<PAGE>
PROSPECTUS SUPPLEMENT
(To prospectus dated November 1, 2000)
$3,000,000,000
PHH Corporation
Medium-Term Notes
Due Nine Months to 40 years from the Date of Issue
General Terms of Sale
The following terms will generally apply to the medium-term notes that we
will sell from time to time using this prospectus supplement and the attached
prospectus. We will include information on the specific terms for each note in a
pricing supplement to this prospectus supplement that we will deliver to
prospective buyers of any note. The maximum amount that we expect to receive
from the sale of the notes is between $2,977,500,000 and $2,996,250,000 after
paying the agent commissions of between $3,750,000 and $22,500,000.
<TABLE>
<S> <C> <C> <C>
Maturity: 9 months to 40 years from the Interest Rates: Fixed, floating, or zero
date of issue. coupon.
Indexed Notes: Payments of interest or Ranking: Medium-term notes are part of
principal may be linked to our senior indebtedness and
the price of one or more rank prior to our
securities, currencies, subordinated indebtedness.
commodities or other goods.
Redemption: Terms of specific notes may Other Terms: You should review
permit or require redemption "Description of Notes" and
or repurchase at our option the pricing supplement for
or your option. features that apply to your
notes.
Risks: Currency risks may exist for
notes that are not payable in
dollars.
</TABLE>
------------------------
Consider carefully the information under "Risk Factors" beginning on page
S-2 of this prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or any accompanying prospectus or pricing supplement is
truthful or complete. Any representation to the contrary is a criminal offense.
Credit Suisse First Boston
Goldman, Sachs & Co.
Merrill Lynch & Co.
The date of this Prospectus Supplement is December 20, 2000.
<PAGE>
RISK FACTORS
Some of the notes that we issue under this prospectus supplement, any
pricing supplement to this prospectus supplement and the attached prospectus may
be payable in currencies other than dollars. This prospectus supplement, any
pricing supplement and the attached prospectus do not describe all the current
or future risks of an investment in any of those foreign currency notes. You
should consult your own financial and legal advisors about the risks involved
before purchasing any foreign currency notes. Foreign currency notes are not an
appropriate investment if you are unsophisticated with respect to foreign
currency transactions. See "Special Provisions Relating to Foreign Currency
Notes" below.
DESCRIPTION OF NOTES
The following description of the terms of our medium-term notes supplements
the description of the general terms and provisions of the debt securities set
forth in the attached prospectus. If any specific information in this
description is inconsistent with the description of the more general terms of
the debt securities contained in the prospectus, you should rely on the
information contained in this prospectus supplement.
The pricing supplement for each offering of notes will contain the specific
information and terms for that offering. If any information in the pricing
supplement, including any changes in the method of calculating interest on any
note, is inconsistent with this prospectus supplement, you should rely on the
information in the pricing supplement. The pricing supplement may also add,
update or change information contained in the prospectus and this prospectus
supplement. It is important for you to consider the information contained in the
prospectus, this prospectus supplement and the pricing supplement in making your
investment decision.
GENERAL
We will issue the notes under an indenture between us and Bank One Trust
Company, N.A., as trustee. The notes we may offer will constitute a portion of a
single series of debt securities for purposes of the indenture, and we have the
right to increase the aggregate amount of notes that will still be part of the
same series. At the date of this prospectus supplement, the aggregate principal
amount of notes offered pursuant to this prospectus supplement is limited to
$3,000,000,000 or its equivalent in foreign currencies or currency units. This
amount will be reduced by an amount equal to the gross proceeds from the sales
of other debt securities pursuant to the registration statement of which the
accompanying prospectus is a part. The statements in this prospectus supplement
concerning the notes and the indenture may not contain all of the information
that is important to you. Accordingly, you should carefully read the provisions
of the indenture, which is incorporated by reference into this prospectus
supplement in its entirety, including the definitions of terms used in this
prospectus supplement without definition. We have filed a copy of the indenture
with the Securities and Exchange Commission as an exhibit to the registration
statement of which the accompanying prospectus is a part.
The notes will be unsecured obligations of ours and will rank prior to all
of our subordinated indebtedness and on an equal basis with all of our other
unsecured indebtedness. As of June 30, 2000, the aggregate amount of outstanding
indebtedness to which the notes will rank equally, including medium-term notes,
commercial paper and commercial bank notes, was $1,900,000,000. However, under
general equitable principles, our right and the right of our creditors,
including the holders of notes, to participate in any distributions of assets of
our subsidiaries, if PHH were to be liquidated, is likely to be subject to the
prior claims of creditors of the subsidiary, except to the extent that our
claims as a creditor of the subsidiary may be recognized or our subsidiaries
were to be consolidated with us in any liquidation. As of June 30, 2000, our
subsidiaries had $471,000,000 of outstanding indebtedness,
S-2
<PAGE>
excluding indebtedness owed to us or our other subsidiaries. The notes will not
be subordinated in right of payment to any other of our indebtedness.
The indenture does not limit the aggregate principal amount of debt
securities which we may issue and permits debt securities to be issued in one or
more series up to the aggregate principal amount which we may authorize from
time to time. As of June 30, 2000, $390,000,000 aggregate principal amount of
our medium-term notes was outstanding. We may, from time to time, without the
consent of the holders of the notes, issue additional notes or other debt
securities under the indenture.
We will offer the notes on a continuing basis. The notes will have a stated
maturity on any day from 9 months to 40 years from the date of issue, as
selected by the initial purchaser and agreed to by us, and may be subject to
redemption or repayment prior to stated maturity at the price or prices
specified in the applicable pricing supplement. The maturity means the date on
which the principal of the note or an installment of principal becomes due and
payable as provided in the note, whether at the stated maturity date or by
declaration of acceleration, call for redemption or otherwise. Unless otherwise
specified in any applicable pricing supplement, each note will bear interest at
either (a) a fixed rate or (b) a floating rate determined by reference to an
interest rate formula or a base rate, which may be adjusted by adding or
subtracting a particular spread and/or multiplying by a particular spread
multiplier.
We will issue each note initially as either a global note or a certificated
note and, if denominated in U.S. dollars, in denominations of $1,000 and whole
multiples of $1,000 or, if denominated in any foreign currency or currency
units, the dollar equivalent in such foreign currency or currency units. For a
description of the denominations of foreign currency notes see "Special
Provisions Relating to Foreign Currency Notes." Certificated notes may be
transferred or exchanged at the offices of the trustee, 14 Wall Street, Eighth
Floor, Window 2, New York, New York 10005. Global notes may be transferred or
exchanged through a participating member of the depositary, as discussed in more
detail under "Global Notes" below. No service charge will be made for any
registration of transfer or exchange of certificated notes, but we may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed.
We may offer the notes at different interest rates depending upon, among
other things, the aggregate principal amount of the notes purchased in any
single transaction. We may change interest rates or interest rate formulas from
time to time but no change will affect any note previously issued or which we
have agreed to sell.
Unless we indicate otherwise in the applicable pricing supplement, the
interest payment dates for fixed rate notes shall be those described below under
"Fixed Rate Notes." The interest payment dates for floating rate notes will be
indicated in the applicable pricing supplement. Unless we specify otherwise in
the applicable pricing supplement, each regular record date for a fixed rate
note or a floating rate note will be the fifteenth day next preceding each
interest payment date, whether or not a business day.
We refer to the notes in the accompanying prospectus as the debt securities.
For a description of the rights attaching to different series of debt securities
under the indenture, see "Description of Debt Securities" in the accompanying
prospectus.
PAYMENT OF PRINCIPAL AND INTEREST
Payments of principal, premium, if any, and interest on global notes will be
made to the depositary by wire transfer, either in same day funds or in next day
funds. See "--Global Notes" below. In the case of certificated notes:
(1) principal, premium, if any, and interest will be payable,
S-3
<PAGE>
(2) the transfer of the notes will be registrable, and
(3) notes will be exchangeable for notes bearing identical terms and
provisions, in each case, at the offices of the trustee, 14 Wall Street,
Eighth Floor, Window 2, New York, New York 10005.
We have the option, however, to pay interest, other than at maturity, by check
mailed to the address of the person in whose name the applicable note is
registered at the close of business on the relevant regular record date as shown
on the applicable security register. The global notes will be registered in the
name of a nominee of the depositary. A holder of U.S. $10,000,000 or more in
aggregate principal amount of notes of like tenor and term, or a holder of the
equivalent value in a specified currency other than U.S. dollars, has the right
to receive interest payments other than an interest payment due at maturity by
wire transfer of immediately available funds to a designated account maintained
in the United States, so long as the trustee has received proper instructions in
writing from that holder on or prior to the applicable regular record date. The
interest payment instructions will remain in effect until revoked or changed by
written instructions received by the trustee from the holder. Any written
revocation or change which is received by the trustee after a regular record
date and before the related interest payment date will not be effective with
respect to the interest payable on that interest payment date. Interest will be
payable on each interest payment date specified in the note on which an
installment of interest is due and payable and at maturity. If the original
issue date of a note is between a regular record date and the related interest
payment date, the initial interest payment will be made on the interest payment
date following the next succeeding regular record date to the registered holder
on the next succeeding regular record date unless we specify otherwise in the
applicable pricing supplement.
Unless we specify otherwise in an applicable pricing supplement, interest
payments will be equal to the amount of interest accrued from and including the
next preceding interest payment date in respect of which interest has been paid
or duly provided for, or from and including the date of issue, if no interest
has been paid with respect to the note, to but excluding the applicable interest
payment date. In the case of certificated notes, payment of principal, premium,
if any, and interest payable at maturity on each certificated note will be paid
in immediately available funds against presentation of the certificated note at
the offices of the trustee, 14 Wall Street, Eighth Floor, New York, New York
10005; provided that the certificated notes are presented to the trustee in time
for the trustee to make the payments in the funds in accordance with its normal
procedures. Interest payable at maturity will be payable to the person to whom
the principal of the note will be paid.
As used in the prospectus supplement, business day means any day, other than
a Saturday or Sunday, that meets each of the following applicable requirements:
(1) it is not a legal holiday or a day on which banking institutions are
authorized or required by law or regulation to be closed in The City of New
York;
(2) if the note is denominated or payable in a specified currency other
than U.S. dollars:
(a) it is not a day on which banking institutions are authorized or
required by law or regulation to close in the major financial center of
the country issuing the specified currency, which in the case of euro
shall include the financial center of each country that issues a
component currency of the euro and
(b) it is a day on which banking institutions in that financial
center are carrying out transactions in such specified currency; and
(3) if the note is a LIBOR note, it is a London banking day.
A London banking day means any day on which dealings on deposits in U.S. dollars
are transacted in the London interbank market.
S-4
<PAGE>
REDEMPTION AND REPAYMENT
Unless we specify otherwise in an applicable pricing supplement, we will not
redeem the notes prior to their stated maturity. If we so specify in an
applicable pricing supplement with respect to a note or notes, we will have the
right to redeem the note or notes on or after the date set forth in the pricing
supplement, either in whole or from time to time in part, at our option, at the
redemption price or prices specified in the applicable pricing supplement,
together with interest accrued thereon to but excluding the date of redemption,
on notice given not more than 60 days nor less than 30 days prior to the date of
redemption. The redemption price with respect to each note subject to redemption
prior to stated maturity will be fixed at the time of sale and set forth in the
applicable pricing supplement and in the applicable note.
Unless we specify otherwise in an applicable pricing supplement, the notes
will not be subject to repayment at your option. If we so specify in an
applicable pricing supplement with respect to a note or notes, the note or notes
will be subject to repayment at your option in accordance with the terms of the
notes on their respective optional repayment dates fixed at the time of sale and
set forth in the applicable pricing supplement and in the applicable note. On
any optional repayment date with respect to a note, the note will be repayable
in whole or in part at your option at a price specified in the applicable
pricing supplement, together with interest thereon payable to the optional
repayment date, on notice given by you to us not more than 60 days nor less than
30 days prior to the optional repayment date.
If a note is represented by a global note, the depositary's nominee will be
the holder of the note and therefor will be the entity through which you may
exercise a right to repayment. In order to ensure that the depositary's nominee
will timely exercise a right to repayment with respect to a particular note, you
must instruct the broker or other direct or indirect participant through which
you hold an interest in the note to notify the depositary of your desire to
exercise a right to repayment. The depositary would then notify the trustee.
Different firms have different deadlines for accepting instructions from their
customers and, accordingly, you should consult your broker or other direct or
indirect participant through which you hold an interest in a global note in
order to ascertain the deadline by which such an instruction must be given in
order for timely notice to be delivered to the depositary.
Unless we specify otherwise in an applicable pricing supplement, the notes
will not be subject to any sinking fund.
FIXED RATE NOTES
Unless we specify otherwise in an applicable pricing supplement:
- Each fixed rate note will bear interest from the date of issue at the
annual rate stated on the face of the fixed rate note, payable
semiannually on February 15 and August 15 of each year and at maturity;
- Interest will be computed on the fixed rate notes on the basis of a
360-day year of twelve 30-day months; and
- Interest on the fixed rate notes will be paid to the person in whose name
the note is registered at the close of business on the regular record
date, except that at maturity, interest will be payable to the person
surrendering the note to whom principal will also be payable.
