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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K


ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                 to                                

COMMISSION FILE NO. 1-10308

CENDANT CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization)		   06-0918165
(I.R.S. Employer
Identification Number)

9 WEST 57TH STREET
NEW YORK, NY
(Address of principal executive office)
 

10019
(Zip Code)
212-413-1800
(Registrant's telephone number, including area code)

 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


TITLE OF EACH CLASS
 
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
CD Common Stock, Par Value $.01
Upper DECS(sm)		   New York Stock Exchange
New York Stock Exchange
     
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ý          No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act): Yes ý          No o

The aggregate market value of the Registrant's common stock held by nonaffiliates of the Registrant on June 30, 2003 was $18,409,344,533.20. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be "affiliates" of the registrant.

The number of shares outstanding of the Registrant's common stock was 1,007,659,616 as of January 31, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the registrant's definitive proxy statement to be mailed to stockholders in connection with our annual stockholders meeting held on April 20, 2004 (the "Annual Proxy Statement") are incorporated by reference into Part III hereof.


TABLE OF CONTENTS

Item
   Description
   Page
    PART I    
1   Business   3
2   Properties   36
3   Legal Proceedings   38
4   Submission of Matters to a Vote of Security Holders   40

 
 
PART II
 
 
5   Market for the Registrant's Common Equity and Related Stockholders Matters   41
6   Selected Financial Data   42
7   Management's Discussion and Analysis of Financial Condition and Results of Operations   44
7A   Quantitative and Qualitative Disclosures about Market Risk   70
8   Financial Statements and Supplementary Data   71
9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   71
9A   Controls and Procedures   72

 
 
PART III
 
 
10   Directors and Executive Officers of the Registrant   72
11   Executive Compensation   72
12   Security Ownership of Certain Beneficial Owners and Management   72
13   Certain Relationships and Related Transactions   75
14   Principal Accounting Fees and Services   75

 
 
PART IV
 
 
15   Exhibits, Financial Statement Schedules and Reports on Form 8-K   75

 
 
Signatures
 
 

i


FORWARD-LOOKING STATEMENTS

Forward-looking statements in our public filings or other public statements are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. 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", "projects", "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 facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

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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 and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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PART I

ITEM 1.    BUSINESS

Except as expressly indicated or unless the context otherwise requires, the "Company", "Cendant", "we", "our" or "us" means Cendant Corporation, a Delaware corporation, and its subsidiaries.

We are one of the foremost providers of travel and real estate services in the world. Our businesses provide consumer and business services primarily in the travel and real estate services industries, which are intended to complement one another and create cross-marketing opportunities both within and among our following five business segments:


* * *

We focus on organic growth and from time to time may augment such growth through the select acquisition of (or possible joint venture with) complementary businesses primarily in the real estate and travel services industries. We expect to fund the purchase price of any such acquisition with cash on hand or borrowings under our credit lines. No assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. In addition, we continually review and evaluate our portfolio of existing businesses to determine if they continue to meet our business objectives. As part of our ongoing

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evaluation of such businesses, we intend from time to time to explore and conduct discussions with regard to joint ventures, divestitures and related corporate transactions. However, we can give no assurance with respect to the magnitude, timing, likelihood or financial or business effect of any possible transaction. We also cannot predict whether any divestitures or other transactions will be consummated or, if consummated, will result in a financial or other benefit to us. We intend to use a portion of the proceeds from any such dispositions and cash from operations to retire indebtedness, repurchase our common stock, make acquisitions and for other general corporate purposes.

We were created through a merger with HFS Incorporated in December 1997 with the resultant corporation being renamed Cendant Corporation. Our principal executive office is located at 9 West 57th Street, New York, New York 10019 (telephone number: (212) 413-1800). We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, we file reports, proxy and information statements and other information with the Securities and Exchange Commission (the "Commission") and certain of our officers and directors file statements of changes in beneficial ownership on Form 4 with the Commission. Such reports, proxy statements and other information and such Form 4s can be accessed on our web site at www.cendant.com. A copy of our Codes of Conduct and Ethics, as defined under Item 406 of Regulation S-K, including any amendments thereto or waivers thereof, Corporate Governance Guidelines, Director Independence Criteria and Board Committee Charters can also be accessed on our web site. We will provide, at no cost, a copy of our Codes of Conduct and Ethics, Corporate Governance Guidelines and Board Committee Charters upon request by phone or in writing at the above phone number or address, attention: Investor Relations.

SEGMENTS

REAL ESTATE SERVICES SEGMENT (37%, 33% and 22% of revenue for 2003, 2002 and 2001, respectively)

Real Estate Franchise Business (4%, 5% and 7% of revenue for 2003, 2002 and 2001, respectively)

Our Real Estate Franchise Business is the world's largest real estate brokerage franchisor and was involved in approximately one in four single-family home purchase or sale transactions in the United States in 2003. We franchise real estate brokerage businesses under the following franchise systems:

Through NRT, we own and operate approximately 920 of the Coldwell Banker, ERA and Coldwell Banker Commercial offices referred to above. NRT pays intercompany royalty and marketing fees to our Real Estate Franchise Business in connection with its operation of these offices.

Royalty and marketing fees on commissions from real estate transactions are the primary component of revenue for our Real Estate Franchise Business. Our franchise contracts generally have a term of ten years. We also offer service providers an opportunity to market their products to our brokers through our

4


Preferred Alliance Program. To participate in this program, service providers generally pay us an up-front fee, commissions or both.

On February 17, 2004, we obtained the rights to create a Sotheby's International Realty franchise system pursuant to a license agreement with Sotheby's Holdings, Inc. Such license agreement has a 100-year term, which consists of an initial 50-year term and a 50-year renewal option, whereby we will pay a licensing fee to Sotheby's Holdings for the use of the Sotheby's International Realty name. In connection with such transaction, we also acquired the domestic residential real estate brokerage operations of Sotheby's. The franchise system will be operated by our Real Estate Franchise Business and the company-owned residential real estate brokerage operations will be operated by NRT Incorporated.

Each of our brands has a consumer web site that offers real estate listings, contacts and services. century21.com, coldwellbanker.com, coldwellbankercommercial.com, sothebysrealty.com and era.com are the official web sites for the CENTURY 21, Coldwell Banker, Coldwell Banker Commercial, Sotheby's International Realty and ERA real estate franchise systems, respectively. In addition, listings of our CENTURY 21, Coldwell Banker and ERA brands are available through the Realtor.com web site.

Growth.    Our primary objectives are to sell new franchises, renew existing franchises and, most importantly, provide world-class service and support to our franchisee real estate brokers in a way that enables them to increase their profitability. We support our franchisees with dedicated national marketing programs, technology, training and education.

Our strategies for growth include the continued expansion of our franchise systems through additional franchise sales; facilitating mergers and acquisitions by our franchisees; recruitment of real estate agents; additional revenue generation through referrals to our other real estate-related businesses and our Preferred Alliance program; and international expansion.

Competition.    Competition among the national real estate brokerage brand franchisors to grow their franchise systems is intense. Our largest national competitors in this industry include the Prudential, GMAC Real Estate and RE/MAX real estate brokerage brands. In addition, a real estate broker may choose to affiliate with a regional chain or choose not to affiliate with a franchisor but to remain independent. We believe that competition for the sale of franchises in the real estate brokerage industry is based principally upon the perceived value and quality of the brand and services offered to franchisees.

The ability of our real estate brokerage franchisees to compete in this industry is important to our prospects for growth. The ability of an individual franchisee to compete may be affected by the location and real estate agent service quality of its office, the number of competing offices in the vicinity, its affiliation with a recognized brand name, community reputation and other factors. A franchisee's success may also be affected by general, regional and local economic conditions. The potential negative effect of these conditions on our results of operations is generally reduced by virtue of the diverse geographical locations of our franchisees. At December 31, 2003, our combined real estate franchise systems had approximately 8,200 brokerage offices in the United States and approximately 12,700 offices worldwide. The real estate franchise systems have offices in 62 countries and territories in North and South America, Europe, Asia, Africa and Australia.

