SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File No. 1-11402
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HFS Incorporated
(Exact name of Registrant as specified in its charter)
Delaware 22-3059335
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive office) (Zip Code)
(973) 428-9700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if applicable)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the Registrant's classes of
common stock was 167,809,558 shares of Common Stock outstanding as of November
7, 1997.
<PAGE>
HFS Incorporated and Subsidiaries
INDEX
PART I - FINANCIAL INFORMATION Page No.
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Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996...............3 - 4
Consolidated Statements of Income - Three Months and
Nine Months Ended September 30, 1997 and 1996.............5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996.............6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................12 - 26
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K............................27
Signatures...........................................................28
Index to Exhibits....................................................29
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous important assumptions and
other important factors that could cause actual results to differ materially
from those in the forward-looking statements. Important assumptions and other
important factors that could cause actual results to differ materially from
those in the forward-looking statements, include, but are not limited to:
uncertainty as to the Company's future profitability; the Company's ability to
develop and implement operational and financial systems to manage rapidly
growing operations; competition in the Company's existing and potential future
lines of business; the Company's ability to integrate and operate successfully
acquired businesses and the risks associated with such businesses, including the
Company's pending merger with CUC International Inc.; the Company's ability to
obtain financing on acceptable terms to finance the Company's growth strategy
and for the Company to operate within the limitations imposed by financing
arrangements; uncertainty as to the future profitability of acquired businesses,
and other factors. Other factors and assumptions not identified above were also
involved in the derivation of these forward-looking statements, and the failure
of such other assumptions to be realized as well as other factors may also cause
actual results to differ materially from those projected. The Company assumes no
obligation to update these forward- looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting such
forward-looking statements.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HFS Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1997 1996
----------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................. $ 93,667 $ 69,541
Restricted cash ....................................................... 23,825 89,849
Accounts and notes receivable,
net of allowance for doubtful accounts ............................. 857,338 687,907
Due from car rental operations of Avis Rent A Car, Inc., net .......... 62,633 --
Other current assets .................................................. 99,414 117,320
Deferred income taxes ................................................. 127,472 93,798
----------- -----------
TOTAL CURRENT ASSETS .................................................. 1,264,349 1,058,415
Property and equipment - net .......................................... 321,035 328,528
Franchise agreements - net ........................................... 942,780 995,947
Excess of cost over fair value of net - net............................ 1,913,478 1,783,409
Other intangibles - net ............................................... 769,497 604,535
Investment in Avis Rent A Car, Inc. ................................... 124,879 76,540
Other assets .......................................................... 537,687 289,392
----------- -----------
Total assets exclusive of assets under management and mortgage programs 5,873,705 5,136,766
----------- -----------
Assets under management and mortgage programs:
Net investment in leases and leased vehicles ....................... 3,547,217 3,418,666
Relocation receivables ............................................. 587,310 773,326
Mortgage loans held for sale ....................................... 1,162,220 1,248,299
Mortgage servicing rights and fees ................................. 305,428 288,943
----------- -----------
5,602,175 5,729,234
----------- -----------
TOTAL ASSETS .......................................................... $11,475,880 $10,866,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and other accrued expenses ........................ $ 913,969 $ 855,770
Short-term debt .................................................... -- 150,000
Due to car rental operations of Avis Rent A Car, Inc., net ......... -- 61,807
Current portion of long-term debt .................................. 1,247 2,995
------------ ------------
TOTAL CURRENT LIABILITIES .......................................... 915,216 1,070,572
Long-term debt ..................................................... 1,662,169 748,421
Deferred revenue ................................................... 397,754 397,034
Other liabilities .................................................. 204,608 231,951
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Total liabilities exclusive of liabilities under programs .......... 3,179,747 2,447,978
------------ ------------
Liabilities under management and mortgage programs:
Debt ............................................................ 4,952,083 5,089,943
Deferred income taxes ........................................... 300,683 281,948
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5,252,766 5,371,891
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Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value - authorized 10,000,000 shares;
none issued and outstanding ..................................... -- --
Common stock, $.01 par value - authorized 600,000,000 shares;
issued 162,808,704 and 158,728,807 shares, respectively ......... 1,628 1,588
Additional paid-in capital ......................................... 2,277,933 2,236,367
Retained earnings .................................................. 966,385 830,970
Net unrealized gain on investment .................................. -- 4,366
Currency translation adjustment .................................... (12,109) (8,008)
Treasury stock, at cost (3,087,400 and 322,500 shares, respectively) (190,470) (19,152)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ......................................... 3,043,367 3,046,131
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $ 11,475,880 $ 10,866,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Service fees, net $ 597,872 $ 389,527 $ 1,627,076 $ 974,754
Fleet leasing (net of depreciation and
interest costs of $307,908, $283,086,
$892,186 and $839,080, respectively) 13,148 14,297 42,905 41,016
Other, net 38,860 5,747 79,496 16,845
----------- ----------- ------------- -------------
Net revenues 649,880 409,571 1,749,477 1,032,615
----------- ----------- ------------- -------------
EXPENSES:
Operating 222,771 173,771 657,835 469,154
Marketing and reservation 80,897 50,044 211,378 115,994
General and administrative 18,670 17,647 75,782 56,836
Merger and restructuring charge associated
with business combination -- -- 303,000 --
Depreciation and amortization 44,541 25,224 131,075 62,206
Interest, net 17,239 1,070 47,986 11,836
----------- ----------- ------------- -------------
Total expenses 384,118 267,756 1,427,056 716,026
----------- ----------- ------------- -------------
Income before income taxes 265,762 141,815 322,421 316,589
Provision for income taxes 108,359 56,941 180,364 128,098
----------- ----------- ------------- -------------
Net income $ 157,403 $ 84,874 $ 142,057 $ 188,491
=========== =========== ============= =============
SHARE INFORMATION:
Net income per share
Primary $ .89 $ .50 $ .83 $ 1.20
=========== =========== ============= =============
Fully diluted $ .88 $ .50 $ .81 $ 1.19
=========== =========== ============= =============
Weighted average common and common
equivalent shares outstanding
Primary 179,703 171,947 175,611 160,068
=========== =========== ============= =============
Fully diluted 183,084 172,313 178,804 160,891
=========== =========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-------------- ----------------
<S> <C> <C>
Operating Activities:
Net income $ 142,057 $ 188,491
Restructuring charge 303,000 --
Restructuring related payments (137,000) --
Increase (decrease) from changes in:
Assets under management programs:
Depreciation and amortization under management and mortgage programs 812,309 764,172
Mortgage loans held for sale 86,079 (318,767)
Other operating activity (24,729) 76,443
-------------- ---------------
Net cash provided by operating activities 1,312,791 772,546
-------------- ---------------
Investing Activities:
Assets under management and mortgage programs:
Investment in leases and leased vehicles (1,565,857) (1,217,700)
Payments received on investment in leases and leased vehicles 615,153 470,193
Equity advances in homes under management (4,185,486) (2,347,351)
Repayment of advances on homes under management 4,341,295 2,377,103
Additions to originated mortgage servicing rights (147,608) (115,219)
Property and equipment additions (62,662) (35,955)
Investment in preferred stock (181,191) --
Due from Avis Rent A Car, Inc. (124,440) --
Net assets acquired, exclusive of cash acquired (498,845) (970,885)
Proceeds from sale of assets 21,750 38,018
All other investing activities 20,435 (11,052)
-------------- ----------------
Net cash used in investing activities (1,767,456) (1,812,848)
--------------- ----------------
Financing Activities:
Proceeds from borrowings 3,046,657 1,538,130
Principal payments on borrowings (1,748,901) (1,198,078)
Net change in short term borrowings under management
and mortgage programs (693,891) 114,518
Issuance of common stock, net 53,302 1,176,810
Redemption of Series A Preferred Stock of Century 21 -- (80,000)
Purchases of treasury stock (171,318) (8,025)
Payment of dividends of pooled entities (6,644) (18,356)
--------------- ----------------
Net cash provided by financing activities 479,205 1,524,999
-------------- ---------------
Effect of changes in exchange rates on cash and cash equivalents (414) (17,104)
Net increase in cash and cash equivalents 24,126 467,593
Cash and cash equivalents, beginning of period 69,541 22,923
-------------- ---------------
Cash and cash equivalents, end of period $ 93,667 $ 490,516
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HFS Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated balance sheet of HFS Incorporated and subsidiaries (the
"Company") as of September 30, 1997, the consolidated statements of income for
the three and nine months ended September 30, 1997 and 1996, and the
consolidated statements of cash flows for the nine months ended September 30,
1997 and 1996 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements are included.
There were no adjustments of an unusual nature recorded during the three and
nine months ended September 30, 1997 and 1996 except for a one-time charge of
$303 million ($227 million after tax), recorded in the second quarter of 1997
representing transaction and restructuring costs incurred in connection with the
merger of the Company with PHH Corporation ("PHH") (See Note 4). The Company is
a global provider of fee-based consumer services primarily to the travel and
real estate industries. The Company therefore experiences seasonal revenue
patterns similar to those of the travel and real estate industries wherein the
summer months produce higher revenue than other periods of the year.
Accordingly, the first and fourth quarters are traditionally weaker than the
second and third quarters and as such interim results are not necessarily
indicative of results for a full year.
The consolidated financial statements include the accounts and transactions
of all wholly-owned and majority owned subsidiaries, except for the Company's
ownership of Avis Rent A Car, Inc. ("ARAC"), which is accounted for under the
equity method (See Note 7). All material intercompany balances and transactions
have been eliminated in consolidation. On April 30, 1997, the Company acquired
PHH by merger, which has been accounted for as a pooling of interests (See Note
3). Accordingly, the accompanying consolidated financial statements have been
restated as if the Company and PHH had operated as one entity since inception.
The consolidated financial statements of the Company include the assets and
liabilities of Ramada Franchise Systems, Inc., an entity controlled by the
Company by virtue of its ownership of 100% of the common stock of such entity.
The assets of Ramada Franchise Systems, Inc. are not available to satisfy the
claims of any creditors of the Company or any of its other affiliates, except as
otherwise specifically agreed by Ramada Franchise Systems, Inc.
The consolidated financial statements and notes are presented as required
by Form 10-Q and do not contain certain information included in the Company's
consolidated financial statements, included in the Company's Form 8-K dated July
16, 1997. The December 31, 1996 consolidated balance sheet was derived from the
Company's audited financial statements and should be read in conjunction with
such consolidated financial statements and notes thereto.
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform with the presentation used in 1997.
2. Pending Merger with CUC International Inc.
On May 27, 1997, the Company entered into a definitive merger agreement
(with CUC International Inc. ("CUC") pursuant to which the Company is expected
to merge with and into CUC,(the "CUC Merger")and be renamed Cendant Corporation.
<PAGE>
In connection with the CUC Merger, each share of the Company's common stock
shall be converted into the right to receive 2.4031 shares of CUC common stock.
CUC is a leading technology-driven, membership-based consumer services company,
providing its members with access to a variety of goods and services worldwide,
including such services as shopping, travel, auto, dining, home improvement,
lifestyle, vacation exchange, credit card and checking account enhancement
packages, financial products and discount programs. CUC reported total revenues
and net income of $2.3 billion and $164.1 million, respectively, for the year
ended January 31, 1997. The CUC Merger received approval from the shareholders
of each company on October 1, 1997 and also requires Federal Trade Commission
approval which has not yet been received. The CUC Merger will be accounted for
as a pooling of interests.
3. Merger with PHH Corporation
On April 30, 1997, the Company acquired PHH by merger (the "PHH Merger"),
issuing 30.3 million shares of Company common stock in exchange for all of the
outstanding common stock of PHH. The PHH Merger has been accounted for as a
pooling of interests. Accordingly, the accompanying consolidated financial
statements have been prepared as if PHH and the Company had operated as one
entity since inception. PHH is the world's largest provider of corporate
relocation services and also provides mortgage services and fleet management
services.
The following table shows the historical operating results of the Company
and PHH for the periods prior to the PHH Merger ($000's):
For the four months For the nine months
ended April 30, 1997 ended September 30, 1996
-------------------- ------------------------
Net revenues
HFS ................. $ 473,969 $ 550,010
PHH ................ 237,838 482,605
---------- ----------
Total ........... $ 711,807 $1,032,615
========== ==========
Net income
HFS ................. $ 83,667 $ 130,960
PHH ................. 41,747 57,531
---------- ----------
Total ........... $ 125,414 $ 188,491
========== ==========
4. Merger and Restructuring Charge
The Company recorded a one-time pre-tax merger and restructuring charge
("PHH Restructuring Charge") of $303 million ($227 million, after tax) during
the second quarter of 1997 in connection with the PHH Merger. Excluding the PHH
Restructuring Charge, net income was $369 million or $2.07 per share for the
nine months ended September 30, 1997. The PHH Restructuring Charge is summarized
by type as follows ($000's):
<PAGE>
Personnel related $ 142.4
Professional fees 36.8
Business terminations 44.7
Facility related 57.1
Other costs 22.0
-------------
Total $ 303.0
=============
Personnel related charges are comprised of costs incurred in connection
with employee reductions associated with the combination of the Company's
relocation service businesses and the consolidation of corporate activities.
Personnel related charges include termination benefits such as severance,
medical and other benefits. Also included in personnel related charges are
supplemental retirement benefits resulting from the change of control. Several
grantor trusts were established and funded by the Company to pay such benefits
in accordance with the terms of the PHH merger agreement. Full implementation of
the restructuring plan will result in the termination of approximately 500
employees, substantially all of whom are located in North America. As of
September 30, 1997, 369 employees were terminated. Professional fees are
primarily comprised of investment banking, accounting and legal fees incurred in
connection with the PHH Merger. Business termination charges relate to the
exiting of certain activities associated with fleet management, mortgage
services and ancillary operations in accordance with the Company's strategic
plan. Facility related expenses include costs associated with contract and lease
terminations, asset disposals and other charges incurred in connection with the
consolidation and closure of excess space.
The Company anticipates that approximately $236 million will be paid in
cash in connection with the PHH Restructuring Charge of which $137 million was
paid through September 30, 1997. The remaining cash portion of the PHH
Restructuring Charge will be financed through cash generated from operations and
borrowings under the Company's credit facilities. It is currently anticipated
that the restructuring plan will be completed in early 1998 and will result in
pre-tax savings approximating $100 million with the full benefit of cost
reductions beginning in 1998. Revenue and operating results from activities that
will not be continued are not material to the results of operations of the
Company.
5. Pro Forma Information
The following table reflects the unaudited operating results of the Company
for the nine months ended September 30, 1996 on a pro forma basis, which gives
effect to the following 1996 acquisitions, accounted for under the purchase
method of accounting, and the related financing of such acquisitions as if they
had occurred on January 1, 1996: (i) the Travelodge(R) franchise system; (ii)
the Electronic Realty Associates(R) franchise system; (iii) the six CENTURY
21(R) non-owned regions; (iv) Coldwell Banker Corporation; (v) Avis, Inc.; and
(vi) Resort Condominiums International, Inc. ($000's, except per share data):
Net revenues $ 1,516,822
Net income 242,430
Net income per share (fully diluted) 1.38
<PAGE>
6. Investment in ARAC
Upon entering into a definitive merger agreement to acquire Avis, Inc. in
July 1996, the Company announced its strategy to dilute its interest in ARAC's
car rental operations while retaining assets associated with the franchise
business, including trademarks, reservation system assets and franchise
agreements with ARAC and other licensees. In September 1997, ARAC completed an
initial public offering ("IPO") resulting in a 72.5% dilution of the Company's
investment interest. Net proceeds approximating $359.3 million retained by ARAC
were used to fund its August 20, 1997 acquisition of The First Gray Line
Corporation and repay ARAC indebtedness.
The Company licenses the Avis trademark to ARAC pursuant to a 50-year
master license agreement and receives royalty fees based upon 4% of ARAC
revenue, escalating to 4.5% of ARAC revenue over a 5-year period. In addition,
the Company operates the telecommunications and computer processing system which
services ARAC for reservations, rental agreement processing, accounting and
fleet control for which the Company charges ARAC at cost. Summarized financial
information of ARAC is as follows ($000's):
Avis Rent A Car, Inc.
Balance sheet data: September 30, 1997 December 31, 1996
------------------ -----------------
Vehicles ........... $3,364,660 $2,243,492
Total assets ....... 4,717,107 3,131,357
Debt ............... 3,285,548 2,295,474
Total liabilities .. 4,263,001 3,054,817
Shareholders' equity 454,106 76,540
Three Months Ended Nine Months Ended
Statement of income data: September 30, 1997 September 30, 1997
------------------ ------------------
Revenues ................. $ 580,049 $1,525,696
Income before provision
for income taxes ....... 24,953 49,313
Net income ............. . 13,868 26,974
7. Redemption of 4-1/2% Notes
On September 22, 1997, the Company exercised its option to redeem the
outstanding 4-1/2% Convertible Senior Notes ("4-1/2% Notes") effective October
15, 1997 in accordance with the provisions of the indenture under which the
4-1/2% Notes were issued. Prior to the redemption date, each of the 4-1/2% Notes
were converted into shares of Company common stock. Accordingly, the Company
issued 8.2 million shares of Company common stock as a result of the conversion
of such notes of which 0.1 million shares of Company common stock were issued as
of September 30, 1997.
8. Investment in NRT
During the third quarter, the Company acquired $182 million of preferred
stock (included in other assets) of NRT Incorporated ("NRT"), a newly formed
corporation created
<PAGE>
to acquire residential real estate brokerage firms. The Company acquired
$188.7 million of certain intangible assets including trademarks associated with
real estate brokerage firms acquired by NRT in the third quarter of 1997. The
Company, at its discretion, may acquire up to $81.3 million of additional NRT
preferred stock and may also purchase up to $257.3 million of certain intangible
assets of real estate brokerage firms acquired by NRT.
In September 1997, NRT acquired the real estate brokerage business and
operations of National Realty Trust (the "Trust"), and two other regional real
estate brokerage businesses. The Trust is an independent trust to which the
Company contributed the brokerage offices formerly owned by Coldwell Banker
Corporation in connection with the Company's acquisition of Coldwell Banker
Corporation. NRT is the largest residential brokerage firm in the United States.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
HFS Incorporated, together with its subsidiaries (the "Company"), is a
leading global provider of consumer services. The Company provides fee-based
services that primarily fall within the Travel and Real Estate industries. The
Company generally does not own the assets or share the risks associated with the
underlying businesses of its customers.
In the travel industry, the Company is the world's largest franchisor of
lodging facilities and car rental operations, the leading provider of vacation
timeshare exchange services and a leading provider of international fleet
management services.
In the real estate industry, the Company is the world's largest franchisor
of real estate brokerage offices, the world's largest provider of corporate
relocation services and operates the tenth largest mortgage lender business in
the United States.
On May 27, 1997, the Company entered into a definitive merger agreement
with CUC International Inc. ("CUC"), pursuant to which the Company is expected
to merge with and into CUC (the "CUC Merger"), and be renamed Cendant
Corporation. In connection with the CUC Merger, each share of the Company's
common stock shall be converted into the right to receive 2.4031 shares of CUC
common stock. CUC is a leading technology-driven membership-based consumer
services company with shares traded on the New York Stock Exchange. CUC's
business profile is consistent with the Company's in that CUC's primary revenue
source consists of recurring membership revenue rather than revenue from the
sale of goods and services to club members.
RESULTS OF OPERATIONS
3Q 1997 vs 3Q 1996
Consolidated net income increased 85% ($72.5 million) to $157.4 million in
1997 while earnings per share ("EPS") increased 76% ($.38) to $.88. Operating
income (revenue less expenses, excluding interest and income taxes) increased
98% ($140.1 million) to $283.0 million. Consolidated net revenue increased 59%
($240.3 million) to $649.9 million.
Net interest expense increased $16.2 million primarily resulting from
borrowings under revolving credit arrangements which financed 1997 treasury
stock purchases, restructuring expenditures and acquisition related
expenditures. The weighted average effective interest rate increased from 5.7%
to 5.8% as a result of higher short-term interest rates.
<PAGE>
SEGMENT DISCUSSION OF OPERATING INCOME
Certain of the underlying segments are comprised of businesses which were
acquired in 1996 and accounted for by the purchase method of accounting.
Accordingly, the results of operations of such acquired companies were included
in the consolidated operating results of the Company from the respective dates
of acquisition. In such circumstances, for comparative purposes, the segment
discussion compares the 1997 operating results with the pro forma operating
results for 1996, which assumes that the businesses acquired during 1996, were
acquired on January 1, 1996. Operating expenses include depreciation and
amortization but exclude interest expense and income taxes. Results for the
Company's business segments are as follows:
TRAVEL INDUSTRY
Lodging
The Company operates eight nationally recognized lodging brands with
approximately 5,700 lodging properties under franchise contracts of up to 20
years in duration. The Company provides central reservation system services and
national marketing programs, which are completely funded by its franchisees from
a designated portion of the franchise fees. The Company charges royalty fees
based on a percentage of franchisee gross room sales to fund all expenses not
covered by marketing and reservation fees, such as quality assurance inspections
and franchise sales and service functions. Accordingly, the significant revenue
drivers of the lodging segment are the number of royalty-paying franchise units
and the average royalty rate which they pay. Other relevant drivers are the
average daily rates and occupancy percentage of the underlying lodging
properties.