If any interest payment date or the maturity of a fixed rate note falls on a
day that is not a business day:
- the payment will be made on the next business day as if it were made on
the date such payment was due; and
- no interest will accrue on the amount so payable for the period from and
after such interest payment date or maturity.
S-5
<PAGE>
FLOATING RATE NOTES
Each floating rate note will bear interest at a floating rate determined by
reference to the base rate or interest rate formula specified in the applicable
pricing supplement. Any floating rate note may also have either or both of the
following:
- a maximum numerical interest rate limitation, or ceiling, on the rate of
interest which may accrue during any interest period; and
- a minimum numerical interest rate limitation, or floor, on the rate of
interest which may accrue during any interest period.
Interest on the floating rate notes will be determined by reference to a base
rate, which may be:
(a) the CD Rate in which case the note will be a CD Rate note;
(b) the Commercial Paper Rate in which case the note will be a
Commercial Paper Rate note;
(c) the Federal Funds Effective Rate in which case the note will be a
Federal Funds Effective Rate note;
(d) LIBOR in which case the note will be a LIBOR note;
(e) the Treasury Rate in which case the note will be a Treasury Rate
note;
(f) the Prime Rate in which case the note will be a Prime Rate note; or
(g) any other base rate or interest rate formula as is stated in the
pricing supplement.
The applicable pricing supplement will specify the interest rate formula or
the base rate and the index maturity, the spread and/or spread multiplier, if
any, and the maximum or minimum interest rate limitation, if any, applicable to
each floating rate note. In addition, the pricing supplement for the floating
rate note may contain information concerning:
- the calculation agent,
- calculation dates,
- initial interest rate,
- interest determination dates,
- interest payment periods,
- interest payment dates,
- maturity,
- regular record dates,
- interest reset dates,
- interest reset periods,
- any initial redemption dates,
- any initial redemption percentage, and
- any annual redemption percentage reduction and optional repayment date.
The index maturity is the period to maturity of an instrument or obligation
with respect to which the base rate is calculated. The spread is the number of
basis points above or below the base rate applicable to a floating rate note,
and the spread multiplier is the percentage of the base rate applicable to the
interest rate for a floating rate note. We may change the spread, spread
multiplier, index maturity and other variable terms of the floating rate notes
from time to time, but no change will affect any floating rate note previously
issued or as to which we have accepted an offer to purchase.
Unless we specify otherwise in an applicable pricing supplement, the rate of
interest on each floating rate note will be reset daily, weekly, monthly,
quarterly, semi-annually or annually on an
S-6
<PAGE>
interest reset date, as specified in the applicable pricing supplement. Unless
we specify otherwise in an applicable pricing supplement, the interest reset
date will be:
- in the case of floating rate notes which reset daily, each business day;
- in the case of floating rate notes which reset weekly, other than Treasury
Rate notes, the Wednesday of each week;
- in the case of treasury rate notes which reset weekly, the Tuesday of each
week, except as provided below;
- in the case of floating rate notes which reset monthly, the third
Wednesday of each month;
- in the case of floating rate notes which reset quarterly, the third
Wednesday of each February, May, August and November;
- in the case of floating rate notes which reset semi-annually, the third
Wednesday of each of the two months of each year specified in the
applicable pricing supplement; and
- in the case of floating rate notes which reset annually, the third
Wednesday of one month of each year, as specified in the applicable
pricing supplement.
Unless we specify otherwise in an applicable pricing supplement, the interest
rate in effect from the date of issue to the first interest reset date with
respect to a floating rate note will be the initial interest rate stated in the
applicable pricing supplement. If any interest reset date for any floating rate
note would otherwise be a day that is not a business day for that floating rate
note, the interest reset date for that floating rate note will be postponed to
the next day that is a business day for that floating rate note, except that in
the case of a LIBOR note, if the business day is in the next succeeding calendar
month, the interest reset date shall be the immediately preceding business day.
The interest rate applicable to each interest accrual period commencing on
an interest reset date will be the rate determined by reference to the interest
determination date. The interest determination date will be:
- the second business day prior to the interest reset date for a Commercial
Paper Rate note, a Federal Funds Effective Rate note, a CD Rate note or a
Prime Rate note;
- the second London banking day prior to such interest reset date for a
LIBOR note; and
- the day of the week in which such interest reset date falls on which
Treasury bills would normally be auctioned for a Treasury Rate note.
Treasury bills are usually sold at auction on Monday of each week, unless
that day is a legal holiday, in which case the auction is usually held on the
following Tuesday, except that the auction may be held on the preceding Friday.
If, as the result of a legal holiday, an auction is so held on the preceding
Friday, that Friday will be the Treasury interest determination date pertaining
to the interest reset date occurring in the next succeeding week. If an auction
date falls on any interest reset date for a Treasury Rate note, then the
interest reset date shall instead be the first business day immediately
following the auction date.
With respect to a floating rate note, accrued interest is calculated by
multiplying the principal amount of a note by an accrued interest factor. The
accrued interest factor is computed by adding the interest factors calculated
for each day from the date of issue, or from the last date for which interest
has been paid, as the case may be, to the date for which accrued interest is
being calculated. Unless otherwise specified in an applicable pricing
supplement, the interest factor for each day is computed by dividing the
interest rate applicable to that date by 360, in the case of Commercial Paper
Rate notes, CD Rate notes, Federal Funds Effective Rate notes, LIBOR notes and
Prime Rate notes, or by the actual number of days in the year, in the case of
Treasury Rate notes.
All percentages resulting from any calculation with respect to floating rate
notes will be rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a
S-7
<PAGE>
percentage point rounded upward. For example, 9.876545% or .09876545 would be
rounded to 9.87655% or .0987655. All dollar amounts used in or resulting from
the calculation on floating rates notes will be rounded to the nearest cent with
one half cent being rounded upward. The calculation agent will, upon the request
of the holder of any floating rate note, provide the interest rate then in
effect and the interest rate which will become effective as a result of a
determination made with respect to the most recent interest determination date
with respect to any note. Unless we specify otherwise in an applicable pricing
supplement, the trustee will be the calculation agent for the floating rate
notes. Unless we specify otherwise in an applicable pricing supplement, the
calculation date, where applicable, pertaining to any interest determination
date will be the earlier of:
- the tenth calendar day after the interest determination date or if that
day is not a business day, the next succeeding business day; and
- the business day next preceding the relevant interest payment date or
maturity, as the case may be.
In addition to any specified maximum interest rate which may be applicable
to any floating rate note, the interest rate on the notes will in no event be
higher than the maximum rate permitted by New York law, as the same may be
modified by United States law of general application. Under current New York
law, the maximum rate of interest on a loan to a corporation is 25% per annum on
a simple interest basis. The limit may not apply to floating rate notes in which
$2,500,000 or more has been invested.
Each floating rate note will bear interest from the date of issue at the
rates determined as described below until the principal thereof is paid or
otherwise made available for payment. Except as provided below, and unless
otherwise indicated in an applicable pricing supplement, interest will be
payable:
- in the case of floating rate notes which reset daily, weekly or monthly,
on the third Wednesday of each month or on the third Wednesday of
February, May, August and November of each year, as specified in the
applicable pricing supplement;
- in the case of floating rate notes which reset quarterly, on the third
Wednesday of February, May, August and November of each year;
- in the case of floating rate notes which reset semi-annually, on the third
Wednesday of the two months of each year specified in the applicable
pricing supplement; and
- in the case of floating rate notes which reset annually, on the third
Wednesday of the month specified in the applicable pricing supplement and
in each case, at maturity.
If any interest payment date, other than an interest payment date occurring
at maturity, for any floating rate note other than a LIBOR note would fall on a
day that is not a business day with respect to such note, the interest payment
date will be the following day that is a business day with respect to the note.
In the case of a LIBOR note, however, if the business day is in the next
succeeding calendar month, the interest payment date will be the immediately
preceding day that is a business day with respect to such LIBOR note. If the
maturity of any floating rate note would fall on a day that is not a business
day, the payment of interest, principal and premium, if any, may be made on the
next succeeding business day, and no interest on the payment will accrue for the
period from and after maturity.
COMMERCIAL PAPER RATE NOTES
A Commercial Paper Rate note will bear interest at the interest rate,
calculated with reference to the Commercial Paper Rate and the spread and/or
spread multiplier, if any, specified in the Commercial Paper Rate note and in
the applicable pricing supplement.
S-8
<PAGE>
Unless we indicate otherwise in the applicable pricing supplement,
Commercial Paper Rate means, with respect to any Commercial Paper interest
determination date, the money market yield, calculated as described below, on
that date of the rate for commercial paper having the index maturity designated
in the applicable pricing supplement as such rate is published by the Board of
Governors of the Federal Reserve System in "Statistical Release H.15(519),
Selected Interest Rates," or any successor publication of the Board of Governors
of the Federal Reserve System under the heading "Commercial
Paper--Nonfinancial."
The following procedures will be followed if the Commercial Paper Rate
cannot be determined as described above:
- In the event that the Commercial Paper Rate is not published by
3:00 P.M., New York City time, on the calculation date pertaining to a
Commercial Paper interest determination date, then the Commercial Paper
Rate will be the money market yield on the Commercial Paper interest
determination date of the rate for commercial paper having the index
maturity designated in the applicable pricing supplement as published by
the Federal Reserve Bank of New York in its daily statistical release,
"Composite 3:30 P.M. Quotations for U.S. Government Securities" under the
heading "Commercial Paper."
- If by 3:00 P.M., New York City time, on the calculation date the rate is
not yet published in either H.15(519) or Composite Quotations, then the
Commercial Paper Rate for such Commercial Paper interest determination
date will be calculated by the calculation agent and will be the money
market yield of the arithmetic mean of the offered rates as of
11:00 A.M., New York City time, on such Commercial Paper interest
determination date, of three leading dealers of commercial paper in New
York City selected by the calculation agent for commercial paper having
the index maturity designated in the applicable pricing supplement placed
for an industrial issuer whose bond rating is "AA," or the equivalent,
from a nationally recognized securities rating agency.
- If the three dealers selected above by the calculation agent are not
quoting that rate, the Commercial Paper Rate with respect to such
Commercial Paper interest determination date will be the Commercial Paper
Rate in effect on such Commercial Paper interest determination date.
Money market yield will be a yield, expressed as a percentage rounded, if
necessary, to the nearest one hundred-thousandth of a percent, calculated in
accordance with the following formula:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
D X 360
MoneyMarketYield = ------------- X 100
360-(D X M)
</TABLE>
where "D" refers to the per annum rate for the commercial paper, quoted on a
bank discount basis and expressed as a decimal; and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
CD RATE NOTES
A CD Rate note will bear interest at the interest rate, calculated with
reference to the CD Rate and the spread and/or spread multiplier, if any,
specified in the CD Rate note and in the applicable pricing supplement.
S-9
<PAGE>
Unless we indicate otherwise in the applicable pricing supplement, CD Rate
means, with respect to any CD interest determination date, the rate on such date
for negotiable certificates of deposit having the index maturity designated in
the CD Rate note as published in H.15(519) under the heading "CDs (Secondary
Market)."
The following procedures will be followed if the CD Rate cannot be
determined as described above:
- If the above rate is not published by 3:00 P.M., New York City time, on
the calculation date pertaining to the CD interest determination date, the
CD Rate will be the rate on the CD interest determination date for
negotiable certificates of deposit of the index maturity designated in the
applicable pricing supplement as published in Composite Quotations under
the heading "Certificates of Deposit."
- If the rate is not published in either H.15(519) or Composite Quotations
by 3:00 P.M., New York City time, on the calculation date pertaining to
the CD interest determination date, the CD Rate will be calculated by the
calculation agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such CD interest
determination date, of three leading nonbank dealers in negotiable U.S.
dollar certificates of deposit in New York City selected by the
calculation agent, after consultation with us, for negotiable certificates
of deposit of major United States money market banks of the highest credit
standing (in the market for negotiable certificates of deposit) with a
remaining maturity closest to the index maturity designated in the
applicable pricing supplement in a denomination of $5,000,000.
- If the three dealers selected above by the calculation agent are not
quoting that rate, the CD Rate with respect to the CD interest
determination date will be the CD Rate in effect on the CD interest
determination date.
FEDERAL FUNDS EFFECTIVE RATE NOTES
A Federal Funds Effective Rate note will bear interest at the interest rate,
calculated with reference to the Federal Funds Effective Rate and the spread
and/or spread multiplier, if any, specified in the Federal Funds Effective Rate
note and in the applicable pricing supplement.
Unless we indicate otherwise in the applicable pricing supplement, Federal
Funds Effective Rate means, with respect to any Federal Funds interest
determination date, the rate on that date for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)."
The following procedures will be followed if the Federal Funds Effective
Rate cannot be determined as described above:
- If the above rate is not published by 9:00 A.M., New York City time, on
the calculation date pertaining to the Federal Funds interest
determination date, the Federal Funds Effective Rate will be the rate on
the Federal Funds interest determination date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate."
- If the rate is not yet published in either H.15(519) or Composite
Quotations by 9:00 A.M., New York City time, on the calculation date
pertaining to the Federal Funds interest determination date, then the
Federal Funds Effective Rate for the Federal Funds interest determination
date will be calculated by the calculation agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
Funds arranged by three leading brokers of Federal Funds transactions in
New York City selected by the calculation agent as of 9:00 A.M., New York
City time, on the Federal Funds interest determination date;
S-10
<PAGE>
- If the three brokers selected above by the calculation agent are not
quoting that rate, the Federal Funds Effective Rate with respect to the
Federal Funds interest determination date will be the Federal Funds
Effective Rate in effect on the Federal Funds interest determination date.
