<PAGE>
As filed with the Securities and Exchange Commission on December 6, 1996
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
HFS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
22-3059335
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(201) 428-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------
JAMES E. BUCKMAN, ESQ.
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(201) 428-9700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------
COPIES TO:
VINCENT J. PISANO, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT
SUCH TIME OR TIMES AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AS
THE SELLING STOCKHOLDER SHALL DETERMINE.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED
PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING
BOX. |_|
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE
OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT OF 1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH
DIVIDEND OR INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. |X|
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN
OFFERING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE
FOLLOWING BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE
EARLIER EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. |_|
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE
462(C) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. |_|
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO
RULE 434, PLEASE CHECK THE FOLLOWING BOX. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Amount to be Proposed Maximum Proposed Maximum Amount
Title of Shares Registered Offering Price Per Aggregate of
to be Registered Share(2) Offering Price(2) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 999,500 $59.875 $59,845,063 $18,135
par value(1)..................
===================================================================================================================================
<FN>
(1) THESE SHARES ARE BEING OFFERED BY THE SELLING STOCKHOLDER AND NO PROCEEDS WILL BE RECEIVED BY THE COMPANY FROM
THE SALE OF SUCH SHARES.
(2) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE PURSUANT TO RULE 457(C).
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
DATED DECEMBER 6, 1996
PROSPECTUS
999,500 SHARES
HFS INCORPORATED
COMMON STOCK
This Prospectus relates to the offering from time to time of 999,500
Shares (the "Shares") of common stock, $.01 par value per share (the "Common
Stock"), of HFS Incorporated, a Delaware corporation ("HFS" or the "Company"),
to be offered from time to time by Christel DeHaan (the "Selling Stockholder")
who received the Shares in connection with the acquisition by HFS of Resort
Condominiums International, Inc. and its affiliated companies ("RCI") pursuant
to a Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of
October 6, 1996, by and among HFS, RCI and the Selling Stockholder. See
"Selling Stockholder" and "Plan of Distribution" herein. The Company will not
receive any of the proceeds from the sale of the Shares offered hereby.
The distribution and sale of the shares of Common Stock offered hereby
is subject to the provisions of a Registration Rights Agreement dated November
12, 1996, by and between HFS and the Selling Stockholder (the "Registration
Rights Agreement"). The Registration Rights Agreement sets forth certain
restrictions with respect to the transfer of shares of Common Stock offered
hereby, including a restriction on the sale of shares for designated periods
prior to and after the sale of equity securities by the Company, or securities
convertible into or exchangeable or exercisable for equity securities of the
Company, pursuant to a registration statement filed by the Company under the
Securities Act of 1933, as amended respecting an underwritten offering that is
declared effective by the Securities and Exchange Commission. Subject to the
limitations contained in the Registration Rights Agreement, the Selling
Stockholder may sell all or portions of the Common Stock through agents or
broker-dealers on terms to be determined at the time of sale. The Selling
Stockholder may sell the Common Stock offered hereby from time to time on the
New York Stock Exchange or such other national securities exchange, automated
interdealer quotation system on which the shares of Common Stock are then
listed, through negotiated transactions or otherwise at market prices
prevailing at the time of the sale or at negotiated prices. The number of such
shares proposed to be so offered and the terms of such offering, and the number
of such shares owned prior to and after the completion of any such offering
shall be set forth in an accompanying Prospectus Supplement, to the extent
necessary. The aggregate proceeds to the Selling Stockholder from the sale of
any Shares will be the purchase price of such Shares less the aggregate agents'
or broker-dealers' commission, if any, and other expenses of distribution not
borne by the Company. See "Selling Stockholder" and "Plan of Distribution."
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "HFS." On December 5, 1996, the last reported sale price of
the Common Stock on the New York Stock Exchange was $62-7/8 per share.
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December__, 1996.
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING
DESCRIBED HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission:
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661
and 7 World Trade Center, 13th Floor, New York, New York 10048. The
Commission also maintains a website that contains reports, proxy and
information statements and other information. The website address is
http://www.sec.gov. In addition, such material can be inspected at the offices
of the New York Stock Exchange (the "NYSE"), 20 Broad Street, New York, New
York 10005.
The Company has filed a registration statement (the "Registration
Statement") on Form S-3 with respect to the Common Stock offered hereby with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus, which constitutes a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement,
certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
agreement, instrument or other document referred to herein are not necessarily
complete. With respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by reference to such agreement,
instrument or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) Annual Report on Form 10-K for the year ended
December 31, 1995; (ii) description of the Company's Capital Stock which is
contained in its Registration Statement on Form 8-A dated September 16, 1992,
including the amendment on Form 8-A/A dated September 1, 1995, including any
amendment or report filed for the purpose of updating such description; (iii)
Quarterly Reports on Form 10-Q for the quarters ending March 31, 1996, June 30,
1996 as amended by the Form 10-Q/A filed on August 19, 1996 and September 30,
1996; (iv) Current Reports on Form 8-K dated February 16, 1996, March 8, 1996,
April 5, 1996, May 8, 1996, May 21, 1996, August 29, 1996, as amended by the
Form 8-K/A, dated December 5, 1996, October 15, 1996, and November 15, 1996,
as amended by the Form 8-K/A, dated December 4, 1996; and (v) Current Report on
Form 8-K/A, dated August 18, 1995, all of which have previously been filed by
the Company with the Commission, are incorporated herein by reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
filing of such documents. Any statement contained in this Prospectus or in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated herein by reference or
in any Prospectus Supplement modifies or
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<PAGE>
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to James E.
Buckman, Esq., Executive Vice President and General Counsel, 6 Sylvan Way,
Parsippany, New Jersey 07054, (201) 428-9700.
IN CONNECTION WITH ANY UNDERWRITTEN OFFERING OF THE SECURITIES, THE
UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICES OF SUCH SECURITIES OR OTHER SECURITIES OF THE COMPANY AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY
BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMPANY
HFS Incorporated ("HFS" or the "Company"), formerly named Hospitality
Franchise Systems, Inc., is the world's largest franchisor of hotels and
residential real estate brokerage offices. The Company operates eight national
hotel franchise systems: Days Inn(R), Ramada(R) (in the United States), Howard
Johnson(R), Super 8(R), Travelodge(R) (in North America), Villager(sm) Lodge,
Knights Inn(R) and Wingate Inn(sm). In aggregate, these franchise systems
consist of approximately 5,300 properties and 490,000 hotel rooms worldwide.
The Company operates the CENTURY 21(R), Coldwell Banker(R) and Electronic
Realty Associates or ERA(R) (collectively "ERA") real estate brokerage
franchise systems which it acquired on August 1, 1995, May 31, 1996 and
February 12, 1996, respectively. Century 21, Coldwell Banker and ERA are the
world's largest, third largest and fourth largest franchisors, respectively, of
residential real estate brokerage offices, with an aggregate of more than
11,200 independently owned and operated franchised offices located worldwide.
As a franchisor of hotels and residential real estate brokerage
offices, the Company licenses the owners and operators of independent
businesses, principally hotels and real estate brokerage offices, to use the
Company's brand names. The Company does not own or operate hotels or real
estate brokerage offices. Instead, the Company provides its customers with
services designed to increase their revenue and profitability. These services
allow customers to retain independence and local control while benefiting from
the economies of scale of widely promoted brand names and standards of service,
national and regional direct marketing and co-marketing arrangements and global
procurement. The most important of these services for hotel owners are access
to a national reservation system, national advertising and promotional
campaigns, co-marketing programs, and volume purchasing discounts. The most
significant services to real estate brokerages are national advertising and
promotion, referrals, and training. The Company believes significant
opportunities exist to expand the co-marketing and volume purchasing benefits
that it currently provides to its hotel franchisees and to its real estate
brokerage franchisees.
The Company also operates the Coldwell Banker corporate employee
relocation business, which the Company estimates is the second largest provider
of corporate relocation services in the United States based on the number of
transferred employees assisted. The Coldwell Banker corporate employee
relocation business offers its relocation clients a variety of services in
connection with the transfer of its clients' employees. These services include
the selling of a transferee's home, appraisals, inspections, assistance in
finding a new home, property marketing advice, rental assistance, equity
advances, purchasing a transferee's home at the appraised value when no higher
bid is obtained, educational and school placement counseling, career
counseling, spouse/partner employment assistance and group move services.
The Company continually explores and conducts discussions with regard
to acquisitions and other strategic corporate transactions in its industries
and in other franchise or franchisable businesses. Historically, the Company
has been involved in numerous transactions of various magnitudes, for
consideration which included cash or securities (including Common Stock) or
combinations thereof. The Company is continuing to evaluate and to pursue
appropriate acquisition and combination
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opportunities as they arise in the expansion of its operations. No assurance
can be given with respect to the timing, likelihood or financial or business
effect of any possible transaction. In the past, acquisitions by the Company
have involved both relatively small acquisitions and acquisitions which have
been significant, including the acquisition of Avis for approximately $800
million, the acquisition of RCI for up to $825 million and the proposed
acquisition of PHH Corporation ("PHH") for approximately $1.7 billion. See "The
RCI Acquisition" and "The PHH Corporation Acquisition."
The Company's principal executive offices are located at 6 Sylvan Way,
Parsippany, New Jersey 07054 (telephone number: (201) 428-9700).
RECENT DEVELOPMENTS
The Avis Acquisition. On October 17, 1996, the Company completed the
acquisition of all of the outstanding capital stock of Avis Inc. ("Avis"),
including payments under certain employee stock plans of Avis and the
redemption of certain series of preferred stock of Avis for approximately $800
million.
Avis, together with its subsidiaries, licensees and affiliates,
operates the Avis System, which the Company believes to be the second largest
car rental system in the world. The Avis System consists of approximately 4,100
worldwide locations, including locations at most major airports as well as
downtown locations in major cities in the United States and in approximately
150 countries and territories. Approximately 84% of the Avis System rental
revenues in the United States are received from locations operated by Avis
directly or under agency arrangements, with the remainder being received from
locations operated by independent licensees. Avis's international business is
conducted by a network of several, wholly owned subsidiaries and joint ventures
along with a number of licensees and sublicensees. The Avis System in Europe,
Africa and the Middle East is operated by Avis Europe Limited, a United Kingdom
based company which is approximately 9% owned by Avis. The Avis System in
Canada, Latin America, the Caribbean and Asia Pacific, comprising some 65
countries or territories, is operated by Avis subsidiaries, joint ventures and
licensees. See "The Avis Acquisition."
The Company currently intends to dispose of a majority interest in the
corporation which owns all company owned Avis car rental locations (the
"Operating Company") through an initial public offering of the common stock of
the Operating Company during 1997. It is expected that the Operating Company
would operate under a license from Avis pursuant to which the Operating Company
would pay Avis a royalty based upon the revenue of the Operating Company. The
Company expects that the acquisition of Avis will also provide further
opportunities to expand the Company's preferred vendor program.
The Resort Condominiums International, Inc. Acquisition. On November
12, 1996, the Company completed the acquisition of all the outstanding capital
stock of RCI and its affiliates for approximately $625 million, comprised of
$550 million in cash and $75 million in Common Stock of the Company, plus
future contingent payments of up to $200 million over the next five years.
RCI, based in Indianapolis, Indiana and incorporated as an Indiana
corporation in 1974, is the world's largest provider of timeshare exchange
programs for approximately two million timeshare owners and approximately 3,000
resorts around the world (the "RCI Network"). The RCI Network enables a member
who owns a timeshare interest in a resort property that is affiliated with the
RCI Network to exchange such timeshare interest for a timeshare interest of
equivalent value in another affiliated resort. RCI also is engaged in
publishing related to the timeshare industry and provides other travel-related
services, integrated software systems and resort management and consulting
services. Exchange and travel-related revenue of RCI was $158.6 million and
$278.1 million for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively. See "The RCI Acquisition."
The Company expects that the acquisition of RCI will provide increased
marketing opportunities between RCI and the Company's lodging, car rental and
real estate brokerage franchises as well as further opportunities to expand the
Company's preferred vendor program. The Company also expects that RCI will
benefit from
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certain economies of scale and other synergies resulting from RCI's affiliation
with the Company's lodging, car rental and real estate brokerage franchisor
operations.
The PHH Corporation Acquisition. On November 10, 1996, the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") by and
among the Company, PHH and Mercury Acquisition Corp., a wholly owned
subsidiary of the Company. Pursuant to the Merger Agreement, the Company has
agreed to acquire all the outstanding capital stock of PHH for approximately
$1.7 billion, or approximately $49.50 per PHH share (the "Merger") for
consideration consisting of shares of Common Stock. Pursuant to the terms of
the Merger Agreement, the maximum number of shares to be issued would be
approximately 29.9 million and the minimum number of shares to be issued would
be approximately 22.2 million, based upon an average share price of Common
Stock of between $60 to $81 for the twenty trading days ending five days
before the PHH shareholder vote to approve the Merger. Consummation of the
transaction is subject to the satisfaction of various conditions, including
regulatory approvals and stockholder approval. The transaction will be
accounted for as a pooling of interests and is anticipated to be tax free for
PHH shareholders. While completion of the transaction is not assured, the
Company expects the transaction will be completed during March 1997.
PHH, based in Hunt Valley, Maryland and incorporated as a Maryland
Corporation, provides a broad range of integrated management services, expense
management programs and mortgage banking services to more than 3,000 major
clients, including many of the world's largest corporations, as well as
government agencies and affinity groups. Its primary business service segments
consist of vehicle management, real estate and mortgage banking. For the twelve
month period ended April 30, 1996, PHH net revenues totalled approximately $600
million with net income of approximately $82 million.
See "The PHH Acquisition."
Amre. On November 26, 1996, Amre Inc. ("Amre") reached an agreement in
principle with the Company to defer $9.6 million of Amre's 1996 royalty
obligation to the Company and modify the $11 million 1997 royalty payment to
the Company so that such royalty is based on the cash flow of Amre. The Company
and Amre also agreed to restructure the terms of future royalty payments.
The Company will record an allowance in the fourth quarter of 1996
on the $9.6 million receivable from Amre. The allowance will be offset in large
part by a $9.5 million fee from Chartwell Leisure Inc. ("Chartwell") related
to a termination of a services contract by Chartwell.
Other. As part of its regular on-going evaluation of acquisition
opportunities, the Company is currently engaged in a number of separate and
unrelated preliminary discussions concerning possible acquisitions. The Company
is in the early stages of such discussions and has not entered into any
agreement in principle with respect to any of these possible acquisitions. The
purchase price for the possible acquisitions may be paid in cash, through the
issuance of Common Stock (which would increase the number of shares Common
Stock outstanding) or other securities of the Company, borrowings, or a
combination thereof. Prior to consummating any such possible acquisitions, the
Company, among other things, will have to initiate and satisfactorily complete
its due diligence investigation; negotiate the financial and other terms
(including price) and conditions of such acquisitions; obtain appropriate Board
of Directors, regulatory and other necessary consents and approvals; and secure
financing. The Company cannot predict whether any such acquisitions will be
consummated or, if consummated, will result in a financial or other benefit to
the Company.
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RISK FACTORS
Prior to making an investment decision with respect to the Shares of
Common Stock offered hereby, prospective investors should carefully consider
the specific factors set forth below, together with all of the other
information appearing herein, in light of their particular investment
objectives and financial circumstances.
RISKS RELATED TO HFS'S OPERATIONS
COMPETITION FOR NEW FRANCHISE PROPERTIES AND GENERAL RISKS OF THE LODGING
AND RESIDENTIAL REAL ESTATE BROKERAGE INDUSTRIES
As a franchisor, the Company's products are its brand names and the
support services it provides to its franchisees. Competition among national
brand franchisors in the lodging and residential real estate brokerage
industries to grow their franchise systems is intense. In addition, smaller
chains pose some degree of competitive pressure in selected markets. The
Company believes that competition for the sale of franchises in such industries
is based principally upon the perceived value and quality of the brand and
services as well as the nature of those services offered to franchisees. The
Company believes that prospective franchisees value a franchise based upon
their view of the relationship of conversion costs and future charges to the
potential for increased revenue and profitability.
The Company's revenue varies directly with franchisees' gross revenue,
but is not directly dependent upon franchisees' profitability. However, the
Company believes that the perceived value of its brand names to prospective
franchisees is in part a function of the success of its existing franchisees.
The ability of the Company's franchisees to compete in the lodging and
residential real estate brokerage industries is important to the Company's
prospects because franchise fees are based on franchisees' gross revenue. The
Company's franchisees are generally in intense competition with franchisees of
other systems, independent properties and realtors, and owner-operated chains.
Competition in the lodging business for hotel guests and in the residential
real estate brokerage business for house sales is based upon many factors, each
of which may be more or less important in a given market and location. A
franchisee's success may also be affected by general, regional and local
economic conditions.
REGULATION
The sale of franchises is regulated by various state laws as well as
by the Federal Trade Commission (the "FTC"). The FTC requires that franchisors
make extensive disclosure to prospective franchisees but does not require
registration. A number of states require registration or disclosure in
connection with franchise offers and sales. In addition, several states have
"franchise relationship laws" or "business opportunity laws" that limit the
ability of franchisors to terminate franchise agreements or to withhold consent
to the renewal or transfer of these agreements. While the Company's franchising
operations are not materially adversely affected by such existing regulations,
the Company cannot predict the effect any future legislation or regulation may
have on its business operations or financial condition. The Company's casino
marketing business is also subject to extensive government regulation and
licensing requirements. The Federal Real Estate Settlement Procedures Act and
state real estate brokerage laws restrict payments which real estate brokers
may receive in connection with the sale of residences. Such laws may to some
extent restrict preferred vendor arrangements involving the Company's real
estate brokerage franchisees.
