Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-65456
333-49405
333-49405-01
333-49405-02
P R O S P E C T U S S U P P L E M E N T
(TO PROSPECTUS DATED NOVEMBER 18, 1998)
15,000,000 UPPER DECS(SM)
[CENDANT LOGO OMITTED]
CENDANT CORPORATION
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Cendant Corporation is offering 15,000,000 Upper DECS, each with a stated
amount of $50. Each Upper DECS will include a forward purchase contract
pursuant to which you will agree to purchase from us shares of our CD common
stock on August 17, 2004, and we will make quarterly contract adjustment
payments to you at the rate of 1.00% of the stated amount per year, as
described in this prospectus supplement. Each Upper DECS will also include $50
principal amount of our senior notes due August 17, 2006.
The senior notes will bear interest at a rate of 6.75% per year, which
rate is expected to be reset as of May 17, 2004. The senior notes will not
trade separately from the Upper DECS unless and until substitution is made as
described in this prospectus supplement.
We have applied to list the Upper DECS on the New York Stock Exchange. On
July 19, 2001, the last reported sale price of our CD common stock on the NYSE
was $21.53 per share.
INVESTING IN THE UPPER DECS INVOLVES RISKS. SEE THE "RISK FACTORS" SECTION
BEGINNING ON PAGE S-19 OF THIS PROSPECTUS SUPPLEMENT.
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PER UPPER
DECS TOTAL
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Public offering price(1)....................... $ 49.50 $742,500,000
(1) Plus accrued interest and accumulated contract adjustment payments from
July 27, 2001, if settlement occurs after that date.
The underwriter is purchasing the Upper DECS from Cendant at an
underwriting discount of $1.50 per Upper DECS from the stated amount of $50 per
Upper DECS, for a total underwriting discount of $22,500,000 and proceeds to
us of $727,500,000.
The underwriter may also purchase up to an additional 2,250,000 Upper DECS
at the stated amount of $50 per Upper DECS less the underwriting discount of
$1.50 per Upper DECS within 30 days of the date of this prospectus supplement
in order to cover overallotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Upper DECS will be ready for delivery in book-entry form only through
The Depository Trust Company on or about July 27, 2001.
SALOMON SMITH BARNEY
The date of this prospectus supplement is July 20, 2001.
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(SM)Service mark of Salomon Smith Barney Inc.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT:
About this Prospectus Supplement ......................................................... S-3
Cautionary Statement Concerning Forward-Looking Statements ............................... S-4
Prospectus Supplement Summary ............................................................ S-6
Risk Factors ............................................................................. S-19
Ratio of Earnings to Fixed Charges ....................................................... S-23
Use of Proceeds .......................................................................... S-24
Price Range of CD Common Stock and Dividend Policy ....................................... S-24
Capitalization ........................................................................... S-25
Accounting Treatment ..................................................................... S-26
Description of the Upper DECS and Stripped DECS .......................................... S-27
Description of the Forward Purchase Contracts ............................................ S-31
Certain Provisions of the Forward Purchase Contract Agreement and the Pledge Agreement ... S-43
Description of the Senior Notes .......................................................... S-47
Certain United States Federal Income Tax Consequences .................................... S-52
Underwriting ............................................................................. S-59
Legal Matters ............................................................................ S-61
Experts .................................................................................. S-61
Where You Can Find More Information ...................................................... S-62
Incorporation of Certain Documents by Reference .......................................... S-62
PROSPECTUS:
Forward-Looking Statements ............................................................... 2
Available Information .................................................................... 2
Incorporation of Certain Documents by Reference .......................................... 3
The Company .............................................................................. 5
The Cendant Trusts ....................................................................... 5
Use of Proceeds .......................................................................... 6
Consolidated Ratio of Earnings to Fixed Charges .......................................... 6
Description of the Debt Securities ....................................................... 6
Description of Capital Stock ............................................................. 16
Description of Warrants .................................................................. 21
Description of Preferred Securities of the Cendant Trusts ................................ 21
Description of Trust Guarantees .......................................................... 23
Description of Stock Purchase Contracts and Stock Purchase Units ......................... 25
Plan of Distribution ..................................................................... 26
Legal Opinions ........................................................................... 26
Experts .................................................................................. 27
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You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriter has not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
S-2
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first is this prospectus supplement,
which describes the specific terms of the securities we are offering and
certain other matters relating to us and our financial condition. The second
part, the accompanying prospectus, gives more general information about
securities we may offer from time to time, some of which may not apply to the
securities we are offering.
If the description of the offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement
Unless we have indicated otherwise, or the context otherwise requires,
references in this prospectus supplement and the accompanying prospectus to
"Cendant," "we," "us" and "our" or similar terms are to Cendant Corporation and
its subsidiaries.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Forward-looking statements contained in or incorporated by reference to
this prospectus supplement about Cendant are subject to known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These forward-looking statements were based on various factors and
were derived utilizing numerous important assumptions that could cause actual
results to differ materially from those in the forward-looking statements.
Forward-looking statements include the information concerning our future
financial performance, business strategy, projected plans and objectives.
Statements preceded by, followed by or that otherwise include the words
"believes," "expects," "anticipates," "intends," "project," "estimates,"
"plans," "may increase," "may fluctuate" and similar expressions or future or
conditional verbs such as "will," "should," "would," "may" and "could" are
generally forward-looking in nature and not historical acts. You should
understand that the following important factors and assumptions could affect
the future results of Cendant and could cause actual results to differ
materially from those expressed in such forward-looking statements:
o the effect of economic conditions and interest rate changes on the
economy on a national, regional or international basis and the impact
thereof on our businesses;
o the effects of changes in current interest rates, particularly on our
real estate franchise and mortgage businesses;
o the resolution or outcome of our unresolved pending litigation relating
to the previously announced accounting irregularities and other related
litigation;
o our ability to develop and implement operational and financial systems
to manage growing operations and to achieve enhanced earnings or effect
cost savings;
o competition in our existing and potential future lines of business and
the financial resources of, and products available to, competitors;
o our ability to integrate and operate successfully acquired and merged
businesses and risks associated with such businesses, including the
pending acquisition of Galileo International, Inc. and the acquisitions
of Avis Group Holdings, Inc. and Fairfield Communities Inc., the
compatibility of the operating systems of the combining companies, and
the degree to which existing administrative and back-office functions
and costs and those of the acquired companies are complementary or
redundant;
o our ability to obtain financing on acceptable terms to finance our
growth strategy and to operate within the limitations imposed by
financing arrangements and rating agencies;
o competitive and pricing pressures in the vacation ownership and travel
industries, including the car rental industry;
o changes in the vehicle manufacturer repurchase arrangements between
vehicle manufacturers and Avis Group Holdings, Inc. in the event that
used vehicle values decrease;
o changes in laws and regulations, including changes in accounting
standards and privacy policy regulation.
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. Most of these factors are
difficult to predict accurately and are generally beyond our control.
You should consider the areas of risk described above in connection with
any forward-looking statements that may be made by us. Except for our ongoing
obligations to disclose material information under the federal securities laws,
we undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You
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are advised, however, to consult any additional disclosures we make in our
Quarterly Reports on Form 10-Q, Annual Report on Form 10-K and Current Reports
on Form 8-K to the Securities and Exchange Commission (the "Commission"). See
"Where You Can Find More Information." Also note that we provide a cautionary
discussion of risks and uncertainties under "Risk Factors" on page S-19 of this
prospectus supplement. These are factors that we think could cause our actual
results to differ materially from expected results. Factors other than those
listed here could also adversely affect us. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
S-5
PROSPECTUS SUPPLEMENT SUMMARY
You should read the following summary in conjunction with the more
detailed information contained in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference.
CENDANT
We are one of the foremost providers of travel and real estate services in
the world. We operate in four business segments -- Real Estate Services,
Hospitality, Vehicle Services and Financial Services. Our businesses provide a
wide range of consumer and business services which are intended to complement
one another and create cross-marketing opportunities both within each segment
and between segments. Our Real Estate Services segment franchises real estate
brokerage businesses, provides home buyers with mortgages and assists in
employee relocations. Our Hospitality segment franchises hotel businesses and
facilitates the sale and exchange of vacation ownership interests. Our Vehicle
Services segment operates and franchises car rental businesses, provides fleet
management services to corporate clients and government agencies and operates
parking facilities in the United Kingdom. Our Financial Services segment
provides marketing strategies primarily to financial institutions by offering an
array of financial and insurance-based products to consumers, franchises tax
preparation service businesses and provides consumers with access to a variety
of discounted products and services.
As a franchisor of hotels, residential and commercial real estate
brokerage offices, car rental operations and tax preparation services, we
license the owners and operators of independent businesses the right to use our
brand names. We do not own or operate hotels, real estate brokerage offices or
tax preparation offices. Instead, we provide our franchisees with services
designed to increase their revenue and profitability.
Real Estate Services Segment. Our Real Estate Services segment consists of
our three real estate brands and our mortgage and relocation businesses. We are
the world's largest real estate brokerage franchisor. In our real estate
franchise business, we franchise real estate brokerage offices under the
CENTURY 21 (Registered Trademark) , Coldwell Banker (Registered Trademark) and
ERA (Registered Trademark) real estate brokerage franchise systems. In our
relocation business, Cendant Mobility Services Corporation is a leading
provider of corporate relocation services in the world. Cendant Mobility offers
relocation clients a variety of services in connection with the transfer of a
client's employees and offers similar services to affinity groups and their
members. In our mortgage business, Cendant Mortgage Corporation is one of the
largest retail providers of residential mortgages in the United States. Cendant
Mortgage originates, sells and services residential mortgage loans in the
United States, marketing such services to consumers through relationships with
corporations, financial institutions, real estate brokerage firms and mortgage
banks.
Hospitality Segment. Our Hospitality segment contains our nine lodging
brands and our timeshare and travel agency businesses. In our lodging franchise
business, we franchise hotels primarily in the mid-priced and economy markets.
We are the world's largest hotel franchiser, operating the Days Inn (Registered
Trademark) , Ramada (Registered Trademark) (in the United States), Super 8
(Registered Trademark) , Howard Johnson (Registered Trademark) , Wingate Inn
(Registered Trademark) , Knights Inn (Registered Trademark) , Travelodge
(Registered Trademark) (in North America), Villager (Registered Trademark)
and AmeriHost Inn (Registered Trademark) lodging franchise systems. In our
timeshare business, we own Resort Condominiums International, LLC, the world's
leading timeshare exchange company. On April 2, 2001, we acquired Fairfield
Resorts, Inc. (formerly known as Fairfield Communities Inc.), one of the
largest vacation ownership companies in the United States.
Vehicle Services Segment. With the acquisition of Avis Group Holdings,
Inc. on March 1, 2001, our Vehicle Services segment now consists of the car
rental operations and fleet management services businesses of Avis Group, in
addition to the Avis car rental franchise system and National Car Parks
Limited, a United Kingdom based parking facility business. Our Avis car rental
business is the second largest car rental system in the world (based on total
revenues and volume of rental transactions). Our
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fleet management services business is a leader in the industry. Our National
Car Parks Limited subsidiary is the largest private parking facilities operator
in the United Kingdom.
Financial Services Segment. Our Financial Services segment consists of our
insurance/wholesale businesses, our tax preparation service system and our
individual membership business. Our insurance/wholesale business markets and
administers insurance products, primarily accidental death and dismemberment
insurance and term life insurance, and also provides marketing strategies
primarily to financial institutions through an offering of checking account
enhancement packages for the benefit of their customers. The
insurance/wholesale business is conducted through FISI*Madison LLC, Benefit
Consultants, Inc., Long Term Preferred Care, Inc. and Cims Ltd., which are all
wholly owned subsidiaries. Our Jackson Hewitt Inc. subsidiary operates the
second largest tax preparation service system in the United States with
locations in 48 states and franchises a system of approximately 3,300 offices
that specialize in computerized preparation of federal and state individual
income tax returns.
Our principal executive offices are located at 9 West 57th Street, New
York, New York 10019. Our telephone number is (212) 413-1800. Our web site is
www.cendant.com. The information contained on our web site is not incorporated
by reference in this prospectus supplement.
RECENT DEVELOPMENTS
Earnings. On July 18, 2001, we announced our results for the second
quarter of 2001 and our projections for the third quarter and full year of
2001. For a discussion of those results and projections, investors should
review our Current Report on Form 8-K, filed with the Securities and Exchange
Commission on July 19, 2001 and available as described under "Where You Can
Find More Information" and "Incorporation of Certain Documents by Reference."
Outsourcing of Individual Membership Business. On July 2, 2001, we entered
into agreements with Trilegiant Corporation, a newly formed corporation to be
headquartered in Norwalk, CT, to outsource our individual membership business
to Trilegiant. The former management of Cendant Membership Services, Inc.
("CMS") and Cendant Incentives, Inc. own 100% of the common stock and we own a
convertible preferred stock investment in Trilegiant, which, if converted into
common stock, would initially represent approximately 20% of Trilegiant's
common stock. All employees of CMS and Cendant Incentives will become employees
of Trilegiant. Previously, we had planned to spin off our individual membership
business.
Galileo International Acquisition. On June 18, 2001, we announced that we
had entered into an agreement to acquire all of the outstanding common stock of
Galileo International, Inc. at an expected value of $33 per share, or
approximately $2.9 billion. As part of the acquisition, we will also assume
approximately $600 million of Galileo's net debt. Galileo is one of the leading
providers of electronic global distribution services for the travel industry.
The transaction, which is expected to close in the third quarter of 2001, is
subject to customary regulatory approvals and the approval of Galileo's
stockholders.
Offer of Convertible Notes. In May 2001, we issued $1 billion of
zero-coupon convertible debentures due 2021. Each $1,000 principal amount at
maturity may be converted into approximately 39 shares of our CD common stock
(an aggregate of 39,075,500 million shares) if the closing price of our CD
common stock on the New York Stock Exchange exceeds specified levels or in
certain other circumstances. This conversion rate is subject to adjustment
under certain circumstances. We may be required to repurchase the debentures at
the option of the holders at specified times prior to 2021 but not prior to May
2002. We may elect to pay the purchase price for the foregoing repurchases in
cash or shares of our CD common stock.
Fairfield Acquisition. On April 2, 2001, we aquired all of the outstanding
common stock of Fairfield Communities Inc. for approximately $760 million,
including transaction costs and expenses and the conversion of Fairfield
employee stock options into CD common stock options. Fairfield, with
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more than 324,000 vacation-owning households, is a leading vacation ownership
company in the United States, marketing and managing resort properties at 35
locations in 12 states and the Bahamas. Fairfield operates over 32 dedicated
sales centers and manages over 110 timeshare and whole ownership resort
associations.
***
We continually explore and conduct discussions with regard to acquisitions
and other strategic corporate transactions in our industries and in other
franchise, franchisable or service businesses in addition to the transactions
previously announced. As part of our regular on-going evaluation of acquisition
opportunities, we currently are engaged in a number of separate, unrelated
preliminary discussions concerning possible acquisitions. The purchase price
for the possible acquisitions may be paid in cash, through the issuance of CD
common stock or other of our securities, borrowings, or a combination thereof.
Prior to consummating any such possible acquisition, we will need to, among
other things, initiate and complete satisfactorily our due diligence
investigations; negotiate the financial and other terms (including price) and
conditions of such acquisitions; obtain appropriate Board of Directors,
regulatory and other necessary consents and approvals; and, if necessary,
secure financing. No assurance can be given with respect to the timing,
likelihood or business effect of any possible transaction. In the past, we have
been involved in both relatively small acquisitions and acquisitions which have
been significant.
S-8
THE OFFERING--Q&A
WHAT ARE UPPER DECS?
We are offering 15,000,000 Upper DECS (17,250,000 Upper DECS if the
underwriter exercises its overallotment option in full), each with a stated
amount of $50.
Each Upper DECS will initially consist of:
(1) a forward purchase contract under which:
o you will agree to purchase, for $50, shares of our CD common
stock on August 17, 2004, the number of which we will determine
based on the average trading price of our CD common stock at that
time; and
o we will pay you contract adjustment payments at the rate of 1.00%
of the stated amount of $50 per year as specified below; and
(2) $50 principal amount of our senior notes which initially bear interest
at a rate of 6.75% per year, as specified below.
The senior note that is a component of each Upper DECS will be owned by
you, but it will be pledged to us to secure your obligations under the forward
purchase contract. If the senior notes are successfully remarketed or a tax
event redemption occurs, in each case as described in this prospectus
supplement, the applicable ownership interest in the Treasury portfolio
(discussed below) will replace the senior note as a component of each Upper
DECS and will be pledged to us to secure your obligations under the forward
purchase contract.
WHAT IS A FORWARD PURCHASE CONTRACT?
Each forward purchase contract underlying each Upper DECS obligates the
holder of the forward purchase contract to purchase, and obligates us to sell,
on August 17, 2004, for $50, shares of our CD common stock equal to the
"settlement rate." The settlement rate will be calculated, subject to
adjustment as described under "Description of the Forward Purchase Contracts --
Anti-Dilution Adjustments," as follows:
o if the applicable market value of our CD common stock is greater than
or equal to the threshold appreciation price of $28.42, the settlement
rate will be 1.7593;
o if the applicable market value of our CD common stock is less than the
threshold appreciation price but greater than the reference price of
$21.53, the settlement rate will be equal to the stated amount divided
by the applicable market value; and
o if the applicable market value is less than or equal to the reference
price, the settlement rate will be 2.3223.
"Applicable market value" means the average of the closing price per share
of our CD common stock on each of the 20 consecutive trading days ending on the
third trading day immediately preceding August 17, 2004. The reference price of
$21.53 is the last reported sale price of our CD common stock on the NYSE on
July 19, 2001.
At the option of each holder, a forward purchase contract may be settled
early by the early delivery of cash to the forward purchase contract agent, in
which case 1.7593 shares of our CD common stock will be issued per forward
purchase contract.
WHAT ARE STRIPPED DECS?
Stripped DECS are Upper DECS consisting of a forward purchase contract and
a 1/20, or 5.0%, undivided beneficial ownership interest in a Treasury
security. The Treasury security is a zero-coupon
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U.S. Treasury security with a principal amount at maturity of $1,000 that
matures on August 15, 2004. The interest in the Treasury security that is a
component of each Stripped DECS will be pledged to us to secure the holder's
obligations under the forward purchase contract.
HOW CAN I CREATE STRIPPED DECS FROM UPPER DECS?
Unless the Treasury portfolio has replaced the senior notes as a component
of Upper DECS as a result of a successful remarketing of the senior notes or a
tax event redemption, each holder of Upper DECS will have the right, at any
time on or prior to the seventh business day immediately preceding August 17,
2004, to substitute for the related senior notes held by the collateral agent
zero-coupon Treasury securities that mature on August 15, 2004 in a total
principal amount at maturity equal to the aggregate principal amount of the
senior notes for which substitution is being made. This substitution will
create Stripped DECS and the applicable senior notes will be released to the
holder. Because U.S. Treasury securities are issued in multiples of $1,000,
holders of Upper DECS may make this substitution only in integral multiples of
20 Upper DECS. However, if the Treasury portfolio has replaced the senior notes
as a component of Upper DECS as a result of a successful remarketing of the
senior notes or a tax event redemption, holders of Upper DECS may make this
substitution only in integral multiples of Upper DECS such that both the
Treasury securities to be deposited and those to be released are in integral
mulitples of $1,000, at any time on or prior to the second business day
immediately preceding August 17, 2004. Holders would also obtain the release of
the appropriate applicable ownership interest in the Treasury portfolio rather
than a release of the applicable senior notes.
HOW CAN I RECREATE UPPER DECS FROM STRIPPED DECS?
Unless the Treasury portfolio has replaced the senior notes as a component
of Upper DECS as a result of a successful remarketing of the senior notes or a
tax event redemption, each holder of Stripped DECS will have the right, at any
time on or prior to the seventh business day immediately preceding August 17,
2004, to substitute senior notes for the related Treasury securities held by
the collateral agent in an aggregate principal amount of such senior notes
equal to the aggregate principal amount at maturity of the Treasury securities.
This substitution would create Upper DECS, and the applicable Treasury
securities would be released to the holder. Because Treasury securities are
issued in integral multiples of $1,000, holders of Stripped DECS may make this
substitution only in integral multiples of 20 Stripped DECS. If the Treasury
portfolio has replaced the senior notes as a component of Upper DECS as a
result of a successful remarketing of the senior notes or a tax event
redemption, holders of the Stripped DECS may make this substitution at any time
on or prior to the second business day immediately preceding August 17, 2004,
but using the applicable ownership interest of the Treasury portfolio instead
of senior notes and only in integral multiples of Stripped DECS such that both
the Treasury securities to be deposited and those to be released are in
integral multiples of $1,000.
WHAT PAYMENTS AM I ENTITLED TO AS A HOLDER OF UPPER DECS?
Holders of Upper DECS will be entitled to receive total cash distributions
at a rate of 7.75% of the stated amount per year, payable quarterly in arrears.
These cash distributions will consist of interest on the senior notes or
distributions on the applicable ownership interest of the Treasury portfolio at
the rate of 6.75% of the stated amount per year and distributions of contract
adjustment payments payable by us at the rate of 1.00% of the stated amount per
year, subject to our right to defer the payment of such contract adjustment
payments. Each Upper DECS has a stated amount of $50. In addition, if the
senior notes are subject to the rules applicable to contingent payment debt
instruments, which Cendant believes they should be, original issue discount, or
OID, will accrue on each senior note for United States federal income tax
purposes. We are not entitled to defer interest payments on the senior notes.
S-10
WHAT PAYMENTS AM I ENTITLED TO IF I CONVERT MY UPPER DECS TO STRIPPED DECS?
Holders of Stripped DECS will be entitled to receive quarterly cash
distributions of contract adjustment payments payable by us at the rate of
1.00% of the stated amount of $50 per year, subject to our rights of deferral
described in this prospectus supplement. In addition, OID will accrue on each
related Treasury security.
DOES CENDANT HAVE THE OPTION TO DEFER CURRENT PAYMENTS?
We have the right to defer the payment of contract adjustment payments
until no later than August 17, 2004. However, such deferred contract adjustment
payments would accrue additional contract adjustment payments at the rate of
7.75% per year (equal to the rate on the senior notes plus the rate of contract
adjustment payments on the forward purchase contracts) until paid, compounded
quarterly, to but excluding August 17, 2004. We are not entitled to defer
payments of interest on the senior notes. In the event we exercise our option
to defer the payment of contract adjustment payments, then until the deferred
contract adjustment payments have been paid, we will not, and will not permit
any subsidiary of ours to, with certain exceptions (including dividends paid by
any subsidiary to Cendant), declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of our capital stock.
WHAT ARE THE PAYMENT DATES FOR THE UPPER DECS?
The current payments described above in respect of the Upper DECS will be
payable quarterly in arrears on February 17, May 17, August 17 and November 17
of each year, commencing November 17, 2001. In the case of contract adjustment
payments, the payments will be payable to but excluding the earlier of August
17, 2004 or the most recent quarterly payment date on or before any early
settlement of the related forward purchase contracts. These contract adjustment
payments are subject to the deferral provisions described in this prospectus
supplement. Interest payments on the senior notes are described below under the
questions and answers beginning with "What interest payments will I receive on
the senior notes?"
WHAT IS REMARKETING?
The senior notes of Upper DECS holders will be remarketed on the fifth
business day immediately preceding May 17, 2004. The remarketing agent will use
its reasonable efforts to obtain a price of approximately 100.5% of the
purchase price for the Treasury portfolio. The portion of the proceeds from the
remarketing equal to the Treasury portfolio purchase price will be applied to
purchase the Treasury portfolio. The Treasury portfolio will be substituted for
the senior notes and will be pledged to the collateral agent to secure the
Upper DECS holders' obligations to purchase shares of our CD common stock under
the forward purchase contracts. When paid at maturity, an amount of the
Treasury portfolio equal to the principal amount of the senior notes will
automatically be applied to satisfy the Upper DECS holders' obligations to
purchase shares of our CD common stock under the forward purchase contracts.
In addition, the remarketing agent may deduct, as a remarketing fee, an
amount not exceeding 25 basis points (0.25%) of the Treasury portfolio purchase
price from any amount of the proceeds in excess of the Treasury portfolio
purchase price. The remarketing agent will then remit the remaining portion of
the proceeds from the remarketing, if any, for the benefit of the holders.
If the remarketing of the senior notes on the fifth business day preceding
May 17, 2004 fails because the remarketing agent cannot obtain a price of at
least 100% of the Treasury portfolio purchase price or a condition precedent to
the remarketing has not been satisfied, the senior notes will continue to be a
component of the Upper DECS and another remarketing will be attempted on the
fifth business day preceding August 17, 2004, as described below.
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The senior notes of Upper DECS holders who have failed to notify the
forward purchase contract agent on or prior to the seventh business day before
August 17, 2004 of their intention to pay cash in order to satisfy their
obligations under the related forward purchase contracts will be remarketed on
the fifth business day immediately preceding August 17, 2004. In this
remarketing, the remarketing agent will use its reasonable efforts to obtain a
price of approximately 100.5% of the aggregate principal amount of these senior
notes. The portion of the proceeds from the remarketing equal to the total
principal amount of the senior notes will automatically be applied to satisfy
in full the Upper DECS holders' obligations to purchase shares of our CD common
stock under the related forward purchase contracts.
The remarketing agent will deduct, as a remarketing fee, an amount not
exceeding 25 basis points (0.25%) of the aggregate principal amount of the
remarketed notes from any amount of the proceeds in excess of the aggregate
principal amount of the remarketed notes. The remarketing agent will remit the
remaining portion of the proceeds from the remarketing, if any, for the benefit
of the holders.
If the remarketing of the senior notes on the fifth business day preceding
August 17, 2004 fails because the remarketing agent cannot obtain a price of at
least 100% of the total principal amount senior notes or a condition precedent
to the remarketing has not been satisfied, we will exercise our rights as a
secured party to dispose of the senior notes in accordance with applicable law
and to satisfy in full, from the proceeds of the disposition, the Upper DECS
holders' obligations to purchase shares of our CD common stock under the
related forward purchase contracts.
WHAT IS THE TREASURY PORTFOLIO?
The Treasury portfolio is a portfolio of zero-coupon U.S. Treasury
securities consisting of:
o interest or principal strips of U.S. Treasury securities that mature
on or prior to August 15, 2004 in an aggregate amount equal to the
principal amount of the senior notes included in the Upper DECS, and
o if prior to August 17, 2004, with respect to the scheduled interest
payment date on the senior notes that occurs on August 17, 2004, in
the case of a successful remarketing of the senior notes, or with
respect to each scheduled interest payment date on the senior notes
that occurs after the tax event redemption date and on or before
August 17, 2004, in the case of a tax event redemption, interest or
principal strips of U.S. Treasury securities that mature on or prior
to that interest payment date in an aggregate amount equal to the
aggregate interest payment that would be due on that interest payment
date on the principal amount of the senior notes included in the Upper
DECS assuming no reset of the interest rate on the senior notes, or
o if on or after August 17, 2004, with respect to each scheduled
interest payment date on the senior notes that occurs after the tax
event redemption dates interest or principal strips of U.S. Treasury
securities that mature on or prior to that interest payment date in an
aggregate amount equal to the aggregate interest payment that would be
due on that interest payment date on the principal amount of senior
notes outstanding on the tax event redemption date.
IF I AM NOT A PARTY TO A FORWARD PURCHASE CONTRACT, MAY I STILL PARTICIPATE IN
A REMARKETING OF MY SENIOR NOTES?
Holders of senior notes that are not components of Upper DECS may elect,
in the manner described in this prospectus supplement, to have their senior
notes remarketed by the remarketing agent.
BESIDES PARTICIPATING IN A REMARKETING, HOW ELSE WILL MY OBLIGATIONS UNDER THE
FORWARD PURCHASE CONTRACTS BE SATISFIED?
Holders of Upper DECS may satisfy their obligations, or their obligations
will be terminated, under the forward purchase contracts
S-12
o through early settlement by the early delivery of cash to the forward
purchase contract agent in the manner described in this prospectus
supplement;
o in the case of holders of Upper DECS, by settling the related forward
purchase contracts with cash on the fifth business day prior to August
17, 2004 with prior notification to the forward purchase contract
agent; or
o without any further action, upon the termination of the forward
purchase contracts as a result of our bankruptcy, insolvency or
reorganization.
If the holder of an Upper DECS settles a forward purchase contract early,
or if the holder's forward purchase contract is terminated as a result of our
bankruptcy, insolvency or reorganization, such holder will have no right to
receive any accrued contract adjustment payments or deferred contract
adjustment payments.
WHAT INTEREST PAYMENTS WILL I RECEIVE ON THE SENIOR NOTES?
Interest payments on the senior notes will be payable initially at the
annual rate of 6.75% of the principal amount of $50 per senior note to, but
excluding, May 17, 2004, or August 17, 2004 if the interest rate is not reset
three business days prior to May 17, 2004. Following a reset of the interest
rate three business days prior to May 17, 2004 or three business days prior to
August 17, 2004, the senior notes will bear interest from May 17, 2004, or
August 17, 2004, as applicable, at the reset rate to, but excluding, August 17,
2006. In addition, if the senior notes are subject to the rules applicable to
contingent payment debt instruments, which Cendant believes they should be, OID
will accrue on the senior notes for United States federal income tax purposes.
WHAT ARE THE PAYMENT DATES ON THE SENIOR NOTES?
Interest payments on the senior notes will be payable quarterly in arrears
on each February 17, May 17, August 17 and November 17, commencing November 17,
2001.
WHEN WILL THE INTEREST RATE ON THE SENIOR NOTES BE RESET?
Unless a tax event redemption has occurred, the interest rate on the
senior notes will be reset on the fifth business day immediately preceding May
17, 2004, and such reset rate will become effective on May 17, 2004. However,
if the remarketing of the senior notes on the fifth business day immediately
preceding May 17, 2004 results in a failed remarketing, the interest rate will
not be reset on that date and instead will be reset on the fifth business day
immediately preceding August 17, 2004, and such reset rate will become
effective on August 17, 2004. If the remarketing of the senior notes on the
fifth business day immediately preceding August 17, 2004 also results in a
failed remarketing, the interest rate will not be reset.