LIBOR NOTES
A LIBOR note will bear interest at the interest rate, calculated with
reference to LIBOR and the spread and/or spread multiplier, if any, specified in
the LIBOR note and in the applicable pricing supplement.
Unless we indicate otherwise in the applicable pricing supplement, LIBOR
will be determined by the calculation agent in accordance with the following
provisions:
(1) With respect to a LIBOR interest determination date, LIBOR will
be, as specified in the applicable pricing supplement, either:
(a) the arithmetic mean of the offered rates for deposits in U.S.
dollars having the index maturity designated in the applicable
pricing supplement, commencing on the second London banking day
immediately following such LIBOR interest determination date, that
appears on the Reuters Screen LIBO Page as of 11:00 A.M., London
time, on such LIBOR interest determination date, if at least two such
offered rates appear on the Reuters Screen LIBO Page. LIBOR as
calculated as described in this clause (a) will be referred to as
LIBOR Reuters; or
(b) the rate for deposits in U.S. dollars having the index
maturity designated in the applicable pricing supplement, commencing
on the second London banking day immediately following such LIBOR
interest determination date, that appears on the Telerate Page 3750
as of 11:00 A.M., London time, on such LIBOR interest determination
date. LIBOR as calculated as described in this clause (b) will be
referred to as LIBOR Telerate.
Reuters Screen LIBO Page means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service, or such other page as may replace page LIBO
on that service for the purpose of displaying London interbank offered rates of
major banks. Telerate Page 3750 means the display designated as page "3750" on
the Bridge Telerate Service, or any other page as may replace the 3750 page on
that service or any other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for U.S. dollar deposits.
If neither LIBOR Reuters nor LIBOR Telerate is specified in the applicable
pricing supplement, LIBOR will be determined as if LIBOR Telerate had been
specified. If at least two offered rates appear on the Telerate Page 3750, the
rate in respect of the LIBOR interest determination date will be the arithmetic
mean of the offered rates as determined by the calculation agent. If fewer than
two offered rates appear on the Telerate Page 3750, or if no rate appears on the
Reuters Screen LIBO Page, as applicable, LIBOR in respect of such LIBOR interest
determination date will be determined as if the parties had specified the rate
described in (2) below.
(2) On any LIBOR interest determination date on which fewer than two
offered rates appear on the Reuters Screen LIBO Page as specified in
paragraph (1)(a) above, or on which no rate appears on the Telerate Page
3750, as specified in paragraph (1)(b) above, as applicable, LIBOR will
be determined on the basis of the rates at which deposits in U.S. dollars
are offered by four major banks, which will be referred to in this
clause (2) as the reference banks, in the London interbank market
selected by the calculation agent at approximately 11:00 A.M., London
time, on the LIBOR interest determination date to prime banks in the
London interbank market, having the index maturity designated in the
applicable pricing supplement, commencing on the second London banking
day immediately following
S-11
<PAGE>
the LIBOR interest determination date and in a principal amount equal to
an amount of not less than U.S. $1,000,000 that is representative for a
single transaction in that market at that time. The calculation agent
will request the principal London office of each of the reference banks
to provide a quotation of its rate.
(a) If at least two quotations are provided, LIBOR in respect of
the LIBOR interest determination date will be the arithmetic mean of
the quotations.
(b) If fewer than two quotations are provided, LIBOR in respect
of the LIBOR Interest Determination Date will be the arithmetic mean
of the rates quoted by three major banks in New York City selected by
the calculation agent at approximately 11:00 A.M., New York City
time, on the LIBOR interest determination date for loans in U.S.
dollars to leading European banks, having the index maturity
designated in the applicable pricing supplement, the loans commencing
on the second London banking day immediately following such LIBOR
interest determination date and in a principal amount equal to an
amount of not less than U.S. $1,000,000 that is representative for a
single transaction in that market at that time.
(c) If the banks in New York City selected in paragraph (b) by
the calculation agent are not quoting as mentioned in this sentence,
LIBOR with respect to the LIBOR interest determination date will be
LIBOR in effect on the LIBOR interest determination date.
TREASURY RATE NOTES
A Treasury Rate note will bear interest at the interest rate, calculated
with reference to the Treasury Rate and the spread and/or spread multiplier, if
any, specified in the Treasury Rate note and in the applicable pricing
supplement.
Unless we indicate otherwise in the applicable pricing supplement, Treasury
Rate means, with respect to any Treasury interest determination date, the rate
for the most recent auction of direct obligations of the United States, which
shall be referred to in this prospectus supplement as Treasury Bills, having the
index maturity designated in the applicable pricing supplement as published in
H.15(519) under the heading Pricing "U.S. Government Securities--Treasury
Bills--auction average (investment)."
The following procedures will be followed if the Treasury Rate cannot be
determined as described above.
- If the rate is not published by 3:00 P.M., New York City time, on the
calculation date pertaining to the Treasury interest determination date,
the auction average rate, expressed as a bond equivalent, rounded, if
necessary, to the nearest one hundred-thousandth of a percent, on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis, as otherwise announced by the U.S. Department of the Treasury.
- If the result of the auction of Treasury Bills having the index maturity
designated in the applicable pricing supplement is not otherwise reported
as provided above by 3:00 P.M., New York City time, on the calculation
date or, if no auction is held in a particular week, then the Treasury
Rate shall be calculated by the calculation agent and shall be a yield to
stated maturity, expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis, of the
arithmetic mean of the secondary market bid rates, as of approximately
3:30 P.M., New York City time, on such Treasury interest determination
date, of three leading primary U.S. securities dealers selected by the
calculation agent for the issue of Treasury Bills with a remaining
maturity closest to the index maturity designated in the applicable
pricing supplement.
S-12
<PAGE>
- If the three dealers selected above by the calculation agent are not
quoting that rate, the Treasury Rate with respect to the Treasury interest
determination date will be the Treasury Rate in effect on the Treasury
interest determination date.
PRIME RATE NOTES
A Prime Rate note will bear interest at the interest rate, calculated with
reference to the Prime Rate and the spread and/or spread multiplier, if any,
specified in the Prime Rate note and in the applicable pricing supplement.
Unless we indicate otherwise in the applicable pricing supplement, Prime
Rate means, with respect to any Prime interest determination date, the rate set
forth on such date in H.15(519) under the heading "Bank Prime Loan."
- If the rate is not published prior to 9:00 A.M. New York City time, on the
calculation date pertaining to the Prime interest determination date, then
the Prime Rate will be determined by the calculation agent and will be the
arithmetic mean of the rates of interest publicly announced by each bank
that appears on the Reuters Screen USPRIME1 Page, as defined below, as the
bank's prime rate or base lending rate as in effect for that Prime
interest determination date.
- If fewer than four rates but more than one rate appear on the Reuters
Screen USPRIME1 Page for the Prime interest determination date, the Prime
Rate will be determined by the calculation agent and will be the
arithmetic mean of the prime rates quoted on the basis of the actual
number of days in the year divided by a 360-day year as of the close of
business on such Prime interest determination date by four major money
center banks in New York City selected by the calculation agent.
- If fewer than two rates appear on the Reuters Screen USPRIME1 Page, the
Prime Rate will be determined by the calculation agent on the basis of the
rates furnished in New York City by the appropriate number of substitute
banks or trust companies organized and doing business under the laws of
the United States, or any State thereof, having total equity capital of at
least U.S. $500,000,000 and being subject to supervision or examination by
federal or state authority, selected by the calculation agent to provide
the rate or rates.
- If the banks selected above are not quoting that rate, the Prime Rate will
be the Prime Rate in effect on the Prime interest determination date.
Reuters Screen USPRIME1 Page means the display designated as page
"USPRIME1" on the Reuters Monitor Money Rates Service or any other page as
may replace the USPRIME1 page on that service for the purpose of
displaying prime rates or base lending rates of major United States banks.
FOREIGN CURRENCY AND INDEX-LINKED NOTES
If any note is not to be denominated in U.S. dollars, some provisions with
respect to that note will be set forth in a foreign currency pricing supplement
which will indicate the specified currency in which the principal, premium, if
any, and interest with respect to such note are to be paid, along with any other
terms relating to the specified currency. The pricing supplement also will
provide specific historic exchange rate information, currency risks relating to
the specific currencies selected, investment considerations and additional tax
considerations.
Amounts due on a note in respect of principal, premium, if any, and interest
may be determined with reference to:
(a) a currency exchange rate or rates,
(b) a securities or commodities exchange index,
S-13
<PAGE>
(c) the value of a particular security or commodity or
(d) any other index or indices.
The notes described in clauses (a) through (d) above are referred to in this
prospectus supplement as Index-Linked notes. The pricing supplement relating to
an Index-Linked note will state the method by and terms on which the amount of
principal payable at stated maturity, or upon redemption or repayment, if
applicable, and interest, premium or the amortized face amount, if any, will be
determined, the tax consequences to holders of Index-Linked notes, a description
of risks associated with investments in Index-Linked notes and other information
relating to Index-Linked notes.
An investment in notes indexed, as to principal or interest or both, to one
or more values of currencies, including exchange rates between currencies,
commodities or interest rate indices entails significant risks that are not
associated with similar investments in a conventional fixed-rate debt security.
If the interest rate of a note is so indexed, it may result in an interest rate
that is less than that payable on a conventional fixed-rate debt security issued
at the same time, including the possibility that no interest will be paid, and,
if the principal amount of a note is so indexed, the principal amount payable at
maturity may be less than the original purchase price of the note if allowed
pursuant to the terms of the note, including the possibility that no principal
will be paid. The secondary market for the notes will be affected by a number of
factors independent of the creditworthiness of the issuer and the value of the
applicable currency, commodity or interest rate index, including:
- the volatility of the applicable currency, commodity or interest rate
index;
- the time remaining to the maturity of the notes;
- the amount outstanding of the notes; and
- market interest rates.
The value of the applicable currency, commodity or interest rate index
depends on a number of interrelated factors, including economic, financial and
political events, over which we have no control. Additionally, if the formula
used to determine the principal amount or interest payable with respect to the
notes contains a multiple or leverage factor, the effect of any change in the
applicable currency, commodity or interest rate index will be increased. The
historical experience of the relevant currencies, commodities or interest rate
indices should not be taken as an indication of future performance of the
currencies, commodities or interest rate indices during the term of any note.
The credit ratings assigned to our medium-term note program are a reflection of
our credit status, and are not a reflection of the potential impact of the
factors discussed above, or any other factors, on the market value of the notes.
Accordingly, prospective investors should consult their own financial and legal
advisors as to the risks entailed by an investment in the notes and the
suitability of the notes in light of their particular circumstances.
GLOBAL NOTES
The notes may be issued in whole or in part in the form of one or more fully
registered notes which will be deposited with, or on behalf of, the depositary
and registered in the name of the depositary's nominee. Except as set forth
below, a global note may not be transferred except as a whole by the depositary
to a nominee of the depositary or by a nominee of the depositary to the
depositary or another nominee of the depositary or by the depositary or any
nominee to a successor of the depositary or a nominee of such successor.
The depositary has advised us and the agents that it is a limited-purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
The
S-14
<PAGE>
depositary was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The depositary's participants include securities brokers and
dealers, including the agents, banks, trust companies, clearing corporations and
certain other organizations, some of which and/or their representatives own the
depositary. Access to the depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. Persons who are not participants may beneficially own securities
held by the depositary only through participants.
Upon the issuance by us of notes represented by a global note, the
depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of the notes represented by such global note to the
accounts of participants. The accounts to be credited shall be designated by the
agents or by us, if the notes are offered and sold directly by us.
If the depositary is at any time unwilling or unable to continue as
depositary and we do not appoint a successor depositary within 90 days, we will
issue notes in certificated form in exchange for each global note. In addition,
we may at any time determine not to have notes represented by one or more global
notes, and, in such event, we will issue notes in certificated form in exchange
for the global note or notes representing such notes. In any such instance, an
owner of a beneficial interest in a global note will be entitled to physical
delivery in certificated form of notes equal in principal amount to their
beneficial interest and to have the notes registered in their name. notes so
issued in certificated form will be issued in denominations of $1,000 or any
amount in excess thereof which is a whole multiple of $1,000 and will be issued
in fully registered form only.
For a more complete description of global notes, see "Description of Debt
Securities--Global Securities" in the attached prospectus.
S-15
<PAGE>
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless we indicate otherwise in the applicable pricing supplement, the notes
will be denominated in U.S. dollars and payments of principal of, premium, if
any, and interest on the notes will be made in U.S. dollars. The following
provisions shall apply to foreign currency notes. These provisions are in
addition to, and to the extent inconsistent therewith replace, the description
of general terms and provisions of the notes set forth in the attached
prospectus and elsewhere in this prospectus supplement.
Foreign currency notes are issuable in registered form only, without
coupons. The denominations for particular foreign currency notes will be
specified in the applicable pricing supplement.
Unless we provide otherwise in the applicable pricing supplement, payment of
the purchase price of foreign currency notes will be made in immediately
available funds.