CERTAIN ANTI-TAKEOVER EFFECTS; DIVESTITURE AND LOSS OF VOTING RIGHTS
Certain provisions of the Company's Amended and Restated Certificate
of Incorporation may have the effect of requiring a stockholder of the Company
to divest its shares of Common Stock or forfeit its voting rights in certain
circumstances where such stockholder's ownership of Common Stock would
adversely affect the Company's ability to secure requisite gaming related
approvals or comply with certain governmental requirements (the "Gaming
Provisions"). The Gaming
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<PAGE>
Provisions may be deemed to have anti-takeover effects and may delay, defer or
prevent a takeover attempt that a stockholder might consider in its best
interest.
In addition, the Company's Board of Directors has the ability to
establish by resolution one or more series of preferred stock having such
number of shares, designation, relative voting rights, dividend rate,
liquidation and other rights, preferences and limitations as may be fixed by
the Company's Board of Directors, without any further stockholder approval. The
issuance of a new series of preferred stock could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party from
acquiring, a majority of the outstanding voting stock of the Company. See
"Description of Capital Stock -- Disqualified Stockholders."
ENTRY INTO NEW INDUSTRIES
By acquiring Avis, RCI and PHH, the Company is entering new industries
in which it has not previously participated. While the Company believes that
its experience as a franchisor and service provider in the hotel and
residential real estate brokerage industries will enable it to succeed in such
industries, there can be no assurance that the Company will be able to compete
successfully as a car rental business operator and franchisor, as a timeshare
exchange operator or as a management services provider.
RISKS RELATED TO AVIS'S OPERATIONS
LEVERAGE; AVAILABILITY OF FINANCING; REQUIREMENTS FOR CAPITAL
Avis maintains a substantial amount of secured indebtedness to finance
its fleet purchases. At June 30, 1996, Avis and its subsidiaries had
approximately $2.467 billion of indebtedness outstanding, approximately $2.139
billion of which represented secured indebtedness for the purchase of vehicles.
Of the remaining indebtedness, approximately $170.5 million represents debt of
Avis's foreign subsidiaries and is unsecured. At June 30, 1996, Avis had
subordinated indebtedness of approximately $249.9 million, of which
approximately $97.4 million is secured but subordinated to the fleet debt and
approximately $152.5 million is unsecured and structurally subordinated to the
fleet debt. At June 30, 1996, Avis had approximately $734 million of additional
availability under these vehicle financing facilities to finance the purchase
of additional fleet vehicles.
The level of Avis's indebtedness could have important consequences to
Avis's operation, including: (i) the potential limitation of Avis's ability to
obtain additional financing for certain purposes; (ii) the commitment of a
substantial portion of Avis's cash flow from operations for debt service; and
(iii) the limitation of Avis's ability to react to changes in the car rental
industry and general economic conditions.
Avis depends upon third-party financing to purchase its fleet
vehicles. Continued availability of such financing upon favorable terms is
critical to Avis's operations. Since a substantial portion of such indebtedness
is incurred in connection with major vehicle manufacturers' repurchase programs
("Repurchase Programs"), a significant change in the financial condition of the
vehicle manufacturers, particularly General Motors Corporation ("GM"), would
significantly affect Avis's ability to obtain such financing on favorable
terms. In addition, under the terms of certain of Avis's credit facilities,
including the Prime Vehicles Trust, if the senior indebtedness of a repurchase
party (such as GM) fails to maintain certain rating standards or upon the
bankruptcy of a repurchase party or upon the occurrence of certain other
events, certain adverse consequences may result. These adverse consequences
include a prohibition on borrowing additional amounts under such facilities for
the purchase of vehicles from such repurchase party, a requirement to repay a
lender, and a requirement to increase the overall level of subordinated debt as
additional asset support for such facilities. The inability of Avis to obtain
vehicle financing on favorable terms could have a material adverse effect on
Avis's financial condition and results of operations.
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POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS
At August 1, 1996, approximately 94% of the vehicles in Avis's rental
car fleet were subject to the terms of manufacturers' Repurchase Programs
("Program Vehicles"). Repurchase Programs are methods of purchasing vehicles
whereby a buyer, such as Avis, purchases vehicles from the manufacturer at a
specified and stipulated price and, under the program, the manufacturer agrees
to buy the same vehicles back from the purchaser at a future date at a price
based on a pre-determined formula. The formula typically consists of the
capitalized cost less a depreciation factor minus damage and excess mileage.
The availability of Program Vehicles limits Avis's risk of a decline in
residual value at the time of disposition of the vehicles and enables Avis to
fix its depreciation expense in advance. Vehicle depreciation is the largest
cost factor in Avis's car rental operations. Avis could be adversely affected
if automobile manufacturers reduce the availability of Repurchase Programs or
related incentives.
Avis could be at a competitive disadvantage if U.S. automobile
manufacturers selectively restrict eligibility to participate in their
Repurchase Programs. Over the past decade, U.S. automobile manufacturers have
acquired direct or indirect equity stakes in most of the major car rental
systems. At August 1, 1996, GM had an equity interest in Avis which was sold to
the Company pursuant to the Stock Purchase Agreement; Ford Motor Company
("Ford") owned The Hertz Corporation ("Hertz") and had an equity interest in
Budget Rent a Car Corporation ("Budget") and announced its intention to
purchase the remaining outstanding equity of Budget; and Chrysler Corporation
("Chrysler") had equity interests in Dollar Rent a Car Systems, Inc. ("Dollar")
and Thrifty Rent-A-Car Systems, Inc. ("Thrifty"). For the 1996 model year, Avis
purchased a significant number of its vehicles pursuant to Repurchase Programs
sponsored by GM. Any effort by GM to restrict eligibility to participate in
Repurchase Programs to car rental systems could adversely affect Avis's ability
to compete with those of its competitors that have continued access to such
programs.
COMPETITION
The car rental industry is characterized by intense competition,
particularly with respect to price and service. In any geographic market, Avis
may encounter competition from national, regional and local car rental
companies. Avis's largest competitors for car rentals include Alamo Rent-A-Car,
Inc. ("Alamo"), Budget, Dollar, Enterprise Rent a Car ("Enterprise"), Hertz,
National Car Rental System, Inc. ("National") and Thrifty.
There have been occasions during the history of the car rental
industry in which the major car rental companies have been adversely affected
by industry-wide price pressures, and Avis has, on such occasions, priced its
product in response to such pressures. Moreover, at times when the car rental
industry has experienced vehicle oversupply, there has been intensified
competitive pressure. This oversupply has had a negative impact on the
industry's ability to raise rental rates. Avis has taken steps to address its
fixed cost structure to improve its overall competitive position; however,
future oversupply or other factors affecting competition could still adversely
affect Avis's financial condition and results of operations.
SEASONALITY
Based on the Avis fiscal year which begins on March 1 and ends on
February 28, Avis's second quarter, which covers the peak summer travel months,
has historically been the strongest quarter of the year. Avis's second quarter
accounted for over 26% and 71% of Avis's combined total revenue and pre-tax
profit, respectively, in fiscal years 1995 and 1996. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on Avis's annual performance. Avis's fourth quarter is
generally its weakest, when there is limited leisure travel and a greater
potential for adverse weather conditions. Many of Avis's operating expenses
such as rent, general insurance and administrative personnel are fixed and
cannot be reduced during periods of decreased rental demand.
REGULATION OF LOSS DAMAGE WAIVERS
A traditional revenue source for the car rental industry has been the
sale of loss damage waivers, by which rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage to a rented
vehicle
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incurred during the rental period. Approximately 3% of Avis's rental revenue
during fiscal 1996 was generated by the sale of loss damage waivers. The U.S.
House of Representatives has from time to time considered legislation that
would regulate the conditions under which loss damage waivers may be sold by
car rental companies. House Bill H.R. 175, introduced in January 1995, seeks to
prohibit the imposition of liability on renters for loss of, or damage to,
rented vehicles, except in certain circumstances, and to prohibit the sale of
loss damage waivers. To date, no action has been taken on this bill. In
addition, approximately 40 states have considered legislation affecting the
sale of loss damage waivers. To date, 24 states have enacted legislation
regulating the sale of loss damage waivers, most of which require disclosure to
each customer at the time of rental that damage to the rented vehicle may be
covered by the customer's personal automobile insurance and that loss damage
waivers may not be necessary. In addition, in the late 1980's, New York and
Illinois enacted legislation which eliminated Avis's right to offer loss damage
waivers for sale and limited potential customer liability to $100 and $200,
respectively. In 1996, the New York Legislature approved legislation to
increase this amount to $300. The bill is awaiting the Governor's action.
Moreover, California, Nevada and Indiana have capped rates that may be charged
for collision damage waivers to $9.00, $10.00 and $5.00 per day, respectively.
Texas requires that the rate charged for loss damage waivers be reasonably
related to the direct cost of repairs. Adoption of national or additional state
legislation eliminating or limiting the sale of loss damage waivers could
result in the loss or reduction of this revenue source and additional
limitations on potential customers liability could increase Avis's costs.
ENVIRONMENTAL RISKS INHERENT IN ON-SITE PETROLEUM STORAGE
232 of Avis's domestic and international facilities contain tanks for
the storage of petroleum products, such as gasoline, diesel fuel and waste
oils. At 211 of Avis's operating locations, one or more of these tanks are
located underground. Avis maintains an environmental compliance program that
includes the replacement of steel tanks and the implementation of required
technical and operational procedures designed to minimize the potential for
leaks and spills, maintenance of records and the regular testing of tank
systems for tightness. However, there can be no assurance that these tank
systems will at all times remain free from leaks or that the use of these tanks
will not result in spills. Any leak or spill, depending on such factors as the
material involved, quantity and environmental setting, could result in
interruptions to Avis's operations and expenditures that could have a material
adverse effect on Avis's results of operations and financial condition. Avis
carries environmental impairment liability coverage with limits of $4 million
per site and $4 million in the aggregate and a deductible generally of
$250,000. This policy covers against liability to third parties and clean-up
costs, but not business interruption in Avis's own operations.
RISK OF NON-RENEWAL OF AIRPORT CONCESSIONS
Avis conducts rental operations at 229 airports domestically and
internationally, with each of these operations conducted pursuant to a
concession agreement granted by the local airport authority. In general, these
concession agreements are subject to competitive bidding at the time of
renewal. The terms of Avis's airport concession agreements are varied and
include month-to-month terms at certain locations and fixed terms of various
durations at other locations. Avis is at risk of losing its ability to operate
at an airport if it is not a successful bidder at the time its concession
agreement is subject to renewal. The loss of one or more airport operations may
have an adverse effect on Avis.
DEPENDENCE ON AIR TRAVEL INDUSTRY AND FUEL SUPPLY
A significant amount of Avis's North American revenue is generated at
its on-airport or near-airport facilities. A decrease in air travel or any
event that disrupts air travel patterns at such facilities for a continued
period of time could have a material adverse effect on Avis's financial
condition and results of operations. Such events could include labor unrest,
airline bankruptcies or consolidations, substantially higher air fares, a
downturn in the economy, the outbreak of war, high-profile crimes against
tourists, terrorist incidents and natural occurrences, such as earthquakes,
floods and hurricanes.
Avis's operations, as well as those of its competitors, could be
affected by any limitations in fuel supplies or by any imposition of mandatory
allocations or rationing regulations or significant increases in fuel prices.
In the event of a
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severe disruption of fuel supplies or significant increases in fuel prices, the
operations of Avis and other car rental companies would be adversely affected.
DEPENDENCE ON PRINCIPAL SUPPLIER
Since approximately 1978, GM has been Avis's principal supplier of
vehicles. The number of vehicles purchased from GM varies from year to year. In
model year 1995, Avis made approximately 82% of its vehicle purchases in North
America from GM. In model year 1996, Avis made approximately 81% of its vehicle
fleet purchases in North America from GM. Under the terms of the GM Repurchase
Program, Avis must purchase at least 100,000 vehicles and maintain a minimum of
51% GM share penetration of its domestic vehicles during model years 1996
through 2000. Given the volume of vehicles purchased from GM by Avis, shifting
significant portions of the fleet purchases to other manufacturers would
require lead time. As a result, if GM were unable to supply Avis with the
planned number and types of vehicles, it could have a material adverse effect
on Avis's financial condition and results of operations.
THE AVIS ACQUISITION
GENERAL
On October 17, 1996, the Company completed the acquisition of all of
the outstanding capital stock of Avis, including payments under certain
employee stock plans of Avis and the redemption of certain series of preferred
stock of Avis, for approximately $800 million.
Avis, together with its subsidiaries, licensees and affiliates,
operates the Avis System, which the Company believes to be the second largest
car rental system in the world. The Avis System consists of over approximately
4,139 locations, including locations at most major airports as well as downtown
locations in major cities in the United States and in approximately 149
countries and territories. Approximately 84% of the Avis System rental revenues
in the United States are received from locations operated by Avis directly or
under agency arrangements, with the remainder being received from locations
operated by independent licensees. Avis's international business is conducted
by a network of several wholly owned subsidiaries and joint ventures along with
a number of licensees and sublicensees. The Avis System in Europe, Africa and
the Middle East is operated by Avis Europe, which is approximately 9% owned by
Avis. The Avis System in Canada, Latin America, the Caribbean and Asia Pacific,
comprising some 65 countries and territories, is operated by Avis subsidiaries,
joint ventures and licensees. During the peak summer season, the Avis System
fleet worldwide consists of more than approximately 386,548 vehicles
representing the following allocations of vehicles throughout the system: (i)
189,616 in the Avis U.S. Corporate fleet; (ii) 44,000 vehicles in the Avis
International fleet; (iii) 50,932 in the Avis U.S. Licensee fleet; and (iv)
102,000 in the Avis Europe fleet.
In the United States, Avis's principal rental base is business
travelers who use the Avis System under contractual arrangements between Avis
and their employers. Because business travel normally is heaviest between
Monday and Thursday of each week, Avis's concentration on serving business
travelers has led to excess fleet capacity from Friday through Sunday of most
weeks.
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Following the acquisition of Avis, the Company currently intends to
dispose of a majority interest in the Operating Company through an initial
public offering of the common stock of the Operating Company during 1997. It is
expected that the Operating Company would operate under a license from Avis
pursuant to which the Operating Company would pay Avis a royalty based upon the
revenue of the Operating Company. The Company expects that the acquisition of
Avis will also provide further opportunities to expand the Company's preferred
vendor program.
CAR RENTAL INDUSTRY OVERVIEW
The car rental industry provides car and truck rentals to business and
individual customers worldwide. The industry has been composed of two principal
segments: general use (mainly at airport and downtown locations) and
local/replacement (mainly at downtown and suburban locations). The car rental
industry rents primarily from on-airport, near-airport, downtown and suburban
locations to business and leisure travelers and to individuals who have lost
the use of their vehicles through accident, theft or breakdown. In addition to
revenue from vehicle rentals, the industry derives significant revenue from the
sale of rental related products such as insurance, refueling services and
collision damage waivers.
The domestic car rental industry includes eight major companies,
Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, and Thrifty, and a
large number of smaller and regional or local firms, serving on-airport,
near-airport and other locations. Most of Avis's major competitors operate
through a combination of wholly owned and franchised operations. Other smaller
car rental companies operate primarily through franchises.
The domestic car rental industry has experienced significant growth
over the last decade. The total annual U.S. revenue for the car rental industry
has been estimated by industry sources at $13.5 billion in 1995, an 11.8%
compound annual growth rate from $4.4 billion in 1985, and the total number of
rental vehicles in service in the United States has been estimated by industry
sources at 1.5 million in 1995, a 7% compound annual growth rate from 760,000
in 1985. The Company believes that the factors driving this industry growth
include increases in airline passenger traffic due to lower airfares,
overcapacity in the hotel industry, the trend toward shorter, more frequent
vacations resulting from the growth of the number of households with two wage
earners, the demographic trend toward older, more affluent Americans who travel
more frequently, and increased business travel. The Company believes that
future growth of the car rental industry will be determined by general economic
conditions, developments in the travel industry, and a variety of other
factors, including the car rental industry's relationship with major vehicle
manufacturers. Accordingly, the Company cannot predict whether such growth will
continue and, if so, whether it will continue at rates comparable to those of
the recent past.
Car renters generally are (i) business travelers renting under
negotiated contractual arrangements between specified rental companies and the
travelers' employers, (ii) business travelers who do not rent under negotiated
contractual arrangements (but who may receive discounts through travel,
professional or other organizations), and (iii) leisure travelers, including
renters who have lost the use of their own vehicles through accident, theft or
breakdown. Contractual arrangements normally are the result of negotiations
between rental companies and large corporations, based upon rates, billing and
service arrangements, and influenced by reliability and renter convenience.
Business travelers who are not parties to negotiated contractual arrangements
and leisure travelers generally are influenced by advertising, renter
convenience and access to special rates because of membership in travel,
professional and other organizations.
Many of Avis's major competitors are owned by, or are affiliated with,
the major automobile manufacturers, and each of the major domestic car rental
companies maintains a close relationship with one or more United States
automobile manufacturers. At August 1, 1996, Ford owned Hertz and had an equity
interest in Budget and announced its intention to purchase the remaining
outstanding equity of Budget; and Chrysler had equity interests in Dollar and
Thrifty. Automobile manufacturers often provide financing for the purchase of
vehicles and provide payments to car rental companies in consideration of
advertising and promotional programs that benefit the manufacturers. In
addition, manufacturers provide fleet assistance programs, including Repurchase
Programs and similar arrangements, which protect rental companies against loss
on disposition of vehicles and enable rental companies to adjust their fleet
size to take account of seasonal variations in demand.