WHAT IS THE RESET RATE?
In the case of a reset on the fifth business day immediately preceding May
17, 2004, the reset rate will be the rate determined by the reset agent as the
rate the senior notes should bear in order for the notes included in Upper DECS
to have an approximate aggregate market value on the reset date of 100.5% of
the Treasury portfolio purchase price. In the case of a reset on the fifth
business day immediately preceding August 17, 2004, the reset rate will be the
rate determined by the reset agent as the rate the senior notes should bear in
order for each note to have an approximate market value of 100.5% of the
principal amount of the senior notes. The reset rate may not exceed the maximum
rate, if any, permitted by applicable law.
WHEN MAY THE SENIOR NOTES BE REDEEMED?
The senior notes are redeemable at our option, in whole but not in part,
upon the occurrence and continuation of a tax event under the circumstances
described in this prospectus supplement.
S-13
Following any such redemption of the senior notes, prior to August 17, 2004,
investors that own Upper DECS will own the applicable ownership interest of the
Treasury portfolio as a component of their Upper DECS.
WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATED TO THE UPPER
DECS AND THE SENIOR NOTES?
A beneficial owner of Upper DECS or senior notes, if separated from Upper
DECS, will be treated as owning an interest in a debt instrument that is
subject to the rules applicable to contingent payment debt instruments. If the
senior notes are subject to these rules, which Cendant believes they should be,
through May 17, 2004, and possibly thereafter, a holder of Upper DECS or senior
notes would be required to include in gross income an amount in excess of the
interest actually received, regardless of the holder's usual method of tax
accounting, and would generally recognize ordinary income or loss, rather than
capital gain or loss, on the sale, exchange or disposition of the notes or of
the Upper DECS, to the extent such income is allocable to the senior notes. A
beneficial owner of Stripped DECS will be required to include in gross income
any OID with respect to the Treasury securities as it accrues on a constant
yield to maturity basis. If the Treasury portfolio has replaced the senior
notes as a component of Upper DECS as a result of a successful remarketing of
the notes or a tax event redemption, a beneficial owner of Upper DECS will be
required to include in gross income its allocable share of OID on the Treasury
portfolio as it accrues on a constant yield to maturity basis.
We intend to report contract adjustment payments as income to you, but you
may want to consult your tax advisor concerning potential alternative
characterizations.
WHAT ARE THE RIGHTS AND PRIVILEGES OF OUR CD COMMON STOCK?
The shares of our CD common stock that you will be obligated to purchase
under the forward purchase contracts have one vote per share. For more
information, please see the discussion of our CD common stock in the
accompanying prospectus under the heading "Description of Capital Stock."
WHAT ARE THE USES OF PROCEEDS FROM THE OFFERING?
We expect to use the net proceeds from this offering of Upper DECS
(approximately $726.5 million, or approximately $835.6 million if the
underwriter exercises its overallotment option in full) for general corporate
purposes, which may include acquisitions.
S-14
THE OFFERING -- EXPLANATORY DIAGRAMS
The following diagrams demonstrate some of the key features of the forward
purchase contracts, the senior notes, the Upper DECS and the Stripped DECS, and
the transformation of Upper DECS into Stripped DECS and separate senior notes.
The prices and percentages below are for illustration only. There can be no
assurance that the actual prices and percentages will be limited by the range
of prices and percentages shown. The following diagrams also assume that the
senior notes are successfully remarketed, the interest rate on the senior notes
is reset on the fifth business day immediately preceding May 17, 2004 and early
settlement does not apply. For clarity, the following diagrams also use
approximate maturity and other dates.
FORWARD PURCHASE CONTRACT
Upper DECS and Stripped DECS both include a forward purchase contract
under which the investor agrees to purchase shares of our CD common stock at
the end of three years. In addition, these forward purchase contracts include
unsecured contract adjustment payments as shown in the diagrams on the
following pages.
[GRAPHIC OMITTED]
Value of Shares Delivered Percentage of Shares Delivered
at Maturity at Maturity(1)
P
e
V r Deliver Deliver Deliver
a c 100% of Between 76%
l 100% 132% e Shares(2) 76% of
u n and Shares(4)
e t 100% of
a Shares(3)
Reference Threshold g
Price (5) Appreciation Price (6) e
$21.53 $28.42 Reference Threshold
Price (5) Appreciation Price (6)
$21.53 $28.42
Common Stock Price
Common Stock Price
----------
(1) For each of the percentage categories shown, the percentage of shares to
be delivered upon settlement to an investor in Upper DECS or Stripped
DECS is determined by dividing (a) the related number of shares of CD
common stock to be delivered, as indicated in the footnote for each
category, by (b) an amount equal to $50, the stated amount, divided by
the reference price.
(2) If the applicable market value of our CD common stock is less than or
equal to $21.53, the number of shares to be delivered will be calculated
by dividing the stated amount by the reference price. The "applicable
market value" means the average of the closing price per share of our CD
common stock on each of the twenty consecutive trading days ending on the
third trading day immediately preceding August 17, 2004.
(3) If the applicable market value of our CD common stock is between $21.53
and $28.42, the number of shares to be delivered will be calculated by
dividing the stated amount by the applicable market value.
(4) If the applicable market value of our CD common stock is greater than or
equal to $28.42, the number of shares to be delivered will be calculated
by dividing the stated amount by the threshold appreciation price.
(5) The reference price of $21.53 is the last reported sales price of our CD
common stock on the NYSE on July 19, 2001.
(6) The "threshold appreciation price" is equal to $28.42.
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UPPER DECS
Each Upper DECS consists of two components as described below:
[GRAPHIC OMITTED]
Forward Purchase Contract Senior Note
(Owed to Investor) (Owed to Investor)
Common Stock
+
Contract Adjustment 6.75% per year
Payment paid quarterly
1.00% per year (reset at end of 2.75 years)
paid quarterly
(Owed to Cendant) (Owed to Investor)
$50 at Settlement $50 at Maturity
(end of year 3) (end of year 5)
o The investor owns the senior note but will pledge it to us to secure
its obligations under the forward purchase contract.
o Following the remarketing of the senior notes, the applicable
ownership interest in the Treasury portfolio will replace the senior
note as a component of the Upper DECS.
STRIPPED DECS
Each Stripped DECS consists of two components as described below:
[GRAPHIC OMITTED]
Zero-Coupon
Forward Purchase Contract Treasury Security
(Owed to Investor)
Common Stock
+
Contract Adjustment
Payment
1.00% per year
paid quarterly
(Owed to Cendant) (Owed to Investor)
$50 at Settlement $50 at Maturity
(end of year 3) (end of year 3)
The investor owns the Treasury security but will pledge it to us to secure its
obligations under the forward purchase contract.
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SENIOR NOTES
The senior notes have the terms described below:
[GRAPHIC OMITTED]
Senior Note
(Owed to Investor)
6.75% per year
paid quarterly
(reset at end of 2.75 years)
(Owed to Investor)
$50 at Maturity
(end of year 5)
TRANSFORMING UPPER DECS INTO STRIPPED DECS AND SENIOR NOTES
o To create a Stripped DECS, the investor separates an Upper DECS into
its components -- the forward purchase contract and the senior note --
and then combines the forward purchase contract with a zero coupon
Treasury security that matures concurrently with the maturity of the
forward purchase contract.
o The investor owns the Treasury security but will pledge it to us to
secure its obligations under the forward purchase contract.
o The Treasury security together with the forward purchase contract
constitutes a Stripped DECS. The senior note, which is no longer a
component of the Upper DECS, is tradeable as a separate security.
S-17
[GRAPHIC OMITTED]
Forward Forward Zero Coupon Senior
Purchase Senior Purchase Treasury Note
Contract Note Contract Security
(Owed to Investor) (Owed to Investor)
Common Stock
(Owed to Investor) (Owed to Investor) + 6.75% per year
Common Stock Contract Adjustment paid quarterly
+ 6.75% per year Payment
Contract Adjustment + paid quarterly + + (reset at end of
Payment 1.00% per year 2.75 years)
(reset at end of paid quarterly
1.00% per year 2.75 years)
paid quarterly
(Owed to Investor) (Owed to Cendant) (Owed to Investor) (Owed to Investor)
(Owed to Cendant) $50 at Settlement $50 at Settlement $50 at Settlement $50 at Settlement
$50 at Settlement (end of year 5) (end of year 3) (end of year 3) (end of year 5)
(end of year 3)
Upper DECS Stripped DECS
o Following the remarketing of the senior notes or a tax event
redemption, upon the transformation of an Upper DECS into a Stripped
DECS, the applicable ownership interest in the Treasury portfolio,
rather than the senior note, will be released to the holder and will
trade separately.
o The investor can also transform Stripped DECS and senior notes into
Upper DECS. Following that transformation, the Treasury security,
which is no longer a component of the Stripped DECS, is tradeable as a
separate security.
o The transformation of Upper DECS into Stripped DECS and senior notes,
and the transformation of Stripped DECS and senior notes into Upper
DECS, requires certain minimum amounts of securities, as more fully
provided in this prospectus supplement.
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RISK FACTORS
Before purchasing the Upper DECS, you should carefully consider the
following risk factors together with the other information contained and
incorporated by reference into this prospectus supplement and the accompanying
prospectus in order to evaluate an investment in the Upper DECS.
RISKS RELATED TO THE UPPER DECS
YOU ASSUME THE RISK THAT THE MARKET VALUE OF OUR CD COMMON STOCK MAY DECLINE.
Although as a holder of Upper DECS you will be the beneficial owner of the
related senior notes, Treasury portfolio or Treasury securities, as the case
may be, you do have an obligation pursuant to the forward purchase contract to
buy our CD common stock. Prior to August 17, 2004, unless you pay cash to
satisfy your obligation under the forward purchase contract or the forward
purchase contracts are terminated due to our bankruptcy, insolvency or
reorganization, either the principal of the appropriate applicable ownership
interest of the Treasury portfolio when paid at maturity or the proceeds
derived from the remarketing of the senior notes, in the case of Upper DECS, or
the principal of the related Treasury securities when paid at maturity, in the
case of Stripped DECS, will automatically be used to purchase a specified
number of shares of our CD common stock on your behalf. The market value of our
CD common stock that you receive on August 17, 2004 may not equal or exceed the
effective price per share of $21.53 paid by you for our CD common stock when
you purchased your Upper DECS. If the applicable market value of our CD common
stock is less than $21.53, the aggregate market value of our CD common stock
issued to you pursuant to each purchase contract on August 17, 2004 will be
less than the effective price per share paid by you for our CD common stock
when you purchased your Upper DECS. Accordingly, you assume the risk that the
market value of our CD common stock may decline, and that the decline could be
substantial.
THE OPPORTUNITY FOR EQUITY APPRECIATION PROVIDED BY AN INVESTMENT IN THE UPPER
DECS IS LESS THAN THAT PROVIDED BY A DIRECT INVESTMENT IN OUR CD COMMON STOCK.
Your opportunity for equity appreciation afforded by investing in the
Upper DECS is less than your opportunity for equity appreciation if you
invested directly in our CD common stock. This opportunity is less because the
market value of our CD common stock to be received by you pursuant to the
purchase contract on August 17, 2004 (assuming that the market value is the
same as the applicable market value of the common stock) will only exceed the
effective price per share of $21.53 paid by you for our CD common stock when
you purchased your Upper DECS if the applicable market value of our CD common
stock exceeds the threshold appreciation price (which represents an
appreciation of approximately 32% over $21.53). This situation occurs because
in this event, you would receive on August 17, 2004 only approximately 75.8%
(the percentage equal to $21.53 divided by the threshold appreciation price) of
the shares of our CD common stock that you would have received if you had made
a direct investment in shares of our CD common stock on the date of this
prospectus supplement.
THE TRADING PRICES FOR THE UPPER DECS WILL BE DIRECTLY AFFECTED BY THE TRADING
PRICES OF OUR CD
COMMON STOCK.
The trading prices of Upper DECS and Stripped DECS in the secondary market
will be directly affected by the trading prices of our CD common stock, the
general level of interest rates and our credit quality. It is impossible to
predict whether the price of our CD common stock or interest rates will rise or
fall. Trading prices of our CD common stock will be influenced by our operating
results and prospects and by economic, financial and other factors. In
addition, general market conditions, including the level of, and fluctuations
in, the trading prices of stocks generally, and sales of substantial amounts of
our CD common stock by us in the market after the offering of the Upper DECS,
or the perception that such sales could occur, could affect the price of our
common stock. Fluctuations in interest rates may give rise to arbitrage
opportunities based upon changes in the
S-19
relative value of our CD common stock underlying the purchase contracts and of
the other components of the Upper DECS. Any such arbitrage could, in turn,
affect the trading prices of the Upper DECS, Stripped DECS, notes and our CD
common stock.
If you hold Upper DECS, you will not be entitled to any rights with
respect to our CD common stock (including, without limitation, voting rights
and rights to receive any dividends or other distributions on our CD common
stock), but you will be subject to all changes affecting our CD common stock.
You will only be entitled to rights on our CD common stock if and when we
deliver shares of our CD common stock upon settlement of Upper DECS on August
17, 2004, or as a result of early settlement, as the case may be, and the
applicable record date, if any, for the exercise of rights or the receipt of
dividends or other distributions occurs after that date. For example, in the
event that an amendment is proposed to our certificate of incorporation or
by-laws in connection with a recapitalization of Cendant and the record date
for determining the stockholders of record entitled to vote on the amendment
occurs prior to delivery of our CD common stock, you will not be entitled to
vote on the amendment, although you will nevertheless be subject to any changes
in the powers, preferences or special rights of our CD common stock.
WE MAY ISSUE ADDITIONAL SHARES OF OUR CD COMMON STOCK AND THEREBY MATERIALLY
AND ADVERSELY AFFECT THE PRICE OF OUR CD COMMON STOCK.
The number of shares of our CD common stock that you are entitled to
receive on August 17, 2004, or as a result of early settlement of a purchase
contract, is subject to adjustment for certain events arising from stock splits
and combinations, stock dividends and certain other actions by us that modify
our capital structure. We will not adjust the number of shares of our CD common
stock that you are to receive on August 17, 2004 or as a result of early
settlement of a purchase contract, for other events, including offerings of
common stock for cash by us or in connection with acquisitions. We are not
restricted from issuing additional shares of our CD common stock during the
term of the purchase contracts and have no obligation to consider your
interests for any reason. If we issue additional shares of our CD common stock,
it may materially and adversely affect the price of our CD common stock and,
because of the relationship of the number of shares to be received on August
17, 2004 to the price of our CD common stock, such other events may adversely
affect the trading price of Upper DECS or Stripped DECS.
THE SECONDARY MARKET FOR THE UPPER DECS MAY BE ILLIQUID.
It is not possible to predict how Upper DECS, Stripped DECS or notes will
trade in the secondary market or whether the market will be liquid or illiquid.
There is currently no secondary market for our Upper DECS, our Stripped DECS or
the notes. We have applied to have the Upper DECS listed on the NYSE. If the
Stripped DECS or the senior notes are separately traded to a sufficient extent
that applicable exchange listing requirements are met, we may endeavor to cause
the Stripped DECS or senior notes to be listed on the exchange on which the
Upper DECS are then listed. There can be no assurance as to the liquidity of
any market that may develop for the Upper DECS, the Stripped DECS or the senior
notes, and that your ability to sell these securities or whether a trading
market, if it develops, will continue. In addition, in the event you were to
substitute Treasury securities for senior notes or senior notes for Treasury
securities, thereby converting your Upper DECS to Stripped DECS or your
Stripped DECS to Upper DECS, as the case may be, the liquidity of Upper DECS or
Stripped DECS could be adversely affected. There can be no assurance that the
Upper DECS, once listed, will be listed on the NYSE or that trading in the
Upper DECS, should they be listed, will not be suspended as a result of your
election to create Stripped DECS by substituting collateral, which could cause
the number of Upper DECS to fall below the requirement for listing securities
on the NYSE that at least 1,000,000 Upper DECS be outstanding at any time.
YOUR RIGHTS TO THE PLEDGED SECURITIES WILL BE SUBJECT TO OUR SECURITY INTEREST.
Although you will be the beneficial owner of the related senior notes,
Treasury securities or Treasury portfolio, as applicable, those securities will
be pledged to Chase Manhattan Bank, National
S-20
Association, as the collateral agent, to secure your obligations under the
related forward purchase contracts. Thus, your rights to the pledged securities
will be subject to our security interest. Additionally, notwithstanding the
automatic termination of the forward purchase contracts in the event that we
become the subject of a case under the U.S. Bankruptcy Code, the delivery of
the pledged securities to you may be delayed by the imposition of the automatic
stay of Section 362 of the Bankruptcy Code.
WE MAY REDEEM THE SENIOR NOTES UPON THE OCCURRENCE OF A TAX EVENT.
We have the option to redeem the senior notes, on not less than 30 days
nor more than 60 days prior written notice, in whole but not in part, at any
time if a tax event occurs and continues under the circumstances described in
this prospectus supplement. If we exercise this option, we will redeem the
senior notes at the redemption price plus accrued and unpaid interest, if any.
If we redeem the senior notes, we will pay the redemption price in cash to the
holders of the notes. If the tax event redemption occurs before May 17, 2004,
or before August 17, 2004 if the senior notes are not successfully remarketed
on the third business day immediately preceding May 17, 2004, the redemption
price payable to you as a holder of the Upper DECS will be distributed to the
collateral agent, who in turn will apply an amount equal to the redemption
price to purchase the Treasury portfolio on your behalf, and will remit the
remainder of the redemption price, if any, to you, and the Treasury portfolio
will be substituted for the senior notes as collateral to secure your
obligations under the forward purchase contracts related to the Upper DECS. If
your senior notes are not components of Upper DECS, you, rather than the
collateral agent, will receive redemption payments. There can be no assurance
as to the effect on the market prices for the Upper DECS if we substitute the
Treasury portfolio as collateral in place of any senior notes so redeemed. A
tax event redemption will be a taxable event to the holders of the senior
notes.
THE FORWARD PURCHASE CONTRACT AGREEMENT WILL NOT BE QUALIFIED UNDER THE TRUST
INDENTURE ACT AND THE OBLIGATIONS OF THE FORWARD PURCHASE CONTRACT AGENT ARE
LIMITED.
The purchase contract agreement between the forward purchase contract
agent and us will not be qualified as an indenture under the Trust Indenture
Act of 1939, and the forward purchase contract agent will not be required to
qualify as a trustee under the Trust Indenture Act. Thus, you will not have the
benefit of the protection of the Trust Indenture Act with respect to the
purchase contract agreement or the forward purchase contract agent. The senior
notes constituting a part of the Upper DECS will be issued pursuant to an
indenture, which has been qualified under the Trust Indenture Act. Accordingly,
if you hold Upper DECS, you will not have the benefit of the protections of the
Trust Indenture Act other than to the extent applicable to a senior note
included in an Upper DECS. The protections generally afforded the holder of a
security issued under an indenture that has been qualified under the Trust
Indenture Act include:
o disqualification of the indenture trustee for "conflicting interests,"
as defined under the Trust Indenture Act;
o provisions preventing a trustee that is also a creditor of the issuer
from improving its own credit position at the expense of the security
holders immediately prior to or after a default under such indenture;
and
o the requirement that the indenture trustee deliver reports at least
annually with respect to certain matters concerning the indenture
trustee and the securities.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE UPPER DECS ARE UNCLEAR.
No statutory, judicial or administrative authority directly addresses the
treatment of the Upper DECS or instruments similar to the Upper DECS for United
States federal income tax purposes. As a result, the United States federal
income tax consequences of the purchase, ownership and disposition of Upper
DECS are not entirely clear. In addition, any gain on the disposition of a
senior note prior
S-21
to the purchase contract settlement date generally will be treated as ordinary
interest income; thus, the ability to offset such interest income with a loss,
if any, on a forward purchase contract may be limited. For additional
tax-related risks, see "Prospectus Supplement Summary -- The Offering."
BECAUSE THE SENIOR NOTES MAY BE ISSUED WITH ORIGINAL ISSUE DISCOUNT, YOU MAY
HAVE TO INCLUDE INTEREST IN YOUR TAXABLE INCOME BEFORE YOU RECEIVE CASH.
If the senior notes are subject to the rules applicable to contingent
payment debt instruments, which Cendant believes they should be, the senior
notes will be issued with original issue discount for United States federal
income tax purposes. In such event, original issue discount will accrue from
the issue date of the senior notes and will be included in your gross income
for United States income tax purposes before you receive a cash payment to
which the income is attributable.
THE TRADING PRICE OF THE SENIOR NOTES MAY NOT FULLY REFLECT THE VALUE OF THEIR
ACCRUED BUT UNPAID
INTEREST.
The senior notes may trade at a price that does not fully reflect the
value of their accrued but unpaid interest. If you dispose of your notes
between record dates for interest payments, you will be required to include in
gross income the daily portions of original issue discount through the date of
disposition in income as ordinary income, and to add this amount to your
adjusted tax basis in the notes disposed of. To the extent the selling price is
less than your adjusted tax basis, you will recognize a loss.
RISKS RELATED TO CENDANT
WE HAVE HAD ACCOUNTING IRREGULARITIES AND RELATED LITIGATION AND GOVERNMENTAL
INVESTIGATIONS.
Cendant was created in December 1997, through the merger of HFS
Incorporated into CUC International, Inc. with CUC surviving and changing its
name to Cendant Corporation. On April 15, 1998, Cendant announced that in the
course of transferring reponsibility for Cendant's accounting functions from
Cendant personnel associated with CUC prior to the merger to Cendant personnel
associated with HFS before the merger and preparing for the report of first
quarter 1998 financial results, Cendant discovered accounting irregularities in
some of the CUC business units. As a result, Cendant, together with its counsel
and assisted by auditors, immediately began an intensive investigation. As a
result of the findings of the investigations, Cendant restated its previously
reported financial results for 1997, 1996 and 1995 and the six months ended
June 30, 1998.
Following the April 15, 1998 announcement of the discovery of accounting
irregularities in the former business units of CUC, approximately 70 lawsuits
claiming to be class actions, three lawsuits claiming to be brought
derivatively on Cendant's behalf and several individual lawsuits and
arbitration proceedings were commenced in various courts and other forums
against Cendant and other defendants by or on behalf of persons claiming to be
stockholders of Cendant and persons claiming to have purchased or otherwise
acquired securities or options issued by CUC or Cendant between May 1995 and
August 1998.
The SEC and the United States Attorney for the District of New Jersey have
conducted investigations relating to the matters referenced above. As a result
of the findings from our internal investigations, we made all adjustments
considered necessary by Cendant, which are reflected in its previously filed
restated financial statements for the years ended December 31, 1997, 1996 and
1995 and for the six months ended June 30, 1998. On June 14, 2000, pursuant to
an offer of settlement made by Cendant, the SEC issued an Order Instituting
Public Administrative Proceedings Pursuant to Section 21C of the Securities
Exchange Act of 1934, Making Findings and Imposing a Cease and Desist Order. In
such Order, the SEC found that we had violated certain financial reporting
provisions of the Exchange Act and ordered us to cease and desist from
committing any future violations of such provisions. No financial penalties
were imposed against us.
On December 7, 1999, we announced that we had reached a preliminary
agreement to settle the principal securities class action pending against
Cendant in the U.S. District Court in Newark, New
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Jersey, brought on behalf of purchasers of all Cendant and CUC publicly traded
securities, other than PRIDES, between May 1995 and August 1998. The PRIDES
litigation had previously been settled through the issuance of rights. Under
the settlement agreement, we would pay the class members approximately $2.85
billion in cash and 50% of any recovery we may obtain in connection with claims
we have asserted against CUC's former public auditor. The definitive settlement
document was approved by the U.S. District Court by order dated August 14,
2000. Certain parties in the class action have appealed various aspects of the
District Court's orders approving the settlement. The U.S. Court of Appeals for
the Third Circuit heard oral arguments for all appeals on May 22, 2001; the
Court reserved its decision. The settlement agreement required us to post
collateral in the form of credit facilities and/or surety bonds by November 13,
2000, which we have done.
The settlement does not encompass all litigations asserting claims against
us associated with the accounting irregularities. We do not believe that it is
feasible to predict or determine the final outcome or resolution of these
unresolved proceedings. An adverse outcome from such unresolved proceedings
could be material with respect to earnings in any given reporting period.
However, we do not believe that the impact of such unresolved proceedings
should result in a material liability to us in relation to our financial
position or liquidity.
OUR HOLDING COMPANY STRUCTURE RESULTS IN STRUCTURAL SUBORDINATION AND MAY
AFFECT OUR ABILITY TO MAKE PAYMENTS ON THE UPPER DECS
The Upper DECS are obligations exclusively of Cendant. We are a holding
company and, accordingly, substantially all of our operations are conducted
through our subsidiaries. As a result, our cash flow and our ability to service
our debt, including the Upper DECS, depends upon the earnings of our
subsidiaries. In addition, we depend on the distribution of earnings, loans or
other payments by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our
subsidiaries have no obligation to pay any amounts due on the Upper DECS or to
provide us with funds for our payment obligations, whether by dividends,
distributions, loans or other payments. In addition, any payment of dividends,
distributions, loans or advances by our subsidiaries to us could be subject to
statutory or contractual restrictions. Payments to us by our subsidiaries will
also be contingent upon our subsidiaries' earnings and business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of the
Upper DECS to participate in those assets, will be effectively subordinated to
the claims of that subsidiary's creditors, including trade creditors. In
addition, even if we were a creditor of any of our subsidiaries, our rights as
a creditor would be subordinate to any security interest in the assets of our
subsidiaries and any indebtedness of our subsidiaries senior to that held by
us.
RATIO OF EARNINGS TO FIXED CHARGES
The table below sets forth the ratio of earnings to fixed charges of
Cendant and its consolidated subsidiaries on a historical basis for each of the
periods indicated:
THREE MONTHS FISCAL YEAR ENDED DECEMBER 31,
ENDED MARCH 31, ----------------------------------------------------------
2001 2000 1999 1998 1997 1996
---------------- ---------- ------ ---------- ---------- ----------
3.46x 2.67x * 1.33x 1.50x 2.64x
----------
* Earnings were inadequate to cover fixed charges for the year ended
December 31, 1999 (deficiency of $688 million) as a result of unusual
charges of $3,032 million, partially offset by $1,109 million related to
net gains on dispositions of businesses. Excluding such charges and net
gain, the ratio of earnings to fixed charges was 2.98x.
The ratio of earnings to fixed charges is computed by dividing (i) income
(loss) before income taxes, minority interest and equity in Homestore.com, plus
fixed charges, less equity income (loss) in
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unconsolidated affiliates and minority interest by (ii) fixed charges. Fixed
charges consist of interest expense on all indebtedness (including amortization
of deferred financing costs) and the portion of operating lease rental expense
that is representative of the interest factor (deemed to be one-third of
operating lease rentals.)
USE OF PROCEEDS
We estimate that the net proceeds from the sale of Upper DECS in this
offering will be approximately $726.5 million (approximately $835.6 million if
the underwriter exercises its overallotment option in full), after deducting
the underwriting discount and estimated offering expenses payable by us. We
will use the net proceeds from this offering for general corporate purposes,
which may include acquisitions.
PRICE RANGE OF CD COMMON STOCK AND DIVIDEND POLICY
Our CD common stock is listed and traded on the New York Stock Exchange
under the symbol "CD." The following table provides, for the calendar quarters
indicated, the high and low intra-day sales prices per share on the New York
Stock Exchange for the periods shown below as reported on the New York Stock
Exchange Composite Tape.
PERIOD HIGH LOW
------ --------- ---------
1999:
First Quarter ......................... $ 22.44 $ 15.31
Second Quarter ........................ 20.75 15.50
Third Quarter ......................... 22.63 17.00
Fourth Quarter ........................ 26.56 14.56
2000:
First Quarter ......................... 24.31 16.19
Second Quarter ........................ 18.75 15.25
Third Quarter ......................... 14.75 10.63
Fourth Quarter ........................ 12.56 8.50
2001:
First Quarter ......................... 14.76 9.63
Second Quarter ........................ 20.37 13.89
Third Quarter through July 19 ......... 21.53 20.11
On July 19, 2001, the last reported sale price of our CD common stock on
the NYSE was $21.53. As of March 15, 2001, there were approximately 9,171
holders of record of our CD common stock.
We have never paid a cash dividend on our capital stock. We do not
anticipate paying cash dividends on our capital stock in the foreseeable future
and intend to retain all earnings to finance the operations and expansion of
our business and to reduce debt. The payment of cash dividends in the future
will depend on our earnings, financial condition and capital needs and on other
factors deemed relevant by our board of directors at that time. For further
information regarding our payment of dividends, see "Summary Comparison of
Terms of Existing Common Stock with Terms of CD Common Stock and Move.com
Common Stock" in our Proxy Statement, dated February 10, 2000, which is
incorporated herein by reference.
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CAPITALIZATION
The following table sets forth cash and cash equivalents, current portion
of long-term debt and the capitalization of Cendant at March 31, 2001 on a
historical, combined pro forma and adjusted combined pro forma basis giving
effect to:
o the acquisition of Fairfield Communities, Inc. for $764 million,
including transaction costs and expenses and the conversion of
Fairfield employee stock options into CD common stock options, and the
subsequent repayment of $128 million of Fairfield debt;
o the net proceeds of $986 million (gross proceeds of $1.0 billion) from
the offering of zero-coupon convertible debentures issued in May 2001;
o the estimated net proceeds of $727 million (gross proceeds of $750
million) from the issuance of 15 million Upper DECS in July 2001; and
o the planned acquisition of Galileo International, Inc. for
approximately $3,052 million, including estimated transaction costs
and expenses and the conversion of Galileo employee stock options into
CD common stock options.
This table should be read in conjunction with the financial statements and
related notes thereto included in Cendant's Quarterly Report on Form 10-Q/A for
the quarterly period ended March 31, 2001 and its pro forma financial
information giving effect to the planned acquisition of Galileo and the May
2001 issuance of the zero-coupon convertible debentures included in our Form
8-K dated July 19, 2001, which are incorporated herein by reference.