Unless we indicate otherwise in the applicable pricing supplement, all
currency and currency unit amounts used and resulting from calculations relating
to currencies for a Foreign Currency note will be rounded to the nearest
one-hundredth of a unit, with five one-thousandths of a unit being rounded
upwards.
CURRENCIES
Unless we specify otherwise in the applicable pricing supplement, purchasers
are required to pay for foreign currency notes in the specified currency. At the
present time there are limited facilities in the United States for the
conversion of U.S. dollars into foreign currencies or currency units and vice
versa, and banks generally do not offer non-U.S. dollar checking or savings
account facilities in the United States. However, if requested on or prior to
the third business day preceding the date of delivery of the notes, or by any
other day as determined by the agent which presented the offer to purchase the
notes to us, the agent is prepared to arrange for the conversion of U.S. dollars
into the specified currency stated in the applicable pricing supplement to
enable the purchasers to pay for the notes. Each conversion will be made by the
applicable agent on terms and subject to conditions, limitations and charges as
the applicable agent may from time to time establish in accordance with its
regular foreign exchange practices. All costs of exchange will be borne by the
purchasers of the notes. The foreign currency notes provide that, in the event
of an official redenomination of a foreign currency or currency unit, our
obligations with respect to payments on notes denominated or payable in the
foreign currency or currency unit will, in all cases, be deemed immediately
following such redenomination to provide for payment of that amount of
redenominated currency representing the amount of the obligations immediately
before such redenomination. In no event, however, will any adjustment be made to
any amount payable under the notes as a result of any change in the value of
such foreign currency or currency unit relative to any other currency due solely
to fluctuations in exchange rates. See "Foreign Currency Risks--Exchange Rates
and Exchange Controls."
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST
We will pay the principal of, premium, if any, and interest on Foreign
Currency notes in the specified currency. However, the exchange rate agent
appointed by us will convert all payments of principal of, premium, if any, and
interest on foreign currency notes to U.S. dollars. Unless we specify otherwise
in the applicable pricing supplement, the holder of a foreign currency note may
elect to receive payments in the specified currency as described below.
Unless the holder has elected otherwise or unless we specify otherwise in
the applicable pricing supplement, payment in respect of a foreign currency note
shall be made in U.S. dollars based upon the exchange rate as determined by the
exchange rate agent based on the quotation for such non-U.S.
S-16
<PAGE>
dollar currency or composite currency appearing at approximately 11:00 a.m., New
York City time, on the second business day preceding the applicable date of
payment, on the bank composite or multi-contributor pages of the Telerate
Monitor Foreign Exchange Service or, if such service is not then available to
the exchange rate agent, the Reuters Monitor Foreign Exchange Service or, if
neither is available, on a comparable display or in a comparable manner as we
and the exchange rate agent shall agree, for the first three banks, or two, if
three are not available, in chronological order, appearing on a list of banks
agreed to by us and the exchange rate agent prior to the second business day,
which are offering quotes. The exchange rate agent will then select from among
the selected quotations in a manner specified in the applicable pricing
supplement. If fewer than two bids are available, then the conversion will be
based on the market exchange rate, as defined below, as of the second business
day preceding the applicable payment date. Market exchange rate means the noon
U.S. dollar buying rate in The City of New York for cable transfers of the
relevant currency as certified for customs purposes by the Federal Reserve Bank
of New York. If no market exchange rate as of the second business day preceding
the applicable payment date is available, payments will be made in the specified
currency, unless the specified currency is unavailable due to the imposition of
exchange controls or to other circumstances beyond our control, in which case
payment will be made as described below under "Payment Currency." All currency
exchange costs will be borne by the holders of the notes by deductions from
payments.
Unless we specify otherwise specified in the applicable pricing supplement,
a holder of foreign currency notes may elect to receive payment of the principal
of, premium, if any, and interest on the notes in the specified currency by
transmitting a written request for such payment to the principal office of the
trustee, 14 Wall Street, Eighth Floor, New York, New York 10005, on or prior to
the regular record date or at least fifteen days prior to maturity, as the case
may be. The request may be in writing, mailed or hand delivered, or by cable,
telex or other form of facsimile transmission. A holder of a foreign currency
note may elect to receive payment in the specified currency for all principal,
premium, if any, and interest payments and need not file a separate election for
each payment. The election will remain in effect until revoked by written notice
to the trustee, 14 Wall Street, Eighth Floor, New York, New York 10005, but
written notice of any such revocation must be received by the trustee on or
prior to the regular record date or at least fifteen days prior to maturity, as
the case may be. Holders of foreign currency notes whose foreign currency notes
are to be held in the name of a broker or nominee should contact such broker or
nominee to determine whether and how an election to receive payments in the
specified currency may be made.
Interest on foreign currency notes paid in U.S. dollars will be paid in the
manner specified in the attached prospectus and this prospectus supplement for
interest on notes denominated in U.S. dollars. Interest on foreign currency
notes paid in the specified currency will be paid by a check drawn on an account
maintained at a bank outside the United States, unless other arrangements have
been made. The principal and premium, if any, of foreign currency notes,
together with interest accrued and unpaid thereon, due at maturity will be paid
in immediately available funds against presentation of such foreign currency
notes at the offices of the trustee, 14 Wall Street, Eighth Floor, New York, New
York 10005.
PAYMENT CURRENCY
Except as set forth below, if payment in respect of a foreign currency note
is required to be made in a specified currency and the currency is unavailable
due to the imposition of exchange controls or other circumstances beyond our
control, or is no longer used by the government of the country issuing the
currency or for the settlement of transactions by public institutions of or
within the international banking community, then all payments due on that due
date in respect of the foreign currency note shall be made in U.S. dollars. The
amount payable on any date in the specified currency shall be
S-17
<PAGE>
converted into U.S. dollars at the market exchange rate, on the date of such
payment. In the event the market exchange rate is not then available, we will be
entitled to make payments in U.S. dollars:
(1) if such specified currency is not a composite currency, on the basis
of the most recently available market exchange rate for such specified
currency or
(2) if the specified currency is a composite currency, in an amount
determined by the exchange rate agent to be the sum of the results obtained
by multiplying the number of units of each component currency of the
composite currency, as of the most recent date on which the composite
currency was used, by the market exchange rate for the component currency on
the second business day prior to such payment date, or if such market
exchange rate is not then available, by the most recently available market
exchange rate for such component currency.
If payment in respect of a foreign currency note is required to be made in
Euros and Euros are unavailable due to the imposition of exchange controls or
other circumstances beyond our control, or are no longer used in the European
Monetary System, then all payments due on that date in respect of the foreign
currency note will be made in U.S. dollars. The amount so payable on any date in
Euros shall be converted into U.S. dollars at a rate determined by the exchange
rate agent as of the second business day prior to the date on which such payment
is due on the following basis. The component currencies of the Euros for this
purpose shall be the currency amounts that were components of the Euros as of
the last date on which Euros were used in the European Monetary System. The
equivalent of Euros in U.S. dollars shall be calculated by aggregating the U.S.
dollar equivalents of the components. The U.S. dollar equivalent of each of the
components will be determined by the exchange rate agent on the basis of the
most recently available market exchange rate, or as otherwise indicated in the
applicable pricing supplement.
All determinations referred to above made by the exchange rate agent shall
be subject to approval by us.
FOREIGN CURRENCY RISKS
This prospectus supplement, any pricing supplement to this prospectus
supplement and the attached prospectus do not describe all the risks of an
investment in foreign currency notes as they exist at the date of this
prospectus supplement or as the risks may change from time to time. Prospective
investors should consult their own financial and legal advisors as to the risks
entailed by an investment in the notes. The notes are not an appropriate
investment for investors who are unsophisticated with respect to foreign
currency transactions.
GOVERNING LAW AND JUDGMENTS
The notes will be governed by and construed in accordance with the laws of
the State of New York. Courts in the United States have not customarily rendered
judgments for money damages denominated or payable in any currency other than
the U.S. dollar. New York statutory law provides, however, that a court shall
render a judgment or decree in the foreign currency of the underlying obligation
and that the judgment or decree shall be converted into U.S. dollars at the rate
of exchange prevailing on the date of the entry of the judgment or decree.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in foreign currency notes entails significant risks that are
not associated with a similar investment in a security denominated and payable
in U.S. dollars. Such risks include, without limitation:
- the possibility of significant market changes in rates of exchange between
the U.S. dollar and the various foreign currencies,
S-18
<PAGE>
- the possibility of significant changes in rates of exchange between the
U.S. dollar and the various foreign currencies resulting from official
redenomination with respect to a specified currency, and
- the possibility of the imposition or modification of foreign exchange
controls by either the United States or foreign governments.
These risks generally depend on factors over which we have no control, such as
economic and political events and on the supply of and demand for the relevant
currencies. In recent years rates of exchange between the U.S. dollar and
certain foreign currencies have been volatile and such volatility may be
expected in the future. Fluctuations in any particular exchange rate that have
occurred in the past are not necessarily indicative, however, of fluctuations in
the rate that may occur during the term of any foreign currency note.
Depreciation of the specified currency of a foreign currency note against the
U.S. dollar would result in a decrease in the effective yield of such foreign
currency note below its coupon rate, and in certain circumstances could result
in a loss to the investor, on a U.S. dollar basis.
Governments have imposed from time to time, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a specified currency at an interest payment date or at maturity of a foreign
currency note. There can be no assurance that exchange controls will not
restrict or prohibit payments of principal, and premium, if any, or interest in
any specified currency other than U.S. dollars. Even if there are no actual
exchange controls, it is possible that on an interest payment date or at
maturity of a particular foreign currency note, the specified currency for that
foreign currency note would not be available to us due to circumstances beyond
our control. In any such event, we will make required payments in U.S. dollars
on the basis described herein. Unless we specify otherwise in the applicable
pricing supplement, notes denominated or payable in a specified currency other
than U.S. dollars or euros will not be sold in or to residents of the country
issuing the specified currency. The information set forth in this prospectus
supplement and the applicable pricing supplement is directed to prospective
purchasers who are United States residents. We disclaim any responsibility to
advise prospective purchasers who are residents of countries other than the
United States with respect to any matters that may affect the purchase, holding
or receipt of payments of principal and premium, if any, or interest on the
notes. These persons should consult their own counsel with regard to such
matters.
Pricing supplements relating to foreign currency notes will indicate the
specified currency in which the principal, premium, if any, and interest with
respect to the note are to be paid, along with other terms relating to the
specified currency. The pricing supplement also will provide specific historic
exchange rate information, currency risks relating to the specific currencies
selected, investment considerations and additional tax considerations. The
information in the pricing supplement concerning exchange rates is furnished as
a matter of information only and should not be regarded as indicative of the
range of or trends in fluctuations in currency exchange rates that may occur in
the future.
S-19
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the ownership of notes. It deals only with notes held as capital
assets and not with special classes of holders, such as:
- banks,
- tax-exempt entities,
- regulated investment companies,
- common trust funds,
- dealers in securities or currencies,
- life insurance companies,
- persons holding notes as a hedge against currency risks, and
- United States holders, as defined below under "United States holders",
whose functional currency is not the U.S. dollar.
In addition, this summary does not address the federal income tax
consequences of owning indexed notes. These consequences will be addressed in
the applicable pricing supplement. The discussion is based upon the Internal
Revenue Code of 1986, as amended and regulations, rulings and judicial decisions
thereunder as of the date of this prospectus supplement. These authorities may
be repealed, revoked or modified so as to produce federal income tax
consequences different from those discussed below. The following discussion of
the United States federal income tax consequences is based on the classification
of the notes as debt of PHH, which determination would be made at the time of
the issuances of the notes. If, as a result of the particular features of a
particular issue of notes, an adverse change in the financial condition of the
issuer, or otherwise, the status of the notes as debt for United States federal
income tax purposes were to be challenged, payments on the notes could be
characterized as dividends and subject to United States federal withholding tax
to the extent paid to non-United States holders. The remaining discussion
assumes that the notes will be classified as debt.
You should consult your tax advisor concerning the United States federal
income tax consequences applicable to your particular situation, as well as any
consequences under the laws of any other taxing jurisdiction.
UNITED STATES HOLDERS
For purposes of this discussion, a United States holder means:
(1) a citizen or resident of the United States;
(2) a partnership or corporation created or organized in or under the
law of the United States or of any State of the United States;
(3) an estate the income of which is subject to United States federal
income tax regardless of its source;
(4) any trust if:
(A) a court within the United States is able to exercise primary
supervision over the administration of the trust; and
(B) one or more United States fiduciaries have the authority to
control all substantive decisions of the trust; and
S-20
<PAGE>
(5) any other person that is subject to United States federal income tax
on interest income derived from a note as a result of such income being
effectively connected with the conduct by such person of a trade or business
within the United States.
A United States holder also includes certain former citizens of the United
States whose income and gain on the notes will be subject to U.S. income tax.