AVIS CAR RENTAL OPERATIONS
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THE AVIS SYSTEM
System-Wide Services. Avis provides the Avis System with: (i) national
promotion, advertising and public relations services; (ii) reservations and
information systems; (iii) data processing support; (iv) marketing programs
with hotels and airlines; (v) a sales staff for marketing to corporate
customers and the travel community; (vi) credit card services for commercial
customers; (vii) training in local marketing techniques; and (viii) operation
and training support. Avis's on-line real-time data processing and information
system, known as the Wizard System, connects more than 2,000 Avis locations in
the United States, Canada, Europe and a number of other countries.
The Wizard System. The Wizard System is a telecommunications and
computer processing system which is used in the Avis System for reservations,
rental agreement processing, accounting, fleet control and a variety of other
purposes. It is operated by WizCom International, Ltd. ("WizCom"), a wholly
owned subsidiary of Avis. In 1995, Budget entered into a computer services
agreement with WizCom that provides Budget with certain reservation system
computer services that are substantially similar to computer services provided
to the Avis System. WizCom has also entered in agreements with hotel and other
rental car companies to provide travel related reservation and distribution
system services. Avis uses the Wizard System as a marketing tool and benefits
from the operating efficiencies obtained through the Wizard System.
The Wizard System is operated by Avis, and is linked to more than
12,000 terminals in more than 2,000 rental locations through telephone lines
and satellite communications. Among the features of the Wizard System which are
not available on most competitors' systems are (a) an advanced graphical
interface reservation system; (b) "Rapid Return," which permits customers who
are returning cars to obtain completed charge records from radio-connected
"Roving Rapid Return" agents who complete and deliver the charge record at the
car as it is being returned; (c) "Wizard on Wheels," which enables Avis
locations to assign cars and complete rental agreements while customers are
being transported to the car; (d) "Avis Link," which automatically identifies a
customer using American Express or other major credit card who is entitled to
special rental rates and conditions, and therefore sharply reduces the number
of instances in which Avis inadvertently fails to honor the benefits of
negotiated rate arrangements to which they are entitled; (e) interactive
interfaces through the airline computerized reservation systems described under
"Marketing"; (f) sophisticated fleet control and revenue management programs
which, among other things, enable rental agents to ensure that a customer who
rents a particular type of vehicle will receive the available vehicle of that
type which has the lowest mileage (benefitting the customer and Avis by more
evenly dispersing utilization among cars of a particular type); and (g) a
comprehensive control and reporting system that enables Avis to adapt quickly
to changes in customer requirements. Avis also benefits from the low cost and
speed of billing available as a result of broad use of the Wizard System and
believes that the Wizard System keeps its clerical and communications costs
below those of its competitors.
RENTAL OPERATIONS
Avis rents a wide variety of automobiles and minivans, most of which
consist of the current and immediately preceding model years. Car rentals are
generally made on a daily, weekly or monthly basis. Rental charges in the
United States usually are computed on the basis of the length of the rental or
on the length of the rental plus a mileage charge. Additional charges are made
for refueling service, loss damage waivers (a waiver of Avis's right to make a
renter pay for damage to the rented car), personal accident insurance, personal
effects protection and, in some instances, additional liability insurance.
Rates vary at different locations depending on the type of vehicle, the local
market and competitive and cost factors. Most rentals are made utilizing rate
plans under which the customer is responsible for gasoline used during the
rental. Avis also generally offers its customers the convenience of leaving a
rented car at an Avis location in a city other than the one in which it was
rented under its "Rent it Here -- Leave it There" program, although, consistent
with industry practices, a drop-off charge or special intercity rate may be
imposed.
North American Operations. Approximately 88% of Avis's United States
rental revenue is generated at 174 of the busiest airports in the United
States. Avis's rental revenue as a percentage of total rental revenues at those
airports for the five-year period ended February 29, 1996 approximated 26%;
23.7%; 24.1%; 22.3% and 23.8%, respectively.
At August 1, 1996, Avis owned and operated approximately 406 corporate
car rental facilities at airport, near-airport and downtown locations
throughout the United States and approximately 36 corporate car rental
facilities in Canada. Of these facilities, approximately 191 primarily serve
airport business and approximately 251 are non-airport locations. By focusing
on travelers at the major airports, Avis has been able to operate more vehicles
from significantly
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fewer rental sites than its competitors, yielding significant economies of
scale. Avis's emphasis on airport traffic has resulted in a strong competitive
position at the major domestic rental-revenue airports.
Avis has 77 independent licensees which operate locations in the
United States. The two largest licensees operate the Avis System in the Los
Angeles and Dallas area and account for approximately half of all United States
licensees' rentals. Certain licensees in the United States pay Avis a fee equal
to 5% of their total time and mileage charges, less all customer discounts, of
which Avis is required to pay 40% for corporate licensee-related programs,
while six licensees pay 8% of their gross revenue. Licensees outside the United
States normally pay higher fees. Most of Avis's United States licensees
currently pay 50 cents per rental agreement for use of the Wizard System, and
they are charged for use of other aspects of the Wizard System.
Avis is in many cases one of five to seven vehicle concessionaires at
the airports at which it operates. In general, concession fees for airport
locations are based on a percentage of total commissionable revenues (as
determined by each airport authority), subject to a minimum guaranteed amount.
Concessions are typically awarded by airport authorities every three to five
years based upon competitive bids. Avis's concession arrangements with the
various airport authorities generally include minimum requirements for vehicle
age, operating hours and employee conduct, and provide for relocation in the
event of future construction and abatement of fees in the event of extended low
passenger volume.
International Operations. In addition to countries served by Avis
Europe and its affiliates and licensees, Avis's subsidiaries, joint ventures
and licensees operate the Avis System internationally in approximately 65
countries and territories, with wholly owned subsidiaries in Canada, Argentina,
Australia, New Zealand, Puerto Rico and the United States Virgin Islands, and
joint ventures in Jamaica, Singapore and Malaysia. The principal business of
Avis's foreign subsidiaries is car rentals.
Avis's international system (not including Avis Europe) operates a
combined peak rental and leasing fleet of approximately 44,000 vehicles, of
which approximately 23,000 are operated by subsidiaries, and the balance by
joint ventures and licensees. Revenues of the foreign subsidiaries in the
fiscal year ended February 29, 1996, totaled approximately $212 million,
without taking account of revenues of joint ventures or licensees.
MARKETING
In the United States, approximately 70% of Avis's fiscal 1996 rentals
were generated by travelers who used the Avis System under contractual
arrangements negotiated by Avis with either the travelers' corporate employers
or organizations such as American Association of Retired Persons in which the
travelers have memberships. The remainder of the rental activity is from
business travelers who are not affiliated with corporations or organizations
with which Avis has contractual arrangements, and from leisure renters. Avis's
corporate sales organization is the principal source of contractual
arrangements with corporate accounts. Unaffiliated business travelers are
solicited by direct mail, telemarketing and advertising campaigns.
Avis solicits contractual arrangements with corporate accounts by
emphasizing the Wizard System's advanced technology, customer service, pricing
and a worldwide rental network. The Wizard System plays a significant part in
securing business of this type because the Wizard System enables Avis to offer
a wide variety of pricing combinations, special reports and tracking techniques
tailored to the particular needs of each account, and to assure adherence to
agreed-upon rates.
Avis's presence in the United States leisure and incidental business
segment is substantially less significant than its presence in the United
States commercial account segment. Leisure rental activity is important in
enabling Avis to balance the use of its fleet. Typically, business renters use
cars from Monday through Thursday, while in most areas of the United States
leisure renters use cars primarily over weekends.
Avis maintains strong links to the air travel industry. It has
arrangements with American Airlines, American West Airlines, Continental
Airlines, Delta Airlines, Trans World Airlines, United Airlines, USAir and
Northwest Airlines (collectively, the "Airlines") under which participants in
the Airlines' frequent flier programs can earn mileage credits whenever they
rent Avis cars. Frequent flier programs (under which travelers can earn reduced
fares or free flights based upon miles flown on particular airlines) are a
significant sales incentive to United States travelers, and the Company
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believes Avis benefits significantly from its frequent flier arrangements with
the Airlines. All the other major car rental companies also participate in one
or more airline frequent flier programs.
Car renters can make Avis reservations through all four major United
States based global distribution systems and several international based
systems. Users of the United States based global distribution systems can
obtain access through these systems to the Avis reservation system concerning
among other things, rental locations, vehicle availability, applicable rate
structures and gives them the ability to reserve and confirm Avis vehicles
directly through these systems.
Avis also maintains strong links to the hotel industry. Avis has
arrangements with Hilton Corporation, the Hyatt Corporation and the Sheraton
Marketing Corporation frequent traveler programs, which provide various
incentives to all program participants.
RENTAL VEHICLE PURCHASES
Avis participates in a variety of vehicle purchase programs with major
domestic and foreign manufacturers, although actual purchases are made directly
through local car dealers. The average price for automobiles purchased by Avis
in 1996 for its rental fleet was approximately $16,250.00. On average during
model year 1996, 82% of the purchases were comprised of GM vehicles, 13% of
Chrysler vehicles and 5% of Nissan, Subaru, Hyundai, Ford, Toyota and Land
Rover vehicles. These percentages vary among Avis's operations and will most
likely change from year to year. The vehicle purchase programs sponsored by
manufacturers sometimes provide Avis with sales incentives for the purchase of
certain models, and most of these programs allow Avis to serve as a drop-ship
location for vehicles, thus enabling Avis to receive a fee from the
manufacturers for preparing newly purchased vehicles for use. There can be no
assurance that Avis will continue to be able to benefit from sales incentives
in the future.
Most of Avis's cars in the United States are purchased, owned and sold
by Prime Vehicles Trust, a trust created by Avis of which Avis is the sole
beneficiary, or by corporate nominees of Prime Vehicles Trust. All decisions
regarding Prime Vehicles Trust purchases and sales of cars are made by Avis,
and Prime Vehicles Trust is combined with Avis for both financial and tax
accounting. The existence of Prime Vehicles Trust has no effect on Avis's
control of the cars in its fleet. However, Avis believes the existence of Prime
Vehicles Trust has been useful in obtaining financing secured by its cars. Avis
expects to continue to take advantage of Prime Vehicles Trust to finance future
fleet purchases.
FLEET UTILIZATION AND SEASONALITY
Avis's business is subject to seasonal variations in customer demand,
with the summer vacation period representing the peak season for vehicle
rentals. This general seasonal variation in demand, along with more localized
changes in demand at each of Avis's operations, causes Avis to vary its fleet
size over the course of the year. In fiscal year 1996, Avis's average monthly
fleet size ranged from a low of 127,000 vehicles in January to a high of
149,000 vehicles in August. Fleet utilization, which is based on the average
number of days vehicles are rented compared to the total number of days
vehicles are available for rental, ranged from 65% in December to 82% in August
and averaged 74% for all of fiscal year 1996.
RENTAL VEHICLE DISPOSITION
Avis's current operating strategy is to maintain its fleet at an
average age of 12 months or less. Approximately 90% of the vehicles purchased
by Avis in model year 1996 were eligible for participation in manufacturers'
Repurchase Programs. These programs currently require that Avis maintain
Program Vehicles in its fleet for a minimum of six months and impose numerous
return conditions, including those related to mileage and repair condition.
Less than 2.5% of the Program Vehicles purchased by Avis and scheduled to be
returned in 1995 were ineligible for return. At the time of return to the
manufacturer, Avis receives the price guaranteed at the time of purchase and is
thus protected from fluctuations in the prices of previously-owned vehicles in
the wholesale market at the time of disposition. The future percentage of
Program Vehicles in Avis's fleet will be dependent on the availability and
attractiveness of the manufacturers' Repurchase Programs, over which Avis has
no control. See "Risk Factors -- Potential Changes in Manufacturers' Repurchase
Programs."
In addition, Avis sells cars wholesale to dealers in the United States
either through informal arrangements or at auction through standard consignment
agreements.
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AVIS CAR RENTAL FACILITIES
Avis leases almost all of its airport and non-airport car rental
facilities and currently operates from 406 corporate rental locations. The
airport facilities are located on airport property owned by airport authorities
or located near the airport on locations convenient for bus transport of
customers to the airport. One of Avis's airport facilities in each Avis region
serves as the administrative headquarters for the region and, as a general
rule, each airport facility includes vehicle storage areas, a vehicle
maintenance facility, a car wash, a refueling station and rental and return
facilities. In all airport locations, the facility leases are not co-terminus
with the local airport concession agreement. See "Risk Factors--Risk of
Non-Renewal of Airport Concessions." Avis's non-airport facilities generally
consist of a limited parking facility and a rental and return desk and are
generally subject to long-term leases with renewal options. Certain of these
leases also have purchase options at the end of their terms.
AGENCY RENT A CAR SYSTEM, INC.
Agency, a wholly owned subsidiary of Avis, rents used vehicles under a
separate brand name to insurance companies, auto body repair shops and
individual customers to replace vehicles that have either been stolen, damaged
or are undergoing repair. As of August 1, 1996, the Agency business was
comprised of approximately 304 separate locations. See "Legal Matters." On
December 5, 1996, Agency executed a letter of intent to sell its business to
Enterprise.
INSURANCE
Avis generally assumes the risk of liability to third parties in the
United States for up to $1 million per occurrence. It has purchased significant
excess insurance coverage against risks which exceed $1 million per occurrence.
One of the benefits of Avis's retaining the risk up to $1 million per
occurrence is that Avis maintains its own claims department, which controls the
disposition of most claims. The Company believes that the maintenance by Avis
of its own claims department in recent years has helped contain Avis's cost of
claims paid.
Under its standard car rental contract, Avis provides its renters
liability coverage up to the minimum financial responsibility limits required
by applicable law. Higher limits are provided by separate agreement to some
United States national corporate accounts and Avis makes available to renters,
for an additional daily charge, participation in a group policy underwritten by
a major national insurer which increases renters' coverage to one million
dollars. Avis also offers renters, for additional daily charges, "Personal
Accident Insurance," which pays medical expenses and accidental death benefits
for accidents during the rental period, and "Personal Effects Protection,"
which ensures against loss or damage to the renters' personal belongings during
the rental period. Both these coverages are underwritten by major national
insurers.
REGULATORY AND ENVIRONMENTAL MATTERS
Avis is subject to federal, state and local laws and regulations
including those relating to taxing and licensing of vehicles, franchising,
consumer credit, environmental protection, retail vehicle sales and labor
matters. The principal environmental regulatory requirements applicable to
Avis's operations relate to the ownership or use of tanks for the storage of
petroleum products, such as gasoline, diesel fuel and waste oils; the treatment
or discharge of waste waters; and the generation, storage, transportation and
off-site treatment or disposal of solid or liquid wastes. Avis operates 232
domestic and international locations at which petroleum products are stored in
underground or aboveground tanks. Avis has instituted an environmental
compliance program designed to ensure that these tanks are in compliance with
applicable technical and operational requirements, including the replacement of
underground steel tanks and periodic integrity testing of underground storage
tanks. The Company believes that the locations where Avis currently operates
are in compliance, in all material respects, with such regulatory requirements.
Avis may also be subject to requirements related to the remediation
of, or the liability for remediation of, substances that have been released to
the environment at properties owned or operated by Avis or at properties to
which Avis sends substances for treatment or disposal. Such remediation
requirements may be imposed without regard to fault and liability for
environmental remediation can be substantial. See "Risk Factors --
Environmental Risks Inherent in On-Site Petroleum Storage."
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Avis may be eligible for reimbursement or payment of remediation costs
associated with future releases from its regulated underground storage tanks.
Certain of the states in which Avis maintains underground storage tanks have
established funds to assist in the payment of remediation costs for releases
from certain registered underground tanks. Subject to certain deductibles, the
availability of funds, compliance status of the tanks and the nature of the
release, these tank funds may be available to Avis for use in remediating
future releases from its tank systems.
A traditional revenue source for the car rental industry has been the
sale of loss damage waivers, by which car rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage to the
rented car incurred during the rental period. Approximately 3% of Avis's rental
revenue during 1995 was generated by the sale of loss damage waivers. The U.S.
House of Representatives has from time to time considered legislation that
would regulate the conditions under which loss damage waivers may be sold by
car rental companies. House Bill H.R. 175, introduced in January 1995, seeks to
prohibit the imposition of liability on renters for loss of, or damage to,
rented vehicles, except in certain circumstances, and would prohibit the sale
of loss damage waivers. To date, no action has been taken on this bill. In
addition, approximately 40 states have considered legislation affecting the
sale of loss damage waivers. To date, 24 states have enacted legislation which
regulates the sale of loss damage waivers, most of which requires disclosure to
each customer at the time of rental that damage to the rented vehicle may be
covered by the customer's personal automobile insurance and that loss damage
waivers may not be necessary. In addition, in the late 1980's, New York and
Illinois enacted legislation which eliminated Avis's right to offer loss damage
waivers for sale and limited potential customer liability to $100 and $200,
respectively. In 1996, the New York Legislature approved to increase this
amount to $300. The bill is awaiting the Governor's action. Moreover,
California, Nevada and Indiana have capped rates that may be charged for
collision damage waivers to $9.00, $10.00 and $5.00 per day, respectively.