Real Estate Brokerage Business (22% and 20% of revenue for 2003 and 2002, respectively)

As a result of our acquisition of NRT in 2002, we operate the largest residential real estate brokerage firm in the United States. We offer assistance with the sale and purchase of properties through approximately 985 full service real estate brokerage offices nationwide under the Coldwell Banker, ERA, Corcoran Group and Sotheby's International Realty (as of February 17, 2004) brand names. In addition, as a full service real estate brokerage offering one-stop shopping to consumers, we promote the services of Cendant Mortgage, Cendant Mobility, and Cendant Settlement Services Businesses.

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Our Real Estate Brokerage Business derives revenue from sales commissions, which we receive at the closing of real estate transactions. Sales commissions usually range from 5% to 7% of the sales price. In transactions in which we act as broker on one side of a transaction (either the buying side or the selling side) and a third-party is acting as broker on the other side of the transaction, we typically must share half of the sales commission with the other broker. Sales associates generally receive between 50% and 80% of such commissions. NRT pays intercompany royalty and marketing fees to our Real Estate Franchise Business and such fees are not reflected in the percentage of revenue set forth above. During 2003, NRT represented approximately 38% of our Real Estate Franchise Business revenue.

Growth.    Our strategy is to grow both organically and through the acquisition of independent real estate brokerages. In 2003, we acquired 19 brokerages, none of which was material to Cendant. To grow organically, we seek to recruit and retain sales associates, continue to provide exceptional service in existing markets, and enter new markets. When we acquire a real estate brokerage, we typically convert it to one of our existing real estate brands, Coldwell Banker, Corcoran or ERA. We believe that approximately 80% of real estate brokerages are currently independent.

Competition.    The real estate brokerage industry is highly competitive, particularly in the metropolitan areas in which NRT operates. In addition, the industry has relatively low barriers to entry for new participants, including participants pursuing non-traditional methods of marketing real estate, such as internet-based listing services. Companies compete for sales and marketing business primarily on the basis of services offered, reputation, personal contacts, and brokerage commissions. NRT competes primarily with franchisees of local and regional real estate franchisors; franchisees of our brands and of other national real estate franchisors, such as the RE/MAX, GMAC Real Estate and Prudential real estate brokerage brands; regional independent real estate organizations, such as Weichert, Realtors and Long & Foster Real Estate; discount brokerages, such as Foxtons; web sites such as Lendingtree.com, and smaller niche companies competing in local areas.

Mortgage Business (6%, 3% and 9% of revenue for 2003, 2002 and 2001, respectively)

Cendant Mortgage is a centralized mortgage lender conducting business in all 50 states. We focus on retail mortgage originations in which we issue mortgages directly to consumers (including through our private label channel) as opposed to purchasing closed loans from third parties. We originate mortgage loans through three principal business channels: real estate brokers, financial institutions and relocation. In the real estate brokerage channel, we originate, sell and service residential first and second mortgage loans in the United States through Cendant Mortgage, Century 21 Mortgage, Coldwell Banker Mortgage and ERA Mortgage. This channel generated approximately 26% of our mortgages in 2003. We are a leading provider of private label mortgage originations where a financial institution outsources its mortgage origination functions to us. Our financial institutions, or "private label" channel, which includes outsourcing arrangements with Merrill Lynch Credit Corporation and marketing arrangements with American Express Membership Bank, among others, generated approximately 71% of our mortgages in 2003. The relocation channel offers mortgages to employees being relocated through Cendant Mobility and generated 3% of our mortgages in 2003. We generate revenue through our loan originations, private label services, mortgage sales and mortgage servicing.

As of September 30, 2003, Cendant Mortgage was a top four retail originator of residential purchase mortgages, the sixth largest retail originator of residential mortgages (including refinance and purchase) and the tenth largest overall residential mortgage originator in the United States. Our purchase mortgage volume has grown from approximately $1 billion in 1990 to approximately $35 billion in 2003. Our total mortgage volume for 2003 was $83.7 billion.

We derive our mortgages through the following methods:

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Our teleservices operation, the Phone In, Move In program, was developed in 1997 and has been established nationwide. Our teleservices operation, together with our web interface, which contains educational materials, rate quotes and a mortgage application, accounted for approximately 68% of our originations in 2003. Our field sales professionals accounted for approximately 19% of our originations in 2003, and while not a primary focus of our business, the purchase of closed loans accounted for approximately 13% of our mortgage volume in 2003.

The following table sets forth the composition of our mortgage loan originations by product type for each of the years ended December 31, 2003, 2002 and 2001.

 
   2003
   2002
   2001
  
Fixed rate   62.8 % 55.9 % 75.0 %
Adjustable rate   37.2 % 44.1 % 25.0 %
   
 
 
 
Total   100.0 % 100.0 % 100.0 %
   
 
 
 

Conforming (*)
 
69.1
%
63.1
%
77.5
%
Non-conforming   30.9 % 36.9 % 22.5 %
   
 
 
 
Total   100.0 % 100.0 % 100.0 %
   
 
 
 
(*)
Such percentage of mortgages that we typically have available for resale that conform to the standards of Fannie Mae Corp., the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association.

Cendant Mortgage customarily sells all mortgages it originates to investors (which include a variety of institutional investors) generally within 60 days. Loans are typically sold as individual loans, mortgage-backed securities or participation certificates issued or guaranteed by Fannie Mae Corp., the Federal Home Loan Mortgage Corporation or the Government National Mortgage Association. We generally retain the mortgage servicing rights on loans we sell. Cendant Mortgage earns revenue from the sale of the mortgage loans to investors, as well as on the servicing of the loans for investors. Mortgage servicing consists of collecting loan payments, remitting principal and interest payments to investors, managing escrow funds for payment of mortgage related expenses such as taxes and insurance, and administering our mortgage loan servicing portfolio.

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The following table sets forth summary data of our mortgage servicing activities as of December 31:

 
   2003 (a)
   2002 (a)
   2001 (a)
  
Outstanding loans serviced ($ millions)   $ 136,427   $ 114,079   $ 97,205  
Number of loans (units)     888,860     786,201     717,251  
Average loan size   $ 153,485   $ 145,102   $ 135,525  
Weighted average interest rate (%)     5.36 %   6.17 %   6.91 %

Delinquent Mortgage Loans (b):
 
 
 
 
 
 
 
 
 
 
  30 days     1.7 %   2.0 %   2.3 %
  60 days     0.3 %   0.4 %   0.5 %
  90 days or more     0.4 %   0.4 %   0.4 %
   
 
 
 
    Total delinquencies     2.4 %   2.8 %   3.2 %
   
 
 
 

Foreclosures/Bankruptcies
 
 
0.7
%
 
0.7
%
 
0.7
%

Major Geographical Concentrations (b):
 
 
 
 
 
 
 
 
 
 
  California     10.9 %   11.8 %   11.9 %
  New Jersey     9.4 %   7.4 %   6.9 %
  New York     7.9 %   6.4 %   5.9 %
  Florida     7.1 %   7.2 %   6.7 %
  Texas     5.6 %   6.1 %   6.1 %
(a)
Does not include home equity mortgages serviced by us.
(b)
As a percentage of unpaid principal balance of outstanding loans.