PAYMENTS OF INTEREST
Interest on a note, whether payable in the specified currency or U.S.
dollars, that constitutes "qualified stated interest," as defined below under
"Original Issue Discount," will be taxable to a United States holder as ordinary
interest income at the time it is received or accrued, depending on the holder's
method of accounting for tax purposes. In the case of a United States holder of
a foreign currency note using a cash method of accounting, the amount of taxable
interest income for United States federal income tax purposes will be determined
in the specified currency and translated into U.S. dollars using the spot
exchange rate on the date of receipt, regardless of whether the interest is in
fact paid in or converted to U.S. dollars. In the case of a United States holder
of a foreign currency note using an accrual method of accounting, the amount of
taxable interest will depend on whether the holder has made a valid election to
use a "spot accrual convention" pursuant to regulations under the Internal
Revenue Code. If the holder has made this election, the amount of taxable
interest will be measured in the specified currency and translated into U.S.
dollars using the spot exchange rate in effect on the last day of the accrual
period, or last day of a partial accrual period ending on the last day of the
holder's taxable year; or where interest is paid within five business days of
such last day, the exchange rate in effect on the date of receipt may be used.
If the holder has not made such an election, the amount of taxable interest will
be measured in the specified currency and translated into U.S. dollars using the
average exchange rate in effect during the accrual period. A United States
holder of a foreign currency note on the accrual method will also recognize
ordinary income or loss for federal income tax purposes upon receipt of accrued
interest income and upon the sale, retirement or other disposition of a note.
This gain or loss is referred to in this prospectus supplement as exchange gain
or loss. The exchange gain or loss, if any, will be measured by subtracting the
amount of taxable interest accrued in the manner described above with respect to
any accrual period from the U.S. dollar value of the interest income received
attributable to that accrual period. The U.S. dollar value of the interest
payment received will be determined by translating the units of specified
currency received into dollars using the spot exchange rate in effect on the
date of receipt of the interest income or disposition of the note.
ORIGINAL ISSUE DISCOUNT
GENERAL. A note will generally be treated as having been issued at an
original issue discount if the excess of its "stated redemption price at
maturity" over its "issue price" equals or exceeds 1/4 of 1 percent of the
note's stated redemption price at maturity multiplied by the number of complete
years to its stated maturity, or in the case of installment obligations, the
weighted average maturity. "Stated redemption price at maturity" is the total of
all payments provided by the note that are not payments of "qualified stated
interest." "Issue price" is the first price at which a substantial amount of the
notes are sold for money other than to bond houses, brokers, or similar persons
or organizations acting in the capacity of underwriters, placement agents or
wholesalers. Generally, "qualified stated interest" is stated interest that is
unconditionally payable in cash or property other than debt instruments of the
issuer at least annually in an amount equal to the product of the outstanding
principal amount of the note and, with respect to a fixed rate note, a single
fixed rate of interest, adjusted to account appropriately for any differing
lengths of intervals between payments. Qualified stated interest also includes
stated interest on certain variable rate debt instruments that satisfy certain
requirements of the Treasury regulations applicable to original issue discount
obligations if the interest is unconditionally
S-21
<PAGE>
payable in cash or property, other than debt instruments of the issuer, at least
annually. A floating rate note may or may not qualify as a variable rate debt
instrument under the original issue discount regulations depending on its
interest rate formula and other terms as set forth in the applicable pricing
supplement.
In some cases, notes that bear stated interest and are issued at par may be
deemed to have original issue discount for federal income tax purposes, with the
result that the inclusion of interest in the holder's income may vary from the
actual cash payments of interest on such notes, generally accelerating income
for cash or accrual method taxpayers. We will give notice in the applicable
pricing supplement when we determine that a particular note will be a discount
note. Unless an applicable pricing supplement so indicates, floating rate notes
will not be discount notes.
United States holders of discount notes having a stated maturity of more
than one year from their date of issue will have to include original issue
discount in income before the receipt of cash attributable to such income. The
amount of original issue discount includible in income by a United States holder
of a discount note is the sum of the daily portions of original issue discount
with respect to the discount note for each day during the taxable year or
portion of the taxable year in which it holds the note. The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the original discount allocable to that accrual period. The amount of
original issue discount allocable to an accrual period is the excess of
(a) the product of the discount note's adjusted issue price at the
beginning of such accrual period and its yield to maturity, determined on
the basis of compounding at the close of each accrual period and adjusted
for the length of such period, over
(b) the sum of the qualified stated interest payments, if any, payable,
or treated as payable, on the discount note during the accrual period.
Under the original issue discount regulations, the "accrual period" may be
of any length and may vary in length over the term of the note, provided that
each accrual period is no longer than one year and each scheduled payment of
principal or interest occurs either on the final day or on the first day of an
accrual period. The "adjusted issue price" of the discount note at the start of
any accrual period is the sum of the issue price of such note plus the accrued
original issue discount for each prior accrual period minus any prior payments
on the note that were not payments of qualified stated interest. The amount of
original issue discount includible in income is adjusted for any United States
holder who acquires a discount note at a premium over its adjusted issue price
but at an amount less than or equal to the sum of all amounts payable on the
instrument after the acquisition date, other than payments of qualified stated
interest. It should be noted that the original issue discount regulations
require modifications to be made to the method for determining original issue
discount in the case of variable rate instruments.
Under the rules described above, United States holders of discount notes
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods and in advance of any payment of cash
related thereto.
At the time we issue a note, we will make a determination based on the
applicable Treasury Regulations and other authorities whether the note bears
original issue discount. We are required to report the amount of original issue
discount accrued on notes held of record by persons other than corporations and
other exempt holders.
OPTIONAL REDEMPTION OF NOTES. Under the original issue discount
regulations, for purposes of calculating the stated redemption price at
maturity, if either we or the holder have an option to redeem, or cause the
redemption of, a note prior to its stated maturity, the option will be presumed
to be exercised if, by utilizing any date on which the note may be redeemed as
its maturity date and the
S-22
<PAGE>
amount payable on such date in accordance with the terms of the note as its
stated redemption price at maturity, the yield on the note would be
(1) in the case of an option of ours, lower than its yield to maturity
computed without assuming the option to be so exercised or
(2) in the case of an option of the holder, higher than its yield to
maturity computed without assuming the option to be so exercised.
If the option is not in fact exercised when presumed to be exercised, the note
would be treated solely for original issue discount purposes as if it were
redeemed, and a new note were issued, on the presumed exercise date for an
amount equal to the adjusted issue price of the original note on that date.
Notice will be given in an applicable pricing supplement when we determine that
a particular note will be deemed to have a maturity date for federal income tax
purposes prior to its stated maturity.
SHORT TERM DISCOUNT NOTES. Under the original issue discount regulations, a
note that matures one year or less from the date of its issuance, or a
short-term discount note, will be treated as having been issued at a discount
equal to the excess of the total principal and interest payments on the note
over its issue price, or its tax basis if the United States holder so elects. In
general, an individual or other cash basis United States holder of a short-term
discount note is not required to accrue short-term discount for United States
federal income tax purposes unless it elects to do so. Accrual basis United
States holders and certain other United States holders, including banks and
dealers in securities, are required to accrue the short-term discount on
short-term discount notes on a straight-line basis unless an election is made to
accrue the short-term discount under the constant-yield method, based on daily
compounding. In the case of a United States holder not required and not electing
to include the short-term discount in income currently, any gain realized on the
sale or retirement of the short-term discount note will be ordinary income to
the extent of the short-term discount accrued on a straight-line basis, unless
an election is made to accrue the short-term discount under the constant-yield
method, through the date of sale or retirement. United States holders who are
not required and do not elect to accrue the short-term discount on short-term
discount notes will be required to defer deductions for interest on borrowings
allocable to short-term discount notes in an amount not exceeding the deferred
income until the deferred income is realized.
FOREIGN CURRENCY NOTES. The amount of original issue discount for any
accrual period on a discount note that is a foreign currency note will depend on
whether the holder has made a valid election to use a "spot accrual convention"
pursuant to regulations under the Internal Revenue Code. If the holder has made
such an election, original issue discount will be determined in the specified
currency and translated into U.S. dollars using the spot exchange rate in effect
on the last day of the accrual period, or last day of a partial accrual period
ending on the last day of the holder's taxable year; or where interest is paid
within five business days of such last day, the exchange rate in effect on the
date of receipt may be used. If the holder has not made an election, original
issue discount will be determined in the specified currency and translated into
U.S. dollars using the average exchange rate in effect during the accrual
period. A United States holder of a discount note that is a foreign currency
note will also recognize ordinary income or loss, or exchange gain or loss, upon
receipt of an amount attributable to original issue discount, whether in
connection with a payment of interest or the sale or retirement of a discount
note. The exchange gain or loss, if any, will be measured by subtracting the
amount of original issue discount accrued in the manner described above with
respect to the accrual period from the U.S. dollar value of the amount received
attributable to that accrual period. The U.S. dollar value of the amount
received will be determined by translating the units of specified currency
received into dollars using the spot exchange rate in effect on the date of
receipt of payment or sale or retirement of the note.
NOTES ISSUED AT A PREMIUM. A United States holder that purchases a note for
an amount in excess of the sum of all amounts payable on the note after the
purchase date other than qualified stated
S-23
<PAGE>
interest will be considered to have purchased the note at a "premium" and will
not be required to include any original issue discount in income. A United
States holder may generally elect to amortize the premium over the remaining
term of the note on a constant-yield method. The amount amortized in any year
will be treated as a reduction of the United States holder's interest income
from the note in such year. Any election will apply to all debt instruments,
other than debt instruments the interest on which is excludable from gross
income, held by the United States holder at the beginning of the first taxable
year to which the election applies and to any such debt instruments thereafter
acquired by the United States holder, and is irrevocable without the consent of
the Internal Revenue Service. Bond premium on a note held by a United States
holder that does not make such election will decrease the gain or increase the
loss otherwise recognized on a taxable disposition of the note. If a note is
callable by us before its stated maturity, the earlier call date will be
considered as the maturity if it results in a smaller amortizable bond premium
attributable to the period of earlier call date. If a note is not then called on
the earlier call date, any unamortized bond premium must then be amortized to a
succeeding call date or to maturity. Some of the notes may be callable prior to
stated maturity. Therefore United States holders should consult with their tax
advisors to determine whether this rule will apply to their individual
situation. Bond premium on a Foreign Currency note will be computed in the
applicable specified currency. With respect to a United States holder that
elects to amortize the premium, the amortizable bond premium will reduce
interest income measured in units of the specified currency. At the close of any
period in which a portion of the bond premium is amortized, exchange gain or
loss, which is generally ordinary income or loss, will be realized with respect
to such portion based on the difference between spot rates at the close of such
period and spot rates at the time of acquisition of the Foreign Currency note.
With respect to a United States holder that does not elect to amortize bond
premium, the amount of the bond premium will constitute a capital loss when the
note matures, which may be offset or eliminated by exchange gain.
MARKET DISCOUNT. If a United States holder purchases a note for an amount
that is less than its "revised issue price," which is defined as the sum of the
issue price of the note and the aggregate amount of the original issue discount,
if any, includible in the gross income of all previous holders of the note,
determined without regard to any adjustment for a previous holder's acquisition
premium, the amount of the difference will be treated as "market discount",
unless such difference is less than a DE MINIMIS amount. The market discount
provisions of the Internal Revenue Code generally require a holder of a note
acquired at a market discount to treat as ordinary interest income any gain
recognized on the disposition of the note to the extent of the "accrued market
discount" on the note at the time of disposition. If a holder of a note makes a
gift of the note, any accrued market discount will be included in income as if
the holder had sold the note for a price equal to its fair market value. In
addition, if a holder of a note acquired at a market discount receives a partial
principal payment prior to maturity, that payment may be treated as ordinary
income to the extent of the accrued market discount on the note at the time the
payment is received and the accrued market discount on the note will be reduced
by the amount of ordinary income so recognized. These rules will not apply to
the extent the holder has, pursuant to an election, included the accrued market
discount in income as it accrued. Once made, the election will apply to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the Internal Revenue Service. The adjusted basis of a note will be
increased by any accrued market discount that is included in a holder's income
pursuant to the election.
The amount of market discount that accrues while a holder holds a note will
be equal to the amount which bears the same ratio to the market discount on the
note as the number of days on which the holder holds the note bears to the
number of days from the date the holder acquires the note through its stated
maturity. Alternatively, a holder of a note may elect to accrue market discount
on the basis of a constant-yield method, rather than the ratable-accrual method
described in the preceding sentence.
S-24
<PAGE>
The market discount rules also provide that any holder of a note acquired at
a market discount may be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry the
note until the note is disposed of in a taxable transaction. This rule will not
apply if the holder elects to include accrued market discount in income
currently.
Accrued market discount on foreign currency notes will generally be
determined by translating the market discount determined in the specified
currency into U.S. dollars at the spot rate on the date the foreign currency
note is retired or otherwise disposed of. If the United States holder has
elected to accrue market discount currently, then the amount which accrues is
determined in the specified currency and then translated into U.S. dollars on
the basis of the average exchange rate in effect during the accrual period. A
United States holder will recognize exchange gain or loss with respect to market
discount which is accrued currently upon the sale, retirement or other
disposition of the foreign currency note measured in the same manner as exchange
gain or loss arising upon receipt of accrued interest on a foreign currency
note, as described above.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT
Under the original issue discount regulations, a United States holder may
elect to treat all interest on any note as original issue discount and calculate
the amount includible in gross income under the constant-yield method described
above. For the purpose of this election, interest includes stated interest,
short-term discount, original issue discount, DE MINIMIS original issue
discount, market discount, DE MINIMIS market discount and unstated interest, as
adjusted by any amortizable bond premium or acquisition premium. If a United
States holder makes this election for a note with market discount or amortizable
bond premium, the election is treated as an election under the market discount
or amortizable bond premium provisions as described above, as the case may be,
and the electing United States holder will be required to include market
discount in income currently or amortize bond premium. The election is to be
made for the taxable year in which the United States holder acquired the note,
and may not be revoked without the consent of the IRS. United States holders
should consult with their own tax advisors about this election.