AS OF MARCH 31, 2001
---------------------------------------------
ADJUSTED
HISTORICAL COMBINED COMBINED
CENDANT PRO FORMA(2) PRO FORMA(3)
------------ -------------- -------------
Cash and cash equivalents ................................................ $ 2,092 $ 2,959 $ 2,970
======== ======== ========
Current portion of long-term debt ........................................ $ 267 $ 1,267 $ 1,455
======== ======== ========
Long-term debt(1):
Long-term debt exclusive of Upper DECS senior notes ..................... $ 3,903 $ 3,903 $ 5,011
Upper DECS senior notes ................................................. -- 750 750
-------- -------- --------
3,903 4,653 5,761
-------- -------- --------
Mandatorily redeemable preferred interest in a subsidiary ................ 375 375 375
-------- -------- --------
Stockholders' equity:
Preferred stock, $.01 par value - authorized 10 million shares; none
issued and outstanding ................................................ -- -- --
CD common stock, $.01 par value(4) - authorized 2 billion shares;
issued 1,024,993,334, 1,024,993,334 and 1,025,115,955 shares(5) ....... 10 10 11
Move.com common stock, $.01 par value - authorized 500 million
shares; issued and outstanding 1,861,995 shares; notional issued
shares with respect to Cendant Group's retained interest
22,500,000 ............................................................ -- -- --
Additional paid-in capital .............................................. 6,861 6,876 9,253
Retained earnings ....................................................... 2,266 2,266 2,266
Accumulated other comprehensive loss .................................... (234) (234) (234)
CD treasury stock, at cost, 178,239,362 shares .......................... (3,560) (3,560) (3,560)
-------- -------- --------
Total stockholders' equity ............................................... 5,343 5,358 7,736
-------- -------- --------
Total capitalization ..................................................... $ 9,621 $ 10,386 $ 13,872
======== ======== ========
----------
(1) Long-term debt excludes an aggregate of $9.6 billion of indebtedness of
PHH and Avis Group, which are self-sufficient in managing their funding
sources to ensure adequate liquidity to finance assets under management
and mortgage programs. Such assets and related debt are presented
separately in Cendant's consolidated balance sheet.
(2) Reflects the pro forma effect of the acquisition of Fairfield, the
subsequent repayment of Fairfield debt, the issuance of zero-coupon
convertible debentures and the issuance of the Upper DECS. The issuance
of the zero-coupon convertible debentures is included in current portion
of long-term debt.
(3) Reflects the pro forma effect of transactions included in Note (2) above
and the pro forma effect of the planned acquisition of Galileo.
(4) Our CD common stock is the only series of common stock currently
outstanding. Although we had previously issued an additional series of
common stock called "Move.com common stock," no shares of Move.com common
stock currently remain outstanding.
(5) Does not include 34,830,000 shares of CD common stock (40,054,500 shares
if the underwriter exercises its overallotment option in full) reserved
for issuance upon settlement of the forward purchase contracts.
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ACCOUNTING TREATMENT
The net proceeds from the sale of the Upper DECS will be allocated between
the forward purchase contract and the senior notes in our financial statements.
The present value of the Upper DECS contract adjustment payments will be
initially charged to equity, with an offsetting credit to liabilities.
Subsequent contract adjustment payments will be allocated between this
liability account and interest expense based on a constant rate calculation
over the life of the transaction.
The Upper DECS forward purchase contracts are forward transactions in our
CD common stock. Upon settlement of a forward purchase contract, we will
receive $50 on that forward purchase contract and will issue the requisite
number of shares of our CD common stock. The $50 we receive will be credited to
stockholders' equity allocated between our CD common stock and additional
paid-in-capital accounts.
Before the issuance of shares of our CD common stock upon settlement of
the forward purchase contracts, the Upper DECS forward purchase contracts will
be reflected in our diluted earnings per share calculations using the treasury
stock method. Under this method, the number of shares of our CD common stock
used in calculating diluted earnings per share is deemed to be increased by the
excess, if any, of the number of shares that would be issued upon settlement of
the forward purchase contracts less the number of shares that could be
purchased by us in the market, at the average market price during the period,
using the proceeds receivable upon settlement. Consequently, we anticipate that
there will be no dilutive effect on our earnings per share except during
periods when the average market price of our CD common stock is above $28.42.
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DESCRIPTION OF THE UPPER DECS AND STRIPPED DECS
The summary of the Upper DECS and the Stripped DECS and certain provisions
of the related forward purchase contract agreement set forth below is not
complete and is qualified in all respects by reference to that agreement, a
form of which has been filed as an exhibit to the registration statement of
which this prospectus supplement forms a part.
We will issue the Upper DECS under the forward purchase contract agreement
between the purchase contract agent and us. We will issue 15,000,000 Upper DECS
(17,250,000 Upper DECS if the underwriter exercises its overallotment option in
full), each with a stated amount of $50.
Each Upper DECS will consist of a unit comprising:
(1) a forward purchase contract pursuant to which
o the holder will purchase from us no later than August 17, 2004, for
the stated amount, shares of our CD common stock equal to the
settlement rate described below under "Description of the Forward
Purchase Contracts -- Purchase of CD Common Stock,"
o we will make unsecured contract adjustment payments to the holder at
the rate of 1.00% of the $50 stated amount per year, paid quarterly,
subject to our right to defer these payments; and
(2) either
o a senior note having a principal amount equal to the stated amount, or
o following a successful remarketing of the senior notes on the fifth
business day immediately preceding May 17, 2004, or the occurrence of
a tax event redemption prior to August 17, 2004, the appropriate
applicable ownership interest in a portfolio of zero-coupon U.S.
Treasury securities, which we refer to as the Treasury portfolio.
"Applicable ownership interest" means, with respect to an Upper DECS and
the U.S. Treasury securities in the Treasury portfolio:
o a 1/20, or 5.0%, undivided beneficial ownership interest in a $1,000
principal or interest amount of a principal or interest strip in a
U.S. Treasury security included in the Treasury portfolio that matures
on or prior to August 15, 2004; and
o for the scheduled interest payment date on the senior notes that
occurs on August 17, 2004, in the case of a successful remarketing of
the notes, or for each scheduled interest payment date on the senior
notes that occurs after the tax event redemption date and on or before
August 17, 2004, in the case of a tax event redemption, a 0.0844%
undivided beneficial ownership interest in a $1,000 principal or
interest amount of a principal or interest strip in a U.S. Treasury
security included in the Treasury portfolio that matures on or prior
to that interest payment date.
For United States federal income tax purposes, the purchase price of each
Upper DECS will be allocated between the related forward purchase contract and
the senior note in proportion to their respective fair market values at the
time of issuance. We expect that, at the time of issuance, the fair market
value of each senior note will be $49.50 and the fair market value of each
forward purchase contract will be $0. This position generally will be binding
on each beneficial owner of each Upper DECS, but not on the IRS.
The senior note or the appropriate applicable ownership interest in the
Treasury portfolio, as applicable, forming a part of the Upper DECS will be
pledged to the collateral agent to secure the holder's obligation to purchase
shares of our CD common stock under the related forward purchase contract.
CREATING STRIPPED DECS
Unless the Treasury portfolio has replaced the senior notes as a component
of the Upper DECS as the result of a successful remarketing of the notes or a
tax event redemption, each holder of Upper
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DECS will have the right, at any time on or prior to the seventh business day
immediately preceding August 17, 2004, to substitute for the senior related
notes held by the collateral agent zero- coupon U.S. Treasury securities (CUSIP
No. 912820BK2) maturing on August 15, 2004, which we refer to as Treasury
securities, in a total principal amount at maturity equal to the aggregate
principal amount of the notes for which substitution is being made. This
substitution will create Stripped DECS, and the applicable senior notes will be
released to the holder.
Because Treasury securities are issued in multiples of $1,000, holders of
Upper DECS may make this substitution only in integral multiples of 20 Upper
DECS. If the Treasury portfolio has replaced the notes as a component of the
Upper DECS as the result of a successful remarketing of the notes or a tax
event redemption, holders of Upper DECS may make substitutions only in integral
multiples of Upper DECS such that both the Treasury securities to be deposited
and those to be released are in integral multiples of $1,000, at any time on or
prior to the second business day immediately preceding August 17, 2004. In such
a case, holders would also obtain the release of the appropriate applicable
ownership interest in the Treasury portfolio rather than a release of the
applicable senior notes.
Each Stripped DECS will consist of a unit with a stated amount of $50 and
will contain two components:
(1) a forward purchase contract pursuant to which
o the holder will purchase from us no later than August 17, 2004, for
the stated amount, shares of our CD common stock equal to the
settlement rate described below under "Description of the Forward
Purchase Contracts -- Purchase of CD Common Stock," and
o we will make unsecured contract adjustment payments to the holder at
the rate of 1.00% of $50 stated amount per year, paid quarterly,
subject to our right to defer these payments; and
(2) a 1/20, or 5.0%, undivided beneficial ownership interest in a Treasury
security that matures on August 15, 2004 and has a principal amount at maturity
of $1,000.
For example, to create 20 Stripped DECS if the Treasury portfolio has not
replaced the senior notes as a component of the Upper DECS, the Upper DECS
holder will:
o deposit with the collateral agent a Treasury security that matures on
August 15, 2004 and has a principal amount at maturity of $1,000, and
o transfer 20 Upper DECS to the forward purchase contract agent
accompanied by a notice stating that the holder has deposited a
Treasury security with the collateral agent and requesting the release
to the holder of the 20 notes relating to the 20 Upper DECS.
Upon that deposit and the receipt of an instruction from the forward
purchase contract agent, the collateral agent will release the related 20 notes
from the pledge under the pledge agreement, free and clear of our security
interest, to the forward purchase contract agent. The forward purchase contract
agent then will
o cancel the 20 Upper DECS,
o transfer the 20 related senior notes to the holder, and
o deliver 20 Stripped DECS to the holder.
The Treasury security will be substituted for the senior notes and will be
pledged to the collateral agent to secure the holder's obligation to purchase
our CD common stock under the related forward purchase contracts. The related
notes released to the holder thereafter will trade separately from the
resulting Stripped DECS. Contract adjustment payments will be payable by us on
these Stripped DECS on each payment date from the later of November 17, 2001
and the last payment date on which contract adjustment payments were made. In
addition, OID will accrue on the related Treasury securities.
RECREATING UPPER DECS
Unless the Treasury portfolio has replaced the senior notes as a component
of the Upper DECS as a result of a successful remarketing of the senior notes
or a tax event redemption, each holder of
S-28
Stripped DECS will have the right, at any time on or prior to the seventh
business day immediately preceding August 17, 2004, to substitute for the
related Treasury securities held by the collateral agent senior notes in an
aggregate principal amount equal to the aggregate principal amount at maturity
of the Treasury securities. This substitution would create Upper DECS, and the
applicable Treasury securities would be released to the holder.
Because Treasury securities are issued in integral multiples of $1,000,
holders of Stripped DECS may make this substitution only in integral multiples
of 20 Stripped DECS. If the Treasury portfolio has replaced the senior notes as
a component of the Upper DECS as the result of a successful remarketing of the
notes or a tax event redemption, holders of the Stripped DECS may make this
substitution at any time on or prior to the second business day immediately
preceding August 17, 2004, but using the appropriate applicable ownership
interest in the Treasury portfolio instead of senior notes and only in integral
multiples of Stripped DECS such that both the Treasury securities to be
deposited and those to be released are in integral multiples of $1,000 (32,000
Stripped DECS).
For example, to create 20 Upper DECS, the Stripped DECS holder will:
o deposit with the collateral agent 20 senior notes, which senior notes
must have been purchased in the open market at the holder's expense,
and
o transfer 20 Stripped DECS certificates to the forward purchase
contract agent accompanied by a notice stating that the Stripped DECS
holder has deposited 20 senior notes with the collateral agent and
requesting that the forward purchase contract agent instruct the
collateral agent to release the Treasury security relating to those
Stripped DECS.
Upon that deposit and the receipt of an instruction from the forward
purchase contract agent, the collateral agent will release the related Treasury
securities from the pledge under the pledge agreement, free and clear of our
security interest, to the forward purchase contract agent. The forward purchase
contract agent will then
o cancel the 20 Stripped DECS,
o transfer the related Treasury security to the holder of Stripped DECS,
and
o deliver 20 Upper DECS to the holder.
The substituted senior notes will be pledged with the collateral agent to
secure the Upper DECS holder's obligation to purchase shares of our CD common
stock under the related forward purchase contracts.
Holders that elect to substitute pledged securities, thereby creating
Stripped DECS or recreating Upper DECS, will be responsible for any fees or
expenses payable in connection with the substitution.
CURRENT PAYMENTS
Holders of Upper DECS are entitled to receive aggregate cash payments at
the rate of 7.75% of the $50 stated amount per year from and after the original
issue date, payable quarterly in arrears. The quarterly payments on the Upper
DECS will consist of interest on the related senior note or cash distributions
on the applicable ownership interest in the Treasury portfolio, as applicable,
payable at the rate of 6.75% of the stated amount per year, and quarterly
contract adjustment payments payable by us at the rate of 1.00% of the stated
amount per year, subject to our right to defer the payment of such contract
adjustment payments. In addition, if the senior notes are subject to the rules
applicable to contingent payment debt instruments, which Cendant believes they
should be, OID will accrue on the related notes for United States federal
income tax purposes.
Holders who create Stripped DECS will be entitled to receive quarterly
contract adjustment payments payable by us at the rate of 1.00% of the stated
amount per year, subject to our right to defer the payments of such contract
adjustment payments. In addition, OID will accrue on the related Treasury
securities.
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Cendant Corporation's obligations with respect to the contract adjustment
payments will be subordinate and junior in right of payment to Cendant
Corporation's senior indebtedness. "Senior indebtedness" with respect to the
contract adjustment payments means indebtedness of any kind, provided the
instrument under which such indebtedness is incurred does not expressly provide
otherwise. The senior notes will be Cendant Corporation's senior unsecured
obligations and will rank equal in right of payment with all of Cendant
Corporation's other senior unsecured obligations. See "Description of Debt
Securities" in the accompanying prospectus.
VOTING AND CERTAIN OTHER RIGHTS
Holders of forward purchase contracts forming part of the Upper DECS or
Stripped DECS, in their capacities as such holders, will have no voting or
other rights in respect of the CD common stock.
LISTING OF THE SECURITIES
We have applied to have the Upper DECS listed on the NYSE. Unless and
until substitution has been made as described in "-- Creating Stripped DECS" or
"-- Recreating Upper DECS," neither the senior note nor Treasury portfolio
component of an Upper DECS nor the Treasury security component of a Stripped
DECS will trade separately from Upper DECS or Stripped DECS. The senior note or
Treasury portfolio component will trade as a unit with the forward purchase
contract component of the Upper DECS, and the Treasury security component will
trade as a unit with the forward purchase contract component of the Stripped
DECS. If Stripped DECS or senior notes are separately traded to a sufficient
extent that the applicable exchange listing requirements are met, we may
endeavor to cause the Stripped DECS or senior notes to be listed on the
exchange on which the Upper DECS are then listed.
MISCELLANEOUS
We or our affiliates may from time to time, to the extent permitted by
law, purchase any of the Upper DECS, Stripped DECS or senior notes which are
then outstanding by tender, in the open market or by private agreement.
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DESCRIPTION OF THE FORWARD PURCHASE CONTRACTS
The summary of the forward purchase contract agreement, forward purchase
contracts, pledge agreement, remarketing agreement, indenture and supplemental
indenture set forth below is not complete and is qualified in all respects by
reference to those agreements, forms of which have been filed as exhibits to
the registration statement of which this prospectus supplement forms a part.
PURCHASE OF CD COMMON STOCK
Each forward purchase contract underlying an Upper DECS or Stripped DECS
will obligate the holder of the forward purchase contract to purchase, and us
to sell, on August 17, 2004, for an amount in cash equal to $50, the stated
amount of an Upper DECS, shares of our CD common stock equal to the "settlement
rate." The settlement rate will be calculated, subject to adjustment under the
circumstances described in "-- Anti-Dilution Adjustments," as follows:
o if the applicable market value is equal to or greater than the
threshold appreciation price of $28.42, which is approximately 32%
above the reference price of $21.53, the settlement rate will be
1.7593, which is equal to the stated amount divided by the threshold
appreciation price. Accordingly, if, between the date of this
prospectus supplement and the period during which the applicable
market value is measured, the market price for our CD common stock
increases to an amount that is higher than the threshold appreciation
price, the aggregate market value of the shares of our CD common stock
issued upon settlement of each purchase contract will be higher than
the stated amount, assuming that the market price of our CD common
stock on the date of settlement is the same as the applicable market
value of our CD common stock. If the market price is the same as the
threshold appreciation price, the aggregate market value of the shares
will be equal to the stated amount, assuming that the market price of
our CD common stock on the date of settlement is the same as the
applicable market value of our CD common stock;
o if the applicable market value is less than the threshold appreciation
price but greater than the reference price, the settlement rate will
be equal to the stated amount divided by the applicable market value.
Accordingly, if the market price for our CD common stock increases
between the date of this prospectus supplement and the period during
which the applicable market value is measured, but the market price is
less than the threshold appreciation price, the aggregate market value
of the shares of our CD common stock issued upon settlement of each
purchase contract will be equal to the stated amount, assuming that
the market price of our CD common stock on the date of settlement is
the same as the applicable market value of our CD common stock; and
o if the applicable market value is less than or equal to the reference
price, the settlement rate will be 2.3223, which is equal to the
stated amount divided by the reference price. Accordingly, if the
market price for our CD common stock decreases between the date of
this prospectus supplement and the period during which the applicable
market value is measured, the aggregate market value of the shares of
our CD common stock issued upon settlement of each purchase contract
will be less than the stated amount, assuming that the market value is
the same as the applicable market value of our CD common stock. If the
market price stays the same, the aggregate market value of the shares
will be equal to the stated amount, assuming that the market price of
our CD common stock on the date of settlement is the same as the
applicable market value of our CD common stock.
"Applicable market value" means the average of the closing price per share
of our CD common stock on each of the twenty consecutive trading days ending on
the third trading day immediately preceding August 17, 2004.
"Closing price" of our CD common stock on any date of determination means
the closing sale price (or, if no closing price is reported, the last reported
sale price) of our CD common stock on the NYSE on that date or, if our CD
common stock is not listed for trading on the NYSE on any such date, as
reported in the composite transactions for the principal United States national
or regional
S-31
securities exchange on which our CD common stock is so listed. If our CD common
stock is not so listed on a United States national or regional securities
exchange, the closing price means the last closing sale price of our CD common
stock as reported by the Nasdaq Stock Market, or, if our CD common stock is not
so reported, the last quoted bid price for our CD common stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization. If the bid price is not available, the closing price means the
market value of our CD common stock on the date of determination as determined
by a nationally recognized independent investment banking firm retained by us
for this purpose.
A "trading day" means a day on which our CD common stock is not suspended
from trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and has traded at least once
on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of our CD
common stock.
We will not issue any fractional shares of our CD common stock pursuant to
the forward purchase contracts. In lieu of fractional shares otherwise issuable
(calculated on an aggregate basis) in respect of forward purchase contracts
being settled by a holder of Upper DECS or Stripped DECS, the holder will be
entitled to receive an amount of cash equal to the fraction of a share times
the applicable market value.
On the business day immediately preceding August 17, 2004, unless:
o a holder of Upper DECS or Stripped DECS has settled the related
forward purchase contracts through the early delivery of cash to the
purchase contract agent in the manner described under "-- Early
Settlement,"
o a holder of Upper DECS that include senior notes has settled the
related forward purchase contracts with separate cash on the business
day immediately preceding August 17, 2004 pursuant to prior notice
given in the manner described under "-- Notice to Settle with Cash,"
o a holder of Upper DECS has had the notes related to the holder's
purchase contracts remarketed on the third business day immediately
preceding May 17, 2004 in the manner described herein, or
o an event described under "-- Termination" below has occurred,
then
o in the case of Upper DECS, unless the Treasury portfolio has replaced
the senior notes as a component of the Upper DECS as the result of a
successful remarketing of the senior notes or a tax event redemption,
we will exercise our rights as a secured party to dispose of the
senior notes in accordance with applicable law, and
o in the case of Stripped DECS or, in the event that the Treasury
portfolio has replaced the senior notes as a component of the Upper
DECS as the result of a successful remarketing of the senior notes or
a tax event redemption, in the case of Upper DECS, the principal
amount of the related Treasury securities, or the appropriate
applicable ownership interest of the Treasury portfolio, as
applicable, when paid at maturity, will automatically be applied to
satisfy in full the holder's obligation to purchase shares of our CD
common stock under the forward related purchase contracts.
The CD common stock will then be issued and delivered to the holder or the
holder's designee, upon presentation and surrender of the certificate
evidencing the Upper DECS and payment by the holder of any transfer or similar
taxes payable in connection with the issuance of our CD common stock to any
person other than the holder.
Each holder of Upper DECS or Stripped DECS, by acceptance of these
securities, will be deemed to have:
o irrevocably agreed to be bound by the terms and provisions of the
related forward purchase contracts and the pledge agreement and to
have agreed to perform its obligations thereunder for so long as the
holder remains a holder of the Upper DECS, and
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o duly appointed the forward purchase contract agent as the holder's
attorney-in-fact to enter into and perform the related forward
purchase contracts and pledge agreement on behalf of and in the name
of the holder.
In addition, each beneficial owner of Upper DECS or Stripped DECS, by
acceptance of this interest, will be deemed to have agreed to treat
o itself as the owner of the related senior notes, the appropriate
applicable ownership interest of the Treasury portfolio or the
Treasury securities, as the case may be, and
o the senior notes as indebtedness for all tax purposes.
REMARKETING
Pursuant to a remarketing agreement to be entered into among the
remarketing agent, the forward purchase contract agent and us, unless a tax
event redemption has occurred, the senior notes of Upper DECS holders will be
remarketed on the fifth business day immediately preceding May 17, 2004.
The remarketing agent will use its reasonable efforts to remarket these
notes at an aggregate price of approximately 100.5% of the Treasury portfolio
purchase price described below. The portion of the proceeds from the
remarketing equal to the Treasury portfolio purchase price will be applied to
purchase a Treasury portfolio consisting of:
o interest or principal strips of U.S. Treasury securities that mature
on or prior to August 15, 2004 in an aggregate amount equal to the
principal amount of the senior notes included in Upper DECS, and
o interest or principal strips of U.S. Treasury securities that mature
on or prior to August 15, 2004 in an aggregate amount equal to the
aggregate interest payment that would be due on that date on the
principal amount of the senior notes included in Upper DECS if the
interest rate on the senior notes were not reset as described in
"Description of the Senior Notes -- Market Rate Reset."
The Treasury portfolio will be substituted for the notes and will be pledged to
the collateral agent to secure the Upper DECS holders' obligation to purchase
our common stock under the forward purchase contracts.
In addition, the remarketing agent may deduct, as a remarketing fee, an
amount not exceeding 25 basis points (0.25%) of the Treasury portfolio purchase
price from any amount of the proceeds in excess of the Treasury portfolio
purchase price. The remarketing agent will then remit any remaining portion of
the proceeds for the benefit of the holders. Upper DECS holders whose senior
notes are remarketed will not otherwise be responsible for the payment of any
remarketing fee in connection with the remarketing.
As used in this context, "Treasury portfolio purchase price" means the
lowest aggregate price quoted by a primary U.S. government securities dealer in
New York City to the quotation agent on the third business day immediately
preceding May 17, 2004 for the purchase of the Treasury portfolio described
above for settlement on May 17, 2004.
"Quotation agent" means Salomon Smith Barney Inc. or its successor or any
other primary U.S. government securities dealer in New York City selected by
us.
If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related senior notes, other than to us, at a price equal to or
greater than 100% of the Treasury portfolio purchase price, or (2) the
remarketing has not occurred because a condition precedent to the remarketing
has not been fulfilled, in each case resulting in a failed remarketing, the
senior notes will continue to be a component of Upper DECS, and another
remarketing may be attempted as described below.
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If the remarketing of the senior notes on the fifth business day preceding
May 17, 2004 has resulted in a failed remarketing, and unless a tax event
redemption has occurred, the senior notes of Upper DECS holders who have failed
to notify the forward purchase contract agent on or prior to the seventh
business day immediately preceding August 17, 2004 of their intention to settle
the related purchase contracts with separate cash will be remarketed on the
fifth business day immediately preceding August 17, 2004.
The remarketing agent will then use its reasonable efforts to remarket
these senior notes at a price of approximately 100.5% of the aggregate
principal amount of the senior notes. The portion of the proceeds from this
remarketing equal to the aggregate principal amount of the senior notes will be
automatically applied to satisfy in full the Upper DECS holders' obligations to
purchase shares of our CD common stock.
In addition, the remarketing agent may deduct, as a remarketing fee, an
amount not exceeding 25 basis points (0.25%) of the aggregate principal amount
of the remarketed notes from any amount of the proceeds in excess of the
aggregate principal amount of the remarketed notes. The remarketing agent will
then remit any remaining portion of the proceeds for the benefit of the
holders. Upper DECS holders whose senior notes are remarketed will not
otherwise be responsible for the payment of any remarketing fee in connection
with the remarketing.
If (1) despite using its reasonable efforts, the remarketing agent cannot
remarket the related senior notes, other than to us, at a price equal to or
greater than 100% of the aggregate principal amount of the notes, or (2) the
remarketing has not occurred because a condition precedent to the remarketing
has not been fulfilled, in each case resulting in a failed remarketing, we will
exercise our rights as a secured party to dispose of the notes in accordance
with applicable law and satisfy in full each holder's obligation to purchase
common stock under the related forward purchase contracts.
We will cause a notice of any failed remarketing to be published on the
fourth business day immediately preceding May 17, 2004 or August 17, 2004, as
applicable, by publication in a daily newspaper in the English language of
general circulation in New York City, which is expected to be The Wall Street
Journal. We will also release this information by means of Bloomberg and
Reuters newswire. In addition, we will request, not later than seven nor more
than 15 calendar days prior to a remarketing date, that the depositary notify
its participants holding senior notes, Upper DECS and Stripped DECS of the
remarketing, including, in the case of a second failed remarketing, the
procedures that must be followed if a note holder wishes to exercise its right
to put its note to us as described in this prospectus supplement. If required,
we will endeavor to ensure that a registration statement with regard to the
full amount of the senior notes to be remarketed will be effective in a form
that will enable the remarketing agent to rely on it in connection with the
remarketing process. It is currently anticipated that Salomon Smith Barney Inc.
will be the remarketing agent.
EARLY SETTLEMENT
At any time not later than 10:00 am on the seventh business day prior to
August 17, 2004, a holder of Upper DECS or Stripped DECS may settle the related
forward purchase contracts by presenting and surrendering the related Upper
DECS or Stripped DECS certificate at the offices of the forward purchase
contract agent with the form of "Election to Settle Early" on the reverse side
of such certificate completed and executed as indicated, accompanied by payment
to us in immediately available funds of an amount equal to
(1) in the case of Upper DECS,
o the stated amount times the number of forward purchase contracts being
settled, plus
o if the delivery is made with respect to any forward purchase contract
during the period from the close of business on any record date next
preceding any payment date to the opening of business on such payment
date, an amount equal to the contract adjustment payments payable on
the payment date with respect to the forward purchase contract;
provided that no payment is required if we have elected to defer the
contract adjustment payments which would otherwise be payable on the
payment date, or
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(2) in the case of Stripped DECS,
o the stated amount times the number of forward purchase contracts being
settled, plus
o if the delivery is made with respect to any forward purchase contract
during the period from the close of business on any record date next
preceding any payment date to the opening of business on such payment
date, an amount equal to the contract adjustment payments payable on
the payment date with respect to the forward purchase contract;
provided that no payment is required if we have elected to defer the
contract adjustment payments which would otherwise be payable on the
payment date.
Holders of Upper DECS may settle early only in integral multiples of 20
Upper DECS. If the Treasury portfolio has replaced the senior notes as a
component of Upper DECS as a result of a successful remarketing of the senior
notes or a tax event redemption, holders of the Upper DECS may settle early
only in integral multiples of Upper DECS such that both the treasury securities
to be deposited and those to be released are in integral multiples of $1,000.
Holders of Stripped DECS may settle early only in integral multiples of 20
Stripped DECS.
So long as the Upper DECS or Stripped DECS are evidenced by one or more
global security certificates deposited with the depositary, procedures for
early settlement will also be governed by standing arrangements between the
depositary and the forward purchase contract agent.
Upon early settlement of the forward purchase contracts related to any
Upper DECS or Stripped DECS:
o the holder will receive 1.7593 shares of CD common stock per Upper
DECS or Stripped DECS, subject to adjustment under the circumstances
described in "-- Anti-Dilution Adjustments" below, accompanied by this
prospectus supplement, as amended or stickered,
o the senior notes, the appropriate applicable ownership interest in the
Treasury portfolio or the Treasury securities, as the case may be,
related to the Upper DECS or Stripped DECS will be transferred to the
holder free and clear of our security interest,
o the holder's right to receive any deferred contract adjustment
payments on the forward purchase contracts being settled will be
forfeited,
o the holder's right to receive contract adjustment payments will
terminate, and
o no adjustment will be made to or for the holder on account of any
deferred contract adjustment payments or any amounts accrued in
respect of contract adjustment payments.
If the forward purchase contract agent receives an Upper DECS or Stripped
DECS certificate, accompanied by the completed "Election to Settle Early" and
required immediately available funds, from a holder of Upper DECS or Stripped
DECS by 5:00 p.m., New York City time, on a business day, that day will be
considered the settlement date. If the forward purchase contract agent receives
the above after 5:00 p.m., New York City time, on a business day or at any time
on a day that is not a business day, the next business day will be considered
the settlement date.
Upon early settlement of forward purchase contracts in the manner
described above, presentation and surrender of the certificate evidencing the
related Upper DECS or Stripped DECS and payment of any transfer or similar
taxes payable by the holder in connection with the issuance of the related
common stock to any person other than the holder of the Upper DECS or Stripped
DECS, we will cause the shares of common stock being purchased to be issued,
and the related senior notes, the appropriate applicable ownership interest in
the Treasury portfolio or the Treasury securities, as the case may be, securing
the forward purchase contracts to be released from the pledge under the pledge
agreement described in "-- Pledged Securities and Pledge Agreement" and
transferred, within three business days following the settlement date, to the
purchasing holder or the holder's designee.