Growth.    Our strategy is to increase sales by expanding all of our sources of business with emphasis on our private label program and purchase mortgage volume through our teleservices and Internet programs. We also expect to expand our volume of mortgage originations resulting from corporate employee relocations through increased linkage with Cendant Mobility and increasing our marketing programs within NRT and our real estate brokerage franchise systems. Each of these growth opportunities is driven by our low cost teleservices platform. The competitive advantage of using a centralized, efficient and high quality teleservices platform allows us to more cost effectively capture a greater percentage of the highly fragmented mortgage marketplace.

Competition.    Competition is based on service, quality, products and price. Cendant Mortgage's share of retail mortgage originations in the United States was 5.1% as of September 30, 2003. The mortgage industry is highly fragmented and, according to Inside Mortgage Finance, the industry leader, at September 30, 2003, reported approximately a 19% share in the United States. Competitive conditions can also be impacted by shifts in consumer preference for variable rate mortgages from fixed rate mortgages, depending upon the current interest rate market.

Settlement Services Business (3%, 2% and 1% of revenue for 2003, 2002 and 2001, respectively)

Our Cendant Settlement Services Business provides settlement services for both residential and commercial real estate transactions, including title insurance, appraisal review and closing services throughout the United States. More specifically:

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We derive revenue for this business through fees charged in real estate transactions for rendering the services described above. We provide many of these services in connection with our residential and commercial real estate brokerage, mortgage and relocation operations.

Growth.    We intend to grow our settlement services business through continued realization of the cross-selling opportunities presented by our other real estate, lodging and timeshare businesses. Additionally, we plan to expand our product offering and geographic coverage to capture additional business.

Competition.    The settlement services business is highly competitive and fragmented. The number and size of competing companies vary in the different areas in which we conduct business. Generally, in metropolitan and suburban localities, we compete with other title insurers, title agents and other vendor management companies. While we are an agent for some of the large insurers, we also compete with these underwriters through their owned agency operations. These national competitors include Fidelity National Title Insurance Company, Land America Title Insurance Company, Stewart Title Guaranty Company, First American Title Insurance Company and Old Republic Title Insurance Group. In addition, numerous agency operations and small underwriters provide competition on the local level.

Relocation Business (2%, 3% and 5% of revenue for 2003, 2002 and 2001, respectively)

Cendant Mobility is the largest provider of outsourced corporate employee relocation services in the United States and in 2003 assisted more than 111,000 affinity customers, transferring employees and global assignees, including over 25,000 transferring employees internationally in over 135 countries. We deliver services from facilities in the United States, England, Australia, Singapore and Hong Kong. In addition, we deliver services at client facilities.

We primarily offer corporate and government clients employee relocation services, such as:


The wide range of our services allows clients to outsource their entire relocation programs to us.

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Clients pay a fee for the services performed and/or permit Cendant Mobility to retain referral fees collected from brokers. We also receive commissions or referral fees from third-party service providers, such as van lines. The majority of our clients pay interest on home equity advances and reimburse all costs associated with our services, including, if necessary, repayment of home equity advances and reimbursement of losses on the sale of homes purchased. This limits our exposure on such items to the credit risk of our corporate clients rather than to the potential changes in value of residential real estate. We believe such risk is minimal due to the credit quality of our corporate clients. Net credit losses as a percentage of the average balance of relocation receivables serviced has been less than 0.25% in each of the last five years. In addition, the average holding period for U.S. homes we purchased in 2003 on behalf of our clients was 44 days. In transactions where we assume the risk for losses on the sale of homes (primarily U.S. Federal government agency clients), which comprise less than 4% of net revenue for our Relocation Business, we control all facets of the resale process, thereby limiting our exposure.

About 5% of our relocation revenue is derived from our affinity services, which provide real estate and relocation services, including home buying and selling assistance, as well as mortgage assistance and moving services, to organizations such as insurance and airline companies that have established members. Often these organizations offer our affinity services to their members at no cost. This service helps the organizations attract new members and retain current members. Personal assistance is provided to over 60,000 individuals, with approximately 27,000 real estate transactions annually. In addition, we derive about 6% of our relocation revenue from referrals within our real estate broker network.

Growth.    Our strategy is to grow our global Relocation Business by generating business from corporations and U.S. Federal government agencies seeking to outsource their relocation function due to downsizing, cost containment initiatives and increased need for expense tracking. This strategy includes bringing innovative products and services to the market and expanding our business as a lower cost provider by focusing on operational improvements and collecting fees from our supplier partners to whom we refer business. We also seek to grow our affinity services business by increasing the number of accounts, as well as through higher penetration of existing accounts.

Competition.    Competition is based on service, quality and price. We are the largest provider of outsourced relocation services in the United States and a leader in the United Kingdom, Australia and Southeast Asia. In the United States, we compete with in-house relocation solutions and with numerous providers of outsourced relocation services, the largest of which is Prudential Relocation Management. Internationally, we compete with in-house solutions, local relocation providers and international accounting firms.

Real Estate Services Seasonality

The principal sources of revenue for our Real Estate Franchise, Real Estate Brokerage, Mortgage and Settlement Services Businesses are based upon the timing of residential real estate sales, which are generally lower in the first calendar quarter each year. The principal sources of revenue for our Relocation Business are based upon the timing of transferee moves, which are generally lower in the first and last quarters of each year.

Real Estate Services Trademarks and Intellectual Property

The trademarks "CENTURY 21," "Coldwell Banker," "Coldwell Banker Commercial," "ERA," "Corcoran," "Sotheby's International Realty" (as of February 17, 2004), "Cendant Mobility," and "Cendant Mortgage" and related trademarks and logos are material to our Real Estate Franchise, Relocation and Mortgage Businesses, respectively. Our franchisees and subsidiaries in our Real Estate Services segment actively use these marks and all of the material marks are registered (or have applications pending for registration) with the United States Patent and Trademark Office as well as major countries worldwide where these businesses have significant operations and are owned by us. We license the Sotheby's International Realty mark from SPTC, Inc., a subsidiary of Sotheby's Holdings, Inc.

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Real Estate Services Employees

The businesses that make up our Real Estate Services segment employed approximately 19,900 people as of December 31, 2003.

HOSPITALITY SERVICES SEGMENT (14%, 16% and 18% of revenue for 2003, 2002 and 2001, respectively)

Lodging Franchise Business (2%, 3% and 5% of revenue for 2003, 2002 and 2001, respectively)

We are the world's largest hotel franchisor, operating nine lodging franchise systems.

The lodging industry can be divided into four broad sectors based on price and services: upper upscale, with room rates above $110 per night; upscale, with room rates between $80 and $110 per night; middle market, with room rates generally between $55 and $79 per night; and economy, with room rates generally less than $55 per night. The following is a summary description of our lodging franchise systems properties that are open and operating as of December 31, 2003, including the average occupancy rate, average room rate and total room revenue divided by total available rooms for each property, in each case for 2003. We do not own or operate hotel properties.

Information regarding such properties is derived from information we receive from our franchisees.