Operating income ($000's) 1997 1996 Variance
- ------------------------- -------- -------- --------
Net revenue ......... $124,473 $115,670 8%
Operating expenses .. 73,487 71,530 3%
-------- --------
Operating income .... $ 50,986 $ 44,140 16%
======== ========
The net revenue increase resulted from an 8% increase in royalty fees and a
41% increase in revenue from preferred alliances seeking access to the Company's
franchisees and their underlying consumer base. The increase in royalty fees
resulted primarily from a 5% growth in franchised rooms from the same period in
1996. The 3% increase in operating expenses represents increased marketing
expenses associated with funds administered by the Company on behalf of
franchisees on a pass-through basis (corresponding franchisee contribution
included in revenue).
Car Rental
The Company acquired HFS Car Rental, Inc. (formerly Avis, Inc.) on October
17, 1996. In September 1997, ARAC completed an IPO Resulting in a 72.5% dilution
of the Company's investment in a subsidiary that operated the car rental
operations of HFS Car Rental, Inc. The Company retained the assets that are
consistent with the Company's service provider business profile, including the
trademark, franchise agreements, reservation system and information technology
system. The Company receives fees based on a master license agreement with ARAC
and other third party licensees. The Company's equity in the earnings of ARAC
after royalty and reservation fees are reported in the Company's other segment.
<PAGE>
Pro Forma
Operating income ($000's) ......... 1997 1996 Variance
- ----------------------------------- ------- ------- --------
Net revenue ................... $62,787 $59,315 6%
Operating expenses ........... 37,596 38,334 (2%)
------- -------
Operating income ............ $25,191 $20,981 20%
======= =======
Pro forma operating income increased $4.2 million (20%) from 1996 to 1997
as a result of $1.3 million (7%) increase in royalty fees and $2.2 million of
preferred alliance and other revenue. A 6% increase in franchisee car rental
price per day contributed to the royalty increase.
Timeshare
The Company acquired Resort Condominiums International, Inc. ("RCI") in
November 1996 as such, amounts for 1996 are pro forma. RCI sells subscription
memberships to owners of vacation timeshare resorts which allows the members to
exchange their timeshare accommodations for timeshare accommodations owned by
other members at participating affiliated resorts worldwide. In addition to
membership fees, RCI earns fees for exchanges processed by its call centers. The
key timeshare revenue drivers include the number of fee paying members and
exchanges as well as each corresponding average fee.
Pro Forma
Operating income ($000's) ........ 1997 1996 Variance
------- ------- --------
Net revenue ......................$86,860 $78,164 11%
Operating expenses ............... 64,392 66,649 (3%)
------- -------
Operating income .................$22,468 $11,515 95%
======= =======
Pro forma operating income increased $11.0 million (95%) from 1996 to 1997
as a result of expense reductions realized following the November 1996
acquisition of RCI. Pro forma revenue increased 11% as a result of a 9% increase
in exchange revenue and a 24% increase in subscription revenue, resulting from
membership and price increases.
Fleet Management
Fleet management services are offered to corporate clients and government
agencies to assist them in effectively managing their vehicle fleet costs,
reducing in-house administrative costs and enhancing driver productivity.
Services consist of leasing (which generally requires an investment by the
Company in the vehicles and includes new vehicle purchasing, open and closed-end
operating leasing, direct finance leasing and used vehicle marketing) as well as
a variety of fee-based services including fuel purchasing, maintenance
management programs, expense reporting, fuel management programs, accident and
safety programs and other driver services for managing clients' vehicle fleets.
The Company has experienced minimal losses associated with its investment in
vehicles due to the overall creditworthiness of its corporate clients.
Operating income ($000's) 1997 1996 Variance
- ------------------------- ------- ------- --------
Net revenue ......... $59,810 $59,062 1%
Operating expenses .. 41,104 44,156 (7%)
------- -------
Operating income .... $18,706 $14,906 25%
======= =======
Net revenue increased only $.7 million (1%) as a result of the Company's
January 1997 sale of certain credit card operations. The Company currently
participates in such credit card operations as a joint venture partner and
<PAGE>
accordingly, records revenue based on its equity in earnings of the joint
venture. As a result, revenue in 1997 includes revenue, net of expenses from the
joint venture, compared to gross revenue received from corresponding,
wholly-owned credit card operations in 1996. Assuming the joint venture
commenced January 1, 1996, pro forma net revenue increased 12% primarily as a
result of $3.6 million of increased fuel card revenue in the United Kingdom and
a $1.6 million increase in the United States fleet card operations. Operating
income increased 25% as a result of savings generated from the restructuring of
operations subsequent to the PHH Merger.
REAL ESTATE INDUSTRY
Real Estate Franchise
The Company licenses brand names to independently owned brokerage offices
associated with three of the four largest real estate brokerage franchise
systems in the world. The Company acquired the world's largest franchise system,
the CENTURY 21(R) franchise system, in August 1995, the ERA(R) franchise system
in February 1996 and the Coldwell Banker(R) franchise system in May 1996. The
most significant revenue driver for the real estate franchise business is the
number of real estate sales transactions for which the broker receives
commission revenue. Royalties are calculated based on a percentage of such
franchisee commission revenue. Marketing fees are collected from franchisees by
the Company and are used to fund national advertising expenditures and other
marketing activities.
Operating income ($000's) 1997 1996 Variance
- ------------------------- ------- ------- --------
Net revenue ......... $98,344 $79,426 24%
Operating expenses .. 36,574 36,187 1%
------- -------
Operating income .... $61,770 $43,239 43%
======= =======
Operating income increased 43% as a result of a $18.9 million (24%)
increase in net revenue and only a $0.4 million (1%) increase in operating
expenses. The royalty portion of revenue increased $13.0 million (18%) to $85.8
million. Increased royalty revenue reflects higher broker sales volume primarily
resulting from a 5 % increase in real estate transactions and a 12% increase in
the average price of homes sold. The net revenue increase also reflects a 75%
increase in revenue from preferred alliance programs to $8.3 million in 1997.
The Company limited operating expenses to a $0.4 million (1%) increase as a
result of the post-acquisition realization of cost savings associated with the
consolidation of operating functions of its franchise systems.
Relocation
Relocation segment services primarily consist of the purchase, management
and resale of homes and fee based home related services for transferred
employees of corporate clients, members of affinity group clients and government
agencies. Although the Company acquires the home of client employees, the client
corporation reimburses the Company for carrying costs until the home is sold and
for home sale losses. Accordingly, the Company earns a fee for services with
minimal real estate risk. Operating expenses primarily consist of sales and
service staffing and related costs.
<PAGE>
Operating income ($000's) 1997 1996 Variance
- ------------------------- -------- -------- --------
Net revenue ......... $112,034 $101,958 10%
Operating expenses .. 76,907 80,804 (5%)
-------- --------
Operating income .... $ 35,127 $ 21,154 66%
======== ========
The $14.0 million (66%) increase in operating income is attributable to a
$10.1 million (10%) increase in net revenue and $3.9 million (5%) decrease in
expenses. The increase in net revenue was primarily attributable to an increase
in referral fees from home sale transactions. The $3.9 million reduction in
operating expenses primarily reflects savings associated with the restructuring
of relocation operations following the PHH Merger.
Mortgage Services
Mortgage services primarily consist of the origination, sale and servicing
of residential first mortgage loans. The Company packages such mortgage loans
for sale in secondary markets generally within 45 days of origination and
retains servicing rights. The Company markets a variety of first mortgage
products to consumers through relationships with corporations, affinity groups,
government agencies, financial institutions, real estate brokerage firms and
mortgage banks by a combination of retail teleservices delivery and wholesale
correspondent lending arrangements.
Operating income ($000's) 1997 1996 Variance
- ------------------------- ------- ------- -------
Net revenue ......... $51,602 $40,513 27%
Operating expenses .. 32,161 26,533 21%
------- -------
Operating income .... $19,441 $13,980 39%
======= =======
Operating income increased 39% as a result of a 27% increase in net
revenue. The increase in net revenue resulted primarily from a $6.2 million
(22%) increase in loan origination revenue due to an increase in loan closings
($3.5 billion for third quarter ) and a $4.9 million (41%)increase in loan
servicing fees. Operating expenses increased $5.6 million (21%), reflecting the
increase in current loan origination volume and anticipation of future volume
increases.
Other
Other business operations primarily consist of the equity in earnings from
the Company's investment in ARAC after charging ARAC franchise, reservation, and
information technology fees and other ancillary operations or transactions which
are not included in the Company's primary business segment operations. Operating
expenses also include corporate overhead expenses which are not allocated to
other operating business segments. Operating income is summarized as follows:
Operating income ($000's) 1997 1996 Variance
- ------------------------- ------- ------- -------
Net revenue ......... $53,970 $12,943 317%
Operating expenses .. 4,658 7,476 (38%)
------- -------
Operating income .... $49,312 $ 5,467 802%
======= =======
Operating income increased $43.8 million primarily as a result of $26.9
million of the equity in earnings of ARAC.
<PAGE>
Year-To-Date 1997 vs 1996
The Company incurred an anticipated $303 million one-time merger and
restructuring charge ($227 million, after tax) (the "PHH Restructuring Charge")
during the second quarter of 1997 in connection with the merger with PHH on
April 30, 1997.
The PHH Restructuring Charge was comprised of approximately $142.4 million
of personnel related expenses, $36.8 million of professional fees, $44.7 million
of business termination costs, $57.1 million of facility related expenses and
$22.0 million of other expenses directly associated with the PHH Merger.
Personnel related charges are comprised of costs incurred in connection with
employee reductions associated with the combination of the Company's relocation
service businesses and the consolidation of corporate activities. Personnel
related charges include termination benefits such as severance, medical and
other benefits. Also included in personnel related charges are supplemental
retirement benefits resulting from the change of control. Several grantor trusts
were established and funded by the Company to pay such benefits in accordance
with the terms of the PHH merger agreement. Full implementation of the
restructuring plan will result in the termination of approximately 500 employees
substantially all of whom are located in North America and of whom 369 employees
were terminated as of September 30, 1997. Professional fees are primarily
comprised of investment banking, accounting and legal fees incurred in
connection with the PHH Merger. Business termination charges relate to the exit
of certain activities associated with fleet management, mortgage services and
ancillary operations in accordance with the Company's revised strategic plan.
Facility related expenses include costs associated with contract and lease
terminations, asset disposals and other charges incurred in the consolidation
and closure of excess space.
The Company anticipates that approximately $236 million will be paid in
cash in connection with the PHH Restructuring Charge of which $137 million was
paid through September 30, 1997. The remaining cash portion of the PHH
Restructuring Charge will be financed through cash generated from operations and
borrowings under the Company's credit facilities. It is currently anticipated
that the restructuring plan will be completed in early 1998 and will result in
pre-tax savings approximating $100 million with the full benefit of cost
reductions beginning in 1998. Revenue and operating results from activities that
will not be continued are not material to the results of operations of the
Company.
The financial summary for the nine months ended September 30, 1997 and 1996
including the PHH Restructuring Charge is as follows ($000's):
Operating income ($000's) 1997 1996 Variance
- ------------------------- ---------- ---------- ----------
Net revenue ......... $1,749,477 $1,032,615 69%
Operating expenses .. 1,379,070 704,190 96%
---------- ----------
Operating income .... $ 370,407 $ 328,425 13%
========== ==========
Net income .......... $ 142,057 $ 188,491 (25%)
Net income per share
(fully diluted) $ .81 $ 1.19 (32%)
Including the second quarter 1997 PHH Restructuring Charge, net income
decrease $46.4 million (25%) while operating income increased $42.0 million
(13%). Net interest expense increased 305% ($36.2 million) primarily resulting
from borrowings under revolving credit arrangements which financed 1997 treasury
stock purchases, restructuring expenditures, and acquisition related
expenditures, while the weighted average effective interest rate increased from
5.7% to 5.9% as a result of higher short-term interest rates.
<PAGE>
Excluding the PHH Restructuring Charge, consolidated net income increased
96% ($180.6 million) to $369.1 million in 1997, while net income per share
increased 74% ($.88) to $2.07. In addition, operating income increased 105%
($345.0 million) to $673.4 million.
SEGMENT DISCUSSION OF OPERATING INCOME
Since the majority of the PHH Restructuring Charge does not directly apply
to the Company's operating segments, the following segment information and
discussions exclude the PHH Restructuring Charge. Operating expenses include
depreciation and amortization but excludes interest expense and income taxes.
The operating results of the Company's business segments are as follows:
TRAVEL INDUSTRY
Lodging
Operating income ($000's) 1997 1996 Variance
- ------------------------- -------- -------- --------
Net revenue ......... $322,427 $295,892 9%
Operating expenses .. 191,240 186,555 3%
-------- --------
Operating income .... $131,187 $109,337 20%
======== ========
The net revenue increase resulted from a 7% increase in royalty fees and a
62% increase in revenue from preferred alliances seeking access to the Company's
franchisees and their underlying consumer base. The increase in royalty fees
resulted primarily from a 4% growth in franchised rooms from the same period in
1996. The 3% ($4.7 million) increase in operating expenses resulted from a 10%
($12.2 million) increase in marketing and reservation expenses which are funded
by the Company's franchisees partially offset by the absorption of corporate
overhead expenses by several other operating segments acquired in 1996.
Car Rental
Pro Forma
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- --------- --------
Net revenue $ 181,657 $165,112 10%
Operating expenses 113,889 109,561 4%
----------- --------
Operating income $ 67,768 $ 55,551 22%
=========== ========
Pro forma operating income increased 22% primarily as a result of a $3.3
million (5%) increase in royalty fees and $5.2 million of preferred alliance and
other revenue. The increase in royalty fees was primarily attributable to a 5%
increase in ARAC's car rental price per day.
<PAGE>
Timeshare
Pro Forma
Operating income ($000's) .... 1997 1996 Variance
-------- -------- --------
Net revenue ................ $274,570 $236,675 16%
Operating expenses ......... 212,531 207,397 2%
-------- --------
Operating income ........... $ 62,039 $ 29,278 112%
======== ========
Pro forma operating income increased $32.8 million (112%) from 1996 to 1997
as a result of a $37.9 million (16%) increase in net revenue and only a $5.1
million (2%) increase in operating expenses. Pro forma revenue increased 16% as
a result of an $11.6 million (9%) increase in exchange revenue and an $18.0
million (24%) increase in subscription revenue due to both membership and price
increases. The pro forma operating expense increase of only 2% is a result of
expense reductions realized following the November 1996 acquisition of RCI.
Fleet Management
Operating income ($000's) 1997 1996 Variance
- ------------------------- -------- -------- --------
Net revenue ......... $206,391 $192,832 7%
Operating expenses .. 130,491 135,055 (3%)
-------- --------
Operating income .... $ 75,900 $ 57,777 31%
======== ========
Operating income increased $18.1 million (31%) to $75.9 million, primarily
as a result of a $13.6 million (7%) increase in net revenue and a $4.6 million
(3%) decrease in operating expenses resulting from operational efficiencies
realized from the second quarter 1997 restructuring of certain fleet management
operations. The increase in net revenues is comprised of a 10% increase in
fee-based revenues and a 4% increase in asset-based fees.
<TABLE>
<CAPTION>
REAL ESTATE INDUSTRY
Real Estate Franchise
Pro Forma
Operating income ($000's) 1997 1996 Variance 1996 Variance
- ------------------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenue ......... $237,412 $159,951 48% $203,519 17%
Operating expenses .. 108,465 84,897 28% 113,264 (4%)
-------- -------- --------
Operating income .... $128,947 $ 75,054 72% $ 90,255 43%
======== ======== ========
</TABLE>
<PAGE>
Operating income increased 72% as a result of a $77.5 million (48%)
increase in net revenue and only a $23.6 million (28%) increase in operating
expenses. The royalty portion of revenue increased $65.5 million (46%) to $208.8
million which is primarily attributable to the Coldwell Banker franchise system
operations which were acquired in May 1996. Operating expenses increased as a
result of incremental expenses associated with the acquired franchise systems.
Pro forma operating income increased $38.7 million (43%) from 1996 to 1997 as a
result of a $33.9 million (17%) increase in net revenue and a $4.8 million (4%)
reduction in operating expenses. Pro forma net revenue increased primarily as a
result of a 10% increase in royalty fees principally due to increases in homes
sold and the average price of homes sold. The pro forma reduction in operating
expenses reflects cost savings realized from the restructuring of real estate
businesses acquired.
Relocation
<TABLE>
<CAPTION>
Pro Forma
Operating income ($000's) 1997 1996 Variance 1996 Variance
- ------------------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenue ......... $300,727 $253,073 19% $287,951 4%
Operating expenses .. 226,348 213,689 6% 241,859 (6%)
-------- -------- --------
Operating income .... $ 74,379 $ 39,384 89% $ 46,092 61%
======== ======== ========
</TABLE>
<PAGE>
The $47.7 million (19%) increase in operating income is primarily
attributable to operating income from the Coldwell Banker relocation business
acquired in May 1996. The pro forma operating income increased $46 million (61%)
from 1996 to 1997 as a result of a $12.8 million (4%) increase in net revenue
and a $15.5 million (6%) reduction in operating expenses. Pro forma net revenue
increased primarily as a result of an increase in referral fees from home sale
transactions. The pro forma reduction in operating expenses reflects savings
associated with the restructuring of relocation operations following the PHH
Merger.
Mortgage Services
Operating income ($000's) 1997 1996 Variance
- ------------------------- -------- -------- --------
Net revenue ......... $127,731 $ 95,667 34%
Operating expenses .. 76,832 65,620 17%
-------- --------
Operating income .... $ 50,899 $ 30,047 69%
======== ========
Operating income increased 69% as a result of a 34% increase in net
revenue, net of a 17% increase in operating expenses. Loan origination revenue
increased $25.5 million (43%) as a result of a 19% increase in loan closings and
a 20% price increase. Servicing revenue increased $4.3 million (20%) as a result
of an 18% increase in revenue from the servicing portfolio. Operating expenses
increased 17% due to increases in loan origination volume as well as increased
recruiting, training and systems development costs associated with the
anticipation of increased volume, primarily from the retail teleservice delivery
systems.
Other
Operating income ($000's) 1997 1996 Variance
- ------------------------- ------- ------- --------
Net revenue ......... $98,562 $35,200 180%
Operating expenses .. 16,274 18,374 (11%)
------- -------
Operating income .... $82,288 $16,826 389%
======= =======
Operating income increased $65.5 million primarily as a result of $51.2
million of equity in earnings of ARAC.
LIQUIDITY AND CAPITAL RESOURCES
Transaction Overview
The Company continues to seek to expand and strengthen its leadership
position in the travel and real estate industry segments. Following the April
30, 1997 merger with PHH, the Company believes it has achieved annual points of
contact with over 100 million consumers involved in significant dollar volumes
of annual transactions in the travel and real estate industries.
The Company's businesses acquired by purchase share similar
characteristics, foremost of which is that each was immediately accretive to the
Company's earnings. Revenue is generated substantially from service fees and not
dependent on tangible assets or the need for capital expenditures other than
technology investments which support and historically have been substantially
funded by the Company's customers. These service businesses each generate
significant cash flow which is enhanced by the Company's operating leverage.
Such leverage provides for acquired revenue streams without corresponding
increases in operating infrastructure expenses. The Company is currently
positioned to cross market within its existing business segments and continues
to pursue acquisitions and/or investments in service businesses that fit the
profile described above.
<PAGE>
CUC Merger
On May 27, 1997, the Company entered into a definitive merger agreement
with CUC pursuant to which the Company is expected to merge with and into CUC
and be renamed Cendant corporation. In connection with the CUC Merger, each
share of the Company's common stock shall be converted into the right to receive
2.4031 shares of CUC common stock. CUC, a leading technology-driven
membership-based consumer services company with shares traded on the New York
Stock Exchange, reported revenue and net income for the fiscal year ended
January 31, 1997 of $2.3 billion and $164.1 million, respectively. The CUC
Merger received shareholder approval and is contingent upon Federal Trade
Commission approval which has not yet been received. The combination of CUC and
HFS is intended to provide CUC's membership businesses access to the Company's
more than 100 million consumer contacts, while providing Company businesses with
the technology-driven, direct marketing expertise necessary to successfully
cross-market within its existing business units. The CUC Merger will be
accounted for as a pooling of interests.
On October 3, 1997, CUC completed the acquisition of Hebdo Mag
International, Inc. ("Hebdo"), a leading international publisher and distributor
of classified advertising information for approximately 15 million shares of CUC
common stock valued at approximately $440 million. The transaction was accounted
for as a pooling of interests.
Acquisitions and Investments
C21 HOLDING CORP - On May 15, 1997, the Company acquired the 12.5% minority
ownership interest in C21 Holding Corp., the parent company of Century 21 Real
Estate Corporation from a company comprised primarily of former management
employees for $52.8 million. Such purchase resulted in an increase in goodwill
of $51.5 million associated with the August 1995 acquisition of the CENTURY 21
franchise system.
PHH - On April 30, 1997, the Company acquired PHH by merger, issuing 30.3
million shares of Company common stock in exchange for all of the outstanding
common stock of PHH. PHH is the world's largest provider of corporate relocation
services and also provides mortgage services and vehicle management services.
