
Name:
<PAGE>
Schedule 1.1A
Commitments
-----------
Lender Commitment
------ ----------
The Chase Manhattan Bank $97,500,000.00
Bank of America N.A. $80,000,000.00
Bank One, NA $55,000,000.00
The Bank of Nova Scotia $55,000,000.00
Bank of Montreal $37,500.000.00
Credit Lyonnais $37,500,000.00
First Union National Bank $37,500,000.00
Mellon Bank, N.A. $37,500,000.00
The Bank of New York $37,500,000.00
Royal Bank of Canada $37,500,000.00
Allfirst Bank $25,000,000.00
Bank of Tokyo-Mitsubishi $25,000,000.00
Credit Suisse First Boston $25,000,000.00
Fleet Bank $25,000,000.00
The Industrial Bank of Japan $25,000,000.00
Sumitomo Bank, Limited $25,000,000.00
Wells Fargo Bank, N.A. $25,000,000.00
Westdeutsche Landesbank $25,000,000.00
Fuji Bank Ltd. $12,500,000.00
National Westminster Bank PLC $12,500,000.00
Northern Trust Company $12,500,000.00
TOTAL $750,000,000.00
<PAGE>
Schedule 1.1B
Available Foreign Currencies
----------------------------
For purposes of Competitive Loans, Available Foreign Currencies are the
following:
Canadian Dollars
the lawful currency of France
the lawful currency of Germany
Japanese Yen
the lawful currency of England
Swiss Francs
the lawful currency of Italy
euro
<PAGE>
Schedule 6.1
Existing Indebtedness and Guaranties
------------------------------------
None.
<PAGE>
Schedule 6.5
Existing Liens
--------------
None.
<PAGE>
EXECUTION COPY
--------------
FIVE YEAR COMPETITIVE ADVANCE AND
REVOLVING CREDIT AGREEMENT
Dated as of March 4, 1997, as amended
and restated through February 28, 2000
among
PHH CORPORATION
as Borrower
and
THE LENDERS REFERRED TO HEREIN
and
THE CHASE MANHATTAN BANK, as Administrative Agent
================================================================================
CHASE SECURITIES INC., Arranger and Book Manager
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS...............................................................1
2. THE LOANS................................................................16
SECTION 2.1. Commitments.............................................16
SECTION 2.2. Loans...................................................16
SECTION 2.3. Use of Proceeds.........................................17
SECTION 2.4. Competitive Bid Procedure...............................17
SECTION 2.5. Revolving Credit Borrowing Procedure....................20
SECTION 2.6. Refinancings............................................20
SECTION 2.7. Fees....................................................21
SECTION 2.8. Repayment of Loans; Evidence of Debt....................22
SECTION 2.9. Interest on Loans.......................................23
SECTION 2.10. Interest on Overdue Amounts............................23
SECTION 2.11. Alternate Rate of Interest.............................24
SECTION 2.12. Termination and Reduction of Commitments...............24
SECTION 2.13. Prepayment of Loans....................................25
SECTION 2.14. Eurocurrency Reserve Costs.............................25
SECTION 2.15. Reserve Requirements; Change in Circumstances..........26
SECTION 2.16. Change in Legality.....................................28
SECTION 2.17. Reimbursement of Lenders...............................28
SECTION 2.18. Pro Rata Treatment.....................................29
SECTION 2.19. Right of Setoff........................................30
SECTION 2.20. Manner of Payments.....................................30
SECTION 2.21. Withholding Taxes......................................30
SECTION 2.22. Certain Pricing Adjustments............................32
SECTION 2.23. [Intentionally Deleted.]...............................33
SECTION 2.24. Letters of Credit......................................33
SECTION 2.25. Extension of Maturity Date.............................37
3. REPRESENTATIONS AND WARRANTIES OF BORROWER...............................39
SECTION 3.1. Corporate Existence and Power...........................39
SECTION 3.2. Corporate Authority and No Violation....................39
SECTION 3.3. Governmental and Other Approval and Consents............39
SECTION 3.4. Financial Statements of Borrower........................40
SECTION 3.5. No Material Adverse Change..............................40
SECTION 3.7. Copyrights, Patents and Other Rights....................40
-i-
<PAGE>
Page
----
SECTION 3.8. Title to Properties.....................................40
SECTION 3.9. Litigation..............................................40
SECTION 3.10. Federal Reserve Regulations............................41
SECTION 3.11. Investment Company Act.................................41
SECTION 3.12. Enforceability.........................................41
SECTION 3.13. Taxes..................................................41
SECTION 3.14. Compliance with ERISA..................................41
SECTION 3.15. Disclosure.............................................42
SECTION 3.16. Environmental Liabilities..............................42
SECTION 3.17. Year 2000 Matters......................................42
4. CONDITIONS OF LENDING....................................................42
SECTION 4.1. Conditions Precedent to Effectiveness...................42
(a) Loan Documents................................................42
(b) Corporate Documents for the Borrower..........................42
(c) Financial Statements..........................................43
(d) Opinions of Counsel...........................................43
(e) No Material Adverse Change....................................43
(f) Payment of Fees...............................................43
(h) Litigation....................................................43
(i) Officer's Certificate.........................................44
SECTION 4.2. Conditions Precedent to Each Loan and Letter of Credit..44
(a) Notice........................................................44
(b) Representations and Warranties................................44
(c) No Event of Default...........................................44
5. AFFIRMATIVE COVENANTS....................................................44
SECTION 5.1. Financial Statements, Reports, etc. ....................45
SECTION 5.2. Corporate Existence; Compliance with Statutes...........46
SECTION 5.3. Insurance...............................................46
SECTION 5.4. Taxes and Charges.......................................46
SECTION 5.5. ERISA Compliance and Reports............................47
SECTION 5.6. Maintenance of and Access to Books and
Records; Examinations..................................47
SECTION 5.7. Maintenance of Properties...............................48
6. NEGATIVE COVENANTS.......................................................48
SECTION 6.1. Limitation on Material Subsidiary Indebtedness..........48
SECTION 6.2. [Intentionally deleted].................................49
SECTION 6.3. Limitation on Transactions with Affiliates..............49
SECTION 6.4. Consolidation, Merger, Sale of Assets...................49
SECTION 6.5. Limitations on Liens....................................50
SECTION 6.6. Sale and Leaseback......................................51
-ii-
<PAGE>
Page
----
SECTION 6.7. Consolidated Net Worth..................................52
SECTION 6.8. Ratio of Indebtedness To Consolidated Net Worth.........52
SECTION 6.9. Accounting Practices....................................52
SECTION 6.10. Restrictions Affecting Subsidiaries....................52
SECTION 6.11. [Intentionally Deleted].................................52
SECTION 6.12. Limitation on Mortgage Repurchase Indebtedness.........52
7. EVENTS OF DEFAULT........................................................52
8. THE ADMINISTRATIVE AGENT AND EACH ISSUING LENDER.........................55
SECTION 8.1. Administration by Administrative Agent..................55
SECTION 8.2. Advances and Payments...................................55
SECTION 8.3. Sharing of Setoffs and Cash Collateral..................56
SECTION 8.4. Notice to the Lenders...................................56
SECTION 8.5. Liability of Administrative Agent and Each
Issuing Lender........................................56
SECTION 8.6. Reimbursement and Indemnification.......................57
SECTION 8.7. Rights of Administrative Agent..........................58
SECTION 8.8. Independent Investigation by Lenders....................58
SECTION 8.9. Notice of Transfer......................................58
SECTION 8.10. Successor Administrative Agent.........................58
SECTION 8.11. Resignation of an Issuing Lender.......................59
9. MISCELLANEOUS............................................................59
SECTION 9.1. Notices.................................................59
SECTION 9.2. Survival of Agreement, Representations and
Warranties, etc. .....................................60
SECTION 9.3. Successors and Assigns; Syndications; Loan Sales;
Participations........................................60
SECTION 9.4. Expenses; Documentary Taxes.............................63
SECTION 9.5. Indemnity...............................................64
SECTION 9.6. CHOICE OF LAW...........................................64
SECTION 9.7. No Waiver...............................................64
SECTION 9.8. Extension of Maturity...................................65
SECTION 9.9. Amendments, etc. .......................................65
SECTION 9.10. Severability...........................................65
SECTION 9.11. SERVICE OF PROCESS; WAIVER OF JURY TRIAL...............66
SECTION 9.12. Headings...............................................67
SECTION 9.13. Execution in Counterparts..............................67
SECTION 9.14. Entire Agreement.......................................67
-iii-
<PAGE>
SCHEDULES
1.1A Lenders, Addresses and Commitments
1.1B Available Foreign Currencies
3.6 Material Subsidiaries
3.9 Litigation
6.1 Existing Material Subsidiary Indebtedness
6.5 Existing Liens
EXHIBITS
A-1 Form of Revolving Credit Note
A-2 Form of Competitive Note
B-1 Opinion of In-house Counsel
B-2 Opinion of Skadden Arps
C Form of Assignment and Acceptance
D Form of Compliance Certificate
E-1 Form of Competitive Bid Request
E-2 Form of Competitive Bid Invitation
E-3 Form of Competitive Bid
E-4 Form of Competitive Bid Accept/Reject Letter
F Form of Revolving Credit Borrowing Request
G Form of Extension Request
H Form of Replacement Bank Agreement
<PAGE>
FIVE YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT AGREEMENT (the
"Agreement"), dated as of March 4, 1997, as amended and restated through
February 28, 2000 among PHH CORPORATION, a Maryland corporation (the
"Borrower"), the Lenders referred to herein and THE CHASE MANHATTAN BANK, a New
York banking corporation, as agent (the "Administrative Agent") for the Lenders.
INTRODUCTORY STATEMENT
The Borrower, certain of the Lenders and the Administrative Agent are
parties to the Five Year Competitive Advance and Revolving Credit Agreement,
dated as of March 4, 1997, as amended to the date prior to the Closing Date
referred to below (the "Existing Credit Agreement"), pursuant to which the
Lenders established a $1,250,000,000 committed revolving credit facility under
which Revolving Credit Loans (as defined below) may be made to the Borrower and
Letters of Credit issued for the account of the Borrower (of which not more than
the amounts described herein at any time shall consist of Letters of Credit). In
addition, under the Existing Credit Agreement, the Lenders provide a procedure
pursuant to which Lenders may bid on an uncommitted basis on short-term
borrowings by the Borrower.
The Borrower has requested that the Maturity Date (as defined below) be
extended to February 28, 2005 and the amount committed under the revolving
credit facility reduced to $750,000,000 and has requested certain other
amendments to the Existing Credit Agreement.
The Borrower, the Lenders and the Administrative Agent desire to amend and
restate the Existing Credit Agreement pursuant to this Agreement and to continue
the Borrower's payment and performance obligations under the Existing Credit
Agreement, as amended hereby.
Accordingly, the parties hereto hereby agree as follows:
1. DEFINITIONS
For the purposes hereof unless the context otherwise requires, the
following terms shall have the meanings indicated, all accounting terms not
otherwise defined herein shall have the respective meanings accorded to them
under GAAP and all terms defined in the New York Uniform Commercial Code and not
otherwise defined herein shall have the respective meanings accorded to them
therein:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Revolving Credit Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article 2.
<PAGE>
"Asset Securitization Subsidiary" shall mean (i) any Subsidiary engaged
solely in the business of effecting asset securitization transactions permitted
by this Agreement and activities incidental thereto or (ii) any Subsidiary whose
primary purpose is to hold title or ownership interests in mortgages, relocation
assets and related assets under management.
"Affiliate" shall mean any Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with, the Borrower. For
purposes of this definition, a Person shall be deemed to be "controlled by"
another if such latter Person possesses, directly or indirectly, power either to
(i) vote 10% or more of the securities having ordinary voting power for the
election of directors of such controlled Person or (ii) direct or cause the
direction of the management and policies of such controlled Person whether by
contract or otherwise.
"Alternate Base Rate" shall mean for any day, a rate per annum (rounded
upwards to the nearest 1/16 of 1% if not already an integral multiple of 1/16 of
1%) equal to the greater of (a) the Prime Rate in effect for such day and (b)
the Federal Funds Effective Rate in effect for such day plus 1/2 of 1%. "Prime
Rate" shall mean the rate per annum publicly announced by the entity which is
the Administrative Agent from time to time as its prime rate in effect at its
principal office in New York City. For purposes of this Agreement, any change in
the Alternate Base Rate due to a change in the Prime Rate shall be effective on
the date such change in the Prime Rate is announced as effective. "Federal Funds
Effective Rate" shall mean, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate, for any reason, including, without limitation, the
inability or failure of the Administrative Agent to obtain sufficient bids or
publications in accordance with the terms hereof, the Alternate Base Rate shall
be determined without regard to clause (b) until the circumstances giving rise
to such inability no longer exist. Any change in the Alternate Base Rate due to
a change in the Federal Funds Effective Rate shall be effective on the effective
date of such change in the Federal Funds Effective Rate.
"Applicable Law" shall mean all provisions of statutes, rules, regulations
and orders of governmental bodies or regulatory agencies applicable to a Person,
and all orders and decrees of all courts and arbitrators in proceedings or
actions in which the Person in question is a party.
"Assessment Rate" shall mean, for any day, the net annual assessment rate
(rounded upwards, if necessary, to the next higher Basis Point) as most recently
reasonably estimated by the Administrative Agent for determining the then
current annual assessment payable by the
<PAGE>
entity which is the Administrative Agent to the Federal Deposit Insurance
Corporation (or any successor) for insurance by such Corporation (or such
successor) of time deposits made in Dollars at such entity's domestic offices.
"Assignment and Acceptance" shall mean an agreement in the form of Exhibit
C hereto, executed by the assignor, assignee and the other parties as
contemplated thereby.
"Available Foreign Currencies" shall mean the currencies set forth on
Schedule 1.1B, and any other available and freely-convertible non-Dollar
currency selected by the Borrower and approved (which approval shall not be
unreasonably withheld) in writing by the Administrative Agent.
"Basis Point" shall mean 1/100th of 1%.
"Board" shall mean the Board of Governors of the Federal Reserve System.
"Borrowing" shall mean a group of Loans of a single Interest Rate Type made
by certain Lenders (or in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.4) on a
single date and as to which a single Interest Period is in effect.
"Business Day" shall mean, with respect to any Loan, any day other than a
Saturday, Sunday or other day on which banks in the State of New York are
permitted or required by law to close; provided that when used in connection
with a LIBOR Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in deposits in Dollars or the applicable
Available Foreign Currency on the London Interbank Market (or such other
interbank eurocurrency market where the foreign currency and exchange operations
in respect of Dollars or the applicable Available Foreign Currency, as the case
may be, are then being conducted for delivery on the first day of such Interest
Period).
"Capital Lease" shall mean as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
accordance with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
"Cash Collateral Account" shall mean a collateral account established with
the Administrative Agent, in the name of the Administrative Agent and under its
sole dominion and control, into which the Borrower shall from time to time
deposit Dollars pursuant to the express provisions of this Agreement requiring
such deposit.
"Cash Equivalents" shall mean (i) investments in commercial paper maturing
in not more than 270 days from the date of issuance which at the time of
acquisition is rated at least A-1 or the equivalent thereof by S&P, or P-1 or
the equivalent thereof by Moody's, (ii) investments in direct obligations or
obligations which are guaranteed or insured by the United States or any
<PAGE>
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having a maturity of not more
than three years from the date of acquisition, (iii) investments in certificates
of deposit maturing not more than one year from the date of origin issued by a
bank or trust company organized or licensed under the laws of the United States
or any state or territory thereof having capital, surplus and undivided profits
aggregating at least $500,000,000 and A rated or better by S&P or Moody's, (iv)
money market mutual funds having assets in excess of $2,000,000,000, (v)
investments in asset-backed or mortgage-backed securities, including investments
in collateralized, adjustable rate mortgage securities and those mortgage-backed
securities which are rated at least AA by S&P or Aa by Moody's or are of
comparable quality at the time of investment, and (vi) banker's acceptances
maturing not more than one year from the date of origin issued by a bank or
trust company organized or licensed under the laws of the United States or any
state or territory thereof and having capital, surplus and undivided profits
aggregating at least $500,000,000, and rated A or better by S&P or Moody's.
"Change in Control" shall mean, (i) the acquisition by any Person or group
(within the meaning of the Securities Exchange Act of 1934, as amended, and the
rules of the Securities and Exchange Commission thereunder as in effect at the
Closing Date), directly or indirectly, beneficially or of record, of ownership
or control of in excess of 50% of the voting common stock of Cendant Corporation
on a fully diluted basis at any time or (ii) if at any time, individuals who at
the Closing Date constituted the Board of Directors of Cendant Corporation
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of Cendant Corporation, as the
case may be, was approved by a vote of the majority of the directors then still
in office who were either directors at the Closing Date or whose election or a
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Cendant Corporation then in
office or (iii) Cendant Corporation shall cease to own, directly or through
wholly-owned Subsidiaries, all of the capital stock of the Borrower, free and
clear of any direct or indirect Liens.
"Chase" shall mean The Chase Manhattan Bank, a New York banking
corporation.
"Closing Date" shall mean the date on which the conditions precedent to the
effectiveness of this Agreement as set forth in Section 4.1 have been satisfied
or waived, which shall in no event be later than February 28, 2000.
"Code" shall mean the Internal Revenue Code of 1986 and the rules and
regulations issued thereunder, as now and hereafter in effect, or any successor
provision thereto.
"commencement of the third stage of EMU" shall mean the date of
commencement of the third stage of EMU or the date on which circumstances arise
which (in the opinion of the Administrative Agent) have substantially the same
effect and result in substantially the same
<PAGE>
consequences as commencement of the third stage of EMU as contemplated by the
Treaty on European Union.
"Commitment" shall mean, with respect to each Lender, the commitment of
such Lender as set forth on or in (i) Schedule 1.1A hereto, (ii) any applicable
Assignment and Acceptance to which it may be a party, and/or (iii) any agreement
delivered pursuant to Section 2.25(d), as the case may be, as such Lender's
Commitment may be permanently terminated or reduced from time to time pursuant
to Section 2.12 or 2.25 or Article 7 or changed pursuant to Section 9.3. The
Commitments shall automatically and permanently terminate on the earlier of (a)
the Maturity Date or (b) the date of termination in whole pursuant to Section
2.12 or Article 7.
"Commitment Expiration Date" shall have the meaning assigned to such term
in Section 2.25(a).
"Commitment Period" shall mean the period from and including the Closing
Date to but not including the Maturity Date or such earlier date on which the
Commitments shall have been terminated in accordance with the terms hereof.
"Commitment Utilization Percentage" shall mean on any day the percentage
equivalent of a fraction (a) the numerator of which is the sum of the aggregate
outstanding principal amount of Revolving Credit Loans and the Dollar Equivalent
Amount of the aggregate outstanding principal amount of Competitive Loans and
(b) the denominator of which is the Total Commitment (or, on any day after
termination of the Commitments, the Total Commitment in effect immediately
preceding such termination).
"Competitive Bid" shall mean an offer by a Lender to make a Competitive
Loan pursuant to Section 2.4 in the form of Exhibit E-3.
"Competitive Bid Accept/Reject Letter" shall mean a notification made by
the Borrower pursuant to Section 2.4(d) in the form of Exhibit E-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
Lender pursuant to Section 2.4(b), (a) in the case of a LIBOR Loan, the Margin
and (b) in the case of a Fixed Rate Loan, the fixed rate of interest offered by
the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to Section 2.4
in the form of Exhibit E-1.
"Competitive Borrowing" shall mean a Borrowing consisting of a Competitive
Loan or concurrent Competitive Loans from the Lender or Lenders whose
Competitive Bids for such Borrowing have been accepted by the Borrower under the
bidding procedure described in Section 2.4.
<PAGE>
"Competitive Loan" shall mean a Loan from a Lender to the Borrower pursuant
to the bidding procedure described in Section 2.4. Each Competitive Loan shall
be a LIBOR Competitive Loan or a Fixed Rate Loan.
"Competitive Note" shall have the meaning assigned to such term in Section
2.8.
"Consolidated Assets" shall mean, at any date of determination, the total
assets of the Borrower and its Consolidated Subsidiaries determined in
accordance with GAAP.
"Consolidated Net Income" shall mean, for any period for which such amount
is being determined, the net income (loss) of the Borrower and its Consolidated
Subsidiaries during such period determined on a consolidated basis for such
period taken as a single accounting period in accordance with GAAP, provided
that there shall be excluded (i) income (or loss) of any Person (other than a
Consolidated Subsidiary) in which the Borrower or any of its Consolidated
Subsidiaries has an equity investment or comparable interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Borrower or its Consolidated Subsidiaries by such Person during such period,
(ii) the income (or loss) of any Person accrued prior to the date it becomes a
Consolidated Subsidiary or is merged into or consolidated with the Borrower or
any of its Consolidated Subsidiaries or the Person's assets are acquired by the
Borrower or any of its Consolidated Subsidiaries, (iii) the income of any
Consolidated Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by that Consolidated Subsidiary of the income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Consolidated Subsidiary, (iv) any extraordinary
after-tax gains and (v) any extraordinary pretax losses but only to the extent
attributable to a write-down of financing costs relating to any existing and
future indebtedness.
"Consolidated Net Worth" shall mean, at any date of determination, all
amounts which would be included on a balance sheet of the Borrower and its
Consolidated Subsidiaries under stockholders' equity as of such date in
accordance with GAAP.
"Consolidated Subsidiaries" shall mean all Subsidiaries of the Borrower
that are required to be consolidated with the Borrower for financial reporting
purposes in accordance with GAAP.
"Contractual Obligation" shall mean, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Currency" or "Currencies" shall mean the collective reference to Dollars
and Available Foreign Currencies.
<PAGE>
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Dollar Equivalent Amount" shall mean with respect to (i) any amount of any
Available Foreign Currency on any date, the equivalent amount in Dollars of such
amount of Available Foreign Currency, as determined by the Administrative Agent
using the applicable Exchange Rate and (ii) any amount in Dollars, such amount.
"Dollars" and "$" and "US$" shall mean lawful currency of the United
States.
"EMU" shall mean economic and monetary union as contemplated in the Treaty
on European Union.
"EMU legislation" shall mean legislative measures of the European Council
for the introduction of, changeover to or operation of a single or unified
European currency (whether known as the euro or otherwise), being in part the
implementation of the third stage of EMU.
"Environmental Laws" shall mean any and all federal, provincial, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct concerning, any
Hazardous Material or environmental protection or health and safety, as now or
at any time hereafter in effect, including without limitation, the Clean Water
Act also known as the Federal Water Pollution Control Act, 33 U.S.C. (Section)
1251 et seq., the Clean Air Act, 42 U.S.C. (Section) 7401 et seq., the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (Section) 136 et seq., the
Surface Mining Control and Reclamation Act, 30 U.S.C. (Section) 1201 et seq.,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. (Section) 9601 et seq., the Superfund Amendment and Reauthorization Act
of 1986, Public Law 99-499, 100 Stat. 1613, the Emergency Planning and Community
Right to Know Act, 42 U.S.C. (Section) 11001 et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. (Section) 6901 et seq., the Occupational Safety and
Health Act as amended, 29 U.S.C. (Section) 655 and (Section) 657, together, in
each case, with any amendment thereto, and the regulations adopted and
publications promulgated thereunder and all substitutions thereof.
"Environmental Liabilities" shall mean any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
such Act may be amended, and the regulations promulgated thereunder.
"euro" shall mean the single currency of participating member states of the
European Union.
"euro unit" shall mean the currency unit of the euro.
"Event of Default" shall have the meaning given such term in Article 7.
"Excess Utilization Day" shall mean each day on which the Commitment
Utilization Percentage exceeds 33%.
"Exchange Rate" shall mean (i) with respect to any Available Foreign
Currency other than Canadian Dollars on any date, the rate at which such
Available Foreign Currency may be exchanged into Dollars, as set forth on such
date on the relevant Reuters currency page at or about 11:00 A.M. New York City
time on such date and (ii) with respect to Canadian Dollars, the spot rate at
which Canadian Dollars may be exchanged into U.S. Dollars, as quoted by The Bank
of Canada at approximately 12:00 noon, Toronto time, as set forth on the Reuters
"BOFC" page. In the event that such rate does not appear on any such Reuters
page, the "Exchange Rate" with respect to such Available Foreign Currency shall
be determined by reference to such other publicly available service for
displaying exchange rates as may be agreed upon by the Administrative Agent and
the Borrower or, in the absence of such agreement, such "Exchange Rate" shall
instead be the Administrative Agent's spot rate of exchange in the interbank
market where its foreign currency exchange operations in respect of such
Available Foreign Currency are then being conducted, at or about 10:00 A.M.,
local time, at such date for the purchase of Dollars with such Available Foreign
Currency, for delivery two Business Days later; provided that if at the time of
any such determination, no such spot rate can reasonably be quoted, the
Administrative Agent may use any reasonable method (including obtaining quotes
from three or more market makers for such Available Foreign Currency) as it
deems applicable to determine such rate, and such determination shall be
conclusive absent manifest error (without prejudice to the determination of the
reasonableness of such method).
"Extension Request" means each request by the Borrower made pursuant to
Section 2.25 for the Lenders to extend the Maturity Date, which shall contain
the information in respect of such extension specified in Exhibit G and shall be
delivered to the Administrative Agent in writing.
"Facility Fee" shall have the meaning given such term in Section 2.7.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of Fixed Rate
Loans.
<PAGE>
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at a
fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
Competitive Bid.
"Fundamental Documents" shall mean this Agreement, any Revolving Credit
Notes, any Competitive Notes and any other ancillary documentation which is
required to be, or is otherwise, executed by the Borrower and delivered to the
Administrative Agent in connection with this Agreement.
"GAAP" shall mean generally accepted accounting principles consistently
applied (except for accounting changes in response to FASB releases or other
authoritative pronouncements) provided, however, that all calculations made
pursuant to Sections 6.7 and 6.8 and the related definitions shall have been
computed based on such generally accepted accounting principles as are in effect
on the date hereof.
"Governmental Authority" shall mean any federal, provincial, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case, whether of the United States or
Canada or foreign.