Brand
 Primary Domestic
Sector Served
   Avg.
Rooms
Per
Property
   # of
Properties
   # of Rooms
   Location*
   Average
Occupancy
Rate
   Average
Room Rate
   Total Room
Revenue/
Available
Rooms
AmeriHost Middle Market   69   103   7,077   U.S. and International(1)   58.3%   $ 57.16   $ 33.30
Days Inn Upper Economy   84   1,892   157,995   U.S. and International(2)   47.6%   $ 53.53   $ 25.49
Howard Johnson Middle Market   95   471   44,971   U.S. and International(3)   46.2%   $ 57.07   $ 26.39
Knights Inn Lower Economy   77   203   15,723   U.S. and International(4)   42.6%   $ 37.03   $ 15.76
Ramada Middle Market   116   905   104,636   U.S. and International(5)   45.2%   $ 59.88   $ 27.08
Super 8 Motel Economy   61   2,086   126,421   U.S. and International(6)   53.2%   $ 48.38   $ 25.76
Travelodge Upper Economy Lower Economy   78   535   41,505   U.S. and International(7)   42.8%   $ 51.10   $ 21.87
Villager Lower Economy   107   71   7,613   U.S. and International(8)   42.5%   $ 32.77   $ 13.92
Wingate Inn Upper Middle Market   94   133   12,494   U.S. and International(9)   58.6%   $ 72.88   $ 42.73
         
 
                   
Total         6,399   518,435   Total Average:             $ 25.74
         
 
                   
*
Description of rights owned or licensed.
(1)
One property located in Canada.
(2)
77 properties located in Canada and 57 properties located in Argentina, China, Egypt, England, India, Ireland, Italy, Jordan, Mexico, Philippines, South Africa and Uruguay.
(3)
54 properties located in Canada, and 41 properties located in Argentina, China, Columbia, Dominican Republic, Dutch Antilles, Ecuador, Guatemala, India, Israel, Jordan, Malta, Mexico, Oman, Peru, Venezuela and United Arab Emirates.
(4)
12 properties located in Canada.
(5)
Limited to the Continental U.S., Alaska, Hawaii and Canada.
(6)
101 properties located in Canada.
(7)
116 properties located in Canada and two properties located in Mexico.
(8)
Three properties located in Canada and one property located in Mexico.
(9)
Two properties located in Canada.

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Our Lodging Franchise Business derives substantially all of its revenue from franchise fees, which are comprised of royalty and marketing/reservation fees. The royalty fee is intended to cover our operating expenses, such as expenses incurred for franchise services, including quality assurance, administrative support and design and construction advice, and to provide us with operating profits. The marketing/reservation fee is intended to reimburse the franchisor for expenses associated with providing such franchise services as a central reservation system, national advertising and marketing programs and certain training programs. Since we do not own or operate hotel properties (we derive our revenue for this business from franchise fees), we do not incur renovation expenditures. Renovation costs are the obligation of each franchisee. Similar to our Real Estate Franchise Business, our Lodging Franchise Business also derives revenue through our Preferred Alliance Program.

Our lodging franchisees are dispersed geographically, which minimizes our exposure to any one hotel owner or geographic region. Of the approximately 6,400 properties and approximately 4,900 franchisees in our lodging systems, no individual hotel owner accounts for more than 2% of our franchised lodging properties.

In 2003, we launched TripRewards, a new loyalty program which enables customers to earn points when purchasing services from any of our lodging brands or Avis, Budget, RCI, Fairfield, Trendwest or Jackson Hewitt. Customers can also earn points when purchasing from over 30 other retailers. Customers can redeem TripRewards points for stays at our lodging brands or with over 100 other retailers and restaurants, including Home Depot, Circuit City, Olive Garden and Chili's. Businesses where points can be earned pay a fee to participate in the program and those fees are then used to reimburse the businesses where the points are redeemed. We intend to commence marketing for TripRewards in the first quarter of 2004.

Growth.    The sale of long-term franchise agreements to operators of existing and newly constructed hotels is the leading source of revenue and earnings growth in our Lodging Franchise Business. We believe that 48% of hotel owners in the United States are independent and not affiliated with any franchise.

We market franchises principally to independent hotel and motel owners, as well as to owners who have the right to terminate franchise affiliations of their properties with other hotel brands. We believe that our existing franchisees also represent a significant potential growth opportunity because many own, or may own in the future, other hotels, which can be converted to our brand names. Accordingly, a significant factor in our sales strategy is maintaining the satisfaction of our existing franchisees by providing quality services. We employ a national franchise sales force, compensated primarily through commissions.

We seek to expand our franchise systems on an international basis through license agreements with developers, franchisors and franchisees based outside the United States. As of December 31, 2003, our franchising subsidiaries (other than Ramada and AmeriHost) have entered into international licensing agreements for part or all of approximately 24 countries on five continents.

Central Reservation Systems.    The lodging business is characterized by remote purchasing through travel agencies and the use by consumers of toll-free telephone numbers and the Internet. We maintain three reservation centers that are located in Knoxville, Tennessee; Aberdeen, South Dakota; and Saint John, New Brunswick, Canada. In 2003, we booked an aggregate of approximately 4.9 million roomnights from all Internet booking sources, compared to approximately 3.7 million roomnights booked in 2002, an increase of 32%.

Competition.    Competition among the national lodging brand franchisors to grow and maintain their franchise systems is intense. Our largest national lodging brand competitors are the Holiday Inn and Best Western brands and Choice Hotels, which franchises seven brands, including the Comfort Inn, Quality Inn and Econo Lodge brands. Our Days Inn, Travelodge and Super 8 brands compete with brands, including the Comfort Inn, Red Roof Inn and Econo Lodge brands, in the economy sector. Our Ramada, Howard

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Johnson, Wingate Inn and AmeriHost Inn brands compete with brands, including Holiday Inn and Hampton Inn, in the middle market sector. Our Knights Inn and Travelodge brands compete with Motel 6 and similar properties. In addition, a lodging facility owner may choose not to affiliate with a franchisor but to remain independent.

We believe that competition for the sale of franchises in the lodging industry is based principally upon the perceived value and quality of the brand and services offered to franchisees. We believe that prospective franchisees value a franchise based upon their view of the cost/benefit relationship between affiliation and conversion costs and future charges to the potential for increased revenue and profitability and the reputation of the franchisor. We also believe that the perceived value of brand names to prospective franchisees is, to some extent, a function of the success of the brand's existing franchisees.

The ability of an individual franchisee to compete may be affected by the location and quality of its property, the number of competing properties in the vicinity, its affiliation with a recognized brand name, community reputation and other factors. A franchisee's success may also be affected by general, regional and local economic conditions. The potential negative effect of these conditions on our results of operations is substantially reduced by virtue of the diverse geographical locations of our franchised properties.

Timeshare Exchange Business (3%, 4% and 5% of revenue for 2003, 2002 and 2001, respectively)

Our Resort Condominiums International ("RCI") subsidiary is a leading provider of timeshare vacation exchange opportunities and services for approximately 3 million timeshare subscribers from more than 3,800 resorts in over 100 countries. Our RCI business consists primarily of the operation of two worldwide exchange programs for timeshare owners at affiliated resorts, the operation of a vacation rental network consisting of vacation inventory available for rent to consumers, the publication of magazines and other periodicals related to the vacation and timeshare industry and travel-related services. RCI has significant operations in North America, Europe, Latin America, Southern Africa, Australia and the Pacific Rim. RCI also has limited operations in the Middle East. RCI charges its subscribers an annual subscription fee and an exchange fee for each exchange, resulting in revenues from such fees of approximately $464 million during 2003.

Growth.    The timeshare exchange industry has experienced significant growth over the past decade. We believe that the factors driving this growth include the demographic trend toward older, more affluent Americans who travel more frequently; the entrance of major hospitality and entertainment companies into timeshare development; a worldwide acceptance of the timeshare concept; and an increasing focus on leisure activities, family travel and a desire for value, variety and flexibility in a vacation experience. We believe that future growth of the timeshare exchange industry will be determined by general economic conditions both in the United States and worldwide, the public image of the industry, improved approaches to marketing and sales and a greater variety of products and price points. Accordingly, we cannot predict if future growth trends will continue at rates comparable to those of the recent past. RCI members are acquired through developers; as a result, the growth of our Timeshare Exchange Business is dependent on the sale of timeshare units by affiliated resorts. RCI affiliates consist of international brand names and independent developers, owners' associations and vacation clubs.

Competition.    The global timeshare exchange industry is comprised of a number of entities, including resort developers and owners. RCI's competitors include specialized firms such as Interval International Inc., vacation club products, internal exchange programs and regional and local timeshare exchange companies.