Texas requires that the rate charged for loss damage waivers be reasonably
related to the direct cost of the repairs. Adoption of national or additional
state legislation eliminating or limiting the sale of loss damage waivers could
result in the loss or reduction of this revenue source and additional
limitations on potential customers liability could increase Avis's costs.
LEGAL MATTERS
From time to time, Avis is subject to routine litigation incidental to
its business. Avis maintains insurance policies that cover most of the actions
brought against Avis. See "-- Insurance." Other than as discussed below, Avis
is currently not involved in any legal proceeding which it believes would have
a material adverse effect upon its financial condition or operations.
Avis and two of its subsidiaries, Agency and Avis Rent A Car System,
Inc. ("ARACS"), are involved in litigation with certain licensees of ARACS
("Licensees") that have entered into the Standard Form 1955 Exclusive License
Agreement, as amended (the "ELA"). This litigation concerns Avis's right to
operate Agency as a stand-alone insurance replacement car rental business,
under its own brand name and separate from the Avis System. Several Licensees
conduct their own insurance replacement car rental businesses, and the parties
disagree as to whether such businesses can be operated within any licensee
territory granted by the ELA. Agency operates approximately 299 separate
locations, some of which are located within a geographic territory in which a
Licensee does business pursuant to the ELA.
On September 22, 1995, Avis, ARACS and Agency filed a complaint in the
United States District Court for the Eastern District of New York (the
"E.D.N.Y. Action") against thirteen Licensees (the "Licensee Defendants"),
which sought a declaration that the Agency business did not violate the ELA and
an injunction against the Licensee Defendants and all those similarly situated
from instituting litigation in other courts concerning the Agency business. The
district court issued a temporary restraining order ("TRO") barring the
Licensee Defendants from instituting any other lawsuits. The court subsequently
dismissed the E.D.N.Y. Action for lack of personal jurisdiction and dissolved
the TRO. The parties appealed this decision to the Court of Appeals for the
Second Circuit. Oral argument was held in mid-July 1996 and no decision has
been rendered yet by the Court of Appeals for the Second Circuit.
Upon dissolution of the TRO, Avis filed suit in both the United States
District Court for the Central District of California and the United States
District Court for the Northern District of Texas. Each action seeks relief
identical to the relief sought in the E.D.N.Y. Action and each could be
dismissed or consolidated if the E.D.N.Y. Action is reinstated. Various
Licensee Defendants also filed two state court actions, in California and in
Texas, respectively, against Avis, ARACS and Agency. Avis subsequently removed
each state court action to its respective federal court, and these state court
actions have now been consolidated with the federal court actions in California
and Texas, respectively.
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EMPLOYEES
Avis has more than 20,000 employees worldwide. Of these, approximately
375 are employed in executive, financial and administrative capacities,
approximately 240 are engaged in marketing or sales capacities, approximately
460 are involved in system design and constant upgrading of the Wizard System,
approximately 700 are engaged in clerical activities in connection with the
administration of Avis and the balance are engaged in car rentals and car care
at rental locations. Approximately 20% of Avis's employees are represented by
65 various local unions under contracts expiring on a variety of dates. No
local union represents more than 2.5% of Avis's employees. Avis believes its
relationships with its employees are good.
PROPERTIES
Avis leases or has concessions relating to space at 707 locations in
the United States and 117 locations outside the United States for all of its
operations. Of those locations, 182 in the United States and 47 outside the
United States are at airports. Additionally, 38 locations in the United States
are owned and three locations outside the United States are owned. Typically,
an airport receives a percentage of car rental revenues, with a guaranteed
minimum. Because there is a limit to the number of car rental locations in an
airport, car rental companies frequently bid for the available locations,
usually on the basis of the size of the guaranteed minimums. Avis and other car
rental firms also rent parking space on or near airports and at their other car
rental locations.
Avis's principal offices are in a 405,000 square foot complex in
Garden City, New York, for which Avis currently pays approximately $875,000 per
year under a lease which, by exercising renewal options, has been extended to
2015. The Avis reservation system is run from leased space in Tulsa, Oklahoma.
Avis also maintains terminal network facilities which it uses in connection
with the Wizard System in Garden City, Tulsa, San Francisco, California and
Bracknell, England. Avis also owns a 166,000 square foot building in Virginia
Beach, Virginia which serves as a satellite administrative and reservation
facility.
THE RCI ACQUISITION
GENERAL
On November 12, 1996, the Company completed the acquisition of all the
outstanding capital stock of RCI and its affiliates for approximately $625
million, comprised of $550 million in cash and $75 million in Common Stock of
the Company, plus future contingent payments of up to $200 million over the
next five years.
RCI, based in Indianapolis, Indiana and incorporated as an Indiana
corporation in 1974, is the world's largest provider of timeshare exchange
programs for approximately two million timeshare owners and approximately 3,000
resorts around the world. The RCI Network enables a member who owns a timeshare
interest in a resort property that is affiliated with the RCI Network to
exchange such timeshare interest for a timeshare interest of equivalent value
in another affiliated resort. RCI also is engaged in publishing related to the
timeshare industry and provides other travel-related services, integrated
software systems and resort management and consulting services. Exchange and
travel-related revenue of RCI was $158.6 million and $278.1 million for the six
months ended June 30, 1996 and the year ended December 31, 1995, respectively.
The Company expects that the acquisition of RCI will provide increased
marketing opportunities between RCI and the Company's lodging, car rental and
real estate brokerage products as well as further opportunities to expand the
Company's preferred vendor program. The Company also expects that RCI will
benefit from certain economies of scale and other synergies resulting from
RCI's affiliation with the Company's lodging, car rental and real estate
brokerage franchisor operations.
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TIMESHARE EXCHANGE INDUSTRY OVERVIEW
Timesharing for the resort industry is the shared ownership and/or
periodic use of property by a number of users or owners for a defined period of
years or in perpetuity. An example of a simple form of timeshare is a
condominium unit that is owned by fifty-two persons, with each person having
the right to use the unit for one week of every year. In the United States,
industry sources estimate that the average price of such a timeshare is about
$7,500 to $10,000, plus a yearly maintenance fee of approximately $350. In
1995, sales of timeshares exceeded $5 billion worldwide. Approximately 52% of
all timeshare owners reside in the United States, while approximately 21%
reside in Europe. Industry sources have estimated that the total number of
owners of timeshare interests is approximately 3.5 million, while the total
number of timeshare resorts worldwide has been estimated to be approximately
4,500.
A timeshare exchange provides an owner of a timeshare interest in a
particular resort property with the ability to exchange such interest for a
timeshare interest of equivalent value in another resort. Timeshare exchange
accounts for approximately two-fifths of the timeshare holidays taken worldwide
each year. Two principal segments make up the timeshare exchange industry:
owners of timeshare interests and resort properties. The timeshare exchange
industry derives revenue from annual membership fees paid by owners of
timeshare interests, affiliation fees paid by timeshare resort properties, and
exchange fees paid by such owners for each exchange that is arranged by a
timeshare exchange company.
The global timeshare exchange industry consists of two major
companies, RCI and Interval International ("Interval"), a wholly-owned
subsidiary of CUC International, as well as a small number of smaller firms.
Approximately 95% of the 4,500 timeshare resorts in the world are affiliated
with either RCI or with Interval. In addition, RCI has approximately 2.1
million timeshare owners who are members while Interval has almost 700,000
timeshare owners who are members.
The timeshare industry has experienced significant growth over the
past decade. The Company believes that the factors driving this industry growth
include the demographic trend toward older, more affluent Americans who travel
more frequently, the entrance of major hospitality and entertainment companies
into timeshare development, a worldwide acceptance of the concept, an
increasing focus on leisure activities, family health and a desire for value,
variety and flexibility in a vacation experience. The Company believes that
future growth of the timeshare exchange industry will be determined by general
economic conditions both in the U.S. and worldwide, the public image of the
industry, improving approaches to providing marketing and sales, a greater
variety of products and broadening the timeshare market and a variety of other
factors. Accordingly, the Company cannot predict whether such growth will
continue and, if so, whether it will continue at rates comparable to those of
the recent past. See "Risk Factors--Risks Related to RCI's Operations."
RCI TIMESHARE EXCHANGE OPERATIONS
MEMBERSHIP
The RCI Network provides a network for approximately 2.1 million
members who own timeshare interests in a resort that is affiliated with the RCI
Network which enables such members to exchange their timeshare interest for a
timeshare interest of equivalent value in another affiliated resort.
Approximately 1,100,000 members of the RCI Network reside outside of the United
States, which account for 52% of the total members of the RCI Network. RCI's
membership volume has grown at a compound annual rate for the last five years
of approximately 10%, while exchange volumes have grown at a compound annual
rate of approximately 12% for the same time period.
RCI provides members of the RCI Network with access to both domestic
and international timeshare resorts, publications regarding timeshare exchange
opportunities, and other travel-related services, including discounted
purchasing programs. See "--Publications" and "--Other Services Provided by
RCI." In the United States, members pay an average annual membership fee of $67
as well as an average exchange fee of $100 for every exchange arranged by RCI.
In 1995, membership and exchange fees amounted to approximately $230 million.
RCI arranged approximately 1.6 million exchanges in 1995.
Developers of resorts affiliated with the RCI Network typically pay
the first year membership fee for new members upon the sale of the timeshare
interest. See "--Affiliated Timeshare Resorts and Developers." In the United
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States more than 75% of such owners renew their membership in their second year
and more than 90% renew each year thereafter.
OTHER SERVICES PROVIDED BY RCI
Travel Services. RCI provides travel services to U.S. members of the
RCI Network through its affiliate, RCI Travel, Inc. ("RCIT"). On a global
basis, RCI provides travel services through entities operating in local
jurisdictions (hereinafter, RCIT and local entities referred to as "Travel
Agencies"). Travel Agencies provide airline reservations and airline ticket
sales services to members in conjunction with the arrangement of their
timeshare exchanges, as well as providing other types of travel services
including hotel accommodations, car rentals, cruises and tours. Travel Agencies
also from time to time offer travel packages utilizing resort developers'
unsold inventory to provide both revenue and prospective timeshare purchasers
to the resort.
Advertising. RCI provides its affiliated resorts with advertising
opportunities in its member and developer focused publications, as well as
through its site on the Internet Worldwide Web at http:\\www.rci.com.
Sales and Marketing Supporting. RCI provides a wide variety of sales
and marketing materials to assist its affiliated resorts in their timeshare
sales process. These include a video explaining the concept of vacation
ownership and exchange, posters, wall tours customized for the resort, a wide
variety of promotional brochures and the Endless Vacation Special Resort
Edition Directory. Interactive multi-media sales tools are also under
development. In addition, RCI uses state-of-the-art database marketing
techniques to identify highly qualified sales prospects for its resort
affiliates.
Timeshare Consulting. RCI provides worldwide timeshare consulting
services through its affiliate, RCI Consulting, Inc. These services include
comprehensive market research, site selection, strategic planning, community
economic impact studies, resort concept evaluation, financial feasibility
assessments, on-site studies of existing resort developments, and tailored
sales and marketing plans.
Resort Management Software. RCI provides computer software systems to
timeshare resorts and developers through its affiliate, Resort Computer
Corporation ("RCC"). RCC provides software that integrates resort functions
such as sales, accounting, inventory, maintenance, dues and reservations.
Property Management. RCI provides resort property management services
through its affiliate, RCI Management, Inc. ("RCIM"). RCIM is a single source
for any and all resort management services, and offers a menu including
hospitality services, a centralized reservations service center, advanced
reservations technology, human resources expertise and owner's association
administration.
AFFILIATED TIMESHARE RESORTS AND DEVELOPERS
Approximately 3,000 timeshare resorts are affiliated with the RCI
Network, of which approximately 1,250 resorts are located in the United States
and Canada; 1,100 are in Europe and Africa, 400 are in Mexico and Latin
America, and 250 are in the Asia-Pacific region. The terms of RCI's affiliation
agreement with its resorts generally require that the developer enroll each new
timeshare purchaser at the resort as a member of RCI, license the affiliated
resort to use the RCI name and marks, set forth the materials and services RCI
will provide to the affiliate and generally describe RCI's expectations of the
resort's management, representation of the exchange program, minimum enrollment
requirements and treatment of exchange guests. Affiliation agreements are
typically for a term of five or six years and automatically renew for like
terms thereafter unless either party takes affirmative action to terminate the
relationship. RCI makes available a wide variety of goods and services to its
affiliated developers, including publications, advertising, sales and marketing
materials, timeshare consulting services, resort management software, travel
packaging and property management services.
See "--Other Services Provided by RCI."
Developers of affiliated resorts typically pay the first year
membership fee for new members upon the sale of the timeshare interest. Vistana
Development, Orange Lake Country Club and Fairfield Communities have provided
the greatest number of members currently enrolled in the RCI Network.
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PUBLICATIONS
RCI publishes numerous magazines and periodicals, often in several
languages, relating to the vacation and timeshare industry. The Endless
Vacation Special Resort Edition, and its counterpart in various countries, is
RCI's premier publication and contains full color, photo listings of RCI
resorts. Endless Vacation, Holiday, and Vacacciones Sin Fin are magazines
directed at subscribing members in North America and Singapore, Europe and
Africa, and Latin America, respectively. Perspective, Review, Timeshare
Business Quarterly and Intercambio are magazines or newsletters directed at
resort affiliates, developers, homeowners associations and industry personnel
in North America, Europe, Asia-Pacific and Latin America, respectively. RCI's
approximately 2.1 million members are subscribers to its magazines. Developer
periodicals are made available to resorts and others in the industry at no
charge.
REGULATORY AND ENVIRONMENTAL MATTERS
RCI is subject to federal, state and local laws and regulations
including those relating to taxing, consumer credit, environmental protection
and labor matters. In addition, RCI is subject to state statutes in those
states regulating timeshare exchange services, and must prepare and file
annually with regulators in states which require it, the RCI Disclosure Guide
to Vacation Exchange. RCI is not subject to those state statutes governing the
development of timeshare condominium units and the sale of timeshare interests,
but such statutes directly affect the members and resorts that participate in
the RCI Network and therefor the statutes indirectly impact RCI.
The Company believes that RCI is in substantial compliance with all of
the regulatory requirements of the various jurisdictions in which RCI operates.
LEGAL MATTERS
From time to time, RCI is subject to routine litigation incidental to
its business. RCI maintains insurance policies that cover most of the actions
brought against RCI. See "--Insurance." RCI is not involved in any legal
proceeding which it believes would have a material adverse effect upon its
financial condition or operations.
EMPLOYEES
RCI has approximately 4,200 employees worldwide. Of these,
approximately 1,500 are employed in executive, financial and administrative
capacities, approximately 1,800 are engaged in marketing or sales capacities,
approximately 325 are involved in the travel services business, approximately
70 are involved in the resort software business, and approximately 500 are
involved in the resort-management business. None of RCI's employees are
represented by unions or collective bargaining agreements. RCI believes that
its relationships with its employees are good.
PROPERTIES
RCI leases space at 19 locations in the United States and 38 locations
outside of the United States for all of its operations. Additionally, one
location in the United States is owned and one location outside of the United
States is owned. RCI has offices in 33 countries.
RCI's principal offices are in a 108,000 square foot complex known as
the Woodview Trace building, located in Indianapolis, Indiana. RCI leases the
land and building from a limited liability company controlled by the Selling
Stockholder. The lease provides for an initial five year term expiring December
31, 2001 and contains ten renewal options each for a term of five additional
years. The rent is approximately $1,600,000 per year for the original term of
the lease, and is subject to adjustment to reflect changes in the cost of
living upon the exercise of each renewal option.
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THE PHH ACQUISITION
GENERAL
PHH, based in Hunt Valley, Maryland and incorporated as a
Maryland Corporation, provides a broad range of integrated management services,
expense management programs and mortgage banking services to more than 3,000
major clients, including many of the world's largest corporations, as well as
government agencies and affinity groups. Its primary business service segments
consist of vehicle management, real estate and mortgage banking. In reviewing
the financial and statistical data herein relating to PHH, please note that PHH
has a fiscal year end at April 30.
VEHICLE MANAGEMENT SERVICES
Vehicle management services consist primarily of the
management, purchase, leasing and resale of vehicles for corporate clients and
government agencies, including fuel and expense management programs and other
fee-based services for clients' vehicle fleets.
Fleet Management Services. PHH provides fully integrated
vehicle management and leasing programs through PHH Vehicle Management
Services. These programs were developed to meet the specific needs of companies
using large and small numbers of cars and trucks and consist of managerial,
leasing and advisory services, aimed at reducing and controlling the cost of
operating corporate fleets.
PHH's advisory services for automobile fleet management
programs include recommendations on the makes and models of cars and
accessories best suited to the client's use, the determination of persons
eligible for company cars, the method of reimbursing field representatives for
actual car expenses, the care and maintenance of cars and the personal use of
company cars.
Managerial services for automobile fleet programs include
purchasing automobiles, arranging for their delivery through new car dealers
located throughout the United States, Canada, the United Kingdom and the
Republic of Ireland, as well as capabilities in Mexico and throughout Europe,
complying with various local registration, title, tax and insurance
requirements, pursuing warranty claims with automobile manufacturers and
selling used cars at replacement time.
PHH offers similar programs and services for vans and light
and heavy-duty truck fleets. Advisory services offered include the
determination of the vehicle specifications, makes, models and equipment best
suited to perform the functions required by the client. Managerial services
include purchasing new vans, light and heavy-duty trucks, trailers, truck
bodies and equipment from manufacturers and franchised dealers, the performance
of title, registration, tax and insurance functions, arranging for them to be
titled, licensed and delivered to locations designated by clients, verifying
invoices and selling used vehicles at replacement time.