"Guaranty" shall mean, as to any Person, any direct or indirect obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, Capital
Lease, dividend or other monetary obligation ("primary obligation") of any other
Person (the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (c) to purchase
property, securities or services, in each case, primarily for the purpose of
assuring the owner of any such primary obligation of the repayment of such
primary obligation or (d) as a general partner of a partnership or a joint
venturer of a joint venture in respect of indebtedness of such partnership or
such joint venture which is treated as a general partnership for purposes of
Applicable Law. The amount of any Guaranty shall be deemed to be an amount equal
to the stated or determinable amount (or portion thereof) of the primary
obligation in respect of which such Guaranty is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder); provided that the
amount of any Guaranty shall be limited to the extent necessary so that such
amount does not exceed the value of the assets of such Person (as reflected on a
consolidated balance sheet of such Person prepared in accordance with GAAP) to
which any creditor or beneficiary of such Guaranty would have recourse.
Notwithstanding the foregoing definition, the term "Guaranty" shall not include
any direct or indirect obligation of a Person as a general partner of a general
partnership or a joint venturer of a joint venture in respect of Indebtedness of
such general partnership or joint venture, to the extent such Indebtedness is
contractually non-recourse to the assets of such Person as a general partner or
<PAGE>
joint venturer (other than assets comprising the capital of such general
partnership or joint venture).
"Hazardous Materials" shall mean any flammable materials, explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, or similar materials defined as such in any Environmental Law.
"Indebtedness" shall mean (i) all indebtedness, obligations and other
liabilities of the Borrower and its Subsidiaries which are, at the date as of
which Indebtedness is to be determined, includable as liabilities in a
consolidated balance sheet of the Borrower and its Subsidiaries, other than (x)
accounts payable and accrued expenses, (y) advances from clients obtained in the
ordinary course of the relocation management services business of the Borrower
and its Subsidiaries and (z) current and deferred income taxes and other similar
liabilities, plus (ii) without duplicating any items included in Indebtedness
pursuant to the foregoing clause (i), the maximum aggregate amount of all
liabilities of the Borrower or any of its Subsidiaries under any Guaranty,
indemnity or similar undertaking given or assumed of, or in respect of, the
indebtedness, obligations or other liabilities, assets, revenues, income or
dividends of any Person other than the Borrower or one of its Subsidiaries and
(iii) all other obligations or liabilities of the Borrower or any of its
Subsidiaries in relation to the discharge of the obligations of any Person other
than the Borrower or one of it Subsidiaries.
"Interest Payment Date" shall mean, with respect to any Borrowing, the last
day of the Interest Period applicable thereto and, in the case of a LIBOR
Borrowing with an Interest Period of more than three months' duration or a Fixed
Rate Borrowing with an Interest Period of more than 90 days' duration, each day
that would have been an Interest Payment Date had successive Interest Periods of
three months' duration or 90 days' duration, as the case may be, been applicable
to such Borrowing, and, in addition, the date of any refinancing or conversion
of a Borrowing with, or to, a Borrowing of a different Interest Rate Type.
"Interest Period" shall mean (a) as to any LIBOR Borrowing, the period
commencing on the date of such Borrowing, and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3, 6 or, subject to each Lender's
approval, 12 months thereafter, as the Borrower may elect, (b) as to any ABR
Borrowing, the period commencing on the date of such Borrowing and ending on the
earliest of (i) the next succeeding March 31, June 30, September 30 or December
31, (ii) the Maturity Date and (iii) the date such Borrowing is refinanced with
a Borrowing of a different Interest Rate Type in accordance with Section 2.6 or
is prepaid in accordance with Section 2.13, (c) as to any Fixed Rate Borrowing,
the period commencing on the date of such Borrowing and ending on the date
specified in the Competitive Bids in which the offer to make the Fixed Rate
Loans comprising such Borrowing were extended, which shall not be earlier than
seven days after the date of such Borrowing or later than 360 days after the
date of such Borrowing; provided that with respect to Loans made by an Objecting
Lender, no Interest Period with respect to such Objecting Lender's Loans shall
end after such Objecting Lender's
<PAGE>
Commitment Expiration Date; and provided, further, that (i) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of LIBOR
Loans only, such next succeeding Business Day would fall in the next calendar
month, in which case such Interest Period shall end on the next preceding
Business Day and (ii) no Interest Period with respect to any LIBOR Borrowing or
Fixed Rate Borrowing may be selected which would result in the aggregate amount
of LIBOR Loans and Fixed Rate Loans having Interest Periods ending after any day
on which a Commitment reduction is scheduled to occur being in excess of the
Total Commitment scheduled to be in effect after such date. Interest shall
accrue from, and including, the first day of an Interest Period to, but
excluding, the last day of such Interest Period.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement or other similar financial agreement or
arrangement.
"Interest Rate Type" when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include LIBOR, the Alternate Base Rate and the Fixed Rate.
"Issuing Lender" shall mean Chase or The Chase Manhattan Bank (Delaware),
and/or such other of the Lenders as may be designated in writing by the Borrower
and which agrees in writing to act as such in accordance with the terms hereof.
"L/C Exposure" shall mean, at any time, the amount expressed in Dollars of
the aggregate face amount of all drafts which may then or thereafter be
presented by beneficiaries under all Letters of Credit then outstanding plus
(without duplication) the face amount of all drafts which have been presented
under Letters of Credit but have not yet been paid or have been paid but not
reimbursed.
"Lender and "Lenders" shall mean the financial institutions whose names
appear on the signature pages hereof and any assignee of a Lender pursuant to
Section 9.3(b).
"Lending Office" shall mean, with respect to any of the Lenders, the branch
or branches (or affiliate or affiliates) from which any such Lender's LIBOR
Loans, Fixed Rate Loans or ABR Loans, as the case may be, are made or maintained
and for the account of which all payments of principal of, and interest on, such
Lender's LIBOR Loans, Fixed Rate Loans or ABR Loans are made, as notified to the
Administrative Agent from time to time.
"Letters of Credit" shall mean the letters of credit issued pursuant to
Section 2.24.
"LIBOR" shall mean, with respect to any LIBOR Borrowing for any Interest
Period, an interest rate per annum (rounded upwards, if necessary, to the next
Basis Point) equal to the rate at which deposits in Dollars or the applicable
Available Foreign Currency, as the case may
<PAGE>
be, approximately equal in principal amount to (a) in the case of a Revolving
Credit Borrowing, Chase's portion of such LIBOR Borrowing and (b) in the case of
a Competitive Borrowing, a principal amount that would have been Chase's portion
of such Competitive Borrowing had such Competitive Borrowing been a Revolving
Credit Borrowing, and for a maturity comparable to such Interest Period, are
offered to the principal London office of Chase in immediately available funds
in the London Interbank Market (or such other interbank eurocurrency market
where the foreign currency and exchange operations in respect of Dollars or such
applicable Available Foreign Currency, as the case may be, are then being
conducted for delivery on the first day of such Interest Period) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"LIBOR Borrowing" shall mean a Borrowing comprised of LIBOR Loans.
"LIBOR Competitive Loan" shall mean any Competitive Loan bearing interest
at a rate determined by reference to LIBOR in accordance with the provisions of
Article 2.
"LIBOR Loan" shall mean any LIBOR Competitive Loan or LIBOR Revolving
Credit Loan.
"LIBOR Revolving Credit Loan" shall mean any Loan (other than a Competitive
Loan) bearing interest at a rate determined by reference to LIBOR in accordance
with the provisions of Article 2.
"LIBOR Spread" shall mean, at any date or any period of determination, the
LIBOR Spread that would be in effect on such date or during such period pursuant
to the chart set forth in Section 2.22 based on the rating of the Borrower's
senior unsecured long-term debt.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever (including any conditional sale or other
title retention agreement, any lease in the nature thereof or agreement to give
any financing statement under the Uniform Commercial Code of any jurisdiction).
"Loan" shall mean a Competitive Loan or a Revolving Credit Loan, whether
made as a LIBOR Loan, an ABR Loan or a Fixed Rate Loan, as permitted hereby.
"Margin" shall mean, as to any LIBOR Competitive Loan, the margin
(expressed as a percentage rate per annum in the form of a decimal to four
decimal places) to be added to, or subtracted from, LIBOR in order to determine
the interest rate applicable to such Loan, as specified in the Competitive Bid
relating to such Loan.
"Margin Stock" shall be as defined in Regulation U of the Board.
<PAGE>
"Material Adverse Effect" shall mean a material adverse effect on the
business, assets, operations or condition, financial or otherwise, of the
Borrower and its Subsidiaries taken as a whole.
"Material Subsidiary" shall mean any Subsidiary of the Borrower which
together with its Subsidiaries at the time of determination had assets
constituting 10% or more of Consolidated Assets, accounts for 10% or more of
Consolidated Net Worth, or accounts for 10% or more of the revenues of the
Borrower and its Consolidated Subsidiaries for the Rolling Period immediately
preceding the date of determination.
"Maturity Date" shall mean the fifth anniversary of the Closing Date or
such later date as shall be determined pursuant to the provisions of Section
2.25 with respect to non- Objecting Lenders.
"Moody's" shall mean Moody's Investors Service Inc.
"Multiemployer Plan" shall mean a plan described in Section 3(37) of ERISA.
"national currency unit " shall mean the unit of currency (other than a
euro unit) of a participating member state.
"non-Objecting Lender" shall mean any Lender that is not an Objecting
Lender.
"Notes" shall mean the Competitive Notes and the Revolving Credit Notes.
"Objecting Lender" shall mean any Lender that does not consent to the
extension of the Maturity Date pursuant to Section 2.25.
"Obligations" shall mean the obligation of the Borrower to make due and
punctual payment of principal of, and interest on (including post-petition
interest, whether or not allowed), the Loans, the Facility Fee, the Utilization
Fee, reimbursement obligations in respect of Letters of Credit, and all other
monetary obligations of the Borrower to the Administrative Agent, any Issuing
Lender or any Lender under this Agreement, the Notes or the Fundamental
Documents or with respect to any Interest Rate Protection Agreements entered
into between the Borrower or any of its Subsidiaries and any Lender.
"Original Closing Date" shall mean March 4, 1997.
"Participant" shall have the meaning assigned to such term in Section
9.3(g).
"participating member state" shall mean each state so described in any EMU
legislation.
<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Encumbrances" shall mean Liens permitted under Section 6.5.
"Person" shall mean any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
"Plan" shall mean an employee pension benefit plan described in Section
3(2) of ERISA, other than a Multiemployer Plan.
"Pro Forma Basis" shall mean, in connection with any transaction for which
a determination on a Pro Forma Basis is required to be made hereunder, that such
determination shall be made (i) after giving effect to any issuance of
Indebtedness, any acquisition, any disposition or any other transaction (as
applicable) and (ii) assuming that the issuance of Indebtedness, acquisition,
disposition or other transaction and, if applicable, the application of any
proceeds therefrom, occurred at the beginning of the most recent Rolling Period
ending at least thirty (30) days prior to the date on which such issuance of
Indebtedness, acquisition, disposition or other transaction occurred.
"Reportable Event" shall mean any reportable event as defined in Section
4043(c) of ERISA, other than a reportable event as to which provision for 30-day
notice to the PBGC would be waived under applicable regulations had the
regulations in effect on the Closing Date been in effect on the date of
occurrence of such reportable event.
"Required Lenders" shall mean at any time, Lenders holding Commitments
representing (in Dollar amounts) 51% or more of the Total Commitment, except
that (i) for purposes of determining the Lenders entitled to declare the
principal of and the interest on the Loans and the Notes and all other amounts
payable hereunder or thereunder to be forthwith due and payable pursuant to
Article 7 and (ii) at all times after the termination of the Total Commitment in
its entirety, "Required Lenders" shall mean Lenders holding 51% or more of the
aggregate principal amount of the Loans and L/C Exposure at the time
outstanding.
"Revolving Credit Borrowing" shall mean a Borrowing consisting of
simultaneous Revolving Credit Loans from each of the Lenders.
"Revolving Credit Borrowing Request" shall mean a request made pursuant to
Section 2.5 in the form of Exhibit F.
"Revolving Credit Loans" shall mean the Loans made by the Lenders to the
Borrower pursuant to a notice given by the Borrower under Section 2.5(a). Each
Revolving Credit Loan shall be a LIBOR Revolving Credit Loan or an ABR Loan.
<PAGE>
"Revolving Credit Note" shall have the meaning assigned to such term in
Section 2.8.
"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.
"S&P" shall mean Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the
Administrative Agent or any Lender is subject, for Eurocurrency Liabilities (as
defined in Regulation D of the Board) (or, at any time when such Lender may be
required by the Board or by any other Governmental Authority, whether within the
United States or in another relevant jurisdiction, to maintain reserves against
any other category of liabilities which includes deposits by reference to which
LIBOR is determined as provided in this Agreement or against any category of
extensions of credit or other assets of such Lender which includes any such
LIBOR Loans). Such reserve percentages shall include those imposed under
Regulation D of the Board. LIBOR Loans shall be deemed to constitute
Eurocurrency Liabilities and as such shall be deemed to be subject to such
reserve requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to any Lender under Regulation
D of the Board. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"Subsidiary" shall mean with respect to any Person, any corporation,
association, joint venture, partnership or other business entity (whether now
existing or hereafter organized) of which at least a majority of the voting
stock or other ownership interests having ordinary voting power for the election
of directors (or the equivalent) is, at the time as of which any determination
is being made, owned or controlled by such Person or one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower.
"Supermajority Lenders" shall mean Lenders which have Commitments
representing at least 75% of the aggregate Dollar amount of the Total
Commitments.
"364-Day Credit Agreement" shall mean the 364-Day Competitive Advance and
Revolving Credit Agreement, dated as of March 4, 1997, as amended from time to
time, among the Borrower, the lenders referred to therein and Chase, as
Administrative Agent.
"Total Commitment" shall mean, at any time, the aggregate amount of the
Lenders' Commitments as in effect at such time.
<PAGE>
"Treaty on European Union" shall mean the Treaty of Rome of March 25, 1957,
as amended by the Single European Act 1986 and the Maastricht Treaty (which was
signed at Maastricht on February 7, 1992, and came into force on November 1,
1993), as amended from time to time.
"United States" shall mean the United States of America.
"Utilization Fee" shall have the meaning given such term in Section 2.7.
"Working Day" shall mean any Business Day on which dealings in foreign
currencies and exchange between banks may be carried on in London, England and
in New York, New York.
2. THE LOANS
SECTION 2.1. Commitments.
(a) Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Lender agrees, severally
and not jointly, to make Revolving Credit Loans to the Borrower in Dollars, at
any time and from time to time on and after the Original Closing Date and until
the earlier of the Maturity Date and the termination of the Commitment of such
Lender, in an aggregate principal amount at any time outstanding not to exceed
such Lender's Commitment minus the sum of such Lender's pro rata share of the
then current L/C Exposure plus the outstanding Dollar Equivalent Amount by which
the Competitive Loans outstanding at such time shall be deemed to have used such
Lender's Commitment pursuant to Section 2.18, subject, however, to the
conditions that (1) at no time shall (i) the sum of (A) the outstanding
aggregate principal amount of all Revolving Credit Loans made by all Lenders
plus (B) the then current L/C Exposure plus (C) the outstanding aggregate
principal Dollar Equivalent Amount of all Competitive Loans made by the Lenders
exceed (ii) the Total Commitment and (2) at all times the outstanding aggregate
principal amount of all Revolving Credit Loans made by each Lender shall equal
the product of (i) the percentage that its Commitment represents of the Total
Commitment times (ii) the outstanding aggregate principal amount of all
Revolving Credit Loans. During the Commitment Period, the Borrower may use the
Commitments of the Lenders by borrowing, prepaying the Loans in whole or in
part, and reborrowing, all in accordance with the terms and conditions hereof.
(b) The Commitments of the Lenders may be terminated or reduced from time
to time pursuant to Section 2.12 or Article 7.
SECTION 2.2. Loans.
(a) Each Revolving Credit Loan shall be made as part of a Borrowing from
the Lenders ratably in accordance with their respective applicable Commitments;
provided that the failure of any Lender to make any Revolving Credit Loan shall
not in itself relieve any other Lender of its
<PAGE>
obligation to lend hereunder (it being understood, however, that no Lender shall
be responsible for the failure of any other Lender to make any Loan required to
be made by such other Lender). Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.4. The Revolving Credit Loans or
Competitive Loans comprising any Borrowing shall be (i) in the case of
Competitive Loans and LIBOR Loans, in an aggregate principal Dollar Equivalent
Amount that is an integral multiple of $5,000,000 and not less than $10,000,000
and (ii) in the case of ABR Loans, in an aggregate principal amount that is an
integral multiple of $500,000 and not less than $5,000,000 (or if less, an
aggregate principal amount equal to the remaining balance of the available Total
Commitment).
(b) Each Competitive Borrowing shall be comprised entirely of LIBOR
Competitive Loans or Fixed Rate Loans, and each Revolving Credit Borrowing shall
be comprised entirely of LIBOR Revolving Credit Loans or ABR Loans, as the
Borrower may request pursuant to Section 2.4 or 2.5, as applicable. Each Lender
may at its option make any LIBOR Loan by causing any domestic or foreign branch
or Affiliate of such Lender to make such Loan, provided that any exercise of
such option shall not affect the obligation of the Borrower to repay such Loan
in accordance with the terms of this Agreement and the applicable Note.
Borrowings of more than one Interest Rate Type may be outstanding at the same
time; provided that the Borrower shall not be entitled to request any Borrowing
that, if made, would result in an aggregate of more than twenty (20) separate
Loans (other than Competitive Loans) of any Lender being outstanding hereunder
at any one time. For purposes of the calculation required by the immediately
preceding sentence, LIBOR Revolving Credit Loans having different Interest
Periods, regardless of whether they commence on the same date, shall be
considered separate Loans and all Loans of a single Interest Rate Type made on a
single date shall be considered a single Loan if such Loans have a common
Interest Period.
(c) Subject to Section 2.6, each Lender shall make each Loan to be made by
it hereunder on the proposed date thereof by making funds available at the
office of the Administrative Agent specified in Section 9.1 for credit to PHH
Corporation Clearing Account, Account No. 323-5-11260 (Reference: PHH
Corporation Credit Agreement dated as of March 4, 1997) or as otherwise directed
by the Administrative Agent no later than 1:00 P.M. New York City time in the
case of Loans other than ABR Loans, and 4:00 P.M. New York City time in the case
of ABR Loans, in each case, in immediately available funds. Upon receipt of the
funds to be made available by the Lenders to fund any Borrowing hereunder, the
Administrative Agent shall disburse such funds by depositing them into an
account of the Borrower maintained with the Administrative Agent. Competitive
Loans shall be made by the Lender or Lenders whose Competitive Bids therefor are
accepted pursuant to Section 2.4 in the amounts so accepted and Revolving Credit
Loans shall be made by all the Lenders pro rata in accordance with Section 2.1
and this Section 2.2.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Borrowing if the Interest Period requested
with respect thereto would end after the Maturity Date.
SECTION 2.3. Use of Proceeds.
<PAGE>
The proceeds of the Loans shall be used for working capital and general
corporate purposes.
SECTION 2.4. Competitive Bid Procedure.
(a) In order to request Competitive Bids, the Borrower shall hand deliver
or telecopy to the Administrative Agent a duly completed Competitive Bid Request
in the form of Exhibit E-1, to be received by the Administrative Agent (i) in
the case of a LIBOR Competitive Borrowing, not later than 2:00 p.m., New York
City time, four Working Days before a proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 2:00 p.m., New York City
time, one Business Day before a proposed Competitive Borrowing. Each Competitive
Bid Request shall specify the requested Currency. No ABR Loan shall be requested
in, or made pursuant to, a Competitive Bid Request. A Competitive Bid Request
that does not conform substantially to the format of Exhibit E-1 may be rejected
in the Administrative Agent's sole discretion, and the Administrative Agent
shall promptly notify the Borrower of such rejection by telecopier. Such request
for Competitive Bids shall in each case refer to this Agreement and specify (i)
whether the Borrowing then being requested is to be a LIBOR Borrowing or a Fixed
Rate Borrowing, (ii) the date of such Borrowing (which shall be a Business Day
in the case of a Fixed Rate Borrowing and a Working Day in the case of a LIBOR
Competitive Borrowing) and the aggregate principal Dollar Equivalent Amount
thereof, which shall be in a minimum principal Dollar Equivalent Amount of
$10,000,000 and in an integral multiple of $5,000,000, and (iii) the Interest
Period with respect thereto (which may not end after the Maturity Date).
Promptly after its receipt of a Competitive Bid Request that is not rejected as
aforesaid, the Administrative Agent shall invite by telecopier (in the form set
forth in Exhibit E-2) the Lenders to bid, on the terms and subject to the
conditions of this Agreement, to make Competitive Loans pursuant to such
Competitive Bid Request.
(b) Each Lender may, in its sole discretion, make one or more Competitive
Bids to the Borrower responsive to a Competitive Bid Request. Each Competitive
Bid by a Lender must be received by the Administrative Agent via telecopier, in
the form of Exhibit E-3, (i) in the case of a LIBOR Competitive Borrowing, not
later than 9:30 a.m., New York City time, three Working Days before a proposed
Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later
than 9:30 a.m., New York City time, on the day of a proposed Competitive
Borrowing. Multiple Competitive Bids will be accepted by the Administrative
Agent. Competitive Bids that do not conform substantially to the format of
Exhibit E-3 may be rejected by the Administrative Agent after conferring with,
and upon the instruction of, the Borrower, and the Administrative Agent shall
notify the Lender making such nonconforming Competitive Bid of such rejection as
soon as practicable. Each Competitive Bid shall refer to this Agreement and
specify (i) the principal Dollar Equivalent Amount (which shall be in a minimum
principal Dollar Equivalent Amount of $10,000,000 and in an integral multiple of
$5,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the Borrower) of the Competitive Loan or Loans that the
applicable Lender is willing to make to the Borrower, (ii) the Competitive Bid
Rate or Rates at which such Lender is prepared to make such Competitive Loan or
Loans and (iii) the Interest Period or Interest Periods with respect thereto. If
any Lender shall elect not to make a Competitive Bid, such Lender shall so
notify the
<PAGE>
Administrative Agent via telecopier (i) in the case of LIBOR Competitive Loans,
not later than 9:30 a.m., New York City time, three Working Days before a
proposed Competitive Borrowing and (ii) in the case of Fixed Rate Loans, not
later than 9:30 a.m., New York City time, on the day of a proposed Competitive
Borrowing; provided that failure by any Lender to give such notice shall not
cause such Lender to be obligated to make any Competitive Loan as part of such
proposed Competitive Borrowing. A Competitive Bid submitted by a Lender pursuant
to this paragraph (b) shall be irrevocable.
(c) The Administrative Agent shall promptly notify the Borrower by
telecopier of all the Competitive Bids made, the Competitive Bid Rate or Rates
and the principal amount of each Competitive Loan in respect of which a
Competitive Bid was made and the identity of the Lender that made each
Competitive Bid. The Administrative Agent shall send a copy of all Competitive
Bids to the Borrower for its records as soon as practicable after completion of
the bidding process set forth in this Section 2.4.
(d) The Borrower may in its sole and absolute discretion, subject only to
the provisions of this paragraph (d), accept or reject any Competitive Bid
referred to in paragraph (c) above. The Borrower shall notify the Administrative
Agent by telephone, promptly confirmed by telecopier in the form of a
Competitive Bid Accept/Reject Letter whether and to what extent it has decided
to accept or reject any or all of the Competitive Bids referred to in paragraph
(c) above, (i) in the case of a LIBOR Competitive Borrowing, not later than
10:30 a.m., New York City time, three Working Days before a proposed Competitive
Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:30
a.m., New York City time, on the day of a proposed Competitive Borrowing;
provided that (A) the failure by the Borrower to give such notice shall be
deemed to be a rejection of all the Competitive Bids referred to in paragraph
(c) above, (B) the Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if the Borrower has decided to reject a
Competitive Bid made at a lower Competitive Bid Rate, (C) the aggregate amount
of the Competitive Bids accepted by the Borrower shall not exceed the principal
amount specified in the Competitive Bid Request, (D) if the Borrower shall
accept a Competitive Bid or Competitive Bids made at a particular Competitive
Bid Rate but the amount of such Competitive Bid or Competitive Bids shall cause
the total amount of Competitive Bids to be accepted by the Borrower to exceed
the amount specified in the Competitive Bid Request, then the Borrower shall
accept a portion of such Competitive Bid or Competitive Bids in an amount equal
to the amount specified in the Competitive Bid Request less the amount of all
other Competitive Bids accepted at lower Competitive Bid Rates with respect to
such Competitive Bid Request (it being understood that acceptance in the case of
multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata
in accordance with the amount of each such Competitive Bid at such Competitive
Bid Rate), (E) except pursuant to clause (D) above, no Competitive Bid shall be
accepted for a Competitive Loan unless such Competitive Loan is in a minimum
principal Dollar Equivalent Amount of $10,000,000 and an integral multiple of
$5,000,000 and (F) the Borrower may not accept Competitive Bids for Competitive
Loans in any Currency other than the Currency specified in the related
Competitive Bid Request; and provided, further, that if a Competitive Loan must
be in an amount less than the Dollar Equivalent Amount of $10,000,000 because of
the provisions of clause (D) above, such Competitive Loan shall be in a minimum
principal Dollar Equivalent Amount of $1,000,000
<PAGE>
or any integral multiple thereof, and in calculating the pro rata allocation of
acceptances of portions of multiple Competitive Bids at a particular Competitive
Bid Rate pursuant to clause (D), the amounts shall be rounded to the Dollar
Equivalent Amount of integral multiples of $1,000,000 in a manner that shall be
in the discretion of the Borrower. A notice given by the Borrower pursuant to
this paragraph (d) shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding Lender
whether its Competitive Bid has been accepted (and if so, in what amount and at
what Competitive Bid Rate) by telecopy sent by the Administrative Agent, and
each successful bidder will thereupon become bound, subject to the other
applicable conditions hereof, to make the Competitive Loan in respect of which
its Competitive Bid has been accepted in the applicable Currency.
(f) If the Administrative Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such Competitive Bid directly to the
Borrower one quarter of an hour earlier than the latest time at which the other
Lenders are required to submit their Competitive Bids to the Administrative
Agent pursuant to paragraph (b) above.
(g) All notices required by this Section 2.4 shall be given in accordance
with Section 9.1.