This transaction was accounted for as a pooling of interests. The Company
recorded a one-time pre-tax merger and restructuring charge of $303 million
($227 million, after tax) in the second quarter of 1997 upon the consummation of
the PHH Merger.
ARAC-IPO - Upon entering into a definitive merger agreement to acquire Avis,
Inc. in July 1996, the Company announced its strategy to dilute its interest in
ARAC's car rental operations while retaining assets associated with the
franchise business, including trademarks, reservation system assets and
franchise agreements with ARAC and other licensees. In September 1997, ARAC
completed an initial public offering ("IPO") resulting in a 72.5% dilution in
the Company's investment interest.
NRT - During the third quarter, the Company acquired $182 million of preferred
stock of NRT Incorporated ("NRT"), a newly formed corporation created to acquire
residential real estate brokerage firms. The Company acquired $188.7 million of
certain intangible assets, including trademarks associated with real estate
brokerage firms acquired by NRT in the third quarter of 1997.
<PAGE>
The Company, at its discretion, may acquire up to $81.3 million of additional
NRT preferred stock and may also purchase up to $257.3 million of additional
assets of real estate brokerage firms acquired by NRT.
In September 1997, NRT acquired the real estate brokerage business and
operations of National Realty Trust and two other regional real estate brokerage
businesses.
Equity Transactions
Treasury Purchases - On January 7, 1997, the Board of Directors authorized the
purchase of up to 2.6 million shares of Company common stock to satisfy stock
option exercises and conversions of convertible debt securities and for future
acquisitions. The Company acquired approximately 2.6 million treasury shares
during the first quarter of 1997 for $171.3 million.
Redemption of 4-1/2% Notes - On September 22, 1997, the Company exercised its
option to redeem the outstanding 4-1/2% Convertible Senior Notes ("4-1/2%
Notes")effective on October 15, 1997 in accordance with the provisions of the
indenture under which the 4-1/2% Notes were issued. Prior to the redemption
date, each of the 4-1/2% Notes were converted into shares of Company common
stock. Accordingly, the Company issued 8.2 million shares of Company common
stock as a result of the conversion of such notes of which 0.1 million shares of
Company common stock were issued as of September 30, 1997.
Financing
Management believes that the Company has excellent liquidity and has
expanded its access to liquidity following both the completed merger with PHH
and the proposed merger with CUC. Most significant, the Company has generated
significant positive cash flow from operations in every quarter since its
initial public offering in December 1992, excluding the second quarter of 1997
when it incurred a pre-tax $303 million merger and restructuring charge in
connection with the PHH Merger. The Company has demonstrated its ability to
access equity and public debt markets and financial institutions in order to
generate capital for strategic transactions. Indicative of the Company's
creditworthiness, Standard & Poors Corporation ("S&P") affirmed its "A" credit
rating of the Company's publicly issued debt following the announcement of both
the PHH and CUC Mergers and Moody's Investors Service, Inc. ("Moody's") upgraded
the Company's debt rating to "A3" following the PHH Merger. Duff & Phelps
currently rates the Company's debt "A". Please note that a rating is not a
recommendation to buy, sell or hold securities and is subject to revision or
withdrawal at any time by the rating agency. Each rating should be evaluated
independently of any other rating.
Liquidity is available to the Company through revolving credit facilities
which may provide up to $1.5 billion of unsecured borrowings at interest rates
generally approximating LIBOR plus a margin of 22.5 basis points. In October
1997, the Company entered into an agreement with a bank to provide for an
additional $300 million of borrowings under a revolving credit facility for a
term which is extendable through consummation of the CUC Merger. The proposed
combined company has executed amended revolving credit arrangements which will
replace HFS' $1.5 billion revolving credit facility with a syndicated facility
aggregating approximately $2 billion with tranches of various tenor, contingent
upon completion of the CUC Merger. At September 30, 1997, the Company had $400
million of available borrowings under its revolving credit facilities.
The Company filed a shelf registration statement with the Securities and
Exchange Commission effective August 29, 1996, for the aggregate issuance of up
to $1 billion of debt and equity securities. These securities
<PAGE>
may be offered from time to time, together or separately, based on terms to be
determined at the time of sale. The proceeds may be used for general corporate
purposes, which may include future acquisitions. Subsequent to the proposed CUC
Merger the Company expects to replace this shelf registration statement with a
similar $2 billion shelf registration statement.
Long-term debt increased $914 million to $1.7 billion at September 30,
1997, when compared to amounts outstanding at December 31, 1996 primarily as a
result of $171.3 million of treasury share purchases, $137.0 million of PHH
Restructuring Charge payments and $680.0 million to fund both the Company's
investment in NRT and certain intangible assets associated with NRT's
acquisitions during the third quarter of 1997 and other acquisition related
payments. Long-term debt at September 30, 1997 primarily consisted of $539.6
million of fixed rate publicly issued debt and $1.1 billion of borrowings under
the Company's revolving credit facilities.
PHH will continue to operate its mortgage services, fleet management and
relocation businesses as a separate public reporting entity and support
purchases of leased vehicles and originated mortgages primarily by issuing
commercial paper and medium term notes. Although PHH's debt to equity ratio
approximates 6 to 1, such debt corresponds directly with net investments in high
quality related assets. Accordingly, following the announcement of the PHH
Merger, S&P, Moody's and Fitch Investor Service affirmed investment grade
ratings of "A+", "A2" and "A+", respectively, to PHH debt and "A1", "P1" and
"F1", respectively, to PHH commercial paper.
PHH debt is issued without recourse to the Company. The Company expects to
continue to have broad access to global capital markets by maintaining the
quality of its assets under management. This is achieved by establishing credit
standards to minimize credit risk and the potential for losses. Depending upon
asset growth and financial market conditions, PHH utilizes the United States,
European and Canadian commercial paper markets, as well as other cost-effective
short-term instruments. In addition, PHH will continue to utilize the public and
private debt markets to issue unsecured senior corporate debt. Augmenting these
sources, PHH will continue to manage outstanding debt with the potential sale or
transfer of managed assets to third parties while retaining fee-related
servicing responsibility. At September 30, 1997, PHH's aggregate outstanding
borrowings approximated $2.5 billion in outstanding commercial paper, $2.3
billion in medium-term notes and $0.2 billion in other debt securities.
To provide additional financial flexibility, PHH's current policy is to
ensure that minimum committed facilities aggregate 80 percent of the average
amount of outstanding commercial paper. PHH maintains a $2.5 billion syndicated
unsecured credit facility which is backed by domestic and foreign banks and is
comprised of $1.25 billion of lines of credit maturing in 364 days and $1.25
billion of lines of credit maturing in five years. In addition, PHH has
approximately $300 million of uncommitted lines of credit with various financial
institutions. Management closely evaluates not only the credit quality of the
banks but the terms of the various agreements to ensure ongoing availability.
The full amount of PHH's committed facilities at September 30, 1997 was undrawn.
Management believes that its current policy provides adequate protection should
volatility in the financial markets limit PHH's access to commercial paper or
medium-term note funding.
The Company and PHH currently operate under policies limiting (a) the
payment of dividends on PHH's capital stock to 40% of net income of PHH on an
annual basis, less the outstanding principal balance of loans from PHH to
Company as of the date of any proposed dividend payment, and (b) the outstanding
principal balance of loans from PHH to Company to 40% of net income of PHH on an
annual basis, less payment of dividends on PHH's capital stock during such year.
<PAGE>
PHH minimizes its exposure to interest rate and liquidity risk by
effectively matching floating and fixed interest rate and maturity
characteristics of funding to related assets, varying short and long-term
domestic and international funding sources, and securing available credit under
committed banking facilities.
Cash Flow
The Company generated $1.3 billion of cash flow from operations,
representing a $540.2 million (70%) increase from the same period of 1996. Cash
flow from operations included a $46.4 million decrease in net income which
included a $227 million after-tax PHH Restructuring Charge. The comparative
increase in cash flow from operations primarily resulted from a $404.8 million
increase in operating cash flow from mortgage loans held for resale and a $48.1
million increase in depreciation and amortization of assets under management and
mortgage programs. Net cash used in investing activities remained substantially
unchanged compared to 1996 at approximately $1.8 billion and included uses of
cash such as a $181.2 million investment in NRT and a $124.4 million of payments
made on behalf of ARAC net of a $472.0 million reduction in acquisition related
payments. Cash provided by financing activities decreased $1.0 billion primarily
as a result of $1.1 billion of proceeds received in a June 1996 equity offering.
The Company believes that based upon its analysis of its financial
position, its cash flow during the past twelve months and the expected results
of operations in the future, operating cash flow, available funding under the
revolving credit facility and issuance of securities in the capital markets, if
appropriate, will be adequate to fund operations, strategic investments and
acquisitions of other service related businesses.
Other
The Company anticipates investing approximately $150 million during
calendar year 1998 in capital expenditures. Such capital expenditures are
primarily associated with the consolidation of internationally based call
centers and information technology systems to support expected volume increases
in the Company's mortgage services business and improve operationsal
efficiencies in the delivery of relocation services.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share",
which requires a change to the presentation of EPS to include the presentation
of basic and diluted EPS in place of primary and fully diluted EPS,
respectively. SFAS 128 is effective for interim periods and fiscal years ending
after December 15, 1997. Earlier adoption of the pronouncement is not permitted.
Management of the Company believes that there will not be a material difference
in fully diluted earnings per share under the existing pronouncement when
compared to the new diluted presentation.
Assuming SFAS 128 was applicable for the three and nine months ended
September 30 1997, the Company would have reported diluted earnings per share of
$0.89 and $0.83, respectively, including the second quarter $303 million ($227
after tax) one-time PHH restructuring charge. Excluding such charge, earnings
per share is as follows:
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
------------------ ------------------
Pro Forma SFAS 128:
Basic EPS $0.99 $2.33
Diluted EPS $0.89 $2.11
As Reported:
Primary EPS $0.89 $2.11
Fully Diluted EPS $0.88 $2.07
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income", which requires preparation of a new basic financial statement which
considers the impact of certain economic events that have heretofore been
reflected as adjustments to stockholders' equity but have not impacted reported
earnings on the consolidated statements of operations. Comprehensive income per
share is not required to be shown on the new statement. SFAS 130 is effective
for fiscal years beginning after December 15, 1997. The Company plans to adopt
the provisions of SFAS 130 on January 1, 1998.
<PAGE>
Upon adoption of SFAS 130, the Company will classify other comprehensive
income separately into foreign currency translation adjustments, unrealized
gains and losses on securities and minimum pension liability adjustments.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information", which requires companies to report
information about operating segments in annual financial statements as well as
selected information about the operating segments in interim reports issued to
shareholders. SFAS 131 also established standards for related disclosures about
products and services, geographic areas, and major customers. SFAS 131 is
effective for fiscal years beginning after December 15, 1997.
Year 2000 Compliance
The Company has commenced an upgrade or replacement of operating systems
which are or were unable to satisfactorily process data including years after
the December 31, 1999. The Company believes that all systems will be Year 2000
compliant by January 1, 2000 and amounts charged to operating expense are not
expected to be material.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
10.1 Second Amendment, dated as of September 18, 1997, to the Five Year
Competitive Advance And Revolving Credit Agreement and the 364-Day
Competitive Advance And Revolving Credit Agreement, each of which is
dated as of October 2, 1996 by and among HFS Incorporated, the
financial institutions party thereto and The Chase Manhattan Bank, as
Administrative agent.
10.2 Second Amendment, dated as of September 26, 1997 to (i) 364-day
Competitive Advance and Revolving Credit Agreement, dated as of March
4, 1997, PHH Corporation (the "Borrower"), PHH Vehicle Management
Services, Inc., the Lenders referred to therein, the Chase Manhattan
Bank of Canada, as administrative agent for the US Lenders (the
"Administrative Agent"), and The Chase Manhattan Bank of Canada, as
administrative agent for the Canadian Lenders; and (ii) the Five Year
Competitive Advance and Revolving Credit Agreement, dated as of March
4, 1997, among the Borrower, the Lenders referred to therein and the
Administrative Agent.
10.3 Separation Agreement dated as of July 30, 1997 by and between HFS Car
Rental, Inc. and Avis Rent A Car, Inc.
11 Statement of Computation of Earnings Per share.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated July 15, 1997 reporting
in Item 5 the combined results of operations for the month ended May
31, 1997 of the Company and PHH.
The Company filed a report on Form 8-K dated July 16, 1997 reporting
under Items 5 and 7 the financial statements and management's
discussion and analysis of financial condition and results of
operations of the Company and gives retroactive effect to the
acquisition of PHH with and into the Company which has been accounted
for as a pooling of interests. The Form 8-K included the audited
consolidated balance sheets of the Company as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HFS Incorporated
By: /s/ Scott E. Forbes
Scott E. Forbes
Senior Vice President
Date: November 14, 1997 and Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Descriptions
10.1 Second Amendment, dated as of September 18, 1997, to the Five Year
Competitive Advance And Revolving Credit Agreement and the 364-Day
Competitive Advance And Revolving Credit Agreement, each of which is
dated as of October 2, 1996 by and among HFS Incorporated, the
financial institutions party thereto and The Chase Manhattan Bank, as
Administrative agent.
10.2 Second Amendment, dated as of September 26, 1997 to (i) 364-day
Competitive Advance and Revolving Credit Agreement, dated as of March
4, 1997, PHH Corporation (the "Borrower"), PHH Vehicle Management
Services, Inc., the Lenders referred to therein, the Chase Manhattan
Bank of Canada, as administrative agent for the US Lenders (the
"Administrative Agent"), and The Chase Manhattan Bank of Canada, as
administrative agent for the Canadian Lenders; and (ii) the Five Year
Competitive Advance and Revolving Credit Agreement, dated as of March
4, 1997, among the Borrower, the Lenders referred to therein and the
Administrative Agent.
10.3 Separation Agreement dated as of July 30, 1997 by and between HFS
Car Rental, Inc. and Avis Rent A Car, Inc.
11 Statement of Computation of Earnings Per share.
27 Financial Data Schedule.
EXHIBIT 10.1
SECOND AMENDMENT
SECOND AMENDMENT, dated as of September 18, 1997, to the FIVE YEAR
COMPETITIVE ADVANCE AND REVOLVING CREDIT AGREEMENT and the 364-DAY COMPETITIVE
ADVANCE AND REVOLVING CREDIT AGREEMENT, each of which is dated as of October 2,
1996 ( as each of the same may be amended, supplemented or otherwise modified
from time to time, the "Credit Agreements"), by and among HFS INCORPORATED, a
Delaware corporation (the "Borrower"), the financial institutions parties
thereto (the "Lenders"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, as agent for the Lenders (in such capacity, the "Administrative
Agent").
W I T N E S S E T H:
WHEREAS, the Borrower plans to merge with and into CUC International Inc.
("CUC") (the "Merger");
WHEREAS, the Borrower has requested that the Lenders amend certain
provisions of the Credit Agreements upon the terms and conditions set forth
herein; and
WHEREAS, the Lenders have agreed to permit the Merger and to effect
certain other changes to the Credit Agreements;
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the undersigned hereby agree as follows:
1. Defined Terms. Terms defined in the Credit Agreements and used herein
shall have the meanings given to them in the Credit Agreements.
2. Amendments to Section 1, entitled "Definitions," of each Credit
Agreement. Section 1 of each Credit Agreement is hereby amended as follows:
(a) by deleting the definitions of "Avis L/C", "Avis Merger
Agreement", "Borrower Stock Price" and "Receivables" in their entirety
therefrom;
(b) by deleting the definition of "Avis" contained therein in its
entirety and substituting in lieu thereof the following definition:
"Avis" shall mean HFS Car Rental, Inc., a Delaware corporation.
(c) by deleting the definition of "Cash Equivalents" contained therein
in its entirety and, with respect to the Five Year Credit Agreement,
substituting in lieu thereof the following definition:
"Cash Equivalents" shall mean any of the following , to the
extent acquired for investment and not with a view to achieving
trading profits: (i) obligations fully backed by the full faith
and credit of the United States of America maturing not in excess
of twelve months from the date of acquisition, (ii) commercial
paper maturing not in excess of twelve months from the date of
acquisition and rated "P-1" by Moody's or "A-1" by S&P on the
date of such acquisition, (iii) the following obligations of any
Lender or any domestic commercial bank having capital and surplus
in excess of $500,000,000, which has, or the holding company of
which has, a commercial paper rating meeting the requirements
specified in clause (ii) above: (a) time
<PAGE>
deposits, certificates of deposit and acceptances maturing not in
excess of twelve months from the date of acquisition, or (b)
repurchase obligations with a term of not more than thirty (30)
days for underlying securities of the type referred to in clause
(i) above, (iv) money market funds that invest exclusively in
interest bearing, short-term money market instruments: (a) having
an average remaining maturity of not more than twelve months and
(b)(1) rated at least "P-1" by Moody's or "A-1" by S&P or (2)
which are issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality
thereof, and (v) municipal securities: (a) for which the pricing
period in effect is not more than twelve months long and (b)
rated at least "P-1" by Moody's or "A-1" by S&P.
(d) by deleting the definition of "Consolidated Total Indebtedness"
contained therein in its entirety and substituting in lieu thereof the
following definition:
"Consolidated Total Indebtedness" shall mean the total amount of
Indebtedness of the Borrower and its Consolidated Subsidiaries
determined on a consolidated basis using GAAP principles of
consolidation, but without regard to whether or not any such
Indebtedness would be required to be shown on a consolidated
balance sheet prepared in accordance with GAAP; provided that
Consolidated Total Indebtedness shall be deemed to include, at
the time of any computation thereof, the aggregate amount of any
outstanding loans to, any investment in the capital stock of, any
purchase price in excess of the fair market value of assets of,
and any other investments by the Borrower and its Subsidiaries
(other than Avis and its Subsidiaries and PHH and its
Subsidiaries) in, Avis and its Subsidiaries and PHH and its
Subsidiaries (other than the purchase price paid by the Borrower
to acquire Avis and PHH). The amount of any such investment at
any time shall equal the original cost thereof plus any additions
thereto (in each case without giving effect to any appreciation
or depreciation in the value thereof) net of any returns thereon
actually received by the Borrower or any of its Subsidiaries
(other than Avis and its Subsidiaries and PHH and its
Subsidiaries).
(e) by deleting from the definition of "Indebtedness" the phrase
"payable within 120 days" in each case where it appears and substituting
in lieu thereof the phrase "payable within 180 days";
(f) by adding the following definitions in their appropriate
alphabetical locations:
"Consolidated Net Worth" shall mean, as of any date of
determination, all items which in conformity with GAAP would be included
under shareholders' equity on a consolidated balance sheet of the Borrower
and its Subsidiaries at such date.
"Merger" shall means the merger of HFS Incorporated into CUC
International Inc.
"Merger Effective Date" shall have the meaning set forth in the
Second Amendment, dated as of September 18, 1997, to this Agreement.
"PHH" shall mean PHH Corporation, a Maryland corporation
and (g) by deleting the definition of "Subsidiary" contained
therein in its entirety and substituting in lieu thereof the following
definition:
"Subsidiary" shall mean with respect to any Person, any
corporation, association, joint venture, partnership or other
business entity (whether now existing or hereafter organized) of
which at least a majority of the voting stock or other ownership
interests having ordinary voting power
<PAGE>
for the election of directors (or the equivalent) is, at the time
as of which any determination is being made, owned or controlled
by such Person or one or more Subsidiaries of such Person or by
such Person and one or more Subsidiaries of such Person; provided
that for purposes of Section 6.1, 6.5, 6.6, 6.7 and 6.8 hereof,
Avis and its Subsidiaries and PHH and its Subsidiaries shall be
deemed not to be Subsidiaries of the Borrower.
e. Amendment to Section 2.23, entitled "Increase of Commitments," of
each Credit Agreement. Section 2.23 of each Credit Agreement is hereby
amended by (a) deleting such Section from the Five Year Credit Agreement
and substituting therefor the phrase "SECTION 2.23. INTENTIONALLY OMITTED"
and (b) deleting paragraph (a) thereof from the 364-Day Credit Agreement
and substituting in lieu thereof the following:
(a) At the request of the Borrower to the Administrative Agent,
the aggregate Commitments hereunder may be increased on the Merger
Effective Date by not more $500,000,000 provided that (i) each Lender
whose Commitment is increased consents, (ii) the increase is in a
multiple of $25,000,000 and (iii) the consent of the Administrative
Agent is obtained.
4. Amendment to Section 2.24 entitled "Letters of Credit," of the Five
Year Credit Agreement. Section 2.24 of the Five Year Credit Agreement is hereby
amended by deleting the last sentence of clause (i).
5. Amendment to Section 3.4 entitled "Financial Statements of Borrower",
of each Credit Agreement. Section 3.4 of each Credit Agreement is hereby amended
by deleting such Section 3.4 and substituting in lieu thereof the following:
SECTION 3.4. Financial Statements.
