UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the year ended December 31, 1998 Commission file number 1-7797
PHH CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-0551284
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6 Sylvan Way, Parsippany, New Jersey 07054
Address of principal executive offices) (Zip Code)
(973) 428-9700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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 Exchange Act of 1934 during
the preceding 12 months 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 [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 1998: $0
Number of shares of PHH Corporation outstanding on December 31, 1998: 1000
PHH Corporation meets the conditions set forth in General Instructions I (1) (a)
and (b) to Form 10-K and is therefore filing this form with the reduced
disclosure format.
<PAGE>
PHH CORPORATION
PART I
Except as expressly indicated or unless the context otherwise requires, the
"Company", "PHH", "we", "our", or "us" means PHH Corporation, a Maryland
Corporation, and its subsidiaries.
Item 1. Business
Pursuant to a merger with HFS Incorporated ("HFS"), effective April 30, 1997, we
became a wholly owned subsidiary of HFS (the "HFS Merger"). On December 17,
1997, pursuant to a merger agreement between CUC International Inc. ("CUC") and
HFS, HFS was merged into CUC (the "Cendant Merger"), with CUC surviving and
changing its name to Cendant Corporation ("Cendant"). As a result of the Cendant
Merger, we became a wholly owned subsidiary of Cendant.
As part of Cendant's ongoing evaluation of its business units, we may from time
to time explore our ability to make divestitures and enter into related
transactions as they arise. No assurance can be given that any divestiture or
other transaction will be consummated or, if consummated, the magnitude, timing,
likelihood or financial or business effect on us of such transactions. Among the
factors we will consider in determining whether or not to consummate any
transaction is the strategic and financial impact of such transaction on us and
our parent company, Cendant.
In connection with the HFS Merger, our fiscal year was changed from a year
ending on April 30 to a year ending on December 31.
GENERAL
We operate in three business segments: fleet, relocation and mortgage. Our
businesses provide a range of complementary consumer and business services. Our
businesses provide home buyers with mortgages, assist in employee relocations
and manage corporate and government vehicle fleets. Our fleet segment is
conducted primarily by our PHH Vehicle Management Services subsidiaries, which
operate the second largest provider in North America of comprehensive vehicle
management services, and our PHH Vehicle Management Services PLC and Cendant
Business Answers PLC subsidiaries, which are the market leaders in the United
Kingdom for fuel and fleet management 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.
Additional information related to the Company's business segments, including
financial data is included in Note 16 - Segment Information in the notes to
consolidated financial statements.
Certain statements in this Annual Report on Form 10-K, including without
limitation certain matters discussed in "Item 7. Management's Narrative Analysis
of Results of Operations and Liquidity and Capital Resources," constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance, or achievements to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Important assumptions and other important factors
that could cause actual results to differ materially from those in the
forward-looking statements, include, but are not limited to: the effect of
economic and market conditions, the ability to obtain financing, the level and
volatility of interest rates, outcome of the pending litigation relating to the
accounting irregularities at Cendant, our ability and our vendors to complete
the necessary actions to achieve a year 2000 conversion for our computer systems
as applications, the effect of any corporate transactions, including any
divestitures, and other risks and uncertainties. Other factors and assumptions
not identified above were also involved in the derivation of these
forward-looking statements, and the failure of such other assumptions to be
realized as well as other factors may also cause actual results to differ
materially from those projected. The Company assumes no obligation to update
these forward-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
statements.
Our principal executive offices are located at 6 Sylvan Way, Parsippany, NJ
07054 (telephone 973-428-9700).
FLEET SEGMENT
General. The Fleet Segment represented approximately 27%, 31% and 35%
of our net revenues for the years ended December 31, 1998, 1997 and 1996,
respectively. Through our PHH Vehicle Management Services Corporation, PHH
Management Services PLC and Cendant Business Answers PLC subsidiaries, we offer
a full range of fully integrated fleet management services to corporate clients
and government agencies comprising over 672,000 vehicles under management on a
worldwide basis. These services include vehicle leasing, advisory services and
fleet management services for a broad range of vehicle fleets. Advisory services
include fleet policy analysis and recommendations, benchmarking, and vehicle
recommendations and specifications. In addition, we provide managerial services
which include ordering and purchasing vehicles, arranging for their delivery
through dealerships located throughout the United States, Canada, United Kingdom
("UK"), Germany and the Republic of Ireland, as well as capabilities throughout
Europe, administration of the title and registration process, tax and insurance
requirements, pursuing warranty claims with vehicle manufacturers and
remarketing used vehicles. We also offer 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, securitized financing arrangements and bank lines of credit. At
December 31, 1998, we employed approximately 1,800 people in our fleet business.
Through our PHH Vehicle Management Services subsidiaries in the United
States and Canada, our Cendant Business Answers PLC subsidiary in the UK, and
our PHH Deutschland subsidiary in Germany, we also offer fuel and expense
management programs to corporations and government agencies for the effective
management and control of automotive business travel expenses. We also manage
the fuel and expense management business in the UK on behalf of the Parent
Company's Harpur Group Limited subsidiary. By utilizing our service cards issued
under the fuel and expense management programs, a client's representatives are
able to purchase various products and services such as gasoline, tires,
batteries, glass and maintenance services at numerous outlets. Service fees are
earned for billing, collection and record keeping services and for assuming
credit risk. These fees are paid by the vendor and are based upon the total
dollar amount of fuel purchased or the number of transactions processed.
Products. Our fleet management services are divided into two principal
products: (1) Asset Based Products, and (2) Fee Based Products.
Asset Based Products represent the services our clients require to
lease a vehicle which includes vehicle acquisition, vehicle remarketing,
financing, and fleet management consulting. We lease in excess of 350,000 units
on a worldwide basis through both open-end lease structures and closed-end lease
structures. Open-end leases are 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 can be 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 are typically structured with a 12 month minimum
lease term, with month to month renewals thereafter. The typical unit remains
under lease for approximately 34 months. A client receives a full range of
services in exchange for a monthly rental payment which includes a management
fee. The residual risk on the value of the vehicle at the end of the lease term
remains with the lessee under an open-end lease, except for a small amount which
is retained by the lessor.
Closed-end leases are structured with a fixed term with the lessor
retaining the vehicle residual risk. The most prevalent lease terms are 24
months, 36 months, and 48 months. The closed-end lease structure is preferred in
Europe due to certain accounting regulations. The closed-end lease structure is
utilized by approximately 71% of the vehicles leased in Europe, but only 14% of
the vehicles leased on a worldwide basis. We utilize independent third party
valuations and internal projections to set the residuals utilized for these
leases.
The Fee Based Products are designed to effectively manage costs and
enhance driver productivity. The three main Fee Based Products are Fuel
Services, Maintenance Services and Accident Management. Fuel Services represents
the utilization of our proprietary cards to access fuel through a network of
franchised and independent fuel stations. The cards operate as a universal card
with centralized billing designed to measure and manage costs.
We offer customer vehicle maintenance charge cards that are used to
facilitate repairs and maintenance payments. The vehicle maintenance cards
provide 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 maintain 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 provide 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 receive
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 provides customers with
extremely favorable repair terms and (3) expertise of our damage specialists,
who ensure that vehicle appraisals and repairs are appropriate, cost-efficient,
and in accordance with each customer's specific repair policy.
Competitive Conditions. The principal factors for competition in
vehicle management services are quality of service and price. We are
competitively positioned as a fully integrated provider of fleet management
services with a broad range of product offerings. We rank second in the United
States in the number of vehicles under management and are a leader in
proprietary fuel and maintenance cards for fleet use in circulation. There are
four other major providers of fleet management service in the United States,
hundreds of local and regional competitors, and numerous niche competitors who
focus on only one or two products and do 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. The unpenetrated market and the
continued focus by corporations on cost efficiency and outsourcing will provide
the growth platform in the future.
In the UK, we rank first in vehicles under management and are a leader
in proprietary fuel and maintenance cards. We continue to compete against
numerous local and regional competitors. The UK operation has been able to
differentiate itself through its breadth of product offerings.
RELOCATION SEGMENT
General. Our Relocation Segment represented approximately 40%, 48% and
47% of our net revenues for the years ended December 31, 1998, 1997 and 1996,
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 approximately 15,000 employees internationally each year in
92 countries and 300 destination cities.
At December 31, 1998, we employed approximately 3,300 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 include primarily evaluation, inspection and
selling of transferees' homes or purchasing a transferee's home which is not
sold for at least a price determined on the estimated value within a specified
time period, equity advances (generally guaranteed by the corporate customer),
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 the equity advances. 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 and one
corporate client). As a result of the obligations of most corporate clients to
pay the losses 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 with government clients
and one corporate client, which comprise approximately 5% of net revenue, where
we assume the risk for losses on the sale of homes, 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 gives employees guaranteed offers for their
homes and assists clients in the management of 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 services provides coordination for moves
involving a number of employees. 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 nearly 70,000 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 provides 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 provides home buying and selling assistance, as well as
mortgage assistance and moving services to members of applicable organizations.
Personal assistance is provided to over 40,000 individuals with approximately
17,500 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 340 principal
brokers and 420 associate brokers. Our van line, insurance, appraisal and
closing networks allow us to receive deep 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 third in the UK.
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 quarter.
MORTGAGE SEGMENT
General. Our Mortgage Segment represented approximately 32%, 21% and
18% of our net revenues for the years ended December 31, 1998, 1997 and 1996,
respectively. Through our Cendant Mortgage Corporation ("Cendant Mortgage")
subsidiary, we are the tenth largest originator of residential first mortgage
loans in the United States as reported by Inside Mortgage Finance in 1998, and,
on a retail basis, we are the sixth largest originator in 1998. We offer
services consisting of the origination, sale and servicing of residential first
mortgage loans. A full line of first mortgage products are marketed to consumers
through relationships with corporations, affinity groups, financial
institutions, real estate brokerage firms, including CENTURY 21(R), Coldwell
Banker(R) and ERA(R) franchisees, and other mortgage banks. Cendant Mortgage is
a centralized mortgage lender conducting its business in all 50 states.
At December 31, 1998, Cendant Mortgage had approximately 4,000 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 Teleservices. Mortgages are offered to consumers through an
800 number teleservices operation based in New Jersey under
programs including Phone In-Move In(R) for real estate
organizations, 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 which contributes to
Cendant Mortgage ranking as the sixth largest retail
originator (Inside Mortgage Finance) in 1998.
o Point of Sale. Mortgages are offered to consumers through 175
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 and are equipped with software to obtain product
information, quote interest rates and prepare a mortgage
application with the consumer. Originations from these point
of sale offices are generally more costly than teleservices
originations.
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. Originations from our
wholesale/correspondent platform are more costly than point of
sale or teleservices originations.
Strategy. Our strategy is to increase market share by expanding all of
our sources of business with emphasis on the Phone In-Move In(R) program. Phone
In-Move In(R) was developed for real estate firms approximately 21 months ago
and is currently established in over 4,000 real estate offices at December 31,
1998. We are well positioned to expand our relocation and financial institutions
business channels as it increases our linkage to Cendant Mobility clients and
works with financial institutions which desire to outsource their mortgage
originations operations to Cendant Mortgage. 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 and price. There are an estimated
20,000 national, regional or local providers of mortgage banking services across
the United States. Cendant Mortgage has increased its mortgage origination
market share in the United States to 1.8% in 1998 from 0.9% in 1996. The market
share leader reported a 7.7% market share in the United States according to
Insider Mortgage Finance for 1998.
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.
REGULATION
The federal Real Estate Settlement Procedures Act 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 parent's real estate brokerage franchisees and our
mortgage and relocation businesses. 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.
EMPLOYEES
As of December 31, 1998, we had approximately 9,100 employees.
Item 2. Properties
The offices of our fleet operations in North America are located throughout the
U.S. and Canada. Primary office facilities are located in a six-story, 200,000
square foot office building in Hunt Valley, Maryland, leased until September
2003 and offices in Mississauga, Canada, consisting of 41,466 square feet,
leased until February 2003 and various other small offices throughout Canada
with leases expiring between 2000 and 2004.
Our relocation operations in North America occupy approximately 519,020 square
feet in various offices located throughout the U.S. The primary office
facilities are located in Danbury, Connecticut, one building having
approximately 230,000 square feet, leased until July, 2008 and two other
buildings totaling 45,546 square feet with leases expiring in 2003 and 2004.
There are three other regional offices located in Las Colinas, Texas,
Schaumburg, Illinois, and Walnut Creek, California for a total square footage of
approximately 120,000.
Our mortgage operations are located in several offices in Mount Laurel, Cherry
Hill and Moorestown, New Jersey occupying approximately 500,000 square feet and
have various lease expiration dates. The primary building consists of 127,000
square feet and the lease expires in November 30, 2002.
The international offices of our fleet and relocation operations located in the
UK and Europe are as follows: a 129,000 square foot building which is owned by
us located in Swindon, UK; and field offices having an aggregate of
approximately 57,000 square feet located in Swindon, Manchester and Birmingham
UK; Munich, Germany; and Dublin, Ireland, are leased for various terms to
February 2015.
We consider that our properties are generally in good condition and well
maintained and are generally suitable and adequate to carry on our business.
Item 3. Legal Proceedings
We are a party to various litigation matters arising in the ordinary course of
business and a plaintiff in several collection matters which are not considered
material either individually or in the aggregate.
As a result of previously announced accounting irregularities at Cendant, our
parent, Cendant is subject to numerous purported class action lawsuits, two
purported derivative lawsuits and an individual lawsuit asserting various claims
under the federal securities laws and certain state statutory and common laws.
In addition, the staff of the Securities and Exchange Commission ("SEC") and the
United States Attorney for the District of New Jersey are conducting
investigations relating to Cendant's accounting issues. The staff of the SEC has
advised Cendant that its inquiry should not be construed as an indication by the
SEC or its staff that any violations of law occurred. (See Note 12 to the
consolidated financial statements).
Item 4. Results of Votes of Security Holders
Not Applicable
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Not Applicable
Item 6. Selected Financial Data
Not Applicable
<PAGE>
Item 7. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS AND LIQUIDITY
AND CAPITAL RESOURCES
We are a leading provider of mortgage, relocation and fleet services. In April
1997, we merged with a wholly-owned subsidiary of HFS Incorporated ("HFS") (the
"HFS Merger"), and in December 1997, HFS merged with and into CUC International,
Inc. ("CUC") (the "Cendant Merger") to form Cendant Corporation ("Cendant" or
the "Parent Company"). Effective upon the Cendant Merger, we became a
wholly-owned subsidiary of Cendant. However, pursuant to certain covenant
requirements in the indentures under which we issue debt, we continue to operate
and maintain our status as a separate public reporting entity.
As part of Cendant's ongoing evaluation of its business units, we may from time
to time explore opportunities to make divestitures and enter into related
transactions as they arise. No assurance can be given that any divestiture or
other transaction will be consummated or, if consummated, the magnitude, timing,
likelihood or financial or business effect on us of such transactions. Among the
factors considered in determining whether or not to consummate any transaction
is the strategic and financial impact of such transaction on us and our parent
company, Cendant.
Results of Operations
This discussion should be read in conjunction with the information contained in
our Consolidated Financial Statements and accompanying Notes thereto appearing
elsewhere in this Annual Report on Form 10-K.
The underlying discussion of each segment's operating results focuses on
Adjusted EBITDA, which is defined as earnings before (i) non-operating interest,
(ii) income taxes and (iii) depreciation and amortization (exclusive of
depreciation and amortization on assets under management and mortgage programs),
adjusted to exclude merger-related costs and other unusual charges ("Unusual
Charges") which were incurred in connection with the HFS Merger and the Cendant
Merger. Such charges are of a non-recurring or unusual nature and are not
included in assessing segment performance or are not segment-specific. We
believe such discussion is the most informative representation of how
our management evaluates performance. We determined that we have three
reportable operating segments based primarily on the types of services we
provide, the consumer base to which marketing efforts are directed and the
methods used to sell services. For additional information, including a
description of the services provided in each of our reportable operating
segments, see Note 1 to the consolidated financial statements.
Year Ended December 31, 1998 vs. Year Ended December 31, 1997
Revenues increased $237.0 million (28%) from $860.6 million in 1997 to $1.1
billion in 1998. In addition, Adjusted EBITDA which excludes Unusual Charges
(credits) of ($20.2) million and $251.0 million in 1998 and 1997, respectively,
increased $182.9 million (67%) from $273.3 million in 1997 to $456.2 million in
1998. The Adjusted EBITDA margin in 1998 was 42%, an improvement of ten
percentage points over 1997.
Mortgage revenues and Adjusted EBITDA increased $174.1 million (97%) and $110.9
million (148%), respectively, in 1998 over 1997. Mortgage origination grew
across all lines of business, including increased refinancing activity and a
shift to more profitable sales and processing channels and was responsible for
substantially all of the segment's revenue growth. Mortgage closings increased
$14.3 billion (122%) and average origination fees increased 12 basis points,
resulting in a $180.3 million increase in origination revenues. 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 thereby contributing to an
improvement in the Adjusted EBITDA margin within the mortgage segment from 42%
in 1997 to 53% in 1998.
Relocation revenues and Adjusted EBITDA increased $34.6 million (8%) and $34.8
million (39%), respectively, in 1998 over 1997, while the Adjusted EBITDA margin
improved from 22% to 28%. The primary source of revenue growth was a $29.3
million increase in revenues from the relocation of government employees. In
addition, the divestiture of certain niche-market property management operations
accounted for other revenue of $8.2 million in 1998. Expenses associated with
government relocations increased in conjunction with volume and revenue growth,
but economies of scale and a reduction in overhead and administrative expenses
resulted in the improvement in Adjusted EBITDA margin.
Fleet revenues and Adjusted EBITDA increased $22.9 million (8%) and $30.9
million (29%), respectively, in 1998 over 1997, while the Adjusted EBITDA margin
improved from 39% to 47%. The revenue growth is attributable to increases in
fleet leasing fees and service fee revenue. Fleet leasing revenue increased due
to increases in both pricing and the number of vehicles leased, while service
fee revenue increased as a result of an increase in number of fuel cards and
vehicle maintenance cards, partially offset by a decline in pricing. The
Adjusted EBITDA margin improvement reflects a reduction in overhead costs.
Liquidity and Capital Resources
We manage our funding sources to ensure adequate liquidity. The sources of
liquidity fall into three general areas: ongoing liquidation of assets under
management, global capital markets, and committed credit agreements with various
high-quality domestic and international banks. In the ordinary course of
business, the liquidation of assets under management programs, as well as cash
flows generated from operating activities, provide the cash flow necessary for
the repayment of existing liabilities. Financial covenants are designed to
ensure our self-sufficient liquidity status. Financial covenants include
restrictions on dividends payable to the Parent Company and Parent Company
loans, limitations on the ratio of debt to equity, and other separate financial
restrictions.
Our exposure to interest rate and liquidity risk is minimized 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. Using historical information, we project the time period
that a client's vehicle will be in service or the length of time that a home
will be held before being sold on behalf of the client. Once the relevant asset
characteristics are projected, we generally match the projected dollar amount,
interest rate and maturity characteristics of the assets within the overall
funding program. This is accomplished through stated debt terms or effectively
modifying such terms through other instruments, primarily interest rate swap
agreements and revolving credit agreements. Within mortgage services, we fund
the mortgage loans on a short-term basis until the mortgage loans are sold to
unrelated investors, which generally occurs within sixty days. Interest rate
risk on mortgages originated for sale is managed through the use of forward
delivery contracts, financial futures and options. Financial derivatives are
also used as a hedge to minimize earnings volatility as it relates to mortgage
servicing assets.
We support purchases of leased vehicles, originated mortgages and advances under
relocation contracts primarily by issuing commercial paper, medium term notes
and by maintaining securitized obligations. Such financing is included in
liabilities under management and mortgage programs since such debt corresponds
directly with high quality related assets. We continue to pursue opportunities
to reduce our borrowing requirements by securitizing increasing amounts of our
high quality assets. Additionally, we entered into a three year agreement
effective May 1998 and expanded in December 1998 under which an unaffiliated
Buyer (the "Buyer") committed to purchase, at our option, mortgage loans
originated by us on a daily basis, up to the Buyer's asset limit of $2.4
billion. Under the terms of this sale agreement, we retain the servicing rights
on the mortgage loans sold to the Buyer and provide the Buyer with the option to
sell or securitize the mortgage loans into the secondary market. At December 31,
1998, we were servicing approximately $2.0 billion of mortgage loans owned by
the Buyer.
In October 1998, Moody's Investors Service, Inc. and Standard and Poors
Corporation reduced our long-term and short-term debt ratings to A3/P2 and
A-/A2, respectively from A2/P1 and A+/A1, respectively. Our long-term and
short-term credit ratings remain A+/F1 and A+/D1 with Fitch IBCA and Duff and
Phelps Credit Rating Co., respectively. While the recent downgrading caused us
to incur an increase in cost of funds, management believes our sources of
liquidity continue to be adequate. (A security rating is not a recommendation to
buy, sell or hold securities and is subject to revision or withdrawal at any
time).
We expect to continue to maximize our access to global capital markets by
maintaining the quality of our assets under management. This is achieved by
establishing credit standards to minimize credit risk and the potential for
losses. Depending upon asset growth and financial market conditions, we utilize
the United States, European and Canadian commercial paper markets, as well as
other cost-effective short-term instruments. In addition, we will continue to
utilize the public and private debt markets as sources of financing. Augmenting
these sources, we 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, 1998, aggregate borrowings were
comprised of commercial paper, medium-term notes, securitized obligations and
other borrowings of $2.5 billion, $2.3 billion, $1.9 billion, and $0.2 billion,
respectively.
We filed a shelf registration statement with the Securities and Exchange
Commission ("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. The proceeds will be used to finance assets we
manage for our clients and for general corporate purposes. As of December 31,
1998, we had approximately $1.6 billion of medium-term notes outstanding under
this shelf registration statement.
<PAGE>
Securitized Obligations
We maintain four separate financing facilities, the outstanding borrowings of
which are securitized by corresponding assets under management and mortgage
programs. The collective weighted average interest rate on such facilities was
5.8% at December 31, 1998. Such securitized obligations are described below.
Mortgage Facility. In December 1998, we entered into a 364-day financing
agreement to sell mortgage loans under an agreement to repurchase (the
"Agreement") 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 $500.0 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, 1998 totaled $378.0 million.
Relocation Facilities. We entered into a 364-day asset securitization
agreement effective December 1998 under which an unaffiliated buyer has
committed to purchase an interest in the rights to payment related to
certain of our relocation receivables. The revolving purchase commitment
provides for funding up to a limit of $325.0 million and is renewable on an
annual basis at the discretion of the lender in accordance with the
securitization agreement. Under the terms of this agreement, we retain the
servicing rights related to the relocation receivables. At December 31,
1998, we were servicing $248.0 million of assets which were funded under
this agreement.
We also maintain an asset securitization agreement, with a separate
unaffiliated buyer, which has a purchase commitment up to a limit of $350.0
million. The terms of this agreement are similar to the aforementioned
facility, whereby we retain the servicing rights on the rights of payment
related to certain of our relocation receivables. At December 31, 1998, we
were servicing $171.0 million of assets eligible for purchase under this
agreement.
Fleet Facilities. In December 1998, we entered into two secured financing
transactions each expiring five years from the effective agreement date
through our two wholly-owned subsidiaries, TRAC Funding and TRAC Funding
II. Secured leased assets (specified beneficial interests in a trust which
owns the leased vehicles and the leases (the "Trust")) totaling $600.0
million and $725.3 million, respectively, were contributed to our
subsidiaries. Loans to TRAC Funding and TRAC Funding II were funded by
commercial paper conduits in the amounts of $500.0 million and $604.0
million, respectively, and were secured by the specified beneficial
interests in the Trust. Monthly loan repayments conform to the amortization
of the leased vehicles with the repayment of the outstanding loan balance
required at time of disposition of the vehicles. Interest on the loans is
based upon the conduit commercial paper issuance cost and committed bank
lines priced on a London Interbank Offered Rate basis. Repayments of loans
are limited to the cash flows generated from the leases represented by the
specified beneficial interests.
To provide additional financial flexibility, our current policy is to ensure
that minimum committed facilities aggregate 100 percent of the average amount of
outstanding commercial paper. We maintain $2.65 billion of unsecured committed
credit facilities, which are backed by domestic and foreign banks. The
facilities are 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 the
Year 2002. In addition, we have a $150.0 million revolving credit facility,
which matures in December 1999, and other uncommitted lines of credit with
various financial institutions, which were unused at December 31, 1998. We
closely evaluate not only the credit of the banks, but also the terms of the
various agreements to ensure ongoing availability. The full amount of our
committed facilities at December 31, 1998 was undrawn and available. We believe
that our current policy provides adequate protection should volatility in the
financial markets limit our access to commercial paper or medium-term notes
funding. We continually seek additional sources of liquidity to accommodate
asset growth and to provide further protection from volatility in the financial
markets.
On July 10, 1998, we entered into a Supplemental Indenture No. 1 (the
"Supplemental Indenture") with The First National Bank of Chicago, as trustee,
under the Senior Indenture dated as of June 5, 1997, which formalizes our policy
of limiting the payment of dividends and the outstanding principal balance of
loans to the Parent Company to 40% of consolidated net income (as defined in the
Supplemental Indenture) for each fiscal year. The Supplemental Indenture
prohibits us from paying dividends or making loans to the Parent Company if upon
giving effect to such dividends and/or loan, our debt to equity ratio exceeds 8
to 1, at the time of the dividend or loan, as the case may be.
<PAGE>
Cash Flow
Cash flows provided by operating activities decreased $56.5 million from $918.2
million in 1997 to $861.7 million in 1998. The decrease in operating cash flows
primarily reflects growth in mortgage loan origination volume which resulted in
an incremental $391.7 million net increase in mortgage loans held for sale.
However, such growth in mortgage loan originations (which accounted for $180.3
million of incremental revenues in 1998) contributed to a $121.4 million
increase in overall net income (exclusive of merger related costs and other
unusual charges, net of tax) in 1998 over 1997. In addition, in 1998, cash
payments related to merger related costs and other unusual charges (from the HFS
Merger in April 1997) were $110.6 million less than in 1997.
Net cash used in investing activities increased $115.8 million in 1998 over 1997
primarily as a result of a $107.1 million increase in capital expenditures. In
1998, $150.8 million was invested in property and equipment which included the
development of integrated business systems within the Relocation segment as well
as systems and office expansion to support growth in the Mortgage segment. Net
cash provided by financing activities increased $450.9 million in 1998 over 1997
primarily due to temporary funding requirements associated with increased
mortgage loans held for sale on the balance sheet at December 31, 1998.
Litigation
On April 15, 1998, our Parent Company publicly announced that it discovered
accounting irregularities in the former business units of CUC. Such discovery
prompted investigations into such matters by the Parent Company and the Audit
Committee of the Parent Company's Board of Directors. As a result of the
findings from the investigations, the Parent Company restated its previously
reported financial results for 1997, 1996 and 1995. Since such announcement,
more than 70 lawsuits claiming to be class actions, two lawsuits claiming to be
brought derivatively on the Parent Company's behalf and three individual
lawsuits have been filed in various courts against the Parent Company and other
defendants. The Court has ordered consolidation of many of the actions.
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 the Parent Company that its inquiry should not be construed as an
indication by the SEC or its staff that any violations of law have occurred.
While the Parent Company made all adjustments considered necessary as a result
of the findings from the investigations in restating its financial statements,
the Parent Company can provide no assurances that additional adjustments will
not be necessary as a result of these government investigations.
The Parent Company does not believe that it is feasible to predict or determine
the final outcome of these proceedings or investigations or to estimate the
amount or potential range of loss with respect to these proceedings or
investigations. The possible outcomes or resolutions of the proceedings could
include judgements against the Parent Company or settlements and could require
substantial payments by the Parent Company. In addition, the timing of the final
resolution of the proceedings or investigations is uncertain. We believe that
material adverse outcomes with respect to such Parent Company proceedings could
have a material adverse impact on our financial condition and cash flows.
Impact of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities". We will adopt SFAS No. 133 effective
January 1, 2000. SFAS No. 133 requires us to record all derivatives in the
consolidated balance sheet as either assets or liabilities measured at fair
value. If the derivative does not qualify as a hedging instrument, the change in
the derivative fair values will be immediately recognized as gain or loss in
earnings. If the derivative does qualify as a hedging instrument, the gain or
loss on the change in the derivative fair values will either be recognized (i)
in earnings as offsets to the changes in the fair value of the related item
being hedged or (ii) be deferred and recorded as a component of other
comprehensive income and reclassified to earnings in the same period during
which the hedged transactions occur. We have not yet determined what impact the
adoption of SFAS No. 133 will have on our financial statements.
In October 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise", effective for the first fiscal quarter after
December 15, 1998. We have adopted SFAS No. 134 effective January 1, 1999. SFAS
No. 134, requires that after the securitization of mortgage loans, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
securities or other interests based on its ability and intent to sell or hold
those investments. As of January 1, 1999, we reclassified mortgage-backed
<PAGE>
securities and other interests retained after the securitization of mortgage
loans, from the trading to the available for sale category. Subsequent to the
adoption of SFAS No. 134 such securities and interests are accounted for in
accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities". The adoption of SFAS No. 134 did not have a material impact
on our financial statements.
Year 2000 Compliance
The following disclosure is a Year 2000 readiness disclosure statement pursuant
to the Year 2000 Readiness and Disclosure Act.
The Year 2000 presents the risk that information systems will be unable to
recognize and process date-sensitive information properly from and after January
1, 2000. To minimize or eliminate the effect of the Year 2000 risk on our
business systems and applications, we are continually identifying, evaluating,
implementing and testing changes to our computer systems, applications and
software necessary to achieve Year 2000 compliance. We selected a team of
managers to identify, evaluate and implement a plan to bring all of our critical
business systems and applications into Year 2000 compliance prior to December
31, 1999. The Year 2000 initiative consists of four phases: (i) identification
of all critical business systems subject to Year 2000 risk (the "Identification
Phase"); (ii) assessment of such business systems and applications to determine
the method of correcting any Year 2000 problems (the "Assessment Phase"); (iii)
implementing the corrective measures (the "Implementation Phase"); and (iv)
testing and maintaining system compliance (the "Testing Phase"). We have
substantially completed the Identification and Assessment Phases and has
identified and assessed five areas of risk: (i) internally developed business
applications; (ii) third party vendor software, such as business applications,
operating systems and special function software; (iii) computer hardware
components; (iv) electronic data transfer systems between us and our customers;
and (v) embedded systems, such as phone switches, check writers and alarm
systems. Although no assurance can be made, we believe that substantially all of
our systems, applications and related software that are subject to Year 2000
compliance risk have been identified and that we have either implemented or
initiated the implementation of a plan to correct such systems that are not Year
2000 compliant. In addition, as part of our assessment process we are developing
contingency plans as considered necessary. Substantially all of our mission
critical systems have been remediated during 1998. However, we cannot directly
control the timing of certain vendor products and in certain situations,
exceptions have been authorized. We are closely monitoring those situations and
intend to complete testing efforts and any contingency implementation efforts
prior to December 31, 1999. Although we have begun the Testing Phase, we do not
anticipate completion of the Testing Phase until sometime prior to December
1999.
We rely on third party service providers for services such as
telecommunications, internet service, utilities, components for our embedded and
other systems and other key services. Interruption of those services due to Year
2000 issues could have a material adverse impact on our operations. We initiated
an evaluation of the status of such third party service providers' efforts to
determine alternative and contingency requirements. While approaches to reducing
risks of interruption of business operations vary by business unit, options
include identification of alternative service providers available to provide
such services if a service provider fails to become Year 2000 compliant within
an acceptable timeframe prior to December 31, 1999.
The total cost of our Year 2000 compliance plan is anticipated to be $22.0
million. Approximately $15.0 million of these costs had been incurred through
December 31, 1998, and we expect to incur the balance of such costs to complete
the compliance plan. We are expensing and capitalizing the costs to complete the
compliance plan in accordance with appropriate accounting policies. Variations
from anticipated expenditures and the effect on our future results of operations
are not anticipated to be material in any given year. However, if Year 2000
modifications and conversions are not made, including modifications by our third
party service providers, or are not completed in time, the Year 2000 problem
could have a material impact on our operations, cash flows and financial
condition. At this time, we believe the most likely "worst case" scenario
involves potential disruptions in our operations as a result of the failure of
services provided by third parties.
The estimates and conclusions herein are forward-looking statements and are
based on our best estimates of future events. Risks of completing the plan
include the availability of resources, the ability to discover and correct the
potential Year 2000 sensitive problems which could have a serious impact on
certain operations and the ability of our service providers to bring their
systems into Year 2000 compliance.
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
<PAGE>
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:
o The resolution or outcome of the pending litigation and government
investigations relating to the previously announced accounting
irregularities at the Parent Company;
o Our ability to successfully divest non-core assets;
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 Our ability and our vendors' and customers' ability to complete the
necessary actions to achieve a Year 2000 conversion for computer systems
and applications.
We derive 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
In normal operations, we must deal with effects of changes in interest rates and
currency exchange rates. The following discussion presents an overview of how
such changes are managed and a view of their potential effects.
We use various financial instruments, particularly interest rate and currency
swaps, but also options, floors and currency forwards, to manage its respective
interest rate and currency risks. We are exclusively an end user of these
instruments, which are commonly referred to as derivatives. Established
practices require that derivative financial instruments relate to specific
asset, liability or equity transactions or to currency exposure. More detailed
information about these financial instruments, as well as the strategies and
policies for their use, is provided in notes 10 and 11.
The SEC requires that registrants include information about potential effects of
changes in interest rates and currency exchange in their financial statements.
Although the rules offer alternatives for presenting this information, none of
the alternatives is without limitations. The following discussion is based on
so-called "shock tests", which model effects of interest rate and currency
shifts on the reporting company. Shock tests, while probably the most meaningful
analysis permitted, are constrained by several factors, including the necessity
to conduct the analysis based on a single point in time and by their inability
to include the extraordinarily complex market reactions that normally would
arise from the market shifts modeled. While the following results of shock tests
for interest rate and currencies may have some limited use as benchmarks, they
should not be viewed as forecasts.
o One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical 10% change in interest rates across all
maturities (sometimes referred to as a "parallel shift in the yield
curve"). Under this model, it is estimated that, all else constant, such an
increase, including repricing effects in the securities portfolio, would
not materially effect our 1999 net earnings based on year-end 1998
positions.
o One means of assessing exposure to changes in currency exchange rates is to
model effects on reported earnings using a sensitivity analysis. Year-end
1998 consolidated currency exposures, including financial instruments
designated and effective as hedges, were analyzed to identify our assets
and liabilities denominated in other than their relevant functional
currency. Net unhedged exposures in each currency were then remeasured
assuming a 10% change in currency exchange rates compared with the U.S.
dollar. Under this model, it is estimated that, all else constant, such a
change would not materially effect our 1999 net earnings based on year-end
1998 positions.
<PAGE>
Item 8. Financial Statements and Supplementary Data
See Financial Statement and Financial Statement Schedule Index included
herein.
Item 9. Changes in and Disagreements with Accountants and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Not applicable.
Item 11. Executive Compensation
Not applicable.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Not applicable.
Item 13. Certain Relationships and Related Transactions
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Item 14(a)(1) Financial Statements
See Financial Statement and Financial Statement Schedule Index included
herein.
Item 14(a)(2) Financial Statement Schedules
See Financial Statement and Financial Statement Schedule Index included
herein.
Item 14(a)(3) Exhibits
The exhibits identified by an asterisk (*) are on file with the Commission and
such exhibits are incorporated by reference from the respective previous
filings. The exhibits identified by a double asterisk (**) are being filed with
this report.
Item 14(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1998.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly cause this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PHH CORPORATION
By: /s/ Robert D. Kunisch
Robert D. Kunisch
March 31, 1999 Chief Executive Officer and President
Pursuant to the requirements 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:
Principal Executive Officer: Date:
/s/ Robert D. Kunisch March 31, 1999
Robert D. Kunisch
Chief Executive Officer and President
Principal Financial Officer:
/s/ David M. Johnson March 31, 1999
David M. Johnson
Senior Executive Vice President,
Chief Financial Officer and Assistant Treasurer
Principal Accounting Officer:
/s/ Tobia Ippolito March 31, 1999
Tobia Ippolito
Senior Vice President and
Corporate Controller
Board of Directors:
/s/ James E. Buckman March 31, 1999
James E. Buckman
Director
/s/ Stephen P. Holmes March 31, 1999
Stephen P. Holmes
Director
<PAGE>
Exhibit No.
2-1 Agreement and Plan of Merger dated as of November 10, 1996,by and among
HFS Incorporated, PHH Corporation and Mercury Acquisition Corp., filed
as Annex 1 in the Joint Proxy Statement/Prospectus included as part of
Registration No.
333-24031(*).
3-1 Charter of PHH Corporation, as amended August 23, 1996 (filed as
Exhibit 3-1 to the Company's Transition Report on Form 10-K filed on
July 29, 1997)(*).
3-2 By-Laws of PHH Corporation, as amended October (filed as Exhibit 3-1 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1997).(*)
4-1 Indenture between PHH Corporation and Bank of New York, Trustee, dated
as of May 1, 1992, filed as Exhibit 4(a)(iii) to Registration Statement
33-48125(*).
4-2 Indenture between PHH Corporation and First National Bank of Chicago,
Trustee, dated as of March 1, 1993, filed as Exhibit 4(a)(i) to
Registration Statement 33-59376(*).
4-3 Indenture between PHH Corporation and First National Bank of Chicago,
Trustee, Dated as of June 5, 1997, filed as Exhibit 4(a) to
Registration Statement 333-27715(*).
4-4 Indenture between PHH Corporation and Bank of New York, Trustee Dated
as of June 5, 1997, filed as Exhibit 4(a)(11) to Registration Statement
333-27715(*).
10.1 364-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 March 4, 1997 as amended and restated through
March 5, 1999, incorporated by reference to Exhibit 10.24 (a) to
Cendant Corporation's Form 10-K for the year ended December 31, 1998.
10.2 Five-year Credit Agreement among PHH Corporation, the Lenders, and
Chase Manhattan Bank, as Administrative Agent, dated March 4, 1997
filed as Exhibit 10.2 to Registration Statement 333-27715(*).
10.3 SECOND AMENDMENT, dated as of September 26, 1997 (the "Second
Amendment"), to (i) 364-day Competitive Advance and Revolving Credit
Agreement, dated as of March 4, 1997 (as heretofore and hereafter
amended, supplemented or otherwise modified from time to time, the
"364-Day Credit Agreement"), PHH Corporation (the "Borrower"), PHH
Vehicle Management Services, Inc., the Lenders referred to therein,
the Chase Manhattan Bank of Canada, as agent for the US Lenders (in
such capacity, the "Administrative Agent"), and The Chase Manhattan
Bank of Canada, as administrative agent for the Canadian Lenders (in
such capacity, the "Canadian Agent"); and (ii) the Five Year
Competitive Advance and Revolving Credit Agreement, dated as of March
4, 1997, among the Borrower, the Lenders referred to therein and the
Administrative Agent (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997).(*)
10.4 Third Amendment to PHH Credit Agreements (Incorporated by reference to
PHH Incorporated's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997, Exhibit 10.1 (*).
10.5 Fourth Amendment, dated as of November 2, 1998, to PHH Five-Year Credit
Agreement incorporated by reference to Exhibit 10.24(a) to Cendant
Corporation's Form 10-K for the year ended December 31, 1998 (*).
10.6 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, filed as Exhibit 1 to Registration Statement
33-63627(*).
10.7 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(*).
10.8 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. 1-07797 (*)
10.9 Loan and Security Agreement, dated as of December 17, 1998 among Trac
Funding, Inc. as borrower, Preferred Receivables Funding Corporation,
the financial institutions party thereto and The First National Bank of
Chicago, as Agent (**).
10.10 Loan and Security Agreement, dated as of December 28, 1998, among Trac
Funding II, Inc., as borrower, Quincy Capital Corporation and
Receivables Capital Corporation, as Lenders, and Bank of America
National Trust and Savings Association, as Administrator (**).
12 Schedule containing information used in the computation of the ratio of
earnings to fixed charges (**)
23.1 Consent of Deloitte & Touche LLP (**)
23.2 Consent of KPMG LLP (**)
27 Financial Data Schedule (filed electronically only).(**)
The registrant hereby agrees to furnish to the Commission upon request
a copy of all constituent instruments defining the rights of holders of
long-term debt of the registrant and all its subsidiaries for which
consolidated or unconsolidated financial statements are required to be
filed under which instruments the total amount of securities authorized
does not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis.
* Incorporated by reference
** Filed herewith
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Reports
Consolidated Statements of Operations
for the years ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets
as of December 31, 1998 and 1997
Consolidated Statements of Shareholder's Equity
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows
for the years ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of PHH Corporation
We have audited the consolidated balance sheet of PHH Corporation and its
subsidiaries (a wholly-owned subsidiary of Cendant Corporation), (the "Company")
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholder's equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our 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, 1998 and 1997 and the results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.