SECTION 2.5. Revolving Credit Borrowing Procedure.
In order to effect a Revolving Credit Borrowing, the Borrower shall hand
deliver or telecopy to the Administrative Agent a Borrowing notice in the form
of Exhibit F (a) in the case of a Borrowing of a LIBOR Revolving Credit Loan,
not later than 2:00 p.m., New York City time, three Working Days before a
proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than 2:00
p.m., New York City time, on the day of a proposed Borrowing. No Fixed Rate Loan
or LIBOR Competitive Loan shall be requested or made pursuant to a Revolving
Credit Borrowing Request. Such notice shall be irrevocable and shall in each
case specify (a) whether the Borrowing then being requested is to be a Borrowing
of a LIBOR Revolving Credit Loan or an ABR Borrowing, (b) the date of such
Revolving Credit Borrowing (which shall be a Working Day) and the amount thereof
and (c) if such Borrowing is to be a Borrowing of LIBOR Revolving Credit Loans,
the Interest Period with respect thereto. If no election as to the Interest Rate
Type of a Revolving Credit Borrowing is specified in any such notice, then the
requested Revolving Credit Borrowing shall be an ABR Borrowing. If no Interest
Period with respect to any Borrowing of LIBOR Revolving Credit Loans is
specified in any such notice, then the Borrower shall be deemed to have selected
an Interest Period of one month's duration. If the Borrower shall not have given
notice in accordance with this Section 2.5 of its election to refinance a
Revolving Credit Borrowing prior to the end of the Interest Period in effect for
such Borrowing, then the Borrower shall (unless such Borrowing is repaid at the
end of such Interest Period) be deemed to have given notice of an election to
refinance such Borrowing with an ABR Borrowing. The Administrative Agent shall
promptly advise the Lenders of any notice given pursuant to this Section 2.5 and
of each such Lender's portion of the requested Revolving Credit Borrowing.
<PAGE>
SECTION 2.6. Refinancings.
The Borrower may refinance all or any part of any Borrowing made by it with
a Borrowing of the same or a different Interest Rate Type made pursuant to
Section 2.4 or pursuant to a notice under Section 2.5, subject to the conditions
and limitations set forth herein and elsewhere in this Agreement, including
refinancings of Competitive Borrowings with Revolving Credit Borrowings in
Dollars and Revolving Credit Borrowings in Dollars with Competitive Borrowings;
provided that at any time after the occurrence, and during the continuation, of
a Default or an Event of Default, a Revolving Credit Borrowing of Dollars or
portion thereof may only be refinanced with an ABR Borrowing. Any Borrowing or
part thereof so refinanced shall be deemed to be repaid in accordance with
Section 2.8 with the proceeds of a new Borrowing hereunder and the proceeds of
the new Borrowing, to the extent they do not exceed the principal amount of the
Borrowing being refinanced, shall not be paid by the applicable Lenders to the
Administrative Agent or by the Administrative Agent to the Borrower pursuant to
Section 2.2(c); provided that (a) if the principal amount extended by a Lender
in a refinancing is greater than the principal amount extended by such Lender in
the Borrowing being refinanced, then such Lender shall pay such difference to
the Administrative Agent for distribution to the Lenders described in clause (b)
below, (b) if the principal amount extended by a Lender in the Borrowing being
refinanced is greater than the principal amount being extended by such Lender in
the refinancing, the Administrative Agent shall return the difference to such
Lender out of amounts received pursuant to clause (a) above, and (c) to the
extent any Lender fails to pay the Administrative Agent amounts due from it
pursuant to clause (a) above, any Loan or portion thereof being refinanced with
such amounts shall not be deemed repaid in accordance with Section 2.8 and, to
the extent of such failure, the Borrower shall pay such amount to the
Administrative Agent as required by Section 2.10; and (d) to the extent the
Borrower fails to pay to the Administrative Agent any amounts due in accordance
with Section 2.8 as a result of the failure of a Lender to pay the
Administrative Agent any amounts due as described in clause (c) above, the
portion of any refinanced Loan deemed not repaid shall be deemed to be
outstanding solely to the Lender which has failed to pay the Administrative
Agent amounts due from it pursuant to clause (a) above to the full extent of
such Lender's portion of such Loan.
SECTION 2.7. Fees.
(a) The Borrower agrees to pay to each Lender, through the Administrative
Agent, on each March 31, June 30, September 30 and December 31, and on the date
on which the Commitment of such Lender shall be terminated as provided herein, a
facility fee (a "Facility Fee",) at the rate per annum from time to time in
effect in accordance with Section 2.22, on the amount of the Commitment of such
Lender, whether used or unused, during the preceding quarter (or shorter period
commencing with the Closing Date, or ending with the Maturity Date or any date
on which the Commitment of such Lender shall be terminated). All Facility Fees
shall be computed on the basis of the actual number of days elapsed in a year of
360 days. The Facility Fee due to each Lender shall commence to accrue on the
Original Closing Date, shall be payable in arrears and shall cease to accrue on
the earlier of the Maturity Date and the termination of the Commitment of such
Lender as provided herein.
<PAGE>
(b) The Borrower agrees to pay to each Lender, through the Administrative
Agent, on each March 31, June 30, September 30 and December 31, and on each date
on which the Commitment of such Lender shall be terminated as provided herein ,
a utilization fee (a "Utilization Fee") at a rate per annum equal to .125% for
each day on which the Commitment Utilization Percentage exceeds 33%, which fee
shall accrue on the daily amount of the Commitment of such Lender (whether used
or unused) for each Excess Utilization Day during the period from and including
the Closing Date to but excluding the date on which such Commitment terminates;
provided that, if such Lender continues to have any outstanding Loans after its
Commitment terminates, then such Utilization Fee shall continue to accrue on the
daily aggregate principal amount of such Lender's Loans for each Excess
Utilization Day from and including the date on which its Commitment terminates
to but excluding the date on which such Lender ceases to have any outstanding
Loans. All Utilization Fees shall be computed on the basis of the actual number
of days elapsed in a year of 360 days and shall be payable in arrears.
(c) The Borrower agrees to pay the Administrative Agent, for its own
account, the fees at the times and in the amounts provided for in the letter
agreement dated February 25, 2000 among the Borrower, Chase and Chase Securities
Inc.
(d) All fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders. Once paid, none of the fees shall be refundable under any
circumstances.
SECTION 2.8. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Revolving Credit Loan of such Lender on the Maturity Date (or
such earlier date on which the Revolving Credit Loans become due and payable
pursuant to Article 7); provided that the Revolving Credit Loans made by
Objecting Lenders shall be repaid as provided in Section 2.25. The Borrower
hereby further agrees to pay to the Administrative Agent interest on the unpaid
principal amount of the Revolving Credit Loans from time to time outstanding
from the date hereof until payment in full thereof at the rates per annum, and
on the dates, set forth in Section 2.9.
(b) The Borrower unconditionally promises to pay to the Administrative
Agent, for the account of each Lender that makes a Competitive Loan, on the last
day of the Interest Period applicable to such Competitive Loan, the principal
amount of such Competitive Loan. The Borrower further unconditionally promises
to pay interest on each such Competitive Loan for the period from and including
the date of Borrowing of such Competitive Loan on the unpaid principal amount
thereof from time to time outstanding at the applicable rate per annum
determined as provided in, and payable as specified in, Section 2.9.
(c) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such
<PAGE>
Lender from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time under this Agreement.
(d) The Administrative Agent shall maintain the Register pursuant to
Section 9.3(e), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, the Interest Rate Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(e) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.8(c) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided that the failure of any
Lender or the Administrative Agent to maintain the Register or any such account,
or any error therein, shall not in any manner affect the obligation of the
Borrower to repay (with applicable interest) the Loans made to the Borrower by
such Lender in accordance with the terms of this Agreement.
(f) The Borrower agrees that, upon the request to the Administrative Agent
by any Lender, the Borrower will execute and deliver to such Lender a promissory
note of the Borrower evidencing the Revolving Credit Loans of such Lender,
substantially in the form of Exhibit A-1 with appropriate insertions as to date
and principal amount (a "Revolving Credit Note").
(g) The Borrower agrees that, upon the request to the Administrative Agent
by any Lender, the Borrower will execute and deliver to such Lender a promissory
note of the Borrower evidencing the Competitive Loans of such Lender,
substantially in the form of Exhibit A-2 with appropriate insertions as to date,
principal amount and Currency (a "Competitive Note").
SECTION 2.9. Interest on Loans.
(a) Subject to the provisions of Section 2.10, the Loans comprising each
LIBOR Borrowing shall bear interest (computed on the basis of the actual number
of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the
case of each LIBOR Revolving Credit Loan, LIBOR for the Interest Period in
effect for such Borrowing plus the applicable LIBOR Spread from time to time in
effect and (ii) in the case of each LIBOR Competitive Loan, LIBOR for the
Interest Period in effect for such Borrowing plus or minus the Margin offered by
the Lender making such Loan and accepted by the Borrower pursuant to Section
2.4. Interest on each LIBOR Borrowing shall be payable on each applicable
Interest Payment Date.
(b) Subject to the provisions of Section 2.10, the Loans comprising each
ABR Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be when determined
by reference to the Prime Rate and over a year of 360 days at all other times)
at a rate per annum equal to the Alternate Base Rate plus the applicable margin
therefor from time to time in effect in accordance with Section 2.22.
<PAGE>
(c) Subject to the provisions of Section 2.10, each Fixed Rate Loan shall
bear interest at a rate per annum (computed on the basis of the actual number of
days elapsed over a year of 360 days) equal to the fixed rate of interest
offered by the Lender making such Loan and accepted by the Borrower pursuant to
Section 2.4.
(d) Interest on each Loan shall be payable in arrears on each Interest
Payment Date applicable to such Loan. The LIBOR or the Alternate Base Rate for
each Interest Period or day within an Interest Period shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.
SECTION 2.10. Interest on Overdue Amounts.
If the Borrower shall default in the payment of the principal of, or
interest on, any Loan or any other amount becoming due hereunder, the Borrower
shall on demand from time to time pay interest, to the extent permitted by
Applicable Law, on such defaulted amount up to (but not including) the date of
actual payment (after as well as before judgment) at a rate per annum computed
on the basis of the actual number of days elapsed over a year of 365 or 366
days, as applicable, in the case of amounts bearing interest determined by
reference to the Prime Rate and a year of 360 days in all other cases, equal to
(a) in the case of the remainder of the then current Interest Period for any
LIBOR Loan or Fixed Rate Loan, the rate applicable to such Loan under Section
2.9 plus 2% per annum and (b) in the case of any other amount, the rate that
would at the time be applicable to an ABR Loan under Section 2.9 plus 2% per
annum plus the applicable margin for ABR Loans in effect from time to time in
accordance with Section 2.22.
SECTION 2.11. Alternate Rate of Interest.
In the event the Administrative Agent shall have determined that deposits
in Dollars or the applicable Available Foreign Currency in the amount of the
requested principal amount of any LIBOR Loan are not generally available in the
London Interbank Market (or such other interbank eurocurrency market where the
foreign currency and exchange operations in respect of Dollars or such
applicable Available Foreign Currency, as the case may be, are then being
conducted for delivery on the first day of such Interest Period), or that the
rate at which such deposits are being offered will not adequately and fairly
reflect the cost to any Lender of making or maintaining its portion of such
LIBOR Loans during such Interest Period, or that reasonable means do not exist
for ascertaining LIBOR, the Administrative Agent shall, as soon as practicable
thereafter, give written or telecopier notice of such determination to the
Borrower and the Lenders. In the event of any such determination, until the
Administrative Agent shall have determined that circumstances giving rise to
such notice no longer exist, (a) any request by the Borrower for a LIBOR
Competitive Borrowing pursuant to Section 2.4 shall be of no force and effect
and shall be denied by the Administrative Agent and (b) any request by the
Borrower for a LIBOR Borrowing pursuant to Section 2.5 shall be deemed to be a
request for an ABR Loan. Each determination by the Administrative Agent
hereunder shall be conclusive absent manifest error.
<PAGE>
SECTION 2.12. Termination and Reduction of Commitments.
(a) The Commitments of all of the Lenders shall be automatically terminated
on the Maturity Date.
(b) Subject to Section 2.13(b), upon at least three Business Days' prior
irrevocable written or telecopy notice to the Administrative Agent (which shall
promptly notify each Lender), the Borrower may at any time in whole permanently
terminate, or from time to time in part permanently reduce, the Total
Commitment; provided that (i) each partial reduction shall be in an integral
multiple of $1,000,000 and in a minimum principal amount of $10,000,000 and (ii)
the Borrower shall not be entitled to make any such termination or reduction
that would reduce the Total Commitment to an amount less than the sum of the
aggregate outstanding principal Dollar Equivalent Amount of the Loans plus the
then current L/C Exposure.
(c) Each reduction in the Total Commitment hereunder shall be made ratably
among the Lenders in accordance with their respective Commitments. The Borrower
shall pay to the Administrative Agent for the account of the Lenders on the date
of each termination or reduction in the Total Commitment, the Facility Fees and
Utilization Fees on the amount of the Commitments so terminated or reduced
accrued to the date of such termination or reduction.
SECTION 2.13. Prepayment of Loans.
(a) Prior to the Maturity Date, the Borrower shall have the right at any
time to prepay any Revolving Credit Borrowing, in whole or in part, subject to
the requirements of Section 2.17 but otherwise without premium or penalty, upon
prior written or telecopy notice to the Administrative Agent (which shall
promptly notify each Lender) before 2:00 p.m. New York City time of at least one
Business Day in the case of an ABR Loan and of at least three Working Days in
the case of a LIBOR Loan; provided that each such partial prepayment shall be in
a minimum aggregate principal Dollar Equivalent Amount of $1,000,000 or a whole
multiple in excess thereof. The Borrower shall not have the right to prepay any
Competitive Borrowing without the consent of the relevant Lender.
(b) On any date when the sum of the Dollar Equivalent Amount of the
aggregate outstanding Loans (after giving effect to any Borrowings effected on
such date) plus the then current L/C Exposure exceeds the Total Commitment, the
Borrower shall make a mandatory prepayment of the Loans in such amount as may be
necessary so that the Dollar Equivalent Amount of the aggregate amount of
outstanding Loans plus the then current L/C Exposure after giving effect to such
prepayment does not exceed the Total Commitment then in effect. Any prepayments
required by this paragraph shall be applied to outstanding ABR Loans up to the
full amount thereof before they are applied to outstanding LIBOR Loans.
(c) Each notice of prepayment pursuant to this Section 2.13 shall specify
the specific Borrowing(s), the prepayment date and the aggregate principal
amount of each Borrowing to be prepaid, shall be irrevocable and shall commit
the Borrower to prepay such Borrowing(s) by the
<PAGE>
amount stated therein. All prepayments under this Section 2.13 shall be
accompanied by accrued interest on the principal amount being prepaid to the
date of prepayment and any amounts due pursuant to Section 2.17.
SECTION 2.14. Eurocurrency Reserve Costs.
The Borrower shall pay to the Administrative Agent for the account of each
Lender, so long as such Lender shall be required under regulations of the Board
to maintain reserves with respect to liabilities or assets consisting of, or
including, Eurocurrency Liabilities (as defined in Regulation D of the Board)
(or, at any time when such Lender may be required by the Board or by any other
Governmental Authority, whether within the United States or in another relevant
jurisdiction, to maintain reserves against any other category of liabilities
which includes deposits by reference to which LIBOR is determined as provided in
this Agreement or against any category of extensions of credit or other assets
of such Lender which includes any such LIBOR Loans), additional interest on the
unpaid principal amount of each LIBOR Loan made to the Borrower by such Lender,
from the date of such Loan until such Loan is paid in full, at an interest rate
per annum equal at all times during the Interest Period for such Loan to the
remainder obtained by subtracting (i) LIBOR for such Interest Period from (ii)
the rate obtained by multiplying LIBOR as referred to in clause (i) above by the
Statutory Reserves of such Lender for such Interest Period. Such additional
interest shall be determined by such Lender and notified to the Borrower (with a
copy to the Administrative Agent) not later than five Business Days before the
next Interest Payment Date for such Loan, and such additional interest so
notified to the Borrower by any Lender shall be payable to the Administrative
Agent for the account of such Lender on each Interest Payment Date for such
Loan.
SECTION 2.15. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement any change in Applicable Law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) (i) shall subject any Lender to, or increase the net amount of, any tax,
levy, impost, duty, charge, fee, deduction or withholding with respect to any
Loan, or shall change the basis of taxation of payments to any Lender of the
principal of or interest on any Loan made by such Lender or any other fees or
amounts payable hereunder (other than (x) taxes imposed on the overall net
income of such Lender by the jurisdiction in which such Lender has its principal
office or its applicable Lending Office or by any political subdivision or
taxing authority therein (or any tax which is enacted or adopted by such
jurisdiction, political subdivision or taxing authority as a direct substitute
for any such taxes) or (y) any tax, assessment, or other governmental charge
that would not have been imposed but for the failure of any Lender to comply
with any certification, information, documentation or other reporting
requirement), (ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender, or (iii) shall impose on any
Lender or eurocurrency market any other condition affecting this Agreement or
any Loan made by such Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Loan or to reduce
the amount of any sum received or
<PAGE>
receivable by such Lender hereunder (whether of principal, interest or
otherwise) in respect thereof by an amount deemed in good faith by such Lender
to be material, then the Borrower shall pay such additional amount or amounts as
will compensate such Lender for such increase or reduction to such Lender upon
demand by such Lender.
(b) If, after the date of this Agreement, any Lender shall have determined
in good faith that the adoption after the date hereof of or any change after the
date hereof in any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change in the interpretation or administration thereof
by any Governmental Authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender (or
any Lending Office of such Lender) with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on the capital
of such Lender's holding company, if any, as a consequence of its obligations
hereunder to a level below that which such Lender (or its holding company) could
have achieved but for such applicability, adoption, change or compliance (taking
into consideration such Lender's policies or the policies of its holding
company, as the case may be, with respect to capital adequacy) by an amount
deemed by such Lender to be material, then, from time to time, the Borrower
shall pay to the Administrative Agent for the account of such Lender (or its
holding company) such additional amount or amounts as will compensate such
Lender for such reduction upon demand by such Lender.
(c) A certificate of a Lender setting forth in reasonable detail (i) such
amount or amounts as shall be necessary to compensate such Lender as specified
in paragraph (a) or (b) above, as the case may be, and (ii) the calculation of
such amount or amounts referred to in the preceding clause (i), shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay the Administrative Agent for the account of such Lender the
amount shown as due on any such certificate within 10 Business Days after its
receipt of the same.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any Interest Period shall not constitute a
waiver of such Lender's rights to demand compensation for any increased costs or
reduction in amounts received or receivable or reduction in return on capital
with respect to such Interest Period or any other Interest Period. The
protection of this Section 2.15 shall be available to each Lender regardless of
any possible contention of invalidity or inapplicability of the law, regulation
or condition which shall have been imposed.
(e) Each Lender agrees that, as promptly as practicable after it becomes
aware of the occurrence of an event or the existence of a condition that (i)
would cause it to incur any increased cost under this Section 2.15, Section
2.16, Section 2.21 or Section 2.24(g) or (ii) would require the Borrower to pay
an increased amount under this Section 2.15, Section 2.16, Section 2.21 or
Section 2.24(g), it will use reasonable efforts to notify the Borrower of such
event or condition and, to the extent not inconsistent with such Lender's
internal policies, will use its reasonable efforts to make, fund or maintain the
affected Loans of such Lender, or, if applicable to participate in Letters of
Credit,
<PAGE>
through another Lending Office of such Lender if as a result thereof the
additional monies which would otherwise be required to be paid or the reduction
of amounts receivable by such Lender thereunder in respect of such Loans or
Letters of Credit would be materially reduced, or any inability to perform would
cease to exist, or the increased costs which would otherwise be required to be
paid in respect of such Loans or Letters of Credit pursuant to this Section
2.15, Section 2.16, Section 2.21 or Section 2.24(g) would be materially reduced
or the taxes or other amounts otherwise payable under this Section 2.15, Section
2.16, Section 2.21 or Section 2.24(g) would be materially reduced, and if, as
determined by such Lender, in its sole reasonable discretion, the making,
funding or maintaining of such Loans or Letters of Credit through such other
Lending Office would not otherwise materially adversely affect such Loans or
Letters of Credit or such Lender.
(f) In the event any Lender shall have delivered to the Borrower a notice
that LIBOR Loans are no longer available from such Lender pursuant to Section
2.16, that amounts are due to such Lender pursuant to paragraph (c) above, that
any of the events designated in paragraph (e) above have occurred or that a
Lender shall not be rated at least BBB by S&P and Baa2 by Moody's, the Borrower
may (but subject in any such case to the payments required by Section 2.17),
provided that there shall exist no Default or Event of Default, upon at least
five Business Days' prior written or telecopier notice to such Lender and the
Administrative Agent, but not more than 30 days after receipt of notice from
such Lender, identify to the Administrative Agent a lending institution
reasonably acceptable to the Administrative Agent which will purchase the
Commitment, the amount of outstanding Loans and any participations in Letters of
Credit from the Lender providing such notice and such Lender shall thereupon
assign its Commitment, any Loans owing to such Lender and any participations in
Letters of Credit and the Notes held by such Lender to such replacement lending
institution pursuant to Section 9.3. Such notice shall specify an effective date
for such assignment and at the time thereof, the Borrower shall pay all accrued
interest, Facility Fees, Utilization Fees and all other amounts (including
without limitation all amounts payable under this Section and Sections 2.21,
2.24(g), 9.4 and 9.5) owing hereunder to such Lender as at such effective date
for such assignment.
SECTION 2.16. Change in Legality.
(a) Notwithstanding anything to the contrary herein contained, if any
change in any law or regulation or in the interpretation thereof by any
Governmental Authority charged with the administration or interpretation thereof
shall make it unlawful for any Lender to make or maintain any LIBOR Loan or to
give effect to its obligations as contemplated hereby, then, by written notice
to the Borrower and to the Administrative Agent, such Lender may:
(i) declare that LIBOR Loans will not thereafter be made by such Lender
hereunder, whereupon such Lender shall not submit a Competitive Bid in
response to a request for LIBOR Competitive Loans and the Borrower shall be
prohibited from requesting LIBOR Revolving Credit Loans from such Lender
hereunder unless such declaration is subsequently withdrawn; and
<PAGE>
(ii) require that all outstanding LIBOR Loans made by it be converted
to ABR Loans, in which event (A) all such LIBOR Loans shall be automatically
converted to ABR Loans as of the effective date of such notice as provided in
Section 2.16(b) and (B) all payments and prepayments of principal which would
otherwise have been applied to repay the converted LIBOR Loans shall instead
be applied to repay the ABR Loans resulting from the conversion of such LIBOR
Loans.
(b) For purposes of this Section 2.16, a notice to the Borrower by any
Lender pursuant to Section 2.16(a) shall be effective on the date of receipt
thereof by the Borrower.
SECTION 2.17. Reimbursement of Lenders.
(a) The Borrower shall reimburse each Lender on demand for any loss
incurred or to be incurred by it in the reemployment of the funds released (i)
by any prepayment (for any reason, including any refinancing) of any LIBOR or
Fixed Rate Loan if such Loan is repaid other than on the last day of the
applicable Interest Period for such Loan or (ii) in the event that after the
Borrower delivers a notice of borrowing under Section 2.5 in respect of LIBOR
Revolving Credit Loans or a Competitive Bid Accept/Reject Letter under Section
2.4(d), pursuant to which it has accepted Competitive Bids of one or more of the
Lenders, the applicable Loan is not made on the first day of the Interest Period
specified by the Borrower for any reason other than (I) a suspension or
limitation under Section 2.16 of the right of the Borrower to select a LIBOR
Loan or (II) a breach by a Lender of its obligations hereunder. In the case of
such failure to borrow, such loss shall be the amount as reasonably determined
by such Lender as the excess, if any, of (A) the amount of interest which would
have accrued to such Lender on the amount not borrowed, at a rate of interest
equal to the interest rate applicable to such Loan pursuant to Section 2.9, for
the period from the date of such failure to borrow to the last day of the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow, over (B) the amount realized by such Lender in reemploying
the funds not advanced during the period referred to above. In the case of a
payment other than on the last day of the Interest Period for a Loan, such loss
shall be the amount as the excess, if any, of (A) the amount of interest which
would have accrued on the amount so paid at a rate of interest equal to the
interest rate applicable to such Loan pursuant to Section 2.9, for the period
from the date of such payment to the last day of the then current Interest
Period for such Loan, over (B) an amount equal to the product of (x) the amount
of the Loan so paid times (y) the current daily yield on U.S. Treasury
Securities (at such date of determination) with maturities approximately equal
to the remaining Interest Period for such Loan times (z) the number of days
remaining in the Interest Period for such Loan. Each Lender shall deliver to the
Borrower from time to time one or more certificates setting forth the amount of
such loss (and in reasonable detail the manner of computation thereof) as
determined by such Lender, which certificates shall be conclusive absent
manifest error. The Borrower shall pay to the Administrative Agent for the
account of each Lender the amount shown as due on any certificate within thirty
(30) days after its receipt of the same.
(b) In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.13(a), the
Borrower on demand by any Lender shall
<PAGE>
pay to the Administrative Agent for the account of such Lender any amounts
required to compensate such Lender for any loss incurred by such Lender as a
result of such failure to prepay, including, without limitation, any loss, cost
or expenses incurred by reason of the acquisition of deposits or other funds by
such Lender to fulfill deposit obligations incurred in anticipation of such
prepayment. Each Lender shall deliver to the Borrower and the Administrative
Agent from time to time one or more certificates setting forth the amount of
such loss (and in reasonable detail the manner of computation thereof) as
determined by such Lender, which certificates shall be conclusive absent
manifest error.
SECTION 2.18. Pro Rata Treatment.