(i) The (a) audited consolidated balance sheets of HFS Incorporated
and its Consolidated Subsidiaries as of December 31, 1995 and December 31,
1996, and (b) unaudited consolidated balance sheets of HFS Incorporated
and its Consolidated Subsidiaries as of March 31, 1997 and June 30, 1997,
together with the related unaudited statements of income, shareholders'
equity and cash flows for such periods, fairly present the financial
condition of HFS Incorporated and its Consolidated Subsidiaries as at the
dates indicated and the results of operations and cash flows for the
periods indicated in conformity with GAAP subject to normal year-end
adjustments in the case of the March 31, 1997 and June 30, 1997 financial
statements.
(ii) The (a) audited consolidated balance sheets of CUC International
Inc. and its consolidated Subsidiaries as of January 31, 1996 and January
31, 1997 and (b) unaudited consolidated balance sheets of CUC
International Inc. and its consolidated Subsidiaries as of April 30, 1997,
together with the related unaudited statements of income, shareholders'
equity and cash flows for such periods, fairly present the financial
condition of CUC International Inc. and its consolidated Subsidiaries as
at the dates indicated and the results of operations and cash flows for
the periods indicated in conformity with GAAP subject to normal year-end
adjustments in the case of the April 30, 1997 financial statements.
(iii) The pro forma combined balance sheets of CUC International Inc.
dated April 30, 1997, and of HFS Incorporated, dated March 31, 1997, as
set forth in the unaudited pro forma combining financial statements for
the Merger set forth in the joint proxy statement prospectus filed by CUC
International Inc. and HFS Incorporated dated August 28, 1997, fairly
present the consolidated financial condition of the surviving company of
the Merger and its consolidated Subsidiaries as at the dates indicated.
<PAGE>
6. Amendment to Section 3.5, entitled "No Material Adverse Change", to
each Credit Agreement. Section 3.5 of each Credit Agreement is hereby amended by
deleting the text of such Section and substituting in lieu thereof the
following:
Since December 31, 1996 and January 31, 1997, respectively, there
has been no material adverse change in the business, assets,
operations, or condition, financial or otherwise, of HFS Incorporated
and its Subsidiaries taken as a whole or of CUC International Inc. and
its Subsidiaries taken as a whole; provided, however, that the
foregoing representation is made solely as of the Merger Effective
Date.
7. Amendments to Section 3.16, entitled "Environmental Liabilities," of
each Credit Agreement.
Section 3.16 of each Credit Agreement is hereby amended as follows:
(a) by deleting the text of such Section and substituting in lieu thereof
the following:
Except with respect to any matters, that, individually or in the
aggregate, could not reasonably be expected to result in a Material
Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has
failed to comply with any Environmental Law or to obtain, maintain or
comply with any permit, license or other approval required under any
Environmental Law, (ii) except as set forth on Schedule 3.16, has become
subject to any Environmental Liability, (iii) except as set forth on
Schedule 3.16 has received notice of any claim with respect to any
Environmental Liability or (iv) except as set forth on Schedule 3.16,
knows of any basis for any Environmental Liability.
and (b) by adding a new Schedule 3.16 in the form of Annex A hereto.
8. Amendments to Section 6.1, entitled "Limitation on Indebtedness," of
each Credit Agreement. Section 6.1 of each Credit Agreement is hereby amended as
follows:
(a) by deleting the amount "$200,000,000" from clauses (e) and (g)
and substituting in lieu thereof the amount "$400,000,000"; and
(b) by deleting subsection (c) contained therein in its entirety and
substituting in lieu thereof the following: "(c) Guaranties;".
9. Amendment to Section 6.2, entitled "Limitation on Guaranties," of each
Credit Agreement. Section 6.2 of each Credit Agreement is hereby amended by
deleting Section 6.2 in its entirety and substituting in lieu thereof the
following:
SECTION 6.2. INTENTIONALLY OMITTED.
10. Amendment to Section 6.4, entitled "Consolidation, Merger, Sale of
Assets," of each Credit Agreement. Section 6.4(a) of each Credit Agreement is
hereby amended by (i) adding at the end of clause (i) the phrase "or the
successor to the Borrower has unconditionally assumed in writing all of the
payment and performance obligations of the Borrower under this Agreement and the
other Fundamental Documents", (ii) deleting the word "or" before clause (iii)
and substituting in lieu thereof a comma and (iii) deleting the semicolon and
proviso clause at the end of clause (iii) and substituting in lieu thereof the
following:
or (iv) the Merger; provided however, that immediately prior to
and on a Pro Forma Basis after giving effect to any such
transaction described in any of the preceding clauses (i), (ii)
and (iii) no Default or Event of Default has occurred and is
continuing.
<PAGE>
11. Amendment to Section 6.5, entitled "Limitation on Liens", of each
Credit Agreement. Section 6.5 of each Credit Agreement is hereby amended by (i)
deleting the word "and" at the end clause (f), (ii) deleting the period at the
end of clause (g) and substituting in lieu thereof the phrase "; and" and (iii)
inserting at the end thereof the following new clause (h):
(h) other Liens securing obligations having an aggregate principal
amount not to exceed 15% of Consolidated Net Worth.
12. Amendment to Section 6.6, entitled "Sale and Leaseback," of each
Credit Agreement. Section 6.6 of each Credit Agreement is hereby amended by
deleting the amount $50,000,000" contained therein and substituting in lieu
thereof the amount "$200,000,000".
13. Amendment to Section 7, entitled "Events of Default," of each Credit
Agreement. Section 7 of each Credit Agreement is hereby amended by deleting the
amount "$25,000,000" from clauses (e) and (i) in each case where it appears and
substituting in lieu thereof the amount "$50,000,000".
14. Amendment to Section 9.1, entitled "Notices," of each Credit
Agreement. Section 9.1 of each Credit Agreement is hereby amended by (i)
deleting the phrase "339 Jefferson Road" and substituting in lieu thereof the
phrase, "6 Sylvan Way," (ii) deleting the phrase "Stephen P. Homes, Executive
Vice President and Chief Financial Officer and James E. Buckman, Executive Vice
President and General Counsel" substituting in lieu thereof the phrase, "Michael
Monaco, Vice Chairman and Chief Financial Officer and James E. Buckman, Senior
Executive Vice President and General Counsel" and (iii) deleting the phrase "Rob
Kellas, Vice President"and substituting in lieu thereof the phrase "Stephanie
Parker".
15. Amendment to Section 9.4, entitled "Expenses; Documentary Taxes," of
the 364-Day Credit Agreement. Section 9.4 of the 364-Day Credit Agreement is
hereby amended by (i) deleting the comma after the phrase, "the Notes," in the
fifth line and substituting in lieu thereof the word "and", (ii) deleting the
phrase "and issuance and administration of the Letters of Credit" contained
therein in its entirety and (iii) deleting in each case where it appears the
phrase "or the Letters of Credit".
16. Amendment Section 9.9, entitled "Amendments, etc.," of the 364-Day
Credit Agreement. Section 9.9 of the 364-Day Credit Agreement is hereby amended
by deleting from clause (y) the phrase "or letter of credit fees" contained
therein.
17. Other Amendments to each Credit Agreement. Each reference to the
phrases "date hereof" and "Closing Date" in the definitions of "Change in
Control" and "GAAP" set forth in Section 1 and in Sections 3.6, 3.8, 3.14 and
3.15 of each Credit Agreement is hereby deleted and replaced with a reference to
the "Merger Effective Date."
18. Effective Date. (a) This Amendment (other than paragraphs 5, 6, 7 and
17 hereof) shall become effective upon receipt by the Administrative Agent of
counterparts of this Amendment duly executed and delivered by the Borrower, the
Administrative Agent, the Required Lenders under each of the Five Year Credit
Agreement and the 364-Day Credit Agreement and, with respect to paragraph 19,
each Lender under the 364-Day Credit Agreement (the date of such effectiveness,
the "Initial Effective Date").
(b) Paragraphs 5, 6, 7 and 17 of this Amendment shall become effective
upon satisfaction of each of the following conditions (the date on which
all such conditions are first satisfied is referred to herein as the
"Merger Effective Date"):
<PAGE>
(i) receipt by the Administrative Agent, with copies for each of
the Lenders, of a certificate of the Secretary or Assistant Secretary
of the Borrower (which for purposes of this Section 18(b) shall means
the company which survives the Merger) dated the Merger Effective Date
and certifying (A) that attached thereto is a true and complete copy
of the certificate of incorporation and by-laws of the Borrower as in
effect on the date of such certification; (B) that attached thereto is
a true and complete copy of resolutions adopted by the Board of
Directors of the Borrower authorizing the borrowings under the Credit
Agreements, the assumption of obligations of HFS Incorporated under
the Credit Agreements and the other Fundamental Documents by the
Borrower and the execution, delivery and performance in accordance
with their respective terms of any documents required or contemplated
hereunder (such certificate to state that the resolutions thereby
certified have not been amended, modified revoked or rescinded and
shall be in form and substance satisfactory to the Administrative
Agent); (C) as to the incumbency and specimen signature of each
officer of the Borrower executing and document delivered by it in
connection herewith (such certificate to contain a certification by
another officer of the Borrower as to the incumbency and signature of
the officer signing the certificate referred to in this paragraph (i);
and (D) that the Merger has become effective in accordance with the
law of the State of Delaware;
(ii) receipt by the Administrative Agent of the favorable written
opinions, dated the Merger Effective Date and addressed to the
Administrative Agent and the Lenders, of Skadden, Arps, Slate, Meagher
& Flom LLP, counsel to the Borrower, and of James E. Buckman, Senior
Executive Vice President and General Counsel of the Borrower, each in
form and substance satisfactory to the Administrative Agent.
(iii) satisfaction on the part of the Administrative Agent that
no material adverse change shall have occurred with respect to the
business, assets, operations or condition, financial or otherwise, of
HFS Incorporated and its Consolidated Subsidiaries taken as a whole
since December 31, 1996 or of CUC and is consolidated Subsidiaries
taken as a whole since January 31, 1997.
(iv) satisfaction on the part of the Administrative Agent that
all amounts payable to the Administrative agent and the other Lenders
pursuant hereto or with regard to the transactions contemplated hereby
have been or are simultaneously being paid;
(v) no litigation shall be pending or threatened which would be
likely to have a Material Adverse Effect, or which could reasonably be
expected to materially adversely affect the ability of the Borrower to
fulfill its obligations hereunder or to otherwise materially impair
the interests of the Lenders; and
(vi) delivery by the Borrower of a written agreement pursuant to
which it assumes as a primary obligor all of the payment and
performance obligations of HFS Incorporated under the Credit
Agreements and the other Fundamental Documents.
19. Extension of Maturity Date under 364-Day Credit Agreement. The Lenders
hereby confirm that the Maturity Date under the 364-day Credit Agreement has
been extended to September 30, 1998.
20. Representations and Warranties. The Borrower hereby represents and
warrants to the Lenders that each of the representations and warranties made by
the Borrower in the Fundamental Documents is true and correct on and as of the
Initial Effective Date and the Merger Effective Date, after giving effect to the
effectiveness of this Amendment on the Initial Effective Date and the Merger
Effective Date, respectively, as if made on and as of such Effective Date,
except to the extent such representations and warranties expressly relate to an
earlier date.
<PAGE>
21. Payment of Expenses. The Borrower agrees to reimburse the
Administrative Agent for all its reasonable costs and expenses incurred in
connection with the preparation, execution and delivery of this Amendment and
any other documents prepared in connection herewith and the transactions
contemplated hereby, including without limitation the reasonable fees and
disbursements of counsel to the Administrative Agent.
22. No Other Amendments; Confirmation. Except as expressly amended hereby,
all terms and provisions of the Credit Agreements and each of the Fundamental
Documents are and shall remain in full force and effect. The amendments provided
herein are limited to the specific Sections of the Credit Agreements specified
herein and shall not constitute amendments of, or an indication of the
Administrative Agent's or the Lenders' willingness to amend, any other
provisions of the Credit Agreements or the Fundamental Documents or the same
Sections for any other date or time period (whether or not such other provisions
or compliance with such Sections for another date or time period are affected by
the circumstances addressed in this Amendment).
23. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
24. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. This Amendment may be delivered by facsimile transmission of the
relevant signature pages hereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
HFS INCORPORATED
By: /s/ Terry E. Kridler
Name: Terry E. Kridler
Title: Treasurer, Senior Vice
President Planning and Budgets
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Stephanie Parker
Name: Stephanie Parker
Title: Assistant Vice President
ABN-AMRO BANK N.V. NEW YORK
By: ________________________________
Name:
Title:
By: _________________________________
Name:
Title:
BANK OF AMERICA NT&SA
By: /s/ Dale Robert Mason
Name: Dale Robert Mason
Title: Vice President
<PAGE>
THE BANK OF NEW YORK
By: /s/ Eliza S. Adams
Name: Eliza S. Adams
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Brian S. Allen
Name: Brian S. Allen
Title: Sr. Relationship Manager
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: /s/ G. Stewart
Name: G. Stewart
Title: SVP & Manager
BANQUE PARIBAS
By: /s/ Duane Helkowski
Name: Duane Helkowski
Title: Vice President
By: /s/ Mary T. Flanagan
Name: Mary T. Flanagan
Title:Vice President
<PAGE>
BAYERISCHE LANDESBANK GIRONZENTRALE
CAYMAN ISLANDS BRANCH
By: /s/ Peter Obermann
Name: Peter Obermann
Title: Senior Vice President
By: /s/ Sean O'Sullivan
Name: Sean O'Sullivan
Title: Second Vice President
BAYERISCHE VEREINSBANK AG,
NEW YORK BRANCH
By: /s/ Marianne Weinzinger
Name: Marianne Weinzinger
Title: Vice President
By: /s/ Pamela J. Gilliam
Name: Pamela J. Gilliam
Title: Assistant Treasurer
CIBC INC.
By: /s/ Timothy E. Doyle
Name: Timothy E. Doyle
Title: Managing Director, CIBC
Wood Grundy Securities Corp, as Agent
CITIBANK, N.A.
By: _________________________________
Name:
Title:
<PAGE>
COMERICA BANK
By: /s/ Dan M. Roman
Name: Dan M. Roman
Title: Vice President
CREDIT LYONNAIS NEW
NEW YORK BRANCH
By: /s/ Scott R. Chappelka
Name: Scott R. Chappelka
Title: Vice President
CREDIT SUISSE FIRST BOSTON
By: _________________________________
Name:
Title:
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK
CAYMAN ISLAND BRANCH
By: /s/ Linda J. O'Connell
Name: Linda J. O'Connell
Title: Vice President
By: Karen A. Brinkman
Name: Karen A. Brinkman
Title: Vice President
<PAGE>
FIRST HAWAIIAN BANK
By: ________________________________
Name:
Title:
THE FUJI BANK LIMITED
NEW YORK BRANCH
By: /s/ Raymond Ventura
Name: Raymond Ventura
Title: Vice President & Manager
THE INDUSTRIAL BANK OF JAPAN, LIMITED
NEW YORK BRANCH
By: /s/ John V. Veltri
Name: John V. Veltri
Title: Deputy General Manager
MELLON BANK, N.A.
By: /s/ David Smith
Name: David Smith
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Eileen C. Higgins
Name: Eileen C. Higgins
Title: Vice President
<PAGE>
THE NORTHERN TRUST COMPANY
By: /s/ Russ Rockenbach
Name: Russ Rockenbach
Title: Second Vice President
PNC BANK, N.A. (approved but not with
respect to the extension of the 364-Day
Competitive Advance and Revolving Credit
Agreement)
By: /s/ Edward M. Tessacova
Name: Edward M. Tessacova
Title: Vice President
ROYAL BANK OF CANADA
By: /s/ Sheryl L. Greenberg
Name: Sheryl L. Greenberg
Title: Senior Manager
THE SAKURA BANK, LIMITED
By: /s/ Yasumasa Kikuchi
Name: Yasumasa Kikuchi
Title: Senior Vice President
THE SANWA BANK, LIMITED
By: _________________________________
Name:
Title:
<PAGE>
THE SUMITOMO BANK, LIMITED
NEW YORK BRANCH
By: /s/ John C. Kissinger
Name: John C. Kissinger
Title: Joint General Manager
SUMMIT BANK
By: /s/ Bruce A. Gray
Name: Bruce A. Gray
Title: Vice President
THE TOKAI BANK LIMITED
NEW YORK BRANCH
By: /s/ Sinichi Kondo
Name: Sinichi Kondo
Title: Deputy General Manager
UNITED STATES NATIONAL BANK OF OREGON
By: /s/ Douglas A. Rich
Name: Douglas A. Rich
Title: Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By: /s/ Ralph White
Name: Ralph White
Title: Vice President
By: /s/ Thomas Lee
Name: Thomas Lee
Title: Associate
<PAGE>
THE YASUDA TRUST AND BANK CO., LTD.
NEW YORK BRANCH
By: /s/ Rohn Laudenschlager
Name: Rohn Laudenschlager
Title: Senior Vice President
EXHIBIT 10.2
SECOND AMENDMENT, dated as of September 26, 1997 (this Second Amendment"), to
(i) the 364-day Competitive Advance and Revolving Credit Agreement, dated as of
March 4, 1997 (as heretofore and hereafter amended, supplemented or otherwise
modified from time to time, the "364-Day Credit Agreement"), among PHH
Corporation (the "Borrower"), PHH Vehicle Management Services, Inc. (the
"Canadian Borrower"), the Lenders referred to therein, The Chase Manhattan Bank,
as agent for the US Lenders (in such capacity, the "Administrative Agent"), and
The Chase Manhattan Bank of Canada, as administrative agent for the Canadian
Lenders (in such capacity, the "Canadian Agent"; together with the
Administrative Agent, the "Agents"), and (ii) the Five Year Competitive Advance
and Revolving Credit Agreement, dated as of March 4, 1997, (as heretofore and
hereafter amended, supplemented or otherwise modified from time to time, the
"Five Year Credit Agreement"; together with the 364-Day Credit Agreement, the
"Credit Agreements"), among the Borrower, the Lenders referred to therein and
the Administrative Agent.
W I T N E S S E T H:
WHEREAS, the Borrower's parent, HFS Incorporated, plans to merge with and
into CUC International Inc.;
WHEREAS, the Borrower and the Canadian Borrower has requested that the
Lenders amend certain provisions of the Credit Agreements in connection with
such merger;
WHEREAS, the Lenders have agreed to such amendments only upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, capitalized
terms which are defined in the Credit Agreements are used herein as therein
defined.
SECTION 2. Amendment to Section 1 of each Credit Agreement. Section 1 of
each Credit Agreement is hereby amended as follows:
(a) by deleting the definition of "Acquisition" contained therein in
its entirety and inserting in lieu thereof the following definition:
"Acquisition" shall mean the acquisition by HFS of all of the
voting common stock of the Borrower pursuant to the Agreement dated as of
November 10, 1996 between HFS, the Borrower and Mercury Acq. Corp.
(b) by deleting the definition of "Change of Control" contained therein
in its entirety and substituting in lieu thereof, the following definition:
"Change of Control" shall mean, (i) the acquisition by any Person
or group (within the meaning of Securities Exchange Act of 1934, as
amended, and the rules of the Securities and Exchange Commission
thereunder as in effect on the date hereof), directly or indirectly,
beneficially or of record, of ownership or control of in excess of 50%
of the voting common stock of HFS on a fully diluted basis at any time
or (ii) at any time, individuals who upon consummation of the Merger
constituted the Board of Directors of HFS (together with any new
directors whose election by such
<PAGE>
Board of Directors or whose nomination for election by the shareholders
of HFS, as the case may be, was approved by a vote of the majority of
the directors then still in office who were either directors at the
date hereof or whose election or a nomination for election was
previously so approved) cease for any reason to constitute a majority
of the Board of Directors of HFS then in office or (iii) HFS shall
cease to own, directly or through wholly-owned Subsidiaries, all of the
capital stock of the Borrower, free and clear of any direct or indirect
Liens.
(c) by adding the following definitions in alphabetical order therein
such that the following definitions shall, in their entirety, be as
follows:
"HFS" shall mean (i) prior to the date of the consummation of the
Merger, HFS Incorporated and (ii) upon consummation of the Merger, CUC
International Inc. (to be renamed Cendant Corporation) as successor to
HFS Incorporated pursuant to the Merger.
"Merger" shall mean the merger of HFS Incorporated into CUC
International Inc. with CUC International Inc. as the surviving entity.
SECTION 3. Amendment to Section 7(h) of each Credit Agreement. Section 7(h)
of each Credit Agreement is hereby amended by deleting the word "Incorporated"
in the sixth line therein.
SECTION 4. Conditions of Effectiveness. This Second Amendment shall become
effective as of the date hereof (the "Effective Date") upon the execution and
delivery by a duly authorized officer of each of the Borrower, the Canadian
Borrower, the Agents and the Required Lenders.
SECTION 5. Representation and Warranties. The Borrower and the Canadian
Borrower represent and warrant to each Lender that as of the Effective Date,
before and after giving effect to this Second Amendment: (i) no Default or Event
of Default has occurred and is continuing; (ii) the representations and
warranties made by each of the Borrower and the Canadian Borrower in or pursuant
to the 364-Day Credit Agreement, the Five Year Credit Agreement or any
Fundamental Documents are true and correct in all material respects on and as of
the Effective Date as if made on such date (except to the extent that any such
representation and warranty expressly relates to an earlier date) and (iii) this
Second Amendment constitutes the legal, valid and binding obligation of the
Borrower and the Canadian Borrower, enforceable against each of them in
accordance with its terms, except as such enforcement may be limited to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws affecting credits' rights generally, by general equitable
principles (whether enforcement is sought by proceedings in equity or at law)
and an implied covenant of good faith and fair dealing.