We also audited the adjustments described in Note 3 that were applied to restate
the financial statements to give effect to the merger of Cendant Corporation's
relocation business with the Company, which has been accounted for in a manner
similar to a pooling-of-interests. Additionally, we also audited the
reclassifications described in Note 3 that were applied to restate the December
31, 1996 financial statements to conform to the presentation used by Cendant
Corporation. In our opinion, such adjustments and reclassifications are
appropriate and have been properly applied.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
March 17, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors PHH Corporation
We have audited the consolidated statement of income, shareholder's equity and
cash flows of PHH Corporation and subsidiaries for the year ended December 31,
1996, before the reclassifications and restatement described in Note 3 to the
consolidated financial statements. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements (before reclassifications
and restatement) referred to above present fairly, in all material respects, the
results of operations of PHH Corporation and subsidiaries and their cash flows
for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Baltimore, Maryland
April 30, 1997
<PAGE>
PHH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net Revenues
Fleet services $ 206.1 $ 212.4 $ 199.2
Relocation services (net of interest costs of
$26.9, $32.0 and $35.0) 435.8 409.4 342.1
Mortgage services (net of amortization of mortgage
servicing rights and interest costs of $221.4, $180.6
and $116.9) 353.4 179.3 127.7
------------- ------------- -------------
Service fees, net 995.3 801.1 669.0
Fleet leasing (net of depreciation and interest costs of
$1,279.4, $1,205.2 and $1,132.4) 88.7 59.5 56.7
Other 13.6 - -
------------- ------------- -------------
Net revenues 1,097.6 860.6 725.7
------------- ------------- -------------
Expenses
Operating 469.7 422.9 346.9
General and administrative 171.7 164.4 173.9
Depreciation and amortization 36.8 25.7 28.6
Merger-related costs and other unusual charges (credits) (20.2) 251.0 -
-------------- ------------- -------------
Total expenses 658.0 864.0 549.4
------------- ------------- -------------
Income (loss) before income taxes 439.6 (3.4) 176.3
Provision for income taxes 159.6 44.2 71.8
------------- ------------- -------------
Net income (loss) $ 280.0 $ (47.6) $ 104.5
============= ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHH Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 233.2 $ 2.1
Accounts and notes receivable (net of allowance
for doubtful accounts of $15.8 and $12.1) 775.2 567.6
Property and equipment, net 219.4 104.1
Other assets 293.2 343.0
------------ -------------
Total assets exclusive of assets under programs 1,521.0 1,016.8
------------ -------------
Assets under management and mortgage programs
Net investment in leases and leased vehicles 3,801.1 3,659.1
Relocation receivables 659.1 775.3
Mortgage loans held for sale 2,416.0 1,636.3
Mortgage servicing rights 635.7 373.0
------------ -------------
7,511.9 6,443.7
------------ -------------
Total assets $ 9,032.9 $ 7,460.5
============ =============
Liabilities and shareholder's equity
Accounts payable and accrued liabilities $ 752.0 $ 692.4
Deferred income 57.0 53.3
------------ -------------
Total liabilities exclusive of liabilities under programs 809.0 745.7
------------ -------------
Liabilities under management and mortgage programs
Debt 6,896.8 5,602.6
------------ -------------
Deferred income taxes 341.0 295.7
------------ -------------
Total liabilities 8,046.8 6,644.0
------------ -------------
Commitments and contingencies (Note 12)
Shareholder's Equity
Preferred stock - authorized 3,000,000 shares -- --
Common stock, no par value - authorized 75,000,000 shares;
issued and outstanding 1,000 shares 289.2 289.2
Retained earnings 727.7 544.7
Accumulated other comprehensive loss (30.8) (17.4)
------------ -------------
Total shareholder's equity 986.1 816.5
------------ -------------
Total liabilities and shareholder's equity $ 9,032.9 $ 7,460.5
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(In millions, except share data)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Retained Comprehensive Shareholder's
Shares Amount Earnings Income (Loss) Equity
---------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1996 34,487,748 $ 91.5 $ 521.9 $ (23.1) $ 590.3
Less: January 1996 activity:
Comprehensive loss:
Net loss - - (8.3) -
Currency translation adjustment - - - 2.4
Total comprehensive loss January 1996 - - - - (5.9)
Cash dividend declared - - 5.9 - 5.9
Stock option plans transactions, net of
related tax benefits (35,400) (.6) - - (.6)
Comprehensive income:
Net income - - 104.5 -
Currency translation adjustments - - - 12.4
Total comprehensive income - - - - 116.9
Cash dividends declared - - (25.0) - (25.0)
Stock option plan transactions, net of
related tax benefits 504,487 10.3 - - 10.3
----------- ----------- ----------- -------------- -----------
Balance, December 31, 1996 34,956,835 101.2 599.0 (8.3) 691.9
Comprehensive loss:
Net loss - - (47.6) -
Currency translation adjustments - - - (9.1)
Total comprehensive loss - - - - (56.7)
Cash dividends declared - - (6.7) - (6.7)
Stock option plan transactions, net of
related tax benefits 876,264 22.0 - - 22.0
Retirement of common stock (35,832,099) - - - -
Parent company capital contribution - 166.0 - - 166.0
----------- ----------- ----------- -------------- -----------
Balance, December 31, 1997 1,000 289.2 544.7 (17.4) 816.5
Comprehensive income:
Net income - - 280.0 -
Currency translation adjustments - - - (13.4)
Total comprehensive income - - - - 266.6
Cash dividends declared - - (97.0) - (97.0)
----------- ----------- ------------ -------------- ------------
Balance, December 31, 1998 1,000 $ 289.2 $ 727.7 $ (30.8) $ 986.1
=========== =========== =========== ============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 280.0 $ (47.6) $ 104.5
Merger-related costs and other unusual charges (credits) (20.2) 251.0 -
Payments of merger-related costs and other unusual charge liabilities (39.1) (149.7) -
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 36.8 25.7 28.6
Gain on sales of mortgage servicing rights (19.8) (15.8) (5.2)
Accounts and notes receivable (83.7) (15.5) (21.0)
Accounts payable and other accrued liabilities 39.1 27.8 28.1
Other, net 188.4 108.4 74.2
------------- ------------- -------------
381.5 184.3 209.2
Management and mortgage programs:
Depreciation and amortization 1,259.9 1,121.9 1,021.7
Origination of mortgage loans (26,571.6) (12,216.5) (8,292.6)
Proceeds on sale and payments from mortgage loans
held for sale 25,791.9 11,828.5 8,219.3
------------- ------------- -------------
Net cash provided by operating activities 861.7 918.2 1,157.6
------------- ------------- -------------
Investing Activities
Additions to property and equipment (150.8) (43.7) (17.6)
Funding of grantor trusts - - (89.8)
Proceeds from sale of subsidiary - - 38.0
Other, net 12.1 (23.9) (2.8)
------------- -------------- --------------
(138.7) (67.6) (72.2)
Management and mortgage programs:
Investment in leases and leased vehicles (2,446.6) (2,068.8) (1,901.3)
Repayment of investment in leases and leased vehicles 987.0 589.0 595.9
Proceeds from sales and transfers of leases and leased vehicles 182.7 186.4 162.8
Equity advances on homes under management (6,484.1) (6,844.5) (4,308.0)
Payments received on advances on homes under management 6,624.9 6,862.6 4,348.9
Additions to mortgage servicing rights (524.4) (270.5) (164.4)
Proceeds from sales of mortgage servicing rights 119.0 49.0 7.1
------------- ------------- -------------
Net cash used in investing activities (1,680.2) (1,564.4) (1,331.2)
-------------- -------------- --------------
Financing Activities
Parent company capital contribution 46.0 90.0 -
Payment of dividends (97.0) (6.6) (25.0)
Other, net - 22.0 10.3
------------- ------------- -------------
(51.0) 105.4 (14.7)
Management and mortgage programs:
Proceeds from debt issuance or borrowings 4,300.0 2,816.3 1,656.0
Principal payments on borrowings (3,089.7) (1,692.9) (1,645.8)
Net change in short term borrowings (93.1) (613.5) 231.8
-------------- -------------- -------------
Net cash provided by financing activities 1,066.2 615.3 227.3
------------- ------------- -------------
Effect of exchange rates on cash and cash equivalents (16.6) 19.2 (46.7)
-------------- ------------- --------------
Increase (decrease) in cash and cash equivalents 231.1 (11.7) 7.0
Cash and cash equivalents at beginning of period 2.1 13.8 6.8
------------- ------------- -------------
Cash and cash equivalents at end of period $ 233.2 $ 2.1 $ 13.8
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHH Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Description of Business
PHH Corporation, together with its wholly owned subsidiaries (the
"Company"), is a leading provider of relocation, mortgage and fleet
services. In April 1997, the Company merged with a wholly-owned
subsidiary of HFS Incorporated ("HFS") (the "HFS Merger") and in
December 1997, HFS merged (the "Cendant Merger") with and into CUC
International Inc. ("CUC") to form Cendant Corporation ("Cendant" or the
"Parent Company"). The HFS Merger and the Cendant Merger were both
accounted for as poolings of interests. Effective upon the Cendant
Merger, the Company became a wholly owned subsidiary of Cendant.
However, pursuant to certain covenant requirements in the indentures
under which the Company issues debt, the Company continues to operate
and maintain its status as a separate public reporting entity, which is
the basis under which the accompanying financial statements and
footnotes are presented. A description of the Company's reportable
operating segments are as follows:
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.
Fleet
Fleet services primarily consist of the management, purchase, leasing,
and resale of vehicles for corporate clients and government agencies.
These services also include fuel, maintenance, safety and accident
management programs and other fee-based services for clients' vehicle
fleets. The Company leases vehicles primarily to corporate fleet users
under operating and direct financing lease arrangements.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts and
transactions of the Company together with its wholly owned subsidiaries.
All material intercompany balances and transactions have been eliminated
in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual
results could differ from those estimates.
<PAGE>
Cash and cash equivalents
The Company considers highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation is computed by the straight-line method
over the estimated useful lives of the related assets. Amortization of
leasehold improvements is computed by the straight-line method over the
estimated useful lives of the related assets or the lease term, if
shorter. The Company periodically evaluates the recoverability of its
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.
Revenue recognition and business operations
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 their home based on an appraised value
generally determined by independent appraisers, after deducting any
outstanding mortgages. 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 based on various indices.
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
normally advances funds to cover a portion of such carrying costs. When
the home is sold, a settlement is made with the client corporation
netting actual costs with any advanced funding.
Revenues and related costs associated with the purchase and resale of a
residence are recognized over the period in which services are provided.
Relocation services revenue is recorded net of costs reimbursed by
client corporations and interest expenses incurred to fund the purchase
of a transferee's residence. Under the terms of contracts with client
corporations, the Company is generally protected against losses from
changes in real estate market conditions. The Company also offers
fee-based programs such as home marketing assistance, household goods
moves and destination services. Revenues from these fee-based services
are taken into income over the periods in which the services are
provided and the related expenses are incurred.
Mortgage. Loan origination fees, commitment fees paid in connection with
the sale of loans, and 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 7 - Mortgage
Loans Held for Sale).
Fees received for servicing loans owned by investors are based on the
difference between the weighted average yield received on the mortgages
and the amount paid to the investor, or on a stipulated percentage of
the outstanding monthly principal balance on such loans. Servicing fees
are credited to income when received. Costs associated with loan
servicing are charged to expense as incurred.
The Company recognizes as separate assets the rights to service mortgage
loans for others by allocating total costs incurred between the loan and
the servicing rights retained based on their relative fair values. The
carrying value of mortgage servicing rights ("MSRs") is 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 loan servicing fees in the consolidated statements of
operations. Projected net servicing income is in turn determined on the
basis of the estimated future balance of the underlying mortgage loan
portfolio, which declines over time from prepayments and scheduled loan
amortization. The Company estimates future prepayment rates based on
current interest rate levels, other economic conditions and market fore-
<PAGE>
casts, as well as relevant characteristics of the servicing portfolio,
such as loan types, interest rate stratification and recent prepayment
experience. MSRs are periodically assessed for impairment, which
is recognized in the consolidated statements of operations during
the period in which impairment occurs as an adjustment to the
corresponding valuation allowance. 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 8 - Mortgage Servicing Rights).
Fleet. The Company primarily leases its vehicles under three standard
arrangements: open-end operating leases, closed-end operating leases or
open-end finance leases (direct financing leases) (see Note 6 - Net
Investment in Leases and Leased Vehicle). Each lease is either
classified as an operating lease or direct financing lease, as defined.
Lease revenues are recognized based on rentals. Revenues from fleet
management services other than leasing are recognized over the period in
which services are provided and the related expenses are incurred.
Income taxes
The Company's income taxes are included in the consolidated federal
income tax return of Cendant. In addition, the Company files unitary,
consolidated, and combined state income tax returns with Cendant in
jurisdictions where required. Income tax expense is based on allocations
from Cendant and is computed as if the Company filed its federal and
state income tax returns on a stand-alone basis. The Company computes
income tax expense and deferred income taxes using the asset and
liability method. No provision has been made for U.S. income taxes on
approximately $205.4 million of cumulative undistributed earnings of
foreign subsidiaries at December 31, 1998 since it is the present
intention of management to reinvest the undistributed earnings
indefinitely in foreign operations. The determination of unrecognized
deferred U.S. tax liability for unremitted earnings is not practicable.
In addition, it is estimated that foreign withholding taxes of
approximately $3.2 million may have been payable at December 31, 1998,
if such earnings were remitted.
Parent Company stock option plans
Certain executives and employees of the Company participate in stock
option plans sponsored and administered by the Parent Company. The
Company does not sponsor or maintain any stock option plans. Accounting
Principles Board ("APB") Opinion No. 25 is applied in accounting for
options issued under the Parent Company's plans. Under APB No. 25,
because the exercise price of the stock options are equal to or greater
than the market prices of the underlying Parent Company stock on the
date of grant, no compensation expense is recognized.
Translation of foreign currencies
Assets and liabilities of foreign subsidiaries are translated at the
exchange rates in effect as of the balance sheet dates. Equity accounts
are translated at historical exchange rates and revenues, expenses and
cash flows are translated at the average exchange rates for the periods
presented. Translation gains and losses are included as a component of
comprehensive income (loss) in the consolidated statements of
shareholder's equity.
New accounting standard
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting
for Derivative Instruments and Hedging Activities". The Company will
adopt SFAS No. 133 effective January 1, 2000. SFAS No. 133 requires the
Company to record all derivatives in the consolidated balance sheet as
either assets or liabilities measured at fair value. If the derivative
does not qualify as a hedging instrument, the change in the derivative
fair values will be immediately recognized as a gain or loss in
earnings. If the derivative does qualify as a hedging instrument, the
gain or loss on the change in the derivative fair values will either be
recognized (i) in earnings as offsets to the changes in the fair value
of the related item being hedged or (ii) be deferred and recorded as a
component of other comprehensive income and reclassified to earnings in
the same period during which the hedged transactions occur. The Company
has not yet determined what impact the adoption of SFAS No. 133 will
have on its financial statements.
Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform to the presentation used in 1998.
3. Historical Adjustments
Certain reclassifications have been made to the historical financial
statements of the Company to conform with the presentation used
subsequent to the HFS Merger. Additionally, the historical financial
statements of the Company were restated to give effect to the June 1997
merger, which was accounted for in a manner similar to a
pooling-of-interests, of HFS's relocation business with and into the
Company. The effect of such reclassifications and restatement
(collectively, the "Adjustments") on the consolidated statement of
income for the year ended December 31, 1996 was as follows:
As
previously As
reported Adjustments restated
---------- ----------- --------
(In millions)
Net revenues $ 1,938.5 $ (1,212.8) $ 725.7
Total expenses 1,790.3 (1,240.9) 549.4
Provision for income taxes 60.6 11.2 71.8
---------- ----------- --------
Net income $ 87.6 $ 16.9 $ 104.5
========== ========== ========
4. Merger-Related Costs and Other Unusual Charges
The Company incurred merger-related costs and other unusual charges
("Unusual Charges") in 1997 of $251.0 million primarily associated with
the HFS Merger and the Cendant Merger. 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 and by merger as
follows:
<TABLE>
<CAPTION>
1998 Activity
Net 1997 Balance at --------------------------------- Balance at
Unusual 1997 December 31, Cash December 31,
(In millions) Charges Reductions 1997 Payments Non-Cash Adjustments 1998
---------- ---------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fees $ 14.5 $ (13.8) $ 0.7 $ (4.3) $ - $ 3.6 $ -
Personnel related 147.5 (94.5) 53.0 (22.9) - (19.1) 11.0
Business terminations 68.8 (67.3) 1.5 (0.6) 4.7 (5.6) -
Facility related and
other 20.2 (4.7) 15.5 (11.3) - 0.9 5.1
---------- ---------- ----------- --------- -------- ----------- ----------
Total $ 251.0 $ (180.3) $ 70.7 $ (39.1) $ 4.7 $ (20.2) $ 16.1
========== ========== =========== ========= ======== =========== ==========
Cendant Merger $ 42.2 $ (30.0) $ 12.2 $ (14.5) $ - $ 3.8 $ 1.5
HFS Merger 208.8 (150.3) 58.5 (24.6) 4.7 (24.0) 14.6
----------- ---------- ----------- --------- -------- ----------- ----------
Total $ 251.0 $ (180.3) $ 70.7 $ (39.1) $ 4.7 $ (20.2) $ 16.1
=========== ========== =========== ========= ======== =========== ==========
</TABLE>
HFS Merger Charge
The Company incurred $223.1 million of Unusual Charges in the second
quarter of 1997 primarily associated with the HFS Merger. During the
fourth quarter of 1997, as a result of the changes in estimates, the
Company reduced certain merger-related liabilities, which resulted in a
$14.3 million credit to Unusual Charges. The Company incurred $110.0
million of professional fees and executive compensation expenses
directly as a result of the HFS Merger, and also incurred $113.1 million
of expenses resulting from reorganization plans formulated prior to and
implemented as of the merger date. The HFS Merger afforded the combined
company, at such time, an opportunity to rationalize its combined
corporate infrastructure as well as its businesses and enabled the
corresponding support and service functions to gain organizational
efficiencies and maximize profits. Management initiated a plan just
prior to the HFS Merger to continue the downsizing of fleet operations
by reducing headcount and eliminating unprofitable products. In
addition, management initiated plans to integrate its relocation and
mortgage origination businesses along with the Parent Company's real
estate franchise business to capture additional revenues through the
referral of one business unit's customers to another. Management also
formalized a plan to centralize the management and headquarters
functions of the world's largest, second largest and other company-owned
corporate relocation business unit subsidiaries. The aforementioned
reorganization plans provided for 450 jobs reductions which included the
elimination of corporate functions and facilities in Hunt Valley,
Maryland.
<PAGE>
Unusual Charges included $135.5 million of personnel-related costs
associated with employee reductions necessitated by the planned and
announced consolidation of the Company's 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. Several grantor trusts were established and funded by the
Company in November 1996 to pay such benefits in accordance with the
terms of the PHH merger agreement. Unusual Charges also included
professional fees of $14.5 million which were primarily comprised of
investment banking, accounting and legal fees incurred in connection
with the HFS Merger. The Company incurred business termination charges
of $38.8, representing costs to exit certain activities primarily within
the Company's fleet management business which included $35.0 million of
asset write offs. Facility related and other charges totaling $34.5
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, adjustments of $20.2 million
were made to Unusual Charges, which primarily included $19.1 million of
costs associated with a change in estimated severance costs. The
remaining personnel related liabilities relate to future severance and
benefit payments and the facility related liabilities are for future
lease termination payments.
Cendant Merger Charge
In connection with the Cendant Merger, the Company recorded a
merger-related charge (the "Cendant Merger Charge") of $46.0 million,
including $3.8 million of professional fees expensed as incurred during
1998, of which $44.5 million was paid through December 31, 1998. The
Cendant Merger Charge includes approximately $30.0 million of
termination costs associated with exiting certain activities associated
with Fleet operations and a non-compete agreement which was terminated
in December 1997 for which $10.7 million of outstanding obligations were
paid in January 1998.
<PAGE>
5. Property and Equipment, net
Property and equipment, net consisted of:
<TABLE>
<CAPTION>
Estimated
Useful Lives December 31,
(In millions) In Years 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Land - $ 9.3 $ 6.8
Building and leasehold improvements 5 - 50 46.9 28.6
Furniture, fixtures and equipment 3 - 10 303.0 183.4
------------- -------------
359.2 218.8
Less accumulated depreciation and amortization 139.8 114.7
------------- -------------
$ 219.4 $ 104.1
============= =============
</TABLE>
6. Net Investment in Leases and Leased Vehicles
Net investment in leases and leased vehicles consisted of:
December 31,
(In millions) 1998 1997
------------- -------------
Vehicles under open-end operating leases $ 2,725.6 $ 2,640.1
Vehicles under closed-end operating
leases 822.1 577.2
Direct financing leases 252.4 440.8
Accrued interest on leases 1.0 1.0
------------- -------------
$ 3,801.1 $ 3,659.1
============= =============
The Company records the cost of leased vehicles as net investment in
leases and leased vehicles. The vehicles are 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 are amortized using the straight-line method over the
expected lease term. The Company's experience indicates that the full
term of the leases may vary considerably due to extensions beyond the
minimum lease term. Lessee repayments of investment in leases and leased
vehicles were $1.9 billion and $1.6 billion in 1998 and 1997,
respectively, and the ratio of such repayments to the average net
investment in leases and leased vehicles was 50.7% and 46.8% in 1998 and
1997, respectively.
The Company has two types of operating leases. Under one type, open-end
operating leases, resale of the vehicles upon termination of the lease
is generally for the account of the lessee except for a minimum residual
value which the Company has guaranteed. The Company's experience has
been that vehicles under this type of lease agreement have generally
been sold for amounts exceeding the residual value guarantees.
Maintenance and repairs of vehicles under these agreements are the
responsibility of the lessee. The original cost and accumulated
depreciation of vehicles under this type of operating lease was $5.3
billion and $2.6 billion, respectively, at December 31, 1998 and $5.0
billion and $2.4 billion, respectively, at December 31, 1997.
Under the second type of operating lease, closed-end operating leases,
resale of the vehicles on termination of the lease is for the account of
the Company. The lessee generally pays for or provides maintenance,
vehicle licenses and servicing. The original cost and accumulated
depreciation of vehicles under these agreements were $1.0 billion and
<PAGE>
$190.5 million, respectively, at December 31, 1998 and $754.4 million
and $177.2 million, respectively, at December 31, 1997. The Company,
based on historical experience and a current assessment of the used
vehicle market, established an allowance in the amount of $14.2 million
and $11.7 million for potential losses on residual values on vehicles
under these leases at December 31, 1998 and 1997, respectively.
Under the direct financing lease agreements, the minimum lease term is
12 months with a month to month renewal thereafter. In addition, resale
of the vehicles upon termination of the lease is for the account for the
lessee. Maintenance and repairs of these vehicles are the responsibility
of the lessee.
Open-end operating leases and direct financing leases generally have a
minimum lease term of 12 months with monthly renewal options thereafter.
Closed-end operating leases typically have a longer term, usually 24
months or more, but are cancelable under certain conditions.
Gross leasing revenues, which are included in fleet leasing in the
consolidated statements of operations, consist of:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
(In millions) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Operating leases $ 1,330.3 $ 1,222.9 $ 1,145.8
Direct financing leases, primarily interest 37.8 41.8 43.3
------------- ------------- -------------
$ 1,368.1 $ 1,264.7 $ 1,189.1
============= ============= =============
</TABLE>
In June 1998, the Company entered into an agreement with an independent
third party to sell and leaseback vehicles subject to operating leases.
The net carrying value of the vehicles sold was $100.6 million. Since
the net carrying value of these vehicles was equal to their sales price,
there was no gain or loss recognized on the sale. The lease agreement
entered into between the Company and the counterparty was for a minimum
lease term of 12 months with three one-year renewal options. For the
year ended December 31, 1998, the total rental expense incurred by the
Company under this lease was $17.7 million.
The Company has transferred existing managed vehicles and related leases
to unrelated investors and has retained servicing responsibility. Credit
risk for such agreements is retained by the Company to a maximum extent
in one of two forms: excess assets transferred, which were $9.4 million
and $7.6 million at December 31, 1998 and 1997, respectively; or
guarantees to a maximum extent. There were no guarantees to a maximum
extent at December 31, 1998 and 1997. All such credit risk has been
included in the Company's consideration of related allowances. The
outstanding balances under such agreements aggregated $259.1 million and
$224.6 million at December 31, 1998 and 1997, respectively.
Other managed vehicles with balances aggregating $221.8 million and
$157.9 million at December 31, 1998 and 1997, respectively, are included
in special purpose entities which are not owned by the Company. These
entities do not require consolidation as they are not controlled by the
Company and all risks and rewards rest with the owners. Additionally,
managed vehicles totaling approximately $81.9 million and $69.6 million
at December 31, 1998 and 1997, respectively, are owned by special
purpose entities which are owned by the Company. However, such assets
and related liabilities have been netted in the consolidated balance
sheet since there is a two-party agreement with determinable accounts, a
legal right of offset exists and the Company exercises its right of
offset in settlement with client corporations.
<PAGE>
7. 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 guarantee 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. As of December 31, 1998 and 1997, mortgage
loans sold with recourse amounted to approximately $58.3 million and
$58.5 million, respectively. The Company believes adequate allowances
are maintained to cover any potential losses.
The Company entered into a three year agreement effective May 1998 and
expanded in December 1998 under which an unaffiliated Buyer (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
limit of $2.4 billion. Under the terms of this sale agreement, the
Company retains the servicing rights on the mortgage loans sold to
the Buyer and provides the Buyer with options to sell or securitize the
mortgage loans into the secondary market. At December 31, 1998, the
Company was servicing approximately $2.0 billion of mortgage loans owned
by the Buyer.
8. Mortgage Servicing Rights
Capitalized mortgage servicing rights ("MSRs") activity was as follows:
<TABLE>
<CAPTION>
Impairment
(In millions) MSRs Allowance Total
------------- -------------- -------------
<S> <C> <C> <C>
Balance, January 31, 1996 $ 192.8 $ (1.4) $ 191.4
Less: PHH activity for January 1996
to reflect change in PHH fiscal year (14.0) 0.2 (13.8)
Additions to MSRs 164.4 - 164.4
Amortization (51.8) - (51.8)
Write-down/provision - 0.6 0.6
Sales (1.9) - (1.9)
-------------- ------------- --------------
Balance, December 31, 1996 289.5 (0.6) 288.9
Additions to MSRs 251.8 - 251.8
Amortization (95.6) - (95.6)
Write-down/provision - (4.1) (4.1)
Sales (33.1) - (33.1)
Deferred hedge, net 18.6 - 18.6
Reclassification of mortgage-related securities (53.5) - (53.5)
-------------- ------------- --------------
Balance, December 31, 1997 377.7 (4.7) 373.0
Additions to MSRs 475.2 - 475.2
Additions to hedge 49.2 - 49.2
Amortization (82.5) - (82.5)
Write-down/provision - 4.7 4.7
Sales (99.1) - (99.1)
Deferred hedge, net (84.8) - (84.8)
-------------- ------------- --------------
Balance, December 31, 1998 $ 635.7 $ - $ 635.7
============= ============ =============
</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. Commencing in 1997, the Company
used 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 derivatives 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 income statement 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 income. Temporary impairment is
recorded through a valuation allowance in the period of occurrence.
<PAGE>
9. Liabilities Under Management and Mortgage Programs
Borrowings to fund assets under management and mortgage programs
consisted of:
December 31,
-------------------------------
(In millions) 1998 1997
------------- -------------
Commercial paper $ 2,484.4 $ 2,577.5
Medium-term notes 2,337.9 2,747.8
Securitized obligations 1,901.5 -
Other 173.0 277.3
------------- -------------
$ 6,896.8 $ 5,602.6
============= =============
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 6.1% and 5.9% at December 31, 1998 and
1997, respectively.
Medium-Term Notes
Medium-term notes of $2.3 billion primarily represent unsecured loans
which mature through 2002. The weighted average interest rates on such
medium-term notes were 5.6% and 5.9% at December 31, 1998 and 1997,
respectively.
Securitized Obligations
The Company maintains four separate financing facilities, the
outstanding borrowings of which are securitized by corresponding assets
under management and mortgage programs. The collective weighted average
interest rate on such facilities was 5.8% at December 31, 1998. Such
securitized obligations are described below.
Mortgage Facility. In December 1998, the Company entered into a 364-day
financing agreement to sell mortgage loans under an agreement to
repurchase such mortgages (the "Agreement"). 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 $500.0 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,
1998 totaled $378.0 million and are included in mortgage loans held for
sale on the consolidated balance sheet.
Relocation Facilities. The Company entered into a 364-day asset
securitization agreement effective December 1998 under which an
unaffiliated buyer has committed to purchase an interest in the rights
to payment related to certain Company relocation receivables. The
revolving purchase commitment provides for funding up to a limit of
$325.0 million and is 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 retains the servicing rights
related to the relocation receivables. At December 31, 1998, the Company
was servicing $248.0 million of assets, which were funded under this
agreement.
The Company also maintains an asset securitization agreement with a
separate unaffiliated buyer, which has a purchase commitment up to a
limit of $350.0 million. The terms of this agreement are similar to the
aforementioned facility with the Company retaining the servicing rights
on the right of payment. At December 31, 1998, the Company was servicing
$171.0 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, through its two wholly-owned subsidiaries, TRAC Funding
and TRAC Funding II. Secured leased assets (specified beneficial
interests in a trust which owns the leased vehicles and the leases (the
"Trust")) totaling $600.0 million and $725.3 million, respectively, were
contributed to the subsidiaries by the Company. Loans to TRAC Funding
and TRAC Funding II were funded by commercial paper conduits in the
amounts of $500.0 million and $604.0 million, respectively, and were
secured by the specified beneficial interests in the Trust. Monthly loan
repayments conform to the amortization of the leased vehicles with the
repayment of the outstanding loan balance required at time of
disposition of the vehicles. Interest on the loans is based upon conduit
commercial paper issuance cost and committed bank lines priced on a
London Interbank Offered Rate basis. Repayments of loans are limited to
the cash flows generated from the leases represented by the specified
beneficial interests.
<PAGE>
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 1999. The weighted average interest rate on such debt was 5.5%
and 6.7% at December 31, 1998 and 1997, respectively.
Interest expense is incurred on indebtedness, which is used to finance
fleet leasing, relocation and mortgage servicing activities. Interest
incurred on borrowings used to finance fleet leasing activities was
$177.3 million, $177.0 million and $161.8 million for the years ended
December 31, 1998, 1997 and 1996, respectively, and is included net
within fleet leasing revenues in the consolidated statements of
operations. Interest related to equity advances on homes was $26.9
million, $32.0 million and $35.0 million for the years ended December
31, 1998, 1997 and 1996, respectively. Interest related to origination
and mortgage servicing activities was $138.9 million, $77.6 million and
$63.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Interest expense incurred on borrowings used to finance
both equity advances on homes and mortgage servicing activities are
recorded net within service fee revenues in the consolidated statements
of operations. Total interest payments were $328.5 million, $290.7
million and $262.0 million for the years ended December 31, 1998, 1997
and 1996, respectively.
To provide additional financial flexibility, the Company'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, 1998, the Company maintained $2.75 billion in committed and
unsecured credit facilities, which were backed by a consortium of
domestic and foreign banks. The facilities were comprised of $1.25
billion in 364 day credit lines maturing in March 1999, a $250.0 million
(changed to $150.0 million in March 1999) revolving credit facility
maturing December 1999 and a five year $1.25 billion credit line
maturing in the year 2002. Under such credit facilities, the Company
paid annual commitment fees of $1.9 million, $1.7 million and $2.4
million for the years ended December 31, 1998, 1997 and 1996,
respectively. In March 1999, the Company extended the $1.25 billion in
364 day credit lines to March 2000. In addition, the Company has other
uncommitted lines of credit with various banks of which $5.1 million was
unused at December 31, 1998. The full amount of the Company's committed
facility was undrawn and available at December 31, 1998 and 1997.
On July 10, 1998, the Company entered into a Supplemental Indenture No.
1 (the "Supplemental Indenture") with The First National Bank of
Chicago, as trustee, under the Senior Indenture dated as of June 5,
1997, which formalizes the policy of the Company limiting the payment of
dividends and the outstanding principal balance of loans to the Parent
Company to 40% of consolidated net income (as defined in the
Supplemental Indenture) for each fiscal year. The Supplemental Indenture
prohibits the Company from paying dividends or making loans to the
Parent Company if upon giving effect to such dividends and/or loan, the
Company's debt to equity ratio exceeds 8 to 1, at the time of the
dividend or loan, as the case may be.
Although the period of service for a vehicle is at the lessee's option,
and the period a home is held for resale varies, management estimates by
using historical information, the rate at which vehicles will be
disposed and the rate at which homes will be resold. Projections of
estimated liquidations of assets under management and mortgage programs
and the related estimated repayments of liabilities under management and
mortgage programs as of December 31, 1998, are set forth as follows:
(In millions) Assets under Management Liabilities under Management
Years and Mortgage Programs and Mortgage Programs(1)
----- ------------------------ ----------------------------
1999 $ 4,882.0 $ 4,451.7
2000 1,355.9 1,342.2
2001 668.6 659.0
2002 289.0 263.1
2003 168.3 142.0
2004-2008 148.1 38.8
------------ ---------------
$ 7,511.9 $ 6,896.8
============ ===============
(1) The projected repayments of liabilities under management and
mortgage programs are different than required by contractual
maturities.
<PAGE>
10. 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 and anticipated mortgage loan closings
arising from commitments issued. 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 expect non-performance by
any of the counterparties.
Interest rate swaps. The Company enters into interest rate swap
agreements to match the interest characteristics of the assets being
funded and 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 over the life of the swap agreements as an adjustment to
interest expense. For the years ended December 31, 1998, 1997 and 1996,
the Company's hedging activities increased interest expense $2.1
million, $4.0 million and $4.1 million, respectively, and had no effect
on its weighted average borrowing rate. The fair value of the swap
agreements is not recognized in the consolidated financial statements
since they are accounted for as matched swaps.
<PAGE>
The following table summarizes the maturity and weighted average rates of
the Company's interest rate swaps at December 31, 1998:
<TABLE>
<CAPTION>
2004 and
(In millions) Total 1999 2000 2001 2002 2003 Thereafter
----- ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
United States
Commercial Paper:
Pay fixed/receive floating:
Notional value $355.2 $180.6 $113.2 $40.0 $13.1 $4.4 $3.9
Weighted average receive rate 4.92% 4.92% 4.92% 4.92% 4.92% 4.92%
Weighted average pay rate 5.86% 5.74% 5.77% 6.01% 6.45% 6.67%
Medium-Term Notes:
Pay floating/receive fixed:
Notional value 241.0 155.0 86.0
Weighted average receive rate 5.81% 6.71%
Weighted average pay rate 5.09% 4.92%
Pay floating/receive floating:
Notional value 690.0 690.0
Weighted average receive rate 4.97%
Weighted average pay rate 5.04%
Canada
Commercial Paper:
Pay fixed/receive floating:
Notional value 42.0 35.6 5.6 0.8
Weighted average receive 5.07% 5.07% 5.07%
Weighted average pay rate 5.10% 4.89% 4.93%
Pay floating/receive floating:
Notional value 47.8 29.0 13.2 4.5 1.1
Weighted average receive rate 5.45% 5.30% 5.24% 5.23%
Weighted average pay rate 5.46% 5.45% 5.45% 5.45%
UK
Sterling liabilites:
Pay floating/receive fixed:
Notional value 662.3 254.8 207.5 145.3 54.7
Weighted average receive rate 6.26% 6.26% 6.26% 6.26%
Weighted average pay rate 6.81% 6.71% 6.30% 6.30%
Germany
Deutsche mark liabilities:
Pay fixed/receive fixed:
Notional value 31.9 21.2 9.2 1.5
Weighted average receive rate 3.24% 3.24% 3.24%
Weighted average pay rate 4.28% 4.29% 4.29%
-------- ------- ------- ------ ----- ------ ----
Total $2,070.2 $1,366.2 $ 434.7 $192.1 $68.9 $ 4.4 $3.9
======== ======= ======= ====== ===== ====== ====
</TABLE>
<PAGE>
Foreign exchange contracts. In order to manage its exposure to
fluctuations in foreign currency exchange rates, on a selective basis, the
Company enters into foreign exchange contracts. 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 may also hedge currency exposures that
are directly related to anticipated, but not yet committed transactions
expected to be denominated in foreign currencies. The principal currencies
hedged are the British pound and the German mark. Market value gains and
losses on foreign currency hedges related to intercompany loans are
deferred and recognized upon maturity of the underlying loan. Market value
gains and losses on foreign currency hedges of anticipated transactions
are recognized in the statement of operations as exchange rates change.
However, fluctuations in exchange rates are generally offset by the
anticipated exposures being hedged. Historically, foreign exchange
contracts have been short-term in nature.
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, financial futures 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.
11. 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.
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. The fair value of the Company's medium-term notes is estimated based on
quoted market prices.
Interest rate swaps, foreign exchange contracts, other mortgage-related
positions. The fair values of these instruments are 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.
<PAGE>
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------- -----------------------------------
Notional/ Estimated Notional/ Estimated
Contract Carrying Fair Contract Carrying Fair
(In millions) Amount Amount Value Amount Amount Value
--------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Other assets
Investment in mortgage
securities $ - $ 46.2 $ 46.2 $ - $ 48.0 $ 48.0
- -----------------------------------------------------------------------------------------------------------------------
Assets under management and
mortgage programs
Relocation receivables - 659.1 659.1 - 775.3 775.3
Mortgage loans held for sale - 2,416.0 2,462.7 - 1,636.3 1,668.1
Mortgage servicing rights - 635.7 787.7 - 373.0 394.6
- -----------------------------------------------------------------------------------------------------------------------
Liabilities under management
and mortgage programs
Debt - 6,896.8 6,895.0 - 5,602.6 5,604.2
- -----------------------------------------------------------------------------------------------------------------------
Off balance sheet derivatives
relating to liabilities under
management and mortgage
programs
Interest rate swaps 2,070.2 - - 2,550.1 - -
in a gain position - - 7.8 - - 5.6
in a loss position - - (11.5) - - (3.9)
Foreign exchange forwards 349.3 - 0.1 409.8 - 2.5
- ----------------------------------------------------------------------------------------------------------------------
Mortgage-related positions
Forward delivery commitments (a) 5,057.0 2.9 (3.5) 2,582.5 19.4 (16.2)
Option contracts to sell (a) 700.8 8.5 3.7 290.0 0.5 -
Option contracts to buy (a) 948.0 5.0 1.0 705.0 1.1 4.4
Commitments to fund mortgages 3,154.6 - 35.0 1,861.7 - 19.7
Constant maturity treasury floors (b) 3,670.0 43.8 84.0 825.0 12.5 17.1
Interest rate swaps (b) 775.0 175.0
in a gain position - - 34.6 - - 1.3
in a loss position - - (1.2) - - -
Treasury futures (b) 151.0 - (0.7) 331.5 - 4.8
Principal only swaps (b) 66.3 - 3.1 - - -
</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 loans held by an unaffiliated
buyer as described in Note 7.
(b) Carrying amounts 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.
12. Commitments and Contingencies
Leases. The Company has noncancelable operating leases covering various
equipment and facilities. Rental expense for the years ended December 31,
1998, 1997 and 1996 was $32.1 million, $22.5 million and $24.6 million,
respectively.
<PAGE>
Future minimum lease payments required under noncancelable operating
leases as of December 31, 1998 are as follows:
(In millions)
1999 $ 22.6
2000 21.6
2001 20.6
2002 19.9
2003 14.3
Thereafter 32.2
----------
Total minimum lease payments $ 131.2
==========
Litigation
Parent Company Accounting Irregularities. On April 15, 1998, the Parent
Company publicly announced that it discovered accounting irregularities
in the former business units of CUC. Such discovery prompted
investigations into such matters by the Parent Company and the Audit
Committee of the Parent Company's Board of Directors. As a result of the
findings from the investigations, the Parent Company restated its
previously reported financial results for 1997, 1996 and 1995. Since the
April 15, 1998 announcement, more than 70 lawsuits claiming to be class
actions, two lawsuits claiming to be brought derivatively on the Parent
Company's behalf and three individual lawsuits have been filed in
various courts against the Parent Company and other defendants. The
Court has ordered consolidation of many of the actions.
The Securities and Exchange Commission ("SEC") and the United States
Attorney for the District of New Jersey are conducting investigations
relating to the matters referenced above. The SEC advised the Parent
Company that its inquiry should not be construed as an indication by the
SEC or its staff that any violations of law have occurred. While the
Parent Company made all adjustments considered necessary as a result of
the findings from the investigations, in restating its financial
statements, the Parent Company can provide no assurances that additional
adjustments will not be necessary as a result of these government
investigations.
The Parent Company does not believe it is feasible to predict or
determine the final outcome or resolution of these proceedings or to
estimate the amounts or potential range of loss with respect to these
proceedings and investigations. In addition, the timing of the final
resolution of these proceedings and investigations is uncertain. The
possible outcomes or resolutions of these proceedings and investigations
could include judgments against the Parent Company or settlements and
could require substantial payments by the Parent Company. Management
believes that material adverse outcomes with respect to such Parent
Company proceedings could have a material adverse impact on the
financial condition and cash flows of the Company.
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.
13. Income Taxes
The income tax provision consists of:
Year Ended December 31,
------------------------------------
(In millions) 1998 1997 1996
--------- --------- ---------
Current
Federal $ 42.6 $ 19.3 $ 10.5
State 7.3 7.3 3.5
Foreign 13.7 14.3 8.8
--------- --------- ---------
63.6 40.9 22.8
--------- --------- ---------
Deferred
Federal 85.4 5.7 42.9
State 9.0 (.8) 5.3
Foreign 1.6 (1.6) .8
--------- ---------- ---------
96.0 3.3 49.0
--------- --------- ---------
Provision for income taxes $ 159.6 $ 44.2 $ 71.8
========= ========= =========
<PAGE>
Net deferred income tax assets and liabilities are comprised of the
following:
December 31,
(In millions) 1998 1997
---------- ----------
Merger-related costs $ 6.2 $ 12.8
Accrued liabilities and deferred income 33.5 48.5
Depreciation and amortization 4.1 -
Other (0.3) -
----------- ----------
Net deferred tax asset $ 43.5 $ 61.3
========== ==========
Management and mortgage programs:
Depreciation $ (121.2) (233.1)
Mortgage servicing rights (248.0) (74.6)
Accrued liabilities and deferred income 25.7 9.5
Alternative minimum tax and net
operating loss carryforwards 2.5 2.5
---------- ----------
Net deferred tax liabilities under
management and mortgage programs $ (341.0) $ (295.7)
=========== ==========
The Company has $2.5 million of alternative minimum tax carryforwards at
December 31, 1998, which may be carried forward indefinitely.
The Company paid income taxes, net of refunds, of $11.5 million, $16.1
million and $2.5 million for the years ended December 31, 1998, 1997 and
1996, respectively.
<PAGE>
The Company's effective income tax rate differs from the federal
statutory rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory rate 35.0% (35.0%) 35.0%
Merger-related costs - 1,203.0% -
State income taxes net of federal benefit 2.4% 121.7% 3.9%
Amortization of non-deductible goodwill 0.1% 18.4% 0.5%
Foreign tax in excess of domestic rate (1.0%) (27.1%) 1.0%
Other (0.2%) 4.5% 0.3%
------------- ------------ ------------
36.3% 1,285.5% 40.7%
============ ============ ============
</TABLE>
14. Pension and Other Benefit Programs
Effective December 31, 1998, the Company adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits". The provisions of SFAS No. 132 standardizes the disclosure
requirements for pensions and other postretirement benefits.
Employee benefit plans
On May 1, 1998, the Company's Employee Investment Plan (the "Plan") was
merged into the Parent Company's employee savings plan (the "Cendant
Plan"). Coincident with the merger (the "Plan Merger"), Plan
participants became participants in the Cendant Plan. Accordingly, the
participants' Plan assets that existed at the transfer date under the
Plan were invested in comparable investment categories in amounts in the
Cendant Plan. Effective as of the date of the Plan Merger, investment
options for participants under the Plan were terminated and all
future contributions were invested in options available under the
Cendant Plan. After the Plan Merger, Plan participants maintained the
same vesting schedule for their Company contribution Plan benefits
as was in effect under the Plan. The Company's contributions vest
in accordance with an employee's years of vesting service, with an
employee being 100% vested after three years of vesting service. Under
the Plan, the Company matched employee contributions of up to 3% of
their compensation, with up to an additional 3% discretionary match
available as determined at the end of each Plan year. Under the Cendant
Plan, employees are entitled to a 100% match of the first 3% of their
compensation contributed, with an additional 50% discretionary match of
up to an additional 3% of their compensation contributed, such
discretionary match determined at the end of each Cendant Plan year.
The Company's discretionary matches were 50% in 1998, 50% in 1997 and
75% in 1996. The Company's contributions are allocated based upon the
investment elections noted above at the same percentage as the
respective employees' base salary withholdings. The Company's costs
for contributions were $7.7 million, $5.1 million and $4.7 million for
the years ended December 31, 1998, 1997 and 1996, respectively.
Under the provisions of the Company's postemployment plan, employees are
eligible to participate and may elect upon disability to receive
medical, dental, and long-term disability benefits. The Company's
compensation cost was approximately $2.0 million for the year ended
December 31, 1998. Costs for the years ended December 31, 1997 and 1996
were not material.