Except as permitted under Sections 2.14, 2.15(c), 2.15(f), 2.16, 2.17, 2.25
and 4.1(g), (i) each Revolving Credit Borrowing, each payment or prepayment of
principal of any Revolving Credit Borrowing, each payment of interest on the
Revolving Credit Loans, each payment of the Facility Fees, each payment of the
Utilization Fees, each reduction of the Total Commitment and each refinancing of
any Borrowing with, or conversion of any Borrowing to, a Revolving Credit
Borrowing, or continuation of any Borrowing as a Revolving Credit Borrowing,
shall be allocated pro rata among the Lenders in accordance with their
respective Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amount of their
outstanding Revolving Credit Loans). Each payment of principal of any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective principal
amounts of their outstanding Competitive Loans comprising such Borrowing. Each
payment of interest on any Competitive Borrowing shall be allocated pro rata
among the Lenders participating in such Borrowing in accordance with the
respective amounts of accrued and unpaid interest on their outstanding
Competitive Loans comprising such Borrowing. For purposes of determining the
available Commitments of the Lenders at any time, each outstanding Competitive
Borrowing shall be deemed to have utilized the Commitments of the Lenders
(including those Lenders that shall not have made Loans as part of such
Competitive Borrowing) pro rata in accordance with such respective Commitments.
Each Lender agrees that in computing such Lender's portion of any Borrowing to
be made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing computed in accordance with Section 2.1,
to the next higher or lower whole Dollar amount.
SECTION 2.19. Right of Setoff.
If any Event of Default shall have occurred and be continuing and any
Lender shall have requested the Administrative Agent to declare the Loans
immediately due and payable pursuant to Article 7, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
Applicable Law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by such Lender and any
other indebtedness at any time owing by such Lender to, or for the credit or the
account of, the Borrower, against any of and all the obligations now or
hereafter existing under this Agreement and the Loans and interests in Letters
of Credit held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement or such Loans and although such
Obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
after any such setoff and application made by such Lender, but
<PAGE>
the failure to give such notice shall not affect the validity of such setoff and
application. The rights of each Lender under this Section 2.19 are in addition
to other rights and remedies (including other rights of setoff) which such
Lender may have and are subject to the provisions of Section 8.2.
SECTION 2.20. Manner of Payments.
All payments by the Borrower hereunder and under the Notes shall be made in
Dollars in immediately available funds, without setoffs, deductions or
counterclaims, at the office of the Administrative Agent's Agent Bank Services
Department, One Chase Manhattan Plaza, New York, New York 10081, Attention:
Maggie Swales, for credit to PHH Corporation Clearing Account, Account No.
323-5-11260 (Reference: PHH Corporation Credit Agreement dated March 4, 1997) or
as otherwise directed by the Borrower (with the consent of the Administrative
Agent, which consent shall not be unreasonably withheld) no later than 4:30
p.m., New York City time, on the date on which such payment shall be due.
Interest in respect of any Loan hereunder shall accrue from and including the
date of such Loan to, but excluding, the date on which such Loan is paid or
refinanced with a Loan of a different Interest Rate Type.
SECTION 2.21. Withholding Taxes.
(a) Prior to the date of the initial Loans hereunder, and from time to time
thereafter if requested by the Borrower or the Administrative Agent or required
because, as a result of a change in Applicable Law or a change in circumstances
or otherwise, a previously delivered form or statement becomes incomplete or
incorrect in any material respect, each Lender organized under the laws of a
jurisdiction outside the United States shall provide, if applicable, the
Administrative Agent and the Borrower with complete, accurate and duly executed
forms or other statements prescribed by a Governmental Authority certifying such
Lender's exemption, if any, from, or entitlement to a reduced rate, if any, of,
withholding taxes (including backup withholding taxes) with respect to all
payments to be made to such Lender hereunder and under the Notes.
(b) The Borrower and the Administrative Agent shall be entitled to deduct
and withhold any and all present or future taxes or withholdings, and all
liabilities with respect thereto, from payments hereunder or under the Notes, if
and to the extent that the Borrower or the Administrative Agent in good faith
determines that such deduction or withholding is required by Applicable Law,
including, without limitation, any applicable treaty. In the event the Borrower
or the Administrative Agent shall so determine that deduction or withholding of
taxes is required, it shall advise the affected Lender as to the basis of such
determination prior to actually deducting and withholding such taxes. In the
event the Borrower or the Administrative Agent shall so deduct or withhold taxes
from amounts payable hereunder, it (i) shall pay to or deposit with the
appropriate taxing authority in a timely manner the full amount of taxes it has
deducted or withheld; (ii) shall provide evidence of payment of such taxes to,
or the deposit thereof with, the appropriate taxing authority and a statement
setting forth the amount of taxes deducted or withheld, the applicable rate, and
any other information or documentation reasonably requested by the Lenders from
whom the taxes were deducted or withheld; and (iii) shall forward to such
Lenders any receipt for such payment or deposit of the deducted or withheld
taxes as
<PAGE>
may be issued from time to time by the appropriate taxing authority. Unless the
Borrower and the Administrative Agent have received forms or other documents
satisfactory to them indicating that payments hereunder or under the Notes are
not subject to withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty, the Borrower or the Administrative Agent may withhold
taxes from such payments at the applicable statutory rate in the case of
payments to or for any Lender.
(c) Each Lender agrees (i) that as between it and the Borrower or the
Administrative Agent, it shall be the Person to deduct and withhold taxes, and
to the extent required by law it shall deduct and withhold taxes, on amounts
that such Lender may remit to any other Person(s) by reason of any undisclosed
transfer or assignment of an interest in this Agreement to such other Person(s)
pursuant to paragraph (g) of Section 9.3 and (ii) to indemnify the Borrower and
the Administrative Agent and any of their officers, directors, agents, or
employees against, and to hold them harmless from, any tax, interest, additions
to tax, penalties, reasonable counsel and accountants' fees, disbursements or
payments arising from the assertion by any appropriate taxing authority of any
claim against them relating to a failure to withhold taxes as required by
Applicable Law with respect to amounts described in clause (i) of this paragraph
(c).
(d) Each assignee of a Lender's interest in this Agreement in conformity
with Section 9.3 shall be bound by this Section 2.21, so that such assignee will
have all of the obligations and provide all of the forms and statements and all
indemnities, representations and warranties required to be given under this
Section 2.21.
(e) In the event that any withholding taxes shall become payable as a
result of any change in any statute, treaty, ruling, determination or regulation
occurring after the Initial Date (as defined below) in respect of any sum
payable hereunder or under any other Fundamental Document to any Lender or the
Administrative Agent (i) the sum payable by the Borrower shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.21) such
Lender or the Administrative Agent (as the case may be) receives an amount equal
to the sum it would have received had no such deductions been made, (ii) the
Borrower, the Lender or the Administrative Agent (as the case may be) shall make
such deductions and (iii) the Borrower, the Lender or the Administrative Agent
(as the case may be) shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with Applicable Law. For purposes of
this Section 2.21, the term "Initial Date" shall mean (i) in the case of the
Administrative Agent, the date hereof, (ii) in the case of each Lender as of the
date hereof, the date hereof and (iii) in the case of any other Lender, the
effective date of the Assignment and Acceptance pursuant to which it became a
Lender.
SECTION 2.22. Certain Pricing Adjustments.
The Facility Fee and the applicable LIBOR Spread in effect from time to
time shall be determined in accordance with the following table:
<PAGE>
S&P/Moody's Rating
Equivalent of the Facility Fee Applicable
Borrower's senior (in Basis LIBOR Spread
unsecured long-term debt Points) (in Basis Points)
- ------------------------ ------- -----------------
A/A2 or better 10.0 27.5
A-/A3 12.5 37.5
BBB+/Baa1 15.0 47.5
BBB/Baa2 17.5 57.5
BBB-/Baa3 22.5 65.0
BB+/Ba1 or worse 37.5 112.5
In the event the S&P rating on the Borrower's senior unsecured long-term
debt is not equivalent to the Moody's rating on such debt, the higher rating
will determine the Facility Fee and applicable LIBOR Spread, unless the S&P and
Moody's ratings are more than one level apart, in which case the rating one
level below the higher rating will be determinative. In the event that the
Borrower's senior unsecured long-term debt is rated by only one of S&P and
Moody's (for any reason, including if S&P or Moody's shall cease to be in the
business of rating corporate debt obligations) or if the rating system of either
S&P or Moody's shall change, then an amendment shall be negotiated in good faith
(and shall be effective only upon approval by the Borrower and the Supermajority
Lenders) to the references to specific ratings in the table above to reflect
such changed rating system or the unavailability of ratings from such rating
agency (including an amendment to provide for the substitution of an equivalent
or successor ratings agency). In the event that the Borrower's senior unsecured
long-term debt is not rated by either S&P or Moody's, then the Facility Fee and
the applicable LIBOR Spread shall be deemed to be calculated as if the lowest
rating category set forth above applied. Any increase in the Facility Fee or the
applicable LIBOR Spread determined in accordance with the foregoing table shall
become effective on the date of announcement or publication by the Borrower or
the applicable rating agency of a reduction in such rating or, in the absence of
such announcement or publication, on the effective date of such decreased
rating, or on the date of any request by the Borrower to either rating agency
not to rate its senior unsecured long-term debt or on the date either of such
rating agencies announces it shall no longer rate the Borrower's senior
unsecured long-term debt. Any decrease in the Facility Fee or applicable LIBOR
Spread shall be effective on the date of announcement or publication by either
of such rating agencies of an increase in rating or in the absence of
announcement or publication on the effective date of such increase in rating.
The applicable margin for ABR Loans shall be 1% less than the applicable LIBOR
Spread (but not less than 0%).
SECTION 2.23. [Intentionally Deleted.]
<PAGE>
SECTION 2.24. Letters of Credit.
(a) (i) Upon the terms and subject to the conditions hereof, each Issuing
Lender agrees to issue Letters of Credit payable in Dollars from time to time
after the Original Closing Date and prior to the earlier of the Maturity Date
and the termination of the Commitments, upon the request of the Borrower,
provided that (A) the Borrower shall not request that any Letter of Credit be
issued if, after giving effect thereto, the sum of the then current L/C Exposure
plus the aggregate principal Dollar Equivalent Amount of the Loans then
outstanding would exceed the Total Commitment, (B) in no event shall any Issuing
Lender issue (x) any Letter of Credit having an expiration date later than five
Business Days before the Maturity Date or (y) any Letter of Credit having an
expiration date more than one year after its date of issuance, provided,
further, that any Letter of Credit with a 365-day duration may provide for the
renewal thereof for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (x) above), (C) the Borrower shall not
request that an Issuing Lender issue any Letter of Credit if, after giving
effect to such issuance, the L/C Exposure would exceed $100,000,000, and (D) an
Issuing Lender shall be prohibited from issuing or renewing Letters of Credit
hereunder upon the occurrence and during the continuance of a Default or an
Event of Default.
(ii) Immediately upon the issuance of each Letter of Credit, each
Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from
the applicable Issuing Lender, a participation in such Letter of Credit in
accordance with the percentage which its Commitment represents of the Total
Commitment.
(iii) Each Letter of Credit may, at the option of the applicable
Issuing Lender, provide that such Issuing Lender may (but shall not be required
to) pay all or any part of the maximum amount which may at any time be available
for drawing thereunder to the beneficiary thereof upon the occurrence of an
Event of Default and the acceleration of the maturity of the Loans, provided
that, if payment is not then due to such beneficiary, such Issuing Lender shall
deposit the funds in question in an account with such Issuing Lender to secure
payment to such beneficiary and any funds so deposited shall be paid to such
beneficiary of such Letter of Credit if conditions to such payment are satisfied
or returned to the Administrative Agent for distribution to the Lenders (or, if
all Obligations shall have been paid in full in cash, to the Borrower) if no
payment to such beneficiary has been made and the final date available for
drawings under such Letter of Credit has passed. Each payment or deposit of
funds by an Issuing Lender as provided in this paragraph shall be treated for
all purposes of this Agreement as a drawing duly honored by such Issuing Lender
under the related Letter of Credit.
(b) Whenever the Borrower desires the issuance of a Letter of Credit, it
shall deliver to the Administrative Agent and the applicable Issuing Lender a
written notice no later than 1:00 p.m. (New York time) at least five Business
Days prior to the proposed date of issuance provided, however, that the Borrower
and the Administrative Agent and such Issuing Lender may agree to a shorter time
period. That notice shall specify (i) the Issuing Lender for such Letter of
Credit, (ii) the proposed date of issuance (which shall be a Business Day),
(iii) the face amount of such Letter of Credit, (iv) the expiration date of such
Letter of Credit and (v) the name and address of the beneficiary. Such notice
shall be accompanied by a brief description of the underlying transaction and
upon the request of the
<PAGE>
applicable Issuing Lender, the Borrower shall provide additional details
regarding the underlying transaction. Concurrently with the giving of written
notice of a request for the issuance of a Letter of Credit, the Borrower shall
specify a precise description of the documents and the verbatim text of any
certificate to be presented by the beneficiary of such Letter of Credit which,
if presented by such beneficiary prior to the expiration date of such Letter of
Credit, would require the applicable Issuing Lender to make payment under such
Letter of Credit; provided that the applicable Issuing Lender, in its reasonable
discretion, may require customary changes in any such documents and
certificates. Upon issuance of any Letter of Credit, the applicable Issuing
Lender shall notify the Administrative Agent of the issuance of such Letter of
Credit. Promptly after receipt of such notice, the Administrative Agent shall
notify each Lender of the issuance and the amount of each such Lender's
respective participation therein.
(c) The payment of drafts under any Letter of Credit shall be made in
accordance with the terms of such Letter of Credit and, in that connection, any
Issuing Lender shall be entitled to honor any drafts and accept any documents
presented to it by the beneficiary of such Letter of Credit in accordance with
the terms of such Letter of Credit and believed by such Issuing Lender in good
faith, and in the absence of gross negligence or willful misconduct, to be
genuine. No Issuing Lender shall have any duty to inquire as to the accuracy or
authenticity of any draft or other drawing documents which may be presented to
it, but shall be responsible only to determine in accordance with customary
commercial practices, and in the absence of gross negligence or willful
misconduct, that the documents which are required to be presented before payment
or acceptance of a draft under any Letter of Credit have been delivered and that
they comply on their face with the requirements of that Letter of Credit. The
Borrower's obligations under this Section 2.24 shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim or defense to payment which the Borrower may have or have had
against any Issuing Lender, any beneficiary of a Letter of Credit or any other
Person.
(d) If any Issuing Lender shall make payment on any draft presented under a
Letter of Credit, such Issuing Lender shall give notice of such payment to the
Administrative Agent and the Lenders and each Lender hereby authorizes and
requests such Issuing Lender to advance for its account pursuant to the terms
hereof its share of such payment based upon its participation in such Letter of
Credit and agrees promptly to reimburse such Issuing Lender in immediately
available funds for the Dollar amount so advanced on its behalf. If such
reimbursement is not made by any Lender in immediately available funds on the
same day on which such Issuing Lender shall have made payment on any such draft,
such Lender shall pay interest thereon to such Issuing Lender at a rate per
annum equal to the Issuing Lender's cost of obtaining overnight funds in the New
York Federal Funds Market.
(e) In the case of any draft presented under a Letter of Credit which is
required to be paid at any time on or before the Maturity Date and provided that
the conditions specified in Section 4.2 are then satisfied, such payment shall
constitute an ABR Loan hereunder, and interest shall accrue from the date the
applicable Issuing Lender makes payment of a draft under the Letter of Credit.
If any draft is presented under a Letter of Credit and (i) the conditions
specified in Section 4.2 are not satisfied or (ii) if the Commitments have been
terminated, then the Borrower will, upon demand by the
<PAGE>
Administrative Agent, pay to the applicable Issuing Lender, in immediately
available funds, the full amount of such draft.
(f) (i) The Borrower agrees to pay the following amount to each Issuing
Lender with respect to Letters of Credit issued by it hereunder:
(A) with respect to drawings made under any Letter of Credit, interest,
payable on demand, on the amount paid by such Issuing Lender in respect of
each such drawing from the date of the drawing to, but excluding, the date
such amount is reimbursed by the Borrower at a rate which is at all times
equal to 2% per annum in excess of the Alternate Base Rate plus the
applicable margin for ABR Loans from time to time in effect in accordance
with Section 2.22; provided that no such default interest shall be payable if
such reimbursement is made from the proceeds of Revolving Credit Loans
pursuant to Section 2.24(e);
(B) with respect to the issuance, amendment or transfer of each Letter of
Credit and each drawing made thereunder, documentary and processing charges
in accordance with such Issuing Lender's standard schedule for such charges
in effect at the time of such issuance, amendment, transfer or drawing, as
the case may be; and
(C) a fronting fee computed at the rate agreed to by the Borrower and the
applicable Issuing Lender, on the daily average face amount of each
outstanding Letter of Credit issued by such Issuing Lender, such fee to be
due and payable in arrears on and through the last day of each fiscal quarter
of the Borrower, on the Maturity Date and on the expiration of the last
outstanding Letter of Credit.
(ii) The Borrower agrees to pay to the Administrative Agent for
distribution to each Lender in respect of all Letters of Credit outstanding,
such Lender's pro rata share of a commission on the maximum amount available
from time to time to be drawn under such outstanding Letters of Credit
calculated at a rate per annum equal to the applicable LIBOR Spread from time to
time in effect hereunder. Such commission shall be payable in arrears on and
through the last day of each fiscal quarter of the Borrower and on the later of
the Maturity Date and the expiration of the last outstanding Letter of Credit.
(iii) Promptly upon receipt by any Issuing Lender or the Administrative
Agent (as applicable) of any amount described in clause (i)(A) or (ii) of this
Section 2.24(f), or any amount described in Section 2.24(e) previously
reimbursed to the applicable Issuing Lender by the Lenders, such Issuing Lender
or the Administrative Agent (as applicable) shall distribute to each Lender its
pro rata share of such amount. Amounts payable under clauses (i)(B) and (i)(C)
of this Section 2.24(f) shall be paid directly to the Issuing Lender and shall
be for its exclusive use.
(g) If by reason of (i) any change after the date hereof in Applicable Law,
or in the interpretation or administration thereof (including, without
limitation, any request, guideline or policy not having the force of law) by any
Governmental Authority charged with the administration or
<PAGE>
interpretation thereof, or (ii) compliance by any Issuing Lender or any Lender
with any direction, request or requirement (whether or not having the force of
law) issued after the date hereof by any Governmental Authority or monetary
authority (including any change whether or not proposed or published prior to
the date hereof), including, without limitation, Regulation D of the Board:
(A) any Issuing Lender or any Lender shall be subject to any tax, levy,
charge or withholding of any nature (other than withholding tax imposed by
the United States or any political subdivision or taxing authority thereof or
therein or any other tax, levy, charge or withholding (i) that is measured
with respect to the overall net income of such Issuing Lender or such Lender
(or is imposed in lieu of a tax on net income) or of a Lending Office of such
Issuing Lender or such Lender, and that is imposed by the United States, or
by the jurisdiction in which such Issuing Lender or such Lender is
incorporated, or in which such Lending Office is located, managed or
controlled or in which such Issuing Lender or such Lender has its principal
office (or any political subdivision or taxing authority thereof or therein)
or (ii) that is imposed solely by reason of such Issuing Lender or such
Lender failing to make a declaration of, or otherwise to establish,
non-residence, or to make any other claim for exemption, or otherwise to
comply with any certification, identification, information, documentation or
reporting requirements prescribed under the laws of the relevant
jurisdiction, in those cases where such Issuing Lender or such Lender may
properly make the declaration or claim or so establish non-residence or
otherwise comply) or to any variation thereof or to any penalty with respect
to the maintenance or fulfillment of its obligations under this Section 2.24,
whether directly or by such being imposed on or suffered by any Issuing
Lender or any Lender;
(B) any reserve, deposit or similar requirement is or shall be applicable,
imposed or modified in respect of any Letter of Credit issued by any Issuing
Lender or participations therein purchased by any Lender; or
(C) there shall be imposed on any Issuing Lender or any Lender any other
condition regarding this Section 2.24, any Letter of Credit or any
participation therein;
and the result of the foregoing is directly or indirectly to increase the cost
to any Issuing Lender or any Lender of issuing, making or maintaining any Letter
of Credit or of purchasing or maintaining any participation therein, or to
reduce the amount receivable in respect thereof by any Issuing Lender or any
Lender, then and in any such case such Issuing Lender or such Lender may, at any
time, notify the Borrower, and the Borrower shall pay on demand such amounts as
such Issuing Lender or such Lender may specify to be necessary to compensate
such Issuing Lender or such Lender for such additional cost or reduced receipt.
The determination by any Issuing Lender or any Lender, as the case may be, of
any amount due pursuant to this Section 2.24 as set forth in a certificate
setting forth the calculation thereof in reasonable detail shall, in the absence
of manifest error, be final, conclusive and binding on all of the parties
hereto.
(h) If at any time when an Event of Default shall have occurred and be
continuing, any Letters of Credit shall remain outstanding, then either the
applicable Issuing Lender(s) or the Required
<PAGE>
Lenders may, at their option, require the Borrower to deposit cash or Cash
Equivalents in a Cash Collateral Account in an amount equal to the full amount
of the L/C Exposure or to furnish other security acceptable to the
Administrative Agent and the applicable Issuing Lender(s). Any amounts so
delivered pursuant to the preceding sentence shall be applied to reimburse the
applicable Issuing Lender(s) for the amount of any drawings honored under
Letters of Credit issued by it; provided, however, that if prior to the Maturity
Date, no Event of Default is then continuing, the Administrative Agent shall
return all of such collateral relating to such deposit to the Borrower if
requested by it.
(i) If, at any time, the L/C Exposure exceeds the aggregate Commitments,
then the Required Lenders may, at their option, require the Borrower to deposit
cash or Cash Equivalents in a Cash Collateral Account in an amount sufficient to
eliminate such excess or to furnish other security for such excess acceptable to
the Administrative Agent and the Issuing Lender(s). Any amounts so delivered
pursuant to the preceding sentence shall be applied to reimburse the applicable
Issuing Lender(s) for the amount of any drawings honored under Letters of
Credit; provided that if subsequent to any such deposit such excess is reduced
to an amount less than the portion of such deposited amounts and no Default or
Event of Default is then continuing, the Borrower shall be entitled to receive
such excess collateral if requested by it.
(j) Upon the request of the Administrative Agent, each Issuing Lender shall
furnish to the Administrative Agent copies of any Letter of Credit issued by
such Issuing Lender and such related documentation as may be reasonably
requested by the Administrative Agent.
(k) Notwithstanding the termination of the Commitments and the payment of
the Loans, the obligations of the Borrower under this Section 2.24 shall remain
in full force and effect until the Administrative Agent, each Issuing Lender and
the Lenders shall have been irrevocably released from their obligations with
regard to any and all Letters of Credit.
SECTION 2.25. Extension of Maturity Date. (a) Not less than 30 days prior
to the Maturity Date then in effect, provided that no Event of Default shall
have occurred and be continuing, the Borrower may request an extension of the
Maturity Date then in effect by submitting to the Administrative Agent an
Extension Request containing the information in respect of such extension
specified in Exhibit G, which the Administrative Agent shall promptly furnish to
each Lender. Each Lender shall, within 30 days of the date of such request,
notify the Borrower and the Administrative Agent of its election to grant or not
to grant the extension as requested in such Extension Request. Notwithstanding
any provision of this Agreement to the contrary, any notice by any Lender of its
willingness to extend the Maturity Date shall be revocable by such Lender in its
sole and absolute discretion at any time prior to the date which is within 30
days of the date of such request. If the Supermajority Lenders shall approve in
writing the extension of the Maturity Date requested in such Extension Request,
the Maturity Date shall automatically and without any further action by any
Person be extended for the period specified in such Extension Request; provided
that (i) each extension pursuant to this Section 2.25 shall be for a maximum of
one year and (ii) the Commitment of any Lender which does not consent in writing
to such extension within 30 days of such request (an "Objecting Lender") shall,
unless earlier terminated in accordance with this Agreement, expire on the
<PAGE>
Maturity Date in effect on the date of such Extension Request (such Maturity
Date, if any, referred to as the "Commitment Expiration Date" with respect to
such Objecting Lender). If the Supermajority Lenders shall not approve in
writing the extension of the Maturity Date requested in an Extension Request,
the Maturity Date shall not be extended pursuant to such Extension Request. The
Administrative Agent shall promptly notify (y) the Lenders and the Borrower of
any extension of the Maturity Date pursuant to this Section 2.25 and (z) the
Borrower and any other Lender of any Lender which becomes an Objecting Lender.
(b) Loans (including any principal, interest, fees and other amounts due
hereunder) owing to any Objecting Lender on the Commitment Expiration Date with
respect to such Lender shall be repaid in full on or before such Commitment
Expiration Date.
(c) The Borrower shall have the right, so long as no Event of Default has
occurred and is then continuing, upon giving notice to the Administrative Agent
and the Objecting Lender in accordance with Section 2.13, to prepay in full the
Loans of the Objecting Lenders, together with accrued interest thereon, any
amounts payable pursuant to Sections 2.9, 2.10, 2.14, 2.15, 2.17, 2.21, 9.4 and
9.5, any accrued and unpaid Facility Fee, and any accrued and unpaid Utilization
Fee or other amounts payable to it hereunder and/or, upon giving not less than
three Business Days' notice to the Objecting Lenders and the Administrative
Agent, to cancel in whole or in part the Commitments of the Objecting Lenders.
(d) The Borrower may, with the consent of the Administrative Agent,
designate one or more financial institutions to act as a Lender hereunder in
place of any Objecting Lender, and upon the execution of an agreement
substantially in the form of Exhibit H by each such Objecting Lender (who hereby
agrees to execute such agreement), such replacement financial institution and
the Administrative Agent, such replacement financial institution shall become
and be a Lender hereunder with all the rights and obligations it would have had
if it had been named on the signature pages hereof, and having for all such
financial institutions aggregate Commitments of no greater than the whole of the
Commitment of the Objecting Lender in place of which such financial institutions
were designated; provided that the Facility Fees, the Utilization Fees, interest
and other payments to the Lenders due hereunder shall accrue for the account of
each such financial institution from the date of replacement pursuant to such
agreement. The Administrative Agent shall notify the Lenders of the execution of
any such agreement, the name of the financial institution executing such
agreement and the amount of such financial institution's Commitment.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER
In order to induce the Lenders to enter into this Agreement and to make the
Loans and participate in the Letters of Credit provided for herein, the Borrower
makes the following representations and warranties to the Administrative Agent
and the Lenders, all of which shall survive the execution and delivery of this
Agreement, the issuance of the Notes and the making of the Loans and issuance of
the Letters of Credit:
<PAGE>
SECTION 3.1. Corporate Existence and Power.