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Timeshare Sales and Marketing Business (8%, 8% and 7% of revenue for 2003, 2002 and 2001, respectively)

Through our Fairfield and Trendwest subsidiaries, we are the largest vacation ownership company in the United States in terms of property owners and vacation units constructed. Our vacation ownership business includes sales and marketing of vacation ownership interests, providing consumer financing to individuals purchasing vacation ownership interests and providing property management services to property owners' associations at our resorts. We believe we have a well balanced portfolio of properties with a high degree of geographic and customer diversity, helping to insulate our timeshare operations from regional downturns. While we operate Fairfield and Trendwest as separate brands, we cross market to all of our timeshare owners and obtain referrals from our lodging and car rental operations. We are presently undertaking strategic initiatives to integrate certain business functions of Fairfield and Trendwest, including consumer finance, information technology, certain staff functions, product development and certain marketing activities. We utilize a points-based sales system at both Fairfield and Trendwest to provide our owners with flexibility as to resort location and length of stay.

Fairfield Resorts.    Fairfield, based in Orlando, Florida, acquires, plans, designs and constructs timeshare properties and markets, sells and finances vacation products that provide quality recreational experiences to its more than 480,000 property owners and customers. As of December 31, 2003, Fairfield's portfolio of resorts consisted of 74 resorts, five of which are in various stages of construction, located in 20 states and the U.S. Virgin Islands. The average purchase price of a Fairfield vacation ownership interest is $14,000. Fairfield's vacation products consist of a deeded interest in a particular unit or resort for a specified period of time annually. The annual maintenance fees associated with the average vacation ownership interest purchased ranges from $300-$600, paid per year to a property owners' association. These fees are used to replace and renovate furnishings, defray maintenance and cleaning costs and cover taxes, insurance and other related costs. Typically, the property owners' associations contract with Fairfield to manage the properties.

Trendwest Resorts.    Trendwest, based in Redmond, Washington, acquires, plans, designs and constructs timeshare properties and markets, sells and finances WorldMark, The Club and WorldMark South Pacific Club vacation ownership interests. The 59 properties Trendwest markets are located primarily in the western United States, British Columbia, Mexico, Hawaii and the South Pacific. At December 31, 2003, Trendwest had over 215,000 vacation credit owners. Trendwest's vacation ownership interests consist of vacation points which entitle the owner to book a vacation through the WorldMark system. In 2003, the average new owner purchased approximately 6,700 vacation credits for a purchase price of approximately $9,700. Owners of an average Trendwest vacation ownership interest pay annual maintenance fees of approximately $350 per year to WorldMark, The Club.

WorldMark Clubs.    Trendwest formed WorldMark, The Club and WorldMark South Pacific Club (collectively the "Clubs") in 1989 and 1999, respectively. The Clubs own, operate and manage the real property conveyed to the Clubs by Trendwest. Trendwest develops vacation properties and deeds them to the Clubs in exchange for the exclusive right to sell the vacation credits associated with the properties contributed and retain the proceeds. Our ownership interest in both Clubs results from Trendwest's ownership of unsold vacation credits. The percentage of vacation credits owned by Trendwest in the Clubs is minimal.

Trendwest has management agreements with the Clubs under which Trendwest acts as the exclusive manager and servicing agent of the vacation owner programs. Trendwest oversees the property management and service levels of the resorts as well as certain administrative functions. As compensation for services, Trendwest, in general, receives a portion of budgeted annual expenses and reserves. Each of the management agreements of WorldMark, The Club and WorldMark South Pacific provides for automatic one-year and five-year renewals, respectively, unless such renewal is denied by a majority of the voting power of the owners, which excludes Trendwest. The revenues generated from Trendwest's management

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activities for 2003 were $3.5 million, net of dues we paid to the Clubs on the unsold vacation credits we own.

Consumer Financing.    Both Fairfield and Trendwest offer financing to the purchasers of vacation ownership interests. Loans extended are typically securitized. Fairfield and Trendwest continue to service loans extended by them and therefore remain responsible for the maintenance of accounts receivable files and all customer service, billing and collection activities through our consumer finance operation located in Las Vegas, Nevada. This operation employs 311 people. In addition, we employ 75 people in Redmond, Washington who are responsible for Trendwest's compliance and loan servicing. As of December 31, 2003, we serviced a portfolio of 240,000 loans totaling $1.9 billion in aggregate principal amount outstanding. Approximately 80% of our borrowers make their loan payments through direct withdrawal.

Sales and Marketing.    Fairfield sells its vacation ownership interests at 35 resort locations and 7 off-site sales centers. Trendwest's sales primarily occur at 35 off-site sales offices located in metropolitan areas in six regions, including the South Pacific. The remainder of its sales occur at 19 on-site sales offices.

Growth.    The growth strategy for our Timeshare Sales and Marketing Business is driven primarily by further development of existing and future resort locations. Numerous factors, including favorable demographic trends and low overall penetration of potential demand indicate continued potential growth in the timeshare industry. We also continually explore strategic corporate alliances and other transactions that would complement our Timeshare Sales and Marketing Business.

Competition.    The timeshare sales and marketing industry is highly competitive and is comprised of a number of companies specializing primarily in timeshare development, sales and marketing. In addition, a number of national hospitality chains develop and sell vacation ownership interests to consumers. Our largest competitors include Disney Vacation Club, Hilton Grand Vacations Company LLC, Marriott Ownership Resorts, Inc. and Starwood Vacation Ownership, Inc.

Vacation Home Rental Business (1%, 1% and 1% of revenue for 2003, 2002 and 2001, respectively)

We are the largest self-catering cottage and villa rental company in Europe. We market privately-owned holiday properties for rent in Europe under the brands Cuendet, Dansommer, Novasol, Blakes Holidays in Britain, Ferrysavers.com, Country Manors, Les Manoirs, Country Cottages, Country Cottages in France, Country Cottages in Ireland, English Country Cottages, Welcome Holidays, Italian Life, French Life and Chez Nous. We derive revenue primarily through commissions on the rental of the vacation homes which range from 25% to 40% of the gross rent. We do not generally own properties, but act as an intermediary for the owners in exchange for a fee.

Our Vacation Home Rental Business has relationships with approximately 35,000 independent property owners in the United Kingdom, France, Ireland, the Netherlands, Italy, Spain, Portugal, Denmark, Norway, Sweden, Germany, Greece, Austria, Switzerland and eastern Europe. These property owners contract annually with our Vacation Home Rental subsidiaries to market their collective 40,000 rental properties. In 2003, our Vacation Home Rental Business had approximately 618,000 bookings consisting principally of vacation home rentals sold on behalf of vacation property owners, but also including camping holidays and boat rentals in the United Kingdom, the Netherlands and France, and ferry crossings in many European countries.

Our Vacation Home Rental subsidiaries market the properties they represent globally through direct marketing, the Internet and through tour operators and travel agents.

Growth.    Our strategy is to provide sophisticated brand marketing and reservations for the benefit of owners of vacation home accommodations. We intend to increase our contract property portfolio and to

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make all contract inventory in our portfolio available to the global marketplace. Marketing strategies include establishing an optimal balance between direct, partner, online and travel agent marketing. We also attempt to leverage other Cendant businesses to increase the marketing and distribution of our holiday property portfolio.

Competition.    Companies that are part of the European self-catering industry, in which we operate, rent an aggregate of 18 million vacations to consumers on an annual basis. This market is highly fragmented, and even the large operators such as Bourne Leisure, Holidaybreak and Interhome, represent only a small portion of industry volume. We believe that competition for vacation rental properties is based principally on the number of properties offered.