Pension and supplemental retirement plans
The Company has a non-contributory defined benefit pension plan covering
substantially all domestic employees of the Company and its subsidiaries
employed prior to July 1, 1997. The Company's foreign subsidiary located
in the United Kingdom sponsors a contributory defined benefit pension
plan, with participation at the employee's 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 funding policy for both plans is to contribute amounts
sufficient to meet the minimum requirements plus other amounts as the
Company deems appropriate from time to time. The Company also sponsors
two unfunded supplemental retirement plans to provide certain key
executives with benefits in excess of limits under the federal tax law
and to include annual incentive payments in benefit calculations.
<PAGE>
A reconciliation of the projected benefit obligation, plan assets and
funded status of the plans and the amounts included in the Company's
consolidated balance sheets:
(In millions) December 31,
-------------------------------
1998 1997
------------- -------------
Change in projected benefit obligation
Benefit obligation at January 1 $ 110.1 $ 116.9
Service cost 6.4 5.8
Interest cost 8.3 8.7
Benefit payments (3.7) (2.4)
Net loss(gain) 23.3 (2.4)
Curtailment - (4.5)
Special termination benefits - 17.8
Settlement - (30.1)
Other 1.3 0.3
------------- -------------
Benefit obligation at December 31 $ 145.7 $ 110.1
============= =============
Change in plan assets
Fair value of plan assets at January 1 $ 102.7 $ 88.4
Actual return on plan assets 11.1 13.7
Benefit payments (3.7) (2.3)
Contributions 2.8 2.0
Other 0.9 0.9
------------- ------------
$ 113.8 $ 102.7
============= ============
Funded status $ (32.0) $ (7.5)
Unrecognized net loss (gain) 19.5 (1.9)
Unrecognized prior service cost 0.3 0.4
Unrecognized net transition obligation 0.1 0.2
------------- ------------
Accrued benefit cost $ (12.1) $ (8.8)
============== =============
The projected benefit obligation and accumulated benefit obligation for
the unfunded pension plans with accumulated benefit obligations in
excess of plan assets were $2.2 million and $1.9 million, respectively,
as of December 31, 1998 and $2.0 million and $1.7 million, respectively,
as of December 31, 1997.
<PAGE>
Components of net periodic benefit costs:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
(In millions) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Service cost $ 6.4 $ 5.8 $ 5.6
Interest cost 8.3 8.7 8.3
Actual return on assets (11.1) (13.7) (10.3)
Net amortization and deferral 1.8 5.4 3.9
------------- ------------- -------------
Net periodic pension cost $ 5.4 $ 6.2 $ 7.5
============= ============= =============
Year Ended December 31,
------------------------------------------------
Rate assumptions: 1998 1997 1996
------------- ------------- -------------
Discount rate 6.75% 7.75% 8.00%
Rate of increase in compensation 5.00% 5.00% 5.00%
Long-term rate of return on assets 10.00% 10.00% 10.00%
</TABLE>
On December 31, 1998 (the "transfer date"), assets were transferred
to the Company's pension plan that related to certain Parent Company
employees and related plan obligations which were retained as a result
of a Parent Company transaction occurring in September 1997. The
estimated projected benefit obligation equaled the fair value of the
plan's assets (primarily cash) of $7.1 million at the transfer date.
In connection with the HFS Merger and the resulting change in control of
the Company's supplemental retirement plans, the Company recognized a
loss of $20.2 million, which reflects a curtailment of the plans and the
related contractual termination of benefits, and settlement of certain
plan obligations. The loss was recorded as a component of the HFS Merger
Charge for the year ended December 31, 1997.
Postretirement benefit plans
The Company provides health care and life insurance benefits for certain
retired employees up to the age of 65. A reconciliation of the
accumulated benefit obligation and funded status of the plans and the
amounts included in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
December 31,
-------------------------------
(In millions) 1998 1997
------------- -------------
<S> <C> <C>
Change in accumulated benefit obligation
Benefit obligation at January 1 $ 8.0 $ 7.5
Service cost 0.9 0.8
Interest cost 0.6 0.6
Benefits payments (0.2) (0.2)
Unrecognized net loss (gain) 3.5 (0.7)
------------- --------------
Benefit obligation at December 31 $ 12.8 $ 8.0
============= =============
Funded status $ (12.8) $ (8.0)
Unrecognized transition obligation 4.2 4.5
Unrecognized net loss (gain) 1.3 (2.5)
------------- --------------
Accrued benefit cost $ (7.3) $ (6.0)
============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Components of net periodic postretirement benefit costs:
Year Ended December 31,
------------------------------------------------
(In millions) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Service cost $ 0.9 $ 0.8 $ 0.8
Interest cost 0.6 0.6 0.5
Net amortization and deferral 0.1 0.2 0.2
------------- ------------- -------------
Net cost $ 1.6 $ 1.6 $ 1.5
============= ============= =============
Rate assumptions: Year Ended December 31,
------------------------------------------------
1998 1997 1996
------------- ------------- -------------
Discount rate 6.75% 7.75% 8.00%
Health care costs trend rate for subsequent year 8.00% 8.00% 10.00%
</TABLE>
The health care cost trend rate is assumed to decrease gradually through
the year 2004 when the ultimate trend rate of 4.75% is reached. A
one-percentage-point increase in the assumed health care cost trend rate
for each future year would increase the annual service interest cost by
approximately $0.1 million and the accumulated postretirement benefit
obligations by approximately $0.8 million. A one percentage point
decrease in the assumed health care cost trend rate for each future year
would decrease the annual service interest cost by approximately ($0.1)
million and the accumulated postretirement benefit obligations by
approximately ($0.8) million.
15. Related Party Transactons
In the ordinary course of business the Company is allocated certain
expenses from Cendant for corporate-related functions including
executive management, finance, human resources, information technology,
legal and facility-related expenses. Cendant allocates corporate
expenses to its subsidiaries based on a percentage of revenues generated
by its subsidiaries. Such expenses allocated to the Company amounted
to $35.7 million and $33.5 million for the years ended December 31, 1998
and 1997, respectively and are included in general and administrative
expenses in the consolidated statements of operations. In addition, at
December 31, 1998 and 1997, the Company had outstanding balances of
$106.5 million and $55.8 million, respectively, payable to Cendant,
representing the accumulation of corporate allocations and amounts
paid by Cendant on behalf of the Company. Amounts payable to Cendant
are included in accounts payable and accrued liabilities in the
consolidated balance sheets.
16. Segment Information
Effective December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
The provisions of SFAS No. 131 established revised standards for public
companies relating to reporting information about operating segments in
annual financial statements and requires selected information about
operating segments in interim financial reports. It also established
standards for related disclosures about products and services, and
geographic areas. The adoption of SFAS No. 131 did not have an affect on
the Company's primary financial statements, but did affect the
disclosure of segment information. The segment information for 1997 and
1996 has been restated from the prior years' presentation in order to
conform depreciation and amortization on to the requirements of SFAS No.
131.
<PAGE>
Management evaluates each segment's performance on a stand-alone basis
based on a modification of earnings before interest, income taxes,
depreciation and amortization. For this purpose, Adjusted EBITDA is
defined as earnings before (i) non-operating interest, (ii) income taxes
and (iii) depreciation and amortization (exclusive of depreciation and
amortization on assets under management and mortgage programs), adjusted
to exclude merger-related costs and other unusual charges. Such charges
are of a non-recurring or unusual nature and are not measured in
assessing segment performance or are not segment specific. Interest
expense incurred on indebtedness which is used to finance fleet
leasing, relocation and mortgage origination and servicing ctivities
is recorded net within revenues in the applicable reportable operating
segment (see Note 9 - Liabilities Under Management and Mortgage
Programs). The Company determined that it has three reportable 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. Inter-segment net revenues were not significant
to the net revenues of any one segment or the consolidated net revenues
of the Company. See Note 1 for a description of the Company's
reportable operating segments.
<PAGE>
Segment Information
(In millions)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Total Relocation Mortgage Fleet Other
----------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,097.6 $ 444.0 $ 353.4 $ 294.8 $ 5.4
Adjusted EBITDA 456.2 124.5 185.7 138.0 8.0
Depreciation and amortization 36.8 16.8 8.8 11.2 -
Segment assets 9,032.9 1,130.3 3,504.0 4,179.6 219.0
Capital expenditures 150.8 69.6 36.4 44.7 0.1
Year ended December 31, 1997
Total Relocation Mortgage Fleet Other
----------- ---------- -------- --------- --------
Net revenues $ 860.6 $ 409.4 $ 179.3 $ 271.9 $ -
Adjusted EBITDA 273.3 89.7 74.8 107.1 1.7
Depreciation and amortization 25.7 8.1 5.1 12.5 -
Segment assets 7,460.5 1,061.4 2,246.0 3,995.8 157.3
Capital expenditures 58.9 23.0 16.2 16.8 2.9
Year ended December 31, 1996
Total Relocation Mortgage Fleet
----------- ---------- ---------- ---------
Net revenues $ 725.7 $ 342.1 $ 127.7 $ 255.9
Adjusted EBITDA 204.9 69.7 45.7 89.5
Depreciation and amortization 28.6 11.0 4.4 13.2
Segment assets 6,697.3 1,086.4 1,742.4 3,868.5
Capital expenditures 25.4 5.5 9.9 10.0
</TABLE>
Provided below is a reconciliation of total Adjusted EBITDA for
reportable segments to consolidated income (loss) before income taxes.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Adjusted EBITDA for reportable segments $ 456.2 $ 273.3 $ 204.9
Depreciation and amortization expense 36.8 25.7 28.6
Merger-related costs and other unusual charges (credits) (20.2) 251.0 -
------------ ----------- -----------
Consolidated income (loss) before income taxes $ 439.6 $ (3.4) $ 176.3
=========== ============ ===========
</TABLE>
Geographic Information
<TABLE>
<CAPTION>
(In millions) United United All Other
1998 Total States Kingdom Countries
---- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 1,097.6 $ 931.9 $ 131.6 $ 34.1
Assets 9,032.9 7,744.4 1,044.8 243.7
Long-lived assets 219.4 155.3 59.3 4.8
1997
Net revenues 860.6 715.2 111.8 33.6
Assets 7,460.5 6,387.7 832.9 239.9
Long-lived assets 104.1 71.4 30.4 2.3
1996
Net revenues 725.7 615.0 92.9 17.8
Assets 6,697.3 5,729.8 687.4 280.1
Long-lived assets 92.1 57.0 32.0 3.1
</TABLE>
Geographic segment information is classified based on the geographic
location of the subsidiary. Long-lived assets are comprised of property
and equipment.
================================================================================
================================================================================
$500,000,000
LOAN AND SECURITY AGREEMENT
Dated as of December 17, 1998
Among
TRAC FUNDING, INC.,
as Borrower,
PREFERRED RECEIVABLES FUNDING CORPORATION
and
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as Lenders,
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
================================================================================
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. AMOUNT AND TERMS OF THE LOAN......................................1
Section 1.1. Loan Facility................................................1
Section 1.2. Making the Loan..............................................1
Section 1.3. Repayment of the Loan........................................1
Section 1.4. Fees. 2
Section 1.5. Payments and Computations, Etc...............................2
Section 1.6. Prepayments..................................................2
Section 1.7. Grant of the Security Interest...............................3
ARTICLE II. INTEREST.........................................................3
Section 2.1. CP Interest..................................................3
Section 2.2. Payments to PREFCO...........................................3
Section 2.3. Financial Institution Funding................................3
Section 2.4. Interest Payments to Financial Institutions..................3
Section 2.5. Selection and Continuation of Tranche Periods................3
Section 2.6. Financial Institution Interest Rates.........................4
Section 2.7. Suspension of the LIBO Rate..................................4
ARTICLE III. REPRESENTATIONS AND WARRANTIES..................................4
Section 3.1. Borrower Representations and Warranties......................4
Section 3.2. Financial Institution Representations and Warranties.........6
ARTICLE IV. CONDITIONS OF LOAN...............................................7
Section 4.1. Conditions Precedent to the Loan.............................7
ARTICLE V. COVENANTS.........................................................7
Section 5.1. Affirmative Covenants of Borrower............................7
Section 5.2. Negative Covenants of Borrower...............................9
ARTICLE VI. EVENTS OF DEFAULT................................................10
Section 6.1. Events of Default............................................10
Section 6.2. Remedies 12
ARTICLE VII. THE AGENT.......................................................13
Section 7.1. Authorization and Action.....................................13
Section 7.2. Delegation of Duties.........................................13
Section 7.3. Exculpatory Provisions.......................................13
Section 7.4. Reliance by Agent............................................14
Section 7.5. Non-Reliance on Agent and Other Lenders......................14
Section 7.6. Reimbursement and Indemnification............................14
Section 7.7. Agent in its Individual Capacity.............................14
Section 7.8. Successor Agent..............................................14
ARTICLE VIII. LIQUIDITY FACILITY.............................................14
Section 8.1. Transfer to Financial Institutions...........................14
Section 8.2. Transfer Price Reduction Interest............................15
Section 8.3. Payments to PREFCO...........................................15
Section 8.4. Limitation on Commitment to Purchase from PREFCO.............15
Section 8.5. Defaulting Financial Institutions............................15
ARTICLE IX. INDEMNIFICATION..................................................15
Section 9.1. Indemnities by the Borrower..................................15
Section 9.2. Increased Cost and Reduced Return............................17
Section 9.3. No Withholding or Other Taxes................................17
Section 9.4. Costs and Expenses Relating to this Agreement................18
ARTICLE X. ASSIGNMENTS.......................................................18
Section 10.1. Assignments.................................................18
Section 10.2. Participations..............................................19
ARTICLE XI. MISCELLANEOUS....................................................19
Section 11.1. Waivers and Amendments......................................19
Section 11.2. Notices.....................................................20
Section 11.3. Ratable Payments............................................20
Section 11.4. Confidentiality.............................................20
Section 11.5. Bankruptcy Petition.........................................21
Section 11.6. Limitation of Liability.....................................21
Section 11.7. Choice Of Law...............................................21
Section 11.8. Consent To Jurisdiction.....................................21
Section 11.9. Waiver Of Jury Trial........................................22
Section 11.10. Integration; Survival of Terms.............................22
Section 11.11. Counterparts; Severability.................................22
Section 11.12. Recourse...................................................22
Section 11.13. First Chicago Roles........................................22
Section 11.14. Further Actions Evidencing Loans and the Security Interest
Created Herein..........................................22
EXHIBIT I DEFINITIONS.......................................................25
EXHIBIT II CHIEF EXECUTIVE OFFICE; PLACE(S) OF BUSINESS; FEIN...............36
EXHIBIT III FORM OF LOAN NOTE..............................................37
EXHIBIT IV FORM OF COMPLIANCE CERTIFICATE...................................39
EXHIBIT V FORM OF MONTHLY REPORT............................................41
EXHIBIT VI FORM OF LOCK-BOX AGREEMENT; LOCK-BOX NUMBERS.....................42
EXHIBIT VIII CREDIT AND COLLECTION PRACTICES................................44
EXHIBIT IX FORM OF LOAN REQUEST.............................................67
Schedule I Closing Documents................................................47
Schedule II Confidential Information........................................47
<PAGE>
THIS LOAN AND SECURITY AGREEMENT, dated as of December 17, 1998, is by and among
TRAC Funding, Inc., a Delaware corporation (the "Borrower"), Preferred
Receivables Funding Corporation ("PREFCO"), and the Financial Institutions
(hereinafter defined; and together with PREFCO, the "Lenders"), and The First
National Bank of Chicago, as Agent for the benefit of the Lenders. Unless
defined elsewhere herein, capitalized terms used in this Agreement shall have
the meanings assigned to such terms in Exhibit I hereto.
PRELIMINARY STATEMENTS
PHH VMS and PHH Subsidiary have delivered to the Trustee a Series
Specification Notice listing certain assets which are to be designated
as Series 1998-B Assets. PHH VMS, PHH Subsidiary and the Trust have
entered into the Assignment pursuant to which PHH VMS and PHH Subsidiary
sold, conveyed, assigned, transferred and set over unto the Trust the
Series 1998-B Leased Vehicles, the Series 1998-B Leases and other rights
related thereto. PHH VMS, PHH Subsidiary and the Trust have entered into
the Supplement creating the Certificates and providing for the
administration and servicing of the Series 1998-B Assets by the
Administrative Agent. The Borrower and PHH VMS have entered into the
Contribution Agreement pursuant to which PHH VMS shall contribute the
Certificate and the other property relating thereto (as more fully
described in the Contribution Agreement) to the Borrower. The Borrower
desires to obtain a loan from PREFCO pursuant to the terms hereof and is
willing to pledge the Collateral to the Agent for the benefit of the
Lenders in connection therewith. PREFCO is willing to make a loan to the
Borrower on the terms and subject to the conditions hereinafter set
forth.
ARTICLE I.
AMOUNT AND TERMS OF THE LOAN
Section 1.1. Loan Facility.
(a) On the terms and conditions set forth herein, PREFCO may, at its option,
make a loan to the Borrower in an aggregate principal amount not to exceed
$500,000,000 (the "Loan").
(b) The Loan shall be evidenced by a Loan Note that shall be dated the
Closing Date, be payable to the order of the Agent, for the benefit of the
Lenders, and provide for the payment of the unpaid principal amount of the Loan
evidenced thereby and interest with respect thereto accruing from time to time
in accordance with the terms of this Agreement until repayment in full of the
Loan.
Section 1.2. Making the Loan. The Borrower shall notify the Agent in
writing of its desire to borrow under this Agreement, which notice shall be
delivered no later than the date which is one (1) Business Day prior to desired
funding date and shall specify the amount of the Loan requested (together with a
detailed calculation thereof); provided, however, that the Borrower shall not
give such notice to the Agent before all conditions precedent set forth in
Article IV are satisfied or, in the sole discretion of the Agent, waived. If
PREFCO elects, in its sole discretion, to make the Loan to the Borrower, PREFCO
shall, provided that the conditions precedent set forth in Article IV continue
to be satisfied, make available to the Borrower on the proposed funding date in
same day funds, at the Borrower's account specified in such notice, the amount
of the Loan requested (not to exceed $500,000,000). The Borrower's notice shall
be deemed to be an irrevocable and binding commitment to accept the Loan on the
funding date, and the Borrower shall indemnify PREFCO against any loss or
expense incurred by PREFCO if for any reason the Loan is not made on the funding
date, including, without limitation, any Broken Funding Costs.
Section 1.3. Repayment of the Loan.
(a) The Loan shall mature, and the principal amount thereof shall be
repaid, to the extent not previously repaid as required hereby, on December 17,
2003. Notwithstanding anything contained in this Agreement to the contrary, the
repayment of the Loan and the payment of CP Interest, interest on the Loan
payable to the Financial Institutions and all fees, indemnities and other
amounts payable by the Borrower under this Agreement will be full recourse
obligations of the Borrower.
(b) On each Settlement Date, the Borrower will instruct the Administrative Agent
to pay and deposit to PREFCO's account at First National Bank of Chicago, ABA#
071000013, Account #5801443 (PREFCO), re: TRAC Funding, Inc., or at such other
account as directed by the Agent, an amount equal to the sum of (i) all CP
Interest, all interest due to the Financial Institutions and all fees and other
amounts (other than the principal amount of the Loan) due and payable on such
Settlement Date, plus (ii) an amount which, when applied to reduce the
outstanding principal amount of the Loan, shall cause the outstanding principal
amount of the Loan to be less than or equal to the Projected Adjusted Lease
Balance on such Settlement Date of the Series 1998-B Leases minus 16.67% of such
Projected Adjusted Lease Balance; provided, however, that the Projected Adjusted
Lease Balance on any date of the Series 1998-B Leases shall not be less than the
sum of the outstanding principal amount of the Loan on such date plus
$25,000,000.
(c) Each payment made by the Borrower pursuant to paragraph (b) above shall be
paid to each Lender, based on such Lender's Pro Rata Share and shall be applied
by such Lender, first, to the payment of CP Interest or interest, as the case
may be, second, to the payment of fees and other amounts due and payable, and,
third, to the reduction of such Lender's portion of the outstanding Loan.
Section 1.4. Fees.
The Borrower shall pay to PREFCO fees in amounts and at the times set forth in
the Fee Letter.
Section 1.5. Payments and Computations, Etc.
(a) All amounts to be paid or deposited by the Borrower hereunder shall
be paid or deposited no later than 12:00 Noon (New York City time) on the day
when due in same day funds to PREFCO's account at First National Bank of
Chicago, ABA# 071000013, Acct. #5801443 (PREFCO), re: TRAC Funding Inc., or at
such other account as directed by the Agent.
(b) On and after the occurrence of an Event of Default and during the
continuance thereof, the Borrower shall, to the extent permitted by law, pay on
demand from time to time interest on any overdue amount hereunder at an interest
rate per annum equal to 2% per annum above the then current interest rate on the
outstanding Loan; provided that no provision of this Agreement shall require the
payment or permit the collection of interest in excess of the maximum permitted
by applicable law; and provided further, that any such amount paid shall not be
considered paid to the extent that at any time all or a portion of such payment
is rescinded or must otherwise be returned for any reason.
(c) Except as otherwise provided herein, all computations of interest,
the Program Fee, other fees and other amounts hereunder shall be made on the
basis of a year of 360 days and the actual number of days elapsed and such
computations by the Agent shall be binding on the parties hereto absent manifest
error. Whenever any payment or deposit to be made hereunder shall be due on a
day other than a Business Day, such payment or deposit shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of such payment or deposit.
(d) Unless otherwise indicated to the contrary, a decimal resulting from
any calculation under this Agreement will be carried out to the tenth place, a
percentage resulting from any calculation under this Agreement will be carried
out such that there are ten digits in such percentage and a dollar amount used
in or resulting from any calculation will be rounded to the nearest cent (with
one half cent being rounded upward).
Section 1.6. Prepayments.
(a) The Borrower shall be entitled to voluntarily prepay the Loan, in
whole or in part, on any Settlement Date; provided that the Agent shall have
received prior irrevocable written notice of such prepayment at least thirty
(30) days (or such shorter period of time as the Agent may agree to in its sole
discretion) prior to the date of such prepayment. Notwithstanding the foregoing
the Borrower shall be entitled to prepay the Loan in full after the occurrence
of an Event of Default upon one (1) Business Day's notice to the Agent. For
purposes of this paragraph, the term "prepayment" shall not include payments
made on each Settlement Date pursuant to Section 1.3.
(b) In the case of a prepayment of the Loan by the Borrower pursuant to
paragraph (a) above, the Borrower shall, on the date of such prepayment, (1) pay
to the Agent, for the account of the Lenders, an amount equal to the sum of (i)
the principal portion of the Loan to be prepaid on such date, plus (ii) the
accrued and unpaid interest on the Loan through such date, plus (iii) all other
amounts due to the Lenders hereunder, including without limitation any Broken
Funding Costs and other expenses, if any (including, without limitation,
attorneys' fees and disbursements, costs, accrued interest or discount in
terminating, closing out or transferring any agreements such as interest rate
swaps, interest rate cap agreements, over-the-counter forward agreements and
futures contracts), in connection with any Lender's funding or maintenance of
the Loan which arise as the result of such prepayment.
Section 1.7. Grant of the Security Interest.
(a) As collateral security for the prompt and complete payment of
principal of and interest on the Loan and all other amounts owing the Agent and
the Lenders hereunder and under the Note and the other Transaction Documents
(the "Secured Obligations") and for the prompt and complete performance when due
of all the Borrower's obligations to the Agent and the Lenders under this
Agreement and the other Transaction Documents and in order to induce the Agent
and the Lenders to enter into this Agreement and make the Loan in accordance
with the terms hereof, the Borrower hereby assigns, pledges and grants to the
Agent, for the benefit of the Lenders, a security interest in all rights, title
and interest of the Borrower, whether now existing or hereafter acquired or
arising, in and to the Collateral and all proceeds thereof.
(b) The Borrower shall physically deliver, or cause to be physically
delivered, to the possession of the Agent the original Certificate. The
Certificate shall be segregated from all other securities or other assets of the
Agent and held by the Agent for the benefit of the Lenders. The Agent shall
return to the Borrower the Certificate upon and subject to the termination of
this Agreement and indefeasible payment in full by the Borrower of the Loan,
interest thereon and all other amounts payable to the Agent and the Lenders.
ARTICLE II.
Interest
Section 2.1. CP Interest. The Borrower shall pay CP Interest with
respect to any portion of the Loan funded by PREFCO for each day that such
portion of the Loan is outstanding as follows: each portion of the Loan funded
substantially with Pooled Commercial Paper will accrue CP Interest each day
based on the Pooled Allocation, and each portion of the Loan funded
substantially with Specially Pooled Paper will accrue CP Interest each day based
on the Specially Pooled Allocation.
Section 2.2. Payments to PREFCO. On each Settlement Date, the Borrower
shall pay or cause to be paid to the Agent (for the benefit of PREFCO) an
aggregate amount equal to all accrued and unpaid CP Interest in respect of any
portion of the Loan funded by PREFCO for the immediately preceding Collection
Period.
Section 2.3. Financial Institution Funding. Any portion of the Loan
funded by the Financial Institutions shall accrue interest at either the LIBO
Rate or the Base Rate in accordance with the terms and conditions hereof.
Interest shall accrue for each such portion of the Loan for each day occurring
during the Tranche Period associated with either the LIBO Rate or the Base Rate
therefor. If the Financial Institutions acquire by assignment from PREFCO any
portion of the Loan pursuant to Article X hereof, each such portion of the Loan
so assigned shall be deemed to have a new Tranche Period commencing on the date
of any such assignment.
Section 2.4. Interest Payments to Financial Institutions. On each
Settlement Date in respect of each portion of the Loan funded by the Financial
Institutions, the Borrower shall pay to the Agent (for the benefit of the
Financial Institutions) an aggregate amount equal to the accrued and unpaid
interest for the entire Tranche Period of each such portion of the Loan.
Section 2.5. Selection and Continuation of Tranche Periods.
(a) With consultation from (and approval by) the Agent, the Borrower
shall from time to time on at least three (3) Business Days notice prior to the
end of the current Tranche Period to the Agent request Tranche Periods for the
portion of the Loan to be funded by the Financial Institutions during the next
Tranche Period; provided that if the Borrower fails to timely select a Tranche
Period, the Agent shall select the relevant Tranche Period; provided further,
that, if at any time the Financial Institutions shall have funded any portion of
the Loan, the Borrower shall always request Tranche Periods such that at least
one Tranche Period shall end on each Settlement Date.
(b) The Borrower or the Agent may, upon notice to and consent by the
other received at least three (3) Business Days prior to the end of a Tranche
Period (the "Terminating Tranche"), for any portion of the Loan, take any of the
following actions (i) divide such portion of the Loan into two or more portions
having an aggregate principal amount of such portion of the Loan so divided or
(ii) combine such portion of the Loan with another portion of the Loan having a
Terminating Tranche ending on the same day; provided that in no event may any
portion of the Loan funded by PREFCO be combined with any portion of the Loan
funded by the Financial Institutions; provided further that there shall be not
more than 4 Tranche Periods outstanding at any time.
Section 2.6. Financial Institution Interest Rates. The Borrower may
select the LIBO Rate (so long as no Event of Default exists) or the Base Rate
for the portion of the Loan funded by the Financial Institutions. The Borrower
shall by 9:00 a.m. (Chicago time): at least three (3) Business Days prior to the
expiration of any Terminating Tranche with respect to which the LIBO Rate is
being requested as a new Interest Rate, and (ii) at least one (1) Business Day
prior to the expiration of any Terminating Tranche with respect to which the
Base Rate is being requested as a new Interest Rate, give the Agent irrevocable
notice as to whether it elects the LIBO Rate or the Base Rate for the portion of
the Loan associated with such Terminating Tranche. Until the Borrower gives
notice to the Agent of another Interest Rate, the initial Interest Rate for any
portion of the Loan transferred to the Financial Institutions pursuant to the
terms and conditions hereof shall be the Base Rate.
Section 2.7. Suspension of the LIBO Rate.
(a) If any Financial Institution notifies the Agent that it has
determined that funding its Pro Rata Share of the portion of the Loan funded by
the Financial Institutions at a LIBO Rate would violate any applicable law,
rule, regulation, or directive of any governmental or regulatory authority,
whether or not having the force of law, or that (i) deposits of a type and
maturity appropriate to match fund its Pro Rata Share of such portion of the
Loan at such LIBO Rate are not available or (ii) such LIBO Rate does not
accurately reflect the cost of acquiring or maintaining its Pro Rata Share of
such portion of the Loan at such LIBO Rate, then the Agent shall suspend the
availability of such LIBO Rate, and require the Borrower to select the Base
Rate, for any portion of the Loan accruing interest at such LIBO Rate.
(b) If less than all of the Financial Institutions give a notice to the
Agent pursuant to Section 2.7(a), the Borrower may, but shall not be obligated
to, prepay to each Financial Institution which gave such a notice such notifying
Financial Institution's Pro Rata Share of the amount of the Loan and interest
owing to all the Financial Institutions and all accrued but unpaid fees and
other costs and expenses payable in respect of such Pro Rata Share of the Loan.
If the Borrower does not elect to prepay such notifying Financial Institution's
Pro Rata Share of the amount of the Loan as provided in the preceding sentence,
each Financial Institution which gave such a notice shall be obliged, at the
request of the Borrower, PREFCO or the Agent, to assign all of its rights and
obligations hereunder to (i) another Financial Institution or (ii) another
financial institution nominated by the Borrower or the Agent that is acceptable
to PREFCO and willing to participate in this Agreement through the Liquidity
Termination Date in the place of such notifying Financial Institution; provided
that (i) the notifying Financial Institution receives payment in full, pursuant
to an Assignment Agreement, of an amount equal to such notifying Financial
Institution's Pro Rata Share of the amount of the Loan and interest owing to all
of the Financial Institutions and all accrued but unpaid fees and other costs
and expenses payable in respect of its Pro Rata Share of the portion of the
Loans funded by the Financial Institutions, and (ii) the replacement Financial
Institution otherwise satisfies the requirements of Section 10.1(b).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.1. Borrower Representations and Warranties. The
Borrower hereby represents and warrants to the Agent and each of the Lenders
that:
(a) Corporate Existence and Power. The Borrower is a corporation
validly organized and existing and in good standing under the laws of the state
of its incorporation, is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction where the nature of its business
requires such qualification other than those in which its failure to so qualify
would not have a Material Adverse Effect. The Borrower has full power and
authority and holds all requisite governmental licenses, permits and other
approvals, except to the extent that failure to hold such licenses, permits and
approvals would not have a Material Adverse Effect, to enter into and perform
its obligations under the Transaction Documents and to own and hold under lease
its property and to conduct its business as currently proposed to be conducted.
(b) Non-Contravention, Due Authorization, Etc. The execution, delivery
and performance by the Borrower of the Transaction Documents, the pledge and
assignment of a security interest in the Collateral and the Borrower's use of
the proceeds of the Loan made hereunder, are within its corporate powers, have
been duly authorized by all necessary corporate action, do not: (i) contravene
the Borrower's certificate of incorporation, by-laws, or any shareholder
agreements, voting trusts, and similar arrangements applicable to any of its
authorized shares, (ii) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or affecting the
Borrower, or (iii) result in, or require the creation or imposition of, any lien
on any of the Borrower's properties except the lien created by this Agreement.
No transaction contemplated hereby requires compliance with any bulk sales act
or similar law.
(c) Governmental Authorization. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority or
regulatory body or other Person is required for the due execution, delivery and
performance by the Borrower of the Transaction Documents to which it is a party.
(d) Binding Effect. Each of the Transaction Documents to which the
Borrower is a party has been duly authorized, executed and delivered by the
Borrower. Each of such Transaction Documents constitutes the legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws of
general applicability and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
(e) Accuracy of Information. All information heretofore furnished by
the Borrower to the Agent or any Lender for purposes of or in connection with
the Transaction Documents or any transaction contemplated thereby is, and all
such information hereafter furnished by the Borrower to the Agent or any Lender
will be, true and accurate in every material respect, on the date such
information is stated or certified and does not and will not contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
(f) Use of Proceeds. The proceeds of the Loan will not be used (i) for
a purpose which violates, or would be inconsistent with, Regulation T, U or X
promulgated by the Board of Governors of the Federal Reserve System from time to
time or (ii) to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(g) Holder of Title. As of the Closing Date, the Borrower will be the
holder of all right, title and interest in and to the Collateral, free from any
Adverse Claim, and the Borrower shall defend the Agent's and the Lenders'
security interest in the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest therein adverse to that of
the Agent and the Lenders.
(h) Certificate. The Certificate has been duly and validly authorized,
and, when executed and authenticated in accordance with the terms of the Trust
Agreement and the Supplement, and delivered to and paid for by the Borrower in
accordance with the Contribution Agreement, will be duly and validly issued and
outstanding, and will be entitled to the benefits of the Trust Agreement and the
Supplement.
(i) Litigation. There is no pending or, to the Borrower's knowledge,
threatened action, suit or proceeding by or against the Borrower before any
Governmental Authority or any arbitrator with respect to the Transaction
Documents or any of the transactions contemplated therein, or with respect to
the Borrower.
(j) Taxes, etc. Any taxes, fees and other charges of Governmental
Authorities applicable to the Borrower, except for franchise or income taxes, in
connection with the execution, delivery and performance by the Borrower of the
Transaction Documents or otherwise applicable to the Borrower in connection
therewith have been paid or will be paid by the Borrower at or prior to the
Closing Date to the extent then due.
(k) Financial Condition of the Borrower. On the date hereof, the
Borrower is solvent, is not the subject of any voluntary or involuntary
receivership or conservatorship proceeding and will not become insolvent as a
result of the transactions contemplated by this Agreement.
(l) Places of Business. The principal place of business and chief
executive office of the Borrower is located at the address listed on Exhibit II
or such other location notified to the Agent in accordance with Sections 5.2(a)
in jurisdictions where all action required by Section 5.2(a) has been taken and
completed. The Borrower's Federal Employer Identification Number is correctly
set forth on Exhibit II.
(m) Material Adverse Effect. Since June 30, 1998 to the date of this
Agreement, no event has occurred which could have a Material Adverse Effect,
except for the downgrade by Standard & Poor's Ratings Group and Moody's
Investors Service, Inc. of the Guarantor's short-term and long-term debt
ratings.
(n) Transfer by the Transferor. The transfer of the Certificate and the
related assets pursuant to the Contribution Agreement from PHH VMS to the
Borrower was not made for or on account of an antecedent debt and is not
voidable under any section of Title 11 of the United States Code (11 U.S.C.
ss.ss. 101 et. seq.), as amended.
(o) Ownership of the Borrower. As of the Closing Date the Guarantor
owns, directly or indirectly, 100% of the issued and outstanding capital stock
of PHH VMS and the Borrower, free and clear of any Adverse Claim. PHH VMS owns,
directly or indirectly, 100% of the issued and outstanding capital stock of the
Borrower, free and clear of any Adverse Claim. All such capital stock is validly
issued, fully paid and nonassessable, and there are no outstanding options,
warrants or other rights to acquire securities of the Borrower.
(p) Not an Investment Company. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended from time to time, or any
successor statute.
(q) Year 2000 Plan. The Borrower has reviewed areas within its business
and operations which could be adversely affected by, and has developed a plan (a
"Year 2000 Plan") to address on a timely basis, the Year 2000 Problem. The
Borrower is taking all actions necessary to meet the schedule and goals of its
Year 2000 Plan, and do not anticipate that the Year 2000 Problem will have a
Material Adverse Effect.
(r) Agent's Security Interest. At the time of and immediately after the
making of the Loan and at all times thereafter, the Agent will have, for the
benefit of the Lenders, a first priority perfected security interest in the
Collateral and the proceeds thereof, free and clear of any Adverse Claims.
Section 3.2. Financial Institution Representations and Warranties.
Each Financial Institution hereby represents and warrants to the Agent, PREFCO
and the Borrower that:
(a) Existence and Power. Such Financial Institution is a corporation or
a banking association duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, and has all
corporate power to perform its obligations hereunder.
(b) No Conflict. The execution, delivery and performance by such
Financial Institution of this Agreement are within its corporate powers, have
been duly authorized by all necessary corporate action, do not contravene or
violate (i) its articles or certificate of incorporation or association or
by-laws, (ii) any law, rule or regulation applicable to it, (iii) any
restrictions under any agreement, contract or instrument to which it is a party
or by which any of its property is bound, or (iv) any order, writ, judgment,
award, injunction or decree binding on or affecting it or its property, and do
not result in the creation or imposition of any Adverse Claim on its assets.
This Agreement has been duly authorized, executed and delivered by such
Financial Institution.
(c) Governmental Authorization. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority or
regulatory body is required for the due execution, delivery and performance by
such Financial Institution of this Agreement.
(d) Binding Effect. This Agreement constitutes the legal, valid and
binding obligation of such Financial Institution enforceable against such
Financial Institution in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or limiting creditors' rights generally.
ARTICLE IV.
CONDITIONS OF LOAN
Section 4.1. Conditions Precedent to the Loan. The making of the Loan
under this Agreement is subject to the conditions precedent (which conditions
precedent shall be satisfactory in form and substance to the Agent) that:
(a) the Agent shall have completed its audit of PHH VMS's operations
and shall be reasonably satisfied with the results of such audit;
(b) the Agent shall have received on or before the Closing Date those
agreements, opinions and other documents listed on Schedule I hereto;
(c) the Administrative Agent shall have marked its master data
processing records to evidence the inclusion of the Series 1998-B Leases and the
Series 1998-B Leased Vehicles in the Trust and the interest of the Agent on
behalf of the Lenders therein.
(d) the Agent and PREFCO shall have been paid all fees and expenses
required to be paid on the Closing Date pursuant to the terms hereof and of the
Fee Letter;
(e) on the Closing Date, the following statements shall be true both
before and after giving effect to the making of the Loan (and acceptance of the
proceeds of the Loan shall be deemed a representation and warranty by the
Borrower that such statements are then true):
(i) the representations and warranties set forth in Section
3.1 are true and correct on and as of the Closing Date as though made
on and as of the Closing Date;
(ii) no event has occurred and is continuing, or would result
from the making of the Loan, that will constitute an Event of Default
or a Potential Event of Default;
(iii) the principal amount of the Loan shall not exceed the
least of (x) the Maximum Loan, (y) 83.33% of the Projected Adjusted
Lease Balance of the Series 1998-B Leases as of November 30, 1998, or
(z) the Projected Adjusted Lease Balance as of November 30, 1998, minus
$25,000,000;
(iv) At least ninety-nine percent of the Series 1998-B Leased
Vehicles were new at the inception of the Series 1998-B Lease
associated with each such Series 1998-B Leased Vehicle; and
(f) the Agent shall have received such other approvals, opinions or
documents as it may reasonably request.
Section 4.2. Conditions Subsequent to the Loan. The Borrower shall,
within 30 days of the date of this Agreement, deliver to the Agent, (a) a
Lockbox Agreement and (b) an insurance certificate showing that the
Borrower and the Agent, for the benefit of the Lenders, are additional
insureds on Cendant Corporation's Commercial Auto Coverage insurance
policy with respect to bodily injury and property damage claims caused by
accidents and resulting from the ownership, maintenance or use of any
Series 1998-B Leased Vehicle.
ARTICLE V.
COVENANTS
Section 5.1. Affirmative Covenants of Borrower. Until the date on
which the Secured Obligations have been indefeasibly paid in full, the
Borrower hereby covenants that:
(a) Financial Reporting. The Borrower will maintain a system of
accounting established and administered in accordance with generally accepted
accounting principles, and furnish to the Agent:
(i) Annual Reporting. Within 95 days after the close of each
of its fiscal years, balance sheets as at the close of such fiscal year
and statements of income and retained earnings and a statement of cash
flows for such fiscal year certified in a manner acceptable to the
Agent by the chief financial officer of the Borrower.
(ii) Quarterly Reporting. Within 50 days after the close of
the first three quarterly periods of each of its fiscal years, balance
sheets as at the close of each such period and statements of income and
retained earnings and a statement of cash flows for the period from the
beginning of such fiscal year to the end of such quarter, all certified
by its chief financial officer.
(iii) Compliance Certificate. Together with the financial
statements required hereunder, a compliance certificate in
substantially the form of Exhibit IV signed by the Borrower's chief
financial officer and dated the date of such annual financial statement
or such quarterly financial statement, as the case may be.
(iv) Notices under Transaction Documents. Forthwith upon its
receipt of any notice, amendment, request for consent, financial
statements, certification, report or other communication under or in
connection with any Transaction Document from any Person other than the
Agent, copies of the same, unless the Agent is otherwise entitled to
receive the
same pursuant to such Transaction Document.
(v) Other Information. Such other information (including
non-financial information) as the Lender may from time to time
reasonably request.
(b) Notices. The Borrower will notify the Agent in writing of any of
the following immediately upon learning of the occurrence thereof, describing
the same and, if applicable, the steps being taken with respect thereto:
(i) Events of Default or Potential Events of Default.
The occurrence of each Event of Default or each Potential Event of
Default.
(ii) Judgment. The entry of any judgment or decree against
the Borrower.
(iii) Litigation. The institution of any litigation,
arbitration proceeding or governmental proceeding against the Borrower
or in which the Borrower becomes a defendant or respondent.
(c) Compliance with Laws. The Borrower will comply in all material
respects with all applicable laws, rules, regulations, orders writs, judgments,
injunctions, decrees or awards to which it may be subject.
(d) Audits. The Borrower will furnish to the Agent from time to time
such information with respect to the Certificate as the Agent may reasonably
request. The Borrower shall, from time to time during regular business hours as
requested by the Agent upon reasonable notice, permit the Agent or its
representatives (i) to examine and make copies of and abstracts from all Records
in the possession or under the control of the Borrower relating to the
Certificate and (ii) to visit the offices and properties of the Borrower for the
purpose of examining such materials described in clause (i) above, and to
discuss matters relating to the Borrower's financial condition, the Certificate
or the Borrower's performance hereunder.