The Borrower and its Subsidiaries have been duly organized and are validly
existing in good standing under the laws of their respective jurisdictions of
incorporation and are in good standing or have applied for authority to operate
as a foreign corporation in all jurisdictions where the nature of their
properties or business so requires it and where a failure to be in good standing
as a foreign corporation would have a Material Adverse Effect. The Borrower has
the corporate power to execute, deliver and perform its obligations under this
Agreement and the other Fundamental Documents and other documents contemplated
hereby and to borrow and obtain other extensions of credit hereunder.
SECTION 3.2. Corporate Authority and No Violation.
The execution, delivery and performance of this Agreement and the other
Fundamental Documents and the borrowings and other extensions of credit
hereunder (a) have been duly authorized by all necessary corporate action on the
part of the Borrower, (b) will not violate any provision of any Applicable Law
applicable to the Borrower or any of its Subsidiaries or any of their respective
properties or assets, (c) will not violate any provision of the Certificate of
Incorporation or By-Laws of the Borrower or any of its Subsidiaries, or any
Contractual Obligation of the Borrower or any of its Subsidiaries, (d) will not
be in conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under, any material indenture, agreement, bond,
note or instrument and (e) will not result in the creation or imposition of any
Lien upon any property or assets of the Borrower or any of its Subsidiaries
other than pursuant to this Agreement or any other Fundamental Document.
SECTION 3.3. Governmental and Other Approval and Consents.
No action, consent or approval of, or registration or filing with, or any
other action by, any governmental agency, bureau, commission or court is
required in connection with the execution, delivery and performance (including
the making of borrowings and other extensions of credit) by the Borrower of this
Agreement or the other Fundamental Documents.
SECTION 3.4. Financial Statements of Borrower.
The (a) audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries as of December 31, 1997 and December 31, 1998, and (b)
unaudited consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of September 30, 1999, in each case, together with the related
unaudited statements of income, shareholders' equity and cash flows for the
periods then ended fairly present the financial position of the Borrower and its
Consolidated Subsidiaries as at the dates indicated and the results of
operations and cash flows for the periods indicated in conformity with GAAP
subject to normal year-end adjustments in the case of such quarterly financial
statements.
<PAGE>
SECTION 3.5. No Material Adverse Change.
Since December 31, 1998 there has been no material adverse change in the
business, assets, operations or condition, financial or otherwise, of the
Borrower and its Subsidiaries taken as a whole; provided that the foregoing
representation is made solely as of the Closing Date.
SECTION 3.6. [Intentionally Deleted].
SECTION 3.7. Copyrights, Patents and Other Rights.
Each of the Borrower and its Subsidiaries owns, or is licensed to use, all
trademarks, tradenames, service marks, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Borrower and its Subsidiaries does not infringe upon the rights of any other
Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.8. Title to Properties.
Each of the Borrower and its Material Subsidiaries will have at the Closing
Date good title or valid leasehold interests to each of the properties and
assets reflected on the balance sheets referred to in Section 3.4, except for
minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties for their intended
purposes, and all such properties and assets will be free and clear of Liens,
except Permitted Encumbrances.
SECTION 3.9. Litigation.
There are no lawsuits or other proceedings pending (including, but not
limited to, matters relating to environmental liability), or, to the knowledge
of the Borrower, threatened, against or affecting the Borrower or any of its
Subsidiaries or any of their respective properties, by or before any
Governmental Authority or arbitrator, which could reasonably be expected to have
a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries is
in default with respect to any order, writ, injunction, decree, rule or
regulation of any Governmental Authority, which default would have a Material
Adverse Effect.
SECTION 3.10. Federal Reserve Regulations.
Neither the Borrower nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock. No part of the proceeds of
the Loans and no Letters of Credit will be used, whether immediately,
incidentally or ultimately, for any purpose violative of or inconsistent with
any of the provisions of Regulation T, U or X of the Board.
<PAGE>
SECTION 3.11. Investment Company Act.
The Borrower is not, and will not during the term of this Agreement be, (x)
an "investment company", within the meaning of the Investment Company Act of
1940, as amended or (y) subject to regulation under the Public Utility Holding
Company Act of 1935 or the Federal Power Act.
SECTION 3.12. Enforceability.
This Agreement and the other Fundamental Documents when executed will
constitute legal, valid and enforceable obligations (as applicable) of the
Borrower (subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and to general principles of equity).
SECTION 3.13. Taxes.
The Borrower and each of its Subsidiaries have filed or caused to be filed
all federal, provincial, state and local tax returns which are required to be
filed, and have paid or have caused to be paid all taxes as shown on said
returns or on any assessment received by them in writing, to the extent that
such taxes have become due, except (a) as permitted by Section 5.4 or (b) to the
extent that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.14. Compliance with ERISA.
Each of the Borrower and its Subsidiaries is in compliance in all material
respects with the provisions of ERISA and the Code applicable to Plans, and the
regulations and published interpretations thereunder, if any, which are
applicable to it and the applicable laws, rules and regulations of any
jurisdiction applicable to Plans. Neither the Borrower nor any of its
Subsidiaries has, with respect to any Plan established or maintained by it,
engaged in a prohibited transaction which would subject it to a material tax or
penalty on prohibited transactions imposed by ERISA or Section 4975 of the Code.
No liability to the PBGC that is material to the Borrower and its Subsidiaries
taken as a whole has been, or to the Borrower's best knowledge is reasonably
expected to be, incurred with respect to the Plans and there has been no
Reportable Event and no other event or condition that presents a material risk
of termination of a Plan by the PBGC. Neither the Borrower nor any of its
Subsidiaries has engaged in a transaction which would result in the incurrence
of a material liability under Section 4069 of ERISA. As of the Closing Date,
neither the Borrower nor any of its Subsidiaries contributes to a Multiemployer
Plan, and has not incurred any liability that would be material to the Borrower
and its Subsidiaries taken as a whole on account of a partial or complete
withdrawal (as defined in Sections 4203 and 4205 of ERISA, respectively) with
respect to any Multiemployer Plan.
<PAGE>
SECTION 3.15. Disclosure.
As of the Closing Date, neither this Agreement nor the Confidential
Information Memorandum dated January 2000, at the time it was furnished,
contained any untrue statement of a material fact or omitted to state a material
fact, under the circumstances under which it was made, necessary in order to
make the statements contained herein or therein not misleading. At the Closing
Date, there is no fact known to the Borrower which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.16. Environmental Liabilities.
Except with respect to any matters, that, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect, neither
the Borrower nor any of its Subsidiaries (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become subject to
any Environmental Liability, (iii) has received notice of any claim with respect
to any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
SECTION 3.17. Year 2000 Matters.
To the Borrower's knowledge, the disclosures relating to Year 2000 matters
contained in (i) the Borrower's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, and (ii) the Borrower's Annual Report on Form 10-K for
the year ended December 31, 1998, accurately present, in all material respects,
the status of the Borrower's efforts to address Year 2000 compliance issues as
of September 30, 1999 and December 31, 1998 respectively.
4. CONDITIONS OF LENDING
SECTION 4.1. Conditions Precedent to Effectiveness.
The effectiveness of this Agreement is subject to the following conditions
precedent:
(a) Loan Documents. The Administrative Agent shall have received this
Agreement and each of the other Fundamental Documents, each executed and
delivered by a duly authorized officer of the Borrower.
(b) Corporate Documents for the Borrower. The Administrative Agent shall
have received, with copies for each of the Lenders, a certificate of the
Secretary or Assistant Secretary of the Borrower dated the date hereof and
certifying (A) that attached thereto is a true and complete copy of the
certificate of incorporation and by-laws of the Borrower as in effect on the
date of such certification; (B) that attached thereto is a true and complete
copy of resolutions adopted by the Board of Directors of the Borrower
authorizing the borrowings and other extensions of credit hereunder and the
execution, delivery and performance in accordance
<PAGE>
with their respective terms of this Agreement and any other documents
required or contemplated hereunder; and (C) as to the incumbency and specimen
signature of each officer of the Borrower executing this Agreement or any
other document delivered by it in connection herewith (such certificate to
contain a certification by another officer of the Borrower as to the
incumbency and signature of the officer signing the certificate referred to
in this paragraph (b)).
(c) Financial Statements. The Lenders shall have received the (i) audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries as of and for the fiscal years ended December 31, 1997 and
December 31, 1998 and (ii) unaudited consolidated financial statements of the
Borrower and its Consolidated Subsidiaries as of and for the period ended
September 30, 1999.
(d) Opinions of Counsel. The Administrative Agent shall have received the
favorable written opinions, dated the date hereof and addressed to the
Administrative Agent and the Lenders, of internal counsel of PHH Corporation
and of Skadden, Arps, Slate, Meagher & Flom LLP, substantially in the form of
Exhibits B-1 and B-2 hereto respectively.
(e) No Material Adverse Change. The Administrative Agent shall be satisfied
that no material adverse change shall have occurred with respect to the
business, assets, operations or condition, financial or otherwise, of the
Borrower and its Consolidated Subsidiaries, taken as a whole, since December
31, 1998.
(f) Payment of Fees. The Administrative Agent shall be satisfied that all
amounts payable to the Arranger, the Administrative Agent and the other
Lenders pursuant hereto or with regard to the transactions contemplated
hereby have been or are simultaneously being paid.
(g) Closing Date Payments. The Borrower and the Lenders shall have made
such payments among themselves on the Closing Date as directed by the
Administrative Agent with the result that, after giving effect thereto, the
outstanding Revolving Credit Loans, if any, shall be held by the Lenders pro
rata in accordance with their respective Commitments. The Borrower shall have
paid to the Administrative Agent, for the account of the respective lenders
under the Existing Credit Agreement, all unpaid fees and other amounts
accrued under the Existing Credit Agreement to the Closing Date.
(h) Litigation. No litigation shall be pending or, to the Borrower's
knowledge, threatened which would be likely to have a Material Adverse
Effect, or which could reasonably be expected to materially adversely affect
the ability of the Borrower to fulfill its obligations hereunder or to
otherwise materially impair the interests of the Lenders.
(i) Officer's Certificate. The Administrative Agent shall have received a
certificate of the chief executive officer or chief financial officer or
chief accounting officer of the Borrower
<PAGE>
certifying, as of the Closing Date, compliance with the conditions set forth
in paragraphs (b) and (c) of Section 4.2.
SECTION 4.2. Conditions Precedent to Each Loan and Letter of Credit.
The obligation of the Lenders to make each Loan and of any Issuing Lender
to issue a Letter of Credit, including the initial Loan and initial Letter of
Credit hereunder, is subject to the following conditions precedent:
(a) Notice. The Administrative Agent shall have received a notice with
respect to such Borrowing or Letter of Credit as required by Article 2
hereof.
(b) Representations and Warranties. The representations and warranties set
forth in Article 3 (other than those set forth in Section 3.5, which shall be
deemed made only on the Closing Date) and in the other Fundamental Documents
shall be true and correct in all material respects on and as of the date of
each Borrowing or Letter of Credit issuance hereunder (except to the extent
that such representations and warranties expressly relate to an earlier date)
with the same effect as if made on and as of such date; provided that this
condition shall not apply to a Revolving Credit Borrowing which is solely
refinancing outstanding Revolving Credit Loans and which, after giving effect
thereto, has not increased the aggregate amount of outstanding Revolving
Credit Loans.
(c) No Event of Default. On the date of each Borrowing or the issuance of a
Letter of Credit hereunder, the Borrower shall be in material compliance with
all of the terms and provisions set forth herein to be observed or performed
and no Event of Default or Default shall have occurred and be continuing;
provided that this condition shall not apply to a Revolving Credit Borrowing
which is solely refinancing outstanding Revolving Credit Loans and which,
after giving effect thereto, has not increased the aggregate amount of
outstanding Revolving Credit Loans.
Each Borrowing or issuance of a Letter of Credit shall be deemed to be a
representation and warranty by the Borrower on the date of such Borrowing or
issuance of a Letter of Credit as to the matters specified in paragraphs (b) and
(c) of this Section.
5. AFFIRMATIVE COVENANTS
For so long as the Commitments shall be in effect or any amount shall
remain outstanding under any Note or unpaid under this Agreement or there shall
be any outstanding L/C Exposure, the Borrower agrees that, unless the Required
Lenders shall otherwise consent in writing, it will, and will cause each of its
Subsidiaries to:
<PAGE>
SECTION 5.1. Financial Statements, Reports, etc.
Deliver to each Lender:
(a) As soon as is practicable, but in any event within 100 days after the
end of each fiscal year of the Borrower, (i) either (A) consolidated
statements of income (or operations) and consolidated statements of cash
flows and changes in stockholders' equity of the Borrower and its
Consolidated Subsidiaries for such year and the related consolidated balance
sheets as at the end of such year, or (B) the Form 10K filed by the Borrower
with the Securities and Exchange Commission and (ii) if not included in such
Form 10K, an opinion of independent certified public accountants of
recognized national standing, which opinion shall state that said
consolidated financial statements fairly present the consolidated financial
position and results of operations of the Borrower and its Consolidated
Subsidiaries as at the end of, and for, such fiscal year and that such
financial statements were prepared in accordance with GAAP applied
consistently throughout the periods reflected therein and with prior periods;
(b) As soon as is practicable, but in any event within 60 days after the
end of each of the first three fiscal quarters of each fiscal year, either
(i) the Form 10-Q filed by the Borrower with the Securities and Exchange
Commission or (ii) the unaudited consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries, as at the end of such fiscal quarter, and
the related unaudited statements of income and cash flows for such quarter
and for the period from the beginning of the then current fiscal year to the
end of such fiscal quarter and the corresponding figures as of the end of the
preceding fiscal year, and for the corresponding period in the preceding
fiscal year, in each case, together with a certificate (substantially in the
form of Exhibit D) signed by the chief financial officer, the chief
accounting officer or a vice president responsible for financial
administration of the Borrower to the effect that such financial statements,
while not examined by independent public accountants, reflect, in his opinion
and in the opinion of the Borrower, all adjustments necessary to present
fairly the financial position of the Borrower and its Consolidated
Subsidiaries, as the case may be, as at the end of the fiscal quarter and the
results of their operations for the quarter then ended in conformity with
GAAP consistently applied, subject only to year-end and audit adjustments and
to the absence of footnote disclosure;
(c) Together with the delivery of the statements referred to in paragraphs
(a) and (b) of this Section 5.1, a certificate of the chief financial
officer, chief accounting officer or a vice president responsible for
financial administration of the Borrower, substantially in the form of
Exhibit D hereto (i) stating whether or not the signer has knowledge of any
Default or Event of Default and, if so, specifying each such Default or Event
of Default of which the signer has knowledge and the nature thereof and (ii)
demonstrating in reasonable detail compliance with the provisions of Sections
6.7 and 6.8;
(d) Promptly upon any executive officer of the Borrower or any of its
Subsidiaries obtaining knowledge of the occurrence of any Default or Event of
Default, a certificate of the
<PAGE>
president, chief financial officer or chief accounting officer of the
Borrower specifying the nature and period of existence of such Default or
Event of Default and what action the Borrower has taken, is taking and
proposes to take with respect thereto; and
(e) Promptly upon any executive officer of the Borrower or any of its
Subsidiaries obtaining knowledge of (i) the institution of any action, suit,
proceeding, investigation or arbitration by any Governmental Authority or
other Person against or affecting the Borrower or any of its Subsidiaries or
any of their assets, or (ii) any material development in any such action,
suit, proceeding, investigation or arbitration (whether or not previously
disclosed to the Lenders), which, in each case might reasonably be expected
to have a Material Adverse Effect, prompt notice thereof and such other
information as may be reasonably available to it (without waiver of any
applicable evidentiary privilege) to enable the Lenders to evaluate such
matters.
SECTION 5.2. Corporate Existence; Compliance with Statutes.
Do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its corporate existence, rights, licenses, permits and
franchises and comply, except where failure to comply, either individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect, with all provisions of Applicable Law, and all applicable restrictions
imposed by any Governmental Authority, and all state and provincial laws and
regulations of similar import; provided that mergers, dissolutions and
liquidations permitted under Section 6.4 shall be permitted.
SECTION 5.3. Insurance.
Maintain with good and reputable insurers insurance in such amounts and
against such risks as are customarily insured against by companies in similar
businesses; provided however, that (a) workmen's compensation insurance or
similar coverage may be effected with respect to its operations in any
particular state or other jurisdiction through an insurance fund operated by
such state or jurisdiction and (b) such insurance may contain self-insurance
retention and deductible levels consistent as such insurance is usually carried
by companies of established reputation and comparable size.
SECTION 5.4. Taxes and Charges.
Duly pay and discharge, or cause to be paid and discharged, before the same
shall become delinquent, all federal, state or local taxes, assessments, levies
and other governmental charges, imposed upon the Borrower or any of its
Subsidiaries or their respective properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies which if unpaid could reasonably be expected to
result in a Material Adverse Effect; provided that any such tax, assessment,
charge, levy or claim need not be paid if the validity or amount thereof shall
currently be contested in good faith by appropriate proceedings and if the
Borrower shall have set aside on its books reserves (the presentation of which
is segregated to the extent required by GAAP) adequate with respect thereto if
reserves shall be deemed necessary by the Borrower in accordance with GAAP; and
provided, further, that the Borrower will pay all such taxes, assessments,
levies or
<PAGE>
other governmental charges forthwith upon the commencement of proceedings to
foreclose any Lien which may have attached as security therefor (unless the same
is fully bonded or otherwise effectively stayed).
SECTION 5.5. ERISA Compliance and Reports.
Furnish to the Administrative Agent (a) as soon as possible, and in any
event within 30 days after any executive officer (as defined in Regulation C
under the Securities Act of 1933, as amended) of the Borrower knows that (i) any
Reportable Event with respect to any Plan has occurred, a statement of the chief
financial officer of the Borrower, setting forth details as to such Reportable
Event and the action which it proposes to take with respect thereto, together
with a copy of the notice, if any, required to be filed by the Borrower or any
of its Subsidiaries of such Reportable Event with the PBGC or (ii) an
accumulated funding deficiency has been incurred or an application has been made
to the Secretary of the Treasury for a waiver or modification of the minimum
funding standard or an extension of any amortization period under Section 412 of
the Code with respect to a Plan, a Plan has been or is proposed to be terminated
in a "distress termination" (as defined in Section 4041(c) of ERISA),
proceedings have been instituted to terminate a Plan or a Multiemployer Plan, a
proceeding has been instituted to collect a delinquent contribution to a Plan or
a Multiemployer Plan, or either the Borrower or any of its Subsidiaries will
incur any liability (including any contingent or secondary liability) to or on
account of the termination of or withdrawal from a Plan under Section 4062, 4063
or 4064 of ERISA or the withdrawal or partial withdrawal from a Multiemployer
Plan under Section 4201 or 4204 of ERISA, a statement of the chief financial
officer of the Borrower, setting forth details as to such event and the action
it proposes to take with respect thereto, (b) promptly upon the reasonable
request of the Administrative Agent, copies of each annual and other report with
respect to each Plan and (c) promptly after receipt thereof, a copy of any
notice the Borrower or any of its Subsidiaries may receive from the PBGC
relating to the PBGC's intention to terminate any Plan or to appoint a trustee
to administer any Plan; provided that the Borrower shall not be required to
notify the Administrative Agent of the occurrence of any of the events set forth
in the preceding clauses (a) and (c) unless such event, individually or in the
aggregate, could reasonably be expected to result in a material liability to the
Borrower and its Subsidiaries taken as a whole.
SECTION 5.6. Maintenance of and Access to Books and Records; Examinations.
Maintain or cause to be maintained at all times true and complete books and
records of its financial operations (in accordance with GAAP) and, after the
occurrence and during the continuance of an Event of Default (at a time during
which Loans or Letters of Credit are outstanding), provide the Administrative
Agent and its representatives access to all such books and records and to any of
their properties or assets during regular business hours, in order that the
Administrative Agent may make such audits and examinations and make abstracts
from such books, accounts and records and may discuss the affairs, finances and
accounts with, and be advised as to the same by, officers and independent
accountants, all as the Administrative Agent may deem appropriate for the
purpose of verifying the various reports delivered pursuant to this Agreement or
for otherwise ascertaining compliance with this Agreement.
<PAGE>
SECTION 5.7. Maintenance of Properties.
Keep its properties which are material to its business in good repair,
working order and condition consistent with companies of established reputation
and comparable size.
6. NEGATIVE COVENANTS
For so long as the Commitments shall be in effect or any amount shall
remain outstanding under any Note or unpaid under this Agreement or there shall
be any outstanding L/C Exposure, unless the Required Lenders shall otherwise
consent in writing, the Borrower agrees that it will not, nor will it permit any
of its Subsidiaries to, directly or indirectly:
SECTION 6.1. Limitation on Material Subsidiary Indebtedness.
Incur, assume or suffer to exist any Indebtedness of any Material
Subsidiary which principally transacts business in the United States, except:
(a) Indebtedness in existence on the date hereof, or required to be
incurred pursuant to a contractual obligation in existence on the date
hereof, which in either case (to the extent not otherwise permitted by
paragraphs (b)-(g) of this Section 6.1), is listed on Schedule 6.1 hereto,
but not any extensions or renewals thereof, unless effected on substantially
the same terms or on terms not more adverse to the Lenders;
(b) purchase money Indebtedness (including Capital Leases) to the extent
permitted under Section 6.5(b);
(c) Indebtedness owing by any Material Subsidiary to the Borrower or any
other Subsidiary;
(d) Indebtedness of any Material Subsidiary of the Borrower issued and
outstanding prior to the date on which such Subsidiary became a Subsidiary of
the Borrower (other than Indebtedness issued in connection with, or in
anticipation of, such Subsidiary becoming a Subsidiary of the Borrower);
provided that immediately prior and on a Pro Forma Basis after giving effect
to, such Person becoming a Subsidiary of the Borrower, no Default or Event of
Default shall occur or then be continuing and the aggregate principal amount
of such Indebtedness, when added to the aggregate outstanding principal
amount of Indebtedness permitted by paragraphs (e) and (f) below, shall not
exceed $125,000,000;
(e) any renewal, extension or modification of Indebtedness under paragraph
(d) above so long (i) as such renewal, extension or modification is effected
on substantially the same terms or on terms which, in the aggregate, are not
more adverse to the Lenders and (ii) the principal amount of such
Indebtedness is not increased;
<PAGE>
(f) other Indebtedness of any Material Subsidiary in an aggregate principal
amount which, when added to the aggregate outstanding principal amount of
Indebtedness permitted by paragraphs (d) and (e) above, does not exceed
$125,000,000;
(g) [Intentionally Deleted];
(h) Indebtedness of any Asset Securitization Subsidiary incurred solely to
finance asset securitization transactions as long as (i) such Indebtedness is
unsecured or is secured solely as permitted by Section 6.5(n), and (ii) the
lender (and any other party) in respect of such Indebtedness has recourse
(other than customary limited recourse based on misrepresentations or failure
of such assets to meet customary eligibility criteria), if any, solely to the
assets securitized in the applicable asset securitization transaction and, if
such Asset Securitization Subsidiary is of the type described in clause (i)
of the definition of "Asset Securitization Subsidiary", the capital stock of
such Asset Securitization Subsidiary; and
(i) Indebtedness consisting of the obligation to repurchase mortgages and
related assets to the extent permitted by Section 6.12.
SECTION 6.2. [Intentionally deleted].
SECTION 6.3. Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate (other
than the Borrower or a wholly-owned Subsidiary of the Borrower) unless such
transaction is (a) otherwise permitted under this Agreement and (b) upon fair
and reasonable terms no less favorable to the Borrower or such Subsidiary, as
the case may be, than it would obtain in a comparable arm's length transaction
with a Person which is not an Affiliate.
SECTION 6.4. Consolidation, Merger, Sale of Assets.
(a) Neither the Borrower nor any of its Material Subsidiaries (in one
transaction or series of transactions) will wind up, liquidate or dissolve its
affairs, or enter into any transaction of merger or consolidation, except any
merger, consolidation, dissolution or liquidation (i) in which the Borrower is
the surviving entity or if the Borrower is not a party to such transaction then
a Subsidiary is the surviving entity, (ii) in which the surviving entity becomes
a Subsidiary of the Borrower immediately upon the effectiveness of such merger,
consolidation, dissolution or liquidation or (iii) in connection with a
transaction permitted by Section 6.4(b); provided that immediately prior to and
on a Pro Forma Basis after giving effect to such transaction no Default or Event
of Default has occurred or is continuing.
(b) Sell or otherwise dispose of all or substantially all of the assets of
the Borrower and its Subsidiaries, taken as a whole; provided that it is
understood for purposes of clarity that this Section 6.4(b) shall not prohibit
or limit in any respect transactions in the ordinary course of business of the
Borrower or any of its Subsidiaries (including but not limited to asset
securitization transactions entered into in the ordinary course of business).
<PAGE>
SECTION 6.5. Limitations on Liens.