PURCHASE, SALE AND RETIREMENT OF NOTES
A United States holder's tax basis in a note will be its U.S. dollar cost,
which, in the case of a foreign currency note, will be the U.S. dollar value of
the purchase price on the date of purchase, increased by the amount of any
original issue discount, short-term discount or market discount included in the
United States holder's income with respect to the note and reduced by the amount
of any payments on a note that are not qualified stated interest payments and by
the amount of any amortizable bond premium applied to reduce interest on the
note. A United States holder will generally recognize gain or loss upon the sale
or retirement of a note equal to the difference between the amount realized upon
the sale or retirement and the tax basis in the note. The amount realized will
equal the proceeds of the sale excluding the amount attributable to accrued but
unpaid interest, which is treated as the receipt of an interest payment. The
amount realized on a sale or retirement for an amount in specified currency will
be the U.S. dollar value of such amount on the date of sale or retirement,
excluding any amount attributable to accrued but unpaid interest. Except:
(1) to the extent described above with respect to short-term discount
notes and foreign currency notes, and
(2) to the extent attributable to market discount or currency gain or
loss, as described in the following paragraph, gain or loss recognized by a
United States holder on the sale or retirement of a note will generally be
capital gain or capital loss and such gain or loss will be long-term capital
gain or loss if the note was held for more than one year. Gain or loss
recognized by a United States holder on the sale or retirement of a foreign
currency note that is attributable to changes in exchange rates will be
treated as ordinary income or loss and will be limited to the amount of
S-25
<PAGE>
overall gain or loss realized on the disposition of the note. Gain or loss
attributable to fluctuations in exchange rates will equal the difference
between the U.S. dollar value of the principal amount of the note expressed
in units of the specified currency, determined at the spot exchange rate on
the date such payment is received or the note is disposed of, and the U.S.
dollar value of the amount paid for the note expressed in units of the
specified currency, determined at the spot exchange rate as of the date the
holder acquired the note.
EXCHANGE OF THE SPECIFIED CURRENCY
A United States holder who purchases a note with previously owned specified
currency will recognize exchange gain or loss at the time of purchase
attributable to the difference at the time of purchase, if any, between his tax
basis in such currency and the fair market value of the note in U.S. dollars on
the date of purchase. The gain or loss will be ordinary income or loss.
Specified currency received as interest on, or original issue discount with
respect to, a foreign currency note or on the sale or retirement of a note will
have a tax basis equal to its U.S. dollar value determined with reference to the
spot exchange rate at the time such interest is received or at the time of such
sale or retirement. Foreign currencies and currency units which are purchased
will generally have a tax basis equal to their U.S. dollar cost. Any gain or
loss realized on a sale or other disposition of a foreign currency or currency
unit, including its use to purchase the foreign currency notes or upon exchange
for U.S. dollars, will be ordinary income or loss.
UNITED STATES ALIEN HOLDERS
Under present United States federal income and estate tax law and subject to
the discussion of backup withholding below:
(a) payments of principal, premium, if any, and interest, including
original issue discount, on the notes to any United States alien holder,
defined as a holder who is not a United States holder, will not be subject
to United States federal income tax or withholding of federal income tax,
provided that in the case of interest or original issue discount:
(1) such interest or original issue discount is not effectively
connected with a trade or business conducted by the United States alien
holder in the United States,
(2) the United States alien holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of our stock entitled to vote,
(3) the United States alien holder is not a controlled foreign
corporation that is related to us through stock ownership,
(4) the United States alien holder is not a bank that acquired the
notes pursuant to a loan agreement made in the ordinary course of its
trade or business, and
(5) either:
(A) the beneficial owner of the note certifies to us or our
agent, under penalties of perjury, that he is not a United States
holder and provides his name and address, or
(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course
of its trade or business and holds the note, certifies to us or our
agent under penalties of perjury that such statement has been
received from the beneficial owner by it or by a financial
institution and furnishes the payor with a copy thereof;
(b) a United States alien holder will not be subject to United States
federal income tax or withholding of federal income tax on gain realized on
the sale, exchange or redemption of a note unless:
(1) the gain is effectively connected with a trade or business
conducted by the United States alien holder in the United States or
S-26
<PAGE>
(2) in the case of a United States alien holder who is an individual
and holds a note as a capital asset, the holder is present in the United
States for 183 days or more in the taxable year of sale and certain other
requirements are met; and
(c) a note held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to United
States federal estate tax as a result of such individual's death if the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote and the
income on the note, if received at the time of the individual's death, would
not have been effectively connected with a U.S. trade or business of the
individual.
Under proposed regulations that have not yet become effective, certification
procedures regarding a holder's status may change.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS. In general, information reporting requirements will
apply to payments of principal and interest on a note and the proceeds of the
sale of a note before maturity within the United States to, and to the accrual
of original issue discount on a note with respect to, non-corporate United
States holders. A 31% "backup withholding" tax will apply to such payments and
to payments with respect to original issue discount if the United States holder
fails to provide an accurate taxpayer identification number or to report all
interest and dividends required to be shown on its federal income tax returns.
The amount of original issue discount required to be reported by us may not be
equal to the amount of original issue discount required to be reported as
taxable income by a United States holder of discount notes.
UNITED STATES ALIEN HOLDERS. Payment of principal, premium, if any, and
interest made within the United States by us or any of our paying agents are
generally subject to information reporting and possibly "backup withholding" at
a rate of 31%. Information reporting and backup withholding will not, however,
apply to payments made to a United States alien holder on a note if the
certification described in clause (a) (5) above under "United States Alien
Holders" is received, provided in each case the payor does not have actual
knowledge that the holder is a United States person.
Payment of the proceeds from the sale by a United States alien holder of a
note made to or through a foreign office of a broker will not generally be
subject to information reporting or backup withholding. If, however, the broker
is a United States person, a controlled foreign corporation for United States
tax purposes or a foreign person 50% or more of whose gross income is from a
United States trade or business or (for payments made after December 31, 2000) a
foreign partnership with certain U.S. connections, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless:
(a) such broker has documentary evidence in its records that the
beneficial owner is not a U.S. person and certain other conditions are met
or
(b) the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
credit against such holder's U.S. federal income tax liability, any resulting
overpayment being refundable, provided the required information is furnished to
the IRS.
For payments made after December 31, 2000, for purposes of applying the
above rules for Unites States alien holders to an entity that is treated as
fiscally transparent, e.g., a partnership or trusts, the beneficial owner means
each of the ultimate beneficial owners of the entity.
S-27
<PAGE>
SUPPLEMENTAL PLAN OF DISTRIBUTION
We are offering the notes on a continuing basis through Credit Suisse First
Boston Corporation, Goldman, Sachs & Co. and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as the agents. The agents have agreed to
use their best efforts to solicit purchases of the notes, and the notes may be
sold to the agents for resale to investors and other purchasers at varying
prices related to prevailing market prices at the time of resale, to be
determined by the agents. We reserve the right to sell notes directly on our own
behalf in those jurisdictions where we are authorized to do so. We will have the
sole right to accept offers to purchase notes and may reject any proposed
purchase of notes in whole or in part. The agents will have the right to reject
any proposed purchase of notes through them in whole or in part. Payment of the
purchase price of notes will be required to be made in immediately available
funds in The City of New York. We will pay the agents a commission ranging from
.125% to .750% of the principal amount of notes with maturities of up to
30 years sold through the agents, depending upon the stated maturity, and may
also sell notes to the agents as principals at negotiated discounts. Commissions
on agency sales of notes with maturities of more than 30 years will be
determined at the time of sale. No commission will be payable on any sales made
directly to the public by us.
The following table summarizes the aggregate commissions or discounts
payable in connection with offerings of the notes. Commissions and discounts
will vary depending upon the stated maturity of the notes.
<TABLE>
<CAPTION>
PUBLIC
OFFERING AGENT'S DISCOUNTS PROCEEDS, BEFORE
PRICE AND COMMISSIONS EXPENSES, TO PHH
-------------- ----------------------------- -------------------------------
<S> <C> <C> <C>
Principal Amount................. $3,000,000,000 $375,000,000 - $2,250,000,000 $2,996,250,000 - $2,977,500,000
----------- ----------------------------- -------------------------------
Total.......................... 100% .125% - .750% 99.875% - 99.250%
</TABLE>
In addition, the agents may offer the notes they have purchased as principal
to other dealers. The agents may sell notes to any dealer at a discount and,
unless otherwise specified in the applicable pricing supplement, the discount
allowed to any dealer may include all or a portion of the discount to be
received by such agent from us. Unless otherwise indicated in the applicable
pricing supplement, any note sold to an agent as principal will be purchased by
such agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to any agency sale of a note of
identical maturity, and may be resold by the agent to investors and other
purchasers from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale or may be resold to certain dealers as described above.
After the initial public offering of notes to be resold to investors and other
purchasers, the public offering price, in the case of a fixed-price public
offering, concession and discount may be changed.
In connection with the offering made hereby, the agents may purchase and
sell the notes in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover short positions created by
the agents in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the notes, and short positions created by the agents
involve the sale by the agents of a greater principal amount of notes than they
are required to purchase from us. The agents may also impose a penalty bid,
whereby selling concessions allowed to broker-dealers in respect of the notes
sold in the offering may be reclaimed by the agents if such notes are
repurchased by the agents in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
notes, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The agents and any dealers to whom notes are sold may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended. We
have agreed to indemnify the agents against certain liabilities, including
liabilities under the Securities Act, and will reimburse the agents for certain
expenses.
The notes are a new issue of securities with no established trading market.
The agents have informed us that they intend to make a market in the notes, but
are under no obligation to do so and such market making may be terminated at any
time. Therefore, no assurance can be given as to the existence of a trading
market in the notes in the future.
One or more of the agents or their affiliates may be customers of, extend
credit to, engage in transactions with or perform services for us in the
ordinary course of business.
S-28
<PAGE>
PROSPECTUS
PHH Corporation
May Offer--
$3,000,000,000
Debt Securities
We will provide the specific terms of these debt securities in supplements
to this prospectus. You should read this prospectus and the accompanying
prospectus supplement carefully before you invest.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus or any accompanying prospectus supplement is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------------
The date of this prospectus is November 1, 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
As required by the Securities Act of 1933, we filed a registration statement
(No. 333- 46434) relating to the securities offered by this prospectus with the
Securities and Exchange Commission. This prospectus is a part of that
registration statement, which includes additional information.
We file annual, quarterly and current reports and other information with the
SEC. You may read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. You can
also request copies of the documents, upon payment of a duplicating fee, by
writing the Public Reference Section of the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. These SEC
filings are also available to the public from the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it. This means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until our offering is completed:
- Annual Report on Form 10-K for the year ended December 31, 1999; and
- Quarterly Reports on Form 10-Q for the quarterly periods ended March 31
and June 30, 2000.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Treasurer
PHH Corporation
6 Sylvan Way
Parsippany, New Jersey 07054
(973) 428-9700
You should rely only on the information provided in this prospectus and the
prospectus supplement, as well as the information incorporated by reference. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus, the
prospectus supplement or any documents incorporated by reference is accurate as
of any date other than the date on the front of the applicable document.
2
<PAGE>
PHH CORPORATION
In connection with a merger with HFS Incorporated, on April 30, 1997, we
became a wholly-owned subsidiary of HFS. On December 17, 1997, in connection
with a merger agreement between CUC International Inc. and HFS, HFS was merged
into CUC, with CUC surviving and changing its name to Cendant Corporation. As a
result of the merger of HFS and CUC, 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 or acquisitions and enter
into related transactions as they arise. No assurance can be given that any
divestiture, acquisition 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 merger of HFS and CUC, our fiscal year was changed
from a year ending on April 30 to a year ending on December 31.
We are a Maryland corporation. Our principal executive offices are located
at 6 Sylvan Way, Parsippany, New Jersey 07054. Our telephone number is
(973) 428-9700.
GENERAL
Our businesses provide a range of complementary consumer and business
services. Currently we operate in two business segments which provide home
buyers with mortgages and assist in employee relocations:
- In the mortgage segment, our Cendant Mortgage Corporation 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.
- 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.
On June 30, 1999, we completed the disposition of our fleet businesses,
under agreement with Avis Group Holdings, Inc. Under this agreement, Avis
acquired the net assets of our fleet business through the assumption and
subsequent repayment of $1.44 billion of intercompany debt and the issuance to
us of $360 million of convertible preferred stock of Avis Fleet Leasing and
Management Corporation, a wholly-owned subsidiary of Avis. Coincident to the
closing of the transaction, Avis refinanced the assumed debt under management
programs which was payable to us. Accordingly, we also received from Avis
$3.0 billion in cash proceeds and a $30 million receivable. Utilizing the cash
proceeds from the fleet businesses disposition, we made a cash dividend payment
to Cendant totaling $1.1 billion. We recorded a net gain on the sale of
discontinued operations of $887 million ($871 million, after tax). The fleet
businesses disposition was structured as a tax-free reorganization and,
accordingly, no tax provision has been recorded on a majority of the gain.