SECTION 6. Continuing Effect of Credit Agreements. This Second Amendment
shall not constitute an amendment or waiver of or consent to any provision of
the Credit Agreements not expressly referred to herein and shall not be
construed as an amendment, waiver or consent to any action on the part of the
Borrower or the Canadian Borrower that would require an amendment, waiver or
consent of the Agent or the Lenders except as expressly stated herein. Except as
expressly consented to hereby, the provisions of the Credit Agreements are and
shall remain in full force and effect.
SECTION 7. Expenses. The Borrower and the Canadian Borrower agree to pay
and reimburse the Agents for all of their reasonable costs and out-of-pocket
expenses incurred in connection with the preparation, execution and delivery of
this Second Amendment and ancillary documents, including, without limitation,
the reasonable fees and disbursements of counsel to the Agents.
<PAGE>
SECTION 8. Counterparts. This Second Amendment may be executed in any
number of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all counterparts taken together shall
constitute one and the same instrument.
SECTION 9. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
PHH CORPORATION
By: __/s/ Terry E. Kridler________________
Name: Terry E. Kridler
Title: Vice President and Treasurer
PHH VEHICLE MANAGEMENT SERVICES, INC.
By: __/s/ Terry E. Kridler___________
Name: Terry E. Kridler
Title: Vice President and Treasurer
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
By: /s/ Gail Wein
Name: Gail Wein
Title: Vice President
THE CHASE MANHATTAN BANK OF
CANADA, as Canadian Agent
By: /s/ Christine Chan
Name: Christine Chan
Title: Vice President
BANK OF AMERICA NT & SA
(Successor By Merger to Bank of America
Illinois)
By: /s/ Wilson Allrecht
Name: Wilson Allrecht
Title: Vice President
BANK OF MONTREAL
By: /s/ Edward P. Mc Guire
Name: Edward P. Mc Guire
Title: Director
<PAGE>
THE BANK OF NEW YORK
By: /s/ Steven Ross
Name: Steven Ross
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Alan Edward
Name: Alan Edwards
Title: Authorized Signature
THE BANK OF TOKYO-MITSUBISHI
LIMITED, NEW YORK BRANCH
By: _________________________________
Name:
Title:
BANKERS TRUST COMPANY
By: _________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ Gerard J. Girardi
Name: Gerard J. Girardi
Title: Director, CIBC Wood Gundy
Securities Corp., as Agent
COMERICA BANK
By: _________________________________
Name:
Title:
<PAGE>
COMMERZBANK AG (NEW YORK BRANCH)
By: /s/ Subash R. Viswanathan
Name: Subash R. Viswanathan
Title: Vice President
By: /s/ Peter T. Doyle
Name: Peter T. Doyle
Title: Assistant Treasurer
CREDIT LYONNAIS NEW YORK BRANCH
By: _________________________________
Name:
Title:
DEUTSCHE BANK AG NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By: /s/ Gayma Z. Shivrarain
Name: Gayma Z. Shivrarain
Title: Vice President
By: /s/ John S. Mc Gill
Name: John S. Mc Gill
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: _________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ Kellie M. Matthews
Name: Kellie M. Matthews
Title: Vice President
<PAGE>
FIRST UNION NATIONAL BANK OF
MARYLAND
By: /s/ Ronald J. Bucci
Name: Ronald J. Bucci
Title: Vice President
THE FUJI BANK LTD. NEW YORK BRANCH
By: _________________________________
Name:
Title:
MELLON BANK, N.A.
By: /s/ Laurie G. Dunn
Name: Laurie G. Dunn
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: _________________________________
Name:
Title:
NATIONSBANK, N.A.
By: /s/ Eileen C. Higgins
Name: Eileen C. Higgins
Title: Vice President
ROYAL BANK OF CANADA
By: /s/ Sheryl L. Greenberg
Name: Sheryl L. Greenberg
Title: Senior Manager
<PAGE>
THE SUMITOMO BANK, LIMITED
NEW YORK BRANCH
By: /s/ John C. Kissinger
Name: John C. Kissinger
Title: Joint General Manager
WELLS FARGO BANK, N.A.
By: /s/ David B. Hollingsworth
Name: David B. Hollingsworth
Title: Vice President
EXHIBIT 10.4
SEPARATION AGREEMENT
dated as of
July 30th, 1997
between
HFS Car Rental, Inc.
and
Avis Rent A Car, Inc.
<PAGE>
SEPARATION AGREEMENT
SEPARATION AGREEMENT ("Agreement") dated as of July 30th, 1997 by and
between HFS Car Rental, Inc., a Delaware corporation, and an indirect wholly
owned subsidiary of HFS Incorporated (together with its successors and permitted
assigns, "Holdings"), and Avis Rent A Car, Inc., a Delaware corporation
(together with its successors and permitted assigns, "ARAC").
RECITALS
WHEREAS, ARAC and certain of its subsidiaries currently conduct the
business of owning and managing car rental operations under the service mark and
tradename "Avis" (the "Car Rental Business") primarily through certain
subsidiaries of ARAC (the "Direct Car Rental Subsidiaries"), their respective
subsidiaries and joint ventures, all as identified on Schedule 1 hereto
(collectively, the "Car Rental Subsidiaries");
WHEREAS, ARAC is presently a direct wholly owned subsidiary of Holdings
established for the purposes of taking title to the capital stock and associated
goodwill of the Direct Car Rental Subsidiaries and certain assets associated
with the Car Rental Business, and assuming certain liabilities associated with
the Car Rental Business, all as specified herein, such that ARAC will own
substantially all of the assets, business and operations currently conducted by
the Car Rental Business other than the System (as defined herein) and the
business of granting franchise rights or licenses with respect to the operation
of Avis car rental locations under the System and the Proprietary Marks (as
defined herein);
WHEREAS, the Board of Directors of Holdings has determined that it is in
the best interest of Holdings and the stockholder of Holdings to conduct a
public offering (the "Separation") of approximately 75% of ARAC Common Stock;
and
WHEREAS, the parties have determined that it is necessary and desirable
to set forth the principal corporate transactions required to effect the
Separation and to set forth other agreements that will govern certain other
matters following such Separation.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements, provisions and covenants contained in this Agreement, the parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1 Definitions. As used herein, the following terms have the
following meanings:
"Action" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or regulatory or
administrative agency or commission or any other tribunal.
"Affiliate" of any specified person means any other person that, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with such specified person.
<PAGE>
"Agreement" has the meaning specified in the Recitals.
"Ancillary Agreements" means the Master License Agreement, the Computer
Services Agreement, the Reservation Agreement, the Employee Benefits and Other
Employment Matters Allocation Agreement, the Lease Agreements, the Cost Sharing
Agreement, and the Tax Disaffiliation Agreement.
"ARAC" has the meaning specified in the Recitals.
"ARAC Bylaws" means the bylaws of ARAC in the form filed as an exhibit to
the Form S-1.
"ARAC Certificate" means the restated certificate of incorporation of
ARAC in the form filed as an exhibit to the Form S-1.
"ARAC Common Stock" means the outstanding shares of common stock, par
value $.01 per share, of ARAC.
"ARAC Liabilities" means all of (i) the Liabilities of ARAC under this
Agreement, (ii) the Assumed Liabilities, (iii) the Liabilities of ARAC arising
after the Separation Date and (iv) any liabilities for Taxes for which HFS
Incorporated is entitled to indemnification from ARAC pursuant to the Tax
Disaffiliation Agreement.
"ARAC Transferred Assets" has the meaning specified in Section 2.1.
"Assumed Liabilities" means the Liabilities arising directly or
indirectly from the operation of the Car Rental Business or the ownership or use
of assets (including the ARAC Transferred Assets) or other activities in
connection therewith whether arising before, on or after the Separation Date,
including but not limited to any Liabilities arising or in connection with or
related to (i) information contained in or omitted from the Form S-1, (ii) any
Liabilities set forth or referenced in the audited financial statements of ARAC
included in the Form S-1, (iii) all litigation relating to the Car Rental
Business, including any liability arising from the franchise agreements arising
prior to the Separation Date and (iv) the Wizard Note pursuant to the Wizard
Note Assumption and Release Agreement between Wizard Co., and ARAC and Reserve
Claims Management Co. dated as of the date hereof. Notwithstanding the
foregoing, the Assumed Liabilities shall not include (i) operating leases under
which Holdings remains liable, and (ii) liabilities related to alleged acts of
illegal discrimination against customers in the Car Rental Business which are
alleged to have occurred prior to the Separation Date.
"Car Rental Business" has the meaning specified in the first recital of
this Agreement.
"Car Rental Subsidiaries" has the meaning specified in the first recital of
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Computer Services Agreement" means the Computer Services Agreement dated
as of the date hereof between WizCom and Rent A Car, pursuant to which WizCom
has granted ARAC rights to use the Wizard
<PAGE>
System in the conduct of its car rental business and pursuant to which WizCom
receives fees in exchange therefor as such agreement may be amended from time to
time.
"Cost Sharing Agreement" means the Cost Sharing Agreement dated as of the
date hereof between WizCom and ARAC, providing for certain matters relating to
the sharing of space and support services, as such agreement may be amended from
time to time.
"Covered Claims" means any claim that is of a type covered by insurance
or self insurance of Holdings as in effect on the Separation Date and that is a
type of claim specified as a covered claim on Schedule 5.6(a).
"Direct Car Rental Subsidiaries" has the meaning specified in the first
recital of this Agreement.
"Employee Benefits Agreement" means the Employment Benefits & Other
Employment Matters Allocation Agreement dated as of the date hereof between
Holdings, HFS and ARAC, providing for certain matters relating to the allocation
of employee benefits and related matters, as such agreement may be amended from
time to time.
"Fleet Financing Program" means the approximately $3.5 billion asset-backed
fleet financing program of ARAC being structured jointly by Chase Securities
Inc. and Lehman Brothers Inc.
"Form S-1" means the registration statement on Form S-1 filed by ARAC
with the Commission to effect the registration of the ARAC Common Stock pursuant
to the Securities Act, as such registration statement may be amended from time
to time.
"Franchise Agreements" means all franchise agreements to which Holdings
or any Car Rental Subsidiary is a party, pursuant to which Holdings(either
directly or through any such Car Rental Subsidiary) has granted franchise rights
with respect to the operation of Avis car rental facilties, and in exchange
therefor, receives franchise fees, royalties, license fees and service fees.
"Guarantees" means the guarantees of Holdings listed on Schedule 3 hereto.
"HFS" means HFS Incorporated, a Delaware corporation.
"Holdings" has the meaning specified in the Recitals.
"Holdings Liabilities" means all of (i) the Liabilities of Holdings under
this Agreement, (ii) the Liabilities of Holdings (other than any ARAC
Liabilities), arising after the Separation Date, (iii) liabilities related to
alleged acts of illegal discrimination against customers in the Car Rental
Business which are alleged to have occurred prior to the Separation Date, and
(iv) any liabilities for Taxes as for which ARAC is entitled to indemnification
from HFS Incorporated pursuant to the Tax Disaffiliation Agreement.
"Holdings Transferred Assets" has the meaning specified in Section 2.1.
"Lease Agreements" means the Lease Agreements and Sublease Agreements, as
the case may be, between WizCom and Rent A Car providing for the allocation of
the executive and other offices of ARAC and WizCom, as such agreements may be
amended from time to time.
<PAGE>
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or not accrued, known or unknown, whenever arising,
including all costs and expenses (including reasonable attorney's fees) relating
thereto under any law, rule, regulation, action, order or consent decree of any
Governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
"Loss" has the meaning specified in Section 4.1.
"Master License Agreement" means the Master License Agreement dated as of
the date hereof between Rent A Car and Holdings pursuant to which Holdings has
granted franchise rights to Rent A Car with respect to the operation of Avis car
rental facilities, and in exchange therefor receives royalties, license fees and
service fees, as amended from time to time.
"New Credit Facilities" means a revolving credit facility in the amount
of up to $125 million, a term loan facility in the amount of $120 million and a
$225 million standby letter of credit facility, each with the Chase Manhattan
Bank, as agent, and the other lenders thereto.
"Rent A Car" means Avis Rent A Car System, Inc., a wholly owned
subsidiary of ARAC.
"Reservation Agreement" means the Reservation Services Agreement dated as
of the date hereof between HFS and Rent A Car pursuant to which HFS is to
provide certain reservation services to Rent A Car, as amended from time to
time.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation" has the meaning specified in the third recital of this
Agreement.
"Separation Date" means the date determined by the Board of Directors of
Holdings as the date on which the Separation shall be effected, which is
contemplated to occur on or about September 22, 1997.
"System" shall have the meaning given to such term in the Master License
Agreement.
"Tax" or "Taxes" shall have the meaning given to such term in the Tax
Disaffiliation Agreement.
"Tax Disaffiliation Agreement" means the Tax Disaffiliation Agreement
dated as of the date hereof between HFS Incorporated and ARAC providing for
certain tax related matters, as such agreement may be amended from time to time.
"Wizard Note" means the note, dated October 1996, made by Wizard Co., Inc.
in the principal amount of $194,100,000.
"WizCom" means WizCom International, Ltd., a Delaware corporation and an
indirect wholly owned subsidiary of HFS.
<PAGE>
"WizCom Transferred Assets" means the assets and agreements identified on
Schedule 4 hereto which were intended to be transferred on October 16, 1996 in
connection with the acquisition of ARAC by HFS Incorporated.
ARTICLE II
TRANSFER OF CAR RENTAL BUSINESS
Section 1 Transfer of Assets. (a) Prior to the Separation Date, Holdings
shall take or shall cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to ARAC of all of Holdings' and
its subsidiaries' rights, title and interest in the assets listed below
(collectively, the "ARAC Transferred Assets"):
(i) the shares of common stock and preferred stock, if any, of the Direct
Car Rental Subsidiaries owned by Holdings as set forth on Schedule 1
hereto; and
(ii) all books, records and files of, or relating exclusively to, the Car
Rental Business; provided, however, that Holdings shall retain access to
such books, records and files to the extent required to carry out its
obligations under the Master License Agreement.
(b) Prior to the Separation Date, ARAC shall take or shall cause to be
taken all actions necessary to cause the transfer, assignment and conveyance to
Holdings or its subsidiaries or affiliates of all of ARAC's and its
subsidiaries, rights, title and interest in the assets listed below
(collectively, the "Holdings Transferred Assets"):
(i) the System;
(ii) the Franchise Agreements identified on Schedule 2 hereto;
(iii) the WizCom Transferred Assets; and
(iv) all books, records and files of, or relating to, the System, the
Franchise Agreements identified on Schedule 2 hereto and the WizCom Transferred
Assets; provided, however, that ARAC shall retain access to such books, records
and files to the extent required to carry out its obligations under the Master
License Agreement.
Section 2 Assignment and Assumption of Liabilities. Except as set forth
in one or more of the Ancillary Agreements, from and after the Separation Date,
(i) ARAC shall, and/or shall cause its subsidiaries to, assume, pay, perform and
discharge in due course all of the ARAC Liabilities, and (ii) Holdings shall,
and/or shall cause its subsidiaries to, assume, pay, perform and discharge in
due course all of the Holdings Liabilities.
<PAGE>
Section 3 Transfers Not Effected Prior to the Separation Date. To the
extent any transfers contemplated by this Article II shall not have been fully
effected prior to the Separation Date, Holdings and ARAC shall cooperate to
effect such transfers as promptly as possible following the Separation Date.
Nothing herein shall be deemed to require the transfer of any assets or the
assumption of any Liabilities that by their terms or by operation of law cannot
be transferred or assumed; provided, however, that Holdings and ARAC and their
respective subsidiaries and Affiliates shall cooperate in seeking to obtain any
necessary consents or approvals for the transfer of all assets and Liabilities
as contemplated by this Article II. In the event that any such transfer of
assets or Liabilities has not been consummated effective as of the Separation
Date, the party retaining such asset or Liability shall thereafter hold such
assets in trust for the use and benefit of the party entitled thereto (at the
expense of the party entitled thereto) and retain such Liability for the account
of the party to whom such Liability is to be assumed pursuant hereto, and take
such other actions as may be reasonably required in order to place the parties,
insofar as reasonably possible, in the same position as would have existed had
such asset been transferred, or such Liability been assumed as contemplated
hereby. As and when any such asset or Liability becomes transferable, such
transfer and assumption shall be effected forthwith. Holdings and ARAC agree
that, as of the Separation Date, each party hereto shall be deemed to have
acquired complete and sole beneficial ownership over all of the assets, together
with all of the rights, powers and privileges incidental thereto, that such
party is entitled to acquire pursuant to the terms of this Agreement.
Section 4 No Representations or Warranties; Consents. Each of the parties
hereto understands and agrees that no party hereto is, in this Agreement or in
any other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way as to the value or freedom from
encumbrance of, or any other matter concerning, any assets of such party, or as
to the legal sufficiency to convey title to an asset transferred pursuant to
this Agreement or an Ancillary Agreement, including, without limitation, any
conveyancing or assumption instruments. It is also agreed and understood that
there are no warranties whatsoever, express or implied, given by either party to
this Agreement, as to the condition, quality, merchantability or fitness of any
of the assets, businesses or other rights transferred or retained by the
parties, as the case may be, and all such assets, businesses and other rights
shall be "as is, where is" and "with all faults" (provided that the absence of
warranties given by the parties shall not negate the allocation of Liabilities
under this Agreement and shall have no effect on any manufacturers, sellers, or
other third party warranties that are intended to be transferred with such
assets). Similarly, each party hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of any
amendatory agreements and the taking of any filings or applications contemplated
by this Agreement will satisfy the provisions of any or all applicable laws or
judgments or other instruments or agreements relating to such assets.
Notwithstanding the foregoing, the parties shall use their good faith
efforts to obtain all consents and approvals, to enter into all reasonable
amendatory agreements and to make all filings and applications contemplated by
this Agreement, and shall take all such further actions as shall be deemed
reasonably necessary to preserve for each of Holdings and ARAC, to the greatest
extent reasonably feasible, consistent with this Agreement, the economic and
operational benefits of the allocation of assets provided for in this Agreement.
In case at any time after the Separation Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary or
desirable action, provided that any financial cost shall be borne by the party
receiving the benefit of the action.
<PAGE>
Section 5 Conveyancing and Stock Assumption Instruments. In connection
with the asset and stock transfers and the assumptions of Liabilities
contemplated by this Agreement, the parties shall execute, or cause to be
executed by the appropriate entities, conveyancing and assumption instruments,
including appropriate releases and novations, in such forms as the parties shall
reasonably agree, including deeds as may be appropriate, the assignment of
trademarks and franchise rights, and the assignment and assumption of existing
lease agreements. Any transfer of capital stock shall be effected by means of
delivery of stock certificates and executed stock powers and notation on the
stock record books of the corporations, or other legal entities involved and, to
the extent required by applicable law, by notation on public registries.
ARTICLE III
THE SEPARATION
Section 1 Cooperation Prior to the Separation.
(a) Holdings and ARAC have prepared the Form S-1 which sets forth
disclosure concerning ARAC, the Separation and other matters. Holdings and ARAC
shall each use reasonable efforts to cause the Form S-1 to become effective
under the Securities Act.
(b) Holdings and ARAC shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereto that are appropriate to reflect the establishment of or
amendments to any employee benefit and other plans contemplated by the Employee
Benefits Agreement.
(c) Holdings and ARAC shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of the states or other
political subdivisions of the United States in connection with the transactions
contemplated by this Agreement.
(d) ARAC has prepared and filed a preliminary listing application with
and will pursue the approval of the application to permit listing of the ARAC
Common Stock on, the New York Stock Exchange.
Section 2 Conduct of Car Rental Business Pending Separation.
(a) Prior to the Separation Date, the Car Rental Business shall be
operated by Holdings and ARAC and its subsidiaries for the sole benefit of
Holdings and its stockholder.
(b) Prior to the Separation Date, ARAC shall have no operations or
conduct any business except as a holding company for Rent A Car and Reserve
Claims Management Co. and in preparation for the consummation of the
transactions contemplated by this Agreement.
Section 3 Holdings Board Action; Conditions Precedent to the Separation.