(e) Lenders' Reliance. The Borrower acknowledges that the Agent and the
Lenders are entering into the transactions contemplated by this Agreement in
reliance upon the Borrower's identity as a legal entity that is separate from
the Guarantor and PHH VMS. Therefore, from and after the date of execution and
delivery of this Agreement, the Borrower shall take all reasonable and, in any
event, necessary steps (including, without limitation, all steps that the Agent
or any Lender may from time to time reasonably request) to maintain the
Borrower's identity as a separate legal entity and to make it manifest to third
parties that the Borrower is an entity with assets and liabilities distinct from
those of the Guarantor, PHH VMS and any Affiliates of either thereof (the "PHH
Entities") and not just a division of any thereof. Without limiting the
generality of the foregoing and in addition to the other covenants set forth
herein, the Borrower shall:
(i) conduct its own business in its own name and require that
all full-time employees of the Borrower, if any, identify themselves as
such and not as employees of a PHH Entity (including, without
limitation, by means of providing such employees with business or
identification cards identifying such employees as the Borrower's
employees);
(ii) compensate all employees, consultants and lenders
directly, from the Borrower's bank accounts, for services provided to
the Borrower by such employees, consultants and lenders and, to the
extent any employee, consultant or lender of the Borrower is also an
employee, consultant or lender of a PHH Entity, allocate the
compensation of such employee, consultant or lender between the
Borrower and such PHH Entity on a basis which reflects the services
rendered to the Borrower and such PHH Entity;
(iii) clearly identify its offices, if any, (by signage or
otherwise) as its offices and, if such office is located in the offices
of a PHH Entity, the Borrower shall lease such office at a fair market
rent;
(iv) conduct all transactions with PHH Entities strictly on an
arm's-length basis, and allocate all overhead expenses (including,
without limitation, telephone and other utility charges) for items
shared between the Borrower and any PHH Entity on the basis of actual
use to the extent practicable and, to the extent such allocation is not
practicable, on a basis reasonably related to actual use;
(v) at all times have at least one member of its Board of
Directors who is an "Independent Director" as provided in the
Borrower's Certificate of Incorporation as in effect on the date
hereof;
(vi) observe all corporate formalities as a distinct entity,
and ensure that all corporate actions relating to (A) the selection,
maintenance or replacement of the Independent Director, (B) the
dissolution or liquidation of the Borrower or (C) the initiation or
participation in, acquiescence in or consent to any bankruptcy,
insolvency, reorganization or similar proceeding involving the
Borrower, are duly authorized by unanimous vote of its Board of
Directors (including the Independent Director);
(vii) maintain the Borrower's books and records separate from
those of any PHH Entity and cause its assets to be readily identifiable
as its own assets rather than assets of a PHH Entity; provided that the
commingling by the Trust of Collections relating to the Series 1998-B
Assets and other assets in the Trust (as such term is defined in the
Trust Agreement) shall not violate this provision;
(viii) prepare its financial statements separately from those
of the PHH Entities and insure that any consolidated financial
statements of the PHH Entities that include the Borrower have notes
clearly stating that the Borrower is a separate corporate entity and
that its assets will be available first and foremost to satisfy the
claims of the creditors of the Borrower;
(ix) except as specifically otherwise provided in the
Transaction Documents, not commingle funds or other assets of the
Borrower with those of any PHH Entity and not maintain bank accounts or
other depository accounts to which any PHH Entity is an account party,
into which any PHH Entity makes deposits or from which any PHH Entity
has the power to make withdrawals, except in its capacity as
Administrative Agent; and
(x) not permit any PHH Entity to pay any of the Borrower's
operating expenses.
(f) Retitling. If requested by the Agent, the Borrower shall cause each
certificate of title relating to a Series 1998-B Leased Vehicle to show the
Agent, for the benefit of the Lenders, as the sole lienholder with respect
thereto if the rating of the Guarantor's senior unsecured long-term debt by each
of Moody's Investor's Service, Inc. and Standard & Poor's Rating Group is
reduced to or drops below Baa3 and BBB-, respectively.
(g)Provision of Information. If requested by the Agent, the Borrower
shall cause the Administrative Agent to furnish to the Agent or any
representative of the Agent copies of any and all of the Records or Lease Files
relating to the Series 1998-B Assets, Series 1998-B Leases or any portion of the
Collateral.
Section 5.2. Negative Covenants of Borrower. Until the date on
which the Secured Obligations have been indefeasibly paid in full, the
Borrower hereby covenants that:
(a) Name Change, Offices, Records and Books of Accounts. The Borrower
will not change its name, identity or corporate structure (within the meaning of
Section 9-402(7) of any applicable enactment of the UCC) or relocate its
principal place of business or chief executive office unless it shall have: (i)
given the Agent at least 45 days prior notice thereof and (ii) taken all actions
required of each relevant jurisdiction in order to continue the first priority
perfected security interest of the Agent, for the benefit of the Lenders, in the
Collateral.
(b) Sales, Liens, Etc. The Borrower shall not sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, or create or suffer to exist any Adverse Claim upon the Certificate
except in favor of the Agent, and the Borrower shall defend the right, title and
interest of the Agent in, to and under any of the Certificate, against all
claims of third parties.
(c) Nature of Business; Other Agreements; Other Indebtedness. The
Borrower shall not engage in any business or activity of any kind or enter into
any transaction or indenture, mortgage, instrument, agreement, contract, lease
or other undertaking, in each case other than the transactions contemplated and
authorized by the Transaction Documents. Without limiting the generality of the
foregoing, the Borrower shall not create, incur, guarantee, assume or suffer to
exist any indebtedness or other liabilities, whether direct or contingent, other
than:
(i) as a result of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary
course of business,
(ii) the incurrence of obligations under this Agreement,
(iii) the incurrence of obligations, as expressly contemplated
in the Contribution Agreement, to make payment to PHH VMS thereunder
for the purchase of the Certificate from PHH VMS under the Contribution
Agreement, and
(iv) the incurrence of operating expenses in the ordinary
course of business of the type otherwise contemplated in Section 5.1(e)
of this Agreement.
(d) Amendments to Transaction Documents. The Borrower shall not,
without the prior written consent of the Agent (which consent shall be at the
Agent's sole discretion):
(i) cancel or terminate the Contribution Agreement,
(ii) give any consent, waiver, directive or approval under the
Contribution Agreement, Trust Agreement, Administrative Agency
Agreement, or the Supplement, if such action could have a Material
Adverse Effect,
(iii) waive any default, action, omission or breach under the
Contribution Agreement, Trust Agreement, Administrative Agency
Agreement, or the Supplement, or otherwise grant any indulgence
thereunder, if such action could have a Material Adverse Effect, or
(iv) amend, supplement or otherwise modify any of the terms of
the Contribution Agreement or consent to the amendment, supplement, or
other modification of any of the terms of the Trust Agreement, the
Supplement, or the Administrative Agency Agreement, if such action
could have a Material Adverse Effect.
(e) Amendments to Corporate Documents. Without the prior written
consent of the Agent, the Borrower shall not amend its certificate of
incorporation or its by-laws in any respect that would impair its ability to
comply with the terms or provisions of any of the Transaction Documents,
including, without limitation, Section 5.1(e) of this Agreement.
(f) Merger. The Borrower shall not merge or consolidate with or into,
or convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all of the
assets of, any Person.
ARTICLE VI.
EVENTS OF DEFAULT
Section 6.1. Events of Default. The occurrence of any one or more
of the following events shall constitute an event of default (each an "Event of
Default"):
(a) The Administrative Agent, the Guarantor or the Borrower shall fail
to make any payment or deposit when required under any Transaction Document and
such failure shall continue for three (3) Business Days;
(b) Any representation, warranty or certification made by the Borrower,
the Guarantor or the Administrative Agent in any Transaction Document or in any
other document delivered pursuant hereto shall prove to have been incorrect in
any material respect when made; provided, however, that a breach of any
representation or warranty with respect to any Series 1998-B Lease being an
Eligible Lease shall not be an Event of Default hereunder if such contract is
timely substituted or repurchased pursuant to Section 5.1 of the Supplement.
(c) The Borrower, the Guarantor or the Administrative Agent shall fail
to perform or observe any covenant or other similar term or agreement under any
Transaction Document (other than as referred to in any other subsection of this
Section 6.1) and such failure shall remain unremedied for five (5) Business Days
following written notice thereof to the Borrower, the Guarantor or the
Administrative Agent, as the case may be;
(d) (i) The Borrower, the Guarantor or the Administrative Agent shall
generally not pay its debts as such debts become due; (ii) the Borrower, the
Guarantor or the Administrative Agent shall admit in writing its inability to
pay its debts generally or shall make a general assignment for the benefit of
creditors; (iii) any proceeding shall be instituted by the Borrower, the
Guarantor or the Administrative Agent seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its
property; (iv) the Borrower, the Guarantor or the Administrative Agent shall
take any corporate action to authorize any of the actions set forth above in
clause (ii) or (iii) of this subsection (d); or (v) any proceeding of the type
described in clause (iii) of this subsection (d) shall be instituted against the
Borrower, the Guarantor or the Administrative Agent and shall not be withdrawn,
vacated or dismissed within 60 days after the commencement thereof;
(e) Failure of the Borrower, the Administrative Agent or the Guarantor
to pay any Indebtedness when due; or the default by the Borrower, the
Administrative Agent or the Guarantor in the performance of any term, provision
or condition contained in any agreement under which any Indebtedness was created
or is governed, the effect of which is to cause or permit the holder or holders
of such Indebtedness to cause, such Indebtedness to become due prior to its
stated maturity; or any such Indebtedness of the Borrower, the Administrative
Agent or the Guarantor shall be declared to be due and payable or required to be
prepaid (other than by a regularly scheduled payment) prior to the date of
maturity thereof; provided, however, that, in the case of the Administrative
Agent or the Guarantor, the aggregate principal amount of any such Indebtedness
is in excess of $25,000,000;
(f) The rating of the Guarantor's senior unsecured long-term debt by
each of Moody's Investor's Service, Inc. and Standard & Poor's Rating Group is
reduced below Baa3 and BBB-, respectively;
(g) Failure of the Certificate to represent a 100% beneficial interest
in the Series 1998-B Assets;
(h) The Borrower grants or suffers to exist any Adverse Claim on the
Collateral or the proceeds thereof or the Agent's security interest in the
Collateral or the proceeds thereof is not a first priority perfected security
interest therein free of any Adverse Claims;
(i) The Delinquency Ratio shall exceed 6.0% for any two consecutive
Collection Periods;
(j) The Default Ratio shall exceed 8% as of the last day of any
Collection Period;
(k) Any Transaction Document shall cease to be in full force and effect
or is withdrawn, revoked or otherwise amended without the consent of the Agent;
(l) PHH VMS shall fail to own, directly or indirectly, 100% of the
Capital Stock of the Borrower;
(m) A final judgment or judgments for the payment of money shall be
rendered against Borrower by one or more courts, administrative tribunals or
other bodies having jurisdiction over it and the same shall not be discharged
(or provision shall not be made for such discharge) or bonded, or a stay of
execution thereof shall not be procured, within 60 days from the date of entry
thereof and the Borrower, shall not, within said period of 60 days, or such
longer period during which execution of the same shall have been stayed or
bonded, appeal therefrom and cause the execution thereof to be stayed during
such appeal;
(n) The Borrower's Net Worth shall be less than $25,000,000 at any
time; or
(o) From and after the earlier of (i) the delivery of an insurance
certificate pursuant to Section 4.2 or (ii) 30 days from the date of this
Agreement, the Borrower and the Agent, for the benefit of the Lenders, shall not
be additional insureds on Cendant Corporation's Commercial Auto Coverage
insurance policy with respect to bodily injury or property damage claims caused
by accidents and resulting from the ownership, maintenance or use of any Series
1998-B Leased Vehicle
Section 6.2. Remedies
(a) If an Event of Default specified in clause (ii), (iii) or (iv) of
paragraph (d) of Section 6.1 occurs, the Loan (with accrued interest thereon)
and all other amounts owing under this Agreement and the other Transaction
Documents shall immediately and automatically become due and payable, and if any
other Event of Default shall occur, with the consent of PREFCO or the Required
Financial Institutions, the Agent may, or upon the request of PREFCO or the
Required Financial Institutions, the Agent shall, by notice to the Borrower,
declare the Loan (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Transaction Documents to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
Presentment, demand, protest and all other notices of any kind are hereby
expressly waived.
(b) In addition to the rights and remedies specified in Section 6.2(a),
upon the occurrence of an Event of Default, the Agent may, or upon the request
of PREFCO or the Required Financial Institutions, the Agent shall,
(i) designate as Co-Administrative Agent with respect to the
Series 1998-B Assets any Person and cause the Administrative Agent to
provide such Person access to the Lease Files (as defined in the
Administrative Agency Agreement) with respect to the Series 1998-B
Leases;
(ii) cause the Administrative Agent to segregate from other
assets of the Administrative Agent, and deposit into an account
designated by the Agent within one Business Day of receipt by the
Administrative Agent, all Collections with respect to the Series 1998-B
Assets;
(iii) obtain physical possession of the Records and all other
files of the Borrower relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come in to
the possession of the Borrower or any third party acting for the
Borrower and the Borrower shall deliver to the Agent such assignments
and take such action and execute such documents and endorsements as the
Agent shall request;
(iv) cause the certificates of title relating to the Series
1998-B Leased Vehicles to show the Agent, for the benefit of the
Lenders, as the sole lienholder with respect thereto; or
(v) exercise, in addition to all other rights and
remedies granted to it in this Agreement and in the other Transaction
Documents, all rights and remedies of a secured party under the UCC
in any applicable jurisdiction.
(c) Without limiting the generality of the foregoing, the Agent without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Borrower or any other Person (all and each of which demands,
presentments, protests, advertisements and notices are hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels or as an entirety at public or private sale or sales, at any
exchange, broker's board or office of the Agent or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk;
provided that any such sale complies with the provisions of the Trust Agreement
and would not result in the Trust becoming taxable as an "association" or
publicly traded partnership taxable as a corporation for federal or state income
tax purposes. The Agent shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Borrower, which right or equity is hereby waived or
released. The Agent shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care or safekeeping of the Collateral or in any way relating to the
Collateral or the rights of the Agent and the Lenders hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Secured Obligations, in such order as the Agent may
elect, and only after such application and after the payment by the Agent of any
other amount required or permitted by any provision of law, including, without
limitation, Section 9-504(1)(c) of the UCC, need the Agent account for the
surplus, if any, to the Borrower. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands it may acquire against the Agent
or the Lenders arising out of the exercise by the Agent of any of the rights
hereunder, other than those claims, damages and demands arising from the gross
negligence or willful misconduct of the Agent. If any notice of a proposed sale
or other disposition of Collateral shall be required by law, such notice shall
be deemed reasonable and proper if given at least ten (10) days before such sale
or other disposition. The Borrower shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Secured Obligations and the reasonable fees and disbursements of any
attorneys employed by the Agent or any Lender to collect such deficiency.
(d) No right or remedy herein conferred upon or reserved to the Agent
or the Lenders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent or
subsequent assertion or employment of any other appropriate right or remedy.
(e) No delay or omission by the Agent or any Lender to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Section 6.2 or by law to the Agent
or the Lenders may be exercised from time to time, and as often as may be deemed
expedient, by the Agent or the Lenders.
(f) Subject to Section 11.1, the Required Financial Institutions by
written notice to the Borrower may rescind an acceleration and its consequences
if the rescission would not conflict with any judgment or decree and if all
existing Events of Default (except nonpayment of principal or interest that has
become due solely because of the acceleration) have been cured or waived.
ARTICLE VII.
THE AGENT
Section 7.1. Authorization and Action. Each Lender hereby designates and
appoints First Chicago to act as its agent hereunder and under each other
Transaction Document, and authorizes the Agent to take such actions as agent on
its behalf and to exercise such powers as are delegated to the Agent by the
terms of this Agreement and the other Transaction Documents together with such
powers as are reasonably incidental thereto. The Agent shall not have any duties
or responsibilities, except those expressly set forth herein or in any other
Transaction Document, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Agent shall be read into this Agreement or any
other Transaction Document or otherwise exist for the Agent. In performing its
functions and duties hereunder and under the other Transaction Documents, the
Agent shall act solely as agent for the Lenders and does not assume nor shall be
deemed to have assumed any obligation or relationship of trust or agency with or
for the Borrower or any of its successors or assigns. The Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement, any other Transaction Document or
applicable law. The appointment and authority of the Agent hereunder shall
terminate upon the indefeasible payment in full of all the Secured Obligations.
Each Lender hereby authorizes the Agent to execute on behalf of such Lender (the
terms of which shall be binding on such Lender) each of the UCC financing
statements, together with such other instruments or documents determined by the
Agent to be necessary or desirable in order to perfect, evidence or more fully
protect the interest of the Lenders contemplated hereunder.
Section 7.2. Delegation of Duties. The Agent may execute any of its
duties under this Agreement and each other Transaction Document by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
Section 7.3. Exculpatory Provisions. Neither the Agent nor any of its
directors, officers, agents or employees shall be (i) liable for any action
lawfully taken or omitted to be taken by it or them under or in connection with
this Agreement or any other Transaction Document (except for its, their or such
Person's own gross negligence or willful misconduct), or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Borrower contained in this Agreement, any other
Transaction Document or any certificate, report, statement or other document
referred to or provided for in, or received under or in connection with, this
Agreement or any other Transaction Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, or
any other Transaction Document or any other document furnished in connection
herewith or therewith, or for any failure of the Borrower to perform its
obligations hereunder or thereunder, or for the satisfaction of any condition
specified in Article IV, or for the perfection, priority, condition, value or
sufficiency or any collateral pledged in connection herewith. The Agent shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements or covenants contained in, or
conditions of, this Agreement or any other Transaction Document, or to inspect
the properties, books or records of the Borrower. The Agent shall not be deemed
to have knowledge of an Event of Default or Potential Event of Default unless
the Agent has received notice from the Borrower or a Lender.
Section 7.4. Reliance by Agent. The Agent shall in all cases be
entitled to rely, and shall be fully protected in relying, upon any document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Borrower),
independent accountants and other experts selected by the Agent. The Agent shall
in all cases be fully justified in failing or refusing to take any action under
this Agreement or any other Transaction Document unless it shall first receive
such advice or concurrence of PREFCO or the Required Financial Institutions or
all of the Lenders, as applicable, as it deems appropriate and it shall first be
indemnified to its satisfaction by the Lenders; provided that unless and until
the Agent shall have received such advice, the Agent may take or refrain from
taking any action, as the Agent shall deem advisable and in the best interests
of the Lenders. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, in accordance with a request of PREFCO or the Required
Financial Institutions or all of the Lenders, as applicable, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders.
Section 7.5. Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent, nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by the Agent. Each
Lender represents and warrants to the Agent that it has and will, independently
and without reliance upon the Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, prospects,
financial and other conditions and creditworthiness of the Borrower and made its
own decision to enter into this Agreement, the other Transaction Documents and
all other documents related hereto or thereto.
Section 7.6. Reimbursement and Indemnification. The Financial
Institutions agree to reimburse and indemnify the Agent and its officers,
directors, employees, representatives and agents ratably according to their Pro
Rata Shares, to the extent not paid or reimbursed by the Borrower, (i) for any
amounts for which the Agent, acting in its capacity as Agent, is entitled to
reimbursement by the Borrower hereunder and (ii) for any other expenses actually
incurred by the Agent, in its capacity as Agent and acting on behalf of the
Lenders, in connection with the administration and enforcement of this Agreement
and the other Transaction Documents.
Section 7.7. Agent in its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower or any Affiliate of the Borrower as though
the Agent were not the Agent hereunder. With respect to the acquisition of a
portion of the Loan pursuant to this Agreement, the Agent shall have the same
rights and powers under this Agreement as any Lender and may exercise the same
as though it were not the Agent, and the terms "Financial Institution,"
"Lender," "Financial Institutions" and "Lenders" shall include the Agent in its
individual capacity.
Section 7.8. Successor Agent. The Agent may, upon 10 days' notice to
the Borrower and the Lenders, and the Agent shall, upon the direction of all of
the Lenders (other than the Agent, in its individual capacity) resign as Agent.
If the Agent shall resign, then the Required Financial Institutions during such
10-day period shall (with the consent of the Borrower, which consent shall not
be unreasonably withheld or delayed) appoint from among the Lenders a successor
agent. If for any reason no successor Agent is appointed by the Required
Financial Institutions during such 10-day period, then effective upon the
termination of such 10-day period, the Lenders shall perform all of the duties
of the Agent hereunder and under the other Transaction Documents and the
Borrower shall make all payments in respect of the Loan directly to the
applicable Lenders and for all purposes shall deal directly with the Lenders.
After the effectiveness of any retiring Agent's resignation hereunder as Agent,
the retiring Agent shall be discharged from its duties and obligations hereunder
and under the other Transaction Documents and the provisions of this Article VIl
shall continue in effect for its benefit with respect to any actions taken or
omitted to be taken by it while it was Agent under this Agreement and under the
other Transaction Documents.
ARTICLE VIII.
LIQUIDITY FACILITY
Section 8.1. Transfer to Financial Institutions. Each Financial
Institution hereby agrees, subject to Section 8.4, that immediately upon written
notice from PREFCO delivered on or prior to the Liquidity Termination Date, it
shall acquire by assignment from PREFCO, without recourse or warranty, its Pro
Rata Share of all or a portion of the Loan funded by PREFCO as specified by
PREFCO. Each Financial Institution shall promptly pay to the Agent at an account
designated by the Agent, for the benefit of PREFCO, its Acquisition Amount.
Unless a Financial Institution has notified the Agent that it does not intend to
pay its Acquisition Amount, the Agent may assume that such payment has been made
and may, but shall not be obligated to, make the amount of such payment
available to PREFCO in reliance upon such assumption. PREFCO hereby sells and
assigns to the Agent for the ratable benefit of the Financial Institutions, and
the Agent hereby purchases and assumes from PREFCO, effective upon the receipt
by PREFCO of the PREFCO Transfer Price, the portion of the Loan funded by PREFCO
which is the subject of any transfer pursuant to this Article VIII.
Section 8.2. Transfer Price Reduction Interest. If the Adjusted
Liquidity Price is included in the calculation of the PREFCO Transfer Price for
any portion of the Loan funded by PREFCO, each Financial Institution agrees that
the Agent shall pay to PREFCO the Reduction Percentage of any interest received
by the Agent with respect to such portion of the Loan.
Section 8.3. Payments to PREFCO. In consideration for the reduction of
the PREFCO Transfer Prices by the PREFCO Transfer Price Reductions, effective
only at such time as the aggregate principal amount of the Loan funded by the
Financial Institutions equals the PREFCO Residual, each Financial Institution
hereby agrees that the Agent shall not distribute to the Financial Institutions
and shall immediately remit to PREFCO any interest, Collections or other
payments received by it to be applied pursuant to the terms hereof or otherwise
to reduce the principal amount of the Loan funded by the Financial Institutions.
Section 8.4. Limitation on Commitment to Purchase from PREFCO.
Notwithstanding anything to the contrary in this Agreement, no Financial
Institution shall have any obligation to purchase any portion of the Loan from
PREFCO, pursuant to Section 8.1 or otherwise, if: (i) PREFCO shall have
voluntarily commenced any proceeding or filed any petition under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or reorganization
of PREFCO or taken any corporate action for the purpose of effectuating any of
the foregoing; or (ii) involuntary proceedings or an involuntary petition shall
have been commenced or filed against PREFCO by any Person under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or reorganization
of PREFCO and such proceeding or petition shall have not been dismissed.
Section 8.5. Defaulting Financial Institutions. If one or more
Financial Institutions defaults in its obligation to pay its Acquisition Amount
pursuant to Section 8.1 (each such Financial Institution shall be called a
"Defaulting Financial Institution" and the aggregate amount of such defaulted
obligations being herein called the "PREFCO Transfer Price Deficit"), then upon
notice from the Agent, each Financial Institution other than the Defaulting
Financial Institutions (a "Non-Defaulting Financial Institution") shall promptly
pay to the Agent, in immediately available funds, an amount equal to the lesser
of (x) such Non-Defaulting Financial Institution's proportionate share (based
upon the relative Commitments of the Non-Defaulting Financial Institutions) of
the PREFCO Transfer Price Deficit and (y) the unused portion of such
Non-Defaulting Financial Institution's Commitment. A Defaulting Financial
Institution shall forthwith upon demand pay to the Agent for the account of the
Non-Defaulting Financial Institutions all amounts paid by each Non-Defaulting
Financial Institution on behalf of such Defaulting Financial Institution,
together with interest thereon, for each day from the date a payment was made by
a Non-Defaulting Financial Institution until the date such Non-Defaulting
Financial Institution has been paid such amounts in full, at a rate per annum
equal to the Federal Funds Effective Rate plus (i) 0.5% per annum for the first
two Business Days and (ii) 2.0% per annum thereafter. In addition, without
prejudice to any other rights that PREFCO may have under applicable law, each
Defaulting Financial Institution shall pay to PREFCO forthwith upon demand, the
difference between such Defaulting Financial Institution's unpaid Acquisition
Amount and the amount paid with respect thereto by the non-Defaulting Financial
Institutions, together with interest thereon, for each day from the date of the
Agent's request for such Defaulting Financial Institution's Acquisition Amount
pursuant to Section 8.1 until the date the requisite amount is paid to PREFCO in
full, at a rate per annum equal to the Federal Funds Effective Rate plus 2.0%
per annum.
ARTICLE IX.
INDEMNIFICATION
Section 9.1. Indemnities by the Borrower. Without limiting any other
rights which the Agent or any Lender may have hereunder or under applicable law,
the Borrower hereby agrees to indemnify the Agent and each Lender and their
respective officers, directors, agents and employees (each, an "Indemnified
Party") from and against any and all damages, losses, claims, taxes,
liabilities, costs, expenses and for all other amounts payable, including
reasonable attorneys' fees and disbursements (all of the foregoing being
collectively referred to as "Indemnified Amounts") awarded against or actually
incurred by any of them arising out of or as a result of this Agreement or the
transaction contemplated by this Agreement or the other Transaction Documents,
excluding, however:
(a) Indemnified Amounts to the extent a final judgment of a court of
competent jurisdiction holds such Indemnified Amounts resulted from gross
negligence or willful misconduct on the part of the Indemnified Party
seeking indemnification; or
(b) taxes, except as provided in Section 9.3
provided, however, that nothing contained in this sentence shall limit
the liability of the Borrower or limit the recourse of the Borrower for
amounts otherwise provided to be paid by the Borrower under the terms of
this Agreement. Without limiting the generality of the foregoing
indemnification, the Borrower shall indemnify the Lenders for Indemnified
Amounts relating to or resulting from:
(i) any representation or warranty made by the Borrower (or
any of its respective officers) under or in connection with any
Transaction Document, any Monthly Report or any other written
information or report delivered by the Borrower, pursuant hereto or
thereto, which shall have been false or incorrect when made or deemed
made;
(ii) the failure by the Borrower to comply with any covenant
made by it in any Transaction Document;
(iii) any failure of the Borrower to perform its duties or
obligations in accordance with the provisions of any Transaction
Document;
(iv) the failure to vest and maintain in the Agent for the
benefit of the Lenders a valid first priority perfected security
interest in the Collateral;
(v) the failure of the Trust to have an ownership interest in
the Series 1998-B Assets free and clear of Adverse Claims, except for
the lienholder interest of PHH VMS in the related Vehicles;
(vi) any bodily injury or property damage claim caused by an
accident and resulting from the ownership, maintenance or use of any
Series 1998-B Leased Vehicle;
(vii) the failure by the Borrower to comply with any
applicable law, rule or regulation with respect to any Series 1998-B
Asset or Lease related thereto, or the failure of any Series 1998-B
Asset or Lease related thereto to conform to any such applicable law,
rule or regulations;
(viii) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Lessee) of any Lessee to the payment of
any Lease (including, without limitation, a defense based on such Lease
not being a legal, valid and binding obligation of such Lessee
enforceable against it in accordance with its terms), or any other
claim resulting from the lease of the related Vehicle or service
related to such Lease or the furnishing or failure to furnish such
Vehicle or services, in each case as a result of any action or failure
to act on part of the Administrative Agent;
(ix) the commingling of Collections of Series 1998-B Assets at
any time with other funds;
(x) any investigation, litigation or proceeding related to or
arising from any Transaction Document, the transactions contemplated
thereby, the use of the proceeds of the Loan or the security interest
in the Certificate or any other investigation, litigation or proceeding
relating to the Borrower in which any Indemnified Party becomes
involved as a result of any of the transactions contemplated hereby or
thereby;
(xi) any failure of the Borrower to give reasonably equivalent
value to PHH VMS under the Contribution Agreement in consideration of
the transfer by PHH VMS of the Certificate, or any attempt by any
Person to void any such transfer under statutory provisions or common
law or equitable action, including, without limitation, any provision
of the federal Bankruptcy Code, 11 U.S.C. ss. 101 et seq.;
(xii) a Year 2000 Problem with respect to hardware or software
systems used by the Borrower or the Administrative Agent; or
(xiii) the termination of any Tranche Period by the Borrower,
or reduction by the Borrower of the principal amount of the Loan
allocated to a Tranche Period.
Section 9.2. Increased Cost and Reduced Return.
(a) If after the date hereof, any Funding Source shall be charged any
fee, expense or increased cost on account of the adoption of any applicable law,
rule or regulation (including any applicable law, rule or regulation regarding
capital adequacy) or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency (a "Regulatory Change"): (i)
which subjects any Funding Source to any charge or withholding on or with
respect to any Funding Agreement or a Funding Source's obligations under a
Funding Agreement, or on or with respect to the Certificate, or changes the
basis of taxation of payments to any Funding Source of any amounts payable under
any Funding Agreement (except for changes in the rate of tax on the overall net
income of a Funding Source) or (ii) which imposes, modifies or deems applicable
any reserve, assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account of a Funding
Source, or credit extended by a Funding Source pursuant to a Funding Agreement
or (iii) which imposes any other condition the result of which is to increase
the cost to a Funding Source of performing its obligations under a Funding
Agreement, or to reduce the rate of return on a Funding Source's capital as a
consequence of its obligations under a Funding Agreement, or to reduce the
amount of any sum received or receivable by a Funding Source under a Funding
Agreement or to require any payment calculated by reference to the amount of
interests or loans held or interest received by it, then, upon demand by the
Agent, the Borrower shall pay to the Agent, for the benefit of the relevant
Funding Source, such amounts charged to such Funding Source or compensate such
Funding Source for such reduction. If the Borrower is required to make any
payment to a Financial Institution pursuant to this subsection (a), the Borrower
may, but shall not be obligated to, replace such Financial Institution with
another financial institution (which shall be reasonably acceptable to the
Agent) having a short-term debt rating of A-1 or better by Standard & Poor's
Ratings Group and P-1 by Moody's Investors Service, Inc. If a Financial
Institution is replaced pursuant to this subsection (a), the replacement
financial institution shall be deemed to be a Purchasing Financial Institution
and shall comply with the provisions of Section 10.1(b) of this Agreement.
(b) Payment of any sum pursuant to Section 9.2(a) shall be made by the
Borrower to the Agent, for the benefit of the relevant Funding Source, not later
than ten (10) days after any such demand is made. A certificate of any Funding
Source, signed by an authorized officer claiming compensation under this Section
9.2 and setting forth the additional amount to be paid for its benefit and
explaining the manner in which such amount was determined shall constitute prima
facie evidence of the amount to be paid.
Section 9.3. No Withholding or Other Taxes.
(a) Any and all payments by the Borrower hereunder shall be made free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all interest,
penalties, additions, or liabilities with respect thereto, excluding, in the
case of each Lender and the Agent, net income taxes that are imposed by the
United States and franchise taxes and net income taxes that are imposed on such
Lender or the Agent by the state or foreign jurisdiction under the laws of which
such Lender or the Agent (as the case may be) would be subject to net income
tax, based on either residence or domicile of the recipient in the taxing
jurisdiction or the conduct of a trade or business by the recipient in such
jurisdiction, without regard to the transactions contemplated hereby and any
payments hereunder or under any related Transaction Document or any political
subdivision thereof [but not including any such tax that results in a credit or
deduction in the jurisdiction in which such Lender would not be entitled to
indemnification] (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes")
or Other Taxes (as defined below). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder to any Lender
or the Agent, (i) the sum payable shall be increased as may be necessary so
that, after making all required deductions (including deductions applicable to
additional sums payable under this Section 9.3(a)), such Lender or the 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 shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the Agent within ten
(10) days after demand therefor for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 9.3) paid by such Lender or
the Agent (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto; provided that a Lender
or the Agent, as appropriate, making a demand for indemnity payment shall
provide the Borrower with a certificate from the relevant taxing authority or
from a responsible officer of such Lender or the Agent stating or otherwise
evidencing that such Lender or the Agent has made payment of such Taxes or Other
Taxes and will provide a copy of or extract from documentation, if available,
furnished by such taxing authority evidencing assertion or payment of such Taxes
or Other Taxes.
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes, the Borrower will furnish to the Agent an original or certified copy of a
receipt issued by the relevant taxing authority or other appropriate evidence of
payment thereof as shall be reasonably acceptable to the Lender or the Agent, as
applicable.
(e) Each Lender, Assignee or Participant that is not created or
organized under the laws of the United States or a political subdivision thereof
(each a "Non-U.S. Lender") shall, to the extent that it may then do so under
applicable laws and regulations, deliver to the Borrower (with a copy to the
Agent and, if applicable, the assigning Lender or the Lender selling to a
Participant which is a Non-U.S. Lender) (i) within 15 days after the date
hereof, or, if later, the date on which such Person becomes a Non-U.S. Lender,
two (or such other number as may from time to time be prescribed by applicable
laws or regulations) duly completed copies of IRS Form 4224 or Form 1001 (or any
successor forms or other certificates or statements which may be required from
time to time by the relevant United States taxing authorities or applicable laws
or regulations), as appropriate, to permit the Borrower and the Agent to make
payments hereunder for the account of such Non-U.S. Lender without deduction or
withholding of United States federal income or similar taxes and (ii) upon
request of the Agent as a result of the obsolescence of or after the occurrence
of any event requiring a change in, any form or certificate previously delivered
pursuant to this Section 9.3(c), copies (in such numbers as may be from time to
time be prescribed by applicable laws or regulations) of such additional,
amended or successor forms, certificates or statements as may be required under
applicable laws or regulations to permit the Borrower and the Agent to make
payments hereunder for the account of such Lender without deduction or
withholding of United States federal income or similar taxes.
Section 9.4. Costs and Expenses Relating to this Agreement. In addition
to the fees specified in the Fee Letter, the Borrower shall pay to the Agent and
PREFCO on demand all reasonable out-of-pocket expenses (including, without
limitation, reasonable audit fees and time charges of internal and outside
counsel for the Agent and the Lenders) incurred in connection with the
preparation, execution, delivery, amendments and waivers of this Agreement, the
transactions contemplated hereby and the other documents to be delivered
hereunder. The Borrower shall pay to the Agent on demand any and all costs and
expenses of the Agent and the Lenders, if any, including reasonable counsel fees
and expenses incurred in connection with the enforcement of this Agreement and
the other documents delivered hereunder and in connection with any restructuring
or workout of this Agreement or such documents, or the administration of this
Agreement or other Transaction Documents following an Event of Default.
Section 9.5. Refunds. If the Agent or a Lender receives a refund in
respect of any Taxes or Other Taxes as to which it has been indemnified by the
Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section 9.3, it shall within 30 days from the date of such
receipt pay over to the Borrower (a) such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by the Borrower under this
Section 9.3 with respect to the Taxes or Other Taxes giving rise to such
refund), net of all out-of-pocket expenses of the Agent or such Lender and (b)
interest paid by the relevant Governmental Authority with respect to such
refund); provided, however, that the Borrower, upon the request of the Agent or
such Lender shall repay the amount paid over to the Borrower (plus penalties,
interest or other charges) to the Agent or such Lender in the event the Agent or
such Lender is required to repay such refund to such Governmental Authority.
ARTICLE X.
ASSIGNMENTS
Section 10.1. Assignments (a) The Borrower and each Financial
Institution hereby (i) agree and consent to the complete or partial assignment
by PREFCO of all of its rights under, interest in, title to and obligations
under this Agreement to the Agent for the benefit of the Financial Institutions
pursuant to Section 8.1, and (ii) agree that they will not unreasonably withhold
or delay their consent to the complete or partial assignment by PREFCO of all of
its rights under, interest in, title to and obligations under this Agreement to
any other special purpose receivables funding or purchasing conduit for which
First Chicago performs administrative functions. Upon any complete or partial
assignment made in accordance with the preceding sentence, PREFCO shall be
released from its obligations so assigned. Further, the Borrower and each
Financial Institution hereby agree that any assignee of PREFCO of this Agreement
or all or any portion of the Loan funded by PREFCO shall have all of the rights
and benefits under this Agreement as if the term "PREFCO" explicitly referred to
such party, and no such assignment shall in any way impair the rights and
benefits of PREFCO hereunder. The Borrower shall not have the right to assign
its rights or obligations under this Agreement.
(b) With the prior written consent of PREFCO and the Borrower (the
Borrower's consent not to be unreasonably withheld), any Financial Institution
may at any time and from time to time assign to one or more Persons (each, a
"Purchasing Financial Institution") all or any part of its rights and
obligations under this Agreement pursuant to an assignment agreement, in a form
and substance satisfactory to the Agent (the "Assignment Agreement"), executed
by such Purchasing Financial Institution and such selling Financial Institution.
Each assignee of a Financial Institution must have a short-term debt rating of
A-1 or better by Standard & Poor's Ratings Group and P-1 by Moody's Investors
Service, Inc. and must agree to deliver to the Agent, promptly following any
request therefor by the Agent or PREFCO, an enforceability opinion in form and
substance satisfactory to the Agent and PREFCO. Upon delivery of the executed
Assignment Agreement to the Agent, such selling Financial Institution shall be
released from its obligations hereunder to the extent of such assignment.
Thereafter, the Purchasing Financial Institution shall for all purposes be a
Financial Institution party to this Agreement and shall have all the rights and
obligations of a Financial Institution under this Agreement to the same extent
as if it were an original party hereto and no further consent or action by the
Borrower, the Lenders or the Agent shall be required.
(c) Each of the Financial Institutions agrees that in the event that it
shall cease to have a short-term debt rating of A-1 or better by Standard &
Poor's Ratings Group and P-1 by Moody's Investors Service, Inc. (an "Affected
Financial Institution"), such Affected Financial Institution shall be obliged,
at the request of PREFCO or the Agent, to assign all of its rights and
obligations hereunder to (i) another Financial Institution or (ii) another
financial institution nominated by the Agent and acceptable to PREFCO, and
willing to participate in this Agreement through the Liquidity Termination Date
in the place of such Affected Financial Institution; provided that the Affected
Financial Institution receives payment in full, pursuant to an Assignment
Agreement, of an amount equal to such Financial Institution's Pro Rata Share of
the Loan and interest owing to the Financial Institutions and all accruing but
unpaid fees and other costs and expenses payable in respect of its Pro Rata
Share of the Loan. Each Affected Financial Institution shall give notice to the
Borrower of any assignment pursuant to this Section 10.1(b).
Section 10.2. Participations. Any Financial Institution may, in the
ordinary course of its business at any time sell to one or more Persons (each, a
"Participant") participating interests in its Pro Rata Share of the Loan funded
by the Financial Institutions, its obligation to pay PREFCO its Acquisition
Amounts or any other interest of such Financial Institution hereunder.
Notwithstanding any such sale by a Financial Institution of a participating
interest to a Participant, such Financial Institution's rights and obligations
under this Agreement shall remain unchanged, such Financial Institution shall
remain solely responsible for the performance of its obligations hereunder, and
the Borrower, PREFCO and the Agent shall continue to deal solely and directly
with such Financial Institution in connection with such Financial Institution's
rights and obligations under this Agreement. Each Financial Institution agrees
that any agreement between such Financial Institution and any such Participant
in respect of such participating interest shall not restrict such Financial
Institution's right to agree to any amendment, supplement, waiver or
modification to this Agreement, except for any amendment, supplement, waiver or
modification described in Section 11.1 (b)(i).
ARTICLE XI.
MISCELLANEOUS
Section 11.1. Waivers and Amendments.
(a) No failure or delay on the part of any party hereto in exercising any
power, right or remedy under this Agreement shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or remedy
preclude any other further exercise thereof or the exercise of any other power,
right or remedy. The rights and remedies herein provided shall be cumulative and
nonexclusive of any rights or remedies provided by law. Any waiver of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which given.
(b) No provision of this Agreement may be amended, supplemented, modified
or waived except in writing in accordance with the provisions of this Section
11.1(b). PREFCO, the Borrower and the Agent, at the direction of the Required
Financial Institutions, may enter into written modifications or waivers of any
provisions of this Agreement; provided, however, that no such modification or
waiver shall:
(i) without the consent of each affected Lender, (A) extend the
Liquidity Termination Date or the date of any payment or deposit of
amounts due to each such Lender by the Borrower or the Administrative
Agent, (B) reduce the rate or extend the time of payment of interest (or
any component thereof), (C) reduce any fee payable to the Agent for the
benefit of the Lenders, (D) except pursuant to Article VIII or X hereof,
change the amount of the Loan funded by any Lender, a Financial
Institution's Pro Rata Share or a Financial Institution's Commitment, (E)
amend, modify or waive any provision of the definition of Required
Financial Institutions or this Section 11.1(a), (F) consent to or permit
the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement, (G) change the definition of "Eligible
Lease", "Default Ratio", "Loss Percentage", or "Delinquency Ratio", or
(H) amend or modify any defined term (or any defined term used directly
or indirectly in such defined term) used in clauses (A) through (G) above
in a manner which would circumvent the intention of the restrictions set
forth in such clauses; or
(ii) without the written consent of the then Agent, amend,
modify or waive any provision of this Agreement if the effect thereof
is to affect the rights or duties of such Agent.
Notwithstanding the foregoing, (i) without the consent of the Financial
Institutions, the Agent may, with the consent of the Borrower, amend this
Agreement solely to add additional Persons as Financial Institutions hereunder
and (ii) without the consent of the Borrower, the Agent, the Required Financial
Institutions and PREFCO may enter into amendments to modify any of the terms or
provisions of Article VIII or Article X; provided that such amendment has no
negative impact upon the Borrower. Any modification or waiver made in accordance
with this Section 11.1 shall apply to each of the Lenders equally and shall be
binding upon the Borrower, the Lenders and the Agent.
Section 11.2. Notices.
(a) Except as provided in subsection (b) below, all communications and
notices provided for hereunder shall be in writing (including bank wire,
telecopy or electronic facsimile transmission or similar writing) and shall be
given to the other parties hereto at their respective addresses or telecopy
numbers set forth on the signature pages hereof. All such communications and
notices shall, when mailed, telecopied, telegraphed, telexed or cabled, be
effective when received through the mails, transmitted by telecopy, delivered to
the telegraph company, confirmed by telex answer back or delivered to the cable
company, respectively, except that communications and notices to the Agent or
any Lender pursuant to Article I or II shall not be effective until received by
the intended recipient.
(b) The Borrower hereby authorizes the Agent to effect Tranche Period and
Interest Rate selections based on telephonic notices made by any Person whom the
Agent in good faith believes to be acting on behalf of the Borrower. The
Borrower agrees to deliver promptly to the Agent, upon request, a written
confirmation of each telephonic notice signed by an authorized officer of the
Borrower. However, the absence of such confirmation shall not affect the
validity of such notice. If the written confirmation differs from the action
taken by the Agent, the records of the Agent shall govern absent manifest error.
Section 11.3. Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment made to it with respect to any portion of the Loan owing
to such Lender (other than payments received pursuant to Section 9.2 or 9.3) in
a greater proportion than that received by any other Lender entitled to receive
a ratable share of such Loan, such Lender agrees, promptly upon demand, to
purchase for cash without recourse or warranty a portion of the Loan held by the
other Lenders so that after such purchase each Lender will hold its ratable
proportion of the Loan; provided that if all or any portion of such excess
amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
Section 11.4. Confidentiality.
(a) The Borrower shall maintain and shall cause each of its Affiliates
and the employees and officers the Borrower and each of its Affiliates to
maintain the confidentiality of the terms and provisions of this Agreement set
forth in Schedule II and the other confidential proprietary information with
respect to the Lenders and their respective businesses obtained by it or them in
connection with the structuring, negotiating and execution of the transactions
contemplated herein, except that the Borrower and its officers and employees may
disclose such information to the Agent and to the Borrower's external
accountants and attorneys and as required by any applicable law or order of any
judicial or administrative proceeding. In addition, the Borrower may disclose
any such nonpublic information pursuant to any law, rule, regulation, direction,
request or order of any judicial, administrative or regulatory authority or
proceedings (whether or not having the force or effect of law).