Suffer any Lien on the property of the Borrower or any of the Material
Subsidiaries which principally transact business in the United States, except:
(a) deposits under worker's compensation, unemployment insurance and social
security laws or to secure statutory obligations or surety or appeal bonds or
performance or other similar bonds in the ordinary course of business, or
statutory Liens of landlords, carriers, warehousemen, mechanics and
materialmen and other similar Liens, in respect of liabilities which are not
yet due or which are being contested in good faith, Liens for taxes not yet
due and payable, and Liens for taxes due and payable, the validity or amount
of which is currently being contested in good faith by appropriate
proceedings and as to which foreclosure and other enforcement proceedings
shall not have been commenced (unless fully bonded or otherwise effectively
stayed);
(b) purchase money Liens granted to the vendor or Person financing the
acquisition of property, plant or equipment if (i) limited to the specific
assets acquired and, in the case of tangible assets, other property which is
an improvement to or is acquired for specific use in connection with such
acquired property or which is real property being improved by such acquired
property; (ii) the debt secured by such Lien is the unpaid balance of the
acquisition cost of the specific assets on which the Lien is granted; and
(iii) such transaction does not otherwise violate this Agreement;
(c) Liens upon real and/or personal property, which property was acquired
after the date of this Agreement (by purchase, construction or otherwise) by
the Borrower or any of its Material Subsidiaries, each of which Liens existed
on such property before the time of its acquisition and was not created in
anticipation thereof; provided that no such Lien shall extend to or cover any
property of the Borrower or such Material Subsidiary other than the
respective property so acquired and improvements thereon;
(d) Liens arising out of attachments, judgments or awards as to which an
appeal or other appropriate proceedings for contest or review are promptly
commenced (and as to which foreclosure and other enforcement proceedings (i)
shall not have been commenced (unless fully bonded or otherwise effectively
stayed) or (ii) in any event shall be promptly fully bonded or otherwise
effectively stayed);
(e) Liens created under any Fundamental Document as contemplated by this
Agreement;
(f) Liens securing Indebtedness of any Material Subsidiary to the Borrower;
(g) [Intentionally Deleted];
<PAGE>
(h) mortgage liens existing on homes acquired by the Borrower or any of its
Material Subsidiaries in the ordinary course of their relocation management
business;
(i) other Liens incidental to the conduct of its business or the ownership
of its property and other assets, which do not secure any Indebtedness and
did not otherwise arise in connection with the borrowing of money or the
obtaining of advances or credit and which do not, in the aggregate,
materially detract from the value of its property or other assets or
materially impair the use thereof in the operation of its business;
(j) Liens covering only the property or other assets of any Subsidiary
which principally transacts business outside of the United States;
(k) to the extent not otherwise permitted by paragraphs (a)-(j) of this
Section 6.5, Liens existing on the Closing date listed on Schedule 6.5 hereto
and any extensions or renewals thereof;
(l) Liens securing indebtedness in respect of one or more asset
securitization transactions, which indebtedness is not reported on a
consolidated balance sheet of the Borrower and its Subsidiaries, covering
only the assets securitized in the asset securitization transaction financed
by such indebtedness and the capital stock of any special purpose vehicle the
sole purpose of which is to effectuate such asset securitization transaction;
(m) other Liens securing obligations having an aggregate principal amount
not to exceed $100,000,000;
(n) Liens securing Indebtedness and related obligations of an Asset
Securitization Subsidiary in respect of one or more asset securitization
transactions, which Indebtedness is reported on a consolidated balance sheet
of the Borrower and its Subsidiaries, covering only the assets securitized in
the asset securitization transaction financed by such Indebtedness and, if
such Asset Securitization Subsidiary is of the type described in clause (i)
of the definition of "Asset Securitization Subsidiary", the capital stock of
such Asset Securitization Subsidiary; and
(o) Liens on mortgages and related assets securing obligations to
repurchase such mortgages and related assets to the extent such obligations
are permitted by Section 6.12.
SECTION 6.6. Sale and Leaseback.
Enter into any arrangement with any Person or Persons, whereby in
contemporaneous transactions the Borrower or any of its Subsidiaries sells
essentially all of its right, title and interest in a material asset and the
Borrower or any of its Subsidiaries acquires or leases back the right to use
such property except that the Borrower or any of its Subsidiaries may enter into
sale-leaseback transactions relating to assets not in excess of $100,000,000 in
the aggregate on a cumulative basis.
<PAGE>
SECTION 6.7. Consolidated Net Worth.
Permit Consolidated Net Worth on the last day of any fiscal quarter to be
less than the sum of (i) $700,000,000 plus (ii) 25% of Consolidated Net Income,
if positive, for each fiscal quarter after September 30, 1999.
SECTION 6.8. Ratio of Indebtedness To Consolidated Net Worth.
Permit, at any time, Indebtedness of the Borrower and its Subsidiaries less
Cash Equivalents (owned by the Borrower or any of its Subsidiaries and free of
Liens (other than Liens securing Indebtedness)) to exceed five (5) times
Consolidated Net Worth.
SECTION 6.9. Accounting Practices.
Establish a fiscal year ending on other than December 31, or modify or
change accounting treatments or reporting practices except as otherwise required
or permitted by GAAP.
SECTION 6.10. Restrictions Affecting Subsidiaries.
Enter into, or suffer to exist, any Contractual Obligation with any Person,
which prohibits or limits the ability of any Material Subsidiary (other than
Asset Securitization Subsidiaries) to (a) pay dividends or make other
distributions or pay any Indebtedness owed to the Borrower or any other
Subsidiary, (b) make loans or advances to the Borrower or any other Subsidiary
or (c) transfer any of its properties or assets to the Borrower or any other
Subsidiary.
Section 6.11. [Intentionally Deleted].
SECTION 6.12. Limitation on Mortgage Repurchase Indebtedness.
Incur, assume or suffer to exist any Indebtedness (other than Indebtedness
of Asset Securitization Subsidiaries incurred to finance asset securitization
transactions permitted by this Agreement) in respect of the repurchase of
mortgages and related assets if the aggregate principal amount of all such
Indebtedness would exceed $900,000,000 at any time.
7. EVENTS OF DEFAULT
In the case of the happening and during the continuance of any of the
following events (herein called "Events of Default"):
(a) any representation or warranty made or deemed made by the Borrower in
this Agreement or any other Fundamental Document or in connection with this
Agreement or with
<PAGE>
the execution and delivery of the Notes or the Borrowings (or other
extensions of credit) hereunder, or any statement or representation made in
any report, financial statement, certificate or other document furnished by
or on behalf of the Borrower or any of its Subsidiaries to the Administrative
Agent or any Lender under or in connection with this Agreement, shall prove
to have been false or misleading in any material respect when made or
delivered;
(b) default shall be made in the payment of any principal of (or Letter of
Credit reimbursement obligations) or interest on the Notes or of any fees or
other amounts payable by the Borrower hereunder, when and as the same shall
become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof or by acceleration thereof or otherwise, and in the
case of payments of interest, such default shall continue unremedied for five
Business Days, and in the case of payments other than of any principal amount
of or interest on the Notes, such default shall continue unremedied for five
Business Days after receipt by the Borrower of an invoice therefor;
(c) default shall be made in the due observance or performance of any
covenant, condition or agreement contained in Section 5.1(c) (with respect to
notice of Default or Events of Default) or Article 6;
(d) default shall be made by the Borrower in the due observance or
performance of any other covenant, condition or agreement to be observed or
performed pursuant to the terms of this Agreement or any other Fundamental
Document and such default shall continue unremedied for thirty (30) days
after the Borrower obtains knowledge of such occurrence;
(e) (i) default in payment shall be made with respect to any Indebtedness
or Interest Rate Protection Agreements of the Borrower or any of its
Subsidiaries where the amount or amounts of such Indebtedness exceeds
$25,000,000 (or its equivalent thereof in any other currency) in the
aggregate; or (ii) default in payment or performance shall be made with
respect to any Indebtedness or Interest Rate Protection Agreements of the
Borrower or any of its Subsidiaries where the amount or amounts of such
Indebtedness or Interest Rate Protection Agreements exceeds $25,000,000 (or
its equivalent thereof in any other currency) in the aggregate, if the effect
of such default is to result in the acceleration of the maturity of such
Indebtedness or Interest Rate Protection Agreement; or (iii) any other
circumstance shall arise (other than the mere passage of time) by reason of
which the Borrower or any Subsidiary of the Borrower is required to redeem or
repurchase, or offer to holders the opportunity to have redeemed or
repurchased, any such Indebtedness or Interest Rate Protection Agreement
where the amount or amounts of such Indebtedness or Interest Rate Protection
Agreement exceeds $25,000,000 (or its equivalent thereof in any other
currency) in the aggregate; provided that clause (iii) shall not apply to
secured Indebtedness or Interest Rate Protection Agreement that becomes due
as a result of a voluntary sale of the property or assets securing such
Indebtedness or Interest Rate Protection Agreement and provided, further,
that clauses (ii) and (iii) shall not apply to any Indebtedness or Interest
Rate Protection Agreement of any Subsidiary issued and outstanding prior to
the date such Subsidiary became a Subsidiary of the
<PAGE>
Borrower (other than Indebtedness or Interest Rate Protection Agreement
issued in connection with, or in anticipation of, such Subsidiary becoming a
Subsidiary of the Borrower) if such default or circumstance arises solely as
a result of a "change of control" provision applicable to such Indebtedness
or Interest Rate Protection Agreement which becomes operative as a result of
the acquisition of such Subsidiary by the Borrower or any of its
Subsidiaries;
(f) the Borrower or any of its Material Subsidiaries shall generally not
pay its debts as they become due or shall admit in writing its inability to
pay its debts, or shall make a general assignment for the benefit of
creditors; or the Borrower or any of its Material Subsidiaries shall commence
any case, proceeding or other action seeking to have an order for relief
entered on its behalf as debtor or to adjudicate it a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its property or shall file an answer or other
pleading in any such case, proceeding or other action admitting the material
allegations of any petition, complaint or similar pleading filed against it
or consenting to the relief sought therein; or the Borrower or any Material
Subsidiary thereof shall take any action to authorize any of the foregoing;
(g) any involuntary case, proceeding or other action against the Borrower
or any of its Material Subsidiaries shall be commenced seeking to have an
order for relief entered against it as debtor or to adjudicate it a bankrupt
or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property, and such
case, proceeding or other action (i) results in the entry of any order for
relief against it or (ii) shall remain undismissed for a period of sixty (60)
days;
(h) the occurrence of a Change in Control;
(i) final judgment(s) for the payment of money in excess of $25,000,000 (or
its equivalent thereof in any other currency) shall be rendered against the
Borrower or any of its Subsidiaries which within thirty (30) days from the
entry of such judgment shall not have been discharged or stayed pending
appeal or which shall not have been discharged within thirty (30) days from
the entry of a final order of affirmance on appeal; or
(j) a Reportable Event relating to a failure to meet minimum funding
standards or an inability to pay benefits when due shall have occurred with
respect to any Plan under the control of the Borrower or any of its
Subsidiaries and shall not have been remedied within 45 days after the
occurrence of such Reportable Event, if the occurrence thereof could
reasonably be expected to have a Material Adverse Effect;
<PAGE>
then, in every such event and at any time thereafter during the continuance of
such event, the Administrative Agent may or, if directed by the Required
Lenders, shall take either or both of the following actions, at the same or
different times: terminate forthwith the Commitments and/or declare the
principal of and the interest on the Loans and the Notes and all other amounts
payable hereunder or thereunder to be forthwith due and payable, whereupon the
same shall become and be forthwith due and payable, without presentment, demand,
protest, notice of acceleration, notice of intent to accelerate or other notice
of any kind, all of which are hereby expressly waived, anything in this
Agreement or in the Notes to the contrary notwithstanding; provided that, in the
case of a payment of principal (or Letter of Credit reimbursement obligations)
default pursuant to paragraph (b), the Administrative Agent, unless it is
directed to do so by the Required Lenders, will not take either or both of such
actions for three Business Days. If an Event of Default specified in paragraph
(f) or (g) above shall have occurred, the principal of and interest on the Loans
and the Notes and all other amounts payable hereunder or thereunder shall
thereupon and concurrently become due and payable without presentment, demand,
protest, notice of acceleration, notice of intent to accelerate or other notice
of any kind, all of which are hereby expressly waived, anything in this
Agreement or the Notes to the contrary notwithstanding and the Commitments of
the Lenders shall thereupon forthwith terminate.
8. THE ADMINISTRATIVE AGENT AND EACH ISSUING LENDER
SECTION 8.1. Administration by Administrative Agent.
The general administration of the Fundamental Documents and any other
documents contemplated by this Agreement shall be by the Administrative Agent or
its designees as provided for herein. Each of the Lenders hereby irrevocably
authorizes the Administrative Agent, at its discretion, to take or refrain from
taking such actions as agent on its behalf and to exercise or refrain from
exercising such powers under the Fundamental Documents, the Notes and any other
documents contemplated by this Agreement as are delegated by the terms hereof or
thereof, as appropriate, together with all powers reasonably incidental thereto.
The Administrative Agent shall have no duties or responsibilities except as set
forth in the Fundamental Documents. Any Lender which is a co-agent or lead
manager (as indicated on Schedule 1.1A hereto) for the credit facility hereunder
shall not have any duties or responsibilities except as a Lender hereunder.
SECTION 8.2. Advances and Payments.
(a) On the date of each Loan, the Administrative Agent shall be authorized
(but not obligated) to advance, for the account of each of the applicable
Lenders, the amount of the Loan to be made by it in accordance with this
Agreement. Each of the Lenders hereby authorizes and requests the Administrative
Agent to advance for its account, pursuant to the terms hereof, the amount of
the Loan to be made by it, unless with respect to any Lender, such Lender has
theretofore specifically notified the Administrative Agent that such Lender does
not intend to fund that particular Loan. Each of the Lenders agrees forthwith to
reimburse the Administrative Agent in immediately available funds for the amount
so advanced on its behalf by the Administrative Agent pursuant to the
immediately preceding sentence. If any such reimbursement is not made in
immediately available funds on the same day on
<PAGE>
which the Administrative Agent shall have made any such amount available on
behalf of any Lender in accordance with this Section 8.2, such Lender shall pay
interest to the Administrative Agent at a rate per annum equal to the
Administrative Agent's cost of obtaining overnight funds in the New York Federal
Funds Market. Notwithstanding the preceding sentence, if such reimbursement is
not made by the second Business Day following the day on which the
Administrative Agent shall have made any such amount available on behalf of any
Lender or such Lender has indicated that it does not intend to reimburse the
Administrative Agent, the Borrower shall immediately pay such unreimbursed
advance amount (plus any accrued, but unpaid interest at the rate per annum
equal to the interest rate applicable to such Loan) to the Administrative Agent.
(b) Any amounts received by the Administrative Agent in connection with
this Agreement or the Loans the application of which is not otherwise provided
for shall be applied, in accordance with each of the Lenders' pro rata interest
therein, first, to pay accrued but unpaid Facility Fees and Utilization Fees,
second, to pay accrued but unpaid interest on the Loans, third, to pay the
principal balance outstanding on the Loans and fourth, to pay other amounts
payable to the Administrative Agent and/or the Lenders. All amounts to be paid
to any of the Lenders by the Administrative Agent shall be credited to the
applicable Lenders, after collection by the Administrative Agent, in immediately
available funds either by wire transfer or deposit in such Lender's
correspondent account with the Administrative Agent, or as such Lender and the
Administrative Agent shall from time to time agree.
SECTION 8.3. Sharing of Setoffs and Cash Collateral.
Each of the Lenders agrees that if it shall, through the operation of
Sections 2.19, 2.24(h) or 2.24(i) or the exercise of a right of banker's lien,
setoff or counterclaim against the Borrower, including, but not limited to, a
secured claim under Section 506 of Title 11 of the United States Code or other
security or interest arising from, or in lieu of, such secured claim and
received by such Lender under any applicable bankruptcy, insolvency or other
similar law, or otherwise (other than pursuant to Section 2.15(f) or 2.25),
obtain payment in respect of its Loans or interests in Letters of Credit as a
result of which the unpaid portion of its Loans or L/C Exposure is
proportionately less than the unpaid portion of any of the other Lenders (a) it
shall promptly purchase at par (and shall be deemed to have thereupon purchased)
from such other Lenders a participation in the Loans or L/C Exposure of such
other Lenders, so that the aggregate unpaid principal amount of each of the
Lenders' Loans and L/C Exposure and its participation in Loans and L/C Exposure
of the other Lenders shall be in the same proportion to the aggregate unpaid
principal amount of all Loans and L/C Exposure then outstanding as the principal
amount of its Loans and L/C Exposure prior to the obtaining of such payment was
to the principal amount of all Loans and L/C Exposure outstanding prior to the
obtaining of such payment and (b) such other adjustments shall be made from time
to time as shall be equitable to ensure that the Lenders share such payment pro
rata.
<PAGE>
SECTION 8.4. Notice to the Lenders.
Upon receipt by the Administrative Agent from the Borrower of any
communication calling for an action on the part of the Lenders, or upon notice
to the Administrative Agent of any Event of Default, the Administrative Agent
will in turn immediately inform the other Lenders in writing (which shall
include telegraphic communications) of the nature of such communication or of
the Event of Default, as the case may be.
SECTION 8.5. Liability of Administrative Agent and Each Issuing Lender.
(a) The Administrative Agent or any Issuing Lender, when acting on behalf
of the Lenders may execute any of its duties under this Agreement by or through
its officers, agents, or employees and neither the Administrative Agent, the
Issuing Lenders nor their respective directors, officers, agents, or employees
shall be liable to the Lenders or any of them for any action taken or omitted to
be taken in good faith, or be responsible to the Lenders or to any of them for
the consequences of any oversight or error of judgment, or for any loss, unless
the same shall happen through its gross negligence or willful misconduct.
Neither the Administrative Agent, the Issuing Lenders nor their respective
directors, officers, agents, and employees shall in any event be liable to the
Lenders or to any of them for any action taken or omitted to be taken by it
pursuant to instructions received by it from the Required Lenders or in reliance
upon the advice of counsel selected by it. Without limiting the foregoing,
neither the Administrative Agent, the Issuing Lenders nor any of their
respective directors, officers, employees, or agents shall be responsible to any
of the Lenders for the due execution (other than its own), validity,
genuineness, effectiveness, sufficiency, or enforceability of, or for any
statement, warranty, or representation made by any other Person in, or for the
perfection of any security interest contemplated by, this Agreement or any
related agreement, document or order, or for the designation or failure to
designate this transaction as a "Highly Leveraged Transaction" for regulatory
purposes, or shall be required to ascertain or to make any inquiry concerning
the performance or observance by the Borrower of any of the terms, conditions,
covenants, or agreements of this Agreement or any related agreement or document.
(b) Neither the Administrative Agent, the Issuing Lenders, nor any of their
respective directors, officers, employees, or agents shall have any
responsibility to the Borrower on account of the failure or delay in performance
or breach by any of the Lenders or the Borrower of any of their respective
obligations under this Agreement or the Notes or any related agreement or
document or in connection herewith or therewith.
(c) The Administrative Agent and the Issuing Lenders, in such capacities
hereunder, shall be entitled to rely on any communication, instrument, or
document reasonably believed by it to be genuine or correct and to have been
signed or sent by a Person or Persons believed by it to be the proper Person or
Persons, and it shall be entitled to rely on advice of legal counsel,
independent public accountants, and other professional advisers and experts
selected by it.
<PAGE>
SECTION 8.6. Reimbursement and Indemnification.
Each of the Lenders severally and not jointly agrees (i) to reimburse the
Administrative Agent and the Arranger, in the amount of its proportionate share,
for any reasonable expenses and fees incurred for the benefit of the Lenders
under the Fundamental Documents, including, without limitation, reasonable
counsel fees and compensation of agents and employees paid for services rendered
on behalf of the Lenders, and any other reasonable expense incurred in
connection with the administration or enforcement thereof not reimbursed by the
Borrower or one of its Subsidiaries; (ii) to indemnify and hold harmless the
Administrative Agent and the Arranger and any of their directors, officers,
employees, or agents, on demand, in the amount of its proportionate share, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against it
or any of them in any way relating to or arising out of the Fundamental
Documents or any action taken or omitted by it or any of them under the
Fundamental Documents to the extent not reimbursed by the Borrower or one of its
Subsidiaries (except such as shall result from the gross negligence or willful
misconduct of the Person seeking indemnification); and (iii) to indemnify and
hold harmless each of the Issuing Lenders and any of their respective directors,
officers, employees, or agents or demand in the amount of its proportionate
share from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on or incurred by or asserted
against it relating to or arising out of the issuance of any Letters of Credit
(except such as shall result from the gross negligence or willful misconduct of
the Person seeking indemnification).
SECTION 8.7. Rights of Administrative Agent.
It is understood and agreed that Chase shall have the same rights and
powers hereunder (including the right to give such instructions) as the other
Lenders and may exercise such rights and powers, as well as its rights and
powers under other agreements and instruments to which it is or may be party,
and engage in other transactions with the Borrower as though it were not the
Administrative Agent on behalf of the Lenders under this Agreement.
SECTION 8.8. Independent Investigation by Lenders.
Each of the Lenders acknowledges that it has decided to enter into this
Agreement and to make the Loans and participate in the Letters of Credit
hereunder based on its own analysis of the transactions contemplated hereby and
of the creditworthiness of the Borrower and agrees that neither the
Administrative Agent nor any Issuing Lender shall bear responsibility therefor.
SECTION 8.9. Notice of Transfer.
The Administrative Agent and the Issuing Lenders may deem and treat any
Lender which is a party to this Agreement as the owners of such Lender's
respective portions of the Loans and Letter of Credit reimbursement rights for
all purposes, unless and until a written notice of the assignment
<PAGE>
or transfer thereof executed by any such Lender shall have been received by the
Administrative Agent and become effective pursuant to Section 9.3.
SECTION 8.10. Successor Administrative Agent.
The Administrative Agent may resign at any time by giving written notice
thereof to the Lenders and the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Administrative Agent from
among the Lenders, with the consent of the Borrower, which will not be
unreasonably withheld. If no successor Administrative Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent's giving of notice of
resignation, the retiring Administrative Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent, which with the consent of the
Borrower, which will not be unreasonably withheld, shall be a commercial bank
organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $500,000,000. Upon
the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article 8 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
SECTION 8.11. Resignation of an Issuing Lender.
Any Issuing Lender may resign at any time by giving written notice thereof
to the Lenders and the Borrower. Upon any such resignation, such Issuing Lender
shall be discharged from any duties and obligations under this Agreement in its
capacity as an Issuing Lender with regard to Letters of Credit not yet issued.
After any retiring Issuing Lender's resignation hereunder as an Issuing Lender,
the provisions of this Agreement shall continue to inure to its benefit as to
any outstanding Letters of Credit or otherwise with regard to outstanding L/C
Exposure and any actions taken or omitted to be taken by it while it was an
Issuing Lender under this Agreement.
9. MISCELLANEOUS
SECTION 9.1. Notices.
Notices and other communications provided for herein shall be in writing
and shall be delivered or mailed (or in the case of telegraphic communication,
if by telegram, delivered to the telegraph company and, if by telex, telecopy,
graphic scanning or other telegraphic communications equipment of the sending
party hereto, delivered by such equipment) addressed, if to the Administrative
Agent or Chase, to it at One Chase Manhattan Plaza, New York, New York 10081,
Attn: Maggie Swales, with a copy to Sandra Miklave, if to the Borrower, to it at
11333 McCormick Road, Hunt Valley, Maryland 21031-1000, Attention: Assistant
Treasurer, with a copy to the General Counsel, or
<PAGE>
if to a Lender, to it at its address set forth on Schedule 1.1A (or in its
Assignment and Acceptance or other agreement pursuant to which it became a
Lender hereunder), or such other address as such party may from time to time
designate by giving written notice to the other parties hereunder. All notices
and other communications given to any party hereto in accordance with the
provisions of this Agreement shall be deemed to have been given on the fifth
Business Day after the date when sent by registered or certified mail, postage
prepaid, return receipt requested, if by mail, or when delivered to the
telegraph company, charges prepaid, if by telegram, or when receipt is
acknowledged, if by any telecopier or telegraphic communications equipment of
the sender, in each case addressed to such party as provided in this Section 9.1
or in accordance with the latest unrevoked written direction from such party.
SECTION 9.2. Survival of Agreement, Representations and Warranties, etc.
All warranties, representations and covenants made by the Borrower herein
or in any certificate or other instrument delivered by it or on its behalf in
connection with this Agreement shall be considered to have been relied upon by
the Administrative Agent and the Lenders and shall survive the making of the
Loans and the issuance of Letters of Credit herein contemplated and the issuance
and delivery to the Administrative Agent of the Notes regardless of any
investigation made by the Administrative Agent or the Lenders or on their behalf
and shall continue in full force and effect so long as any amount due or to
become due hereunder is outstanding and unpaid and so long as the Commitments
have not been terminated. All statements in any such certificate or other
instrument shall constitute representations and warranties by the Borrower
hereunder.
SECTION 9.3. Successors and Assigns; Syndications; Loan Sales;
Participations.
(a) Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party (provided that the Borrower may not assign its rights hereunder without
the prior written consent of all the Lenders), and all covenants, promises and
agreements by, or on behalf of, the Borrower which are contained in this
Agreement shall inure to the benefit of the successors and assigns of the
Lenders.
(b) Each of the Lenders may (but only with the prior written consent of the
Administrative Agent, the Issuing Lenders and the Borrower, which consents shall
not be unreasonably withheld or delayed) assign to one or more banks or other
financial institutions either (i) all or a portion of its interests, rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and the same portion of the Loans at the time owing to
it and the Notes and interests in Letters of Credit held by it) (a "Ratable
Assignment") or (ii) all or a portion of its rights and obligations under and in
respect of (A) its Commitment under this Agreement and the same portion of the
Revolving Credit Loans at the time owing to it or (B) the Competitive Loans at
the time owing to it (including, without limitation, in the case of any such
type of Loan, the same portion of the associated Note) (a "Non-Ratable
Assignment"); provided that (1) each Non-Ratable Assignment shall be of a
constant, and not a varying, percentage of all of the assigning Lender's rights
<PAGE>
and obligations in respect of the Loans and the Commitment (if applicable) which
are the subject of such assignment, (2) each Ratable Assignment shall be of a
constant, and not a varying, percentage of the assigning Lender's rights and
obligations under this Agreement, (3) the amount of the Commitment or
Competitive Loans, as the case may be, of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Lender) shall be in a minimum
Dollar Equivalent Amount of $10,000,000 unless otherwise agreed by the Borrower
and the Administrative Agent and (4) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register (as defined below), an Assignment and Acceptance,
together with any Note or Notes subject to such assignment (if required
hereunder) and a processing and recordation fee of $3,500. Upon such execution,
delivery, acceptance and recording, and from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be not
earlier than five Business Days after the date of acceptance and recording by
the Administrative Agent, (x) the assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder and (y) the assigning Lender thereunder
shall, to the extent provided in such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of the assigning Lender's
rights and obligations under this Agreement, such assigning Lender shall cease
to be a party hereto, but shall continue to be entitled to the indemnity and
expense reimbursement provisions for the period prior to such Assignment and
Acceptance).
(c) [Intentionally Deleted].