NOTICE TO SETTLE WITH CASH
Unless the Treasury portfolio has replaced the senior notes as a component
of Upper DECS as a result of a successful remarketing of the notes or a tax
event redemption, a holder of Upper DECS
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may settle the related forward purchase contract with separate cash prior to
11:00 a.m., New York City time, on the business day immediately preceding
August 17, 2004. A holder of an Upper DECS wishing to settle the related
forward purchase contract with separate cash must notify the forward purchase
contract agent by presenting and surrendering the Upper DECS certificate
evidencing the Upper DECS at the offices of the forward purchase contract agent
with the form of "Notice to Settle by Separate Cash" on the reverse side of the
certificate completed and executed as indicated on or prior to 5:00 p.m., New
York City time, on the seventh business day immediately preceding August 17,
2004. If a holder who has given notice of its intention to settle the related
forward purchase contract with separate cash fails to deliver the cash to the
collateral agent on the business day immediately preceding August 17, 2004, we
will exercise our right as a secured party to dispose of, in accordance with
applicable law, the related senior note to satisfy in full, from the
disposition of the senior note, the holder's obligation to purchase shares of
our CD common stock under the related forward purchase contracts.
CONTRACT ADJUSTMENT PAYMENTS
Contract adjustment payments in respect of Upper DECS and Stripped DECS
will be fixed at a rate per year of 1.00% of the stated amount per forward
purchase contract. Contract adjustment payments payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. Contract
adjustment payments will accrue from July 27, 2001 and will be payable
quarterly in arrears on February 17, May 17, August 17 and November 17 of each
year, commencing November 17, 2001.
Contract adjustment payments will be payable to the holders of forward
purchase contracts as they appear on the books and records of the forward
purchase contract agent on the relevant record dates, which will be on the
first day of the month in which the relevant payment date falls. These
distributions will be paid through the forward purchase contract agent, who
will hold amounts received in respect of the contract adjustment payments for
the benefit of the holders of the purchase contracts relating to the Upper
DECS. Subject to any applicable laws and regulations, each such payment will be
made as described under "-- Book-Entry System."
If any date on which contract adjustment payments are to be made on the
forward purchase contracts related to the Upper DECS is not a business day,
then payment of the contract adjustment payments payable on that date will be
made on the next succeeding day which is a business day, and no interest or
payment will be paid in respect of the delay. However, if that business day is
in the next succeeding calendar year, that payment will be made on the
immediately preceding business day, in each case with the same force and effect
as if made on that payment date. A business day means any day other than a
Saturday, Sunday or any other day on which banking institutions and trust
companies in New York City are permitted or required by any applicable law to
close.
Our obligations with respect to contract adjustment payments will be
subordinated and junior in right of payment to our obligations under any of our
senior indebtedness.
Upon any payment or distribution of assets of Cendant to its creditors
upon any dissolution, winding up, liquidation or reorganization, whether
voluntary or involuntary, or in bankruptcy, insolvency, receivership or other
similar proceedings, the holders of all senior indebtedness shall first be
entitled to receive payment in full of all amounts due or to become due
thereon, or payment of such amounts shall have been provided for, before the
holders of the Upper DECS shall be entitled to receive any contract adjustment
payments with respect to any Upper DECS.
By reason of this subordination, in the event of our bankruptcy,
dissolution or reorganization, holders of senior indebtedness may receive more,
ratably, and holders of the Upper DECS may receive less, ratably, than our
other creditors. Contract payment adjustments on the Upper DECS or Stripped
DECS are also subordinated by operation of law to all indebtedness and other
liabilities, including trade payables, of our subsidiaries.
In addition, no payment of contract payment adjustments with respect to
any Upper DECS or Stripped DECS may be made if:
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o any payment default on any senior indebtedness has occurred and is
continuing beyond any applicable grace period; or
o any default other than a payment default with respect to senior
indebtedness occurs and is continuing that permits the acceleration of
the maturity thereof and the purchase contract agent receives a
written notice of such default from Cendant or the holders of such
senior indebtedness.
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
We may, at our option and upon prior written notice to the holders of the
Upper DECS and the forward purchase contract agent, defer the payment of
contract adjustment payments on the related forward purchase contracts forming
a part of the Upper DECS and Stripped DECS until no later than August 17, 2004.
However, deferred contract adjustment payments will bear additional contract
adjustment payments at the rate of 7.75% per year (compounding on each
succeeding payment date) until paid. If the purchase contracts are terminated
(upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to us), the right to receive contract adjustment
payments and deferred contract adjustment payments will also terminate.
In the event that we elect to defer the payment of contract adjustment
payments on the purchase contracts until August 17, 2004, each holder of Upper
DECS and Stripped DECS will receive on August 17, 2004 in respect of the
deferred contract adjustment payments, in lieu of a cash payment, a number of
shares of our CD common stock equal to (a) the aggregate amount of deferred
contract adjustment payments payable to the holder divided by (b) the
applicable market value.
We will not issue any fractional shares of our CD common stock with
respect to the payment of deferred contract adjustment payments on August 17,
2004. In lieu of fractional shares otherwise issuable with respect to such
payment of deferred contract adjustment payments, the holder will be entitled
to receive an amount in cash equal to the fraction of a share times the
applicable market value described under "-- Purchase of CD Common Stock."
In the event we exercise our option to defer the payment of contract
adjustment payments, then until the deferred contract adjustment payments have
been paid, we will not, and we will not permit any subsidiary of ours to,
declare or pay dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of our
capital stock other than:
o purchases, redemptions or acquisitions of shares of our capital stock
in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of employees, officers or
directors or a stock purchase or dividend reinvestment plan, or the
satisfaction by us of our obligations pursuant to any contract or
security outstanding on the date of such event,
o as a result of a reclassification of our capital stock or the exchange
or conversion of one class or series of our capital stock for another
class or series of the capital stock,
o the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of the capital stock
or the security being converted or exchanged,
o dividends or distributions in our capital stock (or rights to acquire
capital stock), or repurchases, redemptions or acquisitions of capital
stock in connection with the issuance or exchange of capital stock (or
securities convertible into or exchangeable for shares of our capital
stock),
o redemptions, exchanges or repurchases of any rights outstanding under
a shareholder rights plan or the declaration or payment thereunder of
a dividend or distribution of or with respect to rights in the future,
or
o mandatory sinking fund payments with respect to any series of our
preferred stock provided that the aggregate stated value of all such
series outstanding at the time of any such payment
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does not exceed 5% of the aggregate of (1) the total principal amount
of all bonds or other securities representing secured indebtedness
issued or assumed by us and then outstanding and (2) our capital and
surplus to be stated on our books of account after giving effect to
such payment; provided, however, that any moneys deposited into any
sinking fund and not in violation of this provision may thereafter be
applied to the purchase or redemption of such preferred stock in
accordance with the terms of such sinking fund without regard to the
foregoing restrictions.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the settlement rate will be subject to
adjustment, without duplication, upon the occurrence of certain events,
including:
(a) the payment of dividends and other distributions of CD common
stock on our CD common stock;
(b) the issuance to all holders of CD common stock of rights,
warrants or options (other than any dividend reinvestment or
share purchase plans) entitling them, for a period of up to 45
days, to subscribe for or purchase our CD common stock at less
than the current market price thereof;
(c) subdivisions, splits and combinations of our CD common stock;
(d) distributions to all holders of our CD common stock of evidences
of our indebtedness, shares of capital stock, securities, cash or
property (excluding any dividend or distribution covered by
clause (a) or (b) above and any dividend or distribution paid
exclusively in cash);
(e) distributions consisting exclusively of cash to all holders of
common stock in an aggregate amount that, together with (1) other
all-cash distributions made within the preceding 12 months and
(2) any cash and the fair market value, as of the expiration of
the tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer (other than
consideration payable in respect of any odd-lot tender offer) by
us or any of our subsidiaries for common stock concluded within
the preceding 12 months or shorter period commencing on the date
of this prospectus supplement, exceeds 10% of our aggregate
market capitalization (aggregate market capitalization being the
product of the current market price of our CD common stock
multiplied by the number of shares of our CD common stock then
outstanding) on the date of the distribution; and
(f) the successful completion of a tender or exchange offer made by
us or any of our subsidiaries for common stock which involves an
aggregate consideration that, together with (1) any cash and the
fair market value of other consideration payable in respect of
any tender or exchange offer (other than consideration payable in
respect of any odd-lot tender offer) by us or any of our
subsidiaries for the common stock concluded within the preceding
12 months and (2) the aggregate amount of any all-cash
distributions (other than regular quarterly cash dividends) to
all holders of common stock made within the preceding 12 months
or shorter period commencing on the date of this prospectus
supplement, exceeds 10% of our aggregate market capitalization on
the expiration of the tender or exchange offer.
The "current market price" per share of our CD common stock on any day
means the average of the daily closing prices for the five consecutive trading
days selected by us commencing not more than 30 trading days before, and ending
not later than, the earlier of the day in question and the day before the "ex
date" with respect to the issuance or distribution requiring the computation.
For purposes of this paragraph, the term "ex date," when used with respect to
any issuance or distribution, shall mean the first date on which the common
stock trades regular way on the applicable exchange or in the applicable market
without the right to receive the issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales
or transfers of assets or other transactions pursuant to which our CD common
stock is converted into the right to receive other securities, cash or
property, each purchase contract then outstanding would, without the consent of
the
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holders of the related Upper DECS or Stripped DECS, as the case may be, become
a contract to purchase only the kind and amount of securities, cash and other
property receivable upon such reorganization event (except as otherwise
specifically provided, without any interest thereon and without any right to
dividends or distributions thereon which have a record date that is prior to
the purchase contract settlement date) which would have been received by the
holder of the related Upper DECS or Stripped DECS immediately prior to the date
of consummation of such transaction if such holder had then settled such
purchase contract.
If at any time we make a distribution of property to our stockholders
which would be taxable to the stockholders as a dividend for United States
federal income tax purposes (i.e., distributions out of our current or
accumulated earnings and profits or evidences of indebtedness or assets, but
generally not stock dividends or rights to subscribe for capital stock) and,
pursuant to the settlement rate adjustment provisions of the forward purchase
contract agreement, the settlement rate is increased, this increase may give
rise to a taxable dividend to holders of Upper DECS and Stripped DECS.
In addition, we may make increases in the settlement rate to avoid or
diminish any income tax to holders of our capital stock resulting from any
dividend or distribution of capital stock (or rights to acquire capital stock)
or from any event treated as such for income tax purposes or for any other
reasons.
Adjustments to the settlement rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the settlement rate shall be required
unless the adjustment would require an increase or decrease of at least one
percent in the settlement rate. However, any adjustments which are not required
to be made because they would have required an increase or decrease of less
than one percent shall be carried forward and taken into account in any
subsequent adjustment.
We will be required, within ten business days following the adjustment of
the settlement rate, to provide written notice to the purchase contract agent
of the occurrence of the adjustment and a statement in reasonable detail
setting forth the method by which the adjustment to the settlement rate was
determined and setting forth the revised settlement rate.
Each adjustment to the settlement rate will result in a corresponding
adjustment to the number of shares of common stock issuable upon early
settlement of a forward purchase contract.
TERMINATION
The forward purchase contracts, and our rights and obligations and the
rights and obligations of the holders of the Upper DECS and Stripped DECS under
the forward purchase contracts, including the right and obligation to purchase
shares of our CD common stock and the right to receive accumulated contract
adjustment payments or deferred contract adjustment payments, will immediately
and automatically terminate upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to us. Upon any
termination, the collateral agent will release the related senior notes, the
appropriate applicable ownership interest in the Treasury portfolio or the
Treasury securities, as the case may be, held by it to the forward purchase
contract agent for distribution to the holders, subject, in the case of the
Treasury portfolio or the Treasury securities, to the forward purchase contract
agent's disposition of the subject securities for cash, and the payment of this
cash to the holders, to the extent that the holders would otherwise have been
entitled to receive less than $1,000 principal amount at maturity of any such
security. Upon any termination, however, the release and distribution may be
subject to a delay. In the event that we become the subject of a case under the
U.S. Bankruptcy Code, the delay may occur as a result of the automatic stay
under the Bankruptcy Code and continue until the automatic stay has been
lifted. We expect any such delay to be limited.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
Pledged securities will be pledged to the collateral agent, for our
benefit, pursuant to the pledge agreement to secure the obligations of holders
of Upper DECS and Stripped DECS to purchase
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shares of our CD common stock under the related forward purchase contracts. The
rights of holders of Upper DECS to the related pledged securities will be
subject to our security interest created by the pledge agreement.
No holder of Upper DECS or Stripped DECS will be permitted to withdraw the
pledged securities related to the Upper DECS or Stripped DECS from the pledge
arrangement except
o to substitute Treasury securities for the related senior notes or the
appropriate applicable ownership interest of the Treasury portfolio,
as the case may be, as provided for under "Description of the Upper
DECS -- Creating Stripped DECS,"
o to substitute senior notes or the appropriate applicable ownership
interest of the Treasury portfolio, as the case may be, for the
related Treasury securities, as provided for under "Description of the
Upper DECS -- Recreating Upper DECS," or
o upon the termination or early settlement of the related forward
purchase contracts.
Subject to the security interest and the terms of the purchase contract
agreement and the pledge agreement, each holder of Upper DECS, unless the
Treasury portfolio has replaced the senior notes as a component of Upper DECS
as a result of a successful remarketing of the senior notes or a tax event
redemption, will be entitled through the forward purchase contract agent and
the collateral agent to all of the proportional rights and preferences of the
related senior notes, including distribution, voting, redemption, repayment and
liquidation rights. Each holder of Stripped DECS and each holder of Upper DECS,
if the Treasury portfolio has replaced the senior notes as a component of Upper
DECS as a result of a successful remarketing of the notes or a tax event
redemption, will retain beneficial ownership of the related Treasury securities
or the appropriate applicable ownership interest in the Treasury portfolio, as
applicable, pledged in respect of the related forward purchase contracts. We
will have no interest in the pledged securities other than our security
interest.
Except as described in "Certain Provisions of the Forward Purchase
Contract Agreement and the Pledge Agreement -- General," the collateral agent
will, upon receipt, if any, of payments on the pledged securities, distribute
the payments to the purchase contract agent, which will in turn distribute
those payments to the persons in whose names the related Upper DECS or Stripped
DECS are registered at the close of business on the record date immediately
preceding the date of payment.
BOOK ENTRY-SYSTEM
The Depository Trust Company, which we refer to along with its successors
in this capacity as the depositary, will act as securities depositary for the
Upper DECS and Stripped DECS. The Upper DECS and Stripped DECS will be issued
only as fully-registered securities registered in the name of Cede & Co., the
depositary's nominee. One or more fully-registered global security
certificates, representing the total aggregate number of Upper DECS or Stripped
DECS, will be issued and will be deposited with the depositary and will bear a
legend regarding the restrictions on exchanges and registration of transfer
referred to below.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer beneficial interests in the Upper DECS or
Stripped DECS so long as the Upper DECS or Stripped DECS are represented by
global security certificates.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The depositary holds securities that its participants
deposit with the depositary. The depositary also facilitates the settlement
among participants of securities transactions, including transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing
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corporations and certain other organizations. The depositary is owned by a
number of its direct participants and by the NYSE, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the
depositary's system is also available to others, including securities brokers
and dealers, banks and trust companies that clear transactions through or
maintain a direct or indirect custodial relationship with a direct participant
either directly or indirectly. The rules applicable to the depositary and its
participants are on file with the SEC.
Although the depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the global security certificates among
participants, the depositary is under no obligation to perform or continue to
perform these procedures and these procedures may be discontinued at any time.
We will not have any responsibility for the performance by the depositary or
its direct participants or indirect participants under the rules and procedures
governing the depositary.
In the event that the depositary notifies us that it is unwilling or
unable to continue as a depositary for the global security certificates and no
successor depositary has been appointed within 90 days after this notice, or an
event of default under the forward purchase contract agreement or the indenture
has occurred and is continuing, certificates for the Upper DECS and Stripped
DECS will be printed and delivered in exchange for beneficial interests in the
global security certificates. Any global note that is exchangeable pursuant to
the preceding sentence shall be exchangeable for Upper DECS and Stripped DECS
certificates registered in the names directed by the depositary. We expect that
these instructions will be based upon directions received by the depositary
from its participants with respect to ownership of beneficial interests in the
global security certificates.
As long as the depositary or its nominee is the registered owner of the
global security certificates, the depositary or the nominee, as the case may
be, will be considered the sole owner and holder of the global security
certificates and all Upper DECS and Stripped DECS represented by these
certificates for all purposes under the Upper DECS and Stripped DECS and the
forward purchase contract agreement. Except in the limited circumstances
referred to above, owners of beneficial interests in global security
certificates will not be entitled to have such global security certificates or
the Upper DECS and Stripped DECS represented by these certificates registered
in their names, will not receive or be entitled to receive physical delivery of
Upper DECS and Stripped DECS certificates in exchange for beneficial interests
in global security certificates and will not be considered to be owners or
holders of the global security certificates or any Upper DECS and Stripped DECS
represented by these certificates for any purpose under the Upper DECS and
Stripped DECS or the forward purchase contract agreement.
All payments on the Upper DECS and Stripped DECS represented by the global
security certificates and all transfers and deliveries of related senior notes,
Treasury portfolio, Treasury securities and CD common stock will be made to the
depositary or its nominee, as the case may be, as the holder of the securities.
Ownership of beneficial interests in the global security certificates will
be limited to participants or persons that may hold beneficial interests
through institutions that have accounts with the depositary or its nominee.
Ownership of beneficial interests in global security certificates will be shown
only on, and the transfer of those ownership interests will be effected only
through, records maintained by the depositary or its nominee, with respect to
participants' interests, or any participant, with respect to interests of
persons held by the participant on their behalf. Procedures for settlement of
forward purchase contracts on August 17, 2004 or upon early settlement will be
governed by arrangements among the depositary, participants and persons that
may hold beneficial interests through participants designed to permit
settlement without the physical movement of certificates. Payments, transfers,
deliveries, exchanges and other matters relating to beneficial interests in
global security certificates may be subject to various policies and procedures
adopted by the depositary from time to time. Neither we or any of our agents,
nor the forward purchase contract agent or any of its agents will have any
responsibility or liability for any aspect of the depositary's or any
participant's records relating to, or for payments made on account of,
beneficial interests in global security certificates, or for maintaining,
supervising or reviewing any of the depositary's records or any participant's
records relating to these beneficial ownership interests.
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The information in this section concerning the depositary and its
book-entry system has been obtained from sources that we believe to be
reliable, but we have not attempted to verify the accuracy of this information.
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CERTAIN PROVISIONS OF THE FORWARD PURCHASE CONTRACT AGREEMENT
AND THE PLEDGE AGREEMENT
The summary of the forward purchase contract agreement and pledge
agreement set forth below is not complete and is qualified in all respects by
reference to those agreements, forms of which have been filed on exhibits to
the registration statement of which this prospectus supplement forms a part.
GENERAL
Distributions on the Upper DECS will be payable, forward purchase
contracts (and documents related to the Upper DECS and forward purchase
contracts) will be settled, and transfers of the Upper DECS will be
registrable, at the office of the forward purchase contract agent in the
Borough of Manhattan, The City of New York. In addition, if the Upper DECS do
not remain in book-entry form, payment of distributions on the Upper DECS may
be made, at our option, by check mailed to the address of the person entitled
to payment as shown on the security register.
Shares of our CD common stock will be delivered on August 17, 2004 (or
earlier upon early settlement), or, if the forward purchase contracts have
terminated, the related pledged securities will be delivered potentially after
a delay as a result of the imposition of the automatic stay under the
Bankruptcy Code (see "Description of the Purchase Contracts -- Termination"),
in each case upon presentation and surrender of the Upper DECS certificate at
the office of the forward purchase contract agent.
If a holder of outstanding Upper DECS or Stripped DECS fails to present
and surrender the certificate evidencing the Upper DECS or Stripped DECS to the
forward purchase contract agent on August 17, 2004, the shares of our CD common
stock issuable in settlement of the related purchase contract will be
registered in the name of the forward purchase contract agent. The shares,
together with any distributions, will be held by the forward purchase contract
agent as agent for the benefit of the holder until the certificate is presented
and surrendered or the holder provides satisfactory evidence that the
certificate has been destroyed, lost or stolen, together with any indemnity
that may be required by the forward purchase contract agent and us.
If the forward purchase contracts have terminated prior to August 17,
2004, the related pledged securities have been transferred to the forward
purchase contract agent for distribution to the holders, and a holder fails to
present and surrender the certificate evidencing the holder's Upper DECS or
Stripped DECS to the forward purchase contract agent, the related pledged
securities delivered to the forward purchase contract agent and payments on the
pledged securities will be held by the forward purchase contract agent as agent
for the benefit of the holder until the certificate is presented or the holder
provides the evidence and indemnity described above.
The forward purchase contract agent will have no obligation to invest or
to pay interest on any amounts held by the forward purchase contract agent
pending distribution, as described above.
No service charge will be made for any registration of transfer or
exchange of the Upper DECS, except for any tax or other governmental charge
that may be imposed in connection with a transfer or exchange.
MODIFICATION
The forward purchase contract agreement will contain provisions permitting
us and the forward purchase contract agent to modify the forward purchase
contract agreement without the consent of the holders for any of the following
purposes:
o to evidence the succession of another person to our obligations,
o to add to the covenants for the benefit of holders,
o to evidence and provide for the acceptance of appointment of a
successor forward purchase contract agent,
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o to make provision with respect to the rights of holders pursuant to
adjustments in the settlement rate due to consolidations, mergers or
other reorganization events, or
o to cure any ambiguity, to correct or supplement any provisions that
may be inconsistent, or to make any other provisions with respect to
such matters or questions, provided that such action shall not
adversely affect the interests of the holders in any material respect.
The forward purchase contract agreement and the pledge agreement will
contain provisions permitting us and the forward purchase contract agent or
collateral agent, as the case may be, with the consent of the holders of not
less than a majority of the forward purchase contracts at the time outstanding,
to modify the terms of the forward purchase contracts, the forward purchase
contract agreement and the pledge agreement. However, no such modification may,
without the consent of the holder of each outstanding forward purchase contract
affected by the modification,
o change any payment date,
o increase the amount or change the type of pledged securities related
to the forward purchase contract,
o impair the right of the holder of any pledged securities to receive
distributions on the pledged securities or otherwise adversely affect
the holder's rights in or to the pledged securities,
o change the place or currency of payment or reduce any contract
adjustment payments or deferred contract adjustment payments,
o impair the right to institute suit for the enforcement of the forward
purchase contract, any contract adjustment payments or any deferred
contract adjustment payments,
o reduce the number of shares of our CD common stock or the amount of
any other property purchasable under the purchase contract, increase
the price to purchase shares of our CD common stock or any other
property upon settlement of the purchase contract, change the forward
purchase contract settlement date or the right to early settlement or
otherwise adversely affect the holder's rights under the forward
purchase contract, or
o reduce the above-stated percentage of outstanding forward purchase
contracts the consent of the holders of which is required for the
modification or amendment of the provisions of the forward purchase
contracts, the forward purchase contract agreement or the pledge
agreement.
If any amendment or proposal referred to above would adversely affect only
the Upper DECS or the Stripped DECS, then only the affected class of holders
will be entitled to vote on the amendment or proposal and the amendment or
proposal will not be effective except with the consent of the holders of not
less than a majority of the affected class or all of the holders of the
affected class, as applicable.
NO CONSENT TO ASSUMPTION
Each holder of Upper DECS or Stripped DECS, by acceptance of these
securities, will under the terms of the forward purchase contract agreement and
the Upper DECS or Stripped DECS, as applicable, be deemed expressly to have
withheld any consent to the assumption (i.e., affirmance) of the related
forward purchase contracts by us or our trustee if we become the subject of a
case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
We will covenant in the forward purchase contract agreement that we will
not merge or consolidate with or into any other entity or sell, assign,
transfer, lease or convey all or substantially all of our properties and assets
to any person or entity, unless (1) we are the continuing corporation or the
successor entity is a corporation organized and existing under the laws of the
United States of America or a U.S. State or the District of Columbia and the
corporation expressly assumes our
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obligations under the forward purchase contracts, the senior notes, the forward
purchase contract agreement, the pledge agreement, the indenture (including any
supplemental indenture) (described in this prospectus suplement under
"Description of the Senior Notes") and the remarketing agreement and (2) we or
the successor corporation is not, immediately after the merger, consolidation,
sale, assignment, transfer, lease or conveyance, in default of our or its
payment obligations under the forward purchase contracts, the senior notes, the
forward purchase contract agreement, the pledge agreement, the indenture
(including any supplemental indenture) and the remarketing agreement or in
material default in the performance of any of our or its other obligations
under these agreements.
TITLE
We, the forward purchase contract agent and the collateral agent may treat
the registered owner of any Upper DECS or Stripped DECS as the absolute owner
of the Upper DECS or Stripped DECS for the purpose of making payment and
settling the related forward purchase contracts and for all other purposes.
REPLACEMENT OF CERTIFICATES
In the event that physical certificates have been issued, any mutilated
certificate will be replaced by us at the expense of the holder upon surrender
of the certificate to the forward purchase contract agent. Certificates that
become destroyed, lost or stolen will be replaced by us at the expense of the
holder upon delivery to us and the forward purchase contract agent of evidence
of the destruction, loss or theft satisfactory to us and the forward purchase
contract agent. In the case of a destroyed, lost or stolen certificate, an
indemnity satisfactory to the forward purchase contract agent and us may be
required at the expense of the holder of the Upper DECS or Stripped DECS
evidenced by the certificate before a replacement will be issued.
Notwithstanding the foregoing, we will not be obligated to issue any Upper
DECS or Stripped DECS on or after the business day immediately preceding August
17, 2004 (or after early settlement) or after the forward purchase contracts
have terminated. The forward purchase contract agreement will provide that, in
lieu of the delivery of a replacement certificate following August 17, 2004,
the forward purchase contract agent, upon delivery of the evidence and
indemnity described above, will deliver the shares of our CD common stock
issuable pursuant to the forward purchase contracts included in the Upper DECS
or Stripped DECS evidenced by the certificate, or, if the forward purchase
contracts have terminated prior to August 17, 2004, transfer the pledged
securities included in the Upper DECS or Stripped DECS evidenced by the
certificate.
GOVERNING LAW
The forward purchase contract agreement, the pledge agreement and the
forward purchase contracts will be governed by, and construed in accordance
with, the laws of the State of New York.
INFORMATION CONCERNING THE FORWARD PURCHASE CONTRACT AGENT
Bank One Trust Company will be the forward purchase contract agent. The
forward purchase contract agent will act as the agent for the holders of Upper
DECS and Stripped DECS from time to time. The forward purchase contract
agreement will not obligate the forward purchase contract agent to exercise any
discretionary actions in connection with a default under the terms of the Upper
DECS and Stripped DECS or the forward purchase contract agreement.
The forward purchase contract agreement will contain provisions limiting
the liability of the forward purchase contract agent. The forward purchase
contract agreement will contain provisions under which the forward purchase
contract agent may resign or be replaced. This resignation or replacement would
be effective upon the appointment of a successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the collateral agent. The collateral
agent will act solely as our agent and will not assume any obligation or
relationship of agency or trust for or with any of the
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holders of the Upper DECS and Stripped DECS except for the obligations owed by
a pledgee of property to the owner of the property under the pledge agreement
and applicable law.
The pledge agreement will contain provisions limiting the liability of the
collateral agent. The pledge agreement will contain provisions under which the
collateral agent may resign or be replaced. This resignation or replacement
would be effective upon the appointment of a successor.
The Chase Manhattan Bank maintains commercial banking relationships with
us.
MISCELLANEOUS
The forward purchase contract agreement will provide that we will pay all
fees and expenses related to the offering of the Upper DECS, the retention of
the collateral agent and the enforcement by the forward purchase contract agent
of the rights of the holders of the Upper DECS.
However, holders who elect to substitute the related pledged securities,
thereby creating Stripped DECS or recreating Upper DECS, will be responsible
for any fees or expenses payable in connection with the substitution, as well
as any commissions, fees or other expenses incurred in acquiring the pledged
securities to be substituted, and we will not be responsible for any of the
fees or expenses.
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DESCRIPTION OF THE SENIOR NOTES
GENERAL
The senior notes are an issue of the debt securities described in the
accompanying prospectus. The senior notes will be issued as a separate series
of securities under an Indenture dated as of February 24, 1998, as supplemented
by a supplemental indenture between us and The Bank of Nova Scotia Trust
Company of New York, as trustee. The senior notes are limited to $750,000,000
(up to $862,500,000, if the underwriter exercises its over-allotment option in
full) in aggregate principal amount. The senior notes will mature on August 17,
2006. The senior notes may not be redeemed prior to their stated maturity
except as described below. The senior notes constitute senior debt securities
as described in the accompanying prospectus. In addition to the senior notes,
we may issue from time to time other series of senior debt securities under the
Indenture. Such other series will be separate from and independent of the
senior notes. The following description of the terms of the senior notes
supplements and modifies the description of the general terms of the debt
securities set forth in the accompanying prospectus, which we request that you
read. Reference in this prospectus supplement to senior notes refers to our
senior notes due August 17, 2006.
The senior notes will not be subject to a sinking fund provision. Unless a
tax event redemption has occurred prior to August 17, 2006, the entire
principal amount of the senior notes will mature and become due and payable,
together with any accrued and unpaid interest, on August 17, 2006.
Senior notes forming a part of the Upper DECS will be issued in
certificated form, will be in denominations of $50 and integral multiples of
$50, without coupons, and may be transferred or exchanged, without service
charge but upon payment of any taxes or other governmental charges payable in
connection with the transfer or exchange, at the offices described below.