PHH offers various leasing plans for its vehicle leasing
programs. Under these plans, PHH provides for the financing primarily through
the issuance of commercial paper and medium-term notes and through unsecured
borrowings under revolving credit agreements and bank lines of credit.
PHH leases vehicles for minimum lease terms of twelve months
or more under either direct financing or operating lease agreements. PHH's
experience indicates that the full term of the leases may vary considerably due
to extensions beyond the minimum lease term. Under the direct financing lease
agreements, resale of the vehicles upon termination of the lease is generally
for the account of the lessee. PHH has two distinct types of operating leases.
Under one type, the open-end operating lease, resale of the vehicle upon
termination of the lease is for the account of the lessee except for a minimum
residual value which PHH has guaranteed. PHH's experience has been that
vehicles under this type of lease agreement have consistently been sold for
amounts exceeding residual value guarantees. Under the other type of operating
lease, the closed-end operating lease, resale of the vehicle on termination of
the lease is for the account of PHH.
PHH's fleet management services may be the same whether the client
owns or leases the vehicles. In either case, the client generally operates the
vehicles on a net basis, paying all the actual costs incidental to their
operations, including gasoline, oil, repairs, tires, depreciation, vehicle
licenses, insurance and taxes. The fee charged by PHH for its services is based
upon either a percentage of the original cost of the vehicle or a stated
management fee and, in the case of a leasing client, includes the interest cost
incurred in financing the vehicle.
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Fuel and Expense Management Programs. PHH offers fuel and
expense management programs to corporations and government agencies for the
control of automotive business travel expenses in each of the United States,
Canada, United Kingdom, Republic of Ireland and Germany, with capabilities in
Mexico and throughout Europe. Through a service card and billing service, a
client's traveling representatives are able to purchase various products and
services such as gasoline, tires, batteries, glass and maintenance services at
numerous outlets. PHH also provides a series of safety and accident management
related programs, statistical control reports detailing expenses related to the
general operation of vehicles, and a program which monitors and controls the
type and cost of vehicle maintenance for individual automobiles.
PHH also provides a fuel and expense management program and a
centralized billing service for companies operating truck fleets in the United
Kingdom, as well as in the United States, Republic of Ireland and Germany.
Drivers of the clients' trucks are furnished with courtesy cards together with
a directory listing the names of strategically located truck stops and service
stations which participate in this program. Service fees are earned for
billing, collection and record keeping services and for assuming credit risk.
These fees are paid by the truck stop or service stations and/or the fleet
operator and are based upon the total dollar amount of fuel purchased or the
number of transactions processed.
Competitive Conditions. The principal methods of
competition within vehicle management services are service quality and price.
In the United States and Canada, an estimated 30% of the
market for vehicle management services is served by third-party providers.
There are five major providers of such services in North America, as well as an
estimated several hundred local and regional competitors. PHH is the second
largest provider of comprehensive vehicle management services in North America.
In the United Kingdom, the portion of the fuel card services
and vehicle management services markets served by third-party providers is an
estimated 37% and 45%, respectively. PHH is the market leader among the four
major nationwide providers of fuel card services, and the six major nationwide
providers of vehicle management services.
Numerous local and regional competitors serve each such market element.
The following sets forth certain statistics concerning
automobiles, vans, light, medium and heavy-duty trucks for which PHH provides
managerial, leasing and/or advisory services primarily in the United States,
Canada, the United Kingdom, the Republic of Ireland and Germany at the end of
the fiscal years shown:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ending number of vehicles under
management: 482,600 463,200 450,400 454,300 467,000
Average cost of vehicles $ 19,639 $ 19,167 $ 18,016 $ 17,203 $ 16,072
Number of vehicles purchased 117,700 112,400 108,000 115,800 117,900
Number of fuel and service card
transactions (in thousands) 56,000 51,400 47,300 45,600 44,100
Gallons of fuel processed (in
thousands) 1,069,000 1,136,000 1,073,000 1,039,000 1,076,000
</TABLE>
REAL ESTATE SERVICES
PHH provides real estate services principally to large
international corporations, government agencies and financial institutions, and
to members of affinity groups in the United States, Canada, the United Kingdom
and the Republic of Ireland through PHH Real Estate Services. PHH also has
capabilities in Mexico and throughout Europe. Principal services consist of
counseling transferred employees of clients and the purchase, management and
resale of their homes. PHH's real estate services offer clients the opportunity
to reduce employee relocation costs and facilitate employee relocation.
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PHH pays a transferring employee his/her equity in a home
based upon a value determined by independent appraisals or based on a contract
to sell which has been agreed with the employee. The employee's mortgage is
generally retired concurrently with the purchase of the equity; otherwise PHH
normally accepts the administrative responsibility for making payments on any
mortgages. Following payment to the employee, the corporate client normally
pays PHH an advance billing to cover costs to be incurred during the period the
home is held for resale, including debt service on any existing mortgage. These
costs are paid by PHH and, after ultimate resale, a settlement is made with the
corporate client reconciling the advance billing and expense payments. Under
the terms of the client contracts, PHH is generally protected against losses
from changes in market conditions.
Funds to finance the purchase of homes are provided primarily
through the issuance of commercial paper and medium-term notes through
unsecured borrowings under revolving credit agreements and bank lines of
credit, or may be provided by the client. Interest costs are billed directly to
PHH's clients.
PHH's real estate services subsidiaries also offer programs
which provide the planning and implementation for group moves of corporate
clients, home marketing assistance, property management, movement of household
goods, destination services and asset management for financial institutions.
Competitive Conditions. The principal methods of competition
within real estate services are service quality and price. In the United
States, Canada and the United Kingdom, an estimated 22% of the market for real
estate services is served by third-party providers.
In each of the United States, Canada and the United Kingdom,
there are four major national providers of such services. There are an
estimated several dozen local and regional competitors in each country. PHH is
the market leader in the United States and Canada, and third in the United
Kingdom.
The following sets forth certain statistics concerning PHH's
real estate services in the United States, Canada and the United Kingdom for the
fiscal years shown:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Asset-based services:
Home purchase authorizations 32,400 31,000 31,800 31,800 30,400
Transferee homes sold 27,900 25,300 28,900 28,400 28,100
Average value of US transfere
homes sold (1) e $177,000 $171,000 $165,000 $156,000 $156,600
Fee-based services transactions:
Home finding 25,890 24,020 23,180 15,620 10,540
Household goods moves 17,310 14,700 13,720 8,730 7,170
Property dispositions 8,580 7,250 4,180 3,610 2,690
----------- ----------- ----------- ----------- ------------
51,780 45,970 41,080 27,960 20,400
</TABLE>
(1) Revenues for real estate services in the United States are
significantly determined based on the value of homes sold, while
revenues for the United Kingdom and Canadian segments are not related
to the value of homes sold; therefore, this table only includes the
average value of U.S. homes sold.
MORTGAGE BANKING SERVICES
PHH provides U.S. residential mortgage banking services
through PHH Mortgage Services. These services consist of the origination, sale
and servicing of residential first mortgage loans. A variety of first mortgage
products are marketed to consumers through relationships with corporations,
affinity groups, financial institutions, real estate brokerage firms and other
mortgage banks.
PHH Mortgage Services is a centralized mortgage lender
conducting business in all 50 states. It utilizes its computer system and an
extensive telemarketing operation to allow the consumer to complete the entire
application process over the telephone. Utilizing local appraisers, title
companies and closing attorneys, PHH can effectively administer its products
and services anywhere in the nation.
The mortgage unit customarily sells all mortgages it
originates to investors (which include a variety of institutional investors)
either as individual loans, as mortgage-backed securities or as participation
certificates issued or guaranteed by the Federal National Mortgage Association
(FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Government
National Mortgage Association (GNMA) while generally retaining mortgage
servicing
23
<PAGE>
rights. The guarantees provided by FNMA and FHLMC are on a non-recourse basis
to PHH. Guarantees provided by GNMA are to the extent recoverable from certain
government insurance programs.
Mortgage servicing consists of collecting loan payments,
remitting principal and interest payments to investors, holding escrow funds
for payment of mortgage-related expenses such as taxes and insurance, and
otherwise administering PHH's mortgage loan servicing portfolio.
Competitive Conditions. The principle methods of competition
in mortgage banking services are service quality and price. There are an
estimated 20,000 national, regional or local providers of mortgage banking
services across the United States. PHH ranked 15th among loan originators for
calendar year 1995.
The following sets forth certain statistics concerning
mortgage banking services for the fiscal years shown:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Mortgage loan closing
(in millions) $ 7,853 $ 3,432 $ 8,074 $ 5,618 $ 3,797
Mortgage servicing portfolio at
April 30 (in millions) $21,676 $16,017 $16,645 $11,047 $ 7,517
Delinquency rate 1.4% 1.3% 1.2% 1.1% 1.8%
</TABLE>
EMPLOYEES
As of September 30, 1996, PHH and its subsidiaries had
approximately 5,700 employees.
PROPERTIES
The corporate offices of PHH are located at 11333 McCormick
Road, Hunt Valley, Maryland, in an eight-story building which is owned by PHH
and contains approximately 163,000 square feet of office space.
The offices of PHH Vehicle Management Services North American
operations are located throughout the U.S. and Canada. Primary office
facilities are located in a six-story, 200,000 square foot office building in
Hunt Valley, Maryland, leased until September 2003; and offices in Mississauga,
Canada, having 59,400 square feet, leased until February 2003. Other facilities
include office space totaling 10,400 square feet in five cities leased as
full-service branch offices for fleet management activities for various terms
to April 2003; two dealerships, one located in Williamsburg, Virginia, having
101,000 square feet, leased until March 1998 and the other in Edenton, North
Carolina, having 337,100 square feet, leased until December 1998; and regional
offices located in Montreal, Calgary, Vancouver, Mississauga & Quebec, Canada,
having a total of 43,100 square feet, leased for various terms to December
2002.
The offices of PHH Real Estate Services North American
operations are located throughout the U.S. and Canada. Primary office
facilities are located in offices located in Danbury, Connecticut, having
92,600 square feet, leased until January 2000 and offices in Danbury,
Connecticut, having 30,000 square feet, leased until November 1998. Other
facilities include office space totaling 59,200 square feet in Oak Brook,
Illinois leased until April 2003; 23,350 square feet in Concord, California
leased until October 1998; 47,800 square feet in Irving, Texas leased until
November 1998; 29,300 square feet in eight other cities for various terms to
June 2002; and office space totaling 43,320 square feet in Toronto, Calgary,
Montreal, Vancouver, Ottawa and Nova Scotia, leased for various terms to May
2004.
The offices of PHH Mortgage Services are located primarily in
a 127,000 square foot building in Mount Laurel, New Jersey, which is owned by
PHH; and offices in Mount Laurel, New Jersey, having 88,000 square feet, leased
until April 2002 and in Englewood, Colorado, having 27,900 square feet, leased
until June 1997.
The offices of Vehicle Management Services and Real Estate
Services operations located in the United Kingdom and Europe are as follows: a
129,000 square foot building which is owned by PHH located in Swindon, United
Kingdom; and field offices having 35,400 square feet located in Swindon and
Manchester, United Kingdom; Munich, Germany; and Dublin, Ireland, are leased
for various terms to February 2016.
24
<PAGE>
PHH considers that its properties are generally in good
condition and well maintained and are generally suitable and adequate to carry
on PHH's business.
LEGAL PROCEEDINGS
PHH is party to various litigation arising in the ordinary
course of business and is plaintiff in several collection matters which are not
considered material either individually or in the aggregate.
25
<PAGE>
SELLING STOCKHOLDER
General. The Selling Stockholder received all of her Shares in
exchange for the transfer to HFS of all of the outstanding capital stock of RCI
pursuant to the Stock Purchase Agreement. See "Plan of Distribution." All of
the Shares which may be offered hereby are for the account of the Selling
Stockholder. The number and percentage of Shares beneficially owned before the
offering by the Selling Stockholder, the number of Shares to be sold and the
number of Shares beneficially owned after the offering will be set forth in an
accompanying Prospectus Supplement, to the extent necessary.
Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, upon the request of the Company, the Selling Stockholder has agreed
not to effect any public sale or distribution (including sales pursuant to Rule
144 under the Securities Act) of the Shares of Common Stock, during the ten day
period prior to the date on which the Company has notified the Selling
Stockholder that the Company intends to commence a sale of equity securities of
the Company, or securities convertible into or exchangeable or exercisable for
equity securities of the Company through the filing of a registration statement
with the Commission (a "Company Offering") through the one hundred twenty day
period immediately following the closing date of such Company Offering;
provided, however, that the Selling Stockholder shall not be obligated to
comply with the foregoing on more than one occasion in any twelve month period.
Pursuant to the Registration Rights Agreement, the Company has agreed
to use its reasonable best efforts to keep the Registration Statement of which
this prospectus is a part continuously effective under the Securities Act until
the date that is the earliest to occur of (i) the date by which all Shares of
Common Stock have been sold, (ii) the third anniversary of the date of the
closing of the Stock Purchase and (iii) when, in the written opinion of counsel
to the Company, all outstanding Shares held by persons who are not affiliates
of the Company may be resold without registration under the Securities Act
pursuant to Rule 144(k) under the Securities Act or any successor provision
thereto. Pursuant to the Registration Rights Agreement, the Company shall be
deemed not to have used its reasonable best efforts to keep the Registration
Statement of which this prospectus is a part effective during the requisite
period if the Company voluntarily takes any action that would result in the
Selling Stockholder not being able to offer and sell any Shares during that
period, unless (i) such action is required by applicable law, (ii) the Company
notifies the Selling Stockholder, at any time when a prospectus relating to the
Registration Statement is required to be delivered under the Securities Act,
upon the discovery that, or of the happening of any event as a result of which,
the Registration Statement, as then in effect, contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or any fact necessary to make the statements therein not misleading or
(iii) the continued effectiveness of the Registration Statement would require,
on the advice of counsel to the Company, the Company to disclose a material
financing, acquisition or other corporate development, and the proper officers
of the Company shall have determined in good faith that such disclosure is not
in the best interests of the Company and its stockholders, and, in the case of
clause (ii) above, the Company thereafter promptly complies with the
requirements of the Registration Rights Agreement to promptly prepare and
furnish to the Selling Stockholder a supplement or amendment to the prospectus
which is a part of the Registration Statement.
Stock Purchase Agreement. Pursuant to the Stock Purchase Agreement, on
November 12, 1996, the Selling Stockholder was appointed as a member of the
Board of Directors of the Company.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares offered hereby. All the proceeds will be received by the Selling
Stockholder.
PLAN OF DISTRIBUTION
The distribution and sale of the Shares is subject to the provisions
of the Registration Rights Agreement described above under the heading "Selling
Stockholder -- Registration Rights Agreement." Subject to the Selling
Stockholder's compliance with the provisions of the Registration Rights
Agreement, as the case may be, the distribution of the Shares by the Selling
Stockholder may be effected from time to time, in one or more transactions on
the New York Stock Exchange or otherwise, in secondary distributions pursuant
to, and in accordance with, the rules of the New York Stock Exchange, in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at market prices prevailing at
26
<PAGE>
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Stockholder may effect such transactions by
selling Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions, or
commissions from the Selling Stockholder and/or purchasers of shares for whom
they may act as agent (which compensation may be in excess of customary
commissions). The Selling Stockholder and broker-dealers that participate with
the Selling Stockholder in the distribution of shares may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, and any commissions received by them and any profit on the resale of
shares may be deemed to be underwriting compensation. The Company will bear the
costs relating to the registration of the Shares.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 300,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
Preferred Stock. As of November 5, 1996, 129,623,574 shares of Common Stock
were issued and outstanding and held of record by 477 stockholders. There are
no shares of Preferred Stock outstanding on the date hereof.
The Company's Amended and Restated Certificate of Incorporation and
By-laws provide that directors shall be removed from office only for cause at
any time by the affirmative vote of the holders of a majority of the shares
entitled to vote for the election of directors at any annual or special meeting
of stockholders for that purpose.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held
of record on all matters on which shareholders are entitled to vote. There are
no cumulative voting rights and holders of Common Stock have no preemptive
rights. All issued and outstanding shares of Common Stock are validly issued,
fully paid and non-assessable. Holders of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available for that purpose. Upon dissolution, holders of Common
Stock are entitled to share pro rata in the assets of the Company remaining
after payment in full of all its liabilities and obligations, including payment
of the liquidation preference, if any, of any preferred stock then outstanding.
PREFERRED STOCK
The Board of Directors, without further action by the stockholders, is
authorized to issue Preferred Stock in one or more series and to designate as
to any such series the dividend rate, redemption prices, preferences on
liquidation or dissolution, conversion rights, voting rights and any other
preferences, and relative, participating, optional or other special rights and
qualifications, limitations or restrictions. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future.
Issuance of a new series of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions or other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any new series of Preferred Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the Delaware General Corporation Law (the
"DGCL") prohibits a publicly held Delaware corporation from engaging in any
"business combination" with an "interested stockholder" for a period of three
years following the time that such stockholder became an interested
stockholder, unless (i) prior to such time either the business combination or
the transaction which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, those shares owned (A) by persons who are both directors and
officers and (B) certain employee stock plans, or (iii) at or after such time
the business combination is approved by the board and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66-2/3% of the outstanding voting stock which is
not owned by the interested
27
<PAGE>
stockholder. A "business combination" includes certain mergers, consolidations,
asset sales, transfers and other transactions resulting in a financial benefit
to the interested stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within the preceding three
years, did own) 15% or more of the corporation's voting stock.