Holdings' Board of Directors shall, in its discretion, establish any appropriate
procedures in connection with the Separation. In no event shall the Separation
occur unless the following conditions shall, unless waived by Holdings in its
sole discretion, have been satisfied:
(a) all necessary regulatory approvals and consents of third parties shall
have been received;
<PAGE>
(b) the Form S-1 shall have been declared effective under the Securities
Act;
(c) the Fleet Financing Program and the New Credit Facilities shall be
available;
(d) ARAC's Board of Directors, as named in the Form S-1 shall have been
elected by Holdings, as sole stockholder of ARAC, and the ARAC Certificate
and ARAC Bylaws shall be in effect;
(e) the ARAC Common Stock shall have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance;
(f) Holdings' Board of Directors shall have formally approved the
Separation and shall not have abandoned, deferred or modified the
Separation at any time prior to the Separation Date;
(g) the transactions contemplated by Sections 2.1 and 2.2 and Article V
shall have been consummated in all material respects and each of the
Ancillary Agreements, in form and substance satisfactory to Holdings, shall
have been executed by the parties thereto and each of the transactions
contemplated by the Ancillary Agreements to be consummated on or prior to
the Separation Date shall have been consummated;
(h) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, shall be in effect preventing the consummation of the
Separation; and
(i) Holdings shall have been released from any liabilities, Guarantees or
other obligations with respect to any indebtedness or otherwise of ARAC or
its Subsidiaries;
provided, that the satisfaction of such conditions shall not create any
obligation on the part of Holdings to effect the Separation or in any way limit
Holdings' power of termination set forth in Section 7.1 or alter the
consequences of any such termination from those specified in such Section.
ARTICLE IV
INDEMNIFICATION
Section 1 ARAC Indemnification of Holdings. Except as otherwise expressly
provided in any of the Ancillary Agreements, from and after the Separation Date,
ARAC and its subsidiaries (the "ARAC Indemnitors") shall jointly and severally
indemnify, defend and hold harmless HFS, Holdings and their respective
subsidiaries, and each of their respective directors, officers, employees,
agents and Affiliates and each of the heirs, executors, successors and assigns
of any of the foregoing (the "Holdings Indemnitees") from and against any and
all damage, loss, liability and expense (including, without limitation,
reasonable expenses of investigation and reasonable attorneys' fees and expenses
in connection with any or all such investigations or any and all Actions or
threatened Actions) (collectively, "Losses") incurred or suffered by any of the
Holdings Indemnitees and arising out of or related to the ARAC Liabilities.
Losses shall include but not be limited to: (i) all amounts required to be
reimbursed to an insurer for insurance proceeds previously paid by such insurer
as a result of a Loss; (ii) all deductible amounts required to be paid under any
<PAGE>
insurance policybefore coverage attaches for a Loss; (iii) all amounts paid to
third parties in excess of insurance coverage; (iv) all other amounts not paid
by insurers in connection with Losses; and (v) the cost of any action against
insurers to obtain insurance coverage. Notwithstanding the foregoing, Losses
shall not include expenditures made prior to the Separation.
Section 2 Holdings Indemnification of ARAC. Except as otherwise expressly
provided in any of the Ancillary Agreements, from and after the Separation Date,
Holdings and its subsidiaries (the "Holdings Indemnitors") shall indemnify,
defend and hold harmless ARAC and its subsidiaries, and each of their respective
directors, officers, employees, agents and Affiliates and each of the heirs,
executors, successors and assigns of any of the foregoing (the "ARAC
Indemnitees") from and against any and all Losses incurred or suffered by any of
the ARAC Indemnitees and arising out of or related to the Holdings Liabilities.
Section 3 Notice and Payment of Claims. If any Holdings Indemnitee or
ARAC Indemnitee (the "Indemnified Party") determines that it is or may be
entitled to indemnification by the ARAC Indemnitors or the Holdings Indemnitors,
as the case may be (the "Indemnifying Party"), under this Article IV (other than
in connection with any Action subject to Section 4.4), the Indemnified Party
shall deliver to the Indemnifying Party a written notice specifying, to the
extent reasonably practicable, the basis for its claim for indemnification and
the amount for which the Indemnified Party reasonably believes it is entitled to
be indemnified. After the Indemnifying Party shall have been notified of the
amount for which the Indemnified Party seeks indemnification, the Indemnifying
Party shall, within 30 days after receipt of such notice, either (i) pay the
Indemnified Party such amount in cash or other immediately available funds (or
reach agreement with the Indemnified Party as to a mutually agreeable
alternative payment schedule) or (ii) object to the claim for indemnification or
the amount thereof by giving the Indemnified Party written notice setting forth
the grounds therefor. Any objection shall be resolved in accordance with Section
7.13. If the Indemnifying Party does not give such notice within such 30-day
period, the Indemnifying Party shall be deemed to have acknowledged its
liability for such claim and the Indemnified Party may exercise any and all of
its rights under applicable law to collect such amount.
Section 4 Notice and Defense of Third-Party Claims. Promptly following
the earlier of (A) receipt of written notice of the commencement by a third
party of any Action against or otherwise involving any Indemnified Party or (B)
receipt of written information from a third party alleging the existence of a
claim against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party prompt written
notice thereof. The failure of the Indemnified Party to give notice as provided
in this Section 4.4 shall not relieve the Indemnifying Party of its obligations
under this agreement, except to the extent that the Indemnifying Party is
prejudiced by such failure to give notice. Such notice shall describe the
Third-Party Claim in reasonable detail and shall indicate the amount of the Loss
that has been or will be sustained by the Indemnified Party.
(a) Within 30 days after receipt of such notice, the Indemnifying Party may
by giving written notice thereof to the Indemnified Party, (i) acknowledge
liability for and at its option elect to assume the defense of such Third-Party
Claim at its sole cost and expense or (ii) object to the claim of
indemnification for such Third-Party Claim setting forth the grounds therefor.
Any objection shall be resolved in accordance with Section 7.13. If the
Indemnifying Party does not within such 30-day period give the Indemnified Party
such notice, the Indemnifying Party shall be claimed to have acknowledged its
liability for such Third-Party Claim.
<PAGE>
(b) Any defense of a Third-Party Claim as to which the Indemnifying Party
has elected to assume the defense shall be conducted by attorneys employed by
the Indemnifying Party and reasonably satisfactory to Holdings in the case of
Holdings Indemnitees and ARAC in the case of ARAC Indemnitees. The Indemnified
Party shall have the right to participate in such proceedings and to be
represented by attorneys of its own choosing at the Indemnified Party's sole
cost and expense; provided that if the defendants or parties against which
relief is sought in any such claim include both the Indemnifying Party and one
or more Indemnified Parties and, in the reasonable judgment of Holdings in the
case of Holdings Indemnitees and ARAC in the case of ARAC Indemnitees, a
conflict of interest between such Indemnified Parties and such Indemnifying
Party exists in respect of such claim, such Indemnified Parties shall have the
right to employ one firm of counsel selected by Holdings for Holdings
Indemnities or ARAC for ARAC Indemnities and in that event the reasonable fees
and expenses of such separate counsel (but not more than one separate counsel
reasonably satisfactory to the Indemnifying Party) shall be paid by such
Indemnifying Party.
(c) If the Indemnifying Party assumes the defense of a Third-Party Claim,
the Indemnifying Party may settle or compromise the claim without the prior
written consent of the Indemnified Party; provided that without the prior
written consent of Holdings in the case of Holdings Indemnitees and ARAC in the
case of ARAC Indemnitees, the Indemnifying Party may not agree to any such
settlement unless as a condition to such settlement the Indemnified Party
receives a written release from any and all liability relating to such
Third-Party Claim and such settlement or compromise does not include any remedy
or relief to be applied to or against the Indemnified Party, other than monetary
damages for which the Indemnifying Party shall be responsible hereunder.
(d) If the Indemnifying Party does not assume the defense of a Third-Party
Claim for which it has acknowledged liability for indemnification under this
Article IV, Holdings in the case of Holdings Indemnitees and ARAC in the case of
ARAC Indemnitees may pursue the defense of such Third-Party Claim and choose one
firm of counsel in connection therewith. The Indemnifying Party is required to
reimburse Holdings or ARAC, as the case may be, on a current basis for its
reasonable expenses of investigation, reasonable attorney's fees and reasonable
out-of-pocket expenses incurred by Holdings in the case of Holdings Indemnitees
and ARAC in the case of ARAC Indemnitees in defending against such Third-Party
Claim and the Indemnifying Party shall be bound by the result obtained with
respect thereto, provided that the Indemnifying Party shall not be liable for
any settlement effected without the consent of the Indemnifying Party, which
consent shall not be unreasonably withheld.
(e) The Indemnifying Party shall pay to the Indemnified Party in cash the
amount for which the Indemnified Party is entitled to be indemnified (if any) no
later than the later of (i) the date on which the Indemnified Party makes any
payment in satisfaction (partial or otherwise) of the Third-Party Claim or (ii)
the date on which such Indemnifying Party's objection, if any, to its
responsibility for indemnification under this Article IV has been resolved
pursuant to section 7.13 or by settlement or compromise or the final
nonappealable judgment of a court of competent jurisdiction.
Section 5 Insurance Proceeds. The amount that any Indemnifying Party is
or may be required to pay to any Indemnified Party pursuant to this Article IV
shall be reduced (including, without limitation, retroactively) by any insurance
proceeds or other amounts actually recovered by or on behalf of such Indemnified
Parties in reduction of the related Loss. If an Indemnified Party shall have
received the payment required by this Agreement from an Indemnifying Party in
respect of a Loss and shall subsequently actually receive insurance proceeds, or
other amounts in respect of such Loss as specified above, then such Indemnified
Party shall pay to such Indemnifying Party a sum equal to the amount of such
<PAGE>
insurance proceeds or other amounts actually received after deducting therefrom
all of the Indemnifying Party's costs and expenses associated with such Loss.
Section 6 Contribution. If the indemnification provided for in this
Article IV is unavailable to an Indemnified Party in respect of any Loss arising
out of or related to information contained in or omitted from the Form S-1, then
the ARAC Indemnitees, in lieu of indemnifying the Holdings Indemnitees, shall
contribute to the amount paid or payable by the Holdings Indemnitees as a result
of such Loss in such proportion as is appropriate to reflect the relative fault
of ARAC, on the one hand, and Holdings, on the other hand, in connection with
the statements or omissions which resulted in such Loss. The relative fault of
the ARAC Indemnitees on the one hand and of the Holdings Indemnitees on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information concerning ARAC on the
one hand or Holdings on the other hand.
Section 7 Subrogation. In the event of payment by an Indemnifying Party
to any Indemnified Party in connection with any Third-Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the first place of
such Indemnified Party as to any events or circumstances in respect of which
such Indemnified Party may have any right or claim relating to such Third-Party
Claim. Such Indemnified Party shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right or claim.
Section 8 No Third-Party Beneficiaries. This Article IV shall inure to
the benefit of, and be enforceable by Holdings, the Holdings Indemnitees, ARAC
and the ARAC Indemnitees and their respective successors and permitted assigns.
The indemnification provided for by this Article IV shall not inure to the
benefit of any other third party or parties and shall not relieve any insurer
who would otherwise be obligated to pay any claim of the responsibility with
respect thereto or, solely by virtue of the indemnification provisions hereof,
provide any subrogation rights with respect thereto and each party agrees to
waive such rights against the other to the fullest extent permitted.
Section 9 Remedies Cumulative. The remedies provided in this Article IV
shall be cumulative and shall not preclude assertion by any Indemnified Party of
any other rights or the seeking of any and all other remedies against an
Indemnifying Party. The procedures set forth in this Article IV, however, shall
be the exclusive procedures governing any indemnity action brought under this
Article IV or otherwise relating to Losses.
Section 10 Survival of Indemnities. The obligations of each of Holdings
and ARAC under this Article IV shall survive the sale or other transfer by it of
any assets or businesses or the assignment by it of any Liabilities, with
respect to any Loss of the other related to such assets, businesses or
Liabilities.
Section 11 After-Tax Indemnification Payments. Except as otherwise
expressly provided herein or in an Ancillary Agreement, indemnification payments
made by either party under this Article shall give effect to, and be reduced by
the value of, any and all applicable deductions, losses, credits, offsets or
other items for Federal, state or other tax purposes attributable to the payment
of the indemnified liability by the Indemnified Party.
<PAGE>
ARTICLE V
CERTAIN ADDITIONAL MATTERS
Section 1 Intercompany Payables/Receivables. All intercompany amounts
payable or receivable by Holdings or ARAC shall be settled on or before the
Separation Date, other than amounts payable or receivable pursuant to the
Ancillary Agreements.
Section 2 Ancillary Agreements. On the date hereof, Holdings and ARAC shall
execute and deliver the Ancillary Agreements.
Section 3 ARAC Officers and Board of Directors. On or prior to the
Separation Date, Holdings shall take and shall cause ARAC to take all actions
necessary to appoint as officers and directors of ARAC those persons named in
the Form S-1 to constitute the officers and directors of ARAC on the Separation
Date.
Section 4 ARAC Certificate of Incorporation and By-laws. Prior to the
Separation Date, Holdings shall take all action necessary to cause the
certificate of incorporation and by-laws of ARAC to be amended and restated
substantially in the form attached to the Form S-1 as exhibits thereto.
Section 5 Credit Facilities. (a) Prior to the Separation Date, Holdings
and ARAC shall take all necessary action to replace the existing credit
facilities and fleet financing arrangements so as to release Holdings from any
liability or obligation with respect thereto from and after the Separation Date.
(b) Prior to the Separation Date, Holdings and ARAC shall take all
necessary action to obtain the Fleet Financing Program and the New Credit
Facilities.
(c) Prior to the Separation Date, ARAC and its subsidiaries shall take
all necessary action to release Holdings from any liabilities, Guarantees, or
other obligations with respect to indebtedness or other obligations of ARAC or
its subsidiaries, other than the obligations under the Ancillary Agreements.
Section 6 Insurance Policies and Claims Administration.
(a) Maintenance of Insurance Coverage Prior to Separation Date. Holdings
and ARAC shall use reasonable efforts to maintain in full force and effect at
all times up to and including the Separation Date its current property and
casualty insurance programs, including, without limitation, primary and excess
general liability, automobile, workers' compensation, property and crime
insurance policies (collectively, the "Policies" and individually, a "Policy").
Holdings and its subsidiaries shall retain with respect to any Covered Claims as
set forth on Schedule 5.6(a) relating to periods prior to the Separation Date
all of their respective rights, benefits and privileges, if any, under such
Policies. To the extent not already provided for by the terms of a Policy,
Holdings shall use reasonable efforts to cause ARAC and its subsidiaries, as
appropriate, to be named as additional insureds under such Policy in respect of
Covered Claims arising or relating to periods prior to the Separation Date;
provided, however, that nothing contain herein shall be construed to require
Holdings or any of its subsidiaries to pay any additional premium or other
charges in respect to, or waive or otherwise limit any of its rights, benefits
or privileges under, any such Policy to effect the naming of ARAC and its
subsidiaries as such additional insureds.
<PAGE>
(b) ARAC Responsible for Establishing Insurance Coverage On and After
Separation Date. Commencing on and as of the Separation Date, ARAC and each of
its subsidiaries shall be responsible for establishing and maintaining its own
separate insurance programs (including, without limitation, primary and excess
general liability, automobile, workers, compensation, property, director and
officer liability, fire, crime, surety and other similar insurance policies) for
activities and claims relating to any period on or after the Separation Date
involving ARAC or any of its subsidiaries. Notwithstanding any other agreement
or understanding to the contrary, except as set forth in Section 5.6(c) with
respect to claims administration and financial administration of the Policies,
neither Holdings nor any of its subsidiaries shall have any responsibility for
or obligation to ARAC or its subsidiaries relating to liability and casualty
insurance matters for any period, whether prior to, at or after the Separation
Date.
(c) Administration and Procedure. (i) ARAC or a subsidiary of ARAC, as
appropriate, shall be responsible for the claims administration and financial
administration of all Policies for Covered Claims relating to the assets,
ownership or operation prior to the Separation Date of the Car Rental Business;
provided, however, that such retention by ARAC of the Policies and the
responsibility for claims administration and financial administration of the
Policies are in no way intended to limit, inhibit or preclude any right to
insurance coverage for any Covered Claims under the Policies by Holdings. ARAC
or a subsidiary thereof, as appropriate, shall be responsible for all
administrative and financial matters relating to insurance policies established
and maintained by ARAC and its subsidiaries for claims relating to any period on
or after the Separation Date involving ARAC or any of its subsidiaries.
(ii) ARAC shall notify Holdings of any Covered Claim relating to ARAC or a
subsidiary thereof under one or more of the Policies relating to a period prior
to the Separation Date, and ARAC agrees to cooperate and coordinate with
Holdings concerning any strategy Holdings may reasonably elect to pursue to
secure coverage and payment for such Covered Claim by the appropriate insurance
carrier. Notwithstanding anything contained herein, in any other agreement or
applicable Policy or any understanding to the contrary, ARAC or an appropriate
subsidiary thereof assumes responsibility for, and shall pay to the appropriate
insurance carriers or otherwise, any premiums, retrospectively-rated premiums,
defense costs, indemnity payments, deductibles, retentions or other charges, as
appropriate (collectively, "Insurance Charges"), whenever arising, which shall
become due and payable under the terms and conditions of any applicable Policy
in respect of any liabilities, losses, claims, actions or occurrences, whenever
arising or becoming known, involving or relating to any of the assets,
businesses, operations or liabilities of ARAC or any of its subsidiaries, to the
extent set forth in Section 5.6(a) and any such charges that relate to the
period after the Separation Date. To the extent that the terms of any applicable
Policy provide that Holdings or a subsidiary thereof, as appropriate, shall have
an obligation to pay or guarantee the payment of any Insurance Charges, Holdings
or such subsidiary shall be entitled to demand that ARAC or a subsidiary thereof
make such payment directly to the person or entity entitled thereto. In
connection with any such demand, Holdings shall submit to ARAC or a subsidiary
thereof a copy of any invoice received by Holdings or a subsidiary pertaining to
such Insurance Charges, together with appropriate supporting documentation, if
available. In the event that ARAC or its subsidiary fails to pay any Insurance
Charges when due and payable, whether at the request of the party entitled to
payment or upon demand by Holdings or a subsidiary of Holdings, Holdings or a
subsidiary of Holdings may (but shall not be required to) pay such Insurance
Charges for and on behalf of ARAC or its subsidiary and, thereafter, ARAC or its
subsidiary shall forthwith reimburse Holdings or such subsidiary of Holdings for
such payment.
<PAGE>
ARTICLE VI
ACCESS TO INFORMATION
Section 1 Provision of Corporate Records. Each of Holdings and ARAC shall
arrange as soon as practicable following the Separation Date for the provision
to the other of existing corporate governance documents (e.g. minute books,
stock registers, stock certificates, documents of title, etc.) in its possession
relating to the other or to its business and affairs.
Section 2 Access to Information. From and after the Separation Date, each
of Holdings and ARAC shall afford the other, including its accountants, counsel
and other designated representatives, reasonable access (including using
reasonable efforts to give access to persons or firms possessing information)
and duplicating rights during normal business hours to all records, books,
contracts, instruments, computer data and other data and information in such
party's possession relating to the business and affairs of the other (other than
data and information subject to an attorney/client or other privilege), insofar
as such access is reasonably required by the other party including, without
limitation, for audit, accounting and litigation purposes, as well as for
purposes of fulfilling disclosure and reporting obligations.
Section 3 Litigation Cooperation. Each of Holdings and ARAC shall use
reasonable efforts to make available to the other, upon written request, its
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any legal, administrative
or other proceedings arising out of the business of the other prior to the
Separation Date in which the requesting party may from time to time be involved.
Section 4 Reimbursement. Each party providing witnesses under Section 6.3
to the other shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payment for all out-of-pocket costs and
expenses as may be reasonably incurred in providing such witnesses.
Section 5 Retention of Records. Except as otherwise required by law or
agreed to in writing, each party shall, and shall cause each of its respective
subsidiaries to, retain all information relating to the other party's business
in accordance with the past practice of such party. Notwithstanding the
foregoing, except as provided in the Tax Disaffiliation Agreement, any party may
destroy or otherwise dispose of any information at any time, providing that,
prior to such destruction or disposal, (a) such party shall provide no less than
30 days prior written notice to the other party, specifying the information
proposed to be destroyed or disposed of and (b) if the recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the information as
was requested at the expense of the requesting party.
Section 6 Confidentiality. Each party shall hold and shall cause its
directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other requirements of law, all
information (other than any such information relating solely to the business or
affairs of such party) concerning the other party (except to the extent that
such information can be shown to have been (a) in the public domain through no
fault of such party, (b) later lawfully acquired on a non-confidential basis
from other sources by the party to which it was furnished, (c) information that
typically would have been disclosed by Holdings or ARAC, as
<PAGE>
the case may be, in the ordinary course of business consistent with past
practice or (d) information that may be disclosed pursuant to any Ancillary
Agreement). Neither party shall release or disclose any such information to any
other person, except its auditors, attorneys, financial advisors, bankers and
other consultants and advisors who shall be advised of and agree to comply with
the provisions of this Section 6.6; provided, that with respect to the matters
identified on Schedule 6.6 hereof, no information may be disclosed by either
party under any circumstance without the prior written consent of the other
party hereto.