Payments on the senior notes issued as a global security will be made to the
depositary, a successor depositary or, in the event that no depositary is used,
to a paying agent for the senior notes. Principal and interest with respect to
certificated notes will be payable, the transfer of the senior notes will be
registrable and the senior notes will be exchangeable for senior notes of other
denominations of a like aggregate principal amount, at the office or agency
maintained by us for this purpose in the Borough of Manhattan, The City of New
York. However, at our option, payment of interest may be made by check mailed
to the address of the holder entitled to payment or by wire transfer to an
account appropriately designated by the holder entitled to payment. We will
appoint The Bank of Nova Scotia Trust Company of New York as the initial paying
agent, transfer agent and registrar for the senior notes. We may at any time
designate additional transfer agents and paying agents with respect to the
senior notes, and may remove any transfer agent, paying agent or registrar for
the notes. We will at all times be required to maintain a paying agent and
transfer agent for the senior notes in the Borough of Manhattan, The City of
New York.
Any monies deposited with the trustee or any paying agent, or held by us
in trust, for the payment of principal of or interest on any note and remaining
unclaimed for two years after such principal or interest has become due and
payable shall, at our request, be repaid to us or released from trust, as
applicable, and the holder of the note shall thereafter look, as a general
unsecured creditor, only to us for the payment thereof.
The Indenture does not contain provisions that afford holders of the
senior notes protection in the event of a highly leveraged transaction or other
similar transaction involving us that may adversely affect the holders.
RANKING
The senior notes constitute senior debt, rank equally with all of our
existing and future unsecured and unsubordinated debt, and will rank senior to
any future subordinated indebtedness.
We currently conduct substantially all our operations through our
subsidiaries, and our subsidiaries generate substantially all of our operating
income and cash flow. As a result, distributions
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or advances from our subsidiaries are the principal source of funds necessary
to meet our debt service obligations. Contractual provisions or laws, as well
as our subsidiaries' financial condition and operating requirements, may limit
our ability to obtain cash from our subsidiaries that we require to pay our
debt service obligations, including payments on the senior notes. In addition,
holders of the senior notes will have a subordinate position to the claims of
creditors of our subsidiaries on their assets and earnings. At March 31, 2001,
our subsidiaries had $10.5 billion of indebtedness and $375 million of
mandatorily redeemable preferred securities outstanding, in addition to other
liabilities, to which the senior notes would have been structurally
subordinated.
INTEREST
Each senior note shall bear interest initially at the rate of 6.75% per
year from the original issue date, payable quarterly in arrears on February 17,
May 17, August 17 and November 17 of each year, each an "interest payment
date," commencing November 17, 2001, to the person in whose name the senior
note is registered at the close of business on the first day of the month in
which the interest payment date falls. In addition, if the senior notes are
subject to the rules applicable to contingent payment debt instruments, which
Cendant believes they should be, OID will accrue on the senior notes for United
States federal income tax purposes.
The applicable interest rate on the senior notes will be reset on the
fifth business day immediately preceding May 17, 2004 to the reset rate
described below under "-- Market Rate Reset," unless the remarketing of the
senior notes on that date fails. If the remarketing of the notes on that date
fails, the interest rate on the senior notes will not be reset at that time. In
these circumstances, the interest rate on the senior notes outstanding on and
after May 17, 2004 will be reset on the fifth business day immediately
preceding August 17, 2004 to the reset rate described below unless the second
attempt at remarketing also fails, in which case the interest rate will not be
reset.
The amount of interest payable for any period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. The amount of
interest payable for any period shorter than a full quarterly period for which
interest is computed will be computed on the basis of the actual number of days
elapsed in the 90-day period. In the event that any date on which interest is
payable on the senior notes is not a business day, the payment of the interest
payable on that date will be made on the next succeeding day that is a business
day, without any interest or other payment in respect of the delay, except
that, if the business day is in the next succeeding calendar year, then the
payment will be made on the immediately preceding business day, in each case
with the same force and effect as if made on the scheduled payment date.
MARKET RATE RESET
The reset rate will be equal to the sum of the reset spread and the rate
of interest on the applicable benchmark Treasury in effect on the fifth
business day immediately preceding May 17, 2004 or August 17, 2004, as the case
may be, and will be determined by the reset agent. In the case of a reset on
the fifth business day immediately preceding May 17, 2004, the reset rate will
be the rate determined by the reset agent as the rate the senior notes should
bear in order for the senior notes included in Upper DECS to have an
approximate aggregate market value on the reset date of 100.5% of the Treasury
portfolio purchase price described under "Description of the Forward Purchase
Contracts -- Remarketing." In the case of a reset on the fifth business day
immediately preceding August 17, 2004, the reset rate will be the rate
determined by the reset agent as the rate the senior notes should bear in order
for each senior note to have an approximate market value of 100.5% of the
principal amount of the senior note. The reset rate will in no event exceed the
maximum rate permitted by applicable law.
The "applicable benchmark Treasury" means direct obligations of the United
States, as agreed upon by us and the reset agent (which may be obligations
traded on a when-issued basis only), having a maturity comparable to the
remaining term to maturity of the notes, which will be two and one-quarter
years or two years, as applicable. The rate for the applicable benchmark
Treasury will be
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the bid side rate displayed at 10:00 A.M., New York City time, on the fifth
business day immediately preceding May 17, 2004 or August 17, 2004, as
applicable, in the Telerate system (or if the Telerate system is no longer
available on that date or, in the opinion of the reset agent (after
consultation with us), no longer an appropriate system from which to obtain the
rate, such other nationally recognized quotation system as, in the opinion of
the reset agent (after consultation with us), is appropriate). If this rate is
not so displayed, the rate for the applicable benchmark Treasury will be, as
calculated by the reset agent, the yield to maturity for the applicable
benchmark Treasury, expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis, and computed by
taking the arithmetic mean of the secondary market bid rates, as of 10:30 A.M.,
New York City time, on the fifth business day immediately preceding May 17,
2004 or August 17, 2004, as applicable, of three leading United States
government securities dealers selected by the reset agent (after consultation
with us) (which may include the reset agent or an affiliate thereof). It is
currently anticipated that Salomon Smith Barney Inc. will be the reset agent.
On the tenth business day immediately preceding May 17, 2004 or August 17,
2004, the applicable benchmark Treasury to be used to determine the reset rate
on the fifth business day prior to May 17, 2004 or August 17, 2004, as
applicable, will be selected, and the reset spread to be added to the rate on
the applicable benchmark Treasury in effect on the fifth business day
immediately preceding May 17, 2004 or August 17, 2004, as applicable, will be
established by the reset agent, and the reset spread and the applicable
benchmark Treasury will be announced by us (the "reset announcement date"). We
will cause a notice of the reset spread and the applicable benchmark Treasury
to be published on the business day following the reset announcement date by
publication in a daily newspaper in the English language of general circulation
in New York City, which is expected to be The Wall Street Journal. We will
request, not later than seven nor more than 15 calendar days prior to the reset
announcement date, that the depositary notify its participants holding senior
notes, Upper DECS or Stripped DECS of the reset announcement date and of the
procedures that must be followed if any owner of Upper DECS wishes to settle
the related forward purchase contract with cash on the business day immediately
preceding August 17, 2004.
OPTIONAL REMARKETING
On or prior to the tenth business day immediately preceding May 17, 2004,
in the case of the remarketing to be conducted on the fifth business day
preceding May 17, 2004, or August 17, 2004, in the case of the remarketing, if
any, to be conducted on the fifth business day preceding August 17, 2004, but
no earlier than the payment date immediately preceding May 17, 2004 or August
17, 2004, as applicable, holders of senior notes that are not components of
Upper DECS may elect to have their senior notes remarketed in the same manner
as senior notes that are components of Upper DECS by delivering their senior
notes along with a notice of this election to the collateral agent. The
collateral agent will hold the senior notes in an account separate from the
collateral account in which the pledged securities will be held. Holders of
senior notes electing to have their notes remarketed will also have the right
to withdraw the election on or prior to the tenth business day immediately
preceding May 17, 2004 or August 17, 2004, as applicable.
PUT OPTION UPON A FAILED REMARKETING
If the remarketing of the senior notes on the fifth business day
immediately preceding August 17, 2004 has occurred and has resulted in a failed
remarketing, holders of senior notes following August 17, 2004 will have the
right to put the senior notes to us on September 30, 2004, upon at least three
business days' prior notice, at a price equal to 100% of the principal amount,
plus accrued and unpaid interest, if any.
TAX EVENT REDEMPTION
If a tax event occurs and is continuing, we may, at our option, redeem the
senior notes in whole, but not in part, at any time at a price, which we refer
to as the redemption price, equal to, for each senior note, the redemption
amount described below plus accrued and unpaid interest, if any, to the
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date of redemption. Installments of interest on senior notes which are due and
payable on or prior to a redemption date will be payable to the holders of the
senior notes registered as such at the close of business on the relevant record
dates. If, following the occurrence of a tax event, we exercise our option to
redeem the senior notes, the proceeds of the redemption will be payable in cash
to the holders of the senior notes. If the tax event redemption occurs prior to
May 17, 2004, or if the senior notes have not been successfully remarketed on
the fifth business day immediately preceding May 17, 2004, prior to August 17,
2004, the redemption price for the senior notes forming a part of the Upper
DECS will be distributed to the collateral agent, who in turn will purchase the
Treasury portfolio described below on behalf of the holders of Upper DECS and
remit the remainder of the redemption price, if any, to the forward purchase
contract agent for payment to the holders. The Treasury portfolio will be
substituted for the senior notes and will be pledged to the collateral agent to
secure the Upper DECS holders' obligations to purchase shares of our CD common
stock under the forward purchase contracts.
"Tax event" means the receipt by us of an opinion of nationally recognized
independent tax counsel experienced in such matters (which may be Skadden,
Arps, Slate, Meagher & Flom LLP) to the effect that there is more than an
insubstantial risk that interest on the senior notes would not be deductible,
in whole or in part, by us for United States federal income tax purposes as a
result of any amendment to, change in, or announced proposed change in, the
laws, or any regulations thereunder, of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, any
amendment to or change in an interpretation or application of any such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority or any interpretation or pronouncement that provides for a position
with respect to any such laws or regulations that differs from the generally
accepted position on the date of this prospectus supplement, which amendment,
change or proposed change is effective or which interpretation or pronouncement
is announced on or after the date of this prospectus supplement.
The Treasury portfolio to be purchased on behalf of the holders of Upper
DECS will consist of interest or principal strips of U.S. Treasury securities
which mature on or prior to August 15, 2004 in an aggregate amount equal to the
aggregate principal amount of the senior notes included in Upper DECS and with
respect to each scheduled interest payment date on the senior notes that occurs
after the tax event redemption date and on or before August 17, 2004, interest
or principal strips of U.S. Treasury securities that mature on or prior to that
interest payment date in an aggregate amount equal to the aggregate interest
payment that would be due on the aggregate principal amount of the senior notes
on that date if the interest rate of the senior notes were not reset on the
applicable reset date. These Treasury securities are non-callable by us.
Solely for purposes of determining the Treasury portfolio purchase price
in the case of a tax event redemption date occurring after May 17, 2004, or
August 17, 2004 if the remarketing of the notes on the fifth business day
preceding May 17, 2004 resulted in a failed remarketing, "Treasury portfolio"
shall mean a portfolio of zero-coupon U.S. Treasury securities consisting of
principal or interest strips of U.S. Treasury securities that mature on or
prior to August 15, 2006 in an aggregate amount equal to the aggregate
principal amount of the senior notes outstanding on the tax event redemption
date and with respect to each scheduled interest payment date on the senior
notes that occurs after the tax event redemption date, interest or principal
strips of U.S. Treasury securities that mature on or prior to that interest
payment date in an aggregate amount equal to the aggregate interest payment
that would be due on aggregate principal amount of the senior notes outstanding
on the tax event redemption date.
"Redemption amount" means in the case of a tax event redemption occurring
prior to May 17, 2004, or prior to August 17, 2004 if the remarketing of the
senior notes on the fifth business day preceding May 17, 2004 resulted in a
failed remarketing, for each senior note the product of the principal amount of
the note and a fraction whose numerator is the Treasury portfolio purchase
price and whose denominator is the aggregate principal amount of senior notes
included in Upper DECS, and in the case of a tax event redemption date
occurring on or after May 17, 2004, or August 17, 2004 if the remarketing of
the senior notes on the third business day preceding May 17, 2004 resulted in a
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failed remarketing, for each senior note the product of the principal amount of
the senior note and a fraction whose numerator is the Treasury portfolio
purchase price and whose denominator is the aggregate principal amount of the
senior notes outstanding on the tax event redemption date.
"Treasury portfolio purchase price" means the lowest aggregate price
quoted by a primary U.S. government securities dealer in New York City to the
quotation agent on the third business day immediately preceding the tax event
redemption date for the purchase of the Treasury portfolio for settlement on
the tax event redemption date.
"Quotation agent" means Salomon Smith Barney Inc. or its successor or any
other primary U.S. government securities dealer in New York City selected by
us.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of senior notes to
be redeemed at its registered address. Unless we default in payment of the
redemption price, on and after the redemption date interest shall cease to
accrue on the senior notes. In the event any notes are called for redemption,
neither we nor the trustee will be required to register the transfer of or
exchange the notes to be redeemed.
BOOK-ENTRY AND SETTLEMENT
Senior notes that are released from the pledge following substitution or
early settlement will be issued in the form of one or more global certificates,
which we refer to as global securities, registered in the name of the
depositary or its nominee. Except as provided below and except upon recreation
of Upper DECS, owners of beneficial interests in such a global security will
not be entitled to receive physical delivery of notes in certificated form and
will not be considered the holders (as defined in the indenture) thereof for
any purpose under the indenture, and no global security representing notes
shall be exchangeable, except for another global security of like denomination
and tenor to be registered in the name of the depositary or its nominee or a
successor depositary or its nominee. Accordingly, each beneficial owner must
rely on the procedures of the depositary or if such person is not a
participant, on the procedures of the participant through which such person
owns its interest to exercise any rights of a holder under the indenture.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of the securities in certificated form. These
laws may impair the ability to transfer beneficial interests in such a global
security.
In the event that
o the depositary notifies us that it is unwilling or unable to continue
as a depositary for the global security certificates and no successor
depositary has been appointed within 90 days after this notice, or
o the depositary at any time ceases to be a clearing agency registered
under the Securities Exchange Act at which time the depositary is
required to be so registered to act as the depositary and no successor
depositary has been appointed within 90 days after we learn that the
depositary has ceased to be so registered, or
o we determine in our sole discretion that we will no longer have debt
securities represented by global securities or permit any the global
security certificates to be exchangeable or an event of default under
the indenture has occurred and is continuing,
certificates for the notes will be printed and delivered in exchange for
beneficial interests in the global security certificates. Any global note that
is exchangeable pursuant to the preceding sentence shall be exchangeable for
note certificates registered in the names directed by the depositary. We expect
that these instructions will be based upon directions received by the
depositary from its participants with respect to ownership of beneficial
interests in the global security certificates.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States
federal income tax consequences of the purchase, ownership and disposition of
the Upper DECS, senior notes and CD common stock acquired under a forward
purchase contract. Unless otherwise stated, this summary deals only with Upper
DECS, senior notes and CD common stock held as capital assets (generally,
assets held for investment) by holders that purchase Upper DECS upon original
issuance. The tax treatment of a holder may vary depending on such holder's
particular situation. This summary does not address all of the tax consequences
that may be relevant to holders that may be subject to special tax treatment
such as, for example, insurance companies, broker dealers, tax-exempt
organizations, regulated investment companies, persons holding Upper DECS,
senior notes, or shares of our CD common stock as part of a straddle, hedge or
conversion transaction, and U.S. holders (as defined below) whose functional
currency is not the U.S. dollar. In addition, this summary does not address any
aspects of state, local, or foreign tax laws. This summary is based on the
United States federal income tax laws, regulations, rulings and decisions in
effect as of the date hereof, which are subject to change or differing
interpretations, possibly on a retroactive basis. YOU SHOULD CONSULT YOUR TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF PURCHASING, OWNING, AND
DISPOSING OF THE UPPER DECS OR NOTES OR CD COMMON STOCK, INCLUDING THE
APPLICATION AND EFFECT OF UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS. No statutory, administrative or judicial authority directly addresses the
treatment of Upper DECS or instruments similar to Upper DECS for United States
federal income tax purposes. As a result, no assurance can be given that the
Internal Revenue Service will agree with the tax consequences described herein.
U.S. HOLDERS
The following summary is addressed to U.S. holders. For purposes of this
summary, the term "U.S. holder" means a holder that is (1) a person who is a
citizen or resident of the United States, (2) a corporation or partnership (or
entity treated as a corporation or partnership for United States federal income
tax purposes) created or organized in or under the laws of the United States or
any state thereof or the District of Columbia, (3) an estate the income of
which is subject to United States federal income taxation, regardless of its
source, or (4) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of such trust and one or
more United States persons have the authority to control all substantial
decisions of such trust or (b) such trust has in effect a valid election to be
treated as a domestic trust for United States federal income tax purposes.
UPPER DECS
Allocation of Purchase Price. Your acquisition of an Upper DECS will be
treated as an acquisition of a unit consisting of two components, the senior
note and the forward purchase contract constituting such Upper DECS. The
purchase price of each Upper DECS will be allocated between the two components
in proportion to their respective fair market values at the time of purchase.
This allocation will establish your initial tax basis in the senior note and
the forward purchase contract. We will report the fair market value of each
senior note as $49.50 and the fair market value of each forward purchase
contract as $0. This position will be binding upon you (but not on the IRS)
unless you explicitly disclose a contrary position on a statement attached to
your timely filed United States federal income tax return for the taxable year
in which an Upper DECS is acquired. Thus, absent such disclosure, you should
allocate the purchase price for an Upper DECS in accordance with the foregoing.
The remainder of this discussion assumes that this allocation of purchase price
will be respected for United States federal income tax purposes.
Ownership of Senior Notes or Treasury Securities. You will be treated as
owning the senior notes or Treasury securities constituting a part of the Upper
DECS or Stripped DECS, respectively, for United States federal income tax
purposes. Cendant and, by virtue of your acquisition of Upper DECS, you agree
to treat the senior notes or Treasury securities constituting a part of the
Upper
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DECS or Stripped DECS as owned by you for United States federal income tax
purposes, and the remainder of this summary assumes such treatment. The United
States federal income tax consequences of owning the senior notes or Treasury
securities are discussed below (see "-- Senior Notes," "-- Treasury Securities"
and "-- Remarketing and Tax Event Redemption of Senior Notes").
Sales, Exchanges or Other Taxable Dispositions of Upper DECS. If you sell,
exchange or otherwise dispose of Upper DECS or Stripped DECS in a taxable
disposition (collectively, a "disposition"), you will be treated as having
sold, exchanged or disposed of each of the forward purchase contract and the
senior notes, your applicable ownership interest in the Treasury portfolio or
the Treasury securities, that constitute such Upper DECS or Stripped DECS, and
the proceeds realized on such disposition will be allocated between the forward
purchase contract and the senior notes, your applicable ownership interest in
the Treasury portfolio or the Treasury securities in proportion to their
respective fair market values. As a result, you generally will recognize gain
or loss equal to the difference between the portion of the proceeds that you
received that is allocable to the forward purchase contract and the senior
notes, your applicable ownership interest in the Treasury portfolio or the
Treasury securities, as the case may be, and your adjusted tax bases in the
forward purchase contract and the senior notes, your applicable ownership
interest in the Treasury portfolio or Treasury securities, except to the extent
that you are treated as receiving an amount with respect to accrued but unpaid
interest on your applicable ownership interest in the Treasury portfolio or the
Treasury securities, which amount will be treated as ordinary interest income,
or to the extent you are treated as receiving an amount with respect to accrued
contract adjustment payments or deferred contract adjustment payments, which
may be treated as ordinary income, in each case to the extent not previously
included in income. In the case of the forward purchase contract, your
applicable ownership interest in the Treasury portfolio and Treasury
securities, such gain or loss generally will be capital gain or loss, and such
gain or loss generally will be long-term capital gain or loss if you held the
Upper DECS or Stripped DECS of which the forward purchase contract constituted
a part or your applicable ownership interest in the Treasury portfolio or the
Treasury securities for more than one year immediately prior to such
disposition. Long-term capital gains of individuals are eligible for reduced
rates of taxation. The deductibility of capital losses is subject to
limitations. The rules governing the determination of the character of gain or
loss on the disposition of the senior notes are summarized under "-- Senior
Notes -- Sales, Exchanges or Other Taxable Dispositions Senior of Notes."
If the disposition of an Upper DECS or Stripped DECS occurs when the
forward purchase contract has negative value, you should be considered to have
received additional consideration for the senior notes, your applicable
ownership interest in the Treasury portfolio or the Treasury securities, as the
case may be, in an amount equal to such negative value and to have paid such
amount to be released from your obligation under the forward purchase contract.
Because, as discussed below, any gain on the disposition of senior notes prior
to the forward purchase contract settlement date generally will be treated as
ordinary interest income for United States federal income tax purposes, the
ability to offset such interest income with a loss on the forward purchase
contract may be limited. You should consult your tax advisor regarding a
disposition of an Upper DECS or Stripped DECS at a time when the forward
purchase contract has negative value.
In determining gain or loss, contract adjustment payments or deferred
contract adjustment payments that have been received by you, but have not
previously been included in your income, should either reduce your adjusted tax
basis in the forward purchase contract or result in an increase in the amount
realized on the disposition of the forward purchase contract. Any contract
adjustment payments or deferred contract adjustment payments previously
included in your income, but that you have not received, should increase your
adjusted tax basis in the forward purchase contract (see "Forward Purchase
Contracts -- Contract Adjustment Payments and Deferred Contract Adjustment
Payments" below).
SENIOR NOTES
Classification of the Senior Notes. In connection with the issuance of the
senior notes, Skadden, Arps, Slate, Meagher & Flom LLP, our counsel, will
deliver an opinion that, under current law, and
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based on certain representations, facts and assumptions set forth in such
opinion, the senior notes will be classified as indebtedness for United States
federal income tax purposes. Cendant and, by virtue of your acquisition of
Upper DECS, you, agree to treat the senior notes as indebtedness of Cendant for
all tax purposes.
Original Issue Discount. Because of the manner in which the interest rate
on the senior notes is reset, the senior notes should be classified as
contingent payment debt instruments subject to the "noncontingent bond method"
for accruing original issue discount, as set forth in the applicable Treasury
Regulations. We intend to treat the senior notes as such, and the remainder of
this discussion assumes that the senior notes will be so treated for United
States federal income tax purposes. As discussed more fully below, the effects
of applying such method will be (1) to require you, regardless of your usual
method of tax accounting, to use an accrual method with respect to the senior
notes, (2) for all accrual periods through May 17, 2004, and possibly for
accrual periods thereafter, to require you to accrue interest income in excess
of interest payments actually received and (3) generally to result in ordinary,
rather than capital, treatment of any gain or loss on the sale, exchange or
other disposition of the senior notes. See "-- Sales, Exchange or Other Taxable
Dispositions of Senior Notes."
You will be required to accrue original issue discount on a constant yield
to maturity basis based on the "comparable yield" of the senior notes. The
comparable yield of the senior notes generally will be the rate at which we
would issue a fixed rate debt instrument with terms and conditions similar to
the senior notes (which rate may exceed the current interest payments on the
senior notes). We have determined that the comparable yield is 7.28% and the
projected payments for the senior notes per $50 of principal amount are $1.03
on November 17, 2001, $0.84 for each subsequent quarter ending on or prior to
May 17, 2004 and $0.94 for each quarter ending after May 17, 2004. We have also
determined that the projected payment for the senior notes, per $50 of
principal amount, at the maturity date is $50.94 (which includes the stated
principal amount of the senior notes as well as the final projected interest
payment).
If the interest paid on the senior notes on August 17, 2004 differs from
the projected amount of such payment, the difference will be taken into account
as a negative or positive adjustment, as the case may be. In general, if after
August 17, 2004, the remaining amounts of principal and interest payable on the
senior notes differ from the payments set forth on the foregoing projected
payment schedule, negative or positive adjustments reflecting such difference
should generally be taken into account by you as adjustments to interest income
in a reasonable manner over the period to which they relate. We expect to
account for any such difference with respect to a period as an adjustment for
that period.
You are generally bound by the comparable yield and projected payment
schedule provided by us unless either is unreasonable. If you decide to use
your own comparable yield and projected payment schedule, you must explicitly
disclose this fact and the reason that you have used your own comparable yield
and projected payment schedule. In general, this disclosure must be made on a
statement attached to your timely filed United States federal income tax return
for the taxable year that includes the date of your acquisition of the senior
note.
The foregoing comparable yield and projected payment schedule is supplied
by us solely for computing income under the noncontingent bond method for
United States federal income tax purposes and does not constitute a projection
or representation as to the amounts that you will actually receive as a result
of owning senior notes or Upper DECS.
Adjustment to Tax Basis in Senior Notes. Your tax basis in a senior note
will be increased by the amount of original issue discount included in income
with respect to the senior note and decreased by the amount of projected
payments with respect to the senior note through the computation date.
Sales, Exchanges or Other Taxable Dispositions of Senior Notes. You will
recognize gain or loss on a disposition of a senior note (including a
redemption for cash or the remarketing thereof) in an amount equal to the
difference between the amount that you realized on the disposition of the
senior
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note and your adjusted tax basis in such senior note. Selling expenses incurred
by you, including the remarketing fee, will reduce the amount of gain or
increase the amount of loss recognized by you upon a disposition of a senior
note. Gain recognized on the disposition of a senior note prior to the purchase
contract settlement date will be treated as ordinary interest income. Loss
recognized on the disposition of a senior note prior to the forward purchase
contract settlement date will be treated as ordinary loss to the extent of your
prior inclusions of original issue discount on the senior note. Any loss in
excess of such amount will be treated as a capital loss. In general, gain
recognized on the disposition of a senior note on or after the forward purchase
contract settlement date will be ordinary interest income to the extent
attributable to the excess, if any, of the total remaining principal and
interest payments due on the senior note over the total remaining payments set
forth on the projected payment schedule for the senior note. Any gain
recognized in excess of such amount and any loss recognized on such a
disposition will generally be treated as a capital gain or loss. Long-term
capital gains of individuals are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
TREASURY SECURITIES
Original Issue Discount. If you hold Stripped DECS, you will be required
to treat your ownership interest in the Treasury securities comprising a
Stripped DECS as an interest in a bond that was originally issued on the date
you acquired the Treasury securities. Any such Treasury securities will have
OID equal to the excess of the amount payable at maturity of such Treasury
securities over the purchase price thereof. You will be required to include
such OID in income on a constant yield to maturity basis over the period
between the purchase date of the Treasury securities and the maturity date of
the Treasury securities, regardless of your method of tax accounting and in
advance of the receipt of cash attributable to such OID. Your adjusted tax
basis in the Treasury securities will be increased by the amounts of such OID
included in your gross income.
Sales, Exchanges or Other Taxable Dispositions of Treasury Securities. As
discussed below, in the event that you obtain the release of Treasury
securities by delivering senior notes to the collateral agent, you generally
will not recognize gain or loss upon such substitution. You will recognize gain
or loss on a subsequent disposition of the Treasury securities in an amount
equal to the difference between the amount that you realized on such
disposition and your adjusted tax basis in the Treasury securities. Such gain
or loss generally will be capital gain or loss and generally will be long-term
capital gain or loss if you held such Treasury securities for more than one
year immediately prior to such disposition. Long-term capital gains of
individuals are eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations.
FORWARD PURCHASE CONTRACTS
Contract Adjustment Payments and Deferred Contract Adjustment
Payments. There is no direct authority addressing the treatment, under current
law, of the contract adjustment payments or deferred contract adjustment
payments, and such treatment is, therefore, unclear. Contract adjustment
payments and deferred contract adjustment payments may constitute taxable
ordinary income to you when received or accrued, in accordance with your
regular method of tax accounting. To the extent we are required to file
information returns with respect to contract adjustment payments or deferred
contract adjustment payments, we intend to report such payments as taxable
ordinary income to you. You should consult your tax advisor concerning the
treatment of contract adjustment payments and deferred contract adjustments,
including the possibility that any contract adjustment payment or deferred
contract adjustment payment may be treated as a loan, purchase price
adjustment, rebate or payment analogous to an option premium, rather than being
includible in income on a current basis.
The treatment of contract adjustment payments and deferred contract
adjustment payments could affect your adjusted tax basis in a forward purchase
contract or CD common stock received under a forward purchase contract or the
amount realized by you upon the sale or disposition of an Upper
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DECS or Stripped DECS or the termination of a forward purchase contract. See
"-- Upper DECS -- Sales, Exchanges or Other Taxable Dispositions of Upper
DECS," "-- Acquisition of Common Stock Under a Forward Purchase Contract," "--
Early Settlement of Forward Purchase Contract," and "-- Termination of Forward
Purchase Contract,"
Acquisition of CD Common Stock Under a Forward Purchase Contract. You
generally will not recognize gain or loss on the purchase of CD common stock
under a forward purchase contract, except with respect to any cash paid to you
in lieu of a fractional share of CD common stock. Your aggregate initial tax
basis in the CD common stock received under a forward purchase contract should
generally equal the purchase price paid for such CD common stock, plus your
adjusted tax basis in the forward purchase contract (if any), less the portion
of such purchase price and adjusted tax basis allocable to the fractional
share. Contract adjustment payments or deferred contract adjustment payments
that you have received in cash but that you have not included in income should
reduce your adjusted tax basis in the forward purchase contract or the CD
common stock to be received thereunder (see "-- Contract Adjustment Payments
and Deferred Contract Adjustment Payments" above). The holding period for CD
common stock received under a forward purchase contract will commence on the
day following the acquisition of such CD common stock.
Ownership of CD Common Stock Acquired Under the Forward Purchase
Contract. Any distribution on CD common stock that we pay out of our current or
accumulated earnings and profits (as determined for United States federal
income tax purposes) will constitute a dividend and will be includible in your
income when received. Any such dividend will be eligible for the dividends
received deduction if you are an otherwise qualifying corporate holder that
meets the holding period and other requirements for the dividends received
deduction.