LIMITATIONS ON CHANGE OF CONTROL
The Company is a party to certain employment agreements, an earnout
agreement, the Credit Agreement and certain indentures, each of which contain
provisions with respect to a change in control of the Company. In addition,
certain provisions of the Company's Amended Restated Certificate of
Incorporation may inhibit changes in control of the Company. See "Description
of Capital Stock--Disqualified Stockholders" and "Risk Factors--Certain
Anti-takeover Effects; Divestiture and Loss of Voting Rights."
DISQUALIFIED STOCKHOLDERS
The Company's Amended and Restated Certificate of Incorporation
provides that no holder of capital stock of the Company who: (1) beneficially
owns five percent or more of the outstanding capital stock of the Company and
who has not fully cooperated with the Company and/or any Gaming Authority (as
defined below) with respect to providing all requested information (including
financial statements) relating to such holder, responding to all inquiries and
questions raised by the Company and/or any Gaming Authority, consenting to
relevant background investigations or complying with any other requests of the
Company and/or any Gaming Authority in connection with any Gaming License (as
defined below); (2) is required by any Gaming Authority to be qualified with
respect to any Gaming License and who has neither been qualified by nor
obtained a waiver of qualification from each Gaming Authority requiring
qualification with respect to any Gaming License in a timely manner; or (3) has
been found to be disqualified or unsuitable with respect to any Gaming License,
which finding has not been reversed, vacated or superseded (each, a
"Disqualified Stockholder"), shall be entitled to vote, directly or indirectly,
any shares of capital stock of the Company beneficially owned by such holder on
any matter, and no shares of capital stock of the Company beneficially owned by
a Disqualified Stockholder shall be considered as outstanding stock entitled to
vote for any purpose.
A Disqualified Stockholder shall, upon the request of the Company,
dispose of such holder's publicly-traded capital stock of the Company within 10
days after receipt of such request. Alternatively, the Company may, at its
option, redeem such Disqualified Stockholder's capital stock of the Company as
provided in the Company's Amended and Restated Certificate of Incorporation at
the Redemption Price (as defined below).
Holders of capital stock of the Company shall be required to pay any
costs and investigative fees incurred in connection with any background
investigation by, or qualification or suitability application with, any Gaming
Authority. Upon becoming a Disqualified Stockholder, such holder shall have no
further right to exercise, directly or through any trustee or nominee, any
right conferred by its capital stock of the Company and no further right to
receive any distribution with respect to any such capital stock of the Company.
As used herein, the term "Gaming Authorities" includes all federal,
state, local or foreign government authorities and the National Indian Gaming
Commission or other tribal authorities which issue or grant any license or
approval necessary or appropriate for the lawful operation of gaming and
related businesses now or hereafter engaged in by the Company or its
subsidiaries; the term "Gaming License" means all licenses and other regulatory
approvals necessary for the lawful operation of gaming and related businesses
now or hereafter engaged in by the Company or any subsidiary within or without
the United States from the Gaming Authorities empowered to issue or grant
Gaming Licenses; and the term "Redemption Price" for a share of capital stock
of the Company means the average closing sale price during the 20-day period
immediately preceding the date of the notice of redemption of a share of such
capital stock on the composite tape for New York Stock Exchange Listed Stocks,
or if such stock is not quoted on the composite tape, on the New York Stock
Exchange, or if such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Exchange Act on which
such stock is listed, or if such stock is not listed on any such exchange, the
average last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market with respect to a share of such
capital stock during the 20-day period preceding the date of the notice of
redemption as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or any similar system then in use, or if no such
quotations are available, the fair market value on the date of the call for
redemption of a share of such stock as determined by the Board of Directors of
the Company.
28
<PAGE>
TRANSFER AGENT
ChaseMellon Shareholder Services is the Registrar and Transfer Agent
for the Company's Common Stock.
LEGAL OPINION
The validity of the Shares of Common Stock offered hereby will be
passed on for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, 919
Third Avenue, New York, New York 10022.
EXPERTS
The consolidated financial statements and the related financial
statement schedules incorporated in this Prospectus by reference from the HFS
Incorporated Annual Report on Form 10-K for the year ended December 31, 1995
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports which are incorporated herein by reference and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The balance sheet of Century 21 Real Estate of the Mid-Atlantic
States, Inc. as of December 31, 1995 and the related statements of income,
changes in stockholder's equity and cash flows for the year then ended, which
appear in the Form 8-K dated April 5, 1996 of HFS Incorporated, are
incorporated herein by reference, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein by
reference and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated balance sheets of Century 21 Real Estate Corporation
(a wholly-owned subsidiary of MetLife) and its subsidiaries as of December 31,
1994, 1993 and 1992 and the related consolidated statements of income,
stockholder's equity and cash flows for the years then ended, which appear in
the Current Report on Form 8-K/A dated August 18, 1995 of HFS Incorporated
(formerly Hospitality Franchise Systems, Inc.), are incorporated herein by
reference, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is incorporated herein by reference and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Century 21 of Southwest, Inc. (an "S"
corporation) as of and for the years ended March 31, 1995 and 1994, which
appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have been
incorporated by reference herein in reliance upon the report dated May 15,
1995, of Toback CPAs, P.C., independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Century 21 of Eastern Pennsylvania, Inc.
(an "S" corporation) as of and for the years ended April 30, 1995 and 1994,
which appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have
been incorporated by reference herein in reliance upon the report dated June
22, 1995 (except for Note 13, as to which the date is October 12, 1995), of
Woolard, Krajnik, & Company, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Century 21 Real Estate of the Mid-Atlantic
States, Inc. as of and for the years ended December 31, 1994 and 1993, which
appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have been
incorporated by reference herein in reliance upon the report dated May 11,
1995, of Beers & Cutler, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as expert in
accounting and auditing.
The consolidated financial statements of Century 21 Region V, Inc. as
of and for the year ended July 31, 1995, which appear in the Form 8-K dated
February 16, 1996 of HFS Incorporated have been incorporated by reference
herein in reliance upon the report dated January 12, 1996, of White, Nelson &
Co. LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as expert in accounting and
auditing.
The consolidated financial statements of Electronic Realty Associates,
Inc. for the years ended December 31, 1994 and 1993, included in the HFS
Incorporated Current Report on Form 8-K dated February 16, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference.
29
<PAGE>
Such financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Electronic Realty Associates,
L.P. for the years ended December 31, 1995 and 1994, included in the HFS
Incorporated Current Report on Form 8-K dated April 5, 1996, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated balance sheets of Coldwell Banker Corporation and
Subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
each of the two years in the period ended December 31, 1995, which appear in
the Form 8-K dated May 8, 1996 of HFS Incorporated have been incorporated by
reference herein in reliance upon the report dated February 27, 1996 of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing
The consolidated statements of operations, stockholders' equity and
cash flows for the three months ended December 31, 1993 and the consolidated
statements of operations and cash flows for the nine months ended September 30,
1993 of Coldwell Banker Corporation and subsidiaries (formerly Coldwell Banker
Residential Holding Company and subsidiaries) have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Avis, Inc. as of February 29,
1996 and February 28, 1995 and for each of the three years then ended, included
in the HFS Incorporated Current Report on Form 8-K/A dated December 5, 1996,
have been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of PHH Corporation and
subsidiaries as of April 30, 1996 and 1995, and for each of the years in the
three year period ended April 30, 1996, which appear in the Form 8-K/A dated
December 4, 1996 of HFS Incorporated, have been incorporated by reference
herein in reliance upon the report of KPMG Peat Marwick LLP, Independent
Accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration Fee........................................ $ 18,135
Accounting Fees and Expenses.............................. 50,000
Legal Fees and Expenses................................... 100,000
Miscellaneous............................................. 10,000
--------
Total Expenses......................................... $178,135
</TABLE>
The Company will pay all fees and expenses associated with filing the
Registration Statement. The Selling Stockholder is to pay all of her costs and
expenses (including fees and expenses of counsel, financial advisors or any
other advisors or agents retained by such holder and excluding all reasonable
fees and expenses associated with filing the Registration Statement) associated
with the sale of the Shares.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
145 of the Delaware General Corporation Law, as amended ("GCL"), which provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at its request in such capacity of another
corporation or business organization against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interest of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe that such person's conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of a
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred.
Reference is also made to Section 102(b)(7) of the GCL, which permits
a corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the GCL or (iv) for any transaction from which the
director derived an improper personal benefit.
Articles Ninth and Tenth of the Company's Amended and Restated
Certificate of Incorporation provide for the elimination of personal liability
of a director for breach of fiduciary duty as permitted by Section 102(b)(7) of
the GCL, and provides that the Company shall indemnify its directors and
officers to the full extent permitted by Section 145 of the GCL.
The Company maintains at its expense, a policy of insurance which
insures its Directors and Officers, subject to certain exclusions and
deductions as are usual in such insurance policies, against certain liabilities
which may be incurred in those capacities.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated as of October 6, 1996, by and among HFS Incorporated, Resort
Condominiums International, Inc. and Ms. Christel DeHaan.
2.2 Registration Rights Agreement, dated as of November 12, 1996, by and between HFS Incorporated and
Ms. Christel DeHaan.
2.3 Agreement and Plan of Merger dated as of November 10, 1996, by and among HFS Incorporated, PHH
Corporation and Mercury Acquisition Corp. (incorporated by reference to the Company's Form 8-K
dated November 14, 1996).
4.1 Form of Certificate for the Company's Common Stock, par value $.01 per share (incorporated by
reference to the Company's Registration Statement on Form S-1, Registration No. 33-51422, Exhibit
4.1).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the legality of the Securities being
registered hereby.
23.1 Consent of Deloitte & Touche LLP relating to the financial statements of HFS Incorporated.
23.2 Consent of Deloitte & Touche LLP relating to the financial statements of Century 21 Real Estate
Corporation.
23.3 Consent of Deloitte & Touche LLP relating to the financial statements of Century 21 Real Estate of
Mid-Atlantic States, Inc.
23.4 Consent of Toback CPAs, P.C. relating to the financial statements of Century 21 of Southwest, Inc.
23.5 Consent of Woolard, Krajnik & Company relating to the financial statements of Century 21 of Eastern
Pennsylvania, Inc.
23.6 Consent of Beers & Cutler PLLC relating to the financial statements of Century 21 Real Estate of the
Mid-Atlantic States, Inc.
23.7 Consent of White, Nelson & Co. LLP relating to the financial statements of Century 21 Region V, Inc.
23.8 Consent of Ernst & Young LLP relating to the financial statements of Electronic Realty Associates, Inc.
and Electronic Realty Associates, L.P.
23.9 Consent of Coopers & Lybrand L.L.P. relating to the financial statements of Coldwell Banker
Corporation.
23.10 Consent of Deloitte & Touche LLP relating to the financial statements of Coldwell Banker Corporation.
23.11 Consent of Price Waterhouse LLP relating to the financial statements of Avis, Inc.
23.12 Consent of KPMG Peat Marwick LLP relating to the financial statements of PHH Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23.13 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in the signature page to the Registration Statement).
</TABLE>
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement, to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT, TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF PARSIPPANY, STATE OF NEW JERSEY, ON
DECEMBER 6, 1996.
HFS INCORPORATED
By: /s/ James E. Buckman
-----------------------------
James E. Buckman
Executive Vice President,
General Counsel and Director
POWER OF ATTORNEY
KNOW ALL THOSE BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS EACH OF HENRY R. SILVERMAN, STEPHEN P.
HOLMES AND JAMES E. BUCKMAN, OR ANY OF THEM, EACH ACTING ALONE, HIS TRUE AND
LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR SUCH PERSON AND IN HIS NAME, PLACE AND STEAD, IN ANY AND
ALL CAPACITIES, IN CONNECTION WITH THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM S-3 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, INCLUDING, WITHOUT
LIMITATION THE GENERALITY OF THE FOREGOING, TO SIGN THE REGISTRATION STATEMENT
IN THE NAME AND ON BEHALF OF THE REGISTRANT OR ON BEHALF OF THE UNDERSIGNED AS
A DIRECTOR OR OFFICER OF THE REGISTRANT, AND ANY AND ALL AMENDMENTS OR
SUPPLEMENTS TO THE REGISTRATION STATEMENT, INCLUDING ANY AND ALL STICKERS AND
POST-EFFECTIVE AMENDMENTS TO THE REGISTRATION STATEMENT, AND TO SIGN ANY AND
ALL ADDITIONAL REGISTRATION STATEMENTS RELATING TO THE SAME OFFERING OF
SECURITIES AS THE REGISTRATION STATEMENT THAT ARE FILED PURSUANT TO RULE 462(B)
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE SECURITIES EXCHANGE OR
SECURITIES SELF-REGULATORY BODY, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, EACH ACTING ALONE, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR THEIR SUBSTITUTES OR SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE DONE
BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Henry R. Silverman Chairman of the Board, Chief Executive Officer and December 6, 1996
- ---------------------- Director (Principal Executive Officer)
(Henry R. Silverman)
/s/ John D. Snodgrass Vice Chairman of the Board, President, Chief Oper- December 6, 1996
- --------------------- ating Officer and Director
(John D. Snodgrass)
/s/ Stephen P. Holmes Vice Chairman of the Board, Executive Vice Presi- December 6, 1996
- --------------------- dent and Director
(Stephen P. Holmes)
II-5
<PAGE>
/s/ Michael P. Monaco Vice Chairman of the Board and Chief Financial December 6, 1996
- --------------------- Officer (Principal Financial Officer and Principal Ac-
(Michael P. Monaco) counting Officer)
/s/ James E. Buckman Executive Vice President, General Counsel and December 6, 1996
- -------------------- Director
(James E. Buckman)
/s/ Robert F. Smith Director December 6, 1996
- -------------------
(Robert F. Smith)
/s/ Leonard Schutzman Director December 6, 1996
- ---------------------
(Leonard Schutzman)
/s/ Martin L. Edelman Director December 6, 1996
- ---------------------
(Martin L. Edelman)
/s/ Robert W. Pittman Director December 6, 1996
- ---------------------
(Robert W. Pittman)
/s/ Robert E. Nederlander Director December 6, 1996
- -------------------------
(Robert E. Nederlander)
/s/ Joseph V. Vittoria Director December 6, 1996
- ----------------------
(Joseph V. Vittoria)
/s/ E. John Rosenwald Jr. Director December 6, 1996
- -------------------------
(E. John Rosenwald Jr.)
/s/ Christel DeHaan Director December 6, 1996
- -------------------
(Christel DeHaan)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated as of October 6, 1996, by and among HFS Incorporated, Resort
Condominiums International, Inc. and Ms. Christel DeHaan (incorporated by reference to the
Company's Form 10-Q for the quarterly period ended September 30, 1996, Exhibit 2.1).
2.2 Registration Rights Agreement, dated as of November 12, 1996, by and between HFS Incorporated
and Ms. Christel DeHaan.
2.3 Agreement and Plan of Merger dated as of November 10, 1996, by and among HFS Incorporated,
PHH Corporation and Mercury Acquisition Corp. (incorporated by reference to the Company's
Form 8-K dated November 14, 1996).
4.1 Form of Certificate for the Company's Common Stock, par value $.01 per share (incorporated by
reference to the Company's Registration Statement on Form S-1, Registration No. 33-51422, Exhibit
4.1).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the legality of the Securities
being registered hereby.
23.1 Consent of Deloitte & Touche LLP relating to the financial statements of HFS Incorporated.
23.2 Consent of Deloitte & Touche LLP relating to the financial statements of Century 21 Real Estate
Corporation.
23.3 Consent of Deloitte & Touche LLP relating to the financial statements of Century 21 Real Estate
of Mid-Atlantic States, Inc.
23.4 Consent of Toback CPAs, P.C. relating to the financial statements of Century 21 of Southwest, Inc.
23.5 Consent of Woolard, Krajnik & Company relating to the financial statements of Century 21 of
Eastern Pennsylvania, Inc.
23.6 Consent of Beers & Cutler PLLC relating to the financial statements of Century 21 Real Estate of
the Mid-Atlantic States, Inc.
23.7 Consent of White, Nelson & Co. LLP relating to the financial statements of Century 21 Region V,
Inc.
23.8 Consent of Ernst & Young LLP relating to the financial statements of Electronic Realty Associates,
Inc. and Electronic Realty Associates, L.P.
23.9 Consent of Coopers & Lybrand L.L.P. relating to the financial statements of Coldwell Banker
Corporation.
23.10 Consent of Deloitte & Touche LLP relating to the financial statements of Coldwell Banker
Corporation.
23.11 Consent of Price Waterhouse LLP relating to the financial statements of Avis, Inc.
23.12 Consent of KPMG Peat Marwick LLP relating to the financial statements of PHH Corporation.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23.13 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
24.1 Power of attorney (included in the signature page to the Registration Statement).
</TABLE>
II-8
<PAGE>
Exhibit 2.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of November 12, 1996
(the "Agreement"), among HFS Incorporated, a Delaware corporation (the
"Company"), and Ms. Christel DeHaan, an individual resident of the State of
Indiana ("Holder").
WHEREAS, pursuant to that certain Stock Purchase Agreement,
dated as of October 6, 1996 (the "Purchase Agreement"), the Company has
acquired (the "Acquisition") from Holder (i) all of the issued and outstanding
shares of common stock, without par value, of Resort Condominiums
International, Inc., an Indiana corporation ("RCI"), and (ii) all of the
issued and outstanding shares of the Affiliated Entities (as defined in the
Purchase Agreement) held by Seller;
WHEREAS, in partial consideration for the Acquisition, the
Company has, among other things, issued to Holder 999,500 shares of common
stock, par value $.01 per share (the "Common Stock"), of the Company (the
shares of Common Stock issued to Holder in consideration for the Acquisition
are hereinafter referred to as the "Acquisition Shares"); and
WHEREAS, in order to induce Holder to enter into the
Purchase Agreement, the Company has agreed to provide registration rights with
respect to the Acquisition Shares.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions.