(b) Each of the Agent and the Lenders shall maintain and shall cause each
of their respective employees and officers to maintain the confidentiality of
this Agreement and the other Confidential Proprietary Information with respect
to the Borrower, PHH VMS, the Guarantor, the Trust, and their Affiliates, and
their respective businesses obtained by it or them in connection with the
structuring, negotiating and execution of the transactions contemplated herein.
Anything herein to the contrary notwithstanding, the Borrower hereby consents to
the disclosure of any nonpublic information with respect to it: (i) to the Agent
and the Lenders, (ii) by the Lenders to any prospective or actual assignee of
any of them, or (iii) by the Agent and the Lenders to any rating agency,
Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity
enhancement to PREFCO, or any entity organized for the purpose of purchasing, or
making loans secured by, financial assets for which First Chicago acts as the
administrative agent and to any officers, directors, employees, outside
accountants and attorneys of any of the foregoing; provided that each such
Person is informed of the confidential nature of such information in a manner
consistent with the practice of the Agent for the making of such disclosures
generally to Persons of such type and agrees to maintain such confidentiality;
provided, further, that in no event shall any such information be disclosed to
any Person engaged in a business that is in competition with the vehicle leasing
or vehicle management services business of PHH VMS. In addition, the Lenders and
the Agent may disclose any such nonpublic information pursuant to any law, rule,
regulation, direction, request or order of any judicial, administrative or
regulatory authority or proceedings (whether or not having the force or effect
of law).
Section 11.5. Bankruptcy Petition.
(a) The Borrower, the Agent and each Financial Institution hereby
covenants and agrees that, prior to the date which is one year and one day after
the payment in full of all outstanding senior indebtedness of PREFCO, it will
not institute against, or join any other Person in instituting against, PREFCO
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States or
any state of the United States.
(b) The Agent and each Lender hereby covenant and agree that they shall
not have the power to commence a voluntary proceeding in bankruptcy relating to
the Trust without the unanimous prior approval of all Beneficiaries and the
delivery to the Trustee by each such Beneficiary of a certificate certifying
that such Beneficiary reasonably believes that the Trust is insolvent. The Agent
and each Lender hereby covenant and agree that for a period of one year and one
day after payment in full of all distributions to all Beneficiaries of Specified
Beneficial Certificates pursuant to the terms of the Trust Agreement, they will
not institute against, or join any Person instituting against, PHH Subsidiary
any bankruptcy, reorganization, insolvency, or liquidation proceeding, or other
similar proceeding, under the laws of the United States without the consent of
100% of the Holders of Specified Beneficial Certificates (excluding PHH
Subsidiary or any of its Affiliates). In accordance with Section 4.4(f) of the
Trust Agreement, the Agent and each Lender acknowledges that they shall have no
interest in the Series Specified Assets related to any Series of Specified
Beneficial Certificates, other than Series 1998-B Assets.
Section 11.6. Limitation of Liability. Except with respect to any claim
arising out of the willful misconduct or gross negligence of PREFCO, the Agent
or any Financial Institution, no claim may be made by the Borrower, the
Administrative Agent or any other person against PREFCO, the Agent or any
Financial Institution, or their respective Affiliates, directors, officers,
employees, or attorneys for any special, indirect, consequential or punitive
damages in respect of any claim for breach of contract or any other theory of
liability arising out of or related to the transactions contemplated by this
Agreement, or any act, omission or event occurring in connection therewith; and
the Borrower hereby waives, and agrees not to sue upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.
Section 11.7. Choice Of Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE
OF NEW YORK.
Section 11.8. Consent To Jurisdiction. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW
YORK STATE COURT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE
TRANSACTION DOCUMENTS AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR
ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION WHEREIN ANY ASSETS OF THE BORROWER OR PHH VMS AND PHH SUBSIDIARY
MAY BE LOCATED. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY
LENDER OR ANY AFFILIATE OF THE AGENT OR A LENDER INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
DOCUMENTS SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.
Section 11.9. Waiver Of Jury Trial. THE AGENT, THE BORROWER AND EACH
LENDER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, LEASE OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THE
TRANSACTION DOCUMENTS OR THE RELATIONSHIPS ESTABLISHED THEREUNDER.
Section 11.10. Integration; Survival of Terms. This Agreement contains
the final and complete integration of all prior expressions by the parties
hereto with respect to the subject matter hereof and shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof
superseding all prior oral or written understandings. The provisions of Article
IX and Sections 11.5 and 11.12 shall survive any termination of this Agreement.
Section 11.11. Counterparts; Severability. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are 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 11.12. Recourse. The obligations of the Borrower under this
Agreement or any other Transaction Document constitute a full recourse
obligation of the Borrower. Recourse shall be had for payment of the Loan,
interest thereon and any fee or other obligation or claim arising out of or
relating to this Agreement or any other Transaction Document executed and
delivered or issued by the Borrower or any officer of the Borrower. The
provisions of this Section 11.12 shall survive the termination of this
Agreement.
Section 11.13. First Chicago Roles. Each of the Financial Institutions
acknowledges that First Chicago and certain of its Affiliates including (First
Chicago Capital Markets, Inc.) act, or may in the future act, (i) as
administrative agent for PREFCO, (ii) as issuing and paying agent for the
Commercial Paper, (iii) to provide credit or liquidity enhancement for the
timely payment for the Commercial Paper and (iv) to provide other services from
time to time for PREFCO (collectively, the "First Chicago Roles"). Without
limiting the generality of this Section 11.13, each Financial Institution hereby
acknowledges and consents to any and all First Chicago Roles and agrees that in
connection with any First Chicago Role, First Chicago may take, or refrain from
taking, any action which it, in its discretion, deems appropriate, including,
without limitation, in its role as administrative agent for PREFCO, and the
giving of notice to the Agent of a mandatory purchase pursuant to Section 8.1.
Setion 11.14. Further Actions Evidencing Loans and the Security Interest
Created Herein.
(a) The Borrower shall, from time to time, promptly execute and deliver
all further instruments and documents, and take all further actions that the
Agent may reasonably request, to perfect, protect or more fully evidence the
security interest granted under the Transaction Documents, or to enable the
Agent to exercise and enforce the respective rights and remedies of the Agent
and the Lenders under the Transaction Documents. Without limiting the foregoing,
the Borrower shall upon request of the Agent (i) execute and file such financing
statements, or amendments thereto, and such other instruments and documents,
that may be necessary or desirable, or that the Agent may reasonably request, to
perfect, protect or evidence such security interest; and (ii) deliver possession
of the Certificate to the Agent.
(b) The Borrower authorizes the Agent to file or cause to be filed
financing or continuation statements, and amendments thereto and assignments
thereof, relating to the Certificate and the proceeds therefrom.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their duly authorized officers as of the date hereof.
BORROWER:
TRAC FUNDING, INC.
By:
Name:
Title:
Address for Notices:
TRAC Funding, Inc.
c/o PHH Vehicle Management Services Corporation
307 International Circle
Mail Code - CP
Hunt Valley, Maryland 21030-1337
Attention: Joseph Weikel
Phone: (___)___-____
Fax: (___)___-____
PREFCO: PREFERRED RECEIVABLES FUNDING CORPORATION
By: /s/ Eleanor Nadbielny
Name: Eleanor Nadbielny
Title: Authorized Signatory
c/o The First National Bank of Chicago
Asset-Backed Finance
Suite 0597, 1-19
One First National Plaza
Chicago, Illinois 60670-0079
Attention:
Asset Backed Finance---Financial Administration
Fax: (312) 732-1844
<PAGE>
AGENT: THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Eleanor Nadbielny
Eleanor Nadbielny
First Vice President
The First National Bank of Chicago
Suite 0597, 1-21
One First National Plaza
Chicago, Illinois 60670-0597
Attention:
Beth Provanzana
Asset Backed Finance
Fax: (312) 732-3205
FINANCIAL INSTITUTIONS:
Commitment
$500,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Eleanor Nadbielny
Eleanor Nadbielny
First Vice President
The First National Bank of Chicago
Suite 0597, 1-21
One First National Plaza
Chicago, Illinois 60670-0597
Attention: Beth Provanzana
Asset Backed Finance
Fax: (312) 732-3205
<PAGE>
Exhibit I
Definitions
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Acquisition Amount" means, on the date of any purchase from PREFCO of
all or a portion of the Loan funded by PREFCO pursuant to Section 8.1, (i) with
respect to each Financial Institution other than First Chicago, the lesser of
(a) such Financial Institution's Pro Rata Share of the PREFCO Transfer Price and
(b) such Financial Institution's unused Commitment and (ii) with respect to
First Chicago, the difference between (a) the PREFCO Transfer Price and (b) the
aggregate amount payable by all other Financial Institutions on such date
pursuant to clause (i) above.
"Adjusted Lease Balance" has the meaning specified in the Trust
Agreement.
"Adjusted Liquidity Price" means, in determining the PREFCO Transfer
Price for any portion of the Loan funded by PREFCO, an amount equal to:
where:
PI = a fraction expressed as a percentage, the
numerator of which is the principal amount
of the Loan funded by PREFCO and the
denominator or which is the aggregate
principal amount of the Loan;
LP = the Loss Percentage;
NDA = the aggregate Adjusted Lease Balance of all
Leases included in the Series 1998-B Assets
which are not Defaulted Assets; and
IA = Indemnified Amounts payable to any
Indemnified Party pursuant to Section 9.1.
Each of the foregoing shall be determined from the most recent Monthly Report
received from the Administrative Agent.
"Administrative Agency Agreement" means that certain
Administrative Agency Agreement dated as of June 12, 1998, among the Trust and
the Administrative Agent, as amended and supplemented by the Series 1998-A
Supplement, dated as of June 12, 1998, the Amendment to the Administrative
Agency Agreement, dated December 17, 1998, and the Supplement .
"Administrative Agent" means at any time PHH VMS or such other Person
then authorized pursuant to the Administrative Agency Agreement to service,
administer and collect the Series 1998-B Assets.
"Adverse Claim" means a lien, security interest, charge or encumbrance,
or other right or claim in, of or on any Person's assets or properties in favor
of any other Person.
"Affected Financial Institution" has the meaning specified in Section
10.1(b).
"Affected Party" has the meaning specified in Section 1.7(a).
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. For the purpose of this definition,
"control" when used with respect to any specified Person shall mean the power to
direct the management and policies of such Person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise, and
the terms "controlling" and "controlled by" have meanings correlative to the
foregoing.
"Agent" means First Chicago in its capacity as Agent for the Lenders
pursuant to Article VIl, and not in its individual capacity as a Financial
Institution, and any successor Agent appointed pursuant to Article VIl.
"Agreement" means this Loan and Security Agreement, as it may be
amended or modified and in effect from time to time.
"Allocated Commercial Paper" means Commercial Paper issued by PREFCO
for a tenor and in an amount specifically requested by any Person in connection
with a Receivables Purchase Facility then being made available by PREFCO (or by
any agent on its behalf).
"Assignment" means the Assignment and Assumption Agreement II, dated
as of December 17, 1998 among PHH VMS, PHH Subsidiary and the Trust.
"Assignment Agreement" has the meaning specified in Section 10.1(b).
"Base Rate" means a rate per annum equal to the corporate base rate,
prime rate or base rate of interest, as applicable, announced by the Reference
Bank from time to time, changing when and as such rate changes.
"Beneficiary" has the meaning specified in the Trust Agreement.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Broken Funding Costs" means for any portion of the Loan funded
substantially with Pooled Commercial Paper or substantially with Specially
Pooled Paper which (i) is reduced or (ii) has its CP Interest reduced or
terminated without compliance with the notice requirements hereunder, the
excess, if any, of (A) the CP Interest that would have accrued during the
remainder of the Tranche Periods for Commercial Paper determined by the Agent to
relate to such portion of the Loan (the "Applied Funding Charges") subsequent to
the date of such reduction or termination on the principal amount of such
portion of the Loan if such reduction or termination had not occurred, over (B)
the sum of (x) the Applied Funding Charges actually accrued during such period
on the outstanding loan after such reduction or termination and (y) the income,
if any, actually received during such period by the holder of the outstanding
loan after such reduction or termination from investing the portion of any
payment not so allocated. In the event that the amount referred to in clause (B)
exceeds the amount referred to in clause (A), the relevant Lender or Lenders
agree to pay to the Borrower the amount of such excess. All Broken Funding Costs
shall be due and payable hereunder upon demand.
"Business Day" means any day on which banks are not authorized or
required to close in Baltimore, Maryland, New York, New York or Chicago,
Illinois and the Depository Trust Company of New York is open for business, and,
if the applicable Business Day relates to any computation or payment to be made
with respect to the LIBO Rate, any day on which dealings in dollar deposits are
carried on in the London interbank market.
"Certificate" means the Series 1998-B Certificate issued pursuant to
the Supplement, and which represents a beneficial interest in the Series 1998-B
Assets.
"Charged-Off Lease" means any Lease or any portion of such a Lease: (i)
as to which the Lessee thereof has taken any action, or suffered any event to
occur, of the type described in Section 6.1(d) (as if references to the Borrower
therein refer to such Lessee); or (ii) which, consistent with the Credit and
Collection Practices, should be written off as uncollectible.
"Closing Date" means the date on which the conditions precedent set
forth in Section 4.1 are satisfied or, in the sole discretion of the Agent,
waived.
"Collateral" means all right, title and interest of the Borrower in and
to (i) the Certificate issued by the Trust to PHH VMS and conveyed to the
Borrower pursuant to the terms of the Contribution Agreement and any interest of
the Borrower in the Series 1998-B Assets and all other assets of the Trust
evidenced by the Certificate, (ii) the Contribution Agreement, (iii) the Trust
Agreement, (iv) the Administrative Agency Agreement, (v) the Supplement, (vi)
all cash or other property distributed or distributable on account of the
Certificate, (vii) all cash on deposit in any bank account received as income or
distributions on the Series 1998-B Assets and which has been distributed or will
be distributed as income or distributions on the Certificate and the Series
1998-A Assets, and (viii) any and all proceeds with respect to any of the
foregoing.
"Collection Period" means each period from (and including) the first
day of each calendar month to (and including) the last day of such calendar
month.
"Collections" means, with respect to any Series 1998-B Asset
"Collection", as defined in the Trust Agreement in respect of such Series 1998-B
Asset.
"Commercial Paper" means promissory notes of PREFCO issued by PREFCO in
the commercial paper market.
"Commitment" means, for each Financial Institution, the commitment of
such Financial Institution to purchase its Pro Rata Share of the Loan from
PREFCO, such Pro Rata Share not to exceed, in the aggregate, the amount set
forth opposite such Financial Institution's name on the signature pages of this
Agreement, as such amount may be modified in accordance with the terms hereof.
"Concentration Limit" means, on the date the Loan is made, an amount
equal to 6% of the Adjusted Lease Balance of the Series 1998-B Assets on the
Closing Date.
"Confidential Proprietary Information" means all information relating
to the Borrower, PHH VMS, the Guarantor, the Trust or their Affiliates and their
respective businesses, whether oral, written or otherwise (including any such
information furnished prior to the execution of this Agreement) to the Agent,
the Lenders or PREFCO, each of their directors, officers, partners, advisors
(including financial advisors), affiliates, employees, agents or representatives
(collectively, "Representatives"), by the Borrower, PHH VMS, the Guarantor, the
Trust or their Affiliates and their Representatives and all reports, analyses,
compilations, studies and other materials prepared by the Agent, the Lenders or
PREFCO or their Representatives (in whatever form maintained, whether
documentary, computer storage or otherwise) containing, reflecting or based upon
, in whole or in part, any such information or reflecting their review or view
of the transaction contemplated herein or the Confidential Proprietary
Information. The term "Confidential Proprietary Information" does not include
information which (i) is or becomes generally available to the public other than
as a result of a disclosure by the Agent, the Lenders, PREFCO or their
Representatives or anyone to whom the Agent, the Lenders, PREFCO or any of their
Representatives transmit any Confidential Proprietary Information, (ii) is or
becomes known or available to the Agent, the Lenders, PREFCO or their
Representatives on a non-confidential basis from a source (other than the
Borrower, PHH VMS, the Guarantor, the Trust or their Affiliates or one of their
Representatives) who, insofar as is known to the Agent, the Lenders, PREFCO or
their Representatives after reasonable due inquiry, is not prohibited from
transmitting the information to the Agent, the Lenders, PREFCO or their
Representatives, as the case may be, by a contractual, legal, fiduciary or other
obligation, (iii) is independently developed by the Agent, the Lenders, PREFCO
or their Representatives without use of any information that would itself be
independently deemed Confidential Proprietary Information, or (iv) general
information regarding any leasing or other financial product structures or
characteristics (including financial, accounting and legal characteristics)
provided by the Agent and not based upon the Confidential Proprietary
Information.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or application for a letter of credit.
"Contribution Agreement" means that certain Asset Contribution
Agreement dated as of December 17, 1998 between the Borrower and PHH VMS, as the
same may be amended, restated and/or otherwise modified from time to time in
accordance with the terms thereof and hereof.
"CP Interest" means (i) in respect of any portion of the Loan funded
substantially with Pooled Commercial Paper, the Pooled Funding Charges, and (ii)
in respect of any portion of the Loan funded substantially with Specially Pooled
Paper, the Special Funding Charges.
"Credit and Collection Practices" means the credit and collection
policies and practices relating to Series 1998-B Assets existing on the date
hereof and as attached hereto as Exhibit VIII and as described to PREFCO, as
modified from time to time in accordance with this Agreement.
"Default Ratio" means, at any time of determination, the lesser of (i)
a ratio, expressed as a percentage, of Net Write-Offs for the 12 full calendar
months immediately preceding such time to the average Adjusted Lease Balance of
all Series 1998-B Leases for such 12 full calendar months, and (ii) the ratio,
expressed as a percentage, of (A) such Net Write-Offs multiplied by the ratio,
expressed as a percentage, of the Adjusted Lease Balance of those Series 1998-B
Leases which became Defaulted Leases during such 12 full calendar months to the
Adjusted Lease Balance of all Series 1998-B Leases and all other Leases serviced
by the Administrative Agent for such 12 full calendar months the Lessees of
which were Lessees with respect to such Defaulted Leases, to (B) the average
Adjusted Lease Balance of all Series 1998-B Leases for such 12 full calendar
months; for purposes hereof, the Adjusted Lease Balance of the Leases shall be
deemed to be equal to the Adjusted Lease Balance thereof on the Closing Date for
all times prior to the Closing Date.
"Defaulted Asset" means a Series 1998-B Asset with respect to which the
Lease associated therewith is a Defaulted Lease.
"Defaulted Lease" means a Lease: (i) as to which 75% or greater of
billings remain unpaid for more than 120 days from the original due date,
provided that such delinquency is not due to a valid billing dispute or (ii)
which has been declared in default under the Credit and Collection Practices.
"Defaulting Financial Institution" has the meaning specified in Section
8.5.
"Delinquent Lease" means a Lease (other than a Defaulted Lease) as to
which any payment, or part thereof, remains unpaid for more than 60 days or more
from the original due date for such payment.
"Delinquency Ratio" means, for any Collection Period, the ratio
(expressed as a percentage) of (i) the aggregate billings which were unpaid for
60 days or more from the original due date thereof as of the last day of such
Collection Period with respect to all Series 1998-B Leases and all other Leases
serviced by the Administrative Agent, to (ii) the sum of (a) the aggregate
billings which were unpaid as of the last day of the prior Collection Period
with respect to all Series 1998-B Leases and all other Leases serviced by the
Administrative Agent and (b) the aggregate amount billed during such Collection
Period with respect to all Series 1998-B Leases and all other Leases serviced by
the Administrative Agent.
"Depreciation Rent" has the meaning specified in the Administrative
Agency Agreement.
"Eligible Lease" means, on the Closing Date, any Lease:
(1) which is denominated and payable only in United States dollars
in the United States,
(2) the Lessee of which (a) is organized under the laws of the United
States or any political subdivision thereof and has its chief executive office
in the United States, (b) is not an Affiliate of any of the parties hereto, and
(c) is not a government or a governmental subdivision or agency,
(3) the Lessee of which is not the Lessee of any Defaulted Lease,
(4) which is not a Charged-Off Lease,
(5) that requires payment within 30 days of the date of invoice and
which requires the unamortized book value of the related Vehicle to be paid in
full with 60 months of the date of commencement of the applicable lease term at
a floating rate of interest,
(6) which is "chattel paper" or an "account" within the meaning of
9-105 or Section 9-106, respectively, of the UCC of all applicable
jurisdictions,
(7) which is in full force and effect and constitutes the legal, valid
and binding obligation of the related Lessee enforceable against such Lessee in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization or other similar laws of general applicability and by
the effect of general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(8) which (a) does not require the Lessee under such Lease to consent
to the transfer, sale or assignment of the rights of PHH VMS or any of its
assignees under such Lease and (b) is not subject to a confidentiality provision
that would have the effect of restricting the ability of the Agent or any Lender
to exercise its rights under this Agreement, including, without limitation, its
right to review the Lease,
(9) which has been selected by PHH VMS for inclusion in the Series
1998-B Assets on a non-preferential basis not adverse to the interests of the
Lenders,
(10) which is not subject to any right of rescission, set-off (in
respect of all or any portion of the outstanding principal balance thereof then
being proposed for inclusion in Series 1998-B Assets as of the Closing Date),
counterclaim, dispute, any other defense (including defenses arising out of
violations of usury laws) of the applicable Lessee or PHH VMS or any other
Adverse Claim,
(11) a Lease as to which PHH VMS has satisfied and fully performed all
obligations on its part with respect to such Lease required to be fulfilled by
it, and no further action is required to be performed by any Person with respect
thereto other than payment thereon by the applicable Lessee,
(12) all right, title and interest to and in which has been validly
transferred by PHH VMS directly to the Trust under and in accordance with the
Trust Agreement and the Assignment, and the Trustee has good and marketable
title thereto free and clear of any Adverse Claim, except as permitted by the
Transaction Documents,
(13) which was created in compliance with and does not contravene any,
law, rule or regulation applicable thereto (including, without limitation, any
law, rule and regulation relating to truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection practices and
privacy) in any material respect and with respect to which no part of the Lease
related thereto is in violation of any such law, rule or regulation,
(14) which satisfies, all applicable requirements of the Credit and
Collection Practices,
(15) which was generated in the ordinary course of PHH VMS' business,
(16) the Adjusted Lease Balance of which when aggregated with the Adjusted Lease
Balance of all Series 1998-B Leases of the related Lessee and any Affiliates of
such Lessee does not exceed the Concentration Limit, except as otherwise agreed
by Agent, and
(17) which leases an automobile or light duty truck.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" has the meaning specified in Section 6.1.
"Facility Termination Date" means the earlier to occur of (a) the
Liquidity Termination Date and (b) the occurrence of an Event of Default.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period equal to (a) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for US Government Securities; or (b) if such rate is not so published
for any day which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (Chicago time) for such day on such transactions
received by the Reference Bank from three federal funds brokers of recognized
standing selected by it.
"Fee Letter" means that certain letter agreement dated as of December
17, 1998 between the Borrower and the Agent, as heretofore or hereafter amended
or modified and in effect from time to time.
"Financial Institutions" means the financial institutions listed on the
signature pages of this Agreement under the heading "Financial Institutions" and
their respective successors and assigns.
"First Chicago" means The First National Bank of Chicago in its
individual capacity and its successors.
"First Chicago Roles" has the meaning specified in Section 11.13.
"Funding Agreement" means this Agreement and any agreement or
instrument executed by any Funding Source with or for the benefit of PREFCO.
"Funding Source" means (i) any Financial Institution or (ii) any
insurance company, bank or other financial institution providing liquidity,
credit enhancement or back-up purchase support or facilities to PREFCO.
"Governmental Authority" means the United States of America, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee" means the Guarantee dated as of December 17, 1998 made by
the Guarantor in favor of the Agent and the Lenders, as hereafter amended or
modified and in effect from time to time.
"Guarantor" means PHH Corporation, a Maryland corporation.
"Holder" has the meaning specified in the Trust Agreement.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
property or services (other than accounts payable arising in the ordinary course
of such Person's business payable on terms customary in the trade), (iii)
obligations, whether or not assumed, secured by liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) capitalized lease obligations, (vi) net liabilities under
interest rate swap, exchange or cap agreements, (vii) Contingent Obligations and
(viii) liabilities in respect of unfunded vested benefits under plans covered by
Title IV of ERISA.
"Interest Rate" means the LIBO Rate or the Base Rate, as applicable.
"Lease" means, any lease between PHH VMS and a Lessee substantially in
the form of Exhibit A to the Administrative Agency Agreement and assigned by PHH
VMS and PHH Subsidiary to the Trust.
"Lessee" means the Lessee of a Series 1998-B Leased Vehicle or any
Person who is obligated to make payments on the related Lease.
"Lease File" has the meaning specified in the Administrative Agency
Agreement.
"Lender" means, PREFCO or a Financial Institution, as applicable.
"LIBO Rate" means the rate per annum equal to the sum of (i) (a) the
rate at which deposits in US Dollars are offered by the Reference Bank to
first-class banks in the London interbank market at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of the relevant Tranche
Period, such deposits being in the approximate amount of the portion of the Loan
to be funded or maintained by reference to the LIBO Rate, divided by (b) one
minus the Reserve Requirement (expressed as a decimal) applicable to such
Tranche Period plus (ii) 0.625% per annum. The LIBO Rate shall be rounded, if
necessary, to the next higher 1/16 of 1%.
"Liquidity Termination Date" means December 15, 1999.
"Loan" has the meaning specified in Section 1.1(a).
"Loan Note" means a promissory note, substantially in the form of
Exhibit III, made by the Borrower in favor of the Agent for the benefit of the
Lenders.
"Loan Request" means a request, substantially in the form of Exhibit
IX, made by the Borrower to PREFCO for the Loan.
"Lock-Box" means a locked postal box maintained by PHH VMS to which a
bank who has executed a Lock-Box Agreement has been granted exclusive access for
the purposes of retrieving and processing payments made on the Series 1998-B
Assets.
"Lock-Box Agreement" means, in the case of any Lock-Box Account, an
agreement in substantially the form of Exhibit VI hereto.
"Lock-Box Account" means the deposit account associated with each
Lock-Box.
"Loss Percentage" means, at any time, 20%.
"Material Adverse Effect" means a material adverse effect on (i) the
ability of the Borrower or the Administrative Agent to perform its obligations
under the Transaction Documents to which it is a party, (iii) the legality,
validity or enforceability of any Transaction Document or any Lock-Box Agreement
relating to a Lock-Box Account into which a material portion of Collections are
deposited, (iv) the Agent's interest, on behalf of the Lenders, in the
Certificate, (v) the Trust's interest in the Series 1998-B Assets generally or
in any significant portion thereof, or (vi) the collectibility of the Series
1998-B Assets generally or of any material portion thereof.
"Maximum Loan" means the aggregate of the Commitments of the Financial
Institutions hereunder.
"Monthly Report" means a report, in substantially the form of Exhibit V
hereto (appropriately completed), furnished by the Administrative Agent to the
Agent on behalf of the Lenders pursuant to Section 10.2 of the Supplement.
"Net Worth" means, as of the last Business Day of each Collection
Period preceding any date of determination, the excess, if any, of (a) the
aggregate Adjusted Lease Balance of the Series 1998-B Leases at such time, over
(b) the principal of the Loan plus interest outstanding at such time.
"Net Write-Offs" means, for any period of determination, amounts then
due and payable under Leases which became Defaulted Leases during such period,
plus 50% of the Adjusted Lease Balance of all Leases serviced by the
Administrative Agent the Lessees of which are Lessees with respect to such
Defaulted Leases.
"Non-Defaulting Financial Institution" has the meaning specified in
Section 8.5.
"Non-U.S. Lender" has the meaning specified in Section 9.3(e).
"Other Taxes" has the meaning specified in Section 9.3(b).
"Participant" has the meaning specified in Section 10.2.
"Person" means an individual, partnership, corporation, association,
trust, or any other entity, or organization, including a government or political
subdivision or agent or instrumentality thereof.
"PHH Entities" has the meaning specified in Section 5.1(e).
"PHH Subsidiary" means PHH VMS Subsidiary Corporation, a Maryland
corporation.
"PHH VMS" means PHH Vehicle Management Services Corporation, a Maryland
corporation; provided however, that PHH VMS (by merger or otherwise) may
reincorporate in another state or convert from a corporation to a limited
liability company or a substantially similar entity.
"Pooled Allocation" means, for any portion of the Loan funded
substantially with Pooled Commercial Paper, an amount each day equal to the
product of (i) the Pooled Percentage Share of such portion of the Loan on such
day multiplied by (ii) the aggregate amount of Pooled Funding Charges for such
day.
"Pooled Commercial Paper" means Commercial Paper of PREFCO except (A)
Allocated Commercial Paper, and (B) Specially Pooled Paper.
"Pooled Funding Charges" means, for each day, the sum of (i) discount
accrued on Pooled Commercial Paper on such day, plus (ii) any and all accrued
commissions in respect of placement agents and Commercial Paper dealers in
respect of such Pooled Commercial Paper for such day, plus (iii) issuing and
paying agent fees incurred on such Pooled Commercial Paper for such day, plus
(iv) other costs associated with funding small or odd-lot amounts with respect
to all Receivable Purchase Facilities which are funded by Pooled Commercial
Paper for such day, minus (v) any accrual of income net of expenses received on
such day from investment of collections received under all Receivable Purchase
Facilities funded with Pooled Commercial Paper, minus (vi) any payment received
on such day net of expenses in respect of Broken Funding Costs related to the
prepayment of any amounts funded by PREFCO pursuant to the terms of any
Receivable Purchase Facilities funded substantially with Pooled Commercial
Paper.
"Pooled Percentage Share" means, for any portion of the Loan funded
substantially with Pooled Commercial Paper, a fraction (expressed as a
percentage) the numerator of which is equal to the principal amount of such
portion of the Loan and the denominator of which is equal to the aggregate
amount of all outstanding capital associated with receivable interests (or
comparable terms used in any Receivable Purchase Facility) and loans secured by
receivable interests held by PREFCO which is funded substantially with Pooled
Commercial Paper.
"Potential Event of Default" means an event which, with the passage of
time or the giving of notice, or both, would constitute an Event of Default.
"PREFCO Residual" means the sum of the PREFCO Transfer Price
Reductions.
"PREFCO Transfer Price" means, with respect to an assignment by PREFCO
of all or a portion of the Loan funded by PREFCO to the Agent for the benefit of
the Financial Institutions pursuant to Section 8.1, the sum of (i) the lesser of
(a) the principal amount of such Loan so assigned and (b) the Adjusted Liquidity
Price of such assigned loan and (ii) all accrued and unpaid interest thereon to
and, including the date of such assignment.
"PREFCO Transfer Price Deficit" has the meaning specified in Section
8.5.
"PREFCO Transfer Price Reduction" means, in connection with the
assignment of any portion of the Loan by PREFCO to the Agent for the benefit of
the Financial Institutions, the positive difference between (i) the principal
amount of such Loan so assigned and (ii) the Adjusted Liquidity Price for such
Loan.
"Program Fee" has the meaning specified in the Fee Letter.
"Projected Adjusted Lease Balance" means, with respect to any Series
1998-B Leased Vehicle as of any date, the initial Adjusted Lease Balance of such
Series 1998-B Leased Vehicle minus the aggregate Depreciation Rent which was
scheduled to have been paid as of such date with respect to the related Series
1998-B Lease.
"Pro Rata Share" means, for each Financial Institution, the Commitment
of such Financial Institution divided by the Maximum Loan, adjusted as necessary
to give effect to the application of the terms of Section 8.5.
"Purchasing Financial Institution" has the meaning specified in Section
10.1(a).
"Receivables Purchase Facility" means any receivables purchase
agreement, loan agreement or other similar contracted arrangement to which
PREFCO is a party relating to the transfer, purchase or financing of receivables
or other financial assets, including, without limitation, this Agreement.
"Records" means, with respect to the Certificate, all Leases and other
documents, books, records and other information (including, without limitation,
computer programs, tapes, disks, punch cards, data processing software and
related property and rights) relating to the Certificate.
"Reduction Percentage" means, for any portion of the Loan acquired by
the Financial Institutions from PREFCO for less than the principal amount
thereof, a percentage equal to a fraction the numerator of which is the PREFCO
Transfer Price Reduction for such portion of the Loan and the denominator of
which is the principal amount thereof.
"Reference Bank" means The First National Bank of Chicago or such other
bank as the Agent shall designate with the consent of the Borrower.
"Regulatory Change" has the meaning specified in Section 9.2(a).
"Required Financial Institutions" means, at any time, Financial
Institutions with Commitments in excess of 66-2/3% of the Maximum Loan.
"Reserve Requirement" means the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is
imposed against the Reference Bank in respect of Eurocurrency liabilities, as
defined in Regulation D of the Board of Governors of the Federal Reserve System
as in effect from time to time.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Secured Obligations" has the meaning specified in Section 1.7 (a).
"Series" has the meaning specified in the Trust Agreement.
"Series 1998-B Assets" has the meaning specified in the Amendment,
dated December 17, 1998, to the Administrative Agency Agreement.
"Series 1998-B Lease" has the meaning specified in the Amendment, dated
December 17, 1998, to the Administrative Agency Agreement.
"Series 1998-B Leased Vehicle" has the meaning specified in the
Amendment, dated December 17, 1998, to the Administrative Agency Agreement.
"Series Specification Notice" has the meaning specified in the Trust
Agreement.
"Series Specified Assets" has the meaning specified in the Trust
Agreement.
"Settlement Date" means, with respect to any Settlement Period, the
18th day of the next calendar month (or the next succeeding Business Day if such
day is not a Business Day) or upon request by the Agent after the occurrence of
an Event of Default, daily.
"Settlement Period" means (A) in respect of the Loan or any portion
thereof funded by PREFCO, Collection Period, and (B) in respect of the Loan or
any portion thereof funded by the Financial Institutions, the entire Tranche
Period thereof; or upon request by the Agent after an Event of Default, daily.
"Special Beneficial Certificates" has the meaning specified in the
Trust Agreement.
"Special Funding Charges" means, for each day, the sum of (i) discount
accrued on Specially Pooled Paper on such day, plus (ii) any and all accrued
commissions in respect of replacement agents and Commercial Paper dealers in
respect of such Specially Pooled Paper for such day, plus (iii) issuing and
paying agent fees incurred on such Specially Pooled Paper for such day, plus
(iv) other costs associated with funding small or odd-lot amounts with respect
to all Receivables Purchase Facilities which are funded by Specially Pooled
Paper for such day, minus (v) any accrual of income net of expenses received on
such day from investment of collections received under all Receivable Purchase
Facilities funded with Specially Pooled Paper, minus (vi) any payment received
on such day net of expenses in respect of Broken Funding Costs related to the
prepayment of any receivable interest (or comparable term used in any Receivable
Purchase Facility) of PREFCO pursuant to the terms of any Receivables Purchase
Facility funded substantially with Specially Pooled Paper.
"Special Percentage Share" means, for any portion of the Loan funded
substantially with Special Commercial Paper, a fraction (expressed as a
percentage) the numerator of which is equal to the principal amount of such
portion of the Loan and the denominator of which is equal to the aggregate
amount of all outstanding capital associated with receivable interests (or
comparable terms used in any Receivable Purchase Facility) held by PREFCO which
is funded substantially with Special Commercial Paper.
"Special Pooled Period" means any period commencing on (i) each March
15 and ending on the following April 5, (ii) each June 15 and ending on the
following July 5, (iii) each September 15 and ending on the following October 5,
or (iv) each December 15 and ending on the following January 5. If the last day
of any Special Pooled Period shall not be a Business Day, the last day of such
Special Pooled Period shall be the next succeeding Business Day.
"Specially Pooled Allocation" means, for any portion of the Loan funded
substantially with Specially Pooled Paper, an amount each day equal to the
product of (i) the Special Percentage Share of such portion of the Loan on such
day multiplied by (ii) the aggregate amount of Special Funding Charges for such
day. "Specially Pooled Paper" means the aggregate of all Commercial Paper of
PREFCO issued during any Special Pooled Period and allocated by the Agent to
Specially Pooled Paper. Specially Pooled Paper will not include Pooled
Commercial Paper or Allocated Commercial Paper at any time.
"Sub-Administrative Agent" means any Person to whom the Administrative
Agent has delegated responsibilities with respect to collection of the Series
1998-B Assets.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Supplement" means the Series 1998-B Supplement dated as of December
17, 1998 to the Administrative Agency Agreement and the Amended and Restated
Trust Agreement dated as of June 12, 1998 among PHH VMS, PHH Subsidiary
Corporation and the Trustee.
"Taxes" has the meaning specified in Section 9.3(a).
"Terminating Tranche" has the meaning specified in Section 2.5(b).
"Tranche Period" means, with respect to the Loan or any portion thereof
funded by a Financial Institution:
(a) if interest for the Loan or any portion thereof is calculated on
the basis of the LIBO Rate, a period commencing on a Settlement Date and
terminating on the next succeeding Settlement Date.
(b) if interest for the Loan or any portion thereof is calculated on the
basis of the Base Rate, a period commencing on a Business Day selected by
the Borrower provided that no such period shall exceed 30 days.
If any Tranche Period would end on a day which is not a Business Day, such
Tranche Period shall end on the next succeeding Business Day. In the case of any
Tranche Period which commences before the Facility Termination Date and would
otherwise end on a date occurring after the Facility Termination Date, such
Tranche Period shall end on the Facility Termination Date. The duration of each
Tranche Period which commences after the Facility Termination Date shall be of
such duration as selected by the Agent.
"Transaction Documents" means, collectively, this Agreement, the Loan
Note, the Contribution Agreement, the Administrative Agency Agreement, the
Assignment, the Guarantee, the Trust Agreement, the Supplement, the Certificate,
each Lock-Box Agreement and all other instruments, documents and agreements
executed and delivered in connection herewith or therewith.
"Trust" has the meaning specified in the Trust Agreement.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
as of June 12, 1998 among PHH VMS, PHH Subsidiary and the Trustee as amended by
the Supplement, and the Series 1998-A Supplement thereto, dated June 12, 1998,
and the Amendment to the Trust Agreement, dated December 17, 1998.
"Trustee" means The First National Bank of Maryland, as trustee under
the Trust Agreement.
"UCC" means the Uniform Commercial Code as from time to time in effect
in New York State.
"Vehicle" has the meaning specified in the Trust Agreement.
"Year 2000 Plan" has the meaning specified in Section 3.1(q).
"Year 2000 Problem" means, with respect to any Person, the risk that
computer applications in use by that Person cannot or will not: (a) handle date
information involving any and all dates before, during and/or after January 1,
2000, including accepting input, providing output and performing date
calculations in whole or in part; (b) operate accurately without interruption on
and in respect of any and all dates before, during and/or after January 1, 2000;
and (c) store and provide date input information without creating any ambiguity
as to the century.
All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles. All terms used in
Article 9 of the UCC in the State of New York, and not specifically defined
herein, are used herein as defined in such Article 9.
Capitalized terms used and not otherwise defined herein are used with
the meanings attributed thereto in the Contribution Agreement.
<PAGE>
Exhibit II
Chief Executive Office; Place(s) of Business; FEIN
TRAC Funding, Inc.
c/o PHH Vehicle Management Services Corporation
307 International Circle
Mail Code - CP
Hunt Valley, Maryland 21030-1337
Federal Taxpayer ID # 52-2135094
<PAGE>
Exhibit III
Form of Loan Note
PROMISSORY NOTE
$ 500,000,000 December __, 1998
New York, New York
FOR VALUE RECEIVED, TRAC Funding, Inc., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of Preferred Receivables
Funding Corporation ("PREFCO"), and the Financial Institutions (together with
PREFCO, the "Lenders"), and The First National Bank of Chicago, as Agent for the
benefit of the Lenders, in lawful money of the United States, and in immediately
available funds, the principal sum of FIVE HUNDRED MILLION DOLLARS
($500,000,000) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Loan made by the Lenders to the Borrower under the Loan
Agreement referred to below), on the date and in the principal amounts provided
in the Loan Agreement, and to pay interest on the unpaid principal amount of the
Loan, at such office, in like money and funds, for the period commencing on the
date of the Loan until the Loan shall be paid in full, at the rates per annum
and on the dates provided in the Loan Agreement.
This Loan Note is the Loan Note referred to in the Loan and Security
Agreement dated as of December __, 1998 (as amended, supplemented or otherwise
modified and in effect from time to time, the "Loan Agreement") among the
Borrower, PREFCO, the Financial Institutions, and Agent, and evidences a Loan
made by the Lenders thereunder. Terms used but not defined in this Loan Note
have the respective meanings assigned to them in the Loan Agreement.
The Borrower agrees to pay all the Agent's costs of collection and
enforcement (including reasonable attorneys' fees and disbursements of Agent's
counsel) in respect of this Loan Note when incurred, including, without
limitation, reasonable attorneys' fees through appellate proceedings.
Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this Loan
Note are recourse obligations of the Borrower to which the Borrower pledges its
full faith and credit.
The Borrower, and any endorsers or guarantors hereof, (a) severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayments of this Loan Note, (b) expressly agree that
this Loan Note, or any payment hereunder, may be extended from time to time, and
consent to the acceptance of further Collateral, the release of any Collateral
for this Loan Note, the release of any party primarily or secondarily liable
hereon, and (c) expressly agree that it will not be necessary for the Agent or a
Lender, in order to enforce payment of this Loan Note, to first institute or
exhaust the Agent's or such Lender's remedies against the Borrower or any other
party liable hereon or against any Collateral for this Loan Note. No extension
of time for the payment of this Loan Note, or any installment hereof, made by
agreement by the Agent or a Lender with any person now or hereafter liable for
the payment of this Loan Note, shall affect the liability under this Loan Note
of the Borrower, even if the Borrower is not a party to such agreement;
provided, however, that the Lenders and the Borrower, by written agreement
between them, may affect the liability of the Borrower.
Any reference herein to the Agent shall be deemed to include and apply
to each Lender and every subsequent holder of this Loan Note. Reference is made
to the Loan Agreement for provisions concerning optional and mandatory
prepayments, Collateral, acceleration and other material terms affecting this
Loan Note.
This Loan Note shall be governed by and construed under the laws of the
State of New York whose laws the Borrower expressly elects to apply to this Loan
Note. The Borrower agrees that any action or proceeding brought to enforce or
arising out of this Loan Note may be commenced in any United States Federal or
New York State court.
TRAC FUNDING, INC.
By:
Name:
Title:
<PAGE>
Exhibit IV
Form of Compliance Certificate
This Compliance Certificate is furnished pursuant to that certain Loan and
Security Agreement dated as of December __, 1998 (the "Agreement"), among TRAC
FUNDING, INC. (the "Borrower"), various Lenders and The First National Bank of
Chicago, as Agent. Capitalized terms used and not otherwise defined herein are
used with the meanings attributed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ______________ of the Borrower;
2. I have reviewed the terms of the Agreement and I have made, or
have caused to be made under my supervision, a detailed review
of the related transactions during the period ended
_____________; and
3. The examinations described in paragraph 2 did not disclose,
and I have no knowledge of, the existence of any condition or
event which constitutes an Event of Default or a Potential
Event of Default, as each such term is defined under the
Agreement, during or at the end of the aforementioned period[,
except as set forth below].
[Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:]
The foregoing certifications, together with the computations set forth
in Schedule I hereto in support hereof, are made and delivered on and as of
[insert date].