Upon a disposition of CD common stock, you generally will recognize
capital gain or loss equal to the difference between the amount realized and
your adjusted tax basis in the CD common stock. Such capital gain or loss
generally will be long-term capital gain or loss if you held such CD common
stock for more than one year immediately prior to such disposition. Long-term
capital gains of individuals are eligible or reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
Early Settlement of Forward Purchase Contract. You will not recognize gain
or loss on the receipt of your proportionate share of senior notes, Treasury
securities or the Treasury portfolio upon early settlement of a forward
purchase contract, and you will have the same adjusted tax basis in such senior
notes, Treasury securities or the Treasury portfolio as before such early
settlement. Any contract adjustment payments or deferred contract adjustment
payments that you have included in income but were forfeited and not paid upon
early settlement of a forward purchase contract should increase your adjusted
tax basis in the CD common stock received under a forward purchase contract.
Termination of Forward Purchase Contract. If a forward purchase contract
terminates, you will recognize gain or loss equal to the difference between the
amount realized (if any) upon such termination and your adjusted tax basis (if
any) in the forward purchase contract at the time of such termination. Any
contract adjustment payments or deferred contract adjustment payments that you
have received in cash but that you have not included in income should either
reduce your adjusted tax basis in the forward purchase contract or increase the
amount realized on the termination of the forward purchase contract. Any
contract adjustment payments or deferred contract adjustment payments that you
have included in income but not received should increase your adjusted tax
basis in the forward purchase contract. Such gain or loss generally will be
capital gain or loss and generally will be long-term capital gain or loss if
you held such forward purchase contract for more than one year immediately
prior to such termination. Long-term capital gains of individuals are eligible
for reduced rates of taxation. The deductibility of capital losses is subject
to limitations. A holder will not recognize gain or loss on the receipt of such
holder's proportionate share of the senior notes, Treasury securities or
Treasury portfolio upon termination of the forward purchase contract and will
have the same adjusted tax basis in such senior notes, Treasury securities or
Treasury portfolio as before such distribution.
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Adjustment To Settlement Rate. You might be treated as receiving a
constructive dividend distribution from Cendant if (1) the settlement rate is
adjusted and as a result of such adjustment the proportionate interest of
holders of Upper DECS or Stripped DECS in Cendant's assets or earnings and
profits is increased and (2) the adjustment is not made pursuant to a bona
fide, reasonable anti-dilution formula. An adjustment in the settlement rate
would not be considered made pursuant to such a formula if the adjustment were
made to compensate a holder for certain taxable distributions with respect to
the CD common stock. Thus, under certain circumstances, an increase in the
settlement rate might give rise to a taxable dividend to you even though you
would not receive any cash related thereto.
SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE STRIPPED DECS
If you hold Upper DECS and deliver Treasury securities to the collateral
agent in substitution for notes, you generally will not recognize gain or loss
upon your delivery of such Treasury securities or your receipt of the senior
notes. You will continue to take into account items of income or deduction
otherwise includible or deductible, respectively, by you with respect to such
Treasury securities and senior notes, and your adjusted tax bases in the
Treasury securities, the senior notes and the forward purchase contract will
not be affected by such delivery and release.
SUBSTITUTION OF NOTES TO RECREATE UPPER DECS
If you hold Stripped DECS and deliver senior notes to the collateral agent
in substitution for Treasury securities, you generally will not recognize gain
or loss upon your delivery of such senior notes or your receipt of the Treasury
securities. You will continue to take into account items of income or deduction
otherwise includible or deductible, respectively, by you with respect to such
Treasury securities and senior notes, and your adjusted tax bases in the
Treasury securities, the senior notes and the forward purchase contract will
not be affected by such delivery and release.
REMARKETING AND TAX EVENT REDEMPTION OF SENIOR NOTES
A remarketing or tax event redemption will be a taxable event for holders
of senior notes which will be subject to tax in the manner described under "--
Senior Notes -- Sales, Exchanges or Other Taxable Dispositions of Notes."
Ownership of Treasury Portfolio. In the event of a remarketing of the
senior notes on the fifth business day preceding May 17, 2004 or a tax event
redemption prior to the forward purchase contract settlement date, Cendant and,
by virtue of your acquisition of Upper DECS, you, agree to treat the Treasury
portfolio constituting a part of your Upper DECS as owned by you for United
States federal income tax purposes. In such a case, you will be required to
include in income any amount earned on such pro rata portion of the Treasury
portfolio for all United States federal income tax purposes. The remainder of
this summary assumes that holders of Upper DECS will be treated as the owners
of the applicable ownership interest in the Treasury portfolio constituting a
part of such Upper DECS for United States federal income tax purposes.
Interest Income and Original Issue Discount. The Treasury portfolio will
consist of stripped U.S. Treasury securities. Following a remarketing of the
senior notes on the fifth business day preceding May 17, 2004 or a tax event
redemption prior to the forward purchase contract settlement date, you will be
required to treat your pro rata portion of each U.S. Treasury security in the
Treasury portfolio as a bond that was originally issued on the date the
collateral agent acquired the relevant U.S. Treasury securities and that has
OID equal to your pro rata portion of the excess of the amounts payable on such
U.S. Treasury securities over the value of the U.S. Treasury securities at the
time the collateral agent acquires them on behalf of holders of Upper DECS. You
will be required to include such OID (other than OID on short-term U.S.
Treasury securities as defined below) in income for United States federal
income tax purposes as it accrues on a constant yield to maturity basis,
regardless of your method of tax accounting. The portion of each scheduled
interest payment to you in respect of the Treasury portfolio which exceeds the
amount of such OID will be treated as a return of your investment in the
Treasury portfolio and will not be considered current income for United States
federal income tax purposes.
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In the case of any U.S. Treasury security with a maturity of one year or
less from the date of its issue (a "short-term U.S. Treasury Security"), you
will generally be required to include OID in income as it accrues only if you
are an accrual basis taxpayer. If you are an accrual basis taxpayer, you will
generally accrue such OID on a straight-line basis, unless you make an election
to accrue such OID on a constant yield to maturity basis.
Tax Basis of the Treasury Portfolio. The initial tax basis of your
applicable ownership interest in the Treasury portfolio will equal your pro
rata portion of the amount paid by the collateral agent for the Treasury
portfolio. Your adjusted tax basis in the Treasury portfolio will be increased
by the amount of OID included in income with respect thereto and decreased by
the amount of cash that you received in respect of the Treasury portfolio.
NON-U.S. HOLDERS
The following summary applies to you if you are a non-U.S. holder. A
non-U.S. holder is a holder that is not a U.S. holder as defined under "-- U.S.
Holders." Special rules may apply to you if you are a "controlled foreign
corporation," "passive foreign investment company" or "foreign personal holding
company" and are subject to special treatment under the Internal Revenue Code.
If you are such an entity, you should consult your own tax advisor to determine
the United States federal, state, local and other tax consequences that may be
relevant to you.
United States Federal Withholding Tax. The 30% United States federal
withholding tax should not apply to any payment of principal or interest
(including original issue discount) on the senior notes, Treasury securities or
Treasury portfolio provided that:
o you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Internal Revenue Code and the Treasury regulations;
o you are not a controlled foreign corporation that is related to us
through stock ownership;
o you are not a bank whose receipt of interest on the notes is described
in section 881(c)(3)(A) of the Internal Revenue Code; and
o (a) you provide your name, address and certain other information on an
Internal Revenue Service Form W-8BEN (or a suitable substitute form),
and certify, under penalties of perjury, that you are not a United
States person or (b) you hold your Upper DECS or Stripped DECS through
certain foreign intermediaries or certain foreign partnerships and
certain certification requirements are satisfied.
We generally will withhold tax at a rate of 30% on the dividends, if any,
paid on the shares of our CD common stock acquired under the forward purchase
contract and on the contract adjustment payments made with respect to the
forward purchase contract. However, if a treaty applies, you may be eligible
for a reduced rate of withholding. Similarly, contract adjustment payments or
dividends that are effectively connected with the conduct of a trade or
business by you within the United States (or, where a tax treaty applies, are
attributable to a United States permanent establishment maintained by you), are
not subject to the withholding tax, but instead are subject to United States
federal income tax, as described below. In order to claim any such exemption or
reduction in the 30% withholding tax, you should provide a properly executed
Internal Revenue Service Form W-8BEN (or a suitable substitute form) claiming a
reduction of or an exemption from withholding under an applicable tax treaty or
Internal Revenue Service Form W-8ECI (or a suitable substitute form) stating
that such payments are not subject to withholding tax because they are
effectively connected with your conduct of a trade or business in the United
States.
In general, the 30% United States federal withholding tax will not apply
to any gain or income that you realize on the sale, exchange, or other
disposition of the Upper DECS, senior notes, forward purchase contracts,
Treasury portfolio, Treasury securities or CD common stock acquired under the
forward purchase contracts.
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United States Federal Income Tax. If you are engaged in a trade or
business in the United States (or, if a tax treaty applies, if you maintain a
permanent establishment within the United States) and interest (including
original issue discount) on the senior notes, original issue discount on the
Treasury portfolio or Treasury securities, dividends on our CD common stock
and, to the extent they constitute taxable income, contract adjustment payments
from the purchase contracts are effectively connected with the conduct of that
trade or business (or, if a treaty applies, of that permanent establishment),
you will be subject to United States federal income tax (but not the 30%
withholding tax), on the interest, original issue discount, dividends and
contract adjustment payments on a net income basis in the same manner as if you
were a U.S. holder. In addition, if you are a foreign corporation, you may be
subject to a 30% (or, if a treaty applies, such lower rate as provided) branch
profits tax.
Any gain or income realized on the disposition of an Upper DECS, a forward
purchase contract, a senior note, the Treasury portfolio, a Treasury security
or our CD common stock acquired under the forward purchase contract generally
will not be subject to United States federal income tax unless:
o that gain or income is effectively connected with your conduct of a
trade or business in the United States; or
o you are an individual who is present in the United States for 183 days
or more in the taxable year of the disposition and certain other
conditions are met.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Unless you are an exempt recipient, such as a corporation, interest, OID,
contract adjustment payments or deferred contract adjustment payments, and
dividends received on, and proceeds received from the sale of, Upper DECS,
senior notes, forward purchase contracts, Treasury securities, the Treasury
portfolio, or CD common stock acquired under the forward purchase contracts,
may be subject to information reporting and may also be subject to United
States federal backup withholding tax at the rate in effect at the time such
payments are made to you, if you fail to supply an accurate taxpayer
identification number or otherwise fail to comply with applicable United States
information reporting or certification requirements.
In general, no backup withholding will be required with respect to
payments made by us with respect to the Upper DECS, the senior notes, or the
contract adjustment payments if you have provided us with an Internal Revenue
Service Form W-8BEN (or a suitable substitute form) described above and we do
not have actual knowledge or reason to know that you are a United States
person. In addition, no backup withholding will be required regarding the
proceeds of the sale of Upper DECS, senior notes, Treasury securities and our
CD common stock even if made within the United States or conducted through
certain United States financial intermediaries if the payor receives the
statement described above and does not have actual knowledge or reason to know
that you are a United States person or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a credit against your United States federal income tax liability provided the
required information is furnished to the Internal Revenue Service.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated July 20, 2001, we have agreed to sell to Salomon Smith Barney
Inc. 15,000,000 Upper DECS (17,250,000 if the underwriter exercises its
overallotment option in full).
The underwriter has agreed to purchase all of the Upper DECS sold pursuant
to the underwriting agreement if any of the Upper DECS are purchased.
We have agreed to indemnify Salomon Smith Barney against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the underwriter may be required to make in respect to
those liabilities.
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Salomon Smith Barney is offering the Upper DECS, subject to prior sale,
when, as and if issued to and accepted by it, subject to approval of legal
matters by its counsel, including the validity of the Upper DECS, and other
conditions contained in the underwriting agreement, such as the receipt by
Salomon Smith Barney of officers' certificates and legal opinions. Salomon
Smith Barney reserves the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
Salomon Smith Barney has advised us that it proposes initially to offer
the Upper DECS to the public at the public offering price on the cover page of
this prospectus supplement. After the initial public offering, the public
offering price may be changed.
The expenses of the offering, not including the underwriting discount, are
estimated to be $1 million and are payable by us.
The following table shows the per Upper DECS and total public offering
price, underwriting discount to be paid by us to Salomon Smith Barney and
proceeds before expenses to us. The information is presented assuming either no
exercise or full exercise by the underwriter of the overallotment option.
TOTAL
--------------------------------
PER UPPER WITHOUT WITH
DECS OVER-ALLOTMENT OVER-ALLOTMENT
---------- ---------------- ---------------
Underwriting discount paid
by us .................... $ 1.50 $22,500,000 $25,875,000
OVERALLOTMENT OPTION
We have granted an option to Salomon Smith Barney to purchase up to an
additional 2,250,000 Upper DECS at the stated amount of $50 less the
underwriting discount. Salomon Smith Barney may exercise this option for 30 days
from the date of this prospectus supplement solely to cover any overallotments.
NO SALE OF SIMILAR SECURITIES
Cendant and its directors and executive officers have agreed, subject to
certain exceptions, without the prior written consent of Salomon Smith Barney
Inc., during the period beginning on the date of this prospectus supplement and
continuing until the date 90 days after the date of this prospectus supplement,
not to offer, sell, contract to sell or otherwise dispose of any Upper DECS,
forward purchase contracts or shares of CD common stock or any securities
substantially similar to the Upper DECS, forward purchase contracts or shares
of CD common stock or any securities convertible, exchangeable or exercisable
for CD common stock or substantially similar securities. Cendant may take such
actions with respect to currently contemplated issuances of shares of CD common
stock to Galileo International, Inc., issuances of shares of CD common stock as
consideration in future acquisitions and transfers of shares of CD common stock
to affiliates, and Cendant's directors and executive officers may exercise
their existing options and sell the underlying shares of CD common stock after
30 days from the date of this prospectus supplement. Salomon Smith Barney Inc.,
in its sole discretion, may release any of the securities subject to these
lock-up agreements at any time without notice.
NEW YORK STOCK EXCHANGE LISTING
The Upper DECS are a new issue of securities with no established trading
market. We have applied to have the Upper DECS listed on the NYSE. We have been
advised by the underwriter that it intends to make a market in the securities,
but it is not obligated to do so and may discontinue market-making at any time
without notice. We can provide no assurance as to the liquidity of, or any
trading market for, the securities.
This prospectus supplement, as amended or supplemented, may be used by the
remarketing agent for remarketing.
S-60
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the Upper DECS offered hereby is completed, SEC
rules may limit the underwriter and selling group members from bidding for or
purchasing the Upper DECS or shares of our CD common stock. However, the
underwriter may engage in transactions that stabilize the price of the Upper
DECS or our CD common stock, such as bids or purchases that peg, fix or
maintain the price of the Upper DECS or our CD common stock.
In connection with the offering, the underwriter may make short sales of
our Upper DECS. Short sales involve the sale by the underwriter, at the time of
the offering, of a greater number of Upper DECS than it is required to purchase
in the offering. Covered short sales are sales made in an amount not greater
than the overallotment option. The underwriter may close out any covered short
position by either exercising the overallotment option or purchasing Upper DECS
in the open market. In determining the source of Upper DECS to close out the
covered short position, the underwriter will consider, among other things, the
price of Upper DECS available for purchase in the open market as compared to
the price at which it may purchase the Upper DECS through the overallotment
option. Naked short sales are sales in excess of the overallotment option. The
underwriter must close out any naked short position by purchasing Upper DECS in
the open market. A naked short position is more likely to be created if the
underwriter is concerned that there may be downward pressure on the price of
the Upper DECS or our CD common stock in the open market after pricing that
could adversely affect investors who purchase in the offering. Similar to other
purchase transactions, purchases by the underwriter to cover syndicate short
positions may have the effect of raising or maintaining the market price of the
Upper DECS and our CD common stock or preventing or retarding a decline in the
market price of the Upper DECS and our CD common stock. As a result, the prices
of the Upper DECS and our CD common stock may be higher than they would
otherwise be in the absence of these transactions.
Neither we nor the underwriter make any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the Upper DECS or our CD common stock. In addition,
neither we nor the underwriter make any representation that the underwriter
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
OTHER RELATIONSHIPS
In the ordinary course of business, the underwriter and its affiliates
have provided financial advisory, investment banking and general financing and
banking services to us and certain of our affiliates for customary fees.
LEGAL MATTERS
Certain legal matters with respect to the offering of the Upper DECS will
be passed on for us by Eric J. Bock, Esq., Senior Vice President, Law and
Secretary of Cendant, and by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. Certain legal matters with respect to the offering of the Upper
DECS will be passed upon for the underwriter by Shearman & Sterling, New York,
New York. Mr. Bock holds shares of CD common stock and options to acquire
shares of CD common stock.
EXPERTS
Our financial statements incorporated in this prospectus supplement by
reference from our Annual Report on Form 10-K/A for the year ended December 31,
2000 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which expresses an unqualified opinion and includes
explanatory paragraphs relating to the change in certain revenue recognition
policies regarding the recognition of non-refundable one-time fees and pro rata
refundable subscription revenue and the restatement of the financial statements
to reflect the individual membership business
S-61
as part of continuing operations as discussed in Note 1), which is incorporated
herein by reference, and has been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Cendant is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. The Commission also maintains a website that contains reports, proxy and
information statements and other information. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms. The
website address is http://www.sec.gov, and in addition, such material can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with the Commission, which means that we can disclose important
information to you by referring to another document filed separately with the
Commission. The information that Cendant files after the date of this
prospectus supplement with the Commission will automatically update and
supersede this information. Cendant incorporates by reference into this
prospectus supplement the documents listed below and any future filings made
with the Commission under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
until the completion of this offering.
o Annual Report on Form 10-K/A for the year ended December 31, 2000,
filed on July 3, 2001;
o Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2001,
filed on July 3, 2001;
o Current Report on Form 8-K dated January 9, 2001;
o Current Report on Form 8-K dated January 18, 2001;
o Current Report on Form 8-K/A dated January 19, 2001;
o Current Report on Form 8-K dated February 7, 2001, filed on February
8, 2001;
o Current Report on Form 8-K dated February 8, 2001;
o Current Report on Form 8-K dated February 20, 2001;
o Current Report on Form 8-K dated March 1, 2001, filed on March 9,
2001;
o Current Report on Form 8-K dated March 12, 2001;
o Current Report on Form 8-K/A dated March 21, 2001;
o Current Report on Form 8-K dated April 2, 2001, filed on April 3,
2001;
o Current Report on Form 8-K dated April 18, 2001, filed on April 19,
2001;
o Current Report on Form 8-K dated April 18, 2001, filed on April 19,
2001;
o Current Report on Form 8-K dated May 2, 2001;
o Current Report on Form 8-K dated May 4, 2001;
o Current Report on Form 8-K dated May 10, 2001, filed on May 11, 2001;
S-62
o Current Report on Form 8-K dated May 24, 2001, filed on May 25, 2001;
o Current Report on Form 8-K dated June 13, 2001, filed on June 15,
2001;
o Current Report on Form 8-K dated June 15, 2001, filed on June 18, 2001;
o Current Report on Form 8-K dated July 2, 2001, filed on July 3, 2001;
o Current Report on Form 8-K dated July 10, 2001;
o Current Report on Form 8-K dated July 18, 2001, filed on July 19,
2001;
o Current Report on Form 8-K dated July 19, 2001; and
o The "Summary Comparison of Terms of Existing Common Stock with Terms
of CD Common Stock and Move.com Common Stock" contained in our Proxy
Statement dated February 10, 2000, filed on February 11, 2000.
All documents filed by Cendant with the Commission from the date of this
prospectus supplement to the end of the offering of the Upper DECS shall also
be deemed to be incorporated herein by reference.
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus supplement shall be considered to
be modified or superseded for purposes of this prospectus supplement to the
extent that a statement contained in this prospectus supplement or in any
subsequently filed document that is or is considered to be incorporated by
reference modifies or supersedes such statement. Any statement that is modified
or superseded shall not, except as so modified or superseded, constitute a part
of this prospectus supplement.
You may request a copy of any of the documents that are incorporated by
reference in this prospectus, other than exhibits that are not specifically
incorporated by reference into such documents and our Certificate and By-laws,
at no cost, by writing or telephoning Cendant at the following:
Investor Relations
Cendant Corporation
9 West 57th Street
New York, NY 10019
Telephone: (212) 413-1800
S-63
================================================================================
15,000,000 UPPER DECS(SM)
CENDANT CORPORATION
[CENDANT LOGO OMITTED]
--------
P R O S P E C T U S S U P P L E M E N T
JULY 20, 2001
--------
SALOMON SMITH BARNEY
(SM)SERVICE MARK OF SALOMON SMITH BARNEY INC.
================================================================================
PROSPECTUS
$4,100,000,000
CENDANT CORPORATION
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK,
STOCK PURCHASE CONTRACTS, STOCK PURCHASE UNITS AND WARRANTS
CENDANT CAPITAL II
CENDANT CAPITAL III
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED
BY CENDANT CORPORATION
--------------
Cendant Corporation (the "Company"), directly or through such agents,
dealers or underwriters as may be designated from time to time, may offer,
issue and sell, together or separately, its (i) debt securities (the "Debt
Securities"), which may be senior debt securities (the "Senior Debt
Securities") or subordinated debt securities (the "Subordinated Debt
Securities"), (ii) shares of its preferred stock, par value $0.01 per share
(the "Preferred Stock"), (iii) shares of its common stock, par value $0.01 per
share (the "Common Stock"), (iv) Stock Purchase Contracts ("Stock Purchase
Contracts") to purchase shares of Common Stock, (v) Stock Purchase Units, each
representing ownership of a Stock Purchase Contract and Preferred Securities
(as defined herein) or debt obligations of third parties, including U.S.
Treasury securities, securing the holder's obligation to purchase Common Stock
under the Stock Purchase Contracts ("Stock Purchase Units") and (vi) warrants
to purchase Debt Securities, Preferred Stock, Common Stock or other securities
or rights ("Warrants").
Cendant Capital II and Cendant Capital III (each, a "Cendant Trust"),
statutory business trusts formed under the laws of the State of Delaware, may
offer, from time to time, preferred securities, representing preferred
undivided beneficial interests in the assets of the respective Cendant Trusts
("Preferred Securities"). The payment of periodic cash distributions
("Distributions") with respect to Preferred Securities out of moneys held by
each of the Cendant Trusts, and payments on liquidation, redemption or
otherwise with respect to such Preferred Securities, will be guaranteed by the
Company to the extent described herein (each, a "Trust Guarantee"). See
"Description of Preferred Securities" and "Description of Trust Guarantees."
The Company's obligations under the Trust Guarantees will rank junior and
subordinate in right of payment to all other liabilities of the Company and on
a parity with its obligations under the senior most preferred or preference
stock of the Company. See "Description of Trust Guarantees--Status of the Trust
Guarantees." Debt Securities may be issued and sold by the Company in one or
more series to a Cendant Trust or a trustee of such Cendant Trust in connection
with the investment of the proceeds from the offering of Preferred Securities
and Common Securities (as defined herein) of such Cendant Trust. The Debt
Securities purchased by a Cendant Trust may be subsequently distributed pro
rata to holders of Preferred Securities and Common Securities in connection
with the dissolution of such Cendant Trust.
The Debt Securities, Preferred Stock, Common Stock, Stock Purchase
Contracts, Stock Purchase Units, Warrants and Preferred Securities are herein
collectively referred to as the "Securities," with an aggregate public offering
price of up to $4,100,000,000 (or its equivalent in foreign currencies or
foreign currency units based on the applicable exchange rate at the time of
offering) in amounts, at prices and on terms to be determined at the time of
sale.
The form in which the Securities are to be issued, their specific
designation, aggregate principal amount or aggregate initial offering price,
maturity, if any, rate and times of payment of interest or dividends, if any,
redemption, conversion, and sinking fund terms, if any, voting or other rights,
if any, exercise price and detachability, if any, and other specific terms will
be set forth in a Prospectus Supplement (the "Prospectus Supplement"), together
with the terms of offering of such Securities. Any such Prospectus Supplement
will also contain information, as applicable, about certain material United
States Federal income tax considerations relating to the particular Securities
offered thereby.
The Declaration of Trust for each of such Trusts also provides that to the
full extent permitted by law, the Company shall indemnify any Company
Indemnified Person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of any such Trust) by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees), judgments,
fines and amounts paid insettlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of any such Trust, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. Each of the Declaration of Trusts also provides that to
the full extent permitted by law, the Company shall indemnify any Company
Indemnified Person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of any
such trust to procure a judgment in its favor by reason of the fact that such
person is or was a Company Indemnified Person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of any such trust and except that no such
indemnification shall be made in respect of any claim, issue or matter as to
which such Company Indemnified Person shall have been adjudged to be liable to
any such trust unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such Court of Chancery or such other court
shall deem proper. The Declaration of Trust for each such Trust further
provides that expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in the immediately
preceding two sentences shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such Company Indemnified Person to repay such amount if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Company as authorized in any such Declaration.
The Declaration of Trust for each Trust also provides that the Company
shall indemnify each Fiduciary Indemnified Person against any loss, liability
or expense incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of the trust or trusts
under any such Trust, including the costs and expenses (including reasonable
legal fees and expenses) of defending itself against or investigating any claim
or liability in connection with the exercise or performance of any of its
powers or duties thereunder.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "CD". Any Prospectus Supplement will also contain information, where
applicable, as to any other listing on a securities exchange of the Securities
covered by such Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Securities may be sold directly by the Company, through agents
designated from time to time or to or through underwriters or dealers. The
Company reserves the sole right to accept, and together with its agents, from
time to time, to reject in whole or in part any proposed purchase of Securities
to be made directly or through agents. If any agents or underwriters are
involved in the sale of any Securities, the names of such agents or
underwriters and any applicable fees, commissions or discounts will be set
forth in the applicable Prospectus Supplement. See "Plan of Distribution."
This Prospectus may not be used to consummate any sale of Securities
unless accompanied by a Prospectus Supplement.
The date of this Prospectus is November 18, 1998
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING DESCRIBED HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITAITON IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
FORWARD-LOOKING STATEMENTS
The Company makes statements about its future results in this Prospectus
that may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
the Company's current expectations and the current economic environment. The
Company cautions you that these statements are not guarantees of future
performance. They involve a number of risks and uncertainties that are
difficult to predict. Actual results could differ materially from those
expressed or implied 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:
o the resolution or outcome of the pending litigation and government
investigations relating to the Company's previously announced
accounting irregularities;
o uncertainty as to the Company's future profitability and ability to
integrate and operate successfully acquired businesses and the risks
associated with such businesses;
o the Company's ability to develop and implement operational and
financial systems to manage rapidly growing operations;
o competition in the Company's existing and potential future lines of
business;
o the completion and impact of the sale of the Company's discontinued
operations, such as Hebdo Mag International, Inc. and the Company's
software business;
o the Company's ability to obtain financing on acceptable terms to
finance our growth strategy and for the Company to operate within the
limitations imposed by financing arrangements; and
o the Company's ability and the Company's vendors', franchisees' and
customers' ability to complete the necessary actions to achieve a year
2000 conversion for computer systems and applications.
The Company derived the forward-looking statements in this Prospectus
(including the documents incorporated by reference in this Prospectus) from
other factors and assumptions not identified above, 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 publicly correct or update these forward-looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting such forward-looking statements or if the Company later become aware
that they are not likely to be achieved.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all the amendments and exhibits thereto, the
"Registration Statement") filed by the Company and the Cendant Trusts with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Securities.
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain
2
parts of which are omitted in accordance with the rules and regulations of the
Commission, although it does include a summary of the material terms of the
Indenture and the Declaration of Trust (each as defined herein). Reference is
made to such Registration Statement and to the exhibits relating thereto for
further information with respect to the Company, the Cendant Trusts and the
Securities. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission or incorporated by reference herein are not necessarily
complete, and, in each instance, reference is made to the copy of such document
so filed for a more complete description of the matter involved. Each such
statement is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. The Commission also maintains a website that contains reports, proxy and
information statements and other information. The website address is
http.//www.sec.gov. In addition, such material can be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
No separate financial statements of the Cendant Trusts have been included
or incorporated by reference herein. The Company does not consider that such
financial statements would be material to holders of the Preferred Securities
because (i) all of the voting securities of the Cendant Trusts will be owned,
directly or indirectly, by the Company, a reporting company under the Exchange
Act, (ii) the Cendant Trusts have and will have no independent operations but
exist for the sole purpose of issuing securities representing undivided
beneficial interests in their assets and investing the proceeds thereof in
Subordinated Debt Securities issued by the Company, and (iii) the Company's
obligations described herein and in any accompanying Prospectus Supplement,
under the Declaration (as defined herein)(including the obligation to pay
expenses of the Cendant Trusts), the Subordinated Indenture and any
supplemental indentures thereto, the Subordinated Debt Securities issued to the
Cendant Trust and the Trust Guarantees taken together, constitute a full and
unconditional guarantee by the Company of payments due on the Preferred
Securities. See "Description of Preferred Securities of the Cendant Trusts" and
"Description of Trust Guarantees."
The Cendant Trusts are not currently subject to the information reporting
requirements of the Exchange Act. The Cendant Trusts will become subject to
such requirements upon the effectiveness of the Registration Statement,
although they intend to seek and expect to receive exemptions therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1997;
Quarterly Reports on Form 10-Q for the quarter ended September 30, 1998 and on
Form 10-Q/A for the quarters ended March 31, 1998 and June 30, 1998; Current
Reports on Form 8-K dated November 16, 1998, November 5, 1998, November 4,
1998, October 14, 1998, October 14, 1998, October 13, 1998, October 5, 1998,
August 28, 1998, August 13, 1998, August 4, 1998, July 29, 1998, July 15, 1998
and July 14, 1998, June 4, 1998, May 18, 1998, May 5, 1998, April 9, 1998,
March 25, 1998, March 6, 1998, March 5, 1998, February 16, 1998, February 6,
1998, February 2, 1998, January 29, 1998, January 27, 1998, January 20, 1998
and January 14, 1998, and on Form 8-K/A, dated September 17, 1998; and the
description of the Company's common stock contained in the Registration
Statements on Form 8-A dated July 27, 1984 and August 15, 1989.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated herein by reference and to be a part hereof from
3
the date of filing of such documents. Any statement contained in this
Prospectus or in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated
herein by reference or in any Prospectus Supplement modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to Investor
Relations, Cendant Corporation, 6 Sylvan Way, Parsippany, New Jersey 07054,
(Telephone: (973) 428-9700).