Hospitality Trademarks and Intellectual Property

The service marks "Days Inn," "Ramada," "Howard Johnson," "Super 8," "Travelodge," "Wingate Inn," "Villager," "Knights Inn," "AmeriHost Inn," "RCI," "Resort Condominiums International," "Fairfield," "Trendwest," "WorldMark" and related trademarks and logos are material to the businesses in our Hospitality segment. The subsidiaries that operate our timeshare businesses and our franchisees actively use the marks which are registered (or have applications pending) with the United States Patent and Trademark Office as well as major countries worldwide where our hospitality businesses have significant operations. We own all the marks listed above other than the "Ramada" and "Days Inn" domestic marks. We own the Travelodge mark only in North America and are limited to using the "Ramada" marks in the Continental U.S., Alaska, Hawaii and, since 2002, in Canada. We license the Canadian "Ramada" trademark from Marriott. We license the domestic "Ramada" and "Days Inn" marks from a venture we have with Marriott International, Inc. In 2004, we expect to redeem Marriott's interest in the venture for approximately $200 million and upon such redemption we will own the domestic "Ramada" and "Days Inn" marks. We own the "WorldMark" mark pursuant to an assignment agreement with WorldMark. If our relationship with WorldMark should terminate, such mark would revert back to WorldMark upon request.

Hospitality Seasonality

Our Lodging Franchise Business generates higher revenue during the summer months because of increased leisure travel. Therefore, any occurrence that disrupts travel patterns during the summer period could have a greater adverse effect on our lodging franchisees' annual performance and consequently our annual performance than in other periods. A principal source of timeshare exchange revenue relates to exchange services to members. Since members have historically shown a tendency to plan their vacations in the first quarter of the year, revenues are generally slightly higher in the first quarter. In timeshare sales, we rely upon tour flow to generate timeshare sales; consequently, sales volume tends to increase in the summer months as a result of greater tour flow from summer travelers. We cannot predict whether these trends will continue in the future.

Most consumers in our Vacation Home Rental Business book accommodations 8 to 15 weeks in advance of their departure date. Approximately 50% of departure dates fall during the summer. Therefore, most bookings are made during the first and second quarters. Recently, some consumers have begun to book accommodations closer to their departure date shifting some bookings to the third quarter.

Hospitality Employees

The businesses that make up our Hospitality Services segment employed approximately 22,950 people as of December 31, 2003.

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TRAVEL DISTRIBUTION SERVICES SEGMENT (9%, 12% and 5% of revenue for 2003, 2002 and 2001, respectively)

Our Travel Distribution segment is one of the leading providers of travel content and transaction processing services in the world and is grouped into five categories based on the customer group served by such category: Travel Agency Services, which includes Galileo International, THOR, Travelwire, Travel 2 and Travel 4; Retail Travel Services, which includes CheapTickets.com, Cendant Travel and RCI Travel; Travelport Corporate Solutions; Hospitality and Leisure Services, which includes Lodging.com and Neat Group; and Supplier Services, which includes WizCom, TRUST International and Shepherd Systems. Our Travel Agency Services business generated approximately 91% of the revenue for the Travel Distribution segment in 2003.

Travel Agency Services

We provide, through Galileo, an electronic global distribution system ("GDS") for the travel industry utilizing a computerized reservation system. Travel suppliers such as airlines, hotel companies and car rental firms store, display, manage and sell their products and services through our GDS system. We market our GDS under the brands Apollo and Galileo. Apollo is utilized in North America and Japan, and Galileo is utilized in the rest of the world. Travel agencies and other subscribers at approximately 43,000 locations throughout the world and numerous Internet travel sites, such as CheapTickets.com, as well as corporations that use self-booking products, such as those provided by Travelport Corporate Solutions, are able to access schedule and fare information, book reservations and issue tickets for nearly 500 airlines. Travel agency subscribers represent a significant source of bookings that result in fees payable by travel suppliers to Galileo. Bookings generated by our five largest travel agency subscribers constituted approximately 22% of the bookings made through our GDS in 2003. Our GDS also provides subscribers with information and booking capabilities covering approximately 30 car rental companies and approximately 240 hotel companies with nearly 60,000 properties throughout the world. In 2003, Galileo processed approximately 267 million bookings. Galileo operates in approximately 120 countries.

We generate the vast majority of our GDS revenue from booking fees paid by travel suppliers. In 2003, approximately 93% of our booking fee revenues were generated from airlines. Other GDS revenue sources include lease fees for equipment provided to subscribers, such as travel agents, as well as advertising revenues paid by travel suppliers. We generate approximately 63% of our GDS revenues outside the United States.

Additional products and services provided through Travel Agency Services include: our THOR subsidiary, which provides 24-hour travel reservation assistance to customers of its travel agency clients; our Travelwire subsidiary, which provides mid-office solutions to tour operators and travel agencies through its Transfer software; and our Travel 2 and Travel 4 subsidiaries, acquired in November 2003 and which specialize in providing inventory for long-haul travel exclusively through the travel agency channel. The Travel 2 and Travel 4 acquisitions were not material to us. We have also introduced new products to increase revenues for our travel agency subscribers, such as Galileo NeatAgent, which allows travel agency subscribers the ability to offer customized vacation packages from their desktops, and Galileo Web! Hotels, which provides travel agency subscribers with desktop access to merchant hotel rates.

United Air Lines, Inc. is the largest single travel supplier utilizing our system, generating revenues of approximately $141 million relating to hosting, network services and GDS booking fees, which accounted for approximately 9% of our total Travel Distribution segment revenues in 2003. In 2003, Galileo entered into a ten-year agreement with United to provide reservations system technology and other services. In 2002, UAL Corporation, the parent of United, filed for bankruptcy protection. In 2003, United agreed to pay substantially all of its pre-petition debt to Galileo. If UAL does not successfully emerge from bankruptcy, as expected in 2004, we would not expect to recover outstanding amounts as of the date of any

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subsequent liquidation, which could range from $20 to $40 million, and we would expect certain components of revenue for this segment, such as revenue generated from reservation and network management services (excluding GDS booking fees), to be negatively impacted.

The travel industry has been negatively impacted by the military conflict in Iraq, terrorist threat alerts, continuing economic pressures, and SARS concerns in the Asia-Pacific region and other parts of the world. As a result, several major travel suppliers are experiencing liquidity problems and some, such as UAL, US Airways Group and ANC Rental Group, have sought, and others may seek, bankruptcy protection. Therefore, the risk of non-payment of GDS fees from travel suppliers has increased. Travel activity could be further reduced if any of these conditions continue or resurface, which could negatively impact our Travel Distribution segment.

On December 31, 2003, the United States Department of Transportation announced that it would allow most of the rules governing pricing, fare displays and other business practices of GDSs to sunset on January 31, 2004. The few remaining rules will expire on July 31, 2004. Such rules had been implemented to protect consumers when the GDSs were controlled by airlines. In anticipation of such deregulation and as part of our commitment to provide our subscribers with a range of new solutions and capabilities for increasing revenue, we executed fare agreements with six major airlines in the United States under our Preferred Fares Select Program and with British Airways. These agreements provide our travel agency subscribers and their customers with complete access to all participating carriers' published fares for a three-year term. We are currently negotiating similar agreements with other international and domestic airlines in anticipation of ongoing deregulation efforts worldwide. We do not anticipate any near term negative impact on our travel distribution services business from deregulation.

Distribution of Products and Services.    We market, distribute and support our Galileo products and services for subscribers primarily through our internal sales and marketing organizations ("SMOs") throughout the world, which accounted for approximately 76% of our 2003 bookings.

In regions not supported directly by our SMOs, we provide our products and services through our relationships with independent national distribution companies ("NDCs"), which are typically owned or operated by the national airline of the relevant country or a local travel-related business. Each NDC is responsible for maintaining the relationship with subscribers in its territory and providing ongoing customer support. We pay each NDC a share of the booking fees generated in the NDC's territory, and the NDC retains all subscriber fees billed in the territory. NDCs accounted for approximately 24% of our booking volume in 2003.