(d) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, the assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in, or in connection with, this
Agreement and any other Fundamental Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Fundamental
Documents or any other instrument or document furnished pursuant hereto or
thereto; (ii) such Lender assignor makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under the Fundamental Documents; (iii) such assignee confirms that
it has received a copy of this Agreement, together with copies of the most
recent financial statements delivered pursuant to Sections 5.1(a) and 5.1(b) (or
if none of such financial statements shall have then been delivered, then copies
of the financial statements referred to in Section 3.4) and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the assigning Lender, the Administrative
Agent, or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under the Fundamental Documents as are delegated to
the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will be
bound by the
<PAGE>
provisions of this Agreement and will perform in accordance with its terms all
of the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(e) The Administrative Agent, on behalf of the Borrower, shall maintain at
its address at which notices are to be given to it pursuant to Section 9.1, a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders and the Commitment of, and
principal amount of the Loans owing to, and interests in Letters of Credit of,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent, the Issuing Lenders and the Lenders may (and, in the case
of any Loan or other obligation hereunder not evidenced by a Note, shall) treat
each Person whose name is recorded in the Register as the owner of a Loan or
other obligation hereunder as the owner thereof for all purposes of this
Agreement and the other Fundamental Documents, notwithstanding any notice to the
contrary. Any assignment of any Loan or other obligation hereunder not evidenced
by a Note shall be effective only upon appropriate entries with respect thereto
being made in the Register. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, any Notes subject to such assignment (if
required hereunder) and the processing and recordation fee, the Administrative
Agent (subject to the right, if any, of the Borrower to require its consent
thereto) shall, if such Assignment and Acceptance has been completed and is in
the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give prompt
written notice thereof to the Borrower. If a portion of its Commitment has been
assigned by an assigning Lender, then such Lender shall deliver its Revolving
Credit Note, if any, at the same time it delivers the applicable Assignment and
Acceptance to the Administrative Agent. If only Competitive Loans have been
assigned by the assigning Lender, such Lender shall not be required to deliver
its Competitive Note to the Administrative Agent, unless such Lender no longer
holds a Commitment under this Agreement, in which event such assigning Lender
shall deliver its Competitive Note, if any, at the same time it delivers the
applicable Assignment and Acceptance to the Administrative Agent. Within five
Business Days after receipt of the notice, the Borrower, at its own expense,
shall execute and deliver to the applicable Lenders at their request, either (A)
a new Revolving Credit Note to the order of such assignee in an amount equal to
the Commitment assumed by it pursuant to such Assignment and Acceptance and a
Competitive Note to the order of such assignee in an amount equal to the Total
Commitment hereunder, and a new Revolving Credit Note to the order of the
assigning Lender in an amount equal to the Commitment retained by it hereunder,
or (B) if Competitive Loans only have been assigned and the assigning Lender
holds a Commitment under this Agreement, then a new Competitive Note to the
order of the assignee Lender in an amount equal to the outstanding principal
amount of the Competitive Loan(s) purchased by it pursuant to the Assignment and
Acceptance, or (C) if Competitive Loans only have been assigned and the
assigning Lender does not hold a Commitment under this Agreement, a new
Competitive Note to the order of such assignee in an amount equal to the
outstanding principal amount of the Competitive Loans(s) purchased by it
pursuant to such Assignment and Acceptance and, a new Competitive Note to the
order of the assigning Lender in an amount equal to the outstanding principal
amount of the
<PAGE>
Competitive Loans retained by it hereunder. Any new Revolving Credit Notes shall
be in an aggregate principal amount equal to the aggregate principal amount of
the Commitments of the respective Lenders. All new Notes shall be dated the date
hereof and shall otherwise be in substantially the forms of Exhibits A-1 and A-2
hereto, as the case may be.
(g) Each of the Lenders may without the consent of the Borrower, the
Administrative Agent or any Issuing Lender sell participations to one or more
banks or other financial institutions (a "Participant") in all or a portion of
its rights and obligations under this Agreement (including, without limitation,
all or a portion of its Commitment and the Loans owing to it and the Note or
Notes and interests in Letters of Credit held by it); provided that (i) any such
Lender's obligations under this Agreement shall remain unchanged, (ii) such
participant shall not be granted any voting rights under this Agreement, except
with respect to matters requiring the consent of each of the Lenders hereunder,
(iii) any such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iv) the participating banks or
other entities shall be entitled to the cost protection provisions contained in
Sections 2.14, 2.15 and 2.17 hereof but a participant shall not be entitled to
receive pursuant to such provisions an amount larger than its share of the
amount to which the Lender granting such participation would have been entitled
to receive, and (v) the Borrower, the Administrative Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement.
(h) The Lenders may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 9.3, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrower furnished to the Administrative Agent by or on behalf
of the Borrower.
(i) Each Lender hereby represents that it is a commercial lender or
financial institution which makes loans in the ordinary course of its business
and that it will make the Loans hereunder for its own account in the ordinary
course of such business; provided that, subject to preceding clauses (a) through
(h), the disposition of the Notes or other evidence of Indebtedness held by that
Lender shall at all times be within its exclusive control.
(j) The Borrower consents that any Lender may at any time and from time to
time pledge, or otherwise grant a security interest in, any Loan or any Note
evidencing such Loan (or any part thereof), including any such pledge or grant
to any Federal Reserve Bank, and this Section shall not apply to any such pledge
or grant; provided that no such pledge or grant shall release a Lender from any
of its obligations hereunder or substitute any such assignee for such Lender as
a party hereto.
SECTION 9.4. Expenses; Documentary Taxes.
Whether or not the transactions hereby contemplated shall be consummated,
the Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the
Administrative Agent and the Arranger in connection with the syndication,
preparation, execution, delivery and administration of this Agreement, the
Notes, the making of the Loans and issuance and administration of the Letters of
<PAGE>
Credit, including but not limited to the reasonable fees and disbursements of
Simpson Thacher & Bartlett, counsel to the Administrative Agent, as well as all
reasonable out-of-pocket expenses incurred by the Lenders in connection with any
restructuring or workout of this Agreement, or the Notes or the Letters of
Credit or in connection with the enforcement or protection of the rights of the
Lenders in connection with this Agreement or the Notes or the Letters of Credit
or any other Fundamental Document, and with respect to any action which may be
instituted by any Person against any Lender or any Issuing Lender in respect of
the foregoing, or as a result of any transaction, action or nonaction arising
from the foregoing, including but not limited to the fees and disbursements of
any counsel for the Lenders or any Issuing Lender. Such payments shall be made
on the date of execution of this Agreement and thereafter promptly on demand.
The Borrower agrees that it shall indemnify the Administrative Agent, the
Lenders and the Issuing Lenders from, and hold them harmless against, any
documentary taxes, assessments or charges made by any Governmental Authority by
reason of the execution and delivery of this Agreement or the Notes or the
issuance of any Letters of Credit or any other Fundamental Document. The
obligations of the Borrower under this Section shall survive the termination of
this Agreement and/or the payment of the Loans and/or expiration of the Letters
of Credit for two years.
SECTION 9.5. Indemnity.
Further, by the execution hereof, the Borrower agrees to indemnify and hold
harmless the Administrative Agent, the Arranger, the Lenders and the Issuing
Lenders and their respective directors, officers, employees and agents (each, an
"Indemnified Party") from and against any and all expenses (including reasonable
fees and disbursements of counsel), losses, claims, damages and liabilities
arising out of any claim, litigation, investigation or proceeding (regardless of
whether any such Indemnified Party is a party thereto) in any way relating to
the transactions contemplated hereby, but excluding therefrom all expenses,
losses, claims, damages, and liabilities arising out of or resulting from the
gross negligence or willful misconduct of the Indemnified Party seeking
indemnification, provided that the Borrower shall not be liable for the fees and
expenses of more than one separate firm for all such Indemnified Parties in
connection with any one such action or any separate but substantially similar or
related actions in the same jurisdiction, nor shall the Borrower be liable for
any settlement of any proceeding effected without the Borrower's written
consent, and provided, further, that this Section 9.5 shall not be construed to
expand the scope of the reimbursement obligations specified in Section 9.4. The
obligations of the Borrower under this Section 9.5 shall survive the termination
of this Agreement and/or payment of the Loans and/or the expiration of the
Letters of Credit.
SECTION 9.6. CHOICE OF LAW.
THIS AGREEMENT AND THE NOTES HAVE BEEN EXECUTED AND DELIVERED IN THE STATE
OF NEW YORK AND SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH, AND
GOVERNED BY, THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE AND, IN THE CASE OF PROVISIONS RELATING TO
INTEREST RATES, ANY APPLICABLE LAWS OF THE UNITED STATES.
<PAGE>
SECTION 9.7. No Waiver.
No failure on the part of the Administrative Agent, any Lender or any
Issuing Lender to exercise, and no delay in exercising, any right, power or
remedy hereunder or under the Notes or with regard to the Letters of Credit
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.
SECTION 9.8. Extension of Maturity.
Except as otherwise specifically provided in Article 7, should any payment
of principal of or interest on the Notes or any other amount due hereunder
become due and payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day and, in the case of
principal, interest shall be payable thereon at the rate herein specified during
such extension.
SECTION 9.9. Amendments, etc.
No modification, amendment or waiver of any provision of this Agreement or
any other Fundamental Document, and no consent to any departure by the Borrower
herefrom or therefrom, shall in any event be effective unless the same shall be
in writing and signed or consented to in writing by the Required Lenders, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given; provided that no such modification or amendment
shall without the written consent of each Lender affected thereby (x) increase
the Commitment of a Lender or postpone or waive any scheduled reduction in the
Commitments, (y) alter the stated maturity or principal amount of any
installment of any Loan, or due date of any Letter of Credit reimbursement
obligation or decrease the rate of interest payable thereon, or the rate at
which the Facility Fees, the Utilization Fees or letter of credit fees accrue or
(z) waive a default under Section 7(b) with respect to a scheduled principal
installment of any Loan or payment of a Letter of Credit reimbursement
obligation or scheduled payment of interest or fees; provided, further, that no
such modification or amendment shall without the written consent of all of the
Lenders (i) amend or modify any provision of this Agreement which provides for
the unanimous consent or approval of the Lenders or (ii) amend this Section 9.9
or the definition of Required Lenders or Supermajority Lenders. No such
amendment or modification may adversely affect the rights and obligations of the
Administrative Agent or any Issuing Lender hereunder without its prior written
consent. No notice to or demand on the Borrower shall entitle the Borrower to
any other or further notice or demand in the same, similar or other
circumstances. Each holder of a Note shall be bound by any amendment,
modification, waiver or consent authorized as provided herein, whether or not a
Note shall have been marked to indicate such amendment, modification, waiver or
consent and any consent by any holder of a Note shall bind any Person
subsequently acquiring a Note, whether or not a Note is so marked.
<PAGE>
SECTION 9.10. Severability.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 9.11. SERVICE OF PROCESS; WAIVER OF JURY TRIAL.
(a) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
STATE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT
OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF BROUGHT BY THE
ADMINISTRATIVE AGENT, A LENDER OR AN ISSUING LENDER. THE BORROWER TO THE EXTENT
PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY
OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN SUCH COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE
JURISDICTION OF THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE
FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED
IN OR BY SUCH COURT, AND (B) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH
ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS
THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. THE
BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT ITS ADDRESS TO WHICH
NOTICES ARE TO BE GIVEN PURSUANT TO SECTION 9.1. THE BORROWER AGREES THAT ITS
SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR
THE EXPRESS BENEFIT OF THE ADMINISTRATIVE AGENT, THE LENDERS AND EACH ISSUING
LENDER. FINAL JUDGMENT AGAINST THE BORROWER IN ANY SUCH ACTION, SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION (A)
BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH
SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF INDEBTEDNESS OR
LIABILITY OF THE SUBMITTING PARTY THEREIN DESCRIBED OR (B) IN ANY OTHER MANNER
PROVIDED BY, OR PURSUANT TO, THE LAWS OF SUCH OTHER JURISDICTION, PROVIDED THAT
THE ADMINISTRATIVE AGENT OR A LENDER OR AN ISSUING LENDER MAY AT IS OPTION BRING
SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST THE BORROWER OR ANY OF ITS
ASSETS IN ANY STATE OR
<PAGE>
FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE THE BORROWER
OR SUCH ASSETS MAY BE FOUND.
(b) TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED,
EACH PARTY HERETO HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER
AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM
IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT
OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR
OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT THE
PROVISIONS OF THIS SECTION 9.11(b) CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH
THE OTHER PARTIES HAVE RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS
AGREEMENT. THE PARTIES HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION 9.11(b) WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF SUCH OTHER
PARTY TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
SECTION 9.12. Headings.
Section headings used herein are for convenience only and are not to affect
the construction of or be taken into consideration in interpreting this
Agreement.
SECTION 9.13. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall constitute an original, but all of which taken together shall constitute
one and the same instrument.
SECTION 9.14. Entire Agreement.
This Agreement represents the entire agreement of the parties with regard
to the subject matter hereof and the terms of any letters and other
documentation entered into among the Borrower, the Administrative Agent or any
Lender (other than the provisions of the letter agreement dated February 25,
2000, among the Borrower, Chase and Chase Securities Inc., relating to fees and
expenses and syndication issues) prior to the execution of this Agreement which
relate to Loans to be made or the Letters of Credit to be issued hereunder shall
be replaced by the terms of this Agreement.
9.15. [Intentionally Deleted].
9.16. European Economic And Monetary Union.
(a) Effectiveness of Provisions. The provisions of paragraphs (b) to (i)
below (inclusive) shall be effective at and from the commencement of the third
stage of EMU, provided that if
<PAGE>
and to the extent that any such provision relates to any state (or the currency
of such state) that is not a participating member state on the commencement of
the third stage of EMU, such provision shall become effective in relation to
such state (and the currency of such state) at and from the date on which such
state becomes a participating member state.
(b) Redenomination and Alternative Currencies. Each obligation under this
Agreement of a party to this Agreement which has been denominated in the
national currency unit of a participating member state shall be redenominated
into the euro unit in accordance with EMU legislation, provided that if and to
the extent that any EMU legislation provides that following the commencement of
the third stage of EMU an amount denominated either in the euro or in the
national currency unit of a participating member state and payable within that
participating member state by crediting an account of the creditor can be paid
by the debtor either in the euro unit or in that national currency unit, each
party to this Agreement shall be entitled to pay or repay any such amount either
in the euro unit or in such national currency unit.
(c) Determination of LIBOR. For the purposes of determining the date on
which LIBOR is determined under this Agreement for any Loan denominated in the
euro (or any national currency unit) for any Interest Period therefor,
references in this Agreement to Business Days shall be deemed to be references
to Target Operating Days. In addition, if the Administrative Agent determines
that LIBOR is not displayed on the screen for deposits denominated in the
national currency unit in which any Loans are denominated, LIBOR for such Loans
shall be based upon the rate displayed on the screen for the offering of
deposits denominated in euro units.
(d) Payments to the Administrative Agent. This Agreement shall be construed
so that, in relation to the payment of any amount of euro units or national
currency units, such amount shall be made available to the Administrative Agent
in immediately available, freely transferable, cleared funds to such account
with such bank in Frankfurt am Main, Germany (or such other principal financial
center in such participating member state as the Administrative Agent may from
time to time nominate for this purpose) as the Administrative Agent shall from
time to time nominate for this purpose. This Agreement shall be construed so
that, in relation to the payment of any euro units or national currency units to
be made, the references to "Business Day" therein shall instead refer to "Target
Operating Day."
(e) Payments by the Administrative Agent to the Lenders. Any amount payable
by the Administrative Agent to the Lenders under this Agreement in the currency
of a participating member state shall be paid in the euro unit.
(f) Payments by the Administrative Agent Generally. With respect to the
payment of any amount denominated in the euro or in a national currency unit,
the Administrative Agent shall not be liable to any Borrower or any of the
Lenders in any way whatsoever for any delay, or the consequences of any delay,
in the crediting to any account of any amount required by this Agreement to be
paid by the Administrative Agent if the Administrative Agent shall have taken
all relevant steps to achieve, on the date required by this Agreement, the
payment of such amount in immediately available, freely transferable, cleared
funds (in the euro unit or, as the case may be, in a national currency unit) to
<PAGE>
the account of any Lender in the principal financial center in the participating
member state which such Borrower or, as the case may be, such Lender shall have
specified for such purpose. In this paragraph (f), "all relevant steps" means
all such steps as may be prescribed from time to time by the regulations or
operating procedures of such clearing or settlement system as the Administrative
Agent may from time to time determine for the purpose of clearing or settling
payments of the euro.
(g) Basis of Accrual. If the basis of accrual of interest or fees expressed
in this Agreement with respect to the currency of any state that becomes a
participating member state shall be inconsistent with any convention or practice
in the LIBOR market for the basis of accrual of interest or fees in respect of
the euro, such convention or practice shall replace such expressed basis
effective as of and from the date on which such state becomes a participating
member state; provided that if any Loan in the currency of such state is
outstanding immediately prior to such date, such replacement shall take effect,
with respect to such Loan, at the end of the then current Interest Period.
(h) Rounding. Without prejudice and in addition to any method of conversion
or rounding prescribed by the EMU legislation, each reference in this Agreement
to a minimum amount (or an integral multiple thereof) in a national currency
unit to be paid to or by the Administrative Agent shall be replaced by a
reference to such reasonably comparable and convenient amount (or an integral
multiple thereof) in the euro unit as the Administrative Agent may from time to
time specify.
(i) Other Consequential Changes. Without prejudice to the respective
liabilities of the Borrower to the Lenders and the Lenders to the Borrower under
or pursuant to this Agreement, except as expressly provided in this Section
9.16, each provision of this Agreement shall be subject to such reasonable
changes of construction as the Administrative Agent may from time to time
specify to be necessary or appropriate to reflect the introduction of or
changeover to the euro in participating member states. Without limiting the
generality of the foregoing, for each Available Foreign Currency that is a
national currency unit, the relevant display page on the Telerate or Reuter
screen used to determine the LIBOR Rate for applicable Loans in such Available
Foreign Currency shall be determined by the Administrative Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first above written.
PHH CORPORATION
By:
------------------------------------------
Title:
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent
By:
------------------------------------------
Title:
<PAGE>
BANK OF AMERICA N.A.
By:
------------------------------------------
Title:
Name:
<PAGE>
BANK OF MONTREAL
By:
------------------------------------------
Title:
Name:
<PAGE>
THE BANK OF NEW YORK
By:
------------------------------------------
Title:
Name:
<PAGE>
THE BANK OF NOVA SCOTIA
By:
------------------------------------------
Title:
Name:
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LIMITED,
NEW YORK BRANCH
By:
------------------------------------------
Title:
Name:
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
------------------------------------------
Title:
Name:
<PAGE>
BANK ONE, NA
By:
------------------------------------------
Title:
Name:
<PAGE>
FUJI BANK LTD.
By:
------------------------------------------
Title:
Name:
<PAGE>
ALLFIRST BANK
By:
------------------------------------------
Title:
Name:
<PAGE>
FIRST UNION NATIONAL BANK
By:
------------------------------------------
Title:
Name:
<PAGE>
FLEET BANK
By:
------------------------------------------
Title:
Name:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED
NEW YORK BRANCH
By:
------------------------------------------
Title:
Name:
<PAGE>
MELLON BANK, N.A.
By:
------------------------------------------
Title:
Name:
<PAGE>
NATIONAL WESTMINSTER BANK PLC
By:
------------------------------------------
Title:
Name:
<PAGE>
NORTHERN TRUST COMPANY
By:
------------------------------------------
Title:
Name:
<PAGE>
ROYAL BANK OF CANADA
By:
------------------------------------------
Title:
Name:
<PAGE>
THE SUMITOMO BANK, LIMITED
By:
------------------------------------------
Title:
Name:
<PAGE>
WELLS FARGO BANK, N.A.
By:
------------------------------------------
Title:
Name:
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:
------------------------------------------
Title:
Name:
By:
------------------------------------------
Title:
Name:
<PAGE>
CREDIT SUISSE FIRST BOSTON
By:
------------------------------------------
Title:
Name:
<PAGE>
Schedule 1.1A
Commitments
-----------
Lender Commitment
------ ----------
The Chase Manhattan Bank $97,500,000.00
Bank of America N.A. $80,000,000.00
Bank One, NA $55,000,000.00
The Bank of Nova Scotia $55,000,000.00
Bank of Montreal $37,500,000.00
Credit Lyonnais $37,500,000.00
First Union National Bank $37,500,000.00
Mellon Bank, N.A. $37,500,000.00
The Bank of New York $37,500,000.00
Royal Bank of Canada $37,500,000.00
Allfirst Bank $25,000,000.00
The Bank of Tokyo-Mitsubishi $25,000,000.00
Credit Suisse First Boston $25,000,000.00
Fleet Bank $25,000,000.00
The Industrial Bank of Japan $25,000,000.00
The Sumitomo Bank, Limited $25,000,000.00
Wells Fargo Bank, N.A. $25,000,000.00
Westdeutsche Landesbank $25,000,000.00
Fuji Bank Ltd. $12,500,000.00
National Westminster Bank PLC $12,500,000.00
Northern Trust Company $12,500,000.00
TOTAL $750,000,000.00
<PAGE>
Schedule 1.1B
Available Foreign Currencies
----------------------------
For purposes of Competitive Loans, Available Foreign Currencies are the
following:
Canadian Dollars
the lawful currency of France
the lawful currency of Germany
Japanese Yen
the lawful currency of England
Swiss Francs
the lawful currency of Italy
<PAGE>
Schedule 3.6
[Intentionally Omitted]
<PAGE>
Schedule 3.9
Litigation
----------
None.
<PAGE>
Schedule 6.1
Existing Indebtedness and Guaranties
------------------------------------
None.
<PAGE>
Schedule 6.5
Existing Liens
--------------
None.
<PAGE>
Exhibit 10.44
EXHIBIT 10.44
CENDANT CORPORATION
1999 NON-EMPLOYEE DIRECTORS
DEFERRED COMPENSATION PLAN
1. Purpose. The purpose of the Cendant Corporation 1999 Non-Employee Directors
Deferred Compensation Plan (the "Plan") is to enable directors of Cendant
Corporation ("Cendant") who are not also employees of Cendant to defer the
receipt of certain compensation earned in their capacity as directors of
Cendant.
2. Eligibility. Directors of Cendant who are not also employees of Cendant
("Directors") are eligible to participate in the Plan, subject to their
election to defer eligible compensation.
3. Administration. The Plan will be administered by the Compensation Committee
of the Board of Directors of Cendant (the "Committee").
4. Deferral of Compensation. Subject to such rules, regulations and procedures
that Cendant may establish from time to time, and subject to the execution
by a Director of a valid deferral election, Directors may elect to defer
all, but not less than all, of their annual retainer fees, as well as such
other fees and payments determined by Cendant to be eligible for deferral
from time to time (collectively, "Fees") into the Plan. All Fees deferred
into the Plan will be converted into a number of Cendant Share Units. The
number of Cendant Share Units allocated to a Director's account will equal
the amount of Fees deferred into the Plan as of any given date (an
"Allocation Date"), divided by the average closing price of a share of
Cendant common stock, par value $0.01 per share ("Cendant Stock"), on the
last five trading days which Cendant Stock was traded immediately prior to
such Allocation Date. An Allocation Date will occur on each date upon which
any Director would otherwise become entitled to receive all or any portion
of any Fee. Each Cendant Share Unit will be the equivalent of one share of
Cendant Stock.
5. Election. In order to participate in the Plan, a Director must complete a
deferral election in such form, and at such time, as determined by Cendant
in its sole discretion. Once an election has been made, it may not be
revoked; provided, however, that a Director may, no later than thirty (30)
days prior to the beginning of any calendar year, revoke an election to the
extent applicable to such calendar year.
6. Dividends. Additional Cendant Share Units will be credited to a Director's
account as of each payment date for cash dividends and/or special dividends
and distributions, if any, on Cendant Stock, based on the number of Cendant
Share Units credited to such Director's account as of the record date for
such dividend or distribution. The number of Cendant Share Units to be
credited to an account as of any dividend
<PAGE>
Exhibit 10.44
payment date or distribution date will equal the quotient obtained by
dividing (A) the product of (i) the number of Cendant Share Units credited
to such account on the dividend or distribution record date and (ii) the
dividend (or distribution value) per share of Cendant Stock, by (B) the
average closing price of a share of Cendant Stock on the last five trading
days immediately prior to such dividend or distribution payment date.
7. Adjustments. If at any time the number of shares of Cendant Stock is
increased or decreased as the result of any stock dividend or distribution,
stock split, combination or reclassification of shares or any similar
transaction, the number of Cendant Share Units in a Director's account will
be equitably adjusted, as determined by the Committee in its sole
discretion, to the extent necessary to preserve, but not increase, the
value of each Director's account.
8. Vesting. Each Director will be fully and immediately vested in his or her
account under the Plan.
9. Payment of Deferred Compensation. Each Director (or his or her beneficiary)
will receive a distribution of his or her account, in the form of shares of
Cendant Stock, within sixty (60) days immediately following the date upon
which such Director is no longer a member of Cendant's Board of Directors
for any reason. The number of shares of Cendant Stock payable to a Director
upon distribution will equal the number of Cendant Share Units held in such
Director's account as of the date of such distribution.
10. Successors in Interest. The obligations of Cendant under the Plan shall be
binding upon any successor or successors of Cendant, whether by merger,
consolidation, sale of assets or otherwise, and for this purpose reference
herein to Cendant shall be deemed to include any such successor or
successors. The right of Directors or that of any other person, to the
payment of deferred compensation or other benefits under this Plan may not
be assigned, transferred, pledged or encumbered except by will or by the
laws of descent and distribution.
10. Miscellaneous. A Director shall have only the interest of an unsecured
general creditor of Cendant in respect of Cendant Share Units allocated to
his or her account. All amounts deferred under the Plan shall remain the
sole property of Cendant, subject to the claims of its general creditors
and available for Cendant's use until actually distributed to the Director.
With respect to amounts deferred under the Plan, the obligation of Cendant
hereunder is purely contractual and shall not be funded or secured in any
way. The administrator of the Plan shall be Cendant or its designee.
Cendant shall have the authority to adopt rules and regulations for
carrying out the Plan and to interpret, construe and implement the
provisions thereof. The distribution of deferred amounts under the Plan to
Directors shall be subject to applicable withholding taxes.