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE SECURITIES OFFERED
HEREBY, INCLUDING STABILIZING TRANSACTIONS, THE PURCHASE OF SECURITIES TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS.
4
THE COMPANY
The Company is one of the foremost consumer and business services
companies in the world. The Company was created through the merger of CUC
International Inc. ("CUC") and HFS Incorporated ("HFS") in December 1997, and
provides a wide range of complementary consumer and business services within
three principal operating segments:
o Travel Services: the travel segment franchises hotel and car rental
businesses, facilitates vacation timeshare exchanges and manages
corporate and government vehicle fleets;
o Real Estate Services: the real estate segment franchises real estate
brokerage businesses, assists in employee relocation, provides home
buyers with mortgages and provides servicing on home buyer mortgages;
and
o Alliance Marketing: the alliance marketing segment provides an array
of value driven products and services through more than 20 membership
clubs and client relationships.
The Company also offers a tax preparation services franchise, information
technology services, credit information services and financial products.
THE CENDANT TRUSTS
Each of the Cendant Trusts is a statutory business trust formed under
Delaware law pursuant to (i) a declaration of trust (each a "Declaration")
executed by the Company as sponsor for such trust (the "Sponsor"), and the
Cendant Trustees (as defined herein) of such trust and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
February 5, 1998. Each Cendant Trust exists for the exclusive purposes of (i)
issuing and selling the Preferred Securities and common securities representing
common undivided beneficial interests in the assets of such Cendant Trust (the
"Common Securities" and, together with the Preferred Securities, the "Trust
Securities"), (ii) using the gross proceeds from the sale of the Trust
Securities to acquire the Debt Securities and (iii) engaging in only those
other activities necessary, appropriate, convenient or incidental thereto. All
of the Common Securities will be directly or indirectly owned by the Company.
The Common Securities will rank on a parity, and payments will be made thereon
pro rata, with the Preferred Securities, except that, if an event of default
under the Declaration has occurred and is continuing, the rights of the holders
of the Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights
of the holders of the Preferred Securities. The Company will directly or
indirectly acquire Common Securities in an aggregate liquidation amount equal
to at least 3% of the total capital of each Cendant Trust.
Unless otherwise specified in the applicable Prospectus Supplement, each
Cendant Trust has a term of up to 55 years but may terminate earlier, as
provided in the Declaration. Each Cendant Trust's business and affairs will be
conducted by the trustees (the "Cendant Trustees") appointed by the Company as
the direct or indirect holder of all of the Common Securities. The holder of
the Common Securities will be entitled to appoint, remove or replace any of, or
increase or reduce the number of, the Cendant Trustees of each Cendant Trust.
The duties and obligations of the Cendant Trustees shall be governed by the
Declaration of such Cendant Trust. A majority of the Cendant Trustees (the
"Regular Trustees") of each Cendant Trust will be persons who are employees or
officers of or who are affiliated with the Company. One Cendant Trustee of each
Cendant Trust will be a financial institution (the "Institutional Trustee")
that is not affiliated with the Company and has a minimum amount of combined
capital and surplus of not less than $50,000,000, which shall act as property
trustee and as indenture trustee for the purposes of compliance with the
provisions of Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), pursuant to the terms set forth in the applicable Prospectus Supplement.
In addition, unless the Institutional Trustee maintains a principal place of
business in the State of Delaware and otherwise meets the requirements of
applicable law, one Cendant Trustee of each Cendant Trust will be an entity
having a principal place of business in, or a natural person resident of, the
State of Delaware (the "Delaware Trustee"). The Company will pay all fees and
expenses related to the Cendant Trust and the offering of the Trust Securities.
5
Unless otherwise specified in the applicable Prospectus Supplement, the
Institutional Trustee and Delaware Trustee for each Cendant Trust shall be
Wilmington Trust Company, and its address in the State of Delaware is Rodney
Square North, 1100 North Mamet Street, Wilmington, Delaware 19890. The
principal place of business of each Cendant Trust shall be c/o Cendant
Corporation, 6 Sylvan Way, Parsippany, New Jersey 07054, telephone (973)
428-9700.
USE OF PROCEEDS
Unless otherwise set forth in a Prospectus Supplement, the net proceeds
from the offering of the Securities will be used for general corporate
purposes, which may include acquisitions, repayment of other debt, working
capital and capital expenditures. When a particular series of Securities is
offered, the Prospectus Supplement relating thereto will set forth the
Company's intended use for the net proceeds received from the sale of such
Securities. Pending application for specific purposes, the net proceeds may be
invested in short-term marketable securities.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The table below sets forth the ratio of earnings to fixed charges of the
Company and its consolidated subsidiaries for each of the periods indicated:
NINE MONTHS ENDED
SEPTEMBER 30, FISCAL YEAR ENDED DECEMBER 31,
---------------------------- --------------------------------
1998 1997 1997 1996 1995
----------------- ---------- ---------- ---------- ----------
2.44x(1) 2.63x 1.63x 2.64x 2.20x
----------
(1) Includes 100% of PHH Corporation consolidated net income of which only
40% of consolidated net income is available to the Company pursuant to
PHH's credit arrangements.
The ratio of earnings to fixed charges is computed by dividing the income
from continuing operations before income taxes, extraordinary items and
cumulative effect of accounting charge plus fixed charges, less capitalized
interest by fixed charges. Fixed charges consist of interest expense on all
indebtedness (including amortization of deferred financing costs) and the
portion of operating lease rental expense that is representative of the
interest factor (deemed to be one-third of operating lease rentals).
DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities may be offered from time to time by the Company as
Senior Debt Securities and/or as Subordinated Debt Securities. The Senior Debt
Securities will be issued under an Indenture, as it may be supplemented from
time to time (the "Senior Indenture"), between the Company and The Bank of Nova
Scotia Trust Company of New York, as trustee (the "Senior Trustee"). The
Subordinated Debt Securities will be issued under an Indenture, as it may be
supplemented from time to time (the "Subordinated Indenture"), between the
Company and The Bank of Nova Scotia Trust Company of New York, as trustee (the
"Subordinated Trustee"). The term "Trustee", as used herein, refers to either
the Senior Trustee or the Subordinated Trustee, as appropriate. The forms of
the Senior Indenture and the Subordinated Indenture (being sometimes referred
to herein collectively as the "Indentures" and individually as an "Indenture")
have been filed as exhibits to the Registration Statement. The terms of the
Indentures are also governed by certain provisions of the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The following summary of
certain material provisions of the Debt Securities does not purport to be
complete and is qualified in its entirety by reference to the Indentures. All
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Indentures. For a summary of certain definitions
used in this section, see "Certain Definitions" below.
GENERAL
The Indentures will provide for the issuance of Debt Securities in series
up to the aggregate amount from time to time authorized by the Company for each
series. A Prospectus Supplement will
6
set forth the following terms (to the extent such terms are applicable to such
Debt Securities) of and information relating to the Debt Securities in respect
of which this Prospectus is delivered: (1) the designation of such Debt
Securities; (2) classification as Senior or Subordinated Debt Securities; (3)
the aggregate principal amount of such Debt Securities; (4) the percentage of
their principal amount at which such Debt Securities will be issued; (5) the
date or dates on which such Debt Securities will mature; (6) the rate or rates,
if any, per annum, at which such Debt Securities will bear interest, or the
method of determination of such rate or rates; (7) the times and places at
which such interest, if any, will be payable; (8) provisions for sinking,
purchase or other analogous fund, if any; (9) the date or dates, if any, after
which such Debt Securities may be redeemed at the option of the Company or of
the holder and the redemption price or prices; (10) the date or the dates, if
any, after which such Debt Securities may be converted or exchanged at the
option of the holder into or for shares of Common Stock or Preferred Stock of
the Company and the terms for any such conversion or exchange; and (11) any
other specific terms of the Debt Securities. Principal, premium, if any, and
interest, if any, will be payable and the Debt Securities offered hereby will
be transferable, at the corporate trust office of the Trustee's agent in the
borough of Manhattan, City of New York, provided that payment of interest, if
any, may be made at the option of the Company by check mailed to the address of
the person entitled thereto as it appears in the Security Register. (Section
301 of each Indenture)
If a Prospectus Supplement specifies that a series of Debt Securities is
denominated in a currency or currency unit other than United States dollars,
such Prospectus Supplement shall also specify the denomination in which such
Debt Securities will be issued and the coin or currency in which the principal,
premium, if any, and interest, if any, on such Debt Securities will be payable,
which may be United States dollars based upon the exchange rate for such other
currency or currency unit existing on or about the time a payment is due.
Special United States federal income tax considerations applicable to any Debt
Securities so denominated are also described in the applicable Prospectus
Supplement.
The Debt Securities may be issued in registered or bearer form and, unless
otherwise specified in a Prospectus Supplement, in denominations of $1,000 and
integral multiples thereof. Debt Securities may be issued in book-entry form,
without certificates. Any such issue will be described in the Prospectus
Supplement relating to such Debt Securities. No service charge will be made for
any transfer or exchange of the Debt Securities, but the Company or the Trustee
may require payment of a sum sufficient to cover any tax or other government
charge payable in connection therewith.
Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be sold at a substantial discount from their stated
principal amount. United States Federal income tax consequences and other
considerations applicable thereto will be described in the Prospectus
Supplement relating to such Debt Securities.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indentures will provide that the Company shall not consolidate with or
merge into any other corporation or convey, transfer or lease its properties
and assets substantially as an entirety to any Person, unless: (1) the
corporation formed by such consolidation or into which the Company is merged or
the Person which acquires by conveyance or transfer, or which leases, the
properties and assets of the Company substantially as an entirety (A) shall be
a corporation, partnership, limited liability company or trust organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and (B) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the Company's obligation for the due and punctual
payment of the principal of (and premium, if any, on) and interest on all the
Debt Securities and the performance and observance of every covenant of the
Indentures on the part of the Company to be performed or observed; (2)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (3) the Company or such
Person shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and such supplemental indenture comply with this "Merger,
7
Consolidation and Sale of Assets" section and that all conditions precedent
herein provided for relating to such transaction have been complied with. This
paragraph shall apply only to a merger or consolidation in which the Company is
not the surviving corporation and to conveyances, leases and transfers by the
Company as transferor or lessor. (Section 801 of each Indenture)
The Indentures will further provide that upon any consolidation by the
Company with or merger by the Company into any other corporation or any
conveyance, transfer or lease of the properties and assets of the Company
substantially as an entirety to any Person in accordance with the preceding
paragraph, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indentures with the same effect as if such successor
Person had been named as the Company therein, and in the event of any such
conveyance or transfer, the Company (which term shall for this purpose mean
Cendant Corporation or any successor Person which shall theretofore become such
in the manner described in the preceding paragraph), except in the case of a
lease, shall be discharged of all obligations and covenants under the
Indentures and the Debt Securities and the coupons and may be dissolved and
liquidated. (Section 802 of each Indenture)
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indentures with
respect to Debt Securities of any series:
(1) default in the payment of any interest on any Debt Securities of that
series or any related coupon, when such interest or coupon becomes due and
payable, and continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any, on)
any Debt Securities of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment when and as due
pursuant to the terms of the Debt Securities of that series and Article
Twelve of the Indentures; or
(4) default in the performance, or breach, of any covenant or warranty of
the Company in the Indentures (other than a default in the performance, or
breach, of a covenant or warranty which is specifically dealt with
elsewhere under this "Events of Default" section), and continuance of such
default or breach for a period of 90 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal amount
of all Outstanding Debt Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" thereunder; or
(5) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company under the Federal Bankruptcy
Code or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance
of any such decree or order unstayed and in effect for a period of 90
consecutive days; or
(6) the institution by the Company of proceedings to be adjudicated
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Code or any other applicable federal or state law, or
the consent by it to the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due; or
8
(7) (A) there shall have occurred one or more defaults by the Company in
the payment of the principal of (or premium, if any, on) Debt aggregating
$50 million or more, when the same becomes due and payable at the stated
maturity thereof, and such default or defaults shall have continued after
any applicable grace period and shall not have been cured or waived, or (B)
Debt of the Company aggregating $50 million or more shall have been
accelerated or otherwise declared due and payable, or required to be
prepaid or repurchased (other than by regularly scheduled required
prepayment), prior to the stated maturity thereof; or
(8) any other Event of Default provided with respect to Debt Securities
of that series.
If an Event of Default described in clause (1), (2), (3), (4), (7) or (8)
above with respect to Debt Securities of any series at the time Outstanding
occurs and is continuing, then in every such case the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of
that series may declare the principal amount (or, if the Debt Securities of
that series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount as may be specified in the terms of that
series) of all of the Debt Securities of that series to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such principal amount (or specified
portion thereof) shall become immediately due and payable. If an Event of
Default described in clause (5) or (6) above occurs and is continuing, then the
principal amount of all the Debt Securities shall become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder, subject, however, to all rights, powers and limitations provided
for by the Federal Bankruptcy Code or any other applicable Federal or State
Law.
At any time after a declaration of acceleration with respect to Debt
Securities of any series (or of all series, as the case may be) has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as provided in Article Five of the Indentures, the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series
(or of all series, as the case may be), by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay in the Currency in which the Debt Securities of such series are
payable (except as otherwise specified pursuant to Section 301 of the
Indentures for the Debt Securities of such series and except, if
applicable, as provided in certain provisions of Section 312 of the
Indentures):
(A) all overdue interest on all Outstanding Debt Securities of that
series (or of all series, as the case may be) and any related coupons;
(B) all unpaid principal of (and premium, if any, on) any Outstanding
Debt Securities of that series (or of all series, as the case may be)
which has become due otherwise than by such declaration of acceleration,
and interest on such unpaid principal at the rate or rates prescribed
therefor in such Debt Securities;
(C) to the extent that payment of such interest is lawful, interest on
overdue interest at the rate or rates prescribed therefor in such Debt
Securities; and
(D) all sums paid or advanced by the Trustee thereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Debt Securities of that series
(or of all series, as the case may be), other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on Debt
Securities of that series (or of all series, as the case may be) which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513 of the Indentures.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
9
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Debt Securities because of an Event of Default
specified in clause (7) of the first paragraph of this section shall have
occurred and be continuing, such declaration of acceleration shall be
automatically annulled if the Debt that is the subject of such Event of Default
has been discharged or the holders thereof have rescinded their declaration of
acceleration in respect of such Debt, and written notice of such discharge or
rescission, as the case may be, shall have been given to the Trustee by the
Company and countersigned by the holders of such Debt or a trustee, fiduciary
or agent for such holders, within 30 days after such declaration of
acceleration in respect of the Debt Securities, and no other Event of Default
has occurred during such 30-day period which has not been cured or waived
during such period. (Section 502 of each Indenture)
Subject to Section 502 of each Indenture, the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
may on behalf of the Holders of all the Debt Securities of such series waive
any past default described in clause (1), (2), (3), (4), (7), or (8) of the
first paragraph of this section (or, in the case of a default described in
clause (5) or (6) of the first paragraph of this section, the Holders of not
less than a majority in principal amount of all Outstanding Debt Securities may
waive any such past default), and its consequences, except a default (i) in
respect of the payment of the principal of (or premium, if any, on) or interest
on any Debt Security or any related coupon, or (ii) in respect of a covenant or
provision which under the Indentures cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security of such series
affected. (Section 513 of each Indenture)
Upon any such waiver, any such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of the Indentures; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
(Section 513 of each Indenture)
No Holder of any Debt Security of any series or any related coupons shall
have any right to institute any proceeding, judicial or otherwise, with respect
to the Indentures, or for the appointment of a receiver or trustee, or for any
other remedy thereunder, unless (i) such Holder has previously given written
notice to the Trustee of a continuing Event of Default with respect to the Debt
Securities of that series; (ii) the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of that series in the case of any
Event of Default under clause (1), (2), (3), (4), (7) or (8) of the first
paragraph of this section, or, in the case of any Event of Default described in
clause (5) or (6) of the first paragraph of this section, the Holders of not
less than 25% in principal amount of all Outstanding Debt Securities, shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee under each of the Indentures;
(iii) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request; (iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(v) no direction inconsistent with such written request has been given to the
Trustee during such 60-day period by the Holders of a majority or more in
principal amount of the Outstanding Debt Securities of that series in the case
of any Event of Default described in clause (1), (2), (3), (4), (7) or (8) of
the first paragraph of this section, or, in the case of any Event of Default
described in clause (5) or (6) of the first paragraph of this section, by the
Holders of a majority or more in principal amount of all Outstanding Debt
Securities. (Section 507 of each Indenture)
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under either Indenture in good
faith. Subject to the provisions of the Indentures relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee under the Indentures is not under any obligation to exercise any of its
rights or powers under the Indentures at the request or direction of any of the
Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, with respect to the Debt Securities of any series, the Holders of
not less than a majority in principal amount of the Outstanding Debt Securities
of such series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indentures.
10
Within 90 days after the occurrence of any Default with respect to Debt
Securities of any series, the Trustee shall transmit in the manner and to the
extent provided in TIA Section 313(c), notice of such Default known to the
Trustee, unless such Default shall have been cured or waived; provided,
however, that, except in the case of a Default in the payment of the principal
of (or premium, if any, on) or interest on any Debt Securities of such series,
or in the payment of any sinking fund installment with respect to Debt
Securities of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders of Debt Securities of such series and any related coupons; and provided
further that, in the case of any Default of the character specified in clause
(7) of the first paragraph of this section with respect to Debt Securities of
such series, no such notice to Holders shall be given until at least 30 days
after the occurrence thereof.
The Company is required to deliver to the Trustee, within 120 days after
the end of each fiscal year, a brief certificate of the Company's compliance
with all of the conditions and covenants under the Indentures.
DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURES
The Indentures will provide that the Company may, at its option and at any
time, terminate the obligations of the Company with respect to the Outstanding
Debt Securities of any series ("defeasance"). Such defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Debt Securities and any related coupons, except
for the following which shall survive until otherwise terminated or discharged
under the Indentures: (A) the rights of Holders of such Outstanding Debt
Securities and any related coupons (i) to receive, solely from the trust fund
described in the Indentures, payments in respect of the principal of (and
premium, if any, on) and interest on such Debt Securities and any related
coupons when such payments are due, and (ii) to receive shares of common stock
or other Securities from the Company upon conversion of any convertible Debt
Securities issued thereunder, (B) the Company's obligations to issue temporary
Debt Securities, register the transfer or exchange of any Debt Securities,
replace mutilated, destroyed, lost or stolen Debt Securities, maintain an
office or agency for payments in respect of the Debt Securities and, if the
Company acts as its own Paying Agent, hold in trust, money to be paid to such
Persons entitled to payment, and with respect to Additional Amounts, if any, on
such Debt Securities as contemplated in the Indentures, (C) the rights, powers,
trusts, duties and immunities of the Trustee under the Indentures and (D) the
defeasance provisions of the Indentures. With respect to Subordinated Debt
Securities, money and securities held in trust pursuant to the Defeasance and
Covenant Defeasance provisions described herein, shall not be subject to the
subordination provisions of the Subordinated Indenture. In addition, the
Company may, at its option and at any time, elect to terminate the obligations
of the Company with respect to certain covenants that are set forth in the
Indentures, some of which are described in the "Certain Covenants" section
above, and any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Debt Securities ("covenant
defeasance"). (Section 1403 of each Indenture)
In order to exercise either defeasance or covenant defeasance:
(1) the Company shall irrevocably have deposited or caused to be deposited
with the Trustee, in trust, for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of such Debt Securities and any related coupons, (A) money in an
amount (in such Currency in which such Debt Securities and any related coupons
are then specified as payable at Stated Maturity), or (B) Government
Obligations applicable to such Debt Securities (determined on the basis of the
Currency in which such Debt Securities are then specified as payable at Stated
Maturity) which through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide, not later than one
day before the due date of any payment of principal (including any premium) and
interest, if any, under such Debt Securities and any related coupons, money in
an amount or (C) a combination thereof, sufficient, in the opinion
11
of a nationally recognized firm of independent public accountants to pay and
discharge (i) the principal of (and premium, if any, on) and interest on the
Outstanding Debt Securities and any related coupons on the Stated Maturity (or
Redemption Date, if applicable) of such principal (and premium, if any) or
installment or interest and (ii) any mandatory sinking fund payments or
analogous payments applicable to the Outstanding Debt Securities and any
related coupons on the day on which such payments are due and payable in
accordance with the terms of the Indentures and of such Debt Securities and any
related coupons; provided that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such Government Obligations
to said payments with respect to such Debt Securities and any related coupons.
Before such a deposit, the Company may give to the Trustee, in accordance with
certain redemption provisions in the Indentures, a notice of its election to
redeem all or any portion of such Outstanding Debt Securities at a future date
in accordance with the terms of the Debt Securities of such series and the
redemption provisions of the Indentures, which notice shall be irrevocable.
Such irrevocable redemption notice, if given, shall be given effect in applying
the foregoing; and
(2) no Default or Event of Default with respect to the Debt Securities and
any related coupons shall have occurred and be continuing on the date of such
deposit or, insofar as the Event of Default described in clauses (5) and (6) of
the Events of Default section above are concerned, at any time during the
period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period); (3) such defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a default under, the
Indentures or any other material agreement or instrument to which the Company
is a party or by which it is bound; (4) in the case of a defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (y) since the Issue Date, there has been a change
in the applicable federal income tax law, in either case to the effect that,
and based thereon such opinion shall confirm that, the Holders of the
Outstanding Debt Securities and any related coupons will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance had not
occurred; (5) in the case of a covenant defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders
of the Outstanding Debt Securities and any related coupons will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such covenant defeasance had not occurred; (6) notwithstanding any other
provisions of the defeasance and covenant defeasance provisions of the
Indentures, such defeasance or covenant defeasance shall be effected in
compliance with any additional or substitute terms, conditions or limitations
in connection therewith pursuant to Section 301 of the Indentures; and (7) the
Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent under the
Indentures to either defeasance or covenant defeasance, as the case may be,
have been complied with. (Section 1404 of each Indenture)
SATISFACTION AND DISCHARGE
The Indentures shall upon Company Request cease to be of further effect
with respect to any series of Debt Securities (except as to any surviving
rights of registration of transfer or exchange of Debt Securities of such
series herein expressly provided for and the obligation of the Company to pay
any Additional Amounts as contemplated by Section 1005 of each Indenture) and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of such Indenture as to such series
when (1) either (A) all Debt Securities of such series theretofore
authenticated and delivered and all coupons, if any, appertaining thereto
(other than (i) coupons appertaining to Bearer Securities surrendered for
exchange for Registered Securities and maturing after such exchange, whose
surrender is not required or has been waived as provided in Section 305 of the
Indentures, (ii) Debt Securities and coupons of such series which have been
destroyed, lost or stolen and which have been replaced or paid as provided in
Section 306 of the Indentures, (iii)
12
coupons appertaining to Debt Securities called for redemption and maturing
after the relevant Redemption Date, whose surrender has been waived as provided
in Section 1106 of the Indentures, and (iv) Debt Securities and coupons of such
series for whose payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the Company and
thereafter repaid to the Company, as provided in Section 1003 of the
Indentures) have been delivered to the Trustee for cancellation; or (B) all
Debt Securities of such series and, in the case of (i) or (ii) below, any
coupons appertaining thereto not theretofore delivered to the Trustee for
cancellation (i) have become due and payable, or (ii) will become due and
payable at their Stated Maturity within one year, or (iii) if redeemable at the
option of the Company, are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company, and the
Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the purpose
an amount, in the Currency in which the Debt Securities of such series are
payable, sufficient to pay and discharge the entire indebtedness on such Debt
Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of such deposit (in
the case of Debt Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be; (2) the Company has paid or
caused to be paid all other sums payable hereunder by the Company; and (3) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of the Indentures as to such series
have been complied with. (Section 401 of each Indenture)
AMENDMENTS AND WAIVERS
The Indentures will provide that at any time and from time to time, the
Company and the Trustee may, without the consent of any holder of Debt
Securities, enter into one or more indentures supplemental thereto for certain
specified purposes, including, among other things, (i) to cure ambiguities,
defects or inconsistencies, or to make any other provisions with respect to
questions or matters arising under the Indentures (provided that such action
shall not adversely affect the interests of the Holders in any material
respect), (ii) to effect or maintain the qualification of the Indentures under
the Trust Indenture Act, or (iii) to evidence the succession of another person
to the Company and the assumption by any such successor of the obligations of
the Company in accordance with the Indentures and the Debt Securities. (Section
901 of each Indenture). Other amendments and modifications of the Indentures or
the Debt Securities may be made by the Company and the Trustee with the consent
of the holders of not less than a majority of the aggregate principal amount of
all of the then Outstanding Debt Securities of any Series; provided, however,
that no such modification or amendment may, without the consent of the holder
of each Outstanding Debt Security affected thereby, (1) change the Stated
Maturity of the principal of, or any installment of interest on, any Debt
Security or reduce the principal amount thereof or the rate of interest thereon
or any premium payable upon the redemption thereof, or change any obligation of
the Company to pay Additional Amounts contemplated by Section 1005 of each
Indenture (except as contemplated and permitted by certain provisions of the
Indentures), or reduce the amount of the principal of an Original Issue
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 502 of the Indentures
of the amount thereof provable in bankruptcy pursuant to Section 504 of the
Indentures, or adversely affect any right of repayment at the option of any
Holder of any Debt Security, or change any Place of Payment where, or the
Currency in which, any Debt Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of redemption
or repayment at the option of the Holder, on or after the Redemption Date or
Repayment Date, as the case may be), or adversely affect any right to convert
or manage any Debt Securities as may be provided pursuant to Section 301 of the
Indentures, or (2) reduce the percent in principal amount of the Outstanding
Debt Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, for any waiver of compliance with certain
provisions of the Indentures or certain defaults thereunder and their
consequences provided for in the Indentures, or reduce the requirements for
quorum or voting.
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GOVERNING LAW
The Indentures and the Debt Securities will be governed by and construed
in accordance with the laws of the State of New York. The Indentures are
subject to the provisions of the Trust Indenture Act that are required to be a
part thereof and shall, to the extent applicable, be governed by such
provisions.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Capital Stock" means any and all shares, interests, participations,
rights or equivalents (however designated) of corporate stock of the Company or
any Principal Subsidiary.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Debt" means notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Fair Market Value" means the fair market value of the item in question as
determined by the Board of Directors acting in good faith and in exercise of
its fiduciary duties.
"Holder" means a Person in whose name a Debt Security is registered in the
Security Register.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debt Securities.
"Issue Date" means the date of first issuance of the Debt Securities under
either Indenture.
"Maturity", when used with respect to any Debt Securities, means the date
on which the principal of such Debt Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption, notice of
option to elect repayment or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Original Issue Discount Security" means any Debt Security which provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 502
of the Indentures.
"Outstanding", when used with respect to Debt Securities, means, as of the
date of determination, all Debt Securities theretofore authenticated and
delivered under the Indentures, except:
(i) Debt Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
14
(ii) Debt Securities, or portions thereof, for whose payment, money in
the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Debt Securities;
(iii) Debt Securities, except to the extent provided in the "Defeasance
or Covenant Defeasance of the Indentures" section, with respect to which
the Company has effected defeasance and/or covenant defeasance as provided
in the Indenture; and
(iv) Mutilated, destroyed, lost or stolen Debt Securities which have
become or are about to become due and payable which have been paid pursuant
to Section 306 of the Indentures or in exchange for or in lieu of which
other Debt Securities have been authenticated and delivered pursuant to the
Indenture, other than any such Debt Securities in respect of which there
shall have been presented to the Trustee proof satisfactory to it that such
Debt Securities are held by a bona fide purchaser in whose hands the Debt
Securities are valid obligations of the Company; provided, however, that in
determining whether the Holders of the requisite principal amount of
Outstanding Debt Securities have given any request, demand, authorization,
direction, notice, consent or waiver under the Indentures, and for the
purpose of making the calculations required by TIA Section 313, Debt
Securities owned by the Company or any other obligor upon the Debt
Securities or any Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making such calculation or in
relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Debt Securities which the Trustee knows to be so
owned shall be so disregarded. Debt Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Debt Securities and that the pledgee is not the
Company or any other obligor upon the Debt Securities or any Affiliate of
the Company or such other obligor.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any,
on) or interest on any Debt Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above-designated officers, and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Rolling Period" shall mean with respect to any fiscal quarter, such
fiscal quarter and the three immediately preceding fiscal quarters considered
as a single accounting period.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305 of the Indenture.
"Stated Maturity", when used with respect to any Debt Security or any
installment of principal thereof or interest thereon, means the date specified
in such Debt Security as the fixed date on which the principal of such Debt
Security or such installment of principal or interest is due and payable.
"Subsidiary" means any corporation of which at the time of determination
the Company, directly and/or indirectly through one or more Subsidiaries, owns
more than 50% of the Voting Stock.
15
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which the Indentures were executed, except that any
supplemental indenture executed pursuant to the Indentures shall conform to the
requirements of the Trust Indenture Act as in effect on the date of execution
thereof.
"Trustee" means The Bank of Nova Scotia Trust Company of New York until a
successor Trustee shall have become such pursuant to the applicable provisions
of the Indentures, and thereafter "Trustee" shall mean such successor Trustee.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Voting Stock" means stock of the class or classes having general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of a corporation (irrespective of whether or
not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
GENERAL DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, the more complete descriptions thereof set forth in the Company's Amended
and Restated Certificate of Incorporation (the "Certificate"), and Amended and
Restated By-laws (the "By-laws") which documents are exhibits to this
Registration Statement.
The Company is authorized to issue up to 2,000,000,000 shares of Common
Stock, par value
$.01 per share, and up to 10,000,000 shares of Preferred Stock, par value $1.00
per share. As of
November 12, 1998, there were 853,078,387 shares of Common Stock and no shares
of Preferred Stock outstanding.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The following summary contains a description of certain general terms of
the Company's Preferred Stock. The particular terms of any series of Preferred
Stock that may be offered will be described in the applicable Prospectus
Supplement. If so indicated in a Prospectus Supplement, the terms of any such
series may differ from the terms set forth below. The summary of terms of the
Preferred Stock does not purport to be complete and is subject to and qualified
in its entirety by reference to the provisions of the Certificate and the
Certificate of Designation (the "Certificate of Designation") relating to a
particular series of offered Preferred Stock which is or will be in the form
filed or incorporated by reference as an exhibit to the Registration Statement
of which this Prospectus is a part at or prior to the time of the issuance of
such series of Preferred Stock.