Growth.    In order to grow our GDS business, we intend to expand our focus beyond booking fees to become a retailer of travel inventory and travel products and services, and thereby strengthen our relationships with our travel suppliers and travel agency customers. In doing so, we intend to continue to capitalize on our competitive strengths, the key elements of which are: (i) Cendant's business-to-business relationships and travel-related assets; (ii) a diversified global presence; (iii) established relationships with a diverse group of travel suppliers and travel agencies; (iv) a comprehensive offering of innovative products and services; and (v) new product and services initiatives with strong appeal to travel consumers, agencies and suppliers.

Competition.    Our competitors include: the three major traditional GDS companies, Sabre, Inc., Amadeus Global Travel Distribution, LLC and Worldspan, L.P.; the major regional reservation systems, including Abacus International, Inc., Axess International Network, Inc., Infini Travel Information, Inc. and Topas Co., Ltd.; and other travel infrastructure companies such as Pegasus Solutions, Inc., Navitaire, Inc. and Datalex Communications USA, Inc. We also compete with alternative channels by which travel products and services are distributed; for example, some airlines operate computerized reservation systems on their web sites, and some low-cost airline carriers do not utilize a GDS distribution channel. In addition,

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travelers are increasingly using the Internet to make their own bookings, thereby shifting business away from the travel agency community.

Competition to attract and retain travel agency subscribers is intense. As a result, we and other computerized reservation system service providers offer incentives to travel agency subscribers if they achieve certain productivity or booking volume growth targets. Although continued expansion of such incentive payments could adversely affect our profitability, our failure to continue to make such incentive payments could result in the loss of some travel agency subscribers.

Retail Travel Services

We provide retail travel services through Cheap Tickets, Cendant Travel and RCI Travel. We are a full service travel agency, providing airline, car rental, hotel, vacation packages and other travel reservation and fulfillment services. We provide such services through Cheap Tickets, Travelers Advantage, our individual membership program, and to members of our Timeshare Exchange Business. We generate revenue from commissions on bookings from hoteliers, car rental companies, airlines, cruise lines and tour operators, as well as mark-ups on travel inventory. We also generate transaction-related advertising revenue from our online agency, CheapTickets.com.

We work directly with travel suppliers, such as airlines, car rental companies, hoteliers and tour and cruise operators to secure both non-published and regularly available fares, rates and tariffs to supply the best possible rates and discounted travel to our customers. We market and distribute this inventory to customers through our branded web site, CheapTickets.com, and through our membership channels. We book transactions primarily through our GDS and fulfill them through our travel agency network and ticketing operations. We maintain four call centers located in: Colorado Springs and Denver-Aurora, Colorado; Moore, Oklahoma; and Nashville, Tennessee.

In April 2003, we reacquired the common stock of Trip Network, Inc. by converting our preferred stock and purchasing the remainder of Trip Network's common stock for $4 million. In connection with this acquisition, we reacquired the rights for the online businesses, Trip.com and CheapTickets.com, which combined provide access to approximately 31 million registered users. The Trip.com web site ceased active operation in April 2003 to consolidate resources and technology in CheapTickets.com.

Growth.    We intend to build on our existing position as a leading provider of online travel to deliver against initiatives that provide high margin products to our customers. We also intend to enhance our marketing efforts to strengthen our Cheap Tickets brand and its position as a leading retailer of attractive and well-priced travel content. We also intend to integrate travel content from other Travel Distribution businesses, enabling us to earn higher margins. Our complementary product and technology strategies are focused on improving the customer experience by providing industry leading features and functionality, while maintaining a robust operating environment.

Competition.    We compete with a large number of leisure travel agencies, including Liberty Travel, Inc. and American Express Travel Related Services Company, Inc., and companies with Internet travel web sites, such as Orbitz, Inc., InterActiveCorp's Expedia, Inc., Hotels.com L.P. and Hotwire.com businesses, Sabre, Inc.'s Travelocity.com L.P. and Priceline.com Incorporated.

Travelport Corporate Solutions

Travelport Corporate Solutions (formerly known as Highwire), rebranded and launched in August 2003, offers our corporate customers the services of our GDS, our corporate online booking tool, and fulfillment services to meet their corporate travel requirements. We offer these services on a stand-alone basis or as an end-to-end solution, whereby corporate travel departments subscribing to Travelport will be able to rely

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solely upon the family of companies in our Travel Distribution segment to complete booking and ticketing. Our web-based corporate travel solutions include online, self-booking capabilities, ticketing and support that enable our corporate customers to manage their travel supplier agreements and corporate travel policies, while offering their employees unique web-based tools for making travel arrangements. We generate revenues from online booking fees paid by corporate customers on a per transaction basis. We also collect transaction fees from corporate customers for fulfillment and customer care services offered as part of our end-to-end corporate travel solution. Travelport was launched in October 2003 in the United Kingdom.

Growth.    We remain focused on increasing the number of bookings made by our existing corporate clients and pursuing additional large corporate clients. We intend to integrate travel content available through other Travel Distribution companies to provide our clients with superior rates and products. We are focused on providing corporate travel solutions to existing and future clients both through our individual services in North America and Europe and through our end-to-end solutions in North America.

Competition.    Our primary competition comes from companies offering a full package of services for corporate clients, such as Expedia Corporate Travel, Orbitz for Business, Travelocity for Business, American Express, and companies that sell online booking tools to corporate clients and travel agencies, which incorporate the tools as part of their offering to corporate clients, including: Outtask, Inc., through its Cliqbook product; Navitaire, Inc.; Sabre, Inc., through its corporate booking product, Travelocity for Business, TRX, Inc. through its Res-X product and Carlson Travel Group, Inc. through its Wagonlit Symphonie/Horizon product.

Hospitality and Leisure Services

Our Hospitality and Leisure Services group is comprised of Lodging.com, a leading online hotel booking site for consumers, and Neat Group, an online service that enables customers to design their own vacation packages. This group is responsible for obtaining hotel, tour, cruise and vacation rental inventory for distribution to consumers through our travel distribution subsidiaries. We provide major hotel chains with distribution, packaging and connectivity through a single point of contact. Travel suppliers can take advantage of distribution through our Travel Distribution segment's online and off-line channels, as well as enhanced connectivity through Galileo, while providing Travel Distribution segment's channels with access to exclusive preferred rate content. We generate revenue from mark-ups on merchant travel inventory, as well as commissions on bookings from travel suppliers, including hotel, tour and cruise companies.

Lodging.com provides consumers access to specially negotiated rates at more than 10,600 economy, mid-level and luxury hotels in markets around the world. Lodging.com customers also have access to Galileo's entire published hotel rate inventory, and can book vacation packages through Neat Group's packaging engine on the Lodging.com site. With a network of nearly 4,300 distribution affiliates, Lodging.com also offers hoteliers access and control over their pricing and yield management.

Neat Group develops, markets and operates dynamic packaging technology that enables customers to choose among a broad collection of discounted air, car and hotel offerings to create customized travel packages, which can provide savings of up to 50% versus purchasing the travel items separately. Neat vacation packages are sold through approximately 3,000 travel agencies and approximately 34 affiliates. The acquisition of Neat Group, which took place in May 2003, was not material to us.

Growth.    We intend to continue to add international hotels and form enterprise agreements with major hotel chains, while adding their content to our distribution channels. We intend to expand Neat dynamic packaging to international markets, add additional distributors and expand and enhance its content. We intend to continue to distribute our Lodging.com and Neat technology and content throughout other Travel Distribution segment's channels. The addition of Lodging.com content to the Neat packaging

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engine is one of several strategies that are designed to sell more high-margin, Travel Distribution segment's content through affiliated channels.