As used in this Agreement, the following terms shall have
the following meanings:
The term "Acquisition" shall have the meaning ascribed to it
in the second paragraph of the preamble.
The term "Acquisition Shares" shall have the meaning
ascribed to it in the third paragraph of the preamble.
The term "Affiliate" shall have the meaning ascribed to it
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
The term "Agreement" shall have the meaning ascribed to it
in the first paragraph of the preamble.
The term "Common Stock" shall have the meaning ascribed to
it in the third paragraph of the preamble.
The term "Company" shall have the meaning ascribed to it in
the first paragraph of the preamble.
The term "Company Offering" shall mean the sale of equity
securities of the Company, or securities convertible into or exchangeable or
exercisable for equity securities of the Company, pursuant to a registration
statement filed by the Company under the Securities Act (other than a
registration statement filed on Form S-8 or any successor form) respecting an
underwritten offering, whether primary or secondary, that is declared
effective by the SEC.
The term "Company Subsidiary" shall mean any Person the
majority of the outstanding voting securities or interests of which are owned
by the Company.
The term "Effective Date" shall have the meaning ascribed to
it in Section 2.02.
2
<PAGE>
The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the SEC promulgated
thereunder.
The term "Holder" shall have the meaning ascribed to it in
the first paragraph of the preamble.
The term "Losses" shall have the meaning ascribed to it in
Section 2.06(a).
The term "Person" shall mean an individual, trustee,
corporation, partnership, business trust, limited liability company, limited
liability partnership, joint stock company, trust, unincorporated association,
union, business association, firm or other entity.
The term "Purchase Agreement" shall have the meaning
ascribed to it in the second paragraph of the preamble.
The term "Registration Expenses" shall have the meaning
ascribed to it in Section 2.05.
The term "Rule 144" shall mean Rule 144 promulgated under
the Securities Act (or any successor rule).
The term "Rule 415 Offering" shall have the meaning ascribed
to it in Section 2.01(a).
The term "SEC" shall mean the United States Securities and
Exchange Commission.
The term "Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations of the SEC promulgated
thereunder.
The term "Shelf Registration Statement" shall have the
meaning ascribed to it in Section 2.01(a).
The term "Transfer" shall mean any attempt to, directly or
indirectly, offer, sell, assign, transfer, grant a participation in, pledge or
otherwise dispose of any of the Acquisition Shares, or the consummation of any
such
3
<PAGE>
transactions, or the soliciting of any offers to purchase or otherwise
acquire, or take a pledge of any of the Acquisition Shares.
ARTICLE II
REQUIRED REGISTRATION
Section 2.01 Required Registration.
(a) Form S-3. As promptly as practicable, the Company shall
use reasonable best efforts to prepare and file with the SEC a registration
statement (the "Shelf Registration Statement") on Form S-3 or another
appropriate form permitting registration of the Acquisition Shares so as to
permit promptly the resale of the Acquisition Shares by Holder pursuant to an
offering on a delayed or continuous basis pursuant to Rule 415 (or any
successor rule) under the Securities Act (a "Rule 415 Offering") and shall use
reasonable best efforts to cause the Shelf Registration Statement to be
declared effective by the SEC as promptly as practicable.
(b) Effectiveness. The Company shall use reasonable best
efforts to keep the Shelf Registration Statement continuously effective under
the Securities Act until the date that is the earliest to occur of (i) the
date by which all Acquisition Shares covered by the Shelf Registration
Statement have been sold, (ii) the third anniversary of the date hereof and
(iii) when, in the written opinion of counsel to the Company, all outstanding
Acquisition Shares held by persons who are not Affiliates of the Company may
be resold without registration under the Securities Act pursuant to Rule
144(k) under the Act or any successor provision thereto.
(c) Amendments/Supplements. The Company shall amend and
supplement the Shelf Registration Statement and the prospectus contained
therein if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration
Statement or if required by the Securities Act; provided, however, that the
Company may delay the filing of any such amendment or supplement for up to 90
days if the Company in good faith has a valid business reason for such delay.
(d) Offerings. At any time after the effective date of the
Shelf Registration Statement, Holder, subject to the restrictions and
conditions con- tained herein, and to compliance which all applicable state
and federal securities
4
<PAGE>
laws, shall have the right to dispose of all or any portion of the Acquisition
Shares from time to time in negotiated or market transactions.
Section 2.02 Holdback Agreement.
From and after the date on which the Shelf Registration
Statement is declared effective by the SEC (the "Effective Date"), upon the
request of the Company, Holder shall not effect any public sale or
distribution (including sales pursuant to Rule 144) of Acquisition Shares,
during the ten (10)-day period prior to the date on which the Company has
notified Holder that the Company intends to commence a Company Offering
through the filing of a registration statement with the Securities and
Exchange Commission, through the one hundred twenty (120)-day period
immediately following the closing date of such Company Offering; provided,
however, that Holder shall not be obligated to comply with this Section 2.02
on more than one (1) occasion in any twelve (12)-month period.
Section 2.03 Blackout Provisions.
The Company shall be deemed not to have used its reasonable
best efforts to keep the Shelf Registration Statement effective during the
requisite period if the Company voluntarily takes any action that would result
in Holder not being able to offer and sell any Acquisition Shares during that
period, unless (i) such action is required by applicable law, (ii) upon the
occurrence of any event contemplated by Section 2.04(a)(8) below, such action
is taken by the Company in good faith and for valid business reasons or (iii)
the continued effectiveness of the Shelf Registration Statement would require,
on the advice of counsel to the Company, the Company to disclose a material
financing, acquisition or other corporate develoent, and the proper officers
of the Company shall have determined in good faith that such disclosure is not
in the best interests of the Company and its stockholders, and, in the case of
clause (ii) above, the Company thereafter promptly complies with the
requirements of Section 2.04(a)(8) below.
Section 2.04 Registration Procedures.
(a) Procedures. In connection with the registration of the
Acquisition Shares pursuant to this Agreement, the Company shall use
reasonable best efforts to effect the registration and sale of the Acquisition
Shares in accordance with Holder's intended method of disposition thereof and,
in connection therewith, the Company shall as promptly as practicable:
5
<PAGE>
(1) prepare and file with the SEC the Shelf
Registration Statement and use reasonable best efforts to cause the
Shelf Registration Statement to become and remain effective in
accordance with Section 2.01(a) and (b) above;
(2) prepare and file with the SEC amendments and
supplements to the Shelf Registration Statement and the prospectuses
used in connection therewith in accordance with Section 2.01(c)
above;
(3) before filing with the SEC the Shelf
Registration Statement or prospectus or any amendments or supplements
thereto, the Company shall furnish to one counsel selected by Holder
and one counsel for the underwriter or sales or placement agent, if
any, in connection therewith, drafts of all such documents proposed
to be filed and provide such counsel with a reasonable opportunity
for review thereof and comment thereon, such review to be conducted
and such comments to be delivered with reasonable promptness;
(4) promptly (i) notify Holder of each of (x) the
filing and effectiveness of the Shelf Registration Statement and each
prospectus and any amendments or supplements thereto, (y) the receipt
of any comments from the SEC or any state securities law authorities
or any other governmental authorities with respect to any such Shelf
Registration Statement or prospectus or any amendments or supplements
thereto, and (z) any oral or written stop order with respect to such
registration, any suspension of the registration or qualification of
the sale of the Acquisition Shares in any jurisdiction or any
initiation or threatening of any proceedings with respect to any of
the foregoing and (ii) use reasonable best efforts to obtain the
withdrawal of any order suspending the registration or qualification
(or the effectiveness thereof) or suspending or preventing the use of
any related prospectus in any jurisdiction with respect thereto;
(5) furnish to Holder, the underwriters or the
sales or placement agent, if any, and one counsel for each of the
foregoing, a conformed copy of the Shelf Registration Statement and
each amendment and supplement thereto (in each case, includ-
6
<PAGE>
ing all exhibits thereto) and such additional number of copies of
such Shelf Registration Statement, each amendment and supplement
thereto (in such case, without such exhibits), the prospectus
(including each preliminary prospectus) included in such Shelf
Registration Statement and prospectus supplements and all exhibits
thereto and such other documents as Holder, underwriter, agent or
such counsel may reasonably request in order to facilitate the
disposition of the Acquisition Shares by Holder;
(6) in connection with a sale of Acquisition Shares
by or through an underwriter, if requested by Holder or the managing
underwriter or underwriters of a Rule 415 Offering, subject to
approval of counsel to the Company in its reasonable judgment,
promptly incorporate in a prospectus, supplement or post-effective
amendment to the Shelf Registration Statement such information
concerning underwriters and the plan of distribution of the
Acquisition Shares as such managing underwriter or underwriters or
Holder reasonably shall furnish to the Company in writing and request
be included therein, including, without limitation, information with
respect to the number of Acquisition Shares being sold by Holder to
such underwriter or underwriters, the purchase price being paid
therefor by such underwriter or underwriters and with respect to any
other terms of the underwritten offering of the Acquisition Shares to
be sold in such offering; and make all required filings of such
prospectus, supplement or post-effective amendment as soon as
reasonably practicable after being notified of the matters to be
incorporated in such prospectus, supplement or post-effective
amendment;
(7) use reasonable best efforts to register or
qualify the Acquisition Shares under such securities or "blue sky"
laws of such jurisdictions as Holder reasonably requests and do any
and all other acts and things which may be reasonably necessary or
advisable to enable Holder to consummate the disposition in such
jurisdictions in which the Acquisition Shares are to be sold and keep
such registration or qualification in effect for so long as the Shelf
Registration Statement remains effective under the Securities Act
(provided that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph, (ii) subject
7
<PAGE>
itself to taxation in any such jurisdiction where it would not
otherwise be subject to taxation but for this paragraph or (iii)
consent to the general service of process in any jurisdiction where
it would not otherwise be subject to general service of process but
for this paragraph);
(8) notify Holder, at any time when a prospectus
relating to the Shelf Registration Statement is required to be
delivered under the Securities Act, upon the discovery that, or of
the happening of any event as a result of which, the Shelf
Registration Statement, as then in effect, contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or any fact necessary to make the
statements therein not misleading, and, subject to Section 2.03
above, promptly prepare and furnish to the Holder a supplement or
amendment to the prospectus contained in the Shelf Registration
Statement so that the Shelf Registration Statement shall not, and
such prospectus as thereafter delivered to the purchasers of such
Acquisition Shares shall not, contain an untrue statement of a
material fact or omit to state any material fact required to be
stated therein or any fact necessary to make the statements therein
not misleading;
(9) cause all of the Acquisition Shares to be
listed on each national securities exchange and included in each
established over-the-counter market on which or through which the
Common Stock is then listed or traded;
(10) in connection with a sale of Acquisition
Shares by or through an underwriter, make available for inspection by
Holder, any underwriter participating in any disposition pursuant to
the Shelf Registration Statement, and any attorney, accountant or
other agent retained by Holder or underwriter, all reasonably
requested financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers,
directors, employees, attorneys and independent accountants to supply
all information reasonably requested by Holder, underwriters,
attorneys, accountants or agents in connection with the Shelf
Registration Statement; information which the Company determines, in
good faith, to be confidential shall not be disclosed by such persons
unless, subject to Section 2.03 above,
8
<PAGE>
(i) the disclosure of such information is required by applicable
federal securities laws or is necessary to avoid or correct a
misstatement or omission in such Shelf Registration Statement or (ii)
the release of such information is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction; Holder agrees, on
Holder's own behalf and on behalf of all of Holder's underwriters,
accountants, attorneys and agents, that the information obtained by
any of them as a result of such inspections shall be deemed
confidential unless and until such is made generally available to the
public; Holder further agrees, on Holder's own behalf and on behalf
of all of Holder's underwriters, accountants, attorneys and agents,
that Holder will, upon learning that disclosure of such information
is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at Holder's expense, to undertake
appropriate action to prevent disclosure of the information deemed
confidential; nothing contained herein shall require the Company to
waive any attorney-client privilege or disclose attorney work
product;
(11) use reasonable best efforts to comply with all
applicable laws related to the Shelf Registration Statement and
offering and sale of securities and all applicable rules and
regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Exchange
Act, and the rules and regulations promulgated by the Commission) and
make generally available to its security holders as soon as
practicable (but in any event not later than fifteen (15) months
after the effectiveness of the Shelf Registration Statement) an
earnings statement of the Company and the Company Subsidiaries
complying with Section 11(a) of the Securities Act;
(12) in connection with a sale of Acquisition
Shares by or through an underwriter, use reasonable best efforts to
furnish to Holder a signed counterpart of (x) an opinion of counsel
for the Company and (y) a "comfort" letter signed by the independent
public accountants who have certified the Company's financial
statements included or incorporated by reference in such registration
statement, covering such matters with respect to such registration
statement and, in the case of the accountants' comfort letter, with
respect to events subsequent to the date of such financial
9
<PAGE>
statements as are customarily covered in opinions of issuer's counsel
and in accountants' comfort letters delivered to the underwriters in
underwritten public offerings of securities for the account of, or on
behalf of, a holder of common stock, such opinion and comfort letters
to be dated the date that such opinion and comfort letters are
customarily dated in such transactions; and
(13) take other actions as Holder or the
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of the Acquisition Shares.
(b) Further Agreements. Without limiting any of the
foregoing, in the event that the sale of Acquisition Shares is to be made by
or through an underwriter, the Company shall enter into an underwriting
agreement with a managing underwriter or underwriters selected by Holder
containing representations, warranties, indemnities and agreements customarily
included (but not inconsistent with the agreements contained herein) by an
issuer of common stock in underwriting agreements with respect to offerings of
common stock for the account of, or on behalf of, holders of common stock;
provided, however, that the Holder shall not utilize the Shelf Registration
Statement for more than one underwritten offering during the term of this
Agreement. In connection with the sale of Acquisition Shares hereunder, Holder
may, at Holder's option, require that any and all representations and
warranties by, and the other agreements of, the Company to or for the benefit
of such underwriter or underwriters (or which would be made to or for the
benefit of such an underwriter or underwriter if such sale of Acquisition
Shares were pursuant to a customary underwritten offering) be made to and for
the benefit of Holder and that any or all of the conditions precedent to the
obligations of such underwriter or underwriters (or which would be so for the
benefit of such underwriter or underwriters under a customary underwriting
agreement) be conditions precedent to the obligations of Holder in connection
with the disposition of Holder's securities pursuant to the terms hereof. In
connection with any offering of Acquisition Shares registered pursuant to this
Agreement, the Company shall, upon receipt of duly endorsed certificates
representing the Acquisition Shares, (x) furnish to the underwriter, if any
(or, if no underwriter, Holder), unlegended certificates representing
ownership of Acquisition Shares being sold, in such denominations as
requested, and (y) instruct any transfer agent and registrar of the
Acquisition Shares to release any stop transfer order with respect thereto.
10
<PAGE>
Holder agrees that upon receipt of any notice from the
Company of the happening of any event of the kind described in paragraph (8)
of Section 2.04(a), Holder shall forthwith discontinue Holder's disposition of
Acquisition Shares pursuant to the Shelf Registration Statement and prospectus
relating thereto until Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by paragraph (8) of Section 2.04(a) and, if so
directed by the Company, deliver to the Company all copies, other than
permanent file copies, then in Holder's possession of the prospectus current
at the time of receipt of such notice relating to the Acquisition Shares.
Section 2.05 Registration Expenses.
All expenses incidental to the Company's performance of, or
compliance with, its obligations under this Agreement including, without
limitation, all registration and filing fees, all fees and expenses of
compliance with securities and "blue sky" laws (including, without limitation,
the fees and expenses of counsel for underwriters or placement or sales agents
in connection with "blue sky" law compliance), all printing and copying
expenses, all messenger and delivery expenses, all fees and expenses of the
Company's independent certified public accountants and counsel (including,
without limitation, with respect to "comfort" letters and opinions) and other
Persons retained by the Company in connection therewith (collectively, the
"Registration Expenses"), shall be borne by the Company. The Company shall not
be responsible for and shall not pay the fees and expenses of legal counsel,
accountants, agents or experts retained by Holder in connection with the sale
of the Acquisition Shares. The Company will pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties, the expense of any annual
audit and the expense of any liability insurance) and the expenses and fees
for listing the Acquisition Shares on the New York Stock Exchange.
Section 2.06 Indemnification.
(a) By the Company. The Company agrees to indemnify Holder
and Holder's heirs, legatees, beneficiaries and permitted assigns against all
losses, claims, damages, liabilities and expenses (collectively, the "Losses")
caused by, resulting from or relating to any untrue or alleged untrue
statement of material fact contained in the Shelf Registration Statement, any
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or
11
<PAGE>
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in, or alleged to be omitted from, (i) any
financial information of RCI or any of the Affiliated Entities or (ii) any
information furnished in writing to the Company by Holder or its underwriter
or other agent expressly for use therein or by Holder's failure to deliver, or
its underwriter's or other agent's failure to deliver, a copy of the Shelf
Registration Statement or prospectus or any amendments or supplements thereto
after the Company has furnished Holder with the requested number of copies of
the same. In connection with an underwritten offering and without limiting any
of the Company's other obligations under this Agreement, the Company shall
indemnify such underwriters, their officers, directors, employees and agents
and each Person who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) such underwriters or such
other indemnified Person to the same extent as provided above with respect to
the indemnification of Holder.