However, pursuant to a recent interpretive ruling, the Internal Revenue Service
has taken the position that similarly structured transactions do not qualify as
tax-free reorganizations under Internal Revenue Code Section 368(a)(1)(A). If
the transaction is not considered a tax-free reorganization, the resultant
incremental liability could range between $10 million and $170 million depending
upon certain factors including utilization of tax attributes and contractual
indemnification provisions. Notwithstanding the Internal Revenue Service
interpretive ruling, we believe that, based upon analysis of current tax law,
our position would prevail, if challenged.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31, YEAR ENDED
ENDED JUNE 30, ----------------------------------------- JANUARY 31,
2000 1999 1998(2) 1997 1996 1996
-------------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)......... 2.45x 2.92x 2.78x ** 1.86x 1.82x
</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 our mortgage services and
relocation services activities.
(2) For the year ended December 31, 1998, income from continuing operations
before income taxes includes non-recurring merger-related costs and other
unusual credits of $19 million. Excluding such credits, the ratio of
earnings to fixed charges is 2.67x.
(**) Earnings are inadequate to cover fixed charges (deficiency of $56 million)
for the year ended December 31, 1997. Loss from continuing operations before
income taxes includes non-recurring merger-related costs and other unusual
charges of $190 million. Excluding such charges, the ratio of earnings to
fixed charges is 2.16x.
4
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Debt Securities will be used to
finance assets we manage for our clients and for general corporate purposes.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the debt securities sets forth
certain general terms and provisions of the debt securities to which any
supplement may relate. The particular terms of the debt securities offered by
any supplement and the extent, if any, to which such general provisions may
apply to the debt securities so offered will be described in the supplement
relating to such offered debt securities. The debt securities are to be issued
under an indenture between us and a trustee. A copy of the indenture has been
filed with the Commission as indicated in the registration statement. The
following summaries of provisions of the indenture may not contain all of the
information that is important to you. Accordingly, you should carefully read all
the provisions of the indenture which is incorporated by reference into this
prospectus in its entirety, including the definitions therein of terms.
GENERAL
The debt securities will be our unsecured obligations and will rank on a
parity with all of our other unsecured and unsubordinated indebtedness. The debt
securities will be issued under an indenture between us and Bank One Trust
Company, N.A., as trustee. Unless we specify a different place in the applicable
supplement, principal of and interest, if any, on the debt securities will be
payable at the corporate offices of the applicable trustee; provided that
payment of interest may be made at our option by check or draft mailed to the
person entitled thereto.
The indenture does not limit the aggregate principal amount of the debt
securities or of any particular series of offered debt securities that we may
issue and provides that debt securities may be issued thereunder from time to
time in one or more series.
A prospectus supplement relating to a particular series of debt securities
will contain some or all of the following terms of the offered debt securities:
(1) the title of the offered debt securities and the series of which the
offered debt securities shall be a part;
(2) any limit on the aggregate principal amount of the offered debt
securities;
(3) the price, expressed as a percentage of the aggregate principal
amount thereof, at which the offered debt securities will be issued;
(4) the date or dates on which the offered debt securities will mature;
(5) the rate or rates, which may be fixed or variable, per annum at
which the offered debt securities will bear interest, if any;
(6) the date from which such interest, if any, on the offered debt
securities will accrue, the dates on which such interest, if any, will be
payable, the date on which payment of such interest, if any, will commence
and the record dates for such interest payment dates, if any;
(7) the dates, if any, on which and the price or prices at which the
offered debt securities will, pursuant to any mandatory sinking fund
provisions, or may, pursuant to any optional sinking fund or to any purchase
fund provisions, be redeemed by us and the other detailed terms and
provisions of such sinking and/or purchase funds;
5
<PAGE>
(8) the date, if any, after which and the price or prices at which the
offered debt securities may, pursuant to any optional redemption provisions,
be redeemed at our option or the option of the holder thereof and the other
detailed terms and provisions of such optional redemption;
(9) the denominations in which the offered debt securities are
authorized to be issued;
(10) whether the principal and/or interest of the offered debt
securities is denominated in a currency other than United States dollars;
(11) the identity of the trustee and the indenture under which the
offered debt securities are issued; and
(12) any other terms of the offered debt securities.
Debt securities bearing no interest or interest at a rate which at the time
of issuance is below market rates may be issued under the indenture and offered
and sold at a substantial discount from the principal amount thereof. Special
federal income tax, accounting and other considerations applicable thereto will
be described in any supplement relating to those debt securities. The debt
securities are not subordinated in right of payment to any other indebtedness of
the Company. However, our right and the right of our creditors, including the
holders of debt securities, under general equitable principles to participate in
any distributions of assets of any subsidiary upon our liquidation or
reorganization or otherwise is, unless we substantively consolidate with our
subsidiaries, likely to be subject to the prior claims of creditors of the
subsidiary, except to the extent that our claims as a creditor may be
recognized.
The debt securities will be issued only in fully registered form without
coupons. Offered debt securities may be presented at the corporate offices of
the applicable trustee for registration of transfer or exchange without service
charge, but we may require payment to cover taxes or other governmental charges
payable in connection therewith.
Prospective purchasers of the debt securities should be aware that the
indenture does not contain any covenant that would prevent Cendant from removing
assets from us or any of our subsidiaries, or that would limit our ability to
make advances, pay dividends or make any other distributions to Cendant.
CERTAIN DEFINITIONS
The indenture contains certain restrictions upon our actions and those of
some of our subsidiaries. The following terms, among others, are used in the
indenture as indicated:
"Asset Securitization Subsidiary" means (i) any Subsidiary engaged solely in
the business of effecting asset securitization transactions, and (ii) any
Subsidiary whose primary purpose is to hold title or ownership interests in
vehicles, mortgage loans, relocation assets and related assets under management.
"Consolidated Net Worth" means, at any date of determination, all amounts
which would be included on our balance sheet with our consolidated Subsidiaries
under stockholders' equity, in accordance with generally accepted accounting
principles in effect from time to time.
"Debt" means:
(1) all of our and our Subsidiaries' debt, obligations and other
liabilities which are includable as liabilities in a consolidated balance
sheet of us and our Subsidiaries, other than
(x) accounts payable and accrued expenses,
(y) advances from clients obtained in the ordinary course of the
relocation management services business of us and our Subsidiaries and
(z) current and deferred income taxes and other similar liabilities,
plus
6
<PAGE>
(2) without duplicating any items included in Debt pursuant to the
foregoing clause (1), the maximum aggregate amount of all liabilities of
ours or any of our Subsidiaries under any guaranty, indemnity or similar
undertaking given or assumed of, or in respect of, the indebtedness,
obligations or other liabilities, assets, revenues, income or dividends of
any person other than us or one of our Subsidiaries and
(3) all other obligations or liabilities of ours or any of our
Subsidiaries in relation to the discharge of the obligations of any person
other than us or one of our Subsidiaries.
"Lien" means any mortgage, pledge, lien, security interest or encumbrance.
"Material U.S. Subsidiary" means any Subsidiary which together with our
other Subsidiaries at the time of determination had assets constituting 10% or
more of consolidated assets, accounts for 10% or more of Consolidated Net Worth,
or accounts for 10% or more of the revenues of us and our consolidated
Subsidiaries for the Rolling Period immediately preceding the date of
determination.
"Person" means any natural person, corporation, division of a corporation,
partnership, limited liability company, trust, joint venture, association,
company, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Revolving Lien" means any Lien which extends to property in existence on
the date of creation of such Lien and also to any property of substantially the
same characteristics subsequently acquired in the ordinary course of our
business or that of a Material U.S. Subsidiary of ours.
"Rolling Period" means with respect to any fiscal quarter, such fiscal
quarter and the three immediately preceding fiscal quarters considered as a
single accounting period.
"Special Purpose Vehicle Subsidiary" means PHH Caribbean Leasing, Inc. and
any Subsidiary engaged in the fleet-leasing management business which (i) is, at
any one time, a party to one or more lease agreements with only one lessee and
(ii) finances, at any one time, its investment in lease agreements or vehicles
with only one lender, which lender may be us.
"Subsidiary" means, with respect to any person, any corporation,
association, joint venture, partnership, limited liability company or other
business entity of which at least a majority of the voting stock or other
ownership interests having ordinary voting power for the election of directors
(or the equivalent) is, at the time as of which any determination is being made,
owned or controlled by such person or one or more subsidiaries of such person,
or by such person and one or more subsidiaries of such person.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more fully registered global notes that will be deposited with,
or on behalf of, a depositary identified in the prospectus supplement relating
to that series. Global securities will be issued in registered form and in
either temporary or permanent form. Unless and until it is exchanged for debt
securities in definitive form, a global security may not be transferred except
as a whole by the depositary for such global security to a nominee of such
depositary or by a nominee of such depositary to such depositary or another
nominee of such depositary or by such depositary or any such nominee to a
successor of such depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
debt securities will be described in the prospectus supplement relating to such
series. We anticipate that the following provisions will apply to any depositary
arrangements.
Upon the issuance of a global security, the depositary for such global
security or its nominee will credit the accounts of persons held with it with
the respective principal amounts of the debt securities
7
<PAGE>
represented by such global security. The accounts shall be designated by the
underwriters or agents with respect to the debt securities or by us if the debt
securities are offered and sold directly by us. Ownership of beneficial
interests in a global security will be limited to persons that have accounts
with the depositary for such global security or its nominee or persons that may
hold interests through participants. Ownership of beneficial interests in the
global security will be shown on, and the transfer of ownership will be effected
only through, records maintained by the depositary, with respect to
participants' interests, for the global security or by participants or persons
that hold through participants, with respect to beneficial owners' interests.
LIMITATIONS ON LIENS
We will not, and will not permit any Material U.S. Subsidiary of ours to,
incur any Lien to secure Debt without equally and ratably securing the debt
securities except:
(1) deposits under worker's compensation, unemployment insurance and social
security laws or to secure statutory obligations or surety or appeal bonds or
performance or other similar bonds in the ordinary course of business, or
statutory Liens of landlords, carriers, warehousemen, mechanics and materialmen
and other similar Liens, in respect of liabilities which are not yet due or
which are being contested in good faith by appropriate proceedings, Liens for
taxes not yet due and payable, and Liens for taxes due and payable, the validity
or amount of which is currently being contested in good faith by appropriate
proceedings and as to which foreclosure and other enforcement proceedings shall
not have been commenced (unless fully bonded or otherwise effectively stayed);
(2) purchase money Liens granted to the vendor or Person financing the
acquisition of property, plant or equipment if:
(a) limited to the specific assets acquired and, in the case of tangible
assets, other property which is an improvement to or is acquired for
specific use in connection with such acquired property or which is real
property being improved by such acquired property; and
(b) the debt secured by such Lien is the unpaid balance of the
acquisition cost of the specific assets on which the Lien is granted;
(3) Liens and Revolving Liens upon real and/or personal property, each of
which Liens or Revolving Liens existed before the time of our acquisition of
such property or the company owning such property and was not created in
anticipation thereof and any extensions or renewals thereof; provided that no
such Lien or Revolving Lien shall extend to or cover any property of us or a
Material U.S. Subsidiary other than the respective property so acquired and
improvements thereon;
(4) Liens and Revolving Liens upon real and/or personal property of a Person
who in connection with our acquisition of the stock or equity of such Person
becomes a Material U.S. Subsidiary, each of which Liens or Revolving Liens
existed before the time of our acquisition of such Person and was not created in
anticipation thereof and any extension or renewal of such Liens; provided that
no such Lien shall extend to or cover any property of us or a Material U.S.
Subsidiary other than the Material U.S. Subsidiary (and its acquired affiliates)
so acquired;
(5) Liens arising out of attachments, judgments or awards as to which an
appeal or other appropriate proceedings for contest or review are promptly
commenced (and as to which foreclosure and other enforcement proceedings
(a) shall not have been commenced (unless fully bonded or otherwise
effectively stayed) or
(b) in any event shall be promptly fully bonded or otherwise effectively
stayed);
(6) Liens securing Debt of any Material U.S. Subsidiary owing to us;
8
<PAGE>
(7) Liens securing Debt and related obligations, or securing interests in
asset sale transactions which could alternatively be characterized as Debt, or
securing obligations to pay rent incurred in connection with asset
securitization transactions, which Debt or securitized assets are not reported
on our consolidated balance sheet or that of our Material U.S. Subsidiaries, and
which liens cover only the assets securitized in the applicable asset
securitization transaction or other assets identified in connection with an
asset securitization transaction, and liens on the stock or equity of any
special purpose vehicle the sole purpose of which is to effectuate such asset
securitization transaction;
(8) Liens securing Debt and related obligations of an Asset Securitization
Subsidiary issued in asset securitization transactions, which Debt or
securitized assets are reported on our consolidated balance sheet or that of our
Material U.S. Subsidiaries, and which liens cover only the assets securitized in
the applicable asset securitization transaction or other assets identified in
connection with an asset securitization transaction, and liens on the stock of
such Asset Securitization Subsidiary;
(9) Liens covering only the property or other assets of any Special Purpose
Vehicle Subsidiary and securing only the Debt of any such Special Purpose
Vehicle Subsidiary;
(10) mortgage liens existing on homes acquired by us or any of our Material
U.S. Subsidiaries in the ordinary course of their relocation management
business;
(11) other Liens incidental to the conduct of its business or the ownership
of its property and other assets, which do not secure any Debt and did not
otherwise arise in connection with the borrowing of money or the obtaining of
advances or credit and which do not, in the aggregate, materially detract from
the value of its property or other assets or materially impair the use thereof
in the operation of its business;
(12) Liens covering only the property or other assets of any Subsidiary
which principally transacts business outside of the United States;
(13) Liens existing prior to the date of the indenture and any extensions or
renewals thereof;
(14) Liens incurred in the ordinary course of business to secure Debt
utilized to fund net investment in leases and leased vehicles, equity advances
on homes and other assets under management programs; and
(15) Liens to secure Debt not otherwise permitted by any of the clauses
(i) through (xi) if, at the time any such Liens are incurred, the aggregate
amount of Debt secured by such Liens does not exceed $250,000,000.