The Board of Directors of the Company has the power, without further
action by the shareholders, to issue Preferred Stock in one or more series,
with such designations of series, dividend rates, redemption provisions,
special or relative rights in the event of liquidation, dissolution,
distribution or winding up of the Company, sinking fund provisions, conversion
or exchange provisions, voting rights thereof and other preferences,
privileges, powers, rights, qualifications, limitations and restrictions, as
shall be set forth as and when established by the Board of Directors of the
Company. The shares of any series of Preferred Stock will be, when issued,
fully paid and non-assessable and holders thereof will have no preemptive
rights in connection therewith.
RANK
Unless otherwise specified in the Prospectus Supplement relating to a
particular series of Preferred Stock, each series of Preferred Stock will rank
on parity as to dividends and liquidation rights in all respects with each
other series of Preferred Stock.
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DIVIDEND RIGHTS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, cash dividends at such rates and on such dates as
are set forth in the Prospectus Supplement relating to such series of Preferred
Stock. Different series of the Preferred Stock may be entitled to dividends at
different rates or based upon different methods of determination. Such rates
may be fixed or variable or both. Each such dividend will be payable to the
holders of record as they appear on the stock books of the Company on such
record dates as will be fixed by the Board of Directors of the Company or a
duly authorized committee thereof. Dividends on any series of the Preferred
Stock may be cumulative or noncumulative, as provided in the Prospectus
Supplement relating thereto.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock will
be entitled to receive out of assets of the Company available for distribution
to stockholders, before any distribution of assets is made to holders of Common
Stock or any other class of stock ranking junior to such series of the
Preferred Stock upon liquidation, liquidating distributions in the amount set
forth in the Prospectus Supplement relating to such series of Preferred Stock
plus an amount equal to accrued and unpaid dividends for the then current
dividend period and, if such series of the Preferred Stock is cumulative, for
all dividend periods prior thereto, all as set forth in the Prospectus
Supplement with respect to such series of Preferred Stock.
REDEMPTION
The terms, if any, on which shares of a series of Preferred Stock may be
subject to optional or mandatory redemption, in whole or in part, will be set
forth in the Prospectus Supplement relating to such series.
CONVERSION AND EXCHANGE
The terms, if any, on which shares of a series of Preferred Stock are
convertible into another series of Preferred Stock or Common Stock or
exchangeable for another series of Preferred Stock or Common Stock will be set
forth in the Prospectus Supplement relating thereto. Such terms may include
provisions for conversion, either mandatory, at the option of the holder, or at
the option of the Company, in which case the number of shares of another series
of Preferred Stock or Common Stock to be received by the holders of such series
of Preferred Stock would be calculated as of a time and in the manner stated in
such Prospectus Supplement.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursement agent for each
series of Preferred Stock will be designated in the applicable Prospectus
Supplement. The registrar for shares of each series of Preferred Stock will
send notices to shareholders of any meetings at which holders of the Preferred
Stock have the right to elect directors of the Company or to vote on any other
matter.
VOTING RIGHTS
The holders of Preferred Stock of a series offered hereby will not be
entitled to vote except as indicated in the Prospectus Supplement relating to
such series of Preferred Stock or as required by applicable law.
DESCRIPTION OF COMMON STOCK
GENERAL
Subject to the rights of the holders of any shares of the Company's
Preferred Stock which may at the time be outstanding, holders of Common Stock
are entitled to such dividends as the Board of
17
Directors may declare out of funds legally available therefor. The holders of
Common Stock will possess exclusive voting rights in the Company, except to the
extent the Board of Directors specifies voting power with respect to any
Preferred Stock issued. Except as hereinafter described, holders of Common
Stock are entitled to one vote for each share of Common Stock, but will not
have any right to cumulate votes in the election of directors. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive, after payment of all of the Company's debts and
liabilities and of all sums to which holders of any Preferred Stock may be
entitled, the distribution of any remaining assets of the Company. Holders of
the Common Stock will not be entitled to preemptive rights with respect to any
shares which may be issued. Any shares of Common Stock sold hereunder will be
fully paid and non-assessable upon issuance against full payment of the
purchase price therefor. The Common Stock is listed on the New York Stock
Exchange under the symbol "CD."
CERTAIN PROVISIONS
The provisions of the Company's Certificate and By-Laws which are
summarized below may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider in such stockholder's best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
CLASSIFIED BOARD
The Board of Directors is divided into three classes that are elected for
staggered three-year terms. A director may be removed by the stockholders
without cause only by the affirmative vote of the holders, voting as a single
class, of 80% or more of the total number of votes entitled to be cast by all
holders of the voting stock, which shall include all capital stock of the
Company which by its terms may vote on all matters submitted to stockholders of
the Company generally.
COMMITTEES OF THE BOARD OF DIRECTORS
Pursuant to the Certificate, the Board of Directors' authority to
designate committees shall be subject to the provisions of the By-Laws. The
Board of Directors may designate one or more directors as alternate members of
any committee other than the Litigation Committee (as defined below) to fill
any vacancy on the committee and to fill a vacant chairmanship of a committee
occurring as a result of a member of chairman leaving the committee, whether
through death, resignation, removal or otherwise. Pursuant to the By-Laws, the
Board of Directors shall have the following committees:
Executive Committee. An Executive Committee that shall consist of not less
than three directors elected by a majority vote of the Board of Directors. The
Executive Committee shall nominate for election as Directors Craig R.
Stapleton, Robert P. Rittereiser and Carole Hankin or their designees (the "CUC
Directors").
Compensation Committee. A Compensation Committee consisting of not less
than three directors elected by a majority vote of the Board of Directors.
Audit Committee. An Audit Committee consisting of not less than four
directors elected by a majority vote of the Board of Directors; provided that
there shall be no changes to the composition of the Audit Committee until its
final report concerning accounting issues at the CUC businesses as disclosed by
the Company in a press release dated July 14, 1998 or as are being investigated
by the Audit Committee as of July 28, 1998 (the "Accounting Issues").
Litigation Committee. A Litigation Committee consisting of no more than
four Directors and comprised of an equal number of CUC Directors and non-CUC
Directors. The Litigation Committee shall have full and exclusive power and
authority to (i) determine whether the prosecution of any pending or threatened
stockholder derivative actions arising from or relating to the Accounting
Issues are or would be in the best interests of the Company; and (ii) initiate,
settle or maintain on behalf of the Company any direct action by the Company
against any present or former Director (whether sued
18
as a director or officer) arising from or relating to the Accounting Issues.
Subject to certain limitations in the By-Laws, each resolution of the
Litigation Committee requires the approval of a majority of the Litigation
Committee. No CUC Director who is a member of the Litigation Committee may be
removed from the Litigation Committee.
In the event that a CUC Director serving on the Litigation Committee no
longer serves as a member of the committee, then a non-CUC Director serving on
the committee shall immediately resign as a member of the committee and no
action shall be taken by the Litigation Committee prior to the resignation of
the non-CUC Director. In the event that there is only one CUC Director serving
on the Litigation Committee and such person ceases serving as a member of the
committee (whether because of resignation, removal or failure to be reelected
as a Director by the stockholders of the Company), to the extent consistent
with Delaware law and the Certificate, then such CUC Director shall be replaced
on the Litigation Committee by a person who at the time of such replacement is
a Director designated by Carole G. Hankin and Christopher K. McLeod or their
successors appointed or elected pursuant to the By-Laws to the extent they are
serving as Directors (and such person will thereafter be deemed to be a CUC
Director).
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Newly created directorships resulting from any increase in the number of
Directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors. Any Directors elected
in accordance with the preceding sentence shall hold office for the remainder
of the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been elected and qualified. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
SPECIAL MEETINGS OF STOCKHOLDERS
A special meeting of stockholders may be called only by the Chairman of
the Board of Directors, the President or the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors.
QUORUM AT STOCKHOLDER MEETINGS
The holders of one-third of the shares entitled to vote at any meeting of
the stockholders, present in person or by proxy, shall constitute a quorum at
all stockholder meetings.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Stockholder action by written consent in lieu of a meeting is prohibited
under the Certificate. As a result, stockholder action can be taken only at an
annual or special meeting of stockholders. This prevents the holders of a
majority of the outstanding voting stock of the Company from using the written
consent procedure to take stockholder action without giving all the
stockholders of the Company entitled to vote on a proposed action the
opportunity to participate in determining the proposed action.
ADVANCE NOTICE OF STOCKHOLDER--PROPOSED BUSINESS AT ANNUAL MEETINGS
The By-Laws provide that for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to the meeting; provided, however, that in the event that less
than 70 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth day following the
date on which
19
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary must set forth as
to each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the Company's books, of
the stockholder proposing such business, (iii) the class and number of shares
of the Company which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
In addition, the By-Laws provide that for a stockholder to properly
nominate a director at a meeting of stockholders, the stockholder must have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company (i) in the case of an annual
meeting, at least 90 days prior to the date of the last annual meeting of the
Company stockholders and (ii) with respect to a special meeting of
stockholders, the close of business on the 10th day following the date on which
notice of such meeting is first given to stockholders. Such stockholder's
notice to the Secretary must set forth: (i) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated, (ii) a representation that the stockholder is holder of record of
Common Stock and intends to appear in person or by proxy at the meeting to
nominate each such nominee, (iii) a description of all arrangements between
such stockholder and each nominee, (iv) such other information with respect to
each nominee as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission, and (v) the consent of each
nominee to serve as director of the Company if so elected.
AMENDMENT OF GOVERNING DOCUMENTS
In addition to the provisions of the Certificate that require a
super-majority of stockholders to approve certain amendments to the Certificate
and By-Laws, until the earlier of July 28, 2004 or such time as all litigation
relating to the Accounting Issues has been finally disposed of, the affirmative
vote of a majority of the Litigation Committee and a super-majority of the
stockholders shall be required to adopt certain amendments to certain
provisions of the By-Laws described under "-- Committees of the Board of
Directors."
FAIR PRICE PROVISIONS
Under the Delaware General Corporation Law and the Certificate, an
agreement of merger, sale, lease or exchange of all or substantially all of the
Company's assets must be approved by the Board of Directors and adopted by the
holders of a majority of the outstanding shares of stock entitled to vote
thereon. However, the Certificate includes what generally is referred to as a
"fair price provision," which requires the affirmative vote of the holders of
at least 80% of the outstanding shares of capital stock entitled to vote
generally in the election of the Company's directors, voting together as a
single class, to approve certain business combination transactions (including
certain mergers, recapitalization and the issuance or transfer of securities of
the Company or a subsidiary having an aggregate fair market value of $10
million or more) involving the Company or a subsidiary and an owner or any
affiliate of an owner of 5% or more of the outstanding shares of capital stock
entitled to vote, unless either (i) such business combination is approved by a
majority of disinterested directors, or (ii) the shareholders receive a "fair
price" for their securities and certain other procedural requirements are met.
The Certificate provides that this provision may not be repealed or amended in
any respect except by the affirmative vote of the holders of not less than 80%
of the outstanding shares of capital stock entitled to vote generally in the
election of directors.
20
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants to purchase Debt Securities, Preferred
Stock, Common Stock or any combination thereof, and such Warrants may be issued
independently or together with any such Securities and may be attached to or
separate from such Securities. Each series of Warrants will be issued under a
separate warrant agreement (each a "Warrant Agreement") to be entered into
between the Company and a warrant agent ("Warrant Agent"). The Warrant Agent
will act solely as an agent of the Company in connection with the Warrants of
each such series and will not assume any obligation or relationship of agency
for or with holders or beneficial owners of Warrants. The following sets forth
certain general terms and provisions of the Warrants offered hereby. Further
terms of the Warrants and the applicable Warrant Agreement will be set forth in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any
Warrants in respect of which this Prospectus is being delivered, including the
following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued;
(iv) the currency or currencies, including composite currencies, in which the
price of such Warrants may be payable; (v) the designation and terms of the
Securities (other than Preferred Securities and Common Securities) purchasable
upon exercise of such Warrants; (vi) the price at which and the currency or
currencies, including composite currencies, in which the Securities (other than
Preferred Securities and Common Securities) purchasable upon exercise of such
Warrants may be purchased; (vii) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (viii)
whether such Warrants will be issued in registered form or bearer form; (ix) if
applicable, the minimum or maximum amount of such Warrants which may be
exercised at any one time; (x) if applicable, the designation and terms of the
Securities (other than Preferred Securities and Common Securities) with which
such Warrants are issued and the number of such Warrants issued with each such
Security; (xi) if applicable, the date on and after which such Warrants and the
related Securities (other than Preferred Securities and Common Securities) will
be separately transferable;
(xii) information with respect to book-entry procedures, if any; (xiii) if
applicable, a discussion of certain United States Federal income tax
considerations; and (xiv) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
DESCRIPTION OF PREFERRED SECURITIES OF THE CENDANT TRUSTS
GENERAL
Each Cendant Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each Cendant Trust authorizes the Regular
Trustees of such Cendant Trust to issue on behalf of such Cendant Trust one
series of Preferred Securities. Each Declaration will be qualified as an
indenture under the Trust Indenture Act. The Institutional Trustee, an
independent trustee, will act as indenture trustee for the Preferred Securities
for purposes of compliance with the provisions of the Trust Indenture Act. The
Preferred Securities will have such terms, including distributions, redemption,
voting, liquidation rights and such other preferred, deferred or other special
rights or such restrictions as shall be established by the Regular Trustees in
accordance with the applicable Declaration or as shall be set forth in the
Declaration or made part of the Declaration by the Trust Indenture Act.
Reference is made to any Prospectus Supplement relating to the Preferred
Securities of a Cendant Trust for specific terms of the Preferred Securities,
including, to the extent applicable, (i) the distinctive designation of such
Preferred Securities, (ii) the number of Preferred Securities issued by such
Cendant Trust, (iii) the annual distribution rate (or method of determining
such rate) for Preferred Securities issued by such Cendant Trust and the date
or dates upon which such distributions shall be payable (provided, however,
that distributions on such Preferred Securities shall, subject to any deferral
provisions, and any provisions for payment of defaulted distributions, be
payable on a quarterly basis to holders of
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such Preferred Securities as of a record date in each quarter during which such
Preferred Securities are outstanding), (iv) any right of such Cendant Trust to
defer quarterly distributions on the Preferred Securities as a result of an
interest deferral right exercised by the Company on the Subordinated Debt
Securities held by such Cendant Trust; (v) whether distributions on Preferred
Securities shall be cumulative, and, in the case of Preferred Securities having
such cumulative distribution rights, the date or dates or method of determining
the date or dates from which distributions on Preferred Securities shall be
cumulative, (vi) the amount or amounts which shall be paid out of the assets of
such Cendant Trust to the holders of Preferred Securities upon voluntary or
involuntary dissolution, winding-up or termination of such Cendant Trust, (vii)
the obligation or option, if any, of such Cendant Trust to purchase or redeem
Preferred Securities and the price or prices at which, the period or periods
within which and the terms and conditions upon which Preferred Securities shall
be purchased or redeemed, in whole or in part, pursuant to such obligation or
option with such redemption price to be specified in the applicable Prospectus
Supplement, (viii) the voting rights, if any, of Preferred Securities in
addition to those required by law, including the number of votes per Preferred
Security and any requirement for the approval by the holders of Preferred
Securities as a condition to specified action or amendments to the Declaration,
(ix) the terms and conditions, if any, upon which Subordinated Debt Securities
held by such Cendant Trust may be distributed to holders of Preferred
Securities, and (x) any other relevant rights, preferences, privileges,
limitations or restrictions of Preferred Securities consistent with the
Declaration or with applicable law. All Preferred Securities offered hereby
will be guaranteed by the Company to the extent set forth below under
"Description of Trust Guarantees." The Trust Guarantee issued to each Cendant
Trust, when taken together with the Company's back-up undertakings, consisting
of its obligations under each Declaration (including the obligation to pay
expenses of each Cendant Trust), the applicable Indenture and any applicable
supplemental indentures thereto and the Subordinated Debt Securities issued to
any Cendant Trust will provide a full and unconditional guarantee by the
Company of amounts due on the Preferred Securities issued by each Cendant
Trust. The payment terms of the Preferred Securities will be the same as the
Subordinated Debt Securities issued to the applicable Cendant Trust by the
Company.
Each Declaration authorizes the Regular Trustees to issue on behalf of the
applicable Trust one series of Common Securities having such terms including
distributions, redemption, voting, liquidation rights or such restrictions as
shall be established by the Regular Trustees in accordance with the Declaration
or as shall otherwise be set forth therein. The terms of the Common Securities
issued by each Cendant Trust will be substantially identical to the terms of
the Preferred Securities issued by such Cendant Trust, and the Common
Securities will rank on a parity, and payments will be made thereon pro rata,
with the Preferred Securities except that, if an event of default under such
Declaration has occurred and is continuing, the rights of the holders of the
Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the Preferred Securities. The Common Securities will also carry the
right to vote and to appoint, remove or replace any of the Cendant Trustees of
such Cendant Trust. All of the Common Securities of each Cendant Trust will be
directly or indirectly owned by the Company.
The financial statements of any Cendant Trust that issues Preferred
Securities will be reflected in the Company's consolidated financial statements
with the Preferred Securities shown as Company-obligated mandatorily-redeemable
preferred securities of a subsidiary trust under minority interest in
consolidated subsidiaries. In a footnote to the Company's audited financial
statements there will be included statements that the applicable Cendant Trust
is wholly-owned by the Company and that the sole asset of such Cendant Trust is
the Subordinated Debt Securities (indicating the principal amount, interest
rate and maturity date thereof).
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DESCRIPTION OF TRUST GUARANTEES
Set forth below is a summary of information concerning the Trust
Guarantees that will be executed and delivered by the Company for the benefit
of the holders, from time to time, of Preferred Securities. Each Trust
Guarantee will be qualified as an indenture under the Trust Indenture Act.
Unless otherwise specified in the applicable Prospectus Supplement, Wilmington
Trust Company will act as independent indenture trustee for Trust Indenture Act
purposes under each Trust Guarantee (the "Preferred Securities Guarantee
Trustee"). The terms of each Trust Guarantee will be those set forth in such
Trust Guarantee and those made part of such Trust Guarantee by the Trust
Indenture Act. The following summary does not purport to be complete and is
subject to and qualified in its entirety by reference to the provisions of the
form of Trust Guarantee, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and the Trust
Indenture Act. Each Trust Guarantee will be held by the Preferred Securities
Guarantee Trustee for the benefit of the holders of the Preferred Securities of
the applicable Cendant Trust.
GENERAL
Unless otherwise specified in the applicable Prospectus Supplement,
pursuant to each Trust Guarantee, the Company will agree, to the extent set
forth therein, to pay in full to the holders of the Preferred Securities, the
Guarantee Payments (as defined below) (except to the extent paid by such
Cendant Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which such Cendant Trust may have or assert. The following
payments or distributions with respect to the Preferred Securities (the
"Guarantee Payments"), to the extent not paid by such Cendant Trust, will be
subject to the Trust Guarantee (without duplication): (i) any accrued and
unpaid distributions that are required to be paid on such Preferred Securities,
to the extent such Cendant Trust shall have funds available therefor, (ii) the
redemption price, including all accrued and unpaid distributions to the date of
redemption (the "Redemption Price"), to the extent such Cendant Trust has funds
available therefor, with respect to any Preferred Securities called for
redemption by such Cendant Trust and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of such Cendant Trust (other than in
connection with such distribution of Debt Securities to the holders of
Preferred Securities or the redemption of all of the Preferred Securities upon
maturity or redemption of the Subordinated Debt Securities) the lesser of (a)
the aggregate of the liquidation amount and all accrued and unpaid
distributions on such Preferred Securities to the date of payment, to the
extent such Cendant Trust has funds available therefor or (b) the amount of
assets of such Cendant Trust remaining for distribution to holders of such
Preferred Securities in liquidation of such Cendant Trust. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Company to the holders of Preferred Securities or
by causing the applicable Cendant Trust to pay such amounts to such holders.
Each Trust Guarantee will not apply to any payment of distributions except
to the extent the applicable Cendant Trust shall have funds available therefor.
If the Company does not make interest or principal payments on the Subordinated
Debt Securities purchased by such Cendant Trust, such Cendant Trust will not
pay distributions on the Preferred Securities issued by such Cendant Trust and
will not have funds available therefore.
The Company has also agreed to guarantee the obligations of each Cendant
Trust with respect to the Common Securities (the "Common Guarantee") issued by
such Cendant Trust to the same extent as the Trust Guarantee, except that, if
an Event of Default under the Subordinated Indenture has occurred and is
continuing, holders of Preferred Securities under the Trust Guarantee shall
have priority over holders of the Common Securities under the Common Guarantee
with respect to distributions and payments on liquidation, redemption or
otherwise.
CERTAIN COVENANTS OF THE COMPANY
Unless otherwise specified in the applicable Prospectus Supplement, in
each Trust Guarantee, the Company will covenant that, so long as any Preferred
Securities issued by the applicable Cendant
23
Trust remain outstanding, if there shall have occurred any event of default
under such Trust Guarantee or under the Declaration of such Cendant Trust, then
(a) the Company will not declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of its capital stock (other than (i) purchases or
acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee or agent
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security outstanding on the date of such event requiring the
Company to purchase capital stock of the Company, (ii) as a result of a
reclassification of the Company's capital stock (other than into cash or other
property) or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock, (iii)
the purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (iv) dividends or distributions in
capital stock of the Company (or rights to acquire capital stock) or
repurchases or redemptions of capital stock solely from the issuance or
exchange of capital stock or (v) redemptions or repurchases of any rights
outstanding under a shareholder rights plan); (b) the Company shall not make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities issued by the Company which rank junior to the
Subordinated Debt Securities issued to the applicable Cendant Trust and (c) the
Company shall not make any guarantee payments with respect to the foregoing
(other than pursuant to a Trust Guarantee).
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), each Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of
the outstanding Preferred Securities of such Cendant Trust. The manner of
obtaining any such approval of holders of such Preferred Securities will be set
forth in accompanying Prospectus Supplement. All guarantees and agreements
contained in a Trust Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities of the applicable Cendant Trust then
outstanding.
EVENTS OF DEFAULT
An event of default under a Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder. The
holders of a majority in liquidation amount of the Preferred Securities to
which such Trust Guarantee relates have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Preferred Securities Guarantee Trustee in respect of such Trust Guarantee or to
direct the exercise of any trust or power conferred upon the Preferred
Securities Guarantee Trustee under such Trust Guarantee.
If the Preferred Securities Guarantee Trustee fails to enforce such Trust
Guarantee, any record holder of Preferred Securities to which such Trust
Guarantee relates may institute a legal proceeding directly against the Company
to enforce the Preferred Securities Guarantee Trustee's rights under such Trust
Guarantee without first instituting a legal proceeding against the applicable
Cendant Trust, the Preferred Securities Guarantee Trustee or any other person
or entity. Notwithstanding the foregoing, if the Company has failed to make a
Guarantee Payment under a Trust Guarantee, a record holder of Preferred
Securities to which such Trust Guarantee relates may directly institute a
proceeding against the Company for enforcement of such Trust Guarantee for such
payment to the record holder of the Preferred Securities to which such Trust
Guarantee relates of the principal of or interest on the applicable Debt
Securities on or after the respective due dates specified in the Debt
Securities, and the amount of the payment will be based on the holder's pro
rata share of the amount due and owing on all of the Preferred Securities to
which such Trust Guarantee relates. The Company has waived any right or remedy
to require that any action be brought first against the applicable
24
Cendant Trust or any other person or entity before proceeding directly against
the Company. The record holder in the case of the issuance of one or more
global Preferred Securities certificates will be The Depository Trust Company
acting at the direction of the beneficial owners of the Preferred Securities.
The Company will be required to provide annually to the Preferred
Securities Guarantee Trustee a statement as to the performance by the Company
of certain of its obligations under each outstanding Trust Guarantee and as to
any default in such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default to a Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in such Trust Guarantee and, after default with respect
to such Trust Guarantee, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provision, the Preferred Securities Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Trust Guarantee at
the request of any holder of Preferred Securities to which such Trust Guarantee
relates unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby.
TERMINATION
Each Trust Guarantee will terminate as to the Preferred Securities issued
by the applicable Cendant Trust upon full payment of the Redemption Price of
all Preferred Securities of such Cendant Trust, upon distribution of the Debt
Securities held by such Cendant Trust to the holders of all of the Preferred
Securities of such Cendant Trust or upon full payment of the amounts payable in
accordance with the Declaration of such Cendant Trust upon liquidation of such
Cendant Trust. Each Trust Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities issued by the applicable Cendant Trust must restore payment of any
sums paid under such Preferred Securities or such Trust Guarantee.
STATUS OF THE TRUST GUARANTEES
The Trust Guarantees will constitute senior unsecured obligations of the
Company and will rank on a parity with all of the Company's other senior
unsecured obligations.
Each Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under such Trust Guarantee
without instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Trust Guarantees will be governed by and construed in accordance with
the law of the State of New York.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts, including contracts
obligating holders to purchase from the Company, and the Company to sell to the
holders, a specified number of shares of Common Stock or Preferred Stock at a
future date or dates. The consideration per share of Common Stock or Preferred
Stock may be fixed at the time the Stock Purchase Contracts are issued or may
be determined by reference to a specific formula set forth in the Stock
Purchase Contracts. The Stock Purchase Contracts may be issued separately or as
a part of units ("Stock Purchase Units") consisting of a Stock Purchase
Contract and Debt Securities, Preferred Securities or debt obligations of third
parties, including U.S. Treasury securities, securing the holders' obligations
to purchase the Common Stock or Preferred Stock under the Stock Purchase
Contracts. The Stock Purchase Contracts may
25
require the Company to make periodic payments to the holders of the Stock
Purchase Units or vice versa, and such payments may be unsecured or prefunded
on some basis. The Stock Purchase Contracts may require holders to secure their
obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not necessarily be complete, and reference will be made to the
Stock Purchase Contracts, and, if applicable, collateral arrangements and
depositary arrangements, relating to such Stock Purchase Contracts or Stock
Purchase Units.
PLAN OF DISTRIBUTION
The Company may sell the Securities and the Cendant Trusts may sell
Preferred Securities being offered hereby in any of, or any combination of, the
following ways: (i) directly to purchasers; (ii) through agents; (iii) through
underwriters; and/or (iv) through dealers.
Offers to purchase Securities may be solicited directly by the Company
and/or a Cendant Trust or by agents designated by the Company and/or a Cendant
Trust from time to time. Any such agent, who may be deemed to be an underwriter
as that term is defined in the Securities Act, involved in the offer or sale of
Securities, will be named, and any commissions payable by the Company and/or a
Cendant Trust to such agent will be set forth, in the Prospectus Supplement.
Unless otherwise indicated in a Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment (ordinarily
five business days or less).
If an underwriter or underwriters are utilized in the offer or sale of
Securities, the Company and/or the applicable Cendant Trust will execute an
underwriting agreement with such underwriters at the time of sale of such
Securities to such underwriters and the names of such underwriters and the
principal terms of the Company's and/or the applicable Cendant Trust's
agreement with such underwriters will be set forth in the appropriate
Prospectus Supplement.
If a dealer is utilized in the offer or sale of Securities, the Company
and/or the applicable Cendant Trust will sell such Securities to such dealer,
as principal. Such dealer may then resell such Securities to the public at
varying prices to be determined by such dealer at the time of resale. The name
of such dealer and the principal terms of the Company's and/or the applicable
Cendant Trust's agreement with such dealer will be set forth in the appropriate
Prospectus Supplement.
Agents, underwriters, and dealers may be entitled under agreements with
the Company and/or a Cendant Trust to indemnification by the Company and/or a
Cendant Trust against certain liabilities, including liabilities under the
Securities Act. Agents, dealers and underwriters may also be customers of,
engage in transactions with, or perform services for the Company in the
ordinary course of their business.
Underwriters, agents or their controlling persons may engage in
transactions with and perform services for the Company in the ordinary course
of business.
The place and time of delivery for Securities will be set forth in the
accompanying Prospectus Supplement for such Securities.
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Cendant Trusts by Skadden,
Arps, Slate, Meagher & Flom LLP. The validity of the Securities offered hereby
by the Company will be passed on for the Company by Eric J. Bock, Esq., Vice
President--Legal, of the Company. Mr. Bock holds shares of Common Stock and
options to acquire shares of Common Stock.
26
EXPERTS
The consolidated financial statements of the Company and its consolidated
subsidiaries, except PHH Corporation ("PHH"), as of December 31, 1996 and for
the years ended December 31, 1996 and January 31, 1996, Davidson and
Associates, Inc. ("Davidson") for the year ended December 31, 1995 and Ideon
Group, Inc. ("Ideon") for the year ended December 31, 1995 incorporated by
reference from the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997 and included in this Prospectus have been audited by Deloitte
& Touche LLP, as stated in their report appearing herein and incorporated
herein by reference, which report expresses an unqualified opinion and includes
explanatory paragraphs related to the restatement as described in Note 3,
certain litigation as described in Note 17, and the change in method of
recognizing revenue and membership solicitation costs as described in Notes 2
and 3. The consolidated financial statements of PHH and Davidson (consolidated
with the Company's financial statements) have been audited by KPMG Peat Marwick
LLP, as stated in their reports appearing herein and incorporated herein by
reference. The consolidated financial statements of Ideon (consolidated with
the Company's financial statements) have been audited by PricewaterhouseCoopers
LLP, as stated in their report appearing herein and incorporated herein by
reference. Such consolidated financial statements of the Company and its
subsidiaries are included and incorporated by reference herein in reliance upon
the respective reports of such firms given upon their authority as experts in
accounting and auditing. All of the foregoing firms are independent auditors.
The consolidated financial statements of National Parking Corporation
incorporated in this Prospectus by reference from the Company's Current Report
on Form 8-K, dated November 4, 1998 have been audited by Deloitte & Touche,
chartered accountants and registered auditors, as stated in their report which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Avis Rent A Car, Inc.
incorporated in this Prospectus by reference from the Company's Current Report
on Form 8-K, dated February 6, 1998 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
27