Section 7 Mail. After the Separation Date, each of Holdings and ARAC may
receive mail, telegrams, packages and other communications property belonging to
the other. Accordingly, at all times after the Separation Date, each of Holdings
and ARAC authorizes the other to receive and open all mail, telegrams, packages
and other communications received by it and not unambiguously intended for the
other party or any of the other party's officers or directors specifically in
their capacities as such, and to retain the same to the extent that they relate
to the business of the receiving party or, to the extent that they do not relate
to the business of the receiving party and do relate to the business of the
other party, or to the extent that they relate to both businesses, the receiving
party shall promptly contact the other party by telephone for delivery
instructions and such mail, telegrams, packages or other communications (or, in
case the same relate to both businesses, copies thereof) shall promptly be
forwarded to the other party in accordance with its delivery instructions. The
foregoing provisions of this Section 6.7 shall constitute full authorization to
the postal authorities, all telegraph and courier companies and all other
persons to make deliveries to Holdings or ARAC, as the case may be, addressed to
either of them or to any of their officers or directors specifically in their
capacities as such. The provisions of this Section 6.7 are not intended to and
shall not be deemed to constitute an authorization by either Holdings or ARAC to
permit the other to accept service of process on its behalf, and neither party
is or shall be deemed to be the agent of the other for service of process
purposes or for any other purpose.
ARTICLE VII
MISCELLANEOUS
Section 1 Termination. This Agreement may be terminated and the
Separation deferred, modified or abandoned at any time prior to the Separation
Date by and in the sole discretion of the Board of Directors of Holdings without
the approval of ARAC. In the event of such termination, no party shall have any
liability to any other party pursuant to this Agreement.
Section 2 Expenses. Except as specifically provided in this Agreement or
in an Ancillary Agreement, all costs and expenses incurred in connection with
the interpretation, execution, delivery and implementation of this Agreement and
with the consummation of the transactions contemplated by this Agreement shall
be paid by the party incurring the expense. The determination of who has
incurred an expense shall be made by the Chief Financial Officer of Holdings or
HFS, which determination shall be binding and final upon each of the parties
hereto and not subject to further review. In addition, it is understood and
agreed that ARAC shall pay the legal, filing, accounting, printing and other
out-of-pocket expenditures in connection with (i) the preparation, printing and
filing of the Form S-1, (ii) obtaining the Fleet Financing Program and (iii)
obtaining the New Credit Facilities.
<PAGE>
Section 3 Notices. All notices and communications under this Agreement
shall be in writing and any communication or delivery hereunder shall be deemed
to have been duly given when received addressed as follows:
If to Holdings, to:
HFS Car Rental, Inc.
c/o HFS Incorporated
6 Sylvan Way
Parsippany, NJ 07054
Attn: General Counsel
Telecopy Number: (973) 428-6057
If to ARAC, to:
Avis Rent A Car, Inc.
900 Old Country Road
Garden City, NY 11530
Attn: General Counsel
Telecopy Number: (516) 222-3751
Any party may, by written notice so delivered to the other parties, change the
address to which delivery of any notice shall thereafter be made.
Section 4 Amendment and Waiver. This Agreement may not be altered or
amended, nor may rights hereunder be waived, except by an instrument in writing
executed by the party or parties to be charged with such amendment or waiver. No
waiver of any terms, provision or condition of or failure to exercise or delay
in exercising any rights or remedies under this Agreement, in any one or more
instances shall be deemed to be, or construed as, a further or continuing waiver
of any such term, provision, condition, right or remedy or as a waiver of any
other term, provision or condition of this Agreement.
Section 5 Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same Agreement.
Section 6 Governing Law; Jurisdiction; Forum. This Agreement shall be
construed in accordance with, and governed by, the laws of the State of New
York, without regard to the conflicts of law rules of such state. Each party
hereto expressly submits and consents in advance to the non-exclusive
jurisdiction of the State and Federal courts sitting in the City of New York,
Borough of Manhattan, State of New York, in any action to enforce an arbitration
agreement or award, or action seeking a pre-arbitral injunction, pre-arbitral
attachment or other order in aid of arbitration, and hereby waives any claim
that any such state or federal court is an inconvenient or improper forum.
Section 7 Entire Agreement. This Agreement including the schedules
hereto, together with the Ancillary Agreements, constitute the entire
understanding of the parties hereto with respect to the subject matter hereof,
superseding all negotiations, prior discussions and prior agreements and
understandings relating
<PAGE>
to such subject matter. To the extent that the provisions of this Agreement are
inconsistent with the provisions of any Ancillary Agreements, the provisions of
such Ancillary Agreement shall prevail.
Section 8 Parties in Interest. Neither of the parties hereto may assign
its rights or delegate any of its duties under this Agreement without the prior
written consent of each other party. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. Nothing contained in this Agreement, express
or implied, is intended to confer any benefits, rights or remedies upon any
person or entity other than Holdings and ARAC, and Holdings Indemnitees and ARAC
Indemnitees under Article IV hereof.
Section 9 Tax Disaffiliation Agreement. Notwithstanding any other
provision of this Agreement to the contrary, any and all matters relating to
Taxes shall be exclusively governed by the Tax Disaffiliation Agreement.
Section 10 Further Assurances and Consents. In addition to the actions
specifically provided for elsewhere in this Agreement, each of the parties
hereto will use its reasonable efforts to (i) execute and deliver such further
instruments and documents and take such other actions as any other party may
reasonably request in order to effectuate the purposes of this Agreement and to
carry out the terms hereof and (ii) take, or cause to be taken, all actions, and
to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, using its reasonable efforts to obtain any
consents and approvals and to make any filings and applications necessary or
desirable in order to consummate the transactions contemplated by this
Agreement; provided that no party hereto shall be obligated to pay any
consideration therefor (except for filing fees and other similar charges) to any
third party from whom such consents, approvals and amendments are requested or
to take any action or omit to take any action if the taking of or the omission
to take such action would be unreasonably burdensome to the party or its
business.
Section 11 Exhibits and Schedules. The Exhibits and Schedules shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
Section 12 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each party hereto
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 13 Dispute Resolution. (a) Resolution of any and all disputes
arising out of or relating to this Agreement or any of the Ancillary Agreements,
whether based on contract, tort, statute or otherwise, including, but not
limited to, disputes over arbitrability (collectively, "Disputes") shall be
exclusively governed by and settled in accordance with the provisions of this
Section 7.13; provided, however, that nothing contained herein shall preclude
either party from seeking or obtaining (a) injunctive relief or (b) equitable or
other judicial relief to enforce the provisions hereof or to preserve the status
quo pending resolution of Disputes hereunder.
<PAGE>
(b) Holdings or ARAC (each a "Party") may commence proceedings hereunder
by delivering a written notice to the other Party providing a reasonable
description of the Dispute to the other (the "Demand").
(c) Within 10 days following receipt by a Party of a Demand, the Dispute
shall be referred to representatives of the parties for resolution, each party
being represented by a senior executive officer who has no direct operational
responsibility for the matters contemplated by this Agreement (the
"Representatives"). The Representatives shall promptly meet in a good faith
effort to resolve the Dispute. If the Representatives do not agree upon a
resolution within thirty (30) calendar days after receipt by a Party of a
Demand, each of Holdings and ARAC shall be free to exercise the remedies
available to them under Section 7.13(d).
(d) The Parties hereby agree to submit all Disputes not resolved by
negotiation pursuant to Section 7.13(c) for resolution by arbitration under the
terms hereof, which arbitration shall be final, conclusive and binding upon the
parties, their successors and assigns. Except as expressly provided otherwise in
this Agreement, the arbitration shall be conducted in New York, New York by
three arbitrators (the "Panel") in accordance with the JAMS/Endispute
Comprehensive Arbitration Rules and Procedures then in effect as amended herein.
The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
ss. 1, et seq. Notwithstanding the foregoing (a) each Party shall have the right
to examine the books and records of the other Party that are reasonably related
to the Dispute; (b) each Party shall provide to the other, reasonably in advance
of any hearing, copies of all documents which a Party intends to present in such
hearing; (c) each party shall be allowed to conduct reasonable discovery through
written requests for information, document requests, requests for stipulation of
fact, and depositions, the nature and extent of which discovery shall be
determined by the Panel, taking into account the needs of the Parties and the
desirability of making discovery expeditious and cost effective. The Panel shall
complete all hearings not later than ninety (90) days after its appointment. The
award shall be in writing and shall specify the facts and law on which it is
based. The arbitrators shall not be empowered to award to any party any
consequential damages, lost profits or punitive damages in connection with any
Dispute and each party hereby irrevocably waives any right to recover such
damages. Judgment upon any award may be entered in any court having jurisdiction
thereof.
Section 14 Titles and Headings. Titles and headings to sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the day and year first above written.
HFS CAR RENTAL, INC.
y:__________________
Name
Title:
AVIS RENT A CAR, INC.
By:____________________
Name:
Title:
<PAGE>
Schedule 1
AVIS RENT A CAR, INC.
SUBSIDIARIES
Avis Rent A Car, Inc. f/k/a
Delaware
Rental Car System Holdings, Inc.
Subsidiaries (100% owned):
Avis Rent A Car System, Inc. - Delaware
Subsidiaries (100% owned):
1.Avis International, Ltd. - Delaware
Subsidiaries (100% owned):
( a ) Avis Management Pty. Limited - Australia
Subsidiary (100% owned):
-We Try Harder Pty. Limited - Australia
-Chaconne Pty. Limited - Australia
-W.T.H. Pty. Limited - Australia
Subsidiaries:
-Auto Accident Consultants Pty. Limited - Australia
(100% owned)
-W.T.H. Fleet Leasing Pty. Limited - Australia
(ownership shared with parent)
-Avis Services Pty. Ltd. - Australia
(100% owned)
( b ) Avis Management Services, Limited - Delaware
<PAGE>
( c ) Arbitra S.A. - Argentina
( d ) Avis Caribbean, Limited - Delaware
Subsidiaries (100% owned):
-Avis Rent A Car de Puerto Rico, Inc. - Puerto Rico
-Virgin Islands Enterprises, Inc. - Virgin Islands
( e ) Avis Asia and Pacific, Limited - Delaware
Subsidiary (100% owned)
-Avis Rent A Car Limited - New Zealand
subsidiary (100% owned)
- Altra Auto Rental Limited - New Zealand
( f ) WTH Canada, Inc. - Canada
Subsidiary (100% owned):
-Aviscar Inc. - Canada
subsidiary ( 100% owned)
- Avis Services Canada, Inc. - Canada
( g ) Avis Rent A Car (Hong Kong) Ltd. - Hong Kong
Subsidiaries (less than 100% owned):
National Car Rentals (Private) Limited (29% owned)* Singapore
Sistem Sewa Kereta Malaysia Sdn. Bhd. (25% owned)* Malaysia
-----------
*By agreement with Avis Europe Limited ("AEL"), shares in these companies
will be transferred to AEL as soon as the other shareholders consent to such
transfer.
Avis International, Ltd.
Subsidiaries (less than 100% owned):
<PAGE>
West Indies Car Rental Limited (49% owned) - Jamaica
2. Avis Enterprises, Inc. f/k/a Avis Leasing Corporation - Delaware
Subsidiaries (100% owned)
( a) Avis Service, Inc. - Delaware
( b ) Avis Lube, Inc. - Delaware
3. Pathfinder Insurance Company - Colorado
4. PF Claims Management, Ltd. - Delaware
5. Avis Leasing Corporation - Delaware
6. Zam, Inc. - West Virginia
7. Global Excess & Reinsurance Ltd. - Bermuda
8. Constellation Reinsurance Company Limited - Barbados
9. We Try Harder Japan Co., Ltd. - Japan
10. Servicios Avis S.A. - Mexico
11. Avis Rent A Car Limited - Fiji
12. Avis Rent A Car Sdn. Bhd. - Malaysia
13. Avis Rent A Car Sdn. Bhd.- Singapore
14. Avis Rent A Car Limited - Vanuatu
Avis Rent A Car, Inc. f/k/a
Rental Car System Holdings, Inc.
Subsidiaries (less than 100% owned):
Reserve Claims Management Co. f/k/a Avis Leasing - Delaware
International, Ltd.
<PAGE>
JOINT VENTURES
Sistem Sewa Kereta Malaysia Sdn. Bhd.
40 Jalan Sultan Ismail
50250 Kuala Lumpur
Malaysia
Capitalization: Authorized: 5,000,000
Issued: 2,000,000
Shareholders: Avis Rent A Car (Hong Kong) Ltd.
25%
Melewar Leisure Sdn. Bhd.
75%
West Indies Car Rental Ltd.
3 Oxford Road
Kingston 3
Jamaica, West Indies
Capitalization Authorized: 100,000 shares at $0.10
Issued: 100,000 shares Jamaican
Shareholders: Hilsons Limited: 50,000
Avis International, Ltd. 49,000
Peter George Mais, Esq. 1,000
National Car Rentals (Private) Limited
325 Telok Blangah Road
Singapore 0409
Capitalization Authorized: 900,000 ordinary shares at $1.00
Issued: 810,000
Shareholders: Avis Rent A Car (Hong Kong) Ltd. 234,000
Goodwood Hotels Corporation (Pte) Ltd. 180,000
Herbie Lim Pte. Ltd. 63,000
Straits Steamship Co. Ltd. 333,000
<PAGE>
Schedule 2
TERRITORIES OF OTHER SYSTEM LICENSEES
AVIS RENT A CAR SYSTEM, INC.
FRANCHISED LICENSEE LOCATIONS
REVISED 7/1/97
"1955" Type Franchise Agreements 292
"1992" Type Franchise Agreements 17
Letter Agreements (1955) Type 3
Agency Agreements (1955) Type 1
"1955" Type Truck Franchise Agreements 134
CITY-STATE ........... DATE TYPE
-------------- ------ ------
1 Birmingham, AL Sep-59 B
Anniston, AL ... Nov-69 C
Tuscaloosa, AL . Mar-66 B
Columbus, GA ... Aug-83 C
2 Dothan, AL May-74 C
3 Huntsville, AL Apr-56 B
Decatur, AL .... Feb-64 B
Florence, AL ... Apr-87 C
4 Mobile, AL May-63 C
Point Clear, AL .. Aug-69 C
5 Montgomery, AL Oct-51 B
Columbia, SC ... Oct-59 B
Camden, SC ..... Sep-61 B
Sumter/Selma, AL Oct-73 C
Greenville, AL . Feb-79 C
Macon, GA ...... May-96 New Agreement
<PAGE>
CITY-STATE ............ DATE TYPE
---------- ------ -------------
Greenwood, SC ... May-96 New Agreement
6 Little Rock, AR Sep-52 B
El Dorado, AR ... May-68 B
Fayetteville, AR Oct-70 C
Fort Smith, AR .. Sep-64 B
Harrison, AR .... Jun-75 C
Hot Springs, AR . Jan-62 B
Jonesboro, AR ... Dec-61 C
Pine Bluff, AR .. Dec-55 B
Stuttgart, AR ... Nov-56 C
Texarkana, AR ... May-72 C
Savannah, GA .... Jan-87 B
Midland, TX ..... Dec-90 B
Abilene, TX ..... Dec-90 B
San Angelo, TX .. Dec-90 C
Clovis, NM ...... Dec-90 C
Albany, GA ...... Apr-94 B
7 Los Angeles, CA Jan-53 C
Arcadia, CA ..... Oct-79 C
Alhambra, CA .... Oct-79 C
Azusa, CA ....... Oct-79 C
Bakersfield, CA . Oct-78 B
Beverly Hills, CA May-56 C
Bishop, CA ...... Aug-76 C
Burbank, CA ..... Jan-56 C
Coronado, CA .... May-56 C
Culver City, CA . Jun-61 C
<PAGE>
CITY-STATE ............. DATE TYPE
- ------------------------ ------ ----
Disneyland, CA ... Aug-61 C
Glendale, CA ..... May-56 C
Glendora, CA ..... Oct-79 C
Imperial, CA ..... Jul-80 C
Lancaster, CA .... Jan-56 C
Lennox, CA ....... Dec-77 C
Long Beach, CA ... Jan-56 C
Marina Del Rey, CA Feb-78 C
Monrovia, CA ..... Oct-79 C
Montebello, CA ... Oct-79 C
Monterey Parks, CA Oct-79 C
Oceanside, CA .... Sep-78 B
Oxnard, CA ....... Jul-60 C
Palm Desert, CA .. Jul-74 C
Palm Springs, CA . May-56 C
Pasedena, CA ..... Jan-56 C
Pico Rivera, CA .. Oct-79 C
Ridgecrest, CA ... Sep-72 B%
San Diego, Ca .... Jan-56 C
Santa Barbara, CA Jan-56 C
Santa Monica, CA . Jan-56 C
South Gate, CA ... Jun-61 C
Thousand Oaks, CA Jan-75 C
Van Nuys, CA ..... Nov-67 C
Ventura, CA ...... Mar-61 C
Vernon, CA ....... Jun-61 C
Victorville, CA .. Sep-72 B
<PAGE>
CITY-STATE .......... DATE TYPE
--------------------- ------ -----
West Covina, CA Oct-79 C
Whittier, CA .. Oct-79 C
Yuma, AZ ...... Jul-80 B
Las Vegas, NV . Jan-56 B
Barstow, CA ... Nov-87 B
8 McKinleyville, CA Jul-93 C
9 St. Simons Island, GA May-61 C
Brunswick, GA . May-61 C
10 Valdosta, GA Nov-77 C
11 Galesburg, IL Mar-82 C
12 Evansville, IN Sep-54 B
13 Valparaiso, IN Feb-71 B
14 Burlington, IA Dec-73 C
15 Cedar Rapids, IA Nov-60 C
16 Davenport, IA May-68 C
Dubuque, IA ... Jan-75 C
Waterloo, IA .. May-78 C
Peoria, IL .... Jan-87 B
Bloomington, IL Jan-87 C
Champaign, IL . Jan-87 B
Decatur, IL ... Jan-87 B
Pekin, IL ..... Jan-87 C
Springfield, IL Jan-87 B
Danville, IL .. Jan-87 B
17 Dex Moines, IA Jan-63 C
18 Sioux City, IA May-90 C
19 North Platte, NE Apr-89 C
CITY-STATE .............. DATE TYPE
----------------- ------ -------------
20 Salina, KS Dec-94 C
Hays, KS .......... Dec-96 C
Great Bend, KS .... Feb-96 C
Independence, KS .. Dec-95 New Agreement
Topeka, KS ........ Dec-95 New Agreement
McPherson, KS ..... Dec-95 New Agreement
21 Garden City, KS Aug-85 C
Liberal, KS ....... Feb-84 C
22 Lexington, KY Sep-56 B
Frankfort, KY ..... Dec-61 B
23 Alexandria, LA Jan-78 C
Gulfport, MS ...... Feb-84 C
24 Shreveport, LA Aug-54 B
Monroe, LA ........ Jun-57 B
25 Presque Isle, ME Jun-73 C
26 Alpena, MI Aug-71 C
Salt Ste. Marie, MI Jun-74 B
27 Hancock, MI Apr-56 C
28 Iron Mountain, MI Jun-60 C
29 Kalamazoo, MI Feb-72 C
Benton, MI ........ Aug-76 C
Traverse City, MI . Jun-73 C
30 Pellston, MI Aug-89 C
Charlevoix, MI .... Jun-91 C
Gaylord, MI ....... Aug-91 C
31 Duluth, MN Jan-65 B
Rhinelander, WI ... May-85 C
<PAGE>
CITY-STATE .................. DATE TYPE
--------------- ------ -------------
International Falls, MN Apr-95 New Agreement
Bemidji, MN ........... Apr-95 New Agreement
Hibbing, MN ........... Apr-95 New Agreement
Eveleth, MN ........... Apr-95 New Agreement
Marquette, MI ......... Jun-96 New Agreement
Brainerd, MN .......... Jun-96 New Agreement
32 Rochester, MN Dec-60 B
Stevens Point, WI ..... Aug-81 C
Eau Claire, WI ........ Aug-81 C
Land O'Lakes, WI ...... Aug-81 C
Marshfield, WI ........ Aug-81 C
Wausau, WI ............ Aug-81 C
33 Springfield, MO Mar-70 C
Branson, MO ........... Apr-78 C
Joplin, MO ............ May-84 C
34 Butte, MT Jan-87 C