<PAGE>
Exhibit 10.44
11. Governing Laws. This Plan shall be construed and enforced in accordance
with, and governed by, the laws of the State of New Jersey.
12. Termination and Amendment of the Plan. The Board of Directors of Cendant
may terminate this Plan at any time. Upon termination of the Plan, the
remaining balance of the Directors' accounts will be distributed to the
Directors as soon as practicable but in no event more than thirty (30) days
following such termination. The Board of Directors of Cendant may, without
the consent of any Director or beneficiary, amend the Plan at any time and
from time to time; provided, however, that no such amendment shall
adversely affect the rights of any such Director or beneficiary with
respect to amounts previously deferred under the Plan.
13. Interpretation. The Company intends that transactions under this Plan will
be exempt under amended Rule 16b-3 promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended, unless otherwise determined by
the Company.
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of April 1, 1999 by and between
Cendant Corporation, a Delaware corporation ("Cendant") and Samuel L. Katz (the
"Executive").
WHEREAS, Cendant desires to employ the Executive as Executive Vice
President, Strategic Development, and the Executive desires to serve Cendant in
such capacity.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION I
EMPLOYMENT
Cendant agrees to employ the Executive and the Executive agrees to be
employed by Cendant for the Period of Employment as provided in Section III
below and upon the terms and conditions provided in this Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive will serve as Executive
Vice President, Strategic Development, and subject to the direction of the Chief
Executive Officer of Cendant (the "CEO"), will perform such duties and exercise
such supervision with regard to the business of Cendant as are associated with
such position, as well as such additional duties as may be prescribed from time
to time by the CEO. The Executive will, during the Period of Employment, devote
substantially all of his time and attention during normal business hours to the
performance of services for Cendant. The Executive will maintain a primary
office and conduct his business in New York, New York, except for normal and
reasonable business travel in connection with his duties hereunder.
SECTION III
PERIOD OF EMPLOYMENT
The period of the Executive's employment under this Agreement (the
"Period of Employment") will begin on the date hereof and end on December 31,
2002, subject to extension or termination as provided in this Agreement.
<PAGE>
SECTION IV
COMPENSATION AND BENEFITS
A. Compensation.
For all services rendered by the Executive pursuant to this Agreement during
the Period of Employment, including services as an executive, officer, director
or committee member of Cendant or any subsidiary or affiliate thereof, the
Executive will be compensated as follows:
i. Base Salary.
Cendant will pay the Executive a fixed base salary ("Base Salary") of
not less than $500,000, per annum. Effective as of November 1, 1999, the
Executive will be eligible to receive annual increases as the Board of Directors
of Cendant (the "Board") deems appropriate, in accordance with Cendant's
customary procedures regarding the salaries of senior officers, but with due
consideration given to the published Consumer Price Index applicable to the New
York/New Jersey greater metropolitan area. Base Salary will be payable according
to the customary payroll practices of Cendant, but in no event less frequently
than once each month.
ii. Annual Incentive Awards
The Executive will be eligible for discretionary annual incentive
compensation awards; provided, that the Executive will be eligible to receive an
annual bonus opportunity in respect of each fiscal year of Cendant during the
Period of Employment based upon a target bonus equal to 60% of Base Salary (or
such greater percentage to the extent paid to other Executive Vice Presidents of
Cendant), subject to Cendant's attainment of applicable performance targets
established and certified by the Compensation Committee of the Board (the
"Committee"). The parties acknowledge that it is currently contemplated that
such performance targets will be stated in terms of "earnings before interest
and taxes" of Cendant, however such targets may relate to such other financial
and business criteria of Cendant, or any of their respective subsidiaries or
business units, as determined by the Committee in its sole discretion (each such
annual bonus, an "Incentive Compensation Award").
iii. Long-Term Incentive Awards
The Executive will be eligible for annual stock option awards, subject
to the sole discretion of the Committee; provided, however, that the Executive
shall be granted an option covering no less than 500,000 shares of Cendant
common stock
<PAGE>
in connection with Cendant's 1999 annual grant of options to employees and;
further, provided, that such options shall have such other terms and conditions
determined by the Committee in its sole discretion.
iv. Additional Benefits
The Executive will be entitled to participate in all other compensation
and employee benefit plans or programs and receive all benefits and perquisites
for which salaried employees of Cendant generally are eligible under any plan or
program now in effect, or later established by Cendant, on the same basis as
similarly situated senior executives of Cendant with comparable duties and
responsibilities. The Executive will participate to the extent permissible under
the terms and provisions of such plans or programs, and in accordance with the
terms of such plans and program.
SECTION V
BUSINESS EXPENSES
Cendant will reimburse the Executive for all reasonable travel and
other expenses incurred by the Executive in connection with the performance of
his duties and obligations under this Agreement. The Executive will comply with
such limitations and reporting requirements with respect to expenses as may be
established by Cendant from time to time and will promptly provide all
appropriate and requested documentation in connection with such expenses.
SECTION VI
DISABILITY
A. If the Executive becomes Disabled, as defined below, during the Period
of Employment, the Period of Employment may be terminated at the option of the
Executive upon notice of resignation to Cendant, or at the option of Cendant
upon notice of termination to the Executive. Cendant's obligation to make
payments to the Executive under this Agreement will cease as of such date of
termination, except for Base Salary and Incentive Compensation Awards earned but
unpaid as of the date of such termination. In addition, in such event, each of
the Executive's then outstanding options to purchase shares of Cendant common
stock which were granted on or after the date hereof will become immediately and
fully vested and exercisable and, notwithstanding any term or provision of such
option to the contrary, shall remain exercisable until the first to occur of the
third (3rd) anniversary of the date of such termination and the original
expiration date of such option. For purposes of this Agreement, "Disabled" means
the Executive's inability to perform his duties hereunder as a result of serious
physical or mental illness or injury for a period
<PAGE>
of no less than 90 days, together with a determination by an independent medical
authority that (i) the Executive is currently unable to perform such duties and
(ii) in all reasonable likelihood such disability will continue for a period in
excess of 180 days. Such medical authority shall be mutually and reasonably
agreed upon by Cendant and the Executive and such opinion shall be binding on
Cendant and the Executive.
SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, the Period of Employment will end and Cendant's obligation to make
payments under this Agreement will cease as of the date of death, except for
Base Salary and Incentive Compensation Awards earned but unpaid through the date
of death, which will be paid to the Executive's surviving spouse, estate or
personal representative, as applicable. In addition, in such event, each of the
Executive's then outstanding options to purchase shares of Cendant common stock
which were granted on or after the date hereof will become immediately and fully
vested and exercisable and, notwithstanding any term or provision of such
options to the contrary, shall remain exercisable (by the Executive's
beneficiary or estate, as provided in any applicable option plan or agreement)
until the first to occur of the third (3rd) anniversary of such date of
termination and the original expiration date of such option.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. Without Cause Termination and Constructive Discharge. If the
Executive's employment terminates due to either a Without Cause Termination or a
Constructive Discharge, as defined below, Cendant will pay the Executive (or his
surviving spouse, estate or personal representative, as applicable) upon such
Without Cause Termination or Constructive Discharge (i) a lump sum amount equal
to the sum of the Executive's then current Base Salary, plus the Executive's
then current target Incentive Compensation Award, multiplied by the greater of
(x) one and (y) the number of full and partial years remaining in the Period of
Employment and (ii) any and all Base Salary and Incentive Compensation Awards
earned but unpaid through the date of such termination. In addition, in the
event of the termination of the Executive's employment due to a Without Cause
Termination or a Constructive Discharge, each of the Executive's then
outstanding options to purchase shares of Cendant common stock which were
granted on or after the date hereof will become immediately and fully vested and
exercisable and, notwithstanding any term or provision of such option to the
contrary, shall remain exercisable until the first to occur of the third (3rd)
anniversary of the date of such termination, and the original expiration date of
such option.
<PAGE>
B. Termination for Cause; Resignation. If the Executive's employment
terminates due to a Termination for Cause or a Resignation, Base Salary and any
Incentive Compensation Awards earned but unpaid as of the date of such
termination will be paid to the Executive in a lump sum. Except as provided in
this paragraph, Cendant will have no further obligations to the Executive
hereunder.
C. For purposes of this Agreement, the following terms have the
following meanings:
i. "Termination for Cause" means (i) the Executive's willful failure to
substantially perform his duties as an employee of Cendant or any subsidiary
thereof (other than any such failure resulting from incapacity due to physical
or mental illness), (ii) any act of fraud, misappropriation, dishonesty,
embezzlement or similar conduct against Cendant or any subsidiary, (iii) the
Executive's conviction of a felony or any crime involving moral turpitude (which
conviction, due to the passage of time or otherwise, is not subject to further
appeal) or (iv) the Executive's gross negligence in the performance of his
duties.
ii. "Constructive Discharge" means (i) any material failure of Cendant
to fulfill its obligations under this Agreement (including without limitation
any reduction of the Base Salary, as the same may be increased during the Period
of Employment, or other element of compensation), (ii) a material and adverse
change to the Executive's duties and responsibilities to Cendant (including
without limitation the Executive no longer directly reporting to the CEO) or
(iii) the occurrence of a Change of Control Transaction (as defined below). The
Executive will provide Cendant a written notice which describes the
circumstances being relied on for the termination with respect to this Agreement
within thirty (30) days after the event giving rise to the notice. Cendant will
have thirty (30) days after receipt of such notice to remedy the situation prior
to the termination for Constructive Discharge.
iii. "Without Cause Termination" or "Terminated Without Cause" means
termination of the Executive's employment by Cendant other than due to death,
disability, or Termination for Cause.
iv. "Resignation" means a termination of the Executive's employment by the
Executive, other than in connection with a Constructive Discharge.
v. "Change of Control Transaction" means any transaction or series of
transactions pursuant to or as a result of which (i) during any period of not
more than 24 months, individuals who at the beginning of such period constitute
the Board, and any new director (other than a director designated by a third
party who has entered
<PAGE>
into an agreement to effect a transaction described in clause (ii), (iii) or
(iv) of this paragraph (v)) whose election by the Board or nomination for
election by Cendant's stockholders was approved by a vote of at least a majority
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved (other than approval given in connection with an actual or threatened
proxy or election contest), cease for any reason to constitute at least a
majority of the members of the Board, (ii) beneficial ownership of 50% or more
of the shares of Cendant common stock (or other securities having generally the
right to vote for election of the Board) ("Shares") shall be sold, assigned or
otherwise transferred, directly or indirectly, other than pursuant to a public
offering, to a third party, whether by sale or issuance of Shares or other
securities or otherwise, (iii) Cendant or any subsidiary thereof shall sell,
assign or otherwise transfer, directly or indirectly, assets (including stock or
other securities of subsidiaries) having a fair market or book value or earning
power of 50% or more of the assets or earning power of Cendant and its
subsidiaries (taken as a whole) to any third party, other than Cendant or a
wholly-owned subsidiary thereof or (iv) control of 50% or more of the business
of Cendant shall be sold, assigned or otherwise transferred directly or
indirectly to any third party.
D. Conditions to Payment and Acceleration. All payments due to the
Executive under this Section VIII shall be made as soon as practicable;
provided, however, that such payments, as well as the modification of the terms
of any Cendant options provided under this Section VIII, shall be subject to,
and contingent upon, the execution by the Executive (or his beneficiary or
estate) of a release of claims against Cendant and its affiliates in such form
determined by Cendant in its sole discretion. The payments due to the Executive
under this Section VIII shall be in lieu of any other severance benefits
otherwise payable to the Executive under any severance plan of Cendant or its
affiliates. To the extent any term or condition of any option to purchase
Cendant common stock conflicts with any term or condition of this Agreement
applicable to such option, the term or condition set forth in this Agreement
shall govern.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and fully
cooperate with Cendant and its affiliates as may be requested in connection with
any claims or legal action in which Cendant or any of its affiliates is or may
become a party.
<PAGE>
B. The Executive recognizes and acknowledges that all information
pertaining to this Agreement or to the affairs; business; results of operations;
accounting methods, practices and procedures; members; acquisition candidates;
financial condition; clients; customers or other relationships of Cendant or any
of its affiliates ("Information") is confidential and is a unique and valuable
asset of Cendant or any of its affiliates. Access to and knowledge of certain of
the Information is essential to the performance of the Executive's duties under
this Agreement. The Executive will not during the Period of Employment or
thereafter, except to the extent reasonably necessary in performance of his
duties under this Agreement, give to any person, firm, association, corporation,
or governmental agency any Information, except as may be required by law. The
Executive will not make use of the Information for his own purposes or for the
benefit of any person or organization other than Cendant or any of its
affiliates. The Executive will also use his best efforts to prevent the
disclosure of this Information by others. All records, memoranda, etc. relating
to the business of Cendant or its affiliates, whether made by the Executive or
otherwise coming into his possession, are confidential and will remain the
property of Cendant or its affiliates.
C. i. During the Period of Employment and for a two (2) year period
thereafter (the "Restricted Period"), irrespective of the cause, manner or time
of any termination, the Executive will not make any statements or perform any
acts intended to or which may have the effect of advancing the interest of any
existing or prospective competitors of Cendant or any of its affiliates or in
any way injuring the interests of Cendant or any of its affiliates. During the
Restricted Period, the Executive, without prior express written approval by the
Board (which will not be unreasonably withheld), will not engage in, or directly
or indirectly (whether for compensation or otherwise) own or hold proprietary
interest in, manage, operate, or control, or join or participate in the
ownership, management, operation or control of, or furnish any capital to or be
connected in any manner with, any party which competes with the business of
Cendant or any of its affiliates, as such business or businesses may be
conducted from time to time, either as a general or limited partner, proprietor,
common or preferred shareholder, officer, director, agent, employee, consultant,
trustee, affiliate, or otherwise. The Executive acknowledges that Cendant's and
its affiliates' businesses are conducted nationally and internationally and
agrees that the provisions in the foregoing sentence will operate throughout the
United States and the world.
ii. During the Restricted Period, the Executive, without express prior
written approval from the Board, will not solicit any members or the
then-current clients of Cendant or any of its affiliates for any existing
business of Cendant or any of its affiliates or discuss with any employee of
Cendant or any of its affiliates in-
<PAGE>
formation or operation of any business intended to compete with Cendant or any
of its affiliates.
iii. During the Restricted Period, the Executive will not interfere with the
employees or affairs of Cendant or any of its affiliates or solicit or induce
any person who is an employee of Cendant or any of its affiliates to terminate
any relationship such person may have with Cendant or any of its affiliates, nor
will the Executive during such period directly or indirectly engage, employ or
compensate, or cause or permit any person with which the Executive may be
affiliated, to engage, employ or compensate, any employee of Cendant or any of
its affiliates. The Executive hereby represents and warrants that the Executive
has not entered into any agreement, understanding or arrangement with any
employee of Cendant or any of its affiliates pertaining to any business in which
the Executive has participated or plans to participate, or to the employment,
engagement or compensation of any such employee.
iv. For the purposes of this Agreement, proprietary interest means legal or
equitable ownership, whether through stock holding or otherwise, of an equity
interest in a business, firm or entity or ownership of more than 10% of any
class of equity interest in a publicly-held company and the term "affiliate"
will include without limitation all subsidiaries and licensees of Cendant.
D. The Executive hereby acknowledges that damages at law may be an
insufficient remedy to Cendant if the Executive violates the terms of this
Agreement and that Cendant will be entitled, upon making the requisite showing,
to preliminary and/or permanent injunctive relief in any court of competent
jurisdiction to restrain the breach of or otherwise to specifically enforce any
of the covenants contained in this Section IX without the necessity of showing
any actual damage or that monetary damages would not provide an adequate remedy.
Such right to an injunction will be in addition to, and not in limitation of,
any other rights or remedies Cendant may have. Without limiting the generality
of the foregoing, neither party will oppose any motion the other party may make
for any expedited discovery or hearing in connection with any alleged breach of
this Section IX.
E. The period of time during which the provisions of this Section IX
will be in effect will be extended by the length of time during which the
Executive is in breach of the terms hereof as determined by any court of
competent jurisdiction on Cendant's application for injunctive relief.
F. The Executive agrees that the restrictions contained in this Section
IX are an essential element of the compensation the Executive is granted
hereunder and but for the Executive's agreement to comply with such
restrictions, Cendant would not have entered into this Agreement.
<PAGE>
SECTION X
INDEMNIFICATION
Cendant will indemnify the Executive to the fullest extent permitted by
the laws of the state of Cendant's incorporation in effect at that time, or the
certificate of incorporation and by-laws of Cendant, whichever affords the
greater protection to the Executive.
SECTION XI
MITIGATION
The Executive will not be required to mitigate the amount of any
payment provided for hereunder by seeking other employment or otherwise, nor
will the amount of any such payment be reduced by any compensation earned by the
Executive as the result of employment by another employer after the date the
Executive's employment hereunder terminates.
SECTION XII
WITHHOLDING TAXES
The Executive acknowledges and agrees that Cendant may directly or
indirectly withhold from any payments under this Agreement all federal, state,
city or other taxes that will be required pursuant to any law or governmental
regulation.
SECTION XIII
EFFECT OF PRIOR AGREEMENTS
This Agreement will supersede any prior employment agreement between
Cendant and the Executive and any such prior employment agreement will be deemed
terminated without any remaining obligations of either party thereunder.
SECTION XIV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement will preclude Cendant from consolidating or
merging into or with, or transferring all or substantially all of its assets to,
another corporation which assumes this Agreement and all obligations and
undertakings of Cendant hereunder. Upon such a consolidation, merger or sale of
assets the term "Cendant" will mean the other corporation (except with respect
to any determination hereunder as to whether a Change of Control Transaction has
occurred) and this Agreement will continue in full force and effect.
<PAGE>
SECTION XV
MODIFICATION
This Agreement may not be modified or amended except in writing signed
by the parties. No term or condition of this Agreement will be deemed to have
been waived except in writing by the party charged with waiver. A waiver will
operate only as to the specific term or condition waived and will not constitute
a waiver for the future or act on anything other than that which is specifically
waived.
SECTION XVI
GOVERNING LAW
This Agreement has been executed and delivered in the State of New York
and its validity, interpretation, performance and enforcement will be governed
by the internal laws of that state.
SECTION XVII
ARBITRATION
A. Any controversy, dispute or claim arising out of or relating to this
Agreement or the breach hereof which cannot be settled by mutual agreement
(other than with respect to the matters covered by Section IX for which Cendant
may, but will not be required to, seek injunctive relief) will be finally
settled by binding arbitration in accordance with the Federal Arbitration Act
(or if not applicable, the applicable state arbitration law) as follows: Any
party who is aggrieved will deliver a notice to the other party setting forth
the specific points in dispute. Any points remaining in dispute twenty (20) days
after the giving of such notice may be submitted to arbitration in New York, New
York, to the American Arbitration Association, before a single arbitrator
appointed in accordance with the arbitration rules of the American Arbitration
Association, modified only as herein expressly provided. After the aforesaid
twenty (20) days, either party, upon ten (10) days notice to the other, may so
submit the points in dispute to arbitration. The arbitrator may enter a default
decision against any party who fails to participate in the arbitration
proceedings.
B. The decision of the arbitrator on the points in dispute will be
final, unappealable and binding, and judgment on the award may be entered in any
court having jurisdiction thereof.
C. Except as otherwise provided in this Agreement, the arbitrator will
be authorized to apportion its fees and expenses and the reasonable attorneys'
<PAGE>
fees and expenses of any such party as the arbitrator deems appropriate. In the
absence of any such apportionment, the fees and expenses of the arbitrator will
be borne equally by each party, and each party will bear the fees and expenses
of its own attorney.
D. The parties agree that this Section XVII has been included to
rapidly and inexpensively resolve any disputes between them with respect to this
Agreement, and that this Section XVII will be grounds for dismissal of any court
action commenced by either party with respect to this Agreement, other than
post-arbitration actions seeking to enforce an arbitration award. In the event
that any court determines that this arbitration procedure is not binding, or
otherwise allows any litigation regarding a dispute, claim, or controversy
covered by this Agreement to proceed, the parties hereto hereby waive any and
all right to a trial by jury in or with respect to such litigation.
E. The parties will keep confidential, and will not disclose to any
person, except as may be required by law, the existence of any controversy
hereunder, the referral of any such controversy to arbitration or the status or
resolution thereof.
SECTION XVIII
SURVIVAL
Sections IX, X, XI, XII, and XVII will continue in full force in
accordance with their respective terms notwithstanding any termination of the
Period of Employment.
SECTION XIX
SEPARABILITY
All provisions of this Agreement are intended to be severable. In the
event any provision or restriction contained herein is held to be invalid or
unenforceable in any respect, in whole or in part, such finding will in no way
affect the validity or enforceability of any other provision of this Agreement.
The parties hereto further agree that any such invalid or unenforceable
provision will be deemed modified so that it will be enforced to the greatest
extent permissible under law, and to the extent that any court of competent
jurisdiction determines any restriction herein to be unreasonable in any
respect, such court may limit this Agreement to render it reasonable in the
light of the circumstances in which it was entered into and specifically enforce
this Agreement as limited.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
CENDANT CORPORATION
-----------------------------------
By: Thomas D. Christopoul
Title: Executive Vice President
Human Resources
SAMUEL L. KATZ
-----------------------------------
<PAGE>
EXHIBIT 12
CENDANT CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings before fixed charges:
Income (loss) before income taxes and minority
interest ................................................... $(574) $ 315 $ 257 $ 533 $ 350
Plus: Fixed charges ...................................... 625 677 409 325 291
Less: Equity income in unconsolidated affiliates ......... 18 14 51 -- --
Capitalized interest ..................................... -- -- -- 1 --
Minority interest in mandatorily redeemable
preferred trust securities issued by subsidiary
holding solely senior debentures issued by the
Company ................................................. 96 80 -- -- --
----- ------- ------- ------- -------
Earnings available to cover fixed charges ................... $ (63) $ 898 $ 615 $ 857 $ 641
===== ======= ======= ======= =======
Fixed charges (1):
Interest, including amortization of deferred financing
costs ...................................................... $ 463 $ 509 $ 379 $ 300 $ 270
Capitalized interest ........................................ -- -- 1 --
Other charges, financing costs .............................. 28 -- -- --
Minority interest in mandatorily redeemable
preferred trust securities issued by subsidiary
holding solely senior debentures issued by the
Company .................................................... 96 80 -- -- --
Interest portion of rental payment .......................... 66 60 30 24 21
----- ------- ------- ------- -------
Total fixed charges ......................................... $ 625 $ 677 $ 409 $ 325 $ 291
===== ======= ======= ======= =======
Ratio of earnings to fixed charges (2) ...................... (*) 1.33x 1.50x 2.64x 2.20x
===== ======= ======= ======= =======
</TABLE>
- ----------
(1) 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).
(2) For the years ended December 31, 1998, 1997, 1996 and 1995, income from
continuing operations before income taxes, minority interest,
extraordinary gain and cumulative effect of accounting change includes
other charges of $810 million (exclusive of financing costs of $30
million), $704 million, $109 million and $97 million, respectively.
Excluding such charges, the ratio of earnings to fixed charges for the
years ended December 31, 1998, 1997, 1996 and 1995 is 2.52x, 3.22x, 2.97x
and 2.54x, respectively.
(*) Earnings are inadequate to cover fixed charges for the year ended December
31, 1999 (deficiency of $688 million) as a result of unusual charges of
$3,032 million offset by $1,109 million net gain on dispositions of
businesses. Excluding such charges and net gain on dispositions of
businesses, the ratio of earnings to fixed charges is 2.98x.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
CENDANT CORPORATION
SIGNIFICANT SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
- ---------------------------------------- -----------------------
<S> <C>
Benefit Consultants, Inc. DE
Cendant Capital I DE
Cendant Finance Holding Corporation DE
Cendant Membership Services, Inc. DE
Cendant Mobility Services Corp. DE
Cendant Mortgage Corporation NJ
Cendant Operations, Inc. DE
Coldwell Banker Corporation DE
FISI* Madison Financial Corporation TN
HFS Dublin Unlimited United Kingdom
National Parking Corporation Limited United Kingdom
PHH Corporation MD
PHH Holdings Corporation MD
RCI General Holdco 1, Inc. DE
RCI General Holdco 2, Inc. DE
RCI Holdings One, Inc. DE
Resort Condominiums International, LLC DE
TM Acquisition Group DE
Wizard Co. Inc. DE
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Cendant Corporation's
Registration Statement Nos. 333-11035, 333-17323, 333-17411, 333-20391,
333-23063, 333-26927, 333-35707, 333-35709, 333-45155, 333-45227, 333-49405,
333-78447, and 333-86469 on Form S-3, and Registration Statement Nos. 33-74066,
33-91658, 333-00475, 333-03237, 33-58896, 33-91656, 333-03241, 33-26875,
33-75682, 33-93322, 33-93372, 33-75684, 33-80834, 33-74068, 33-41823, 33-48175,
333-09633, 333-09655, 333-09637, 333-22003, 333-30649, 333-42503, 333-34517-2,
333-42549, 333-45183, 333-47537, 333-69505, 333-75303 and 333-78475 on Form S-8
of our report dated February 28, 2000 (which expresses an unqualified opinion
and includes an explanatory paragraph relating to the change in the method of
recognizing revenue and membership solicitation costs as described in Note 1)
appearing in this Annual Report on Form 10-K of Cendant Corporation for the
year ended December 31, 1999.
/s/ Deloitte & Touche LLP
New York, New York
February 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,164
<SECURITIES> 0
<RECEIVABLES> 1,094
<ALLOWANCES> 68
<INVENTORY> 0
<CURRENT-ASSETS> 4,592
<PP&E> 1,737
<DEPRECIATION> 390
<TOTAL-ASSETS> 15,149
<CURRENT-LIABILITIES> 5,610
<BONDS> 2,445
1,478
0
<COMMON> 9
<OTHER-SE> 2,197
<TOTAL-LIABILITY-AND-EQUITY> 15,149
<SALES> 0
<TOTAL-REVENUES> 5,402
<CGS> 0
<TOTAL-COSTS> 3,854
<OTHER-EXPENSES> 1,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> (574)
<INCOME-TAX> (406)
<INCOME-CONTINUING> (229)
<DISCONTINUED> 174
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