(b) By Holder. In connection with the Shelf Registration
Statement, Holder shall furnish to the Company in writing information
regarding Holder's ownership of Acquisition Shares and Holder's intended
method of distribution thereof and shall indemnify the Company, its directors,
officers, employees and agents and each Person who controls (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
the Company or such other indemnified Person against all Losses caused by,
resulting from or relating to any untrue or alleged untrue statement of
material fact contained in the Shelf Registration Statement, any prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only to the
extent that such untrue sement or omission or alleged untrue statement or
omission (i) is caused by, results from or relates to, or is alleged to be
omitted from, such information so furnished in writing by Holder or (ii)
arises out of or results from Holder's failure to deliver, or Holder's
underwriter's or other agent's failure to deliver, a copy of the Shelf
Registration Statement or prospectus or any amendments or supplements thereto
after the Company has furnished Holder with the requested number of copies of
the same. In connection with an underwritten offering and without limiting any
of Holder's other obligations under this Agreement, (i) Holder shall indemnify
such underwriters, their officers, directors, employees and agents and each
Person who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) such underwriters or such other indemnified
Person to the same extent as provided above with respect to the
indemnification of the Company and (ii) Holder shall cause each underwriter of
an underwritten offering to
12
<PAGE>
indemnify the Company, its directors, officers, employees and agents and each
Person who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) the Company or such indemnified Person against
all Losses caused by, resulting from or relating to any untrue or alleged
untrue statement of material fact contained in the Shelf Registration
Statement, any prospectus or preliminary prospectus or any amendment thereof
or supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission or
alleged untrue statement or omission (x) is caused by, results from or relates
to, or is alleged to be omitted from, such information furnished in writing by
such underwriter or (y) arises out of or results from such underwriter's
failure to delivery a copy of the Shelf Registration Statement or prospectus
or any amendments or supplements thereto after the Company has furnished such
underwriter with the requested number of copies of the same.
(c) Notice. Any Person entitled to indemnification hereunder
shall give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification; provided, however, the failure to
give such notice shall not release the indemnifying party from its obligation,
except to the extent that the indemnifying party has been prejudiced by such
failure to provide such notice.
(d) Defense of Actions. In any case in which any such action
is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party shall not (so long as
it shall continue to have the right to defend, contest, litigate and settle
the matter in question in accordance with this paragraph) be liable to such
indemnified party hereunder for any legal or other expense subsequently
incurred by such indemnified party in connection with the defense thereof
other than reasonable costs of investigation, supervision and monitoring
(unless such indemnified party reasonably objects to such assumption on the
grounds that there may be defenses available to it which are different from or
in addition to the defenses available to such indemnifying party, in which
event the indemnified party shall be reimbursed by the indemnifying party for
the reasonable expenses incurred in connection with retaining one separate
legal
13
<PAGE>
counsel). An indemnifying party shall not be liable for any settlement of an
action or claim effected without its consent. The indemnifying party shall
lose its right to defend, contest, litigate and settle a matter if it shall
fail to diligently contest such matter (except to the extent settled in
accordance with the next following sentence). No matter shall be settled by an
indemnifying party without the consent of the indemnified party unless such
settlement contains a full and unconditional release of the indemnified party.
(e) Survival. The indemnification provided for under this
Agreement shall remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified Person and will survive
the transfer of the Acquisition Shares.
(f) Contribution. If recovery is not available under the
foregoing indemnification provisions for any reason or reasons other than as
specified therein, any Person who otherwise would be entitled to
indemnification by the terms thereof shall nevertheless be entitled to
contribution with respect to any Losses with respect to which such Person
would be entitled to such indemnification but for such reason or reasons. In
determining the amount of contribution to which the respective Persons are
entitled, there shall be considered the Persons' relative knowledge and access
to information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or omission,
and other equitable considerations appropriate under the circumstances. It is
hereby agreed that it would not necessarily be equitable if the amount of such
contribution were determined by pro rata or per capita allocation. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not found guilty of such fraudulent misrepresentation.
(g) Applicability. The provisions of this Section 2.06 shall
not affect or apply to any rights or obligations of the parties pursuant to
Section 8.9(e) or Article X of the Purchase Agreement.
Section 2.07 Transferability of Registration Rights.
The rights and obligations of Holder under this ARTICLE II
may not be transferred or assigned without the prior written consent of the
Company.
14
<PAGE>
ARTICLE III
TRANSFERS OF ACQUISITION SHARES
Section 3.01 Transferability of Acquisition Shares
Holder may not Transfer the Acquisition Shares except in the
following circumstances:
(a) pursuant to Rule 144;
(b) pursuant to the Shelf Registration Statement; or
(c) upon receipt by the Company of an opinion of counsel,
reasonably satisfactory to the Company, that such Transfer is exempt from
registration under the Act.
Section 3.02 Restrictive Legends.
Holder hereby acknowledges and agrees that, during the term
of this Agreement, each of the certificates representing Acquisition Shares
shall be subject to stop transfer instructions and shall include the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE TRANSFERRED WHETHER BY SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, GIFT,
BEQUEST, APPOINTMENT OR OTHERWISE, AND HFS INCORPORATED (THE "COMPANY") WILL
NOT REGISTER THE TRANSFER OF SUCH SHARES, EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT (B) PURSUANT TO RULE 144 UNDER THE ACT OR
(C) UPON RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE ACT.
15
<PAGE>
ARTICLE IV
MISCELLANEOUS
Section 4.01 Effectiveness of Agreement.
The provisions of this Agreement shall be effective as of
the date hereof.
Section 4.02 Recapitalization.
In the event that any capital stock or other securities are
issued as a dividend or distribution on, in respect of, in exchange for, or in
substitution of, any Acquisition Shares, such securities shall be deemed to be
Acquisition Shares for all purposes under this Agreement.
Section 4.03 Notices.
All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered
personally, by mail (certified or registered mail, return receipt requested),
by reputable overnight courier or by facsimile transmission (receipt of which
is confirmed):
(a) If to the Company, to:
HFS Incorporated
Six Sylvan Way
Parsippany, New Jersey 07054
Attention: James E. Buckman, Esq.
Facsimile: (201) 359-5331
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
16
<PAGE>
(b) If to Holder, to:
Ms. Christel DeHaan
6330 Mayfield Lane
Zionsville, Indiana 46077
with a copy to:
Ice Miller Donadio & Ryan
One American Square
Indianapolis, Indiana 46204
Attention: Berkley Duck, Esq.
Facsimile: (317) 236-2219
or to such other person or address as any party shall specify by notice in
writing, given in accordance with this Section 4.03, to the other parties
hereto. All such notices, requests, demands, waivers and communications shall
be deemed to have been given on the date on which so hand-delivered, on the
third business day following the date on which so mailed, on the next business
day following the date on which delivered to such overnight courier and on the
date of such facsimile transmission and confirmation, except for a notice of
change of person or address, which shall be effective only upon receipt
thereof.
Section 4.04 Entire Agreement.
This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter hereof. This Agreement
supersedes all prior agreements and understandings, oral and written, with
respect to its subject matter.
Section 4.05 Binding Effect; Assignment.
This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, successors and permitted assigns, but, except as
expressly contemplated herein, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, directly or indirectly,
by the Company or Holder without the prior written consent of the other. Upon
any such assignment, this Agreement shall be amended to substitute the
assignee as a party hereto in a writing reasonably acceptable to the other
party.
17
<PAGE>
Section 4.06 Amendment, Modification and Waiver.
This Agreement may be amended, modified or supplemented at
any time by written agreement of the parties hereto. Any failure by Holder, on
the one hand, or the Company, on the other hand, to comply with any term or
provision of this Agreement may be waived by the Company or Holder,
respectively, at any time by an instrument in writing signed by or on behalf
of the Company and Holder, but such waiver or failure to insist upon strict
compliance with such term or provision shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure to comply.
Section 4.07 Third-Party Beneficiaries.
This Agreement is not intended, and shall not be deemed, to
confer upon or give any person except the parties hereto and their respective
successors and permitted assigns, any remedy, claim, liability, reimbursement,
cause of action or other right under or by reason of this Agreement.
Section 4.8 Counterparts.
This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Section 4.9 Interpretation.
The article and section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement.
Section 4.10 Governing Law.
This Agreement shall be governed by the laws of the State of
New York, without regard to the principles of conflicts of law thereof.
Section 4.11 Termination; Restrictive Legend.
Subject to the provisions of Section 2.01(b) hereof, this
Agreement shall terminate on the third anniversary of the date hereof;
provided, however, that the provisions of Section 2.06 hereof shall survive
termination of this Agreement.
18
<PAGE>
It is understood and agreed that any restrictive legends set forth on any
Acquisition Shares shall be removed by delivery of substitute certificates
without such legends and such Acquisition Shares shall no longer be subject to
the terms of this Agreement, upon the resale of such Acquisition Shares in
accordance with the terms of this Agreement or, if not theretofore removed, on
the third anniversary of the date hereof.
[SIGNATURE PAGE FOLLOWS]
19
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby agree to be bound
by the terms and provisions of this Registration Rights Agreement as of the
date first above written.
HFS INCORPORATED
By:__________________________
Name: Stephen P. Holmes
Title: Vice Chairman
STOCKHOLDER
_____________________________
Ms. Christel DeHaan
20
<PAGE>
Exhibit 5.1
December 6, 1996
The Board of Directors
HFS Incorporated
6 Sylvan Way
Parsippany, New Jersey 07054
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We are acting as special counsel to HFS Incorporated, a
Delaware corporation (the "Company"), in connection with the registration
under the Securities Act of 1933, as amended (the "Securities Act"), on Form
S-3, pursuant to Rule 415 of the General Rules and Regulations promulgated
under the Securities Act (the "Rules and Regulations"), of 999,500 shares (the
"Shares") of the Company's Common Stock, par value $0.01 per share (the
"Common Stock"), to be offered and sold from time to time by Ms. Christel
DeHaan (the "Selling Stockholder") who received the Shares in exchange for all
the outstanding capital stock of Resort Condominiums International, Inc.
("RCI"), pursuant to the Stock Purchase Agreement, dated as of October 6, 1996
(the "Stock Purchase Agreement"), by and among the Company, RCI and the
Selling Shareholder.
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K of the Rules and Regulations.
In connection with this opinion, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Registration Statement on Form S-3 relating to the
Shares as filed with the Securities and Exchange Commission (the "Commission")
on the date hereof (together with all exhibits thereto, the "Registration
Statement"); (ii) the Amended and Restated Certificate of Incorporation of the
Company, as currently in effect (the "Certificate of
<PAGE>
The Board of Directors
HFS Incorporated
December 6, 1996
Page 2
Incorporation"); (iii) the By-laws of the Company, as currently in effect (the
"By-Laws"); (iv) the Stock Purchase Agreement; (v) a specimen of the share
certificate used to evidence the Common Stock; and (vi) resolutions of the
Company's Board of Directors relating to (A) the Stock Purchase Agreement, the
preparation of the Registration Statement and the registration of the Shares
under the Securities Act and (B) the issuance of the Shares. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified, photostatic, conformed or
reproduced copies and the authenticity of the originals of such latter
documents. In making our examination of documents executed or to be executed
by parties other than the Company, we have assumed that such parties had or
will have the power, corporate or other, to enter into and perform all
obligations thereunder, and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof. As to
any facts material to the opinions expressed herein which were not
independently established or verified, we have relied upon oral or written
statements and representations of officers and other representatives of the
Company and others.
Our opinion is subject to the assumption and qualification
that each of the representations and warranties made by RCI and the Selling
Stockholder that are contained in the Stock Purchase Agreement was true and
<PAGE>
The Board of Directors
HFS Incorporated
December 6, 1996
Page 3
correct as of the date of the Stock Purchase Agreement
and the date of the closing thereunder.
Members of our Firm are admitted to the Bar in the State of
New York, and we do not express any opinion as to the laws of any other
jurisdiction, other than the General Corporation Law of the State of Delaware.
The Shares may be offered from time to time on a delayed or continuous basis
and this opinion is limited to the laws specified above as in effect on the
date hereof.
Based upon and subject to the foregoing, we are of the
opinion that the Shares are duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the use of the name of our firm in the
Registration Statement under the caption "Legal Matters" and to the filing of
this opinion as an Exhibit to the Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the Rules
and Regulations of the Commission promulgated thereunder.
Very truly yours,
/s/Skadden, Arps, Slate,
Meagher & Flom LLP
________________________
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated on Form S-3 of our reports dated February 22, 1996 (February
28, 1996 as to Note 2A) and March 29, 1996 appearing in and incorporated by
reference in the Annual Report on Form 10-K, for the year ended December 31,
1995 and to the reference to us under the heading "Experts" in the Prospectus,
which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
December 2, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated February 7,
1995 related to the consolidated balance sheets of Century 21 Real Estate
Corporation (formerly a wholly-owned subsidiary of Metropolitan Life Insurance
Company) and subsidiaries as of December 31, 1994, 1993, and 1992, and the
related consolidated statements of income, stockholder's equity and cash flows
for the years then ended included in the Company's Current Report on Form 8-K/A
dated August 18, 1995 and to the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Costa Mesa, California
December 2, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated February 19,
1996, related to the balance sheet of Century 21 Real Estate of the Mid-Atlantic
States, Inc. as of December 31, 1995 and the related statements of income,
changes in stockholder's equity and cash flow for the year then ended included
in the Company's Current Report on Form 8-K dated April 5, 1996 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
December 2, 1996
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated May 15, 1995,
related to the financial statements of Century 21 Of The Southwest, Inc. as of
and for the years ended March 31, 1995 and 1994, included in the Company's
Current Report on Form 8-K dated February 16, 1996 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Toback CPA's, P.C.
Phoenix, Arizona
December 2, 1996
<PAGE>
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated June 22, 1995
(except for Note 13, as to which the date is October 12, 1995), related to the
financial statements of Century 21 of Eastern Pennsylvania, Inc. as of and for
the years ended April 30, 1995 and 1994, included in the Company's Current
Report on Form 8-K dated February 16, 1996 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Woolard, Krajnik & Company
- --------------------------------
WOODLARD, KRAJNIK & COMPANY, LLP
Exton, Pennsylvania
December 2, 1996
<PAGE>
Exhibit 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
HFS Incorporated (the Company) on Form S-3 of our report dated May 11, 1995,
related to the financial statements of Century 21 Real Estate of the Mid-
Atlantic States, Inc. as of and for the years ended December 31, 1994 and 1993,
included in the Company's Current Report on Form 8-K dated February 16, 1996 and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
/s/ Beers & Cutler PLLC
Washington, D.C.
December 2, 1996
<PAGE>
Exhibit 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated January 12,
1996, related to the consolidated financial statements of Century 21 Region V,
Inc. and subsidiaries as of and for the year ended July 31, 1995, included in
the Company's Current Report on Form 8-K dated February 16, 1996 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration.
/s/ White, Nelson & Co, LLP
Anaheim, California
December 2, 1996
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of HFS Incorporated for
the registration of up to 999,500 shares of common stock and to the
incorporation by reference therein of our report dated February 27, 1995, with
respect to the consolidated financial statements of Electronic Realty
Associates, Inc. for the years ended December 31, 1994 and 1993, included in
the Current Report on Form 8-K of HFS Incorporated dated February 16, 1996,
filed with the Securities and Exchange Commission, and our report dated
February 21, 1996, with respect to the consolidated financial statements of
Electronic Realty Associates, L.P. for the years ended December 31, 1995 and
1994, included in the Current Report on Form 8-K of HFS Incorporated dated
April 5, 1996, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
--------------------------
ERNST & YOUNG LLP
Kansas City, Missouri
December 2, 1996
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated February 27,
1996, related to the consolidated financial statements of Coldwell Banker
Corporation and Subsidiaries as of December 31, 1995 and 1994, and for each of
the two years in the period ended December 31, 1995. We also consent to the
reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND LLP
Newport Beach, California
December 2, 1996
<PAGE>
EXHIBIT 23.10
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated March 11, 1994,
related to the consolidated statements of operations, stockholders' equity and
cash flows for the three months ended December 31, 1993 and the consolidated
statements of operations and cash flows for the nine months ended September 30,
1993 of Coldwell Banker Corporation and subsidiaries (formerly Coldwell Banker
Residential Holding Company and subsidiaries) included in the Company's Current
Report on Form 8-K dated May 8, 1996 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
December 2, 1996
<PAGE>
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of HFS Incorporated
of our report dated April 25, 1996 relating to the consolidated financial
statements of Avis, Inc., which appears in the Current Report on Form 8-K of HFS
Incorporated. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Price Waterhouse LLP
New York, New York
December 4, 1996
<PAGE>
Exhibit 23.12
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
on Form S-3 of HFS Incorporated dated December 4, 1996 of our report dated
May 17, 1996, except for the note on capital stock as to which the date is
June 24, 1996 with respect to the consolidated balance sheets of PHH
Corporation and subsidiaries as of April 30, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended April 30, 1996, which report
appears in the Form 8-K/A of HFS Incorporated dated December 4, 1996. We also
consent to the reference to our firm under the heading "Experts" in the
prospectus.
Our report contains an explanatory paragraph that states that the company
adopted the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights," in 1996.
/s/ KPMG Peat Marwick LLP
_________________________
KPMG Peat Marwick LLP
Baltimore, Maryland
December 4, 1996