[Name]
<PAGE>
Schedule of Computations under Sections 6.1 (k)
in Support of Compliance Certificate dated ___________
<PAGE>
Exhibit V
Form of Monthly Report
<PAGE>
Exhibit VI
Form of Lock-Box Agreement
_____, 19__
<PAGE>
Lock-Box Numbers
Bank of America
8188-102290
Bank of America
8188-902291
<PAGE>
Exhibit VIII
Credit and Collection Practices
PHH Shared Services Credit
Credit Risk Policy And Practices - Overview
Through its operating subsidiaries, PHH Corporation provides a broad
range of integrated management services, cost control programs and mortgage
banking services to primarily business entities, government agencies, and
affinity groups. To support these business services in a competitive
environment, it is necessary for PHH to source significant amounts of debt
capital, at favorable interest rates, and with few, if any, restrictions on how
the borrowed funds are utilized.
In order to access debt capital sources, it has been and will continue
to be necessary to maintain high portfolio credit quality and minimal bad debt
write-off experience. Therefore, PHH must consider itself a credit lender and
not a collateral lender, and maintain a credit environment and process
consistent with this position.
Following is an overview of the credit risk policy and practices
throughout PHH Corporation.
o All operating subsidiaries follow formalized, structured credit
and collection policies and procedures that have been developed
with the concurrence of Corporate Credit Administration.
o Credit authorities are approved by Corporate Credit Administration
and senior financial management of PHH Corporation, and higher
credit lines or lower credit standings, as defined by PHH
Corporation, require the concurrence of Corporate Credit
Administration.
o The credit extension process requires a detailed credit analysis
and generally includes financial statement analysis with financial
ratio measurements of liquidity, leverage, coverage and return
ratios for prospective as well as existing clients.
o Exception to the financial statement analysis requirement
generally occurs for only low-level credit risks, such as small
fuel accounts at PHH Europe, where a credit criteria measured
threshold must be met. Other exceptions would include controlled
level approvals based upon credit ratings from major trade and
debt rating agencies that are based on financial statement
capacity.
o In order to conduct business with clients where a level of credit
concern exists, the use of credit extension enhancements is widely
encouraged. Such enhancements could include bank letters of
credit, cash security deposits, surety bonds, electronic payment
requirements, corporate guarantees, etc.
o Clients are subject to periodic (generally annual) formal credit
reviews to evaluate the credit risk basis for continuing a
business relationship.
o Credit line controls are in place for all PHH operating
subsidiaries, and further interim credit reviews are conducted if
a client's service usage exceeds the established credit line.
o Credit management continues with the monitoring of client collections on an
ongoing basis.
o Credit and collection management control reports are prepared
monthly by all PHH operating subsidiaries and submitted to
Corporate Credit Administration, where an ongoing oversite
activity is exercised.
o Corporate Credit Administration conducts periodic (not less than
annually) on-site audits of the operating subsidiary credit and
collection activities. During this process, a review is made to
ensure that established credit and collection policies and
procedures are being adhered to.
The goals and objectives for the foregoing include:
o Maintain a sound, structured credit environment in which risk exposures can be
controlled and monitored.
o Control bad debt write-offs consistent with historic nominal
levels and business needs, and ensure adequate bad debt reserves
are maintained.
o Optimize the return to shareholders by providing quality credit
risk management practices to support business growth objectives.
o Maintain strong overall credit risk portfolio to ensure continued high debt
ratings and access to low-cost debt markets.
<PAGE>
Exhibit IX
Form Loan Request
Preferred Receivables Funding Corporation/
Asset Backed Finance
Suite 0597, 1-19
One First National Plaza
Chicago, Illinois 60670-0079
Attention: Asset Backed Finance - Financial Administration
This Loan Request is delivered to you pursuant to Section 1.2 of the
Loan and Security Agreement dated as of December 17, 1998 (as it may be amended,
supplemented, restated or otherwise modified from time to time, the "Agreement")
among TRAC Funding, Inc., a Delaware corporation (the "Borrower"), Preferred
Receivables Funding Corporation ("PREFCO"), and the Financial Institutions
(together with PREFCO, the "Lenders"), and The First National Bank of Chicago,
as Agent for the benefit of the Lenders. Unless otherwise defined herein or the
context otherwise requires, all capitalized terms used herein will have the
respective meanings assigned to them in the Agreement. The Borrower hereby
requests that the Loan be made in the aggregate principal amount of
$________________, on December __, 199_.
The Borrower hereby certifies that (i) the representations and
warranties of the Borrower set forth Article III of the Agreement are on the
date hereof, and will be on the date of the proposed borrowing, true and correct
as if made on and as of such dates, and (ii) no Event of Default has occurred
and is continuing on the date hereof or shall have occurred and be continuing on
the date of the proposed borrowing.
The Borrower agrees that if, prior to the time that the borrowing
requested hereby is made, any matter certified to herein shall no longer be true
and correct, it will immediately so notify the Agent. Except to the extent, if
any, that prior to the time that the borrowing requested hereby is made the
Agent shall receive written notice to the contrary from the Borrower, each
matter certified to herein shall be deemed once again to be certified as true
and correct as of the date of the borrowing as if then made.
Please wire transfer the proceeds of the requested borrowing to the
account(s) of the following Persons at the financial institutions indicated
below.
Amount to be Person to be paid .
Name, Address,etc.
transferred Name
Account no. of Payee Bank
The Borrower has caused this Loan Request to be executed and delivered, and the
certifications and warranties contained herein to be made, by their duly
authorized officers this __ day of December, 1998.
TRAC FUNDING, INC.
By:
Name:
Title:
Schedule I
Closing Documents
I. Amended and Restated Trust Agreement and Administrative Agency Agreement
A. Series 1998-B Supplement dated as of December 17, 1998 among PHH VMS,
PHH Subsidiary and the Trust, with completed exhibits
B. Amendment to the Amended and Restated Trust Agreement, dated as of
December 17, 1998 among PHH VMS, PHH Subsidiary and the Trust, with
completed exhibits
C. Amendment to the Administrative Agency Agreement dated as of December
17, 1998 among PHH VMS, PHH Subsidiary and the Trust, with completed
exhibits
D. Series 1998-B Specification Notice delivered by PHH VMS, as
Administrative Agent, to the Trustee
E. Certificates of PHH VMS' and PHH Subsidiary's Assistant Secretary
certifying:
1. An attached copy of its Certificate of Incorporation (certified
within 30 days prior to closing by the Maryland Secretary of State)
2. An attached copy of its By-Laws
3. An attached copy of resolutions of its Board of Directors
authorizing its execution, delivery and performance of documents
4. The names, titles and specimen signatures of its officers authorized
to execute and deliver the documents
F. Good Standing Certificate for PHH VMS and PHH Subsidiary
G. Release of liens on Exchangeable Beneficial Certificates
I. Opinions:
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to
enforceability, corporate law and related matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to the
issuance of the Series 1998-B Certificate (pursuant to Section 4.4(e)of
the Trust Agreement)
3. Opinion of Counsel to Trustee
II. Assignment & Assumption Agreement
A. Assignment & Assumption Agreement dated December 17, 1998 (the
"Assignment") among PHH VMS, PHH Subsidiary and the Trust, with
completed exhibits
B. UCC Financing Statement naming each of PHH VMS and PHH Subsidiary as
debtors and the Trust as secured party)
C. Acknowledgment by Trustee that the Series 1998-B Leases have been
transferred to it pursuant to the Assignment
D. Opinions
1. Opinion of Piper & Marbury as to UCC matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to
true sale matters 3. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to non-consolidation matters
III. Sale Agreement
A. Sale Agreement dated as of December 1, 1998 (the "Sale Agreement")
between PHH VMS and PHH Subsidiary, with completed exhibits
B. Assignment of Series 1998-B Certificate from PHH Subsidiary to PHH VMS
C. Opinions
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to
UCC matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to
enforceability, corporate law and related matters
3. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to
true sale matters
4. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to
non-consolidation matters
IV. Contribution Agreement
A. Asset Contribution Agreement dated as of December 17, 1998 by and
between PHH VMS and the Borrower, with completed exhibits
B. Certificates of the Borrower's Assistant Secretary certifying:
1. An attached copy of its Certificate of Incorporation
(certified within 30 days prior to closing by the
Delaware Secretary of State)
2. An attached copy of its By-Laws
3. An attached copy of resolutions of its Board of Directors
authorizing its execution, delivery and performance of
documents
4. The names, titles and specimen signatures of its officers
authorized to execute and deliver the documents
C. Good Standing Certificate for the Borrower
D. Opinions:
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect
to enforceability, corporate law and related matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect
to UCC matters
3. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect
to true sale matters
4. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect
to non-consolidation matters
V. Loan Agreement
A. Loan and Security Agreement dated as of December 17, 1998 among the
Borrower, Preferred Receivables Funding Corporation, various Financial
Institutions, and The First National Bank of Chicago, as Agent (in such
capacity, the "Agent"), with completed exhibits
B. Fee Letter dated as of December 17, 1998 by and between the Borrower
and the Agent
C. Loan Request executed by the Borrower
D. Release of Lien on the Certificate
E. Opinions:
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect
to enforceability, corporate law and related matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect
to UCC matters
F. Certificate with respect to no Event of Default or potential Event
of Default, accuracy of representations and warranties and satisfactions of
the "borrowing base"
G. The Certificate registered in the Borrower's name, with an undated
assignment to the Agent, for the benefit of the Lenders
H. Loan Note payable to the Agent, for the benefit of the Lenders
VI. Guarantee
A. Guarantee dated as of December 17, 1998 (the "Guarantee") made by
the Guarantor in favor of the Agent and the Lenders, with completed exhibits
B. Certificate of the Guarantor's Assistant Secretary certifying:
1. An attached copy of the Guarantor's Certificate of Incorporation
(certified within 30 days prior to closing
by the Maryland Secretary of State)
2. An attached copy of the Guarantor's By-Laws
3. An attached copy of resolutions of the Guarantor's Board
of Directors authorizing the Guarantor's execution, delivery
and performance of the Guarantee and related documents
4. The names, titles and specimen signatures of the Guarantor's
officers authorized to execute and deliver the Guarantee and
related documents
C. Good standing certificates for the Guarantor
D. Creditors Acknowledgment Agreement
E. Opinions:
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with respect
to enforceability, corporate law and related matters
<PAGE>
Schedule II
Confidential Information
1. Adjusted Liquidity Price: calculation, definition and related
definitions
2. Sections 1.3(b) and 1.5(a): PREFCO's account information
3. Sections 4.1(e)(iii) and 1.3(b): advance and repayment
4. LIBO Rate adjustment (0.625%)
5. Calculation of Default Ratio, Delinquency Ratio, Loss Percentage and
Net Write-Offs
6. Exhibit V - Monthly Report
7. This Schedule II
8. Calculation of Pooled Funding Charges
9. Calculation of Pooled Percentage Share
10. Calculation of Pooled Allocation
11. Calculation of Special Percentage Share
12. Calculation of Special Funding Charges
13. Definition of Special Pooled Period
14. Definition of Special Pooled Paper
15. Calculation of Specially Pooled Allocation
16. Calculation of Acquisition Amount
17. Calculation of PREFCO Transfer Price
18. Calculation of Reduction Percentage
19. Calculation of PREFCO Transfer Price Reduction
20. Calculation of PREFCO Residual
$625,000,000
LOAN AND SECURITY AGREEMENT
Dated as of December 28, 1998
Among
TRAC FUNDING II, INC.,
as Borrower,
QUINCY CAPITAL CORPORATION
and
RECEIVABLES CAPITAL CORPORATION,
as Lenders,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Administrator
<PAGE>
ARTICLE I. AMOUNT AND TERMS OF THE LOAN
Section 1.1. Loan Facility. ........................................ 1
Section 1.2. Making the Loan. ........................................ 2
Section 1.3. Repayment of the Loan. ................................. 2
Section 1.4. Fees. ................................................. 3
Section 1.5. Payments and Computations, Etc. ....................... 3
Section 1.6. Prepayments. ........................................ 3
Section 1.7. Grant of the Security Interest. ....................... 4
Section 1.8. Inability to Determine Eurodollar Rate. .............. 4
ARTICLE II. [Intentionally Omitted]
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Section 3.1. Borrower Representations and Warranties. .............. 5
ARTICLE IV. CONDITIONS OF LOAN
Section 4.1. Conditions Precedent to the Loan......................... 8
Section 4.2 Conditions Subsequent to the Loan ....................... 9
ARTICLE V. COVENANTS
Section 5.1. Affirmative Covenants of Borrower. .......................9
Section 5.2. Negative Covenants of Borrower. ....................... 12
ARTICLE VI. EVENTS OF DEFAULT
Section 6.1. Events of Default. ................................ 14
Section 6.2. Remedies. ........................................ 16
ARTICLE VII. THE ADMINISTRATOR
Section 7.1. Authorization and Action ................................ 18
Section 7.2. Delegation of Duties ................................ 19
Section 7.3. Exculpatory Provisions ................................ 19
Section 7.4. Reliance by Administrator ................................19
Section 7.5. Non-Reliance on Administrator and Other Lenders ..... 20
Section 7.6. Administrator in its Individual Capacity .............. 20
Section 7.7. Successor Administrator ................................ 20
ARTICLE VIII. [Intentionally Omitted]
ARTICLE IX. INDEMNIFICATION
Section 9.1. Indemnities by the Borrower. ....................... 21
Section 9.2. Increased Cost and Reduced Return........................ 23
Section 9.3. No Withholding or Other Taxes. ....................... 23
Section 9.4. Costs and Expenses Relating to this Agreement. ..... 25
Section 9.5. Refunds ................................................. 25
ARTICLE X. ASSIGNMENTS
Section 10.1. Assignments. ..................................... 26
ARTICLE XI. MISCELLANEOUS
Section 11.1. Waivers and Amendments. ................................ 27
Section 11.2. Notices.................................................. 27
Section 11.3. Ratable Payments......................................... 28
Section 11.4. Confidentiality. ........................................28
Section 11.5. Bankruptcy Petition. ................................ 28
Section 11.6. Limitation of Liability. ................................ 29
Section 11.7. Choice of Law. ........................................ 29
Section 11.8. Consent to Jurisdiction................................. 29
Section 11.9. Waiver of Jury Trial. ................................ 29
Section 11.10. Integration; Survival of Terms. ..................... 29
Section 11.11. Counterparts; Severability............................... 30
Section 11.12. Recourse. ............................................... 30
Section 11.13. Further Actions Evidencing Loans and the Security Interest
Created Herein. .................................... 30
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT I DEFINITIONS
EXHIBIT II CHIEF EXECUTIVE OFFICE; PLACE(S) OF BUSINESS; FEIN
EXHIBIT III FORM OF LOAN NOTE
EXHIBIT IV FORM OF COMPLIANCE CERTIFICATE
EXHIBIT V FORM OF MONTHLY REPORT
EXHIBIT VI FORM OF LOCK-BOX AGREEMENT
EXHIBIT VII CREDIT AND COLLECTION PRACTICES
SCHEDULE I CLOSING DOCUMENTS
<PAGE>
THIS LOAN AND SECURITY AGREEMENT, dated as of December 28, 1998, is by
and among TRAC Funding II, Inc., a Delaware corporation (the "Borrower"), Quincy
Capital Corporation, a Delaware corporation (together with its successors and
permitted assigns, "QCC"), Receivables Capital Corporation, a Delaware
corporation (together with its successors and permitted assigns, "RCC" and,
together with QCC, the "Lenders"), and Bank of America Trust and Savings
Association ("BofA"), as administrator for the Lenders (in such capacity, the
"Administrator"). Unless defined elsewhere herein, capitalized terms used in
this Agreement shall have the meanings assigned to such terms in Exhibit I.
PRELIMINARY STATEMENTS
PHH VMS has delivered to the Trustee a Series Specification Notice
listing certain assets which are to be designated as Series 1998-C Assets.
PHH VMS and the Trust have entered into the assignment pursuant to
which PHH VMS sold, conveyed, assigned, transferred and set over unto the Trust
the Series 1998-C Leased Vehicles, the Series 1998-C Leases and other rights
related thereto.
PHH VMS and the Trust have entered into the Supplement creating the
Series 1998-C Certificate and providing for the administration and servicing of
the Series 1998-C Assets by the Administrative Agent.
The Borrower and PHH VMS have entered into the Contribution Agreement
pursuant to which PHH VMS shall contribute the Certificate and the other
property relating thereto (as more fully described in the Contribution
Agreement) to the Borrower.
The Borrower desires to obtain a loan from the Lenders pursuant to the
terms hereof and is willing to pledge the Collateral to the Administrator for
the benefit of the Lenders in connection therewith.
The Lenders are willing to make a loan to the Borrower on the terms and
subject to the conditions hereinafter set forth.
ARTICLE .
AMOUNT AND TERMS OF THE LOAN
Section .. Loan Facility.
() On the terms and conditions set forth herein, the Lenders shall make
a term loan to the Borrower in an aggregate principal amount not to exceed
$625,000,000 (the "Loan").
() The Loan shall be evidenced by a Loan Note that shall be dated the
Closing Date, be payable to the order of the Administrator, for the benefit of
the Lenders, and provide for the payment of the unpaid principal amount of the
Loan evidenced thereby and interest with respect thereto accruing from time to
time in accordance with the terms of this Agreement until repayment in full of
the Loan.
Section .. Making the Loan. The Borrower shall notify the Administrator
in writing of its desire to borrow under this Agreement, which notice shall be
delivered no later than the date which is one (1) Business Day prior to desired
funding date and shall specify the amount of the Loan requested (together with a
detailed calculation thereof); provided, however, that the Borrower shall not
give such notice to the Administrator before all conditions precedent set forth
in Article IV are satisfied or, in the sole discretion of the Administrator,
waived. Each Lender shall, provided that the conditions precedent set forth in
Article IV are satisfied, make available to the Borrower on the proposed funding
date in same day funds, at the Borrower's account specified in such notice, such
Lender's Percentage amount of the Loan requested. The Borrower's notice shall be
deemed to be an irrevocable and binding commitment to accept the Loan on the
funding date, and the Borrower shall indemnify the Lenders against any loss or
expense incurred by the Lenders if for any reason the Loan is not made on the
funding date, including, without limitation, any Broken Funding Costs.
Section .. Repayment of the Loan.
() The Loan shall mature, and the principal amount thereof shall be
repaid, to the extent not previously repaid as required hereby, on December 28,
2003. Notwithstanding anything contained in this Agreement to the contrary, the
repayment of the Loan and the payment of Discount and all fees, indemnities and
other amounts payable by the Borrower under this Agreement will be full recourse
obligations of the Borrower.
() On each Settlement Date, the Borrower shall pay and deposit to the
Administration Account an amount equal to the sum of (i) all unpaid Discount
(accrued through the end of the preceding Settlement Period ending on or before
such Settlement Date) and all fees and other amounts (other than the principal
amount of the Loan) due and payable on such Settlement Date, plus (ii) an amount
which, when applied to reduce the outstanding principal amount of the Loan,
shall cause the outstanding principal amount of the Loan to be less than or
equal to the lesser of (A) 83.33% of the aggregate Projected Adjusted Lease
Balance on such Settlement Date of the Series 1998-C Leased Vehicles and (B)
such aggregate Projected Adjusted Lease Balance minus $25,000,000.
() Each payment made by the Borrower pursuant to paragraph (b) above
shall be paid by the Administrator to each Lender (on a pro rata basis based on
such Lender's Percentage) and shall be applied by such Lender, first, to the
payment of accrued and unpaid Discount, second, to the payment of fees and other
amounts due and payable, and, third, to the reduction of such Lender's portion
of the outstanding principal amount of the Loan. Loan principal repaid may not
be reborrowed.
() Notwithstanding anything contained in this Section 1.3, on each
Business Day following the occurrence of an Event of Default, the Borrower shall
deposit to the Administration Account, for application as provided in paragraph
(c) above, all Collections with respect to the Series 1998-C Assets for the
previous Business Day.
Section .. Fees. The Borrower shall pay to the Lenders fees in
amounts and at the times set forth in the Fee Letter.
Section .. Payments and Computations, Etc.
() All amounts to be paid or deposited by the Borrower hereunder shall
be paid or deposited no later than 12:00 Noon (New York City time) on the day
when due in same day funds to the Administration Account.
() On and after the occurrence of an Event of Default and during the
continuance thereof, the Borrower shall, to the extent permitted by law, pay on
demand from time to time interest on any overdue amount hereunder at an interest
rate per annum equal to 2% per annum above the then current interest rate on the
outstanding Loan; provided, however, that no provision of this Agreement shall
require the payment or permit the collection of Discount or any other interest
in excess of the maximum permitted by applicable law; and provided further, that
for any such amount paid shall not be considered paid to the extent that at any
time all or a portion of such payment is rescinded or must otherwise be returned
for any reason.
() Except as otherwise provided herein, all computations of interest,
the Program Fee, other fees and other amounts hereunder shall be made on the
basis of a year of 360 days and the actual number of days elapsed and such
computations by the Administrator shall be binding on the parties hereto absent
manifest error. Whenever any payment or deposit to be made hereunder shall be
due on a day other than a Business Day, such payment or deposit shall be made on
the next succeeding Business Day (unless otherwise specified therein) and such
extension of time shall be included in the computation of such payment or
deposit.
() Unless otherwise indicated to the contrary, a decimal resulting from
any calculation under this Agreement will be carried out to the tenth place, a
percentage resulting from any calculation under this Agreement will be carried
out such that there are ten digits in such percentage and a dollar amount used
in or resulting from any calculation will be rounded to the nearest cent (with
one half cent being rounded upward).
Section .. Prepayments.
() The Borrower shall be entitled to voluntarily prepay the Loan, in
whole or in part, on any Settlement Date; provided, however, that the
Administrator shall have received prior irrevocable written notice of such
prepayment at least thirty (30) days (or such shorter period of time as the
Administrator may agree to in its sole discretion) prior to the date of such
prepayment. Notwithstanding the foregoing, the Borrower shall be entitled to
prepay the Loan in full after the occurrence of an Event of Default upon one (1)
Business Day's notice to the Administrator. For purposes of this paragraph, the
term "prepayment" shall not include payments made on each Settlement Date
pursuant to Section 1.3.
() In the case of a prepayment of the Loan by the Borrower pursuant to
paragraph (a) above, the Borrower shall, on the date of such prepayment, (1) pay
to the Administrator, for the account of the Lenders, an amount equal to the sum
of (i) the principal portion of the Loan to be prepaid on such date, plus (ii)
the accrued and unpaid Discount on the Loan through such date plus (iii) all
other amounts due to the Lenders hereunder, including without limitation any
Broken Funding Costs and other expenses, if any (including, without limitation,
attorneys' fees and disbursements, costs, accrued interest or discount in
terminating, closing out or transferring any agreements such as interest rate
swaps, interest rate cap agreements, over-the-counter forward agreements and
futures contracts), in connection with any Lender's funding or maintenance of
the Loan which arise as the result of such prepayment.
Section .. Grant of the Security Interest.
() As collateral security for the prompt and complete payment of
principal of and interest on the Loan and all other amounts owing the
Administrator and the Lenders hereunder and under the Loan Note and the other
Transaction Documents (the "Secured Obligations") and for the prompt and
complete performance when due of all the Borrower's obligations to the
Administrator and the Lenders under this Agreement and the other Transaction
Documents and in order to induce the Administrator and the Lenders to enter into
this Agreement and make the Loan in accordance with the terms hereof, the
Borrower hereby assigns, pledges and grants to the Administrator, for the
benefit of the Lenders, a security interest in all rights, title and interest of
the Borrower, whether now existing or hereafter acquired or arising, in and to
the Collateral and all proceeds thereof.
() The Borrower shall physically deliver, or cause to be physically
delivered, to the possession of the Administrator the original Certificate. The
Certificate shall be held by the Administrator for the benefit of the Lenders.
The Administrator shall return to the Borrower the Certificate upon and subject
to the termination of this Agreement and indefeasible payment in full by the
Borrower of the Loan, all Discount (accrued or to accrue) with respect to the
Loan and all other amounts payable to the Administrator and the Lenders.
Section .. Inability to Determine Eurodollar Rate.
In the event that the Administrator shall have determined prior to the
first day of any Settlement Period (which determination shall be conclusive and
binding upon the parties hereto) by reason of circumstances affecting the
interbank Eurodollar market, either (a) dollar deposits in the relevant amounts
and for the relevant Settlement Period are not available, (b) adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Settlement Period or (c) the Eurodollar Rate determined pursuant hereto does not
accurately reflect the cost (as conclusively determined by the Administrator) of
maintaining any portion of the Loan during such Settlement Period, the
Administrator shall promptly give telephonic notice of such determination,
confirmed in writing, to the Seller prior to the first day of such Settlement
Period. Upon delivery of such notice (a) no portion of the Loan shall be funded
thereafter at the Alternate Rate determined by reference to the Eurodollar Rate,
unless and until the Administrator shall have given notice to the Borrower that
the circumstances giving rise to such determination no longer exist, and (b)
with respect to any outstanding portions of the Loan then funded at the
Alternate Rate determined by reference to the Eurodollar Rate, such Alternate
Rate shall automatically be converted to the Alternate Rate determined by
reference to the Base Rate at the respective last days of the then current
Settlement Periods relating to such portions of the Loan.
ARTICLE .
[Intentionally Omitted]
ARTICLE .
REPRESENTATIONS AND WARRANTIES
Section .. Borrower Representations and Warranties. The
Borrower hereby represents and warrants to the Administrator and each of the
Lenders that:
() Corporate Existence and Power. The Borrower is a corporation validly
organized and existing and in good standing under the laws of the state of its
incorporation, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the nature of its business
requires such qualification other than those in which its failure to so qualify
would not have a Material Adverse Effect. The Borrower has full power and
authority and holds all requisite governmental licenses, permits and other
approvals, except to the extent that failure to hold such licenses, permits and
approvals would not have a Material Adverse Effect, to enter into and perform
its obligations under the Transaction Documents and to own and hold under lease
its property and to conduct its business as currently proposed to be conducted.
() Non-Contravention, Due Authorization, Etc. The execution, delivery
and performance by the Borrower of the Transaction Documents, the pledge and
assignment of a security interest in the Collateral and the Borrower's use of
the proceeds of the Loan made hereunder, are within its corporate powers, have
been duly authorized by all necessary corporate action, do not: (i) contravene
the Borrower's certificate of incorporation, by-laws, or any shareholder
agreements, voting trusts, and similar arrangements applicable to any of its
authorized shares, (ii) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or affecting the
Borrower, or (iii) result in, or require the creation or imposition of, any lien
on any of the Borrower's properties except the lien created by this Agreement.
No transaction contemplated hereby requires compliance with any bulk sales act
or similar law.
() Governmental Authorization. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority or
regulatory body or other Person is required for the due execution, delivery and
performance by the Borrower of the Transaction Documents to which it is a party.
() Binding Effect. Each of the Transaction Documents to which the
Borrower is a party has been duly authorized, executed and delivered by the
Borrower. Each of such Transaction Documents constitutes the legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws of
general applicability and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
() Accuracy of Information. All information heretofore furnished by the
Borrower to the Administrator or any Lender for purposes of or in connection
with the Transaction Documents or any transaction contemplated thereby is, and
all such information hereafter furnished by the Borrower to the Administrator or
any Lender will be, true and accurate in every material respect, on the date
such information is stated or certified and does not and will not contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
() Use of Proceeds. The proceeds of the Loan will not be used (i) for a
purpose which violates, or would be inconsistent with, Regulation T, U or X
promulgated by the Board of Governors of the Federal Reserve System from time to
time or (ii) to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
() Holder of Title. As of the Closing Date, the Borrower will be the
holder of all right, title and interest in and to the Collateral, free from any
Adverse Claim, and the Borrower shall defend the Administrator's and the
Lenders' security interest in the Collateral against all claims and demands of
all Persons at any time claiming the same or any interest therein adverse to
that of the Administrator and the Lenders.
() Certificate. The Certificate has been duly and validly authorized,
and, when executed and authenticated in accordance with the terms of the Trust
Agreement and the Supplement, and delivered to and paid for by the Borrower in
accordance with the Contribution Agreement, will be duly and validly issued and
outstanding, and will be entitled to the benefits of the Trust Agreement and the
Supplement.
() Litigation. There is no pending or, to the Borrower's knowledge,
threatened action, suit or proceeding by or against the Borrower before any
Governmental Authority or any arbitrator with respect to the Transaction
Documents or any of the transactions contemplated therein, or with respect to
the Borrower.
() Taxes, etc. Any taxes, fees and other charges of Governmental
Authorities applicable to the Borrower, except for franchise or income taxes, in
connection with the execution, delivery and performance by the Borrower of the
Transaction Documents or otherwise applicable to the Borrower in connection
therewith have been paid or will be paid by the Borrower at or prior to the
Closing Date to the extent then due.
() Financial Condition of the Borrower. On the date hereof, the
Borrower is solvent, is not the subject of any voluntary or involuntary
receivership or conservatorship proceeding and will not become insolvent as
a result of the transactions contemplated by this Agreement.
() Places of Business. The principal place of business and chief
executive office of the Borrower is located at the address listed on Exhibit II
or such other location notified to the Administrator in accordance with Section
5.2(a) in jurisdictions where all action required by Section 5.2(a) has been
taken and completed. The Borrower's Federal Employer Identification Number is
correctly set forth on Exhibit II.
() Material Adverse Effect. Since September 30, 1998 to the date of
this Agreement, no event has occurred which could have a Material Adverse
Effect.
() Transfer by the Transferor. The transfer of the Certificate and
the related assets pursuant to the Contribution Agreement from PHH VMS to the
Borrower was not made for or on account of an antecedent debt and is not
voidable under any section of Title 11 of the United States Code (11 U.S.C.
ss.ss. 101 et. seq.), as amended.
() Ownership of the Borrower. As of the Closing Date the Guarantor
owns, directly or indirectly, 100% of the issued and outstanding capital stock
of PHH VMS and the Borrower, free and clear of any Adverse Claim. PHH VMS owns,
directly or indirectly, 100% of the issued and outstanding capital stock of the
Borrower, free and clear of any Adverse Claim. All such capital stock is validly
issued, fully paid and nonassessable, and there are no outstanding options,
warrants or other rights to acquire securities of the Borrower.
() Not an Investment Company. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended from time to time, or any
successor statute.
() Year 2000 Plan. The Borrower has reviewed areas within its business
and operations which could be adversely affected by, and has developed a plan (a
"Year 2000 Plan") to address on a timely basis, the Year 2000 Problem. The
Borrower is taking all actions necessary to meet the schedule and goals of its
Year 2000 Plan, and do not anticipate that the Year 2000 Problem will have a
Material Adverse Effect.
() Administrator's Security Interest. At the time of and immediately
after the making of the Loan and at all times thereafter, the Administrator will
have, for the benefit of the Lenders, a first priority perfected security
interest in the Collateral and the proceeds thereof, free and clear of any
Adverse Claims.
() Lock-Boxes. All Lessees have been instructed to make payments on all
the Series 1998-C Leases to one or more Lock-Boxes and no Person other than the
Administrative Agent and The First National Bank of Maryland, as trustee, has
been granted dominion or control of any Lock-Box, Lock-Box Account or Collection
Account or the right to take such dominion or control.
ARTICLE .
CONDITIONS OF LOAN
Section .. Conditions Precedent to the Loan. The making of the Loan
under this Agreement is subject to the conditions precedent (which conditions
precedent shall be satisfactory in form and substance to the Administrator)
that:
() the Administrator shall have completed its audit of PHH VMS's
operations and shall be reasonably satisfied with the results of such audit;
() the Administrator shall have received on or before the Closing Date
those agreements, opinions and other documents listed on Schedule I;
() the Administrative Agent shall have marked its master data
processing records to evidence the inclusion of the Series 1998-C Leases
and the Series 1998-C Leased Vehicles in the Trust and the interest of the
Administrator on behalf of the Lenders therein;
() the Administrator and the Lenders shall have been paid all fees and
expenses required to be paid on the Closing Date pursuant to the terms hereof
and of the Fee Letter;
() on the Closing Date, the following statements shall be true both
before and after giving effect to the making of the Loan (and acceptance of the
proceeds of the Loan shall be deemed a representation and warranty by the
Borrower that such statements are then true):
() the representations and warranties set forth in Section 3.1 are
true and correct on and as of the Closing Date as though made on and as of the
Closing Date;
() no event has occurred and is continuing, or would result from the
making of the Loan, that will constitute an Event of Default or a Potential
Event of Default;
() the principal amount of the Loan shall not exceed the least of (x)
the Maximum Loan, (y) 83.33% of the aggregate Projected Adjusted Lease Balance
of the Series 1998-C Leased Vehicles as of November 30, 1998 and (z) such
aggregate Projected Adjusted Lease Balance, minus $25,000,000; and
() At least ninety nine percent of the Series 1998 C Leased Vehicles
were new at the inception of the Series 1998 C Lease associated with each
such Series 1998 C Leased Vehicle.
() the Administrator shall have received such other approvals, opinions
or documents as it may reasonably request.
Section 4.2. Conditions Subsequent to the Loan. The Borrower shall,
within 30 days of the date of this Agreement, deliver to the Administrator, (a)
a Lockbox Agreement and (b) an insurance certificate showing that the Borrower
and the Administrator, for the benefit of the Lenders, are additional insureds
on Cendant Corporation's Commercial Auto Coverage insurance policy with respect
to bodily injury and property damage claims caused by accidents and resulting
from the ownership, maintenance or use of any Series 1998 C Leased Vehicle.
ARTICLE .
COVENANTS
Section .. Affirmative Covenants of Borrower. Until the date on
which the Secured Obligations have been indefeasibly paid in full, the Borrower
hereby covenants that:
() Financial Reporting. The Borrower will maintain a system of
accounting established and administered in accordance with
generally accepted accounting principles, and furnish to the
Administrator:
() Annual Reporting. Within 95 days after the close of each of its
Fiscal years, balance sheets as at the close of such fiscal year
and statements of income and retained earnings and a statement of
cash flows for such fiscal year of the Borrower, prepared in
accordance with generally accepted accounting principles and
prepared and certified by its chief financial officer.
() Quarterly Reporting. Within 50 days after the close of the
first three quarterly periods of each of its fiscal years, balance
sheets as at the close of each such period and statements of income and
retained earnings and a statement of cash flows for the period from the
beginning of such fiscal year to the end of such quarter of the
Borrower, prepared in accordance with generally accepted accounting
principles and certified by its chief financial officer.
() Compliance Certificate. Together with the financial
statements required hereunder, a compliance certificate in
substantially the form of Exhibit IV signed by the Borrower's chief
financial officer and dated the date of such annual financial statement
or such quarterly financial statement, as the case may be.
() Notices under Transaction Documents. Forthwith upon its
receipt of any notice, amendment, request for consent, financial
statements, certification, report or other communication under or in
connection with any Transaction Document from any Person other than the
Administrator, copies of the same, unless the Administrator is
otherwise entitled to receive the same pursuant to such Transaction
Document.
() Other Information. Such other information (including non-
financial information) as the Lender may from time to time reasonably
request.
() Notices. The Borrower will notify the Administrator in writing of
any of the following immediately upon learning of the occurrence
thereof, describing the same and, if applicable, the steps being taken
with respect thereto:
() Events of Default or Potential Events of Default. The occurrence
of each Event of Default or each Potential Event of Default.
() Judgment. The entry of any judgment or decree against the Borrower.
() Litigation. The institution of any litigation, arbitration
proceeding or governmental proceeding against the Borrower or in which
the Borrower becomes a defendant or respondent.
() Change in Credit and Collection Practices. Any material amendment
or other material modification to the Credit and Collection Practices.
() Downgrades. The reduction, suspension or withdrawal of the
Guarantor's senior unsecured long-term debt rating by any rating
agency.
() Compliance with Laws. The Borrower will comply in all material
respects with all applicable laws, rules, regulations, orders writs,
judgments, injunctions, decrees or awards to which it may be subject.
() Audits. The Borrower will furnish to the Administrator from time to
time such information with respect to the Certificate as the Administrator may
reasonably request. The Borrower shall, from time to time during regular
business hours as requested by the Administrator upon reasonable notice, permit
the Administrator or its representatives (i) to examine and make copies of and
abstracts from all Records in the possession or under the control of the
Borrower relating to the Certificate and (ii) to visit the offices and
properties of the Borrower for the purpose of examining such materials described
in clause (i) above, and to discuss matters relating to the Borrower's financial
condition, the Certificate or the Borrower's performance hereunder and shall
permit and cooperate with an annual (or more frequently if an Event of Default
or Potential Event of Default has occurred) audit of the Borrower by the
Administrator and the independent accounts selected by the Administrator.
() Lenders' Reliance. The Borrower acknowledges that the Administrator
and the Lenders are entering into the transactions contemplated by this
Agreement in reliance upon the Borrower's identity as a legal entity that is
separate from the Guarantor and PHH VMS. Therefore, from and after the date of
execution and delivery of this Agreement, the Borrower shall take all reasonable
and, in any event, necessary steps (including, without limitation, all steps
that the Administrator or any Lender may from time to time reasonably request)
to maintain the Borrower's identity as a separate legal entity and to make it
manifest to third parties that the Borrower is an entity with assets and
liabilities distinct from those of the Guarantor, PHH VMS and any Affiliates of
either thereof (the "PHH Entities") and not just a division of any thereof.
Without limiting the generality of the foregoing and in addition to the other
covenants set forth herein, the Borrower shall:
() conduct its own business in its own name and require that
all full-time employees of the Borrower, if any, identify themselves as
such and not as employees of a PHH Entity (including, without
limitation, by means of providing such employees with business or
identification cards identifying such employees as the Borrower's
employees);
() compensate all employees, consultants and lenders directly,
from the Borrower's bank accounts, for services provided to the
Borrower by such employees, consultants and lenders and, to the extent
any employee, consultant or lender of the Borrower is also an employee,
consultant or lender of a PHH Entity, allocate the compensation of such
employee, consultant or lender between the Borrower and such PHH Entity
on a basis which reflects the services rendered to the Borrower and
such PHH Entity;
() clearly identify its offices, if any, (by signage or
otherwise) as its offices and, if such office is located in the offices
of a PHH Entity, the Borrower shall lease such office at a fair market
rent;
() conduct all transactions with PHH Entities strictly on an
arm's-length basis, and allocate all overhead expenses (including,
without limitation, telephone and other utility charges) for items
shared between the Borrower and any PHH Entity on the basis of actual
use to the extent practicable and, to the extent such allocation is not
practicable, on a basis reasonably related to actual use;
() at all times have at least one member of its Board of Directors
who is an "Independent Director" as provided in the Borrower's
Certificate of Incorporation as in effect on the date hereof;
() observe all corporate formalities as a distinct entity, and
ensure that all corporate actions relating to (A) the selection,
maintenance or replacement of the Independent Director, (B) the
dissolution or liquidation of the Borrower or (C) the initiation or
participation in, acquiescence in or consent to any bankruptcy,
insolvency, reorganization or similar proceeding involving the
Borrower, are duly authorized by unanimous vote of its Board of
Directors (including the Independent Director);
() maintain the Borrower's books and records separate from
those of any PHH Entity and cause its assets to be readily identifiable
as its own assets rather than assets of a PHH Entity; provided,
however, that the commingling by the Trust of Collections relating to
the Series 1998-C Assets and other assets in the Trust (as such term is
defined in the Trust Agreement) shall not violate this provision;
() prepare its financial statements separately from those of
the PHH Entities and insure that any consolidated financial statements
of the PHH Entities that include the Borrower have notes clearly
stating that the Borrower is a separate corporate entity and that its
assets will be available first and foremost to satisfy the claims of
the creditors of the Borrower;
() except as specifically otherwise provided in the
Transaction Documents, not commingle funds or other assets of the
Borrower with those of any PHH Entity and not maintain bank accounts or
other depository accounts to which any PHH Entity is an account party,
into which any PHH Entity makes deposits or from which any PHH Entity
has the power to make withdrawals, except in its capacity as
Administrative Agent; and
() not permit any PHH Entity to pay any of the Borrower's operating
expenses.
() Retitling. If requested by the Administrator, the Borrower shall
require, in accordance with Section 2.10 of the Trust Agreement, that each
certificate of title relating to a Series 1998-C Leased Vehicle be retitled in
the name of the Borrower, that Administrator, for the benefit of the Lenders, be
noted on such certificate as the sole lienholder with respect thereto and that,
if requested by the Administrator, such certificates be transferred to the
possession of the Administrator if the rating of the Guarantor's senior
unsecured long-term debt by each of Moody's Investor's Service, Inc. and
Standard & Poor's Rating Group is reduced (or suspended or withdrawn) to or
drops below "Baa3" and "BBB-", respectively; provided, however, that if the
Borrower fails to take such action, the Administrator shall have the right to do
so in accordance with Section 2.10 of the Trust Agreement.
() Provision of Information. If requested by the Administrator, the
Borrower shall cause the Administrative Agent to furnish to the Administrator or
any representative of the Administrator copies of any and all of the Records or
Lease Files relating to the Series 1998-C Assets, Series 1998-C Leases or any
portion of the Collateral.
() Maryland Opinion. The Borrower agrees to cause its Maryland counsel
to deliver to the Administrator and each Lender within 30 days of the date
hereof an opinion as to the perfection of the Administrator's (for the benefit
of the Lenders) security interest hereunder to the extent constituting general
intangibles, in form and substance reasonably satisfactory to the Administrator.
Section .. Negative Covenants of Borrower. Until the date on
which the Secured Obligations have been indefeasibly paid in full, the Borrower
hereby covenants that:
() Name Change, Offices, Records and Books of Accounts. The Borrower
will not change its name, identity or corporate structure (within the meaning of
Section 9-402(7) of any applicable enactment of the UCC) or relocate its
principal place of business or chief executive office unless it shall have: (i)
given the Administrator at least 45 days prior notice thereof and (ii) taken all
actions required of each relevant jurisdiction in order to continue the first
priority perfected security interest of the Administrator, for the benefit of
the Lenders, in the Collateral.
() Sales, Liens, Etc. The Borrower shall not sell, assign (by operation
of law or otherwise) or otherwise dispose of, or grant any option with respect
to, or create or suffer to exist any Adverse Claim upon the Certificate except
in favor of the Administrator, and the Borrower shall defend the right, title
and interest of the Administrator in, to and under any of the Certificate,
against all claims of third parties.
() Nature of Business; Other Agreements; Other Indebtedness. The
Borrower shall not engage in any business or activity of any kind or enter into
any transaction or indenture, mortgage, instrument, agreement, contract, lease
or other undertaking, in each case other than the transactions contemplated and
authorized by the Transaction Documents. Without limiting the generality of the
foregoing, the Borrower shall not create, incur, guarantee, assume or suffer to
exist any indebtedness or other liabilities, whether direct or contingent, other
than:
() as a result of the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business,
() the incurrence of obligations under this Agreement,
() the incurrence of obligations, as expressly contemplated in the
Contribution Agreement, to make payment to PHH VMS thereunder for the purchase
of the Certificate from PHH VMS under the Contribution Agreement, and
() the incurrence of operating expenses in the ordinary course of
business of the type otherwise contemplated in Section 5.1(e).