RESTRICTIONS ON SALE, CONSOLIDATION OR MERGER
We will not and will not consolidate with or merge into or transfer all or
substantially all of our assets to any other corporation unless the resulting,
surviving or transferee corporation assumes all of our obligations under the
debt securities and the indenture. Thereafter, all such obligations of the
predecessor corporation shall terminate. If upon any such consolidation, merger
or transfer any property or assets of us or a Material U.S. Subsidiary would
become subject to a Lien securing Debt, then before the consolidation, merger or
transfer occurs, we will secure the debt securities equally and ratably with or
prior to the Debt secured by such Lien; provided, however, that we will not so
secure the debt securities if we or a Material U.S. Subsidiary could incur such
Debt and secure it by a Lien on our property or the property of any Material
U.S. Subsidiary pursuant to the indenture (see "Limitations on Liens") without
equally and ratably securing the debt securities.
MODIFICATION AND WAIVER
We are permitted, with the consent of the holders of not less than a
majority in principal amount of the Outstanding debt securities (as defined in
the indenture) of each series affected by the
9
<PAGE>
modification, to supplement the indenture to modify the rights of the holders of
the debt securities; provided that no such modification shall, without the
consent of the holder of each outstanding debt security affected thereby:
(1) change the stated maturity of the principal, or any installment of
principal or interest, of any outstanding debt security or change the Redemption
Price;
(2) reduce the principal amount of or the rate of interest on or any premium
payable on redemption of any outstanding debt security;
(3) modify the manner of determination of the rate of interest so as to
affect adversely the interest of a holder or reduce the amount of the principal
of an Original Issue Discount Debt Security due and payable upon acceleration;
(4) change the place or currency of payment of principal of or interest, if
any, on any debt security;
(5) impair the right to institute suit for the enforcement of any payment on
or with respect to any debt security; or
(6) modify the provisions relating to modification or amendment of the
indenture or to waiver of compliance with or defaults of certain restrictive
provisions of the indenture, except to increase the percentage in principal
amount of Outstanding debt securities required, or to provide that certain other
provisions of the indenture cannot be modified or amended without the consent of
the holder of each outstanding debt security affected thereby.
The holders of a majority in principal amount of an Outstanding series of
debt securities may on behalf of all the holders of such series waive the
compliance with certain covenants or waive any past default except:
(1) a default in payment of the principal of (or premium, if any) or
interest on any debt security of such series or
(2) a default in respect of a covenant or provision of the indenture which
cannot be amended or modified without the consent of the holder of each
Outstanding debt security of such series affected.
If we specify in an applicable pricing supplement the following, so
specified in a supplemental indenture, will apply with respect to the series of
debt securities issued under such pricing supplement:
LIMITATION ON RESTRICTED PAYMENTS
We, (i) shall not, directly or indirectly, declare or pay any dividend, or
make any distributions on account of our Capital Stock, and (ii) shall not make,
or permit any Subsidiary of ours to make any loan, advance to or investment in
Cendant and its subsidiaries (excluding our Subsidiaries) (the transactions
described in clauses (i) and (ii) being referred to herein as "Restricted
Payments"), if at the time thereof, upon giving effect to such Restricted
Payment, our Debt/Equity Ratio exceeds 6.5 to 1.
DEBT/TANGIBLE EQUITY RATIO
We shall maintain, as of the last day of each quarter, a Debt/Tangible
Equity Ratio of not more than 10.0 to 1.0.
DEFINITIONS
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its consolidated subsidiaries, as determined on a
consolidated basis in accordance with
10
<PAGE>
generally accepted accounting principles plus amounts representing mandatorily
redeemable preferred securities issued by such Person or its Subsidiaries.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock or similar
interests in any other form of entity, including, without limitation, with
respect to partnerships, partnership interests (whether general or limited) and
any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
such partnership.
"Debt" means:
(1) all debt, obligations and other liabilities of us and our
Subsidiaries which are, at the date as of which Debt is to be determined,
includable as liabilities in a consolidated balance sheet of us and our
Subsidiaries, other than
(x) accounts payable and accrued expenses,
(y) advances from clients obtained in the ordinary course of the
relocation management services business of ours and our Subsidiaries and
(z) current and deferred income taxes and other similar liabilities,
plus
(2) without duplicating any items included in Debt pursuant to the
foregoing clause (i), the maximum aggregate amount of all liabilities of
ours or any of our Subsidiaries under any guaranty, indemnity or similar
undertaking given or assumed of, or in respect of, the indebtedness,
obligations or other liabilities, assets, revenues, income or dividends of
any Person other than ours or one of our Subsidiaries and
(3) all other obligations or liabilities of ours or any of our
Subsidiaries in relation to the discharge of the obligations of any Person
other than us or one of our Subsidiaries, PROVIDED HOWEVER, that any debt
assumed by us or any of our Subsidiaries in connection with the acquisition
of Avis Group Holdings, Inc. ("Avis") (whether by merger with or into Avis
or by the guarantee of debt of Avis or its Subsidiaries), which is
transferred to Cendant or a Subsidiary thereof (other than PHH and its
Subsidiaries) within 90 days of such debt assumption shall not be deemed
debt for purposes of the Debt/Equity Ratio or the Debt/Tangible Equity
Ratio. In the event that any such debt is not transferred within such
90 day period, such debt will be deemed to have been incurred by PHH on the
last day of such 90 day period for purposes of the foregoing ratios.
"Debt/Equity Ratio" means the ratio of (x) the principal amount of Debt to
(y) our Consolidated Net Worth.
"Debt/Tangible Equity Ratio" means the ratio of (x) principal amount of Debt
to (y) Tangible Net Worth.
"Tangible Net Worth" means, with respect to any Person at any date, the
Consolidated Net Worth of such Person, less the aggregate book value of all
intangible assets of such Person (as determined in accordance with GAAP).
MODIFICATION AND WAIVER
We are permitted, subject to Section 901 of the Indenture, with the consent
of the Holders of not less than 66 2/3% of the aggregate in principal amount of
the Outstanding debt securities (as defined in the indenture) of each series
affected by the modification, when authorized by a Board Resolution, to
supplement the indenture for the purpose of adding any provisions to or changing
in any manner or eliminating the Limitation on Restricted Payments covenant.
11
<PAGE>
EVENTS OF DEFAULT
The following shall constitute events of default with respect to debt
securities of any series then Outstanding:
(1) default for a period of 30 days in payment of any interest on the debt
securities of such series when due;
(2) default in payment of principal of (or premium, if any, on) the debt
securities of such series;
(3) default in the deposit of any sinking fund payment, when and as due by
the terms of a debt security of that series;
(4) default in performance of any other covenant in the applicable indenture
with respect to a series of debt securities, including violations of the
covenants described above relating to limitations on Liens, limitations on
certain advances to non-Subsidiaries and restrictions on sales of assets and
consolidation or merger of us, continued for 90 days after written notice to us
by the trustee or by the holders of at least 25% in principal amount of the
Outstanding debt securities of that series; and
(5) certain events of bankruptcy, insolvency or reorganization.
If an event of default with respect to debt securities of any series shall
occur and be continuing, the applicable trustee or the holders of 25% in
principal amount of the Outstanding debt securities of such series may declare
the principal and accrued interest of all of the debt securities of that series
to be due and payable immediately. We will comply with applicable tender offer
rules under the Exchange Act in the event that the occurrence of an event of
default results in the repurchase of debt securities.
The indenture provides that the trustee will, within 90 days after the
occurrence of a default under the indenture, give to holders of the series of
debt securities with respect to which a default has occurred notice of all
uncured defaults known to it but, except in the case of a default in the payment
of principal (including any sinking fund payment) or premium, if any, or
interest on or Redemption Price (if called for redemption) of a series of debt
securities with respect to which such default has occurred, the trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of such holders.
The indenture contains a provision entitling the trustee, subject to the
duty of such trustee during default to act with the required standard of care,
to be indemnified by the holders of a series of debt securities with respect to
which a default has occurred before proceeding to exercise any right or power
under the indenture at the request of such holders. Subject to such right of
indemnification, each indenture provides that the holders of a majority in
principal amount of the Outstanding debt securities of such series may direct
the time, method and place of conducting any proceeding for any remedy available
to the trustee or exercising any trust or power conferred upon the trustee.
We will be required to furnish to the trustees annually a statement as to
the fulfillment by us of all of its obligations under the indenture.
The general provisions of the indenture do not afford holders of our debt
securities protection in the event of a highly leveraged or other transaction
involving us that may adversely affect holders of the debt securities. Any
covenants or other provisions included in a supplement or amendment to the
indenture for the benefit of the holders of any particular series of debt
securities will be described in the applicable prospectus supplement.
CONCERNING THE TRUSTEE
We maintain general banking and credit relations with the trustees in the
ordinary course of business.
12
<PAGE>
PLAN OF DISTRIBUTION
We may sell debt securities to or through underwriters, and also may sell
debt securities directly to other purchasers or through agents. The distribution
of the debt securities may be effected from time to time in one or more
transactions at a fixed price or prices (which may be changed from time to
time), at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Each supplement will
describe the method of distribution of the offered debt securities.
In connection with the sale of debt securities, underwriters may receive
compensation from us or from purchasers of debt securities for whom they may act
as agents, in the form of discounts, concessions or commissions. Underwriters
may sell debt securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
debt securities may be deemed to be underwriters under the Securities Act and
any discounts or commissions received by them and any profit on the resale of
debt securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified and any such compensation will be described in the supplement.
Under agreements which may be entered into by us, underwriters and agents
who participate in the distribution of debt securities may be entitled to
indemnification by us against certain liabilities, including liabilities under
the Securities Act.
If so indicated in the supplement, we will authorize underwriters or other
persons acting as our agents to solicit offers by certain institutions to
purchase debt securities from us pursuant to contracts providing for payment and
delivery on a future date. Institutions with which such contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and others, but in
all cases such institutions must be approved by us. The obligations of any
purchaser under any such contract will not be subject to any conditions except
that (1) the purchase of the offered debt securities shall not at the time of
delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject, and (2) if the offered debt securities are also being sold
to dealers acting as principals for their own account, the dealers shall have
purchased such offered debt securities not sold for delayed delivery. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
LEGAL MATTERS
The validity of each issue of debt securities will be passed upon for us by
our counsel, Eric Bock, and certain legal matters will be passed upon for the
underwriters or agents by Skadden, Arps, Slate, Meagher & Flom LLP. Skadden,
Arps, Slate, Meagher & Flom LLP has, from time to time, represented and may
continue to represent us in connection with certain legal matters.
EXPERTS
The consolidated financial statements of PHH Corporation and subsidiaries
incorporated in this prospectus by reference from our Annual Report on
Form 10-K for the year ended December 31, 1999, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of said firm given upon their authority as experts in accounting and
auditing.
13
<PAGE>
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
prospectus supplement or the prospectus and, if given or made, such information
must not be relied upon as having been authorized. This prospectus supplement
and the prospectus do not constitute an offer to sell, or the solicitation of an
offer to buy, any securities other than the securities described in this
prospectus supplement or an offer to sell, or the solicitation of an offer to
buy, such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this prospectus supplement or the prospectus
nor any sale made hereunder or thereunder shall, in any circumstances, create
any implication that the information contained or incorporated by reference
herein or therein is correct as of any time subsequent to the date of such
information.
------------------------
Table of Contents
<TABLE>
<CAPTION>
Page
--------
<S> <C>
PROSPECTUS SUPPLEMENT
Risk Factors......................... S-2
Description of Notes................. S-2
Special Provisions Relating to
Foreign Currency Notes............. S-16
Certain Federal Income Tax
Considerations..................... S-20
Supplemental Plan of Distribution.... S-28
PROSPECTUS
Where You Can Find More
Information........................ 2
PHH Corporation...................... 3
Ration of Earnings to Fixed
Charges............................ 4
Use of Proceeds...................... 5
Description of Debt Securities....... 5
Plan of Distribution................. 13
Legal Matters........................ 13
Experts.............................. 13
</TABLE>
[LOGO]
$3,000,000,000
PHH Corporation
Medium-Term Notes
PROSPECTUS SUPPLEMENT
Credit Suisse First Boston
Goldman, Sachs & Co.
Merrill Lynch & Co.
December 20, 2000
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