Helena, MT ............ Jan-90 C
Glacier Park, MT ...... May-94 C
Great Falls, MT ....... May-94 C
35 Glendive, MT Jul-87 C
Sidney, MT ............ Jul-87 C
36 Missoula, MT Sep-89 C
Kalispell, MT ......... Sep-89 C
Billings, MT .......... Feb-95 C
37 McCook, NE Aug-72 C
38 Manchester, NH Jun-75 C
Hampton, NH ........... Apr-78 C
<PAGE>
CITY-STATE DATE TYPE
----------------------- ----- ------------------
Nashua, NH ....... Jun-75 C
Salem, NH ........ Jun-76 C
Brattleboro, VT .. Jul-76 C
Merrimack, NH .... May-82 Letter Agreement
Laconia, NH ...... Oct-82 Letter Agreement
Keene, NH ........ Dec-89 C
39 Matawan, NJ Nov-64 B
Freehold, NJ ..... Oct-60 B
Lakewood, NJ ..... Oct-60 B
Point Pleasant, NJ Oct-60 B
Port Monmouth, NJ Nov-64 B
Sayreville, NJ ... Dec-62 B
Toms River, NJ ... Oct-60 B
Red Bank, NJ ..... Jun-91 B
Eatontown, NJ .... May-93 New Agreement
Wall, NJ ......... Apr-95 New Agreement
40 Piscataway (Plain), NJ Jun-57 B
Cranford, NJ ..... Feb-58 B
Dover, NJ ........ Dec-61 B
East Orange, NJ .. Aug-74 (Truck) T
Flemington, NJ ... Jun-62 B
Fort Lee, NJ ..... Jun-61 T
Hackettstown, NJ . Dec-61 B
Linden, NJ ....... Aug-60 B
Madison, NJ ...... May-65 B
Millburn, NJ ..... Aug-74 B
Montclair, NJ .... Jul-61 B
<PAGE>
CITY-STATE DATE TYPE
---------- ------ -----
Morristown, NJ ..... Aug-60 B
New Brunswick, NJ .. Apr-60 B
Oakland, NJ ........ Aug-74 (Truck) T
Troy Hills, NJ ..... Aug-74 B
Perth Amboy, NJ .... Aug-60 B
Rahway, NJ ......... Sep-60 B
Ridgefield, NJ ..... Jul-61 B
Ridgewood, NJ ...... Jul-61 B
Saddle Brook, NJ ... Aug-74 (Truck) T
Somerville, NJ ..... Mar-58 B
Springfield, NJ .... Aug-74 B
Roxbury, NJ ........ Aug-74 B
Summit, NJ ......... May-61 B
Union, NJ .......... Jan-60 B
Port Jervis, NJ .... Dec-61 B
West Orange, NJ .... Aug-81 C
41 Roswell, NM Feb-84 C
Santa Fe, NM ....... Apr-65 C
Los Alamos, NM ..... Apr-66 C
Alamogordo, NM ..... Apr-95 New Agreement
42 Albany, NY Dec-64 B
Schenectady, NY .... Dec-64 B
Troy, Watervliet, NY Dec-64 B
Rutland, VT ........ Sep-91 C
Hanover, NH ........ Oct-95 B
Springfield, VT .... Aug-96
43 Plattsburgh, NY Sep-82 C
<PAGE>
CITY-STATE DATE TYPE
-------------------- ------ -----
Lake Placid, NY .. Sep-82 B
44 White Plains, NY Jan-61 B
Larchmont, NY .... Jan-61 B
Mamaroneck, NY ... May-76 B
Rye, Tarrytown, NY Jan-61 B
Scarsdale, NY .... Jan-61 B
45 Wilmington, NC Nov-71 B%
Florence, SC ..... Sep-74 B%
Rocky Mount, NC .. Sep-86 B
Goldsboro, NC .... Sep-86 B
Greenville, NC ... Sep-86 C
Kinston, NC ...... Sep-86 B
Jacksonville, NC . Sep-86 C
Morehead City, NC Sep-86 B
New Bern, NC ..... Sep-86 B
46 Bismarck, ND Oct-64 B
47 Fargo, ND Oct-71 C
48 Grand Forks, ND Dec-88 C
49 Jamestown, ND Dec-85 C
50 Minot, ND Jan-81 C
Williston, ND .... Jun-81 C
Aberdeen, SD ..... Jul-77 C
51 Cambridge, OH Jan-87 C
52 Lima, OH Dec-82 C
53 Enid, OK Jul-63 C
54 Medford, OR Dec-91 C
55 Harrisburg, PA Sep-66 B%
<PAGE>
CITY-STATE ............. DATE TYPE
----------------------- ------ -------------
State College, PA Mar-94 New Agreement
Mechanicsburgh, PA Mar-94 New Agreement
Hershey, PA ...... Mar-94 New Agreement
56 Lancaster, PA Mar-57 C
57 New Kensington, PA Apr-59 B
Monroeville, PA .. Apr-59 B
Oakmont, PA ...... Feb-61 B
Vandergrift, PA .. Feb-61 T
Wilkensburg, PA .. Feb-61 B
58 Greensburg, PA Jul-88 B
Waltz Mills, PA .. Feb-92 Agency Agreement
59 Pierre, SD Apr-79 C
60 Rapid City, SD Feb-92 C
Sioux Falls, SD .. Aug-95 C
61 Kingsport, TN Apr-81 B%
Greenville, TN ... Oct-81 C
62 Nashville, TN Jun-65 C
Chattanooga, TN .. Jun-65 C
Knoxville, TN .... Oct-76 C
Memphis, TN ...... Jun-65 C
Olive Branch, MS . Jul-76 C
63 Amarillo, TX Jan-78 B
Lubbock, TX ...... Jun-75 B
64 Corpus Christi, TX Jan-56 B
Brownsville, TX .. Jan-56 B
Harlingen, TX .... Jan-56 B
McAllen, TX ...... Jan-56 B
<PAGE>
CITY-STATE ................ DATE TYPE
-------------- ------ ----
Rockport, TX ........ Apr-81 C
S. Padre Island, TX . May-79 C
Victoria, TX ........ Feb-56 B
Laredo, TX .......... Dec-92 B
65 Dallas, TX Jan-56 B
Austin, TX .......... Apr-56 B
Fort Worth, TX ...... Mar-56 B
San Antonio, TX ..... Jul-57 B
66 Ogden, UT Apr-94 B
67 St. George, UT Oct-74 C
Cedar City, UT ...... Sep-77 C
Page, AZ ............ May-75 C
Vernal, UT .......... Feb-82 C
Ely, NV ............. Mar-82 Letter Agreement
Elko, NV ............ Oct-79 C
68 Burlington, VT Feb-63 C
69 Richmond, VA Mar-56 B
Charlottesville, VA . Sep-58 B
Harrisonville, VA ... Jul-65 B
Lynchburg, VA ....... Dec-61 B
Newport, VA ......... May-57 B
Petersburg, VA ...... Jul-65 B
Waynesboro, VA ...... Apr-60 B
Salisbury, MD ....... May-87 B%
Cambridge, Easton, MD May-87 C
Dover, DE ........... May-87 B%
Seaford, DE ......... May-87 C
<PAGE>
CITY-STATE .............. DATE TYPE
------------ ------ ------
70 Roanoke, VA Apr-79 B
Bluefield, WV ..... Feb-81 C
W. Sulpher Sprs, WV Dec-81 C
Clarksburg, WV .... Aug-83 B
Fairmount, WV ..... Aug-83 B
Morgantown, WV .... Aug-83 B
Columbus, MS ...... Oct-86 C
Paducah, KY ....... Aug-77 C
Greenville, MS .... Jan-90 C
Longview, TX ...... Feb-90 C
Tyler, TX ......... Feb-90 C
Killeen, TX ....... Mar-91 C
College Station, TX Jan-91 C
Temple, TX ........ Mar-91 C
Waco, TX .......... Oct-90 C
Meridan, MS ....... Sep-91 B
71 Appleton, WI Oct-58 C
Green Bay, WI ..... Jul-63 C
Madison, WI ....... Jun-72 C
Wisconsin Dells, WI Apr-78 C
Menominee, MI ..... Jan-73 C
Sturgeon Bay, WI .. Sep-68 C
LaCrosse, WI ...... Mar-85 C
72 Casper, WY Jul-65 C
Laramie, WY ....... Jul-76 C
Riverton, WY ...... Dec-69 B
Cody, WY .......... Mar-89 B
<PAGE>
CITY-STATE ........ DATE TYPE
------------- ------ ----
73 Sheridan, WY Jul-78 B
Gillette, WY Jul-78 B%
74 Anchorage, AK Apr-56 B%
Fairbanks, AK Apr-56 B%
Juneau, AK .. Apr-56 B%
Kodiak, AK .. Apr-56 B%
75 Craig, CO Sep-68 T
76 Kelso, WA Feb-69 T
<PAGE>
<TABLE>
<CAPTION>
ARACS LICENSEES - CAR RENTAL
Country Expiration
Caribbean Licensee Name Address Date
- ----------------- -------------------------------------- ---------------------------------------------- ----------
<C> <C> <C> <C>
Anguilla Apex Car Rental, Ltd. P.O. Box 93, The Valley, Anguilla 31 DEC 02
Antigua Gomes Enterprises, Ltd. P.O. Box 849, St. John's 31 DEC 99
Aruba ASHA, N.V. P.O. Box 254, Oranjestad 31 DEC 98
Bahamas Windsor Servicentor, Ltd. One West Bay, P.O. Box CB 13999, Nassau YTY
Bonaire Drive Yourself(Bonaire), N.V. Strocofa, Zeelandia, Curacao 31 DEC 97
Cayman Brac T&D Auto Rentals P.O. Box 400, Georgetown, Grand Cayman, Cayman 31 DEC 01
Islands
Curacao Drive Yourself (Curacao), N.V. Stracoba, Zeelandia 31 DEC 97
Dominica A.C. Shillingford & Co., Ltd. P.O. Box 123, Roseau 31 DEC 99
Dominican Rep. Servicolt C. por A. P.O. Box 176-9, Santo Domingo 31 DEC 97
French Guiana Cefber, S.A.R.L. 7, lot La Desireee, 97351, Matoury 31 DEC 00
Grand Cayman David Foster/Stephen Foster P.O. Box 400, Airport Road, Georgetown 31 DEC 01
(Partnership)
Grenada Spice Isle Rentals, Ltd. P.O. Box 82, St. George's 31 DEC 00
Guadeloupe Cie. Generade de Location, S.A.R.L. Rue F. Forest, Z.I. Jarry 31 DEC 00
Haiti Soc. Haitienne de Commerce P.O. Box 15554, Petionville 31 DEC 99
Martinique Cie.Martiniquaise de Locations, S.A.R.L. Auto GM 2I La Lezarde, 97232, Lamenting 31 DEC 00
Nevis Holiday Car Rentals, Ltd. P.O. Box 45, Basseterre, St. Kitts, W.I. 31 DEC 00
Providenciales Provo Auto Supply, Ltd. P.O. Box, Providenciales, Turks & Caicos 31 DEC 00
St. Barthelemy Robert J. Ledee P.O. Box 561, 97133 St. Jean 31 DEC 99
St. Eustatius Mercury Transport (Statia), N.V. Lampweg #1 31 DEC 00
St. John V.I. V.I. Miscellaneous Services, Inc. P.O. Box 1388, Cruz Bay, St. John, USVI 00830 31 DEC 00
St. Kitts Holiday Car Rentals, Ltd. P.O. Box 45, Basseterre 31 DEC 99
St. Lucia Sun Drive Rentals, Ltd. P.O. Box 1010, Castries 31 DEC 99
St. Maarten Mercury Transport, N.V. P.O. Box 2015, Phillipsburg 31 DEC 98
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
St. Vincent Systems Car Rental Paul's Ave. Kingstown, St. Vincent 31 DEC 02
Tortola, B.V.I. Auto Parts & Sales, Ltd. P.O. Box 344, Road Town 31 DEC 98
Central America
Belize Eco Rental, Ltd. P.O. Box 1007, Poinsetta Rd., Ladyville 31 DEC98
Costa Rica Linea de Accion, S.A. Agencia Mazda, La Uruca, San Jose YTY
Guatemala Arrendadora de Guatemala 12 Calle 2-73 Zona 9 Guatemala City 31DEC01
Honduras Arrandadora de Vehiculos, S.A. P.O. Box 1208, Tegucigalpa 31DEC99
Mexico Comercial Arriete S.A. Apartado 656, 97000 Merida, Yucatan 31JAN07
Panama Rent A Car Panamena, S.A. Distribuidora David, Via Simon Bolivar 31DEC01
Calle 12 de Octubre, Panama
South America
Chile Servic, S.A. San Pablo 9900, Santiago 31DEC01
Colombia Autosolving Avenida 15 - No. 101 - 45, Bogota 31DEC99
Ecuador Turismo, Carros y Botes Cia., Ltda. P.O. Box 6877, Guayaquil 31DEC97
Peru Vea Peru, S.A. Ave. Javier Prado Este 5235, Lima 12 31DEC98
Suriname Para Rent A Car, Ltd. Fred O'kirkstraat 11, Paramaribo, Suriname 31DEC02
Uruguay Urucar, S.A. Yaguaron 1527, Montevideo 30SEP99
Venezuela Dorado Rent A Car, C.A. Ave. Libertador Esq. Ave. Principal 31DEC01
de Bello Campo, Caracas
</TABLE>
<PAGE>
Schedule 3
GUARANTEES
1. Guaranty dated December 31, 1996 in favor of Scotiabank de Puerto
Rico with respect to the obligations of Avis Rent A Car de Puerto
Rico, Inc.
2. Guaranty dated 31 August 1995 in favor of the Participants and
Agents under a Bill Facility Agreement dated 15 April 1994, as
amended by the Amendment Agreement dated 31 August 1995 with
respect to the obligations of W.T.H. Pty. Limited.
3. Letter of Guarantee* dated May 14, 1996 in favor of OCBC Bank
(Malaysia) Berhad with respect to the obligations of Sister Sewa
Kereta (but not exceeding 25% of such obligations).
4. Deed of Guarantee and Indemnity* dated February 15, 1990 in favor
of Malayan Banking Berhad with respect to the obligations of
Sister Sewa Kereta (but not exceeding 40% of such obligations).
------------
*Obligations of Avis, Inc. to be assumed by Avis Investment Services
Limited ("AIS") by Agreement dated 4 April, 1997 among AIS, Avis Rent
A Car (Hong Kong) Limited and Avis Rent A Car System, Inc.
<PAGE>
Schedule 4
WIZCOM TRANSFERRED ASSETS
(i) All Wizard System Agreements
(ii) All Computer Services Agreements
(iii) All Homepage Agreements
(iv) The following proprietary software:
Fleet System:
Fleet Distribution Model
Fleet Planning
Field Fleet Reporting System
Title Tracking Request
Electronic Repair Order
Fleet Receivables
Invoice System
Fleet Reporting System
Make Model Database
Pre-Delivery Inspection
Vehicle On-Line Transaction System
Purchase Order Database
Vehicle Order Database
Vehicle Order Status
Department of Sanitation System
Fleet Reconciliation System
Group Rate Depreciation System
Harris County Tax System
Insurance System
Licensee Reporting System
Vehicle Damage Claims
<PAGE>
SALES AND MARKETING SYSTEM
Pricing Model
IRDB
Coupon Reporting
Worldwide Prestige Insurance
Chairman's Tracking System
CEO Tracking System
Automated Fulfillment System
Brochure Request System
Wizard Credit Link
CAW Corporate Awards System
PSI (for Preferred Supplier Agreements)
Sales Incentive System
EMP Sales Employee Database
STC Sales STC Database
<PAGE>
FINANCIAL MANAGEMENT SYSTEM
Accounts Payable (AP) General Ledger (GL)
Money Management System (MMS) Time and
Attendance (TAA) Rental Agreement Processing
Rental Number System Balance Forward System
Register Miscellaneous Reporting Open Item
System Travel Agency System Cash Application
System Invoicing Licensee Chargebacks
Country Company database Club Red Preferred
Supplier AIM International Direct Sell User
Rental File Europe File Wizard Licensee
Billing BIL Roll and Slide Reporting
Currency Data Base Open Rental System Bonus
System Direct Billing System Daily Business
Reporting
<PAGE>
YIELD MANAGEMENT SYSTEM
Yield Management
Data Extraction and Conditioning
Product Forecasting
Revenue Optimization
Graphical User Interface
Supply and Demand
Availability by Length of Rental
(AVLLOR)
Turndowns and Denials
Reservation and Rental History
Rate Opportunity System
Yield Management Price
Elasticity System
Rateshop System
Business Mix
Global Distribution System Rate Maintenance
Rate Availability
MISCELLANEOUS SYSTEMS
Coupon Tracking System
Worldwide Reporting System
Consumer Sales Incentive
Personal Liability and Property Damage
Insurance Reserve
Operating Lease Commitment Reporting
Facility
Treasury Debt Reporting Facility
Interactive Personnel System
Name Risk System
Credit Club Risk
Standard Interline Passenger Procedure
(SIPP)
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS....................................................................
Section 1.1 Definitions..............................................
ARTICLE II
TRANSFER OF CAR RENTAL BUSINESS................................................
Section 2.1 Transfer of Assets......................................
Section 2.2 Assignment and Assumption of Liabilities................
Section 2.3 Transfers Not Effected Prior to the Separation Date.....
Section 2.4 No Representations or Warranties; Consents..............
Section 2.5 Conveyancing and Stock Assumption Instruments...........
ARTICLE III
THE SEPARATION...............................................................
Section 3.1 Cooperation Prior to the Separation......................
Section 3.3 Holdings Board Action; Conditions Precedent to the
Separation......................
ARTICLE IV
INDEMNIFICATION................................................................
Section 4.1 ARAC Indemnification of Holdings.........................
Section 4.2 Holdings Indemnification of ARAC.........................
Section 4.3 Notice and Payment of Claims.............................
Section 4.4 Notice and Defense of Third-Party Claims.................
Section 4.5 Insurance Proceeds.......................................
Section 4.6 Contribution.............................................
Section 4.7 Subrogation..............................................
Section 4.8 No Third-Party Beneficiaries.............................
Section 4.9 Remedies Cumulative......................................
Section 4.10 Survival of Indemnities..................................
Section 4.11 After-Tax Indemnification Payments.......................
ARTICLE V
CERTAIN ADDITIONAL MATTERS.....................................................
Section 5.1 Intercompany Payables/Receivables........................
Section 5.2 Ancillary Agreements.....................................
Section 5.3 ARAC Officers and Board of Directors.....................
Section 5.4 ARAC Certificate of Incorporation and By-laws............
Section 5.5 Credit Facilities........................................
Section 5.6 Insurance Policies and Claims Administration.............
<PAGE>
ARTICLE VI
ACCESS TO INFORMATION..........................................................
Section 6.1 Provision of Corporate Records...........................
Section 6.2 Access to Information....................................
Section 6.3 Litigation Cooperation...................................
Section 6.4 Reimbursement............................................
Section 6.5 Retention of Records.....................................
Section 6.6 Confidentiality..........................................
Section 6.7 Mail.....................................................
ARTICLE VII
MISCELLANEOUS..................................................................
Section 7.1 Termination..............................................
Section 7.2 Expenses.................................................
Section 7.3 Notices..................................................
Section 7.4 Amendment and Waiver.....................................
Section 7.5 Counterparts.............................................
Section 7.6 Governing Law; Jurisdiction; Forum.......................
Section 7.7 Entire Agreement.........................................
Section 7.8 Parties in Interest......................................
Section 7.9 Tax Disaffiliation Agreement.............................
Section 7.10 Further Assurances and Consents..........................
Section 7.11 Exhibits and Schedules...................................
Section 7.12 Legal Enforceability.....................................
Section 7.13 Dispute Resolution.......................................
Section 7.14 Titles and Headings......................................
Schedule 1 - Direct Car Rental Subsidiaries
Schedule 2 - Franchise Agreements
Schedule 3 - Guarantees
Schedule 4 - WizCom Transferred Assets
EXHIBIT 11
HFS Incorporated and Subsidiaries
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
1997 1996
------------------------------------------------------------------
Fully Fully
Primary Diluted Primary Diluted
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 157,403 $ 157,403 $ 84,874 $ 84,874
Convertible debt interest and
amortization of deferred loan
costs, net of tax 2,987 2,894 1,134 1,134
-------------- ------------- ------------- -------------
Net income as adjusted $ 160,390 $ 160,297 $ 86,008 $ 86,008
============== ============= ============= =============
Weighted average common shares
outstanding 159,016 159,016 152,063 152,063
Incremental shares for outstanding
stock options and warrants 9,030 12,411 11,627 11,993
Convertible debt 11,657 11,657 8,257 8,257
-------------- ------------- ------------- -------------
Weighted average common and
common equivalent shares
outstanding 179,703 183,084 171,947 172,313
============== ============= ============= =============
Net income per share $ 0.89 $ 0.88 $ .50 $ .50
============== ============= ============= =============
For the Nine Months Ended September 30,
1997 1996
------------------------------------------------------------------
Fully Fully
Primary Diluted Primary Diluted
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 142,057 $ 142,057 $ 188,491 $ 188,491
Convertible debt interest and
amortization of deferred loan
costs, net of tax 3,298 3,298 3,369 3,369
-------------- ------------- ------------- -------------
Net income as adjusted $ 145,355 $ 145,355 $ 191,860 $ 191,860
============== ============= ============= =============
Weighted average common shares
outstanding 158,454 158,454 140,583 140,583
Incremental shares for outstanding
stock options and warrants 9,083 12,276 11,228 12,051
Convertible debt 8,074 8,074 8,257 8,257
-------------- ------------- ------------- -------------
Weighted average common and
common equivalent shares
outstanding 175,611 178,804 160,068 160,891
============== ============= ============= =============
Net income per share $ 0.83 $ 0.81 $ 1.20 $ 1.19
============== ============= ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 93,667
<SECURITIES> 0
<RECEIVABLES> 857,338
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,264,349
<PP&E> 321,035
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,475,880
<CURRENT-LIABILITIES> 915,216
<BONDS> 1,662,169
0
0
<COMMON> 1,628
<OTHER-SE> 3,041,739
<TOTAL-LIABILITY-AND-EQUITY> 11,475,880
<SALES> 0
<TOTAL-REVENUES> 1,749,477
<CGS> 0
<TOTAL-COSTS> 1,076,070
<OTHER-EXPENSES> 303,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,986
<INCOME-PRETAX> 322,421
<INCOME-TAX> 180,364
<INCOME-CONTINUING> 142,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,057
<EPS-PRIMARY> $.83
<EPS-DILUTED> $.81
</TABLE>