() Amendments to Transaction Documents. The Borrower shall not, without
the prior written consent of the Administrator (which consent shall be at the
Administrator's sole discretion):
() cancel or terminate the Contribution Agreement,
() give any consent, waiver, directive or approval under the
Contribution Agreement, Trust Agreement, Administrative Agency Agreement or
the Supplement, if such action could have a Material Adverse Effect,
() waive any default, action, omission or breach under the
Contribution Agreement, Trust Agreement, Administrative Agency Agreement, or
the Supplement, or otherwise grant any indulgence thereunder, if such action
could have a Material Adverse Effect, or
() amend, supplement or otherwise modify any of the terms of the
Contribution Agreement or consent to the amendment, supplement, or other
modification of any of the terms of the Trust Agreement, the Supplement, or
the Administrative Agency Agreement or any other Transaction Document, if
such action could have a Material Adverse Effect.
() Amendments to Corporate Documents. Without the prior written consent
of the Administrator, the Borrower shall not amend its certificate of
incorporation or its by-laws in any respect that would impair its ability to
comply with the terms or provisions of any of the Transaction Documents,
including, without limitation, Section 5.1(e).
() Merger. The Borrower shall not merge or consolidate with or into,
or convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all of the
assets of, any Person.
() Extension or Amendment of Receivables. The Borrower shall not (or
allow the Administrative Agent to) extend, amend or otherwise modify the terms
of any Series 1998-C Lease; provided, however, that so long as no Event of
Default has occurred and is continuing, the Borrower (or the Administrative
Agent on its behalf) may, in accordance with the Credit and Collection
Practices, extend or otherwise modify the terms of any Defaulted Lease in order
to maximize Collections thereon so long as such extension or modification does
not involve an extension of the maturity date of any Series 1998-C Leased
Vehicle beyond 60 months from its origination.
() Change in Payment Instructions to Obligors; Change in Collection
Account Bank. The Borrower shall not (or allow the Administrative Agent to) add
or terminate any Lock-Box or Lock-Box Account, modify any Lock-Box Account
Agreement or make any change in its instructions to Lessees regarding
Collections, unless (i) the Administrator shall have received notice of such
termination or change and duly executed counterparts of the related Lock-Box
Account Agreement with any amendments, supplements or other modifications
thereto (which shall be in form and substance acceptable to the Administrator)
and (ii) the Administrator previously shall have consented in writing to such
addition, termination or change.
ARTICLE .
EVENTS OF DEFAULT
Section .. Events of Default. The occurrence of any one or more
of the following events shall constitute an event of default (each an "Event of
Default"):
() The Administrative Agent, the Guarantor or the Borrower shall
fail to make any payment or deposit when required under any Transaction Document
and such failure shall continue for three (3) Business Days;
() Any representation, warranty or certification made by the Borrower,
the Guarantor or the Administrative Agent in any Transaction Document or in any
other document delivered pursuant hereto shall prove to have been incorrect in
any material respect when made; provided, however, that a breach of any
representation or warranty with respect to any Series 1998 B Lease being an
Eligible Lease shall not be an Event of Default hereunder if such contract is
timely substituted or repurchased pursuant to Section 5.1 of the Supplement;
() The Borrower, the Guarantor or the Administrative Agent shall fail
to perform or observe any covenant or other similar term or agreement under any
Transaction Document (other than as referred to in any other subsection of this
Section 6.1) and such failure shall remain unremedied for five (5) Business Days
after the Borrower, the Guarantor or the Administrative Agent, as the case may
be, has notice or knowledge thereof;
() (i) The Borrower, the Guarantor or the Administrative Agent shall
generally not pay its debts as such debts become due; (ii) the Borrower, the
Guarantor or the Administrative Agent shall admit in writing its inability to
pay its debts generally or shall make a general assignment for the benefit of
creditors; (iii) any proceeding shall be instituted by the Borrower, the
Guarantor or the Administrative Agent seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its
property; (iv) the Borrower, the Guarantor or the Administrative Agent shall
take any corporate action to authorize any of the actions set forth above in
clause (ii) or (iii) of this subsection (d); or (v) any proceeding of the type
described in clause (iii) of this subsection (d) shall be instituted against the
Borrower, the Guarantor or the Administrative Agent and shall not be withdrawn,
vacated or dismissed within 60 days after the commencement thereof;
() Failure of the Borrower, the Administrative Agent or the Guarantor
to pay any Indebtedness when due; or the default by the Borrower, the
Administrative Agent or the Guarantor in the performance of any term, provision
or condition contained in any agreement under which any Indebtedness was created
or is governed, the effect of which is to cause or permit the holder or holders
of such Indebtedness to cause, such Indebtedness to become due prior to its
stated maturity; or any such Indebtedness of the Borrower, the Administrative
Agent or the Guarantor shall be declared to be due and payable or required to be
prepaid (other than by a regularly scheduled payment) prior to the date of
maturity thereof; provided, however, that, in the case of the Administrative
Agent or the Guarantor, the aggregate principal amount of any such Indebtedness
is in excess of $25,000,000;
() The rating of the Guarantor's senior unsecured long-term debt by
Moody's Investor's Service, Inc. and Standard & Poor's Rating Group is reduced
(or suspended or withdrawn) below "Baa3" and "BBB-", respectively;
() Failure of the Certificate to represent a 100% beneficial interest
in the Series 1998-C Assets free and clear of any Adverse Claims;
() The Borrower grants or suffers to exist any Adverse Claim on the
Collateral or the proceeds thereof or the Administrator's security interest in
the Collateral or the proceeds thereof is not a first priority perfected
security interest therein free of any Adverse Claims;
() The Delinquency Ratio shall exceed 6.0% for any two consecutive
Collection Periods;
() The Default Ratio shall exceed 8.0% as of the last day of any
Collection Period;
() Any Transaction Document shall cease to be in full force and effect
or is withdrawn, revoked or otherwise amended without the consent of the
Administrator;
() PHH VMS shall fail to own, directly or indirectly, 100% of the
Capital Stock of the Borrower;
() A final judgment or judgments for the payment of money shall be
rendered against Borrower by one or more courts, administrative tribunals or
other bodies having jurisdiction over it and the same shall not be discharged
(or provision shall not be made for such discharge) or bonded, or a stay of
execution thereof shall not be procured, within 60 days from the date of entry
thereof and the Borrower, shall not, within said period of 60 days, or such
longer period during which execution of the same shall have been stayed or
bonded, appeal therefrom and cause the execution thereof to be stayed during
such appeal;
() The Borrower's Net Worth shall be less than $25,000,000 at any time;
() From and after the earlier of (i) the delivery of an insurance
certificate pursuant to Section 4.2 or (ii) 30 days from the date of this
Agreement, the Borrower and the Administrator, for the benefit of the Lenders,
shall not be additional insureds on Cendant Corporation's Commercial Auto
Coverage insurance policy with respect to bodily injury or property damage
claims caused by accidents and resulting from the ownership, maintenance or use
of any Series 1998-C Leased Vehicle; or
() The outstanding principal amount of the loan shall exceed the lesser
of (i) 83.33% of the aggregate Projected Adjusted Lease Balance of the Series
1998-C Leased Vehicles and (ii) such Adjusted Lease Balance minus $25,000,000,
at any time and such condition shall remain unremedied for two (2) Business
Days.
Section .. Remedies.
() If an Event of Default specified in clause (ii), (iii) or (iv) of
paragraph (d) of Section 6.1 occurs, the Loan (with accrued interest thereon)
and all other amounts owing under this Agreement and the other Transaction
Documents shall immediately and automatically become due and payable, and if any
other Event of Default shall occur, with the consent of the Required Lenders,
the Administrator may, or upon the request of the Required Lenders, the
Administrator shall, by notice to the Borrower, declare the Loan (with accrued
interest thereon) and all other amounts owing under this Agreement and the other
Transaction Documents to be due and payable forthwith, whereupon the same shall
immediately become due and payable. Presentment, demand, protest and all other
notices of any kind are hereby expressly waived.
() In addition to the rights and remedies specified in Section 6.2(a),
upon the occurrence of an Event of Default, the Administrator may, or upon the
request of the Required Lenders, the Administrator shall,
() designate as co-Administrative Agent with respect to the Series
1998-C Assets any Person and cause the Administrative Agent to provide such
Person access to the Lease Files (as defined in the Administrative Agency
Agreement) with respect to the Series 1998-C Leases;
() cause the Administrative Agent to segregate from other assets of
the Administrative Agent, and deposit into an account designated by the
Administrator within one Business Day of receipt by the Administrative Agent,
Collections with respect to the Series 1998-C Assets;
() obtain physical possession of the Records and all other files of
the Borrower relating to the Collateral and all documents relating to the
Collateral which are then or may thereafter come in to the possession of the
Borrower or any third party acting for the Borrower and the Borrower shall
deliver to the Administrator such assignments and take such action and
execute such documents and endorsements as the Administrator shall request;
() cause the certificates of title relating to the Series 1998-C Leased
Vehicles to show the Administrator, for the benefit of the Lenders, as the sole
lienholder with respect thereto; or
() exercise, in addition to all other rights and remedies granted to
it in this Agreement and in the other Transaction Documents, all rights and
remedies of a secured party under the UCC in any applicable jurisdiction.
() Without limiting the generality of the foregoing, the Administrator
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Borrower or any other Person (all and each of which
demands, presentments, protests, advertisements and notices are hereby waived),
may in such circumstances forthwith collect, receive, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell, lease,
assign, give an option or options to purchase, or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels or as an entirety at public or private sale
or sales, at any exchange, broker's board or office of the Administrator or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrator or any Lender shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Borrower,
which right or equity is hereby waived or released. The Administrator shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of the Collateral
or in any way relating to the Collateral or the rights of the Administrator and
the Lenders hereunder, including, without limitation, reasonable attorneys' fees
and disbursements, to the payment in whole or in part of the Secured
Obligations, in such order as the Administrator may elect, and only after such
application and after the payment by the Administrator of any other amount
required or permitted by any provision of law, including, without limitation,
Section 9-504(1)(c) of the UCC, need the Administrator account for the surplus,
if any, to the Borrower. To the extent permitted by applicable law, the Borrower
waives all claims, damages and demands it may acquire against the Administrator
or the Lenders arising out of the exercise by the Administrator or any Lender of
any of the rights hereunder, other than those claims, damages and demands
arising from the gross negligence or willful misconduct of the Administrator. If
any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least ten (10) days before such sale or other disposition. The Borrower shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Secured Obligations
and the reasonable fees and disbursements of any attorneys employed by the
Administrator or any Lender to collect such deficiency.
() No right or remedy herein conferred upon or reserved to the
Administrator or the Lenders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent or subsequent assertion or employment of any other appropriate right
or remedy.
() No delay or omission by the Administrator or any Lender to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Section 6.2 or by law
to the Administrator or the Lenders may be exercised from time to time, and as
often as may be deemed expedient, by the Administrator or the Lenders.
() Subject to Section 11.1, the Administrator, with the consent of each
Lender, by written notice to the Borrower may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
ARTICLE .
THE ADMINISTRATOR
Section .. Authorization and Action. Each Lender hereby designates and
appoints BofA to act as its agent hereunder and under each other Transaction
Document, and authorizes the Administrator to take such actions as agent on its
behalf and to exercise such powers as are delegated to the Administrator by the
terms of this Agreement and the other Transaction Documents together with such
powers as are reasonably incidental thereto. The Administrator shall not have
any duties or responsibilities, except those expressly set forth herein or in
any other Transaction Document, or any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Administrator shall be read into this Agreement
or any other Transaction Document or otherwise exist for the Administrator. In
performing its functions and duties hereunder and under the other Transaction
Documents, the Administrator shall act solely as agent for the Lenders and does
not assume nor shall be deemed to have assumed any obligation or relationship of
trust or agency with or for the Borrower or any of its successors or assigns.
The Administrator shall not be required to take any action which exposes the
Administrator to personal liability or which is contrary to this Agreement, any
other Transaction Document or applicable law. The appointment and authority of
the Administrator hereunder shall terminate upon the indefeasible payment in
full of all the Secured Obligations. Each Lender hereby authorizes the
Administrator to execute on behalf of such Lender (the terms of which shall be
binding on such Lender) each of the UCC financing statements, together with such
other instruments or documents determined by the Administrator to be necessary
or desirable in order to perfect, evidence or more fully protect the interest of
the Lenders contemplated hereunder.
Section .. Delegation of Duties. The Administrator may execute any of
its duties under this Agreement and each other Transaction Document by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrator shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
Section .. Exculpatory Provisions. Neither the Administrator nor any of
its directors, officers, agents or employees shall be (i) liable for any action
lawfully taken or omitted to be taken by it or them under or in connection with
this Agreement or any other Transaction Document (except for its, their or such
Person's own gross negligence or willful misconduct), or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Borrower contained in this Agreement, any other
Transaction Document or any certificate, report, statement or other document
referred to or provided for in, or received under or in connection with, this
Agreement or any other Transaction Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, or
any other Transaction Document or any other document furnished in connection
herewith or therewith, or for any failure of the Borrower to perform its
obligations hereunder or thereunder, or for the satisfaction of any condition
specified in Article IV, or for the perfection, priority, condition, value or
sufficiency or any collateral pledged in connection herewith. The Administrator
shall not be under any obligation to any Lender to ascertain or to inquire as to
the observance or performance of any of the agreements or covenants contained
in, or conditions of, this Agreement or any other Transaction Document, or to
inspect the properties, books or records of the Borrower. The Administrator
shall not be deemed to have knowledge of an Event of Default or Potential Event
of Default unless the Administrator has received notice from the Borrower or a
Lender.
Section .. Reliance by Administrator. The Administrator shall in all
cases be entitled to rely, and shall be fully protected in relying, upon any
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the
Administrator. The Administrator shall in all cases be fully justified in
failing or refusing to take any action under this Agreement or any other
Transaction Document unless it shall first receive such advice or concurrence of
any Lender or all of the Lenders; as applicable, as it deems appropriate and it
shall first be indemnified to its satisfaction by the Lenders, provided,
however, that unless and until the Administrator shall have received such
advice, the Administrator may take or refrain from taking any action, as the
Administrator shall deem advisable and in the best interests of the Lenders. The
Administrator shall in all cases be fully protected in acting, or in refraining
from acting, in accordance with a request of any Lender or all of the Lenders,
as applicable, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders.
Section .. Non-Reliance on Administrator and Other Lenders. Each Lender
expressly acknowledges that neither the Administrator, nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Administrator
hereafter taken, including, without limitation, any review of the affairs of the
Borrower, shall be deemed to constitute any representation or warranty by the
Administrator. Each Lender represents and warrants to the Administrator that it
has and will, independently and without reliance upon the Administrator or any
other Lender and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, prospects, financial and other conditions and
creditworthiness of the Borrower and made its own decision to enter into this
Agreement, the other Transaction Documents and all other documents related
hereto or thereto.
Section .. Administrator in its Individual Capacity. The Administrator
and its Affiliates may make loans to, accept deposits from and generally engage
in any kind of business with the Borrower or any Affiliate of the Borrower as
though the Administrator were not the Administrator hereunder. With respect to
the acquisition of a portion of the Loan pursuant to this Agreement, the
Administrator shall have the same rights and powers under this Agreement as any
Lender and may exercise the same as though it were not the Administrator, and
the terms "Lender" and "Lenders" shall include the Administrator in its
individual capacity.
Section .. Successor Administrator. The Administrator may, upon 10
days' notice to the Borrower and the Lenders, and the Administrator shall, upon
the direction of all of the Lenders (other than the Administrator, in its
individual capacity) resign as Administrator. If the Administrator shall resign,
then the Lenders during such 10-day period shall (with the consent of the
Borrower, which consent shall not be unreasonably withheld or delayed) appoint a
successor agent. If for any reason no successor Administrator is appointed by
the Lenders during such 10-day period, then effective upon the termination of
such 10-day period, the Lenders shall perform all of the duties of the
Administrator hereunder and under the other Transaction Documents and the
Borrower shall make all payments in respect of the Loan directly to the
applicable Lenders and for all purposes shall deal directly with the Lenders.
After the effectiveness of any retiring Administrator's resignation hereunder as
Administrator, the retiring Administrator shall be discharged from its duties
and obligations hereunder and under the other Transaction Documents and the
provisions of this Article VII shall continue in effect for its benefit with
respect to any actions taken or omitted to be taken by it while it was
Administrator under this Agreement and under the other Transaction Documents.
ARTICLE .
[Intentionally Omitted]
ARTICLE .
INDEMNIFICATION
Section .. Indemnities by the Borrower. Without limiting any other
rights which the Administrator or any Lender may have hereunder or under
applicable law, the Borrower hereby agrees to indemnify the Administrator and
each Lender and their respective officers, directors, agents and employees
(each, an "Indemnified Party") from and against any and all damages, losses,
claims, taxes, liabilities, costs, expenses and for all other amounts payable,
including reasonable attorneys' fees and disbursements (all of the foregoing
being collectively referred to as "Indemnified Amounts") awarded against or
actually incurred by any of them arising out of or as a result of this Agreement
or the transaction contemplated by this Agreement or the other Transaction
Documents; excluding, however:
() Indemnified Amounts to the extent a final judgment of a court
of competent jurisdiction holds such Indemnified Amounts resulted from gross
negligence or willful misconduct on the part of the Indemnified Party seeking
indemnification; or
() taxes, except as provided in Section 9.3;
provided, however, that nothing contained in this sentence shall limit the
liability of the Borrower or limit the recourse of the Borrower for amounts
otherwise provided to be paid by the Borrower under the terms of this Agreement.
Without limiting the generality of the foregoing indemnification, the Borrower
shall indemnify the Lenders for Indemnified Amounts relating to or resulting
from:
() any representation or warranty made by the Borrower (or any of its
respective officers) under or in connection with any Transaction Document, any
Monthly Report or any other written information or report delivered by the
Borrower, pursuant hereto or thereto, which shall have been false or incorrect
when made or deemed made;
() the failure by the Borrower to comply with any covenant made by it
in any Transaction Document;
() any failure of the Borrower to perform its duties or obligations
in accordance with the provisions of any Transaction Document;
() the failure to vest and maintain in the Administrator for the
benefit of the Lenders a valid first priority perfected security interest in the
Collateral, free and clear of any Adverse Claim;
() the failure of the Trust to have an ownership interest in the
Series 1998-C Assets free and clear of Adverse Claims, except for the lien-
holder interest of PHH VMS in the related Vehicles noted on the certificate of
title with respect thereto which interest has been transferred to the Borrower;
() any bodily injury or property damage claim caused by an accident
and resulting from the ownership, maintenance or use of any;
() the failure by the Borrower to comply with any applicable law,
rule or regulation with respect to any Series 1998-C Asset or Lease related
thereto, or the failure of any Series 1998-C Asset or Lease related thereto to
conform to any such applicable law, rule or regulations;
() any dispute, claim, offset or defense (other than discharge in bank-
ruptcy of the Lessee) of any Lessee to the payment of any Lease (including,
without limitation, a defense based on such Lease not being a legal, valid and
binding obligation of such Lessee enforceable against it in accordance with
its terms), or any other claim resulting from the lease of the related Vehicle
or service related to such Lease or the furnishing or failure to furnish such
Vehicle or services;
() the commingling of Collections of Series 1998-C Assets at any time
with other funds;
() any investigation, litigation or proceeding related to or arising0
from any Transaction Document, the transactions contemplated thereby, the use
of the proceeds of the Loan or the security interest in the Certificate or any
other investigation, litigation or proceeding relating to the Borrower in
which any Indemnified Party becomes involved as a result of any of the
transactions contemplated hereby or thereby;
() any failure of the Borrower to give reasonably equivalent value to
PHH VMS under the Contribution Agreement in consideration of the transfer by
PHH VMS of the Certificate, or any attempt by any Person to void any such
transfer under statutory provisions or common law or equitable action,
including, without limitation, any provision of the federal Bankruptcy Code,
11 U.S.C. ss. 101 et seq.; or
() a Year 2000 Problem with respect to hardware or software systems
used by the Borrower or the Administrative Agent; or
() reduction by the Borrower of the principal amount of the Loan.
Section .. Increased Cost and Reduced Return.
() If after the date hereof, any Funding Source shall be charged any
fee, expense or increased cost on account of the adoption of any applicable law,
rule or regulation (including any applicable law, rule or regulation regarding
capital adequacy) or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency (a "Regulatory Change"): (i)
which subjects any Funding Source to any charge or withholding on or with
respect to any Funding Agreement or a Funding Source's obligations under a
Funding Agreement, or on or with respect to the Certificate, or changes the
basis of taxation of payments to any Funding Source of any amounts payable under
any Funding Agreement (except for changes in the rate of tax on the overall net
income of a Funding Source) or (ii) which imposes, modifies or deems applicable
any reserve, assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account of a Funding
Source, or credit extended by a Funding Source pursuant to a Funding Agreement
or (iii) which imposes any other condition the result of which is to increase
the cost to a Funding Source of performing its obligations under a Funding
Agreement, or to reduce the rate of return on a Funding Source's capital as a
consequence of its obligations under a Funding Agreement, or to reduce the
amount of any sum received or receivable by a Funding Source under a Funding
Agreement or to require any payment calculated by reference to the amount of
interests or loans held or interest received by it, then, upon demand by the
Administrator, the Borrower shall pay to the Administrator, for the benefit of
the relevant Funding Source, such amounts charged to such Funding Source or
compensate such Funding Source for such reduction. If the Borrower is required
to make any payment to a Liquidity Purchaser pursuant to this subsection (a),
the Borrower may, but shall not be obligated to, replace such Liquidity
Purchaser with another financial institution (which shall be reasonably
acceptable to the Agent) having a short-term debt rating of A-1+ or better by
Standard & Poor's Ratings Group and P-1 by Moody's Investors Service, Inc. If a
Liquidity Purchaser is replaced pursuant to this subsection (a), the replacement
liquidity purchaser shall be deemed to be a Liquidity Purchaser and shall comply
with the provisions of Section 10.1(b) of this Agreement.
() Payment of any sum pursuant to Section 9.2(a) shall be made by the
Borrower to the Administrator, for the benefit of the relevant Funding Source,
not later than ten (10) days after any such demand is made. A certificate of any
Funding Source, signed by an authorized officer claiming compensation under this
Section 9.2 and setting forth the additional amount to be paid for its benefit
and explaining the manner in which such amount was determined shall constitute
prima facie evidence of the amount to be paid.
Section .. No Withholding or Other Taxes.
() Any and all payments by the Borrower hereunder shall be made free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all interest,
penalties, additions, or liabilities with respect thereto, excluding, in the
case of each Lender and the Administrator, net income taxes that are imposed by
the United States and franchise taxes and net income taxes that are imposed on
such Lender or the Administrator by the state or foreign jurisdiction under the
laws of which such Lender or the Administrator (as the case may be) would be
subject to net income tax, based on either residence or domicile of the
recipient in the taxing jurisdiction or the conduct of a trade or business by
the recipient in such jurisdiction, without regard to the transactions
contemplated hereby and any payments hereunder or under any related Transaction
Document or any political subdivision thereof but not including any such tax
that results in a credit or deduction in the jurisdiction in which such Lender
would not be entitled to indemnification (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes") or Other Taxes (as defined below). If the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrator, (i) the sum payable shall be
increased as may be necessary so that, after making all required deductions
(including deductions applicable to additional sums payable under this Section
9.3(a)), such Lender or the Administrator (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 shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law.
() In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
() The Borrower will indemnify each Lender and the Administrator within
ten (10) days after demand therefor for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 9.3) paid by such Lender or
the Administrator (as the case may be) and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto; provided,
however, that a Lender or the Administrator, as appropriate, making a demand for
indemnity payment shall provide the Borrower with a certificate from the
relevant taxing authority or from a responsible officer of such Lender or the
Administrator stating or otherwise evidencing that such Lender or the
Administrator has made payment of such Taxes or Other Taxes and will provide a
copy of or extract from documentation, if available, furnished by such taxing
authority evidencing assertion or payment of such Taxes or Other Taxes.
() Within 30 days after the date of any payment of Taxes or Other
Taxes, the Borrower will furnish to the Administrator an original or certified
copy of a receipt issued by the relevant taxing authority or other appropriate
evidence of payment thereof as shall be reasonably acceptable to the
Administrator.
() Each Lender or Liquidity Purchaser that is not created or organized
under the laws of the United States or a political subdivision thereof (each a
"Non-U.S. Person") shall deliver to the Borrower (with a copy to the
Administrator) (i) within 15 days after the date hereof, or, if later, the date
on which such Lender or Liquidity Purchaser becomes a Non-U.S. Person, two (or
such other number as may from time to time be prescribed by applicable laws or
regulations) duly completed copies of IRS Form 4224 or Form 1001 (or any
successor forms or other certificates or statements which may be required from
time to time by the relevant United States taxing authorities or applicable laws
or regulations), as appropriate, to permit the Borrower and the Administrator to
make payments hereunder for the account of such Non-U.S. Person without
deduction or withholding of United States federal income or similar taxes and
(ii) upon request of the Borrower or the Administrator as a result of the
obsolescence of or after the occurrence of any event requiring a change in, any
form or certificate previously delivered pursuant to this Section 9.3(c), copies
(in such numbers as may be from time to time be prescribed by applicable laws or
regulations) of such additional, amended or successor forms, certificates or
statements as may be required under applicable laws or regulations to permit the
Borrower and the Administrator to make payments hereunder for the account of
such Lender without deduction or withholding of United States federal income or
similar taxes.
Section .. Costs and Expenses Relating to this Agreement. In addition
to the fees specified in the Fee Letter, the Borrower shall pay to the
Administrator and the Lenders on demand all reasonable out-of-pocket expenses
(including, without limitation, reasonable audit fees and time charges of
internal and outside counsel for the Administrator and the Lenders) incurred in
connection with the preparation, execution, delivery, amendments and waivers of
this Agreement, the transactions contemplated hereby and the other documents to
be delivered hereunder. The Borrower shall pay to the Administrator on demand
any and all costs and expenses of the Administrator and the Lenders, if any,
including reasonable counsel fees and expenses incurred in connection with the
enforcement of this Agreement and the other documents delivered hereunder and in
connection with any restructuring or workout of this Agreement or such
documents, or the administration of this Agreement or other Transaction
Documents following an Event of Default.
Section .. Refunds. If the Administrator or a Lender receives a refund
in respect of any Taxes or Other Taxes as to which it has been indemnified by
the Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section 9.3, it shall within 30 days from the date of such
receipt pay over to the Borrower (a) such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by the Borrower under this
Section 9.3 with respect to the Taxes or Other Taxes giving rise to such
refund), net of all out-of-pocket expenses of the Administrator or such Lender
and (b) interest paid by the relevant Governmental Authority with respect to
such refund); provided, however, that the Borrower, upon the request of the
Administrator or such Lender shall repay the amount paid over to the Borrower
(plus penalties, interest or other charges) to the Administrator or such Lender
in the event the Administrator or such Lender is required to repay such refund
to such Governmental Authority.
ARTICLE .
ASSIGNMENTS
Section .. Assignments.
() This Agreement and the Lender's rights and obligations herein
(including their interest in the Loan) shall be assignable, in whole or in part,
by such Lender and its successors and assigns with, if an Event of Default has
not occurred and is continuing, the prior written consent of the Borrower;
provided, however, that such consent shall not be unreasonably withheld;
provided further, that no such consent shall be required if the assignment is
made, with prior or concurrent notice to the Borrower, to BofA, any Affiliate of
BofA (other than a director or officer of BofA), any Liquidity Purchaser or
other Program Support Provider.
Without limiting the foregoing, each Lender may, from time to time in
one transaction or a series of transactions, assign all or a portion of the Loan
of such Lender and its rights and obligations under this Agreement to an SPC
Assignee with the prior written consent of the Borrower; provided, however, that
such consent shall not be unreasonably withheld. Upon and to the extent of such
assignment to an SPC Assignee, (i) the SPC Assignee shall be the owner of the
assigned portion of the Loan of such Lender, (ii) BofA (or an Affiliate thereof)
will act as Administrator for the SPC Assignee as well as for such Lender, with
all corresponding rights and powers, express or implied, granted herein to the
Administrator, (iii) the SPC Assignee and its Program Support Providers and
other related parties shall have the benefit of all the rights and protections
provided to such Lender and its Program Support Providers and other related
parties, respectively, herein and in the other Transaction Documents (including,
without limitation, any limitation on recourse against such Lender or related
parties, any agreement not to file or join in the filing of a petition to
commence an insolvency proceeding against such Lender, and the right to assign
to another SPC Assignee as provided in this paragraph), (iv) the SPC Assignee
shall assume all obligations, if any, of such Lender under and in connection
with this Agreement, and such Lender shall be released from such obligations, in
each case to the extent of such assignment, and the obligations of such Lender
(if any) and the SPC Assignee shall be several and not joint, (v) all
distributions in respect of portion of the Loan of such Lender or Discount
thereon shall be made to such Lender and the SPC Assignee, on a pro rata basis
according to their respective interests (or in the case of Discount, the accrued
amounts thereof), (vi) the rate used to calculate such Discount with respect to
the portion of the Loan of such Lender owned by the SPC Assignee and funded with
commercial paper notes issued by the SPC Assignee from time to time shall be
determined in the manner set forth in the definition of "CP Rate" on the basis
of the discount or interest rates applicable to commercial paper issued by the
SPC Assignee (rather than the Lender), (vii) the defined terms and other terms
and provisions of this Agreement and the other Transaction Documents shall be
interpreted in accordance with the foregoing, and (viii) if requested by the
Administrator, the parties will execute and deliver such further agreements and
documents and take such other actions as the Administrator may reasonably
request to evidence and give effect to the foregoing.
() Each Lender may at any time grant to one or more banks or other
institutions (each a "Liquidity Purchaser") party to its Liquidity Asset
Purchase Agreement or to any other Program Support Provider participating
interests in the portion of the Loan of such Lender. In the event of any such
grant by such Lender of a participating interest to a Liquidity Purchaser or
other Program Support Provider, such Lender shall remain responsible for the
performance of its obligations hereunder. The Borrower agrees that each
Liquidity Purchaser or other Program Support Provider shall be entitled to the
benefits of Article IX with respect to its participating interest.
() This Agreement and the rights and obligations of the Administrator
hereunder shall be assignable, in whole or in part, by the Administrator and its
successors and assigns with, if such assignment is not to BofA or NationsBank,
N.A. or an Affiliate thereof, the consent of the Borrower, which consent shall
not be unreasonably withheld.
() The Borrower may assign its rights or delegate its obligations
hereunder or any interest herein without the prior written consent of the
Administrator.
() Without limiting any other rights that may be available under
applicable law, the rights of any Funding Source may be enforced through it or
by its agents.
ARTICLE .
MISCELLANEOUS
Section .. Waivers and Amendments.
() No failure or delay on the part of any party hereto in exercising
any power, right or remedy under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
remedy preclude any other further exercise thereof or the exercise of any other
power, right or remedy. The rights and remedies herein provided shall be
cumulative and nonexclusive of any rights or remedies provided by law. Any
waiver of this Agreement shall be effective only in the specific instance and
for the specific purpose for which given.
() No provision of this Agreement may be amended, supplemented,
modified or waived except in writing with the consent of the Borrower, each
Lender and the Administrator.
Section .. Notices.
All communications and notices provided for hereunder shall be in
writing (including bank wire, telecopy or electronic facsimile transmission or
similar writing) and shall be given to the other parties hereto at their
respective addresses or telecopy numbers set forth on the signature pages
hereof. All such communications and notices shall, when mailed, telecopied,
telegraphed, telexed or cabled, be effective when received through the mails,
transmitted by telecopy, delivered to the telegraph company, confirmed by telex
answer back or delivered to the cable company, respectively, except that
communications and notices to the Administrator or any Lender pursuant to
Article I shall not be effective until received by the intended recipient.
Section .. Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment made to it with respect to any portion of the Loan owing
to such Lender (other than payments received pursuant to Section 9.2 or 9.3) in
a greater proportion than that received by any other Lender entitled to receive
a ratable share of such Loan, such Lender agrees, promptly upon demand, to
purchase for cash without recourse or warranty a portion of the Loan held by the
other Lenders so that after such purchase each Lender will hold its ratable
proportion of the Loan; provided, however, that if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
Section .. Confidentiality.
() The Borrower shall maintain and shall cause each of its Affiliates
and the employees and officers of the Borrower and each of its Affiliates to
maintain the confidentiality of the terms and provisions of this Agreement and
the other confidential proprietary information with respect to the Lenders and
their respective businesses obtained by it or them in connection with the
structuring, negotiating and execution of the transactions contemplated herein,
except that the Borrower and its officers and employees may disclose such
information to the Administrator and to the Borrower's external accountants and
attorneys and as required by any applicable law or order of any judicial or
administrative proceeding or, except with respect to the Fee Letter, any
Securities and Exchange Commission filings. In addition, the Borrower may
disclose any such nonpublic information pursuant to any law, rule, regulation,
direction, request or order of any judicial, administrative or regulatory
authority or proceedings (whether or not having the force or effect of law).
() Each of the Administrator and the Lenders agree to comply with the
confidentiality letter dated December 16, 1998, executed in connection herewith.
Section .. Bankruptcy Petition.
() The Borrower hereby covenants and agrees that, prior to the date
which is one year and one day after the payment in full of all outstanding
senior indebtedness of the Lenders, it will not institute against, or join any
other Person in instituting against, any Lender any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.
() The Administrator and each Lender hereby covenant and agree that
they shall not have the power to commence a voluntary proceeding in bankruptcy
relating to the Trust without the unanimous prior approval of all Beneficiaries
and the delivery to the Trustee by each such Beneficiary of a certificate
certifying that such Beneficiary reasonably believes that the Trust is
insolvent. In accordance with Section 4.4(f) of the Trust Agreement, the
Administrator and each Lender acknowledge that they shall have no interest in
the Series Specified Assets related to any Series, other than Series 1998-C, of
Specified Beneficial Certificates (as such terms are defined in the Trust
Agreement).
Section .. Limitation of Liability. Except with respect to any claim
arising out of the willful misconduct or gross negligence of the Lenders or the
Administrator, no claim may be made by the Borrower, the Administrative Agent or
any other person against the Lenders, the Administrator, or their respective
Affiliates, directors, officers, employees, or attorneys for any special,
indirect, consequential or punitive damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement, or any act, omission or event
occurring in connection therewith; and the Borrower hereby waives, and agrees
not to sue upon any claim for any such damages, whether or not accrued and
whether or not known or suspected to exist in its favor.
Section .. Choice of Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE
OF NEW YORK.
Section .. Consent to Jurisdiction. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW
YORK STATE COURT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE
TRANSACTION DOCUMENTS AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
ADMINISTRATOR OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION WHEREIN ANY ASSETS OF THE BORROWER OR PHH VMS
MAY BE LOCATED. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE
ADMINISTRATOR OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATOR OR A LENDER
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH DOCUMENTS SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
Section .. Waiver of Jury Trial. THE ADMINISTRATOR, THE BORROWER AND
EACH LENDER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, LEASE OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THE
TRANSACTION DOCUMENTS OR THE RELATIONSHIPS ESTABLISHED THEREUNDER.
Section .. Integration; Survival of Terms. This Agreement contains the
final and complete integration of all prior expressions by the parties hereto
with respect to the subject matter hereof and shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof
superseding all prior oral or written understandings. The provisions of Article
IX and Sections 11.5 and 11.12 shall survive any termination of this Agreement.
Section .. Counterparts; Severability. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are 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 .. Recourse. The obligations of the Borrower under this
Agreement or any other Transaction Document constitute a full recourse
obligation of the Borrower. Recourse shall be had for payment of the Loan,
interest thereon and any fee or other obligation or claim arising out of or
relating to this Agreement or any other Transaction Document executed and
delivered or issued by the Borrower or any officer of the Borrower. The
provisions of this Section 11.12 shall survive the termination of this
Agreement.
Section .. Further Actions Evidencing Loans and the Security Interest
Created Herein. The Borrower shall, from time to time, promptly execute and
deliver all further instruments and documents, and take all further actions that
the Administrator may reasonably request, to perfect, protect or more fully
evidence the security interest granted under the Transaction Documents, or to
enable the Administrator to exercise and enforce the respective rights and
remedies of the Administrator and the Lenders under the Transaction Documents.
Without limiting the foregoing, the Borrower shall upon request of the
Administrator (i) execute and file such financing statements, or amendments
thereto, and such other instruments and documents, that may be necessary or
desirable, or that the Administrator may reasonably request, to perfect, protect
or evidence such security interest; and (ii) deliver possession of the
Certificate to the Administrator. The Borrower authorizes the Administrator to
file or cause to be filed financing or continuation statements, and amendments
thereto and assignments thereof, relating to the Certificate and the proceeds
therefrom.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date hereof.
BORROWER: TRAC FUNDING II, INC.
By:
Name:
Title:
TRAC Funding II, Inc.
c/o PHH Vehicle Management Services
307 International Circle
Mail Code CP
Hunt Valley, Maryland 21030-1337
Attention: Joseph Weikel
Telephone No: 410/771-2336
Facsimile No: 410/771-2530
<PAGE>
THE LENDERS: QUINCY CAPITAL CORPORATION
By:
Name:
Title:
c/o AMACAR Group, L.L.C.
6707-D Fairview Road
Charlotte, North Carolina 28210
Attention: Douglas K. Johnson
Telephone No.: (704) 365-0569
Facsimile No.: (704) 365-1362
with a copy to:
Bank of America National Trust
and Savings Association
Global Asset-Backed Securitization
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Marianne Mihalik
Telephone No.: (312) 828-6471
Facsimile No.: (312) 923-0273
<PAGE>
RECEIVABLES CAPITAL CORPORATION
By:
Name:
Title:
c/o Merrill Lynch & Co., Inc.
World Financial Center
250 Vesey Street, 11th Floor
New York, New York 10281-1311
Attention: Shane Rosenberg
Telephone No.: (212) 449-2130
Facsimile No.: (212) 449-0599
with a copy to:
Bank of America National Trust
and Savings Association
Global Asset-Backed Securitization
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Marianne Mihalik
Telephone No.: (312) 828-6471
Facsimile No.: (312) 923-0273
<PAGE>
ADMINISTRATOR: BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
Name: Mark Wegener
Title: Attorney-In-Fact
Global Asset-Backed Securitization
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Marianne Mihalik
Telephone No.: (312) 828-6471
Facsimile No.: (312) 923-0273
<PAGE>
Exhibit I
Definitions
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Adjusted Lease Balance" has the meaning specified in the Trust
Agreement.
"Administration Account" means the special account (ABA #071000039,
account #47-03421, Attention: GPO Account Administrator) of the Administrator
maintained at the office of BofA at 231 South LaSalle Street, Chicago, Illinois,
or such other account as may be so designated in writing by the Administrator to
the Borrower and the Administrative Agent.
"Administrative Agency Agreement" means that certain Administrative
Agency Agreement dated as of June 12, 1998, among the Trust and the
Administrative Agent, as amended and supplemented by the amendment thereto,
dated December 17, 1998 and by the Series 1998-A, Series 1998-B and Series
1998-C supplements thereto.
"Administrative Agent" means at any time PHH VMS or such other Person
then authorized pursuant to the Administrative Agency Agreement to service,
administer and collect the Series 1998-C Assets.
"Administrator" has the meaning set forth in the preamble to this
Agreement.
"Adverse Claim" means a lien, security interest, charge or encumbrance,
or other right or claim in, of or on any Person's assets or properties in favor
of any other Person.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. For the purpose of this definition,
"control" when used with respect to any specified Person shall mean the power to
direct the management and policies of such Person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise, and
the terms "controlling" and "controlled by" have meanings correlative to the
foregoing.
"Agreement" means this Loan and Security Agreement, as it may be
amended or modified and in effect from time to time.
"Alternate Rate" means, for any Settlement Period for any portion of
the Loan funded by any Lender, an interest rate per annum equal to (a) 1.0% per
annum above the Eurodollar Rate for such Settlement Period or (b) the Base Rate
for such Settlement Period; provided, however, that in the case of
() any Settlement Period on or prior to the first day of which
the Administrator shall have been notified by such Lender or Program
Support Provider that the introduction of or any change in or in the
interpretation of any law or regulation makes it unlawful, or any
central bank or other Governmental Authority asserts that it is
unlawful, for such Lender or such Program Support Provider to fund any
portion of the Loan (based on the Eurodollar Rate) set forth above (and
such Lender or such Program Support Provider shall not have
subsequently notified the Administrator that such circumstances no
longer exist),
() any Settlement Period of less than one calendar month,
() any Settlement Period as to which the Administrator does
not receive notice, by no later than 12:00 noon (New York City time) on
(x) the second Business Day preceding the first day of such Settlement
Period that the Borrower desires that the related portion of the Loan
be funded at the CP Rate, (y) the third Business Day preceding the
first day of such Settlement Period that the Borrower desires that the
related portion of the Loan be funded at the Alternate Rate and based
on the Eurodollar Rate, or (z) the Borrower has given the notice
contemplated by clause (x) of this clause (iii) and the Administrator
shall have notified the Borrower that funding the related portion of
the Loan at the CP Rate is unacceptable to such Lender, or
() any Settlement Period relating to a portion of the Loan
which is less than $1,000,000,the "Alternate Rate" for each such Settlement
Period shall be an interest rate per annum equal to the Base Rate in effect
on each day of such Settlement Period. Notwithstanding the foregoing, the
"Alternate Rate" for any day following the occurrence of an Event of Default
shall be an interest rate equal to 2.00% per annum above the Base Rate in effect
on such day.
"Assignment" means the Assignment and Assumption Agreement II, dated as
of December 17, 1998, among the PHH VMS, PHH Subsidiary and the Trust.
"Base Rate" means, for any day, a fluctuating interest rate per annum
as shall be in effect from time to time, which rate shall be at all times equal
to the higher of:
() the rate of interest in effect for such day as publicly
announced from time to time by BofA in San Francisco, California, as its
"reference rate." It is a rate set by BofA based upon various factors
including BofA's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans,
which may be priced at, above, or below such announced rate; and
() 0.50% per annum above the latest Federal Funds Rate.
"Beneficiary" has the meaning specified in the Trust Agreement.
"BofA" has the meaning set forth in the preamble to this Agreement.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Broken Funding Costs" means, for any Settlement Period during which
either an Event of Default or a reduction of a portion of the Loan pursuant to
Section 1.6 occurs, the amount, if any, by which (i) the additional Discount
(calculated without taking into account any Termination Fee or any shortened
duration of such Settlement Period pursuant to clause (iii) of the definition
thereof) which would have accrued during such Settlement Period on the
reductions of the portion of the Loan relating to such Settlement Period had
such reductions remained as part of such portion of the Loan, exceeds (ii) the
income, if any, received by the affected Lenders, Liquidity Purchasers or other
Program Support Providers from their investment of the proceeds of such
reductions, as determined thereby, which determination shall be binding and
conclusive for all purposes, absent manifest error.
"Business Day" means any day on which banks are not authorized or
required to close in Baltimore, Maryland, New York, New York or Chicago,
Illinois and the Depository Trust Company of New York is open for business, and,
if the applicable Business Day relates to any computation or payment to be made
with respect to the Eurodollar Rate, any day on which dealings in dollar
deposits are carried on in the London interbank market.
"Certificate" means the Series 1998-C Certificate issued pursuant to
the Supplement, and which represents a beneficial interest in the Series 1998-C
Assets.
"Charged-Off Lease" means any Lease or any portion of such a Lease: (i)
as to which the Lessee thereof has taken any action, or suffered any event to
occur, of the type described in Section 6.1(d) (as if references to the Borrower
therein refer to such Lessee); or (ii) which, consistent with the Credit and
Collection Practices, should be written off as uncollectible.
"Closing Date" means the date on which the conditions precedent set
forth in Section 4.1 are satisfied or, in the sole discretion of the
Administrator, waived.
"Collateral" means all right, title and interest of the Borrower in and
to (i) the Certificate issued by the Trust to PHH VMS and conveyed to the
Borrower pursuant to the terms of the Contribution Agreement and any interest of
the Borrower in the Series 1998-C Assets and all other assets of the Trust
evidenced by the Certificate, (ii) the Contribution Agreement, (iii) the Trust
Agreement, (iv) the Administrative Agency Agreement, (v) the Supplement, (vi)
all cash or other property distributed or distributable on account of the
Certificate, (vii) all cash on deposit in any bank account received as income or
distributions on the Series 1998-C Assets and which has been distributed or will
be distributed as income or distributions on the Certificate and the Series
1998-C Assets, and (viii) any and all proceeds with respect to any of the
foregoing.
"Collection Period" means each period from (and including) the first
day of each calendar month to (and including) the last day of such calendar
month.
"Collections" means, with respect to any Series 1998-C Asset
"Collection", as defined in the Trust Agreement in respect of such Series 1998-C
Asset.
"Commercial Paper" means promissory notes of any Lender issued by such
Lender in the commercial paper market.
"Concentration Limit" means, on the date the Loan is made, an amount
equal to the product of (i) the aggregate Projected Adjusted Lease Balance of
the Series 1998-C Leased Vehicles, multiplied by (ii) with respect to any Lessee
with a long-term unsecured debt rating (A) of at least "A" by S&P or "A2" by
Moody's, 5%, (B) of at least "BBB" by S&P or "Baa2" by Moody's (but does not
fall within clause (A)), 3% or (C) not within clauses (A) or (B), 2%.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or application for a letter of credit.
"Contribution Agreement" means that certain Asset Contribution
Agreement, dated as of December 28, 1998, between the Borrower and PHH VMS, as
the same may be amended, restated and/or otherwise modified from time to time in
accordance with the terms thereof and hereof.
"CP Rate" means, for any Settlement Period for any portion of the Loan
funded by any Lender, to the extent such Lender funds such portion of the Loan
for such Settlement Period by issuing Commercial Paper, the per annum rate
equivalent to the "weighted average cost" (as defined below) related to the
issuance of Commercial Paper that are allocated, in whole or in part, by such
Lender or the Administrator to fund or maintain such portion of the Loan (and
which may also be allocated in part to the funding of other portions of the Loan
hereunder or of other assets of such Lender); provided, however, that if any
component of such rate is a discount rate, in calculating the "CP Rate" for such
portion of the Loan for such Settlement Period, such Lender shall for such
component use the rate resulting from converting such discount rate to an
interest bearing equivalent rate per annum. As used in this definition, such
Lender's "weighted average cost" shall consist of (w) the actual interest rate
(or discount) paid to purchasers of such Lender's Commercial Paper, together
with the commissions of placement agents and dealers in respect of such
Commercial Paper, to the extent such commissions are allocated, in whole or in
part, to such Commercial Paper by such Lender or the Administrator, (x) certain
documentation and transaction costs associated with the issuance of such
Commercial Paper, (y) any incremental carrying costs incurred with respect to
Commercial Paper maturing on dates other than those on which corresponding funds
are received by such Lender, and (z) other borrowings by such Lender (other than
under any Funding Agreement), including, without limitation, borrowings to fund
small or odd dollar amounts that are not easily accommodated in the commercial
paper market.
"Credit and Collection Practices" means the credit and collection
policies and practices relating to Series 1998-C Assets existing on the date
hereof and as attached hereto as Exhibit VIII and as described to the Lenders,
as modified from time to time in accordance with this Agreement.
"Default Ratio" means, at any time of determination, the lesser of (i)
a ratio, expressed as a percentage, of Net Write-Offs for the 12 full calendar
months immediately preceding such time to the average Adjusted Lease Balance of
all Series 1998-C Leases for such 12 full calendar months, and (ii) the ratio,
expressed as a percentage, of (A) such Net Write-Offs multiplied by the ratio,
expressed as a percentage, of the Adjusted Lease Balance of those Series 1998-C
Leases which became Defaulted Leases during such 12 full calendar months to the
Adjusted Lease Balance of all Series 1998-C Leases and all other Leases serviced
by the Administrative Agent for such 12 full calendar months the Lessees of
which were Lessees with respect to such Defaulted Leases, to (B) the average
Adjusted Lease Balance of all Series 1998-C Leases for such 12 full calendar
months; for purposes hereof, the Adjusted Lease Balance of the Leases shall be
deemed to be equal to the Adjusted Lease Balance thereof on the Closing Date for
all times prior to the Closing Date.
"Defaulted Asset" means a Series 1998-C Asset with respect to which the
Lease associated therewith is a Defaulted Lease.
"Defaulted Lease" means a Lease: (i) as to which 25% or greater of
billings remain unpaid for more than 120 days from the original due date,
provided that such delinquency is not due to a valid billing dispute or (ii)
which has been declared in default under the Credit and Collection Practices.
"Delinquent Lease" means a Lease (other than a Defaulted Lease) as to
which any payment, or part thereof, remains unpaid for more than 60 days or more
from the original due date for such payment.
"Delinquency Ratio" means, for any Collection Period, the ratio
(expressed as a percentage) of (i) the aggregate billings which were unpaid for
60 days or more from the original due date thereof as of the last day of such
Collection Period with respect to all Series 1998-C Leases and all other Leases
serviced by the Administrative Agent, to (ii) the sum of (a) the aggregate
billings which were unpaid as of the last day of such Collection Period with
respect to all Series 1998-C Leases and all other Leases serviced by the
Administrative Agent and (b) the aggregate amount billed during such Collection
Period with respect to all Series 1998-C Leases and all other Leases serviced by
the Administrative Agent.
"Depreciation Rent" has the meaning specified in the Administrative
Agency Agreement.
"Discount" means:
(i) for any portion of the Loan funded by any Lender for any
Settlement Period to the extent such portion of the Loan will be funded
by such Lender on the first day of such Settlement Period through the
issuance of Commercial Paper,
CPR x C x ED + BFC
AD
(ii) for any portion of the Loan funded by any Lender for any
Settlement Period to the extent such portion of the Loan will not be
funded by such Lender on the first day of such Settlement Period
through the issuance of Commercial Paper,
AR x C x ED + BFC
AD
where:
AR = the Alternate Rate for such portion of the
Loan funded by such Lender for such
Settlement Period;
C = the weighted average of the Dollar amount
of such portion of the Loan funded by such
Lender during such Settlement Period;
CPR = the CP Rate for such portion of the Loan
funded by such Lender for such Settlement
Period (as determined by the Administrator
on or prior to the fourth Business Day of
the calendar month next following such
Settlement Period);
ED = the actual number of days during such
Settlement Period;
BFC = the Broken Funding Costs, if any, for such
portion of the Loan funded by such Lenderfor
such Settlement Period; and
AD = 360;
provided, however, that during the continuance of an Event of Default, the CP
Rate shall not be available and Discount for each portion of the Loan funded by
such Lender shall be determined using the Alternate Rate for the related
Settlement Period.
"Eligible Lease" means, on the Closing Date, any Series 1998-C Lease:
(1) which is denominated and payable only in United
States dollars in the United States,
(2) the Lessee of which (a) is organized under the laws of the
United States or any political subdivision thereof and has its chief
executive office in the United States, (b) is not an Affiliate of any
of the parties hereto, and (c) is not a government or a governmental
subdivision or agency,
(3) the Lessee of which is not the Lessee of any
Defaulted Lease,
(4) which is not a Charged-Off Lease,
(5) that requires payment within 30 days of the date of
invoice and which requires the unamortized book value of the related
Vehicle to be paid in full, in equal monthly payments, within 60 months
of the date hereof at a floating rate of interest,
(6) which is "chattel paper" or an "account" within the
meaning of 9-105 or Section 9-106, respectively, of the UCC of all
applicable jurisdictions,
(7) which is in full force and effect and constitutes the
legal, valid and binding obligation of the related Lessee enforceable
against such Lessee in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
of general applicability and by the effect of general principles of
equity (regardless of whether enforceability is considered in a
proceeding in equity or at law),
(8) which (a) does not require the Lessee under such Lease to
consent (unless such consent has been obtained) to the transfer, sale
or assignment of the rights of PHH VMS or any of its assignees under
such Lease and (b) is not subject to a confidentiality provision that
would have the effect of restricting the ability of the Administrator
or any Lender to exercise its rights under this Agreement, including,
without limitation, its right to review the Lease,
(9) which has been selected by PHH VMS for inclusion in the
Series 1998-C Assets on a non-preferential basis not adverse to the
interests of the Lenders,
(10) which is not subject to any right of rescission, set-off
(in respect of all or any portion of the outstanding principal balance
thereof then being proposed for inclusion in Series 1998-C Assets as of
the Closing Date), counterclaim, dispute, any other defense (including
defenses arising out of violations of usury laws) of the applicable
Lessee or PHH VMS or any other Adverse Claim,
(11) a Lease as to which PHH VMS has satisfied and fully
performed all obligations on its part with respect to such Lease
required to be fulfilled by it, and no further action is required to be
performed by any Person with respect thereto other than payment thereon
by the applicable Lessee,
(12) all right, title and interest to and in which has been
validly transferred by PHH VMS directly to the Trust under and in
accordance with the Trust Agreement and the Assignment, and the Trustee
has good and marketable title thereto free and clear of any Adverse
Claim, except as permitted by the Transaction Documents,
(13) which was created in compliance with and does not
contravene any law, rule or regulation applicable thereto (including,
without limitation, any law, rule and regulation relating to truth in
lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) in any
material respect and with respect to which no part of the Lease related
thereto is in violation of any such law, rule or regulation,
(14) which satisfies all applicable requirements of the Credit
and Collection Practices,
(15) which was generated in the ordinary course of PHH VMS'
business,
(16) the Adjusted Lease Balance of which when aggregated with
the Adjusted Lease Balance of all Series 1998-C Leases of the related
Lessee and any Affiliates of such Lessee does not exceed the
Concentration Limit, except as otherwise agreed by Administrator,
(17) which leases an automobile or light duty truck, and
(18) with respect to which the Administrator has not notified
the Borrower or Administrative Agent that such Lease is not acceptable.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Rate" means, for any Settlement Period for any portion of
the Loan, an interest rate per annum (rounded upward to the nearest 1/16th of
1%) determined pursuant to the following formula:
Eurodollar Rate = LIBOR
1.00 - ERP
Where,
"LIBOR" means the rate of interest per annum determined by the
Administrator to be the arithmetic mean (rounded upward to the nearest
1/16th of 1%) of the rates of interest per annum notified to the
Administrator by the Reference Bank as the rate of interest at which
dollar deposits in the approximate amount of such portion of the Loan
associated with such Settlement Period would be offered to major banks
in the London interbank market at their request at or about 11:00 a.m.
(London time) on the second Business Day prior to the commencement of
such Settlement Period.
"ERP" means, for any Settlement Period, the maximum reserve
percentage (expressed as a decimal, rounded upward to the nearest
1/100th of 1%) in effect on the date LIBOR for such Settlement Period
is determined under regulations issued from time to time by the Federal
Reserve Board for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred
to as "Eurocurrency liabilities") having a term comparable to such
Settlement Period.
"Event of Default" has the meaning specified in Section 6.1.
"Facility Termination Date" means the earliest to occur of (a) December
27, 1999, (b) the Purchase Termination Date, as defined in its Liquidity Asset
Purchase Agreement, which on the date of the Agreement is December 27, 1999, or
such later date designated as the Purchase Termination Date from time to time
pursuant to such Liquidity Asset Purchase Agreement (it being understood that
the Administrator shall notify the Borrower of the designation of such later
date, provided that failure to provide such notice shall not limit or otherwise
affect the obligations of the Borrower or the rights of the Administrator, any
Lender, or any other party to such Liquidity Asset Purchase Agreement), (c) the
date of termination of the commitment under any other of its Funding Agreement,
and (d) an Event of Default.
"Federal Funds Rate" means, for any day, the per annum rate set forth
in the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate". If on
any relevant day the appropriate rate for such previous day is not yet published
in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such day
will be the arithmetic mean as determined by the Administrator of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Administrator.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any entity succeeding to any of its principal functions.
"Fee Letter" means that certain letter agreement, dated as of December
28, 1998, between the Borrower and the Administrator, as heretofore or hereafter
amended or modified and in effect from time to time.
"Fluctuation Factor" means 1.5.
"Funding Agreement" means and includes each Liquidity Asset Purchase
Agreement and any other agreement entered into by any Program Support Provider
providing for the issuance of one or more letters of credit for the account of
any Lender, the issuance of one or more surety bonds for which any Lender is
obligated to reimburse the applicable Program Support Provider for any drawings
thereunder, the sale by any Lender to any Program Support Provider of a portion
of the Loan and/or the making of loans and/or other extensions of credit to any
Lender in connection with any Lender's securitization program, together with any
letter of credit, surety bond or other instrument issued thereunder (but
excluding any discretionary advance facility provided by the Administrator).
"Funding Source" means the Administrator, each Lender, each Liquidity
Purchaser and any other Program Support Provider. "Governmental
Authority" means the United States of America, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee" means the Guarantee, dated as of December 28, 1998, made by
the Guarantor in favor of the Administrator and the Lenders, as hereafter
amended or modified and in effect from time to time.
"Guarantor" means PHH Corporation, a Maryland corporation.
"Holder" has the meaning specified in the Trust Agreement.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
property or services (other than accounts payable arising in the ordinary course
of such Person's business payable on terms customary in the trade), (iii)
obligations, whether or not assumed, secured by liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) capitalized lease obligations, (vi) net liabilities under
interest rate swap, exchange or cap agreements, (vii) Contingent Obligations and
(viii) liabilities in respect of unfunded vested benefits under plans covered by
Title IV of ERISA.
"Lease" means, any lease between PHH VMS and a Lessee substantially in
the form of Exhibit A to the Administrative Agency Agreement and assigned by PHH
to the Trust.
"Lease File" has the meaning set forth in the Administrative Agency
Agreement.
"Lender" has the meaning set forth in the preamble to this Agreement.
"Lender's Percentage" means for any date for any Lender (i) on the date
of the funding of the Loan hereunder, 50%, and (ii) thereafter, the portion of
the outstanding principal of the Loan funded by such Lender divided by the
aggregate outstanding principal of the Loan on such date (expressed as a
percentage).
"Lessee" means the Lessee of a Series 1998-C Leased Vehicle or any
Person who is obligated to make payments on the related Lease.
"Liquidity Asset Purchase Agreement" means, for each Lender, that
certain Liquidity Asset Purchase Agreement dated as of the date hereof among
BofA, BofA and certain other Persons as Liquidity Purchasers, and such Lender,
as amended, supplemented or otherwise modified from time to time.
"Liquidity Purchaser" has the meaning set forth in Section 10.1.
"Loan" has the meaning specified in Section 1.1(a).
"Loan Note" means a promissory note, substantially in the form of
Exhibit III, made by the Borrower in favor of the Administrator for the benefit
of the Lenders.
"Loan Request" means a request, substantially in the form of Exhibit
VIII, made by the Borrower to the Administrator for the Loan.
"Lock-Box" means a locked postal box maintained by PHH VMS to which a
bank who has executed a Lock-Box Agreement has been granted exclusive access for
the purposes of retrieving and processing payments made on the Series 1998-C
Assets.
"Lock-Box Account" means the deposit account associated with each Lock
- -Box.
"Lock-Box Agreement" means, in the case of any Lock-Box Account, an
agreement in substantially the form of Exhibit VI.
"Material Adverse Effect" means a material adverse effect on (i) the
ability of the Borrower or the Administrative Agent to perform its obligations
under the Transaction Documents to which it is a party, (iii) the legality,
validity or enforceability of any Transaction Document or any Lock-Box Agreement
relating to a Lock-Box Account into which a material portion of Collections are
deposited, (iv) the Administrator's interest, on behalf of the Lenders, in the
Certificate, (v) the Trust's interest in the Series 1998-C Assets generally or
in any significant portion thereof, or (vi) the collectability of the Series
1998-C Assets generally or of any material portion thereof.
"Maximum Loan" means $625,000,000.
"Monthly Report" means a report, in substantially the form of Exhibit V
(appropriately completed), furnished by the Administrative Agent to the
Administrator on behalf of the Lenders pursuant to Section 10.2 of the
Supplement.
"Net Worth" means, as of the last Business Day of each Collection
Period preceding any date of determination, the excess, if any, of (a) the
aggregate Adjusted Lease Balance of the Series 1998-C Leases at such time, over
(b) the principal amount of the Loan plus Discount outstanding at such time.
"Net Write-Offs" means, for any period of determination, amounts then
due and payable under Leases which became Defaulted Leases during such period,
plus 50% of the Adjusted Lease Balance of all Leases serviced by the
Administrative Agent the Lessees of which are Lessees with respect to such
Defaulted Leases.
"Non-U.S. Person" has the meaning specified in Section 9.3(e).
"Other Taxes" has the meaning specified in Section 9.3(b).
"Originators" means PHH VMS and PHH Subsidiary.
"Participant" has the meaning specified in Section 10.2.
"Person" means an individual, partnership, corporation, association,
trust, or any other entity, or organization, including a government or political
subdivision or agent or instrumentality thereof.
"PHH Entities" has the meaning specified in Section 5.1(e).
"PHH Subsidiary" means PHH VMS Subsidiary Corporation, a Maryland
corporation.
"PHH VMS" means PHH Vehicle Management Services Corporation, a Maryland
corporation.
"Potential Event of Default" means an event which, with the passage of
time or the giving of notice, or both, would constitute an Event of Default.
"Program Fee" has the meaning specified in the Fee Letter.
"Program Support Provider" means and includes each Lender and any other
or additional Person (other than any customer of any Lender) now or hereafter
extending credit or having a commitment to extend credit to or for the account
of, or to make purchases from, any Lender or issuing a letter of credit, surety
bond or other instrument to support any obligations arising under or in
connection with the Lender's securitization program, including, without
limitation, the Liquidity Purchasers.
"Projected Adjusted Lease Balance" means, with respect to any Series
1998-C Leased Vehicle as of any date, the Adjusted Lease Balance of such Series
1998-C Leased Vehicle minus the Depreciation Rent which was unpaid as of such
date with respect to the related Series 1998-C Lease.
"QCC" has the meaning set forth in this preamble to this Agreement.
"RCC" has the meaning set forth in the preamble to this Agreement.
"Records" means, with respect to the Certificate, all Leases and other
documents, books, records and other information (including, without limitation,
computer programs, tapes, disks, punch cards, data processing software and
related property and rights) relating to the Certificate.
"Reference Bank" means BofA.
"Required Lenders" means, at any time, Lenders funding at least 51% of
the aggregate outstanding amount of the Loan.
"Regulatory Change" has the meaning specified in Section 9.2(a).
"Secured Obligations" has the meaning specified in Section 1.8(a).
"Series 1998-C Assets" has the meaning specified in the Amendment,
dated December 28, 1998, to the Administration Agreement.
"Series 1998-C Certificate" means Certificate as defined herein.
"Series 1998-C Lease" has the meaning specified in the Amendment, dated
December 28, 1998, to the Administration Agreement.
"Series 1998-C Leased Vehicle" has the meaning specified in the
Amendment, dated December 28, 1998, to the Administration Agreement.
"Series Specification Notices" has the meaning specified in the Trust
Agreement.
"Settlement Date" means, with respect to any Settlement Period, the
18th day of the next calendar month (or the next succeeding Business Day if such
day is not a Business Day) or upon request by the Administrator after the
occurrence of an Event of Default, daily.
"Settlement Period" means, unless otherwise mutually agreed by the
Administrator and the Borrower, (a) with respect to any portion of the Loan
funded by any Lender through the issuance of Commercial Paper, (x) initially the
period commencing on (and including) the date of the initial purchase or funding
of such portion of the Loan and ending on (but excluding) the first day of the
next following Collection Period, and (y) thereafter, each period commencing on
(and including) the last day of the immediately preceding Settlement Period for
such portion of the Loan and ending on (but excluding) the first day of the next
following Collection Period; and (b) with respect to any portion of the Loan not
funded by the issuance of Commercial Paper, (x) initially the period commencing
on (and including) the date of the initial purchase or funding of such portion
of the Loan and ending on (but excluding) the next following Settlement Date,
and (y) thereafter, each period commencing on (and including) the last day of
the immediately preceding Settlement Period for such portion of the Loan and
ending on (but excluding) the next following Settlement Date; provided, however,
that
(i) any Settlement Period (other than of one day or
funded through the issuance of Commercial Paper) which would
otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day; provided,
however, if Discount in respect of such Settlement Period is
computed by reference to the Eurodollar Rate, and such
Settlement Period would otherwise end on a day which is not a
Business Day, and there is no subsequent Business Day in the
same calendar month as such day, such Settlement Period shall
end on the next preceding Business Day;
(ii) in the case of any Settlement Period for any
portion of the Loan which commences before the Termination
Date and would otherwise end on a date occurring after the
Termination Date, such Settlement Period shall end on such
Termination Date and the duration of each Settlement Period
which commences on or after the Termination Date shall be of
such duration as shall be selected by the Administrator;
(iii) any Settlement Period in respect of which
Discount is computed by reference to the CP Rate may be
terminated at the election of, and upon notice thereof to the
Borrower by, the Administrator any time, in which case the
portion of the Loan allocated to such terminated Settlement
Period shall be allocated to a new Settlement Period
commencing on (and including) the date of such termination and
ending on (but excluding) the next following Settlement Date,
and shall accrue Discount at the Alternate Rate (determined
pursuant to clause (b) of such definition).
"SPC Assignee" means a special purpose company which (i) is
administered by BofA or NationsBank, N.A. or any Affiliate thereof and (ii)
has activities generally similar to any Lender.
"Special Beneficial Certificates" has the meaning specified in the
Trust Agreement.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Supplement" means the Series 1998-C Supplement dated as of December
28, 1998 to the Administrative Agency Agreement and the Amended and Restated
Trust Agreement dated as of June 12, 1998 among PHH VMS, PHH Subsidiary and the
Trustee.
"Taxes" has the meaning specified in Section 9.3(a).
"Transaction Documents" means, collectively, this Agreement, the Loan
Note, the Contribution Agreement, the Administrative Agency Agreement, the
Assignment, the Guarantee, the Trust Agreement, the Supplement, the Certificate,
each Lock-Box Agreement, the Fee Letter, each Liquidity Asset Purchase Agreement
and all other instruments, documents and agreements executed and delivered in
connection herewith or therewith.
"Trust" has the meaning specified in the Trust Agreement.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
as of June 12, 1998 among PHH VMS, PHH Subsidiary and the Trustee as amended and
supplement by the amendment thereto, dated December 17, 1998 and by the Series
1998-A, Series 1998-B and Series 1998-C Supplements..
"Trustee" means First National Bank of Maryland, as trustee under the
Trust Agreement.
"UCC" means the Uniform Commercial Code as from time to time in effect
in New York State.
"Vehicle" has the meaning specified in the Trust Agreement.
"Year 2000 Plan" has the meaning specified in Section 3.1(q).
"Year 2000 Problem" means, with respect to any Person, the risk that
computer applications in use by that Person cannot or will not: (a) handle date
information involving any and all dates before, during and/or after January 1,
2000, including accepting input, providing output and performing date
calculations in whole or in part; (b) operate accurately without interruption on
and in respect of any and all dates before, during and/or after January 1, 2000;
and (c) store and provide date input information without creating any ambiguity
as to the century.
All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles. All terms used in
Article 9 of the UCC in the State of New York, and not specifically defined
herein, are used herein as defined in such Article 9.
The words "hereof," "herein," "hereunder" and similar terms when used
in this Agreement shall refer to this agreement as a whole and not to any
particular provision of this Agreement, and article, section, subsection,
schedule and exhibit references herein are references to articles, sections,
subsections, schedules and exhibits to this Agreement unless otherwise
specified.
Capitalized terms used and not otherwise defined herein are used with
the meanings attributed thereto in the Contribution Agreement.
<PAGE>
Exhibit II
Chief Executive Office; Place(s) of Business; FEIN
TRAC Funding, Inc.
c/o PHH Vehicle Management Services Corporation
307 International Circle
Mail Code CP
Hunt Valley, Maryland 2130-1337
Federal Taxpayer ID # 52-2135094
<PAGE>
Exhibit III
Form of Loan Note
PROMISSORY NOTE
$625,000,000 December 28, 1998
New York, New York
FOR VALUE RECEIVED, TRAC Funding II, Inc., a Delaware
corporation (the "Borrower"), hereby promises to pay to the
order of Bank of America National Trust and Savings
Association, as Administrator for the benefit of Quincy
Capital Corporation (together with its successors and
permitted assigns, "QCC") and Receivables Capital Corporation
(together with its successors and permitted assigns, "RCC"
and, together with QCC, the "Lenders") in lawful money of the
United States, and in immediately available funds, the
principal sum of SIX HUNDRED TWENTY FIVE MILLION DOLLARS
($625,000,000) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Loan made by the
Lenders to the Borrower under the Loan Agreement referred to
below), on the date and in the principal amounts provided in
the Loan Agreement, and to pay interest on the unpaid
principal amount of the Loan, at such office, in like money
and funds, for the period commencing on the date of the Loan
until the Loan shall be paid in full, at the rates per annum
and on the dates provided in the Loan Agreement. This Loan
Note is the Loan Note referred to in the Loan and Security
Agreement dated as of December 28, 1998 (as amended,
supplemented or otherwise modified and in effect from time to
time, the "Loan Agreement") among the Borrower, the Lenders
and Administrator, and evidences a Loan made by the Lenders
thereunder. Terms used but not defined in this Loan Note have
the respective meanings assigned to them in the Loan
Agreement. The Borrower agrees to pay all the Administrator's
costs of collection and enforcement (including reasonable
attorneys' fees and disbursements of Administrator's counsel)
in respect of this Loan Note when incurred, including, without
limitation, reasonable attorneys' fees through appellate
proceedings. Notwithstanding the pledge of the Collateral, the
Borrower hereby acknowledges, admits and agrees that the
Borrower's obligations under this Loan Note are recourse
obligations of the Borrower to which the Borrower pledges its
full faith and credit. The Borrower, and any endorsers or
guarantors hereof, (a) severally waive diligence, presentment,
protest and demand and also notice of protest, demand,
dishonor and nonpayments of this Loan Note, (b) expressly
agree that this Loan Note, or any payment hereunder, may be
extended from time to time, and consent to the acceptance of
further Collateral, the release of any Collateral for this
Loan Note, the release of any party primarily or secondarily
liable hereon, and (c) expressly agree that it will not be
necessary for the Administrator or a Lender, in order to
enforce payment of this Loan Note, to first institute or
exhaust the Administrator's or such Lender's remedies against
the Borrower or any other party liable hereon or against any
Collateral for this Loan Note. No extension of time for the
payment of this Loan Note, or any installment hereof, made by
agreement by the Administrator or a Lender with any person now
or hereafter liable for the payment of this Loan Note, shall
affect the liability under this Loan Note of the Borrower,
even if the Borrower is not a party to such agreement;
provided, however, that the Lenders and the Borrower, by
written agreement between them, may affect the liability of
the Borrower. Any reference herein to the Administrator shall
be deemed to include and apply to each Lender and every
subsequent holder of this Loan Note. Reference is made to the
Loan Agreement for provisions concerning optional and
mandatory prepayments, Collateral, acceleration and other
material terms affecting this Loan Note. This Loan Note shall
be governed by and construed under the laws of the State of
New York whose laws the Borrower expressly elects to apply to
this Loan Note. The Borrower agrees that any action or
proceeding brought to enforce or arising out of this Loan Note
may be commenced in any United States Federal or New York
State court.
TRAC FUNDING II, INC.
By:
Name:
Title:
<PAGE>
Exhibit IV
Form of Compliance Certificate
This Compliance Certificate is furnished pursuant to that certain Loan
and Security Agreement dated as of December 28, 1998 (the "Agreement"), among
TRAC FUNDING II, INC. (the "Borrower"), Quincy Capital Corporation and
Receivables Capital Corporation (the "Lenders") and Bank of America Trust and
Savings Bank (the "Administrator"). Capitalized terms used and not otherwise
defined herein are used with the meanings attributed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ______________ of the Borrower;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the related
transactions during the period ended _____________; and
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which constitutes
an Event of Default or a Potential Event of Default, as each such term is
defined under the Agreement, during or at the end of the aforementioned period[,
except as set forth below].
[Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:]
The foregoing certifications, together with the computations set forth
in Schedule I hereto in support hereof, are made and delivered on and as of
[insert date].
[Name]
<PAGE>
Schedule of Computations under Section 6.1 (k)
in Support of Compliance Certificate dated ___________
<PAGE>
Exhibit V
Form of Monthly Report
[to be provided by the Administrator]
<PAGE>
Exhibit VI
Form of Lock-Box Agreement
[TO COME FROM PHH]
_______, 19__
<PAGE>
Exhibit VII
Credit and Collection Practices
PHH Shared Services Credit
Credit Risk Policy And Practices - Overview
Through its operating subsidiaries, PHH Corporation provides a broad range of
integrated management services, cost control programs and mortgage banking
services to primarily business entities, government agencies, and affinity
groups. To support these business services in a competitive environment, it is
necessary for PHH to source significant amounts of debt capital, at favorable
interest rates, and with few, if any, restrictions on how the borrowed funds are
utilized.
In order to access debt capital sources, it has been and will continue
to be necessary to maintain high portfolio credit quality and minimal bad debt
write-off experience. Therefore, PHH must consider itself a credit lender and
not a collateral lender, and maintain a credit environment and process
consistent with this position.
Following is an overview of the credit risk policy and practices
throughout PHH Corporation.
o All operating subsidiaries follow formalized,
structured credit and collection policies and procedures that
have been developed with the concurrence of Corporate Credit
Administration.
o Credit authorities are approved by Corporate Credit
Administration and senior financial management of PHH
Corporation, and higher credit lines or lower credit
standings, as defined by PHH Corporation, require the
concurrence of Corporate Credit Administration.
o The credit extension process requires a detailed
credit analysis and generally includes financial statement
analysis with financial ratio measurements of liquidity,
leverage, coverage and return ratios for prospective as well
as existing clients.
o Exception to the financial statement analysis
requirement generally occurs for only low-level credit risks,
such as small fuel accounts at PHH Europe, where a credit
criteria measured threshold must be met. Other exceptions
would include controlled level approvals based upon credit
ratings from major trade and debt rating agencies that are
based on financial statement capacity.
o In order to conduct business with clients where a
level of credit concern exists, the use of credit extension
enhancements is widely encouraged. Such enhancements could
include bank letters of credit, cash security deposits, surety
bonds, electronic payment requirements, corporate guarantees,
etc.
o Clients are subject to periodic (generally annual)
formal credit reviews to evaluate the credit risk basis for
continuing a business relationship.
o Credit line controls are in place for all PHH
operating subsidiaries, and further interim credit reviews are
conducted if a client's service usage exceeds the established
credit line.
o Credit management continues with the monitoring of
client collections on an ongoing basis.
o Credit and collection management control reports
are prepared monthly by all PHH operating subsidiaries and
submitted to Corporate Credit Administration, where an ongoing
oversight activity is exercised.
o Corporate Credit Administration conducts periodic
(not less than annually) on-site audits of the operating sub-
sidiary credit and collection activities. During this process,
a review is made to ensure that established credit and
collection policies and procedures are being adhered to.
The goals and objectives for the foregoing include:
o Maintain a sound, structured credit
environment in which risk exposures can be controlled
and monitored.
o Control bad debt write-offs consistent
with historic nominal levels and business needs, and
ensure adequate bad debt reserves are maintained.
o Optimize the return to shareholders by
providing quality credit risk management practices to
support business growth objectives.
o Maintain strong overall credit risk
portfolio to ensure continued high debt ratings and
access to low-cost debt markets.
<PAGE>
Exhibit VIII
Form of Loan Request
Bank of America Trust and Savings Association, as Administrator
231 South LaSalle Street
Chicago, Illinois 60697
This Loan Request is delivered to you pursuant to Section 1.2
of the Loan and Security Agreement dated as of December 29, 1998 (as is may be
amended, supplemented, restated or otherwise modified from time to time, the
"Agreement") among TRAC Funding, Inc., a Delaware corporation (the "Borrower"),
Quincy Capital Corporation (together with its successors and permitted assigns,
"RCC" and, together with QCC, the "Lenders"), and Bank of America Trust and
Savings Association ("BofA"), as administrator for the Lenders (in such
capacity, the "Administrator"). Unless otherwise defined herein or the context
otherwise requires, all capitalized terms used herein will have the respective
meanings assigned to them in the Agreement.
The Borrower hereby requests that the Loan be made in the aggregate
principal amount of $ , on December , 199 . The Borrower hereby certifies that
(i) the representations and warranties of the Borrower set forth in Article III
of the Agreement are on the date hereof, and will be on the date of the proposed
borrowing, true and correct as if made on and as of such dates, and (ii) no
Event of Default has occurred and is continuing on the date hereof or shall have
occurred and be continuing on the date of the proposed borrowing.
The Borrower agrees that if, prior to the time that the borrowing requested
hereby is made, any matter certified to herein shall no longer be true and
correct, it will immediately so notify the Agent. Except to the extent, if any,
that prior to the time that the borrowing requested hereby is made the Agent
shall receive written notice to the contrary from the Borrower, each matter
certified to herein shall be deemed once again to be certified as true and
correct as of the date of the borrowing as if then made.
Please wire transfer the proceeds of the requested borrowing to the
account(s) of the following Persons at the financial institutions indicated
below.
<TABLE>
<CAPTION>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Amount to be transferred Person to be paid Name, Address, etc. of
Name Account no. Payee Bank
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
The Borrower has caused this Loan Request to be executed and delivered, and the
certifications and warranties contained herein to be made, by their duly
authorized officers this __ day of December, 1998.
TRAC FUNDING II, INC.
By:
Name:
Title:
<PAGE>
Schedule I
Closing Documents
I. Amended and Restated Trust Agreement and PHH VMS, PHH Subsidiary
Administrative Agency Agreement
A. Series 1998-C Supplement dated as of December 28, 1998 (the
"1998-C Supplement") among PHH VMS, PHH Subsidiary and
the Trust with completed exhibits
B. Amendment to the Amended and Restated Trust Agreement, dated
as of December 17, 1998 among PHH VMS, PHH Subsidiary and the
Trust with completed exhibits.
C. Amendment to the Administrative Agency Agreement dated as of
December 17, 1998 among PHH VMS, PHH Subsidiary and the Trust
with completed exhibits.
D. Series 1998-C Specification Notice delivered by PHH VMS, as
Administrative Administrator, to the Trustee
E. Certificates of PHH VMS' Secretary certifying:
1. An attached copy of its PHH VMS Certificate of
Incorporation (certified within 30 days prior to
closing by the Maryland Secretary of State)
2. An attached copy of its PHH VMS By-Laws
3. An attached copy of resolutions of its PHH VMS Board
of Directors authorizing its PHH VMS execution,
delivery and performance of documents
4. The names, titles and specimen ignatures of its PHH
VMS officers authorized to execute and deliver the
documents
F. Good Standing Certificate for PHH VMS
G. Opinions:
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to enforceability, corporate law and related
matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to the issuance of the Series 1998-C
Certificate (pursuant to Section 4.4(e) of the Trust
Agreement)
3. Opinion of Counsel to Trustee
H. Series 1998-C Certificate.
II. Assignment & Assumption Agreement
A. Assignment & Assumption Agreement dated December 28, 1998(the
"Assignment") among PHH VMS, PHH Subsidiary and the Trust
with completed exhibits
B. UCC Financing Statement naming each of PHH VMS as debtors and
the Trust as secured party)
C. Acknowledgment by Trustee that the Series 1998-C Leases have
been transferred to it pursuant to the Assignment
D. Opinions
1. Opinion of Piper & Marbury as to UCC matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to true sale matters
3. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to non-consolidation matters
III. Sale Agreement
A. Sale Agreement dated as of December [1], 1998 (the "Sale
Agreement") between PHH VMS and PHH Subsidiary, with
completed exhibits
B. Assignment from PHH Subsidiary to PHH VMS
C. Opinions
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to UCC matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to enforceability, corporate law and related
matters
3. Opinion of Skadden, Arps, Slate, Meager & Flom with
respect to true sale matters
4. Opinion of Skadden, Arps, Slate, Meager & Flom with
respect to non- consolidation matters
IV. Contribution Agreement
A. Asset Contribution Agreement dated as of December 28, 1998
(the "Contribution Agreement") by and between PHH VMS and the
Borrower with completed exhibits.
B. Certificates of the Borrower's Secretary certifying:
1. An attached copy of its Certificate of Incorporation
(certified within 30 days prior to closing by the
Delaware Secretary of State)
2. An attached copy of its By-Laws
3. An attached copy of resolutions of its Board of
Directors authorizing its execution, delivery and
performance of documents
4. The names, titles and specimen signatures of its
officers authorized to execute and deliver the
documents
C. Good Standing Certificate for the Borrower
D. Opinions:
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to enforceability, corporate law and related
matters
2. Opinion of Skadden, Arps, Slate, Meagher & Flom
with respect to UCC matters.
3. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to true sale matters
4. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to non-consolidation matters
5. Opinion of Maryland counsel
E. Certificate with respect to no Event of Default or
Potential Event of Default; accuracy of representations and
warranties.
V. Loan Agreement
A. Loan and Security Agreement dated as of December 28, 1998 (the
"Loan Agreement") by and among the Borrower, the Lenders and
the Administrator with completed exhibits.
B. Fee Letter dated as of December 28, 1998 by and between the
Borrower and the Administrator.
C. UCC Financing Statement naming the each Originator, as debtor,
and the Trust, as secured party, filed with the Secretary of
State for the state of Maryland.
D. Loan Request executed by the Borrower.
E. Opinions
1. Opinion of Skadden, Arps, Slate, Meagher
& Flom with respect to enforceability, corporate law
and related matters.
2. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to UCC matters
F. Certificate with respect to no Event of Default or Potential
Event of Default, accuracy of representations and
warranties and satisfactions of the "borrowing base."
G. The Certificate registered in the Borrower's name, with an
undated assignment to the Administrator, for the benefit of
the Lenders.
H. Loan Note payable to the Administrator, for the benefit of the
Lenders.
I. UCC Search Results.
J. UCC-1 with respect to Certificate.
VI. Guarantee
A. Guarantee dated as of December 28, 1998 (the "Guarantee")
made by the Guarantor in favor of the Administrator and the
Lenders, with completed exhibits
B. Certificate of the Guarantor's Secretary certifying:
1. An attached copy of the Guarantor's Certificate of
Incorporation (certified within 30 days prior to
closing by the Maryland Secretary of State)
2. An attached copy of the Guarantor's By-Laws
3. An attached copy of resolutions of the Guarantor's
Board of Directors authorizing the Guarantor's
execution, delivery and performance of the Guarantee
and related documents
4. The names, titles and specimen signatures of the
Guarantor's officers authorized to execute and
deliver the Guarantee and related documents
C. Good standing certificates for the Guarantor:
1. Maryland
D. Creditors Acknowledgement Agreement
E. Opinions:
1. Opinion of Skadden, Arps, Slate, Meagher & Flom with
respect to enforceability, corporate law and related
matters
VII. Miscellaneous
A. Termination, Release and Assumption, dated as of December 28,
1998, between PHH Corporation and PHH VMS
B. Re-Execution of 100% Exchangeable Beneficial Certificate
C. Lock-Box Account Agreement
D. Instruction Letter to Administrative Agent regarding
distributions.
E. Release of PHH VMS with respect to Series 1998-C Assets
F. Monthly Report
EXHIBIT 12
PHH Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(Dollars in millions)
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------
December 31, January 31,
------------------------------------------ ---------------------------
1998 (2) 1997 1996 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes $ 439.6 $ (3.4) $ 176.3 $ 133.1 $ 116.8
Plus: Fixed charges 353.8 294.3 269.0 253.5 202.7
----------- ----------- ----------- ----------- -----------
Earnings available to cover
fixed charges $ 793.4 $ 290.9 $ 445.3 $ 386.6 $ 319.5
=========== =========== =========== =========== ===========
Fixed charges (1):
Interest, including amortization
of deferred financing costs 343.1 286.5 260.8 245.6 194.6
Interest portion of rental
payment 10.7 7.8 8.2 7.9 8.1
----------- ----------- ----------- ----------- -----------
Total fixed charges $ 353.8 $ 294.3 $ 269.0 $ 253.5 $ 202.7
=========== =========== =========== =========== ===========
Ratio of earnings to fixed
charges 2.24x (*) 1.66x 1.53x 1.58x
</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). The substantial
portion of interest expense incurred on debt is used to finance the
Company's fleet leasing, mortgage services and relocation services
activities.
(2) For the year ended December 31, 1998, income before income taxes includes
non-recurring merger-related costs and other unusual charges (credits) of
($20.2) million. Excluding such charges (credits); the ratio of earnings
to fixed charges is 2.19x.
(*) Earnings are inadequate to cover fixed charges (deficiency of $3.4
million) for the year ended December 31, 1997. Loss before income taxes
includes non-recurring merger-related costs and other unusual charges
of $251.0 million. Excluding such charges, the ratio of earnings to
fixed charges is 1.84x.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-63627, 333-27715, and 333-45373 for PHH Corporation on Form S-3 of our report
dated March 17, 1999, (which expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement related to the merger of
Cendant Corporation's relocation business with the Company and reclassifications
to conform to the presentation used by Cendant Corporation described in Note 3)
appearing in this Annual Report on Form 10-K of PHH Corporation for the year
ended December 31, 1998.
\s\DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 25, 1999
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
PHH Corporation
We consent to the incorporation by reference in Registration Statement Nos.
33-63627, 333-27715 and 333-45373 on Forms S-3 of PHH Corporation of our report
dated April 30, 1997, with respect to the consolidated statements of income,
shareholders' equity and cash flows of PHH Corporation and subsidiaries for the
year ended December 31, 1996, before the restatement and reclassifications
described in Note 3 to the consolidated financial statements, which report is
included in the Annual Report on Form 10-K of PHH Corporation for the year ended
December 31, 1998.
\s\ KPMG LLP
Baltimore, Maryland
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF THE COMPANY AS OF AND
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY TO BE
REFERENCED TO SUCH FINANCIAL STATEMENTS. AMOUNTS ARE IN MILLIONS, EXCEPT PER
SHARE DATA.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 233
<SECURITIES> 0
<RECEIVABLES> 791
<ALLOWANCES> 16
<INVENTORY> 0
<CURRENT-ASSETS> 1,008
<PP&E> 359
<DEPRECIATION> 140
<TOTAL-ASSETS> 9,033
<CURRENT-LIABILITIES> 809
<BONDS> 0
0
0
<COMMON> 289
<OTHER-SE> 697
<TOTAL-LIABILITY-AND-EQUITY> 9,033
<SALES> 0
<TOTAL-REVENUES> 1,098
<CGS> 0
<TOTAL-COSTS> 678
<OTHER-EXPENSES> (20)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 440
<INCOME-TAX> 160
<INCOME-CONTINUING> 280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