Competition.    Lodging.com and Neat compete with companies with Internet travel web sites, such as Orbitz, Inc., InterActiveCorp's Expedia, Inc., Hotels.com L.P. and Hotwire.com businesses, Travelocity.com L.P. and Priceline.com Incorporated, in addition to off-line consolidators and tour companies, such as The Mark Travel Corporation, National Leisure Group, Inc. and Classic Custom Vacations, a division of Expedia, Inc.

Supplier Services

Our Supplier Services Business focuses on enhancing our relationships with our travel suppliers to pursue and obtain the most competitive and comprehensive rates for our Travel Distribution segment's channels. We also provide our travel suppliers with reservation-related systems and marketing information processing services that make their operations more efficient and enhance their revenue generation. We generate revenue from transaction fees and service fees paid to us by travel suppliers for our products and services.

WizCom provides hotel and car rental suppliers with electronic distribution and e-commerce solutions for Internet, GDS and other travel reservation systems. Offering the industry's first switching service, WizCom provides hotel and car rental suppliers with direct connectivity to the Internet and to global distribution systems, as well as provides central GDS information management services.

TRUST International develops and implements central reservation systems (CRS) through its Voyager CRS, providing customized, real-time reservations and global distribution services to the hospitality industry. TRUST also provides a range of telecommunication services from its global communication call centers in Frankfurt (headquarters), Orlando, Florida and Singapore, which serve approximately 38 countries in 10 languages.

Shepherd Systems provides sales and marketing intelligence technologies and services to approximately 45 of the world's leading airlines and travel agencies to strengthen their ability to make strategic decisions and help drive better business results. Shepherd also distributes Marketing Information Data Tapes (MIDT) on behalf of Galileo.

Our GlobalFares system provides fare quotation services for approximately 20 airlines worldwide. In 2003, we upgraded the GlobalFares system to provide fully automated fare and rule processing for private fares filed by airlines.

Growth.    We intend to increase our Internet distribution reach, allowing hotel and car rental companies to further optimize their sales mix and enhance our product and service portfolio aimed at the hospitality sector. We intend to promote new products to meet our clients' needs, such as Hotel Cache, which offers hotel companies a cost effective solution to the high volume of rate requests from Internet-based systems, and JumpStart, our newly developed cost-effective interface for Internet distribution systems. We are also focused on enhancing our data analysis capabilities and developing consulting services related to MIDT. We intend to expand Shepherd Systems' client reach beyond the airline industry to the entire travel sector.

Competition.    In providing electronic distribution services to hotel customers, we compete with third party connectivity providers and also with supplier direct connection technology providers. WizCom and TRUST International compete with many companies that provide computerized reservation system services to hotel customers, including hotels that develop their own proprietary systems. Our competitors include Pegasus Solutions, Inc., Unirez Inc., Utell Limited and Lexington Services, owned by VIP International Corporation. Shepherd Systems' competitors include providers of market and business intelligence information, primarily in the airline industry such as Sabre, Inc. and Lufthansa Systems.

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Travel Distribution Trademarks and Intellectual Property

The trademarks and service marks "Galileo," "Apollo," "Cheap Tickets," "WizCom," "Lodging.com," "THOR," "Travelport" and related trademarks and logos are material to the businesses in our Travel Distribution segment. Galileo and our other subsidiaries in the Travel Distribution segment and their licensees actively use these marks. All of the material marks used by these companies are registered (or have applications pending for registration) with the United States Patent and Trademark Office as well as major countries throughout the world where these businesses operate. We own the material marks used in the Travel Distribution segment.

We also use a combination of patent, copyright, trade secret, confidentiality procedures and contractual provisions to protect the software, business processes and other proprietary information we use to conduct the businesses in our Travel Distribution segment. These assets and the related intellectual property rights are important assets of the businesses in our Travel Distribution segment. Unauthorized use of our intellectual property could have a material adverse effect on our Travel Distribution segment and there can be no assurance that our legal remedies would adequately compensate us for the damage caused by such use.

Travel Distribution Seasonality

We experience a seasonal pattern in our operating results, with the first and fourth quarters typically having lower total revenues and operating income compared to the second and third quarters due to decreased travel during the winter months.

Travel Distribution Employees

The businesses that make up our Travel Distribution segment employed approximately 4,700 people as of December 31, 2003.

VEHICLE SERVICES SEGMENT (32%, 30% and 39% of revenue for 2003, 2002 and 2001, respectively)

Our Vehicle Services segment consists of the vehicle rental operations business of Avis and Budget, the Avis and Budget franchise systems and our commercial fleet management business.

Vehicle Rental Operations and Franchise Businesses (24%, 20% and 25% of revenue for 2003, 2002 and 2001, respectively)

We are one of the largest vehicle rental operators in the world under two leading brands, Avis and Budget. We operate Avis and Budget as separate brands, with differentiated images, service and pricing. Avis targets customers who are willing to pay for premium service while Budget focuses on providing a value rental experience. Certain administrative functions such as fleet planning and treasury, as well as vehicle reservation and rental systems, are provided by Cendant for the benefit of both Avis and Budget.

Avis (14%, 19% and 25% of revenue for 2003, 2002 and 2001, respectively)

We operate and/or franchise portions of the Avis car rental system (the "Avis System"), which represents one of the largest car rental systems in the world, based on total revenue and number of locations. We operate and/or franchise approximately 1,800 of the approximately 4,800 rental locations that comprise the Avis System, including locations at most of the largest airports and cities in the United States and internationally. The Avis System in Europe, Africa, part of Asia and the Middle East is operated under a

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franchise arrangement with Avis Europe Ltd., an independent third party, and is comprised of approximately 3,000 locations.

We own and operate approximately 982 Avis car rental locations in both airport and non-airport (downtown and suburban) locations in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia and New Zealand. For 2003, our Avis car rental operations had an average fleet of approximately 209,500 vehicles and generated total vehicle rental revenue of approximately $2.6 billion, of which 87% (or $2.26 billion) was derived from U.S. operations. In addition, we franchise the Avis System to independent business owners in approximately 820 locations including locations in the United States, Canada, Latin America and the Asia Pacific region. Approximately 95% of our Avis System rental revenue in the United States is generated by locations owned by us or operated for us under agency arrangements, and the remainder is generated by locations operated by independent franchisees. Independent franchisees pay fees based either on total time and mileage charges or total revenue.

In addition to fees from car rentals and franchisee royalties, we generate revenue through optional products and services such as supplemental equipment (child seats and ski racks), loss damage waivers, additional liability insurance, personal accident insurance, personal effects protection and fuel option and service charges.

We provide franchisees and our corporate locations access to the benefits of a variety of services, including: (i) a standardized system identity for rental location presentation and uniforms; (ii) a training program, business policies, quality of service standards and data designed to monitor service commitment levels; (iii) marketing/advertising/public relations support, which includes a national advertising campaign to generate awareness of the Avis System through our familiar "We Try Harder" tagline; (iv) one of the leading rental car web sites, avis.com; (v) "Avis Cares," a program which includes providing customers with area-specific driver safety information, the latest child safety seats (available for rent) and driving maps; (vi) a counter by-pass program, Avis Preferred Service, which is available at top airport locations; and (vii) Avis Access, a full range of special products and services for physically-challenged drivers and passengers. Avis System locations have access to the Wizard System, an online computer system which provides (i) global reservations processing, (ii) rental agreement generation and administration and (iii) fleet accounting and control. Franchisees pay a fee for the use of the Wizard System. We also offer Avis InterActive, which provides corporate customers real-time access to aggregated information on car rental expenses to better manage their car rental expenditures.

Marketing.    In 2003, approximately 73% of vehicle rental transactions generated from our owned and operated car rental locations were generated in the United States by travelers who rented with Avis under contracts between Avis and the travelers' employers or through membership in an organization with whom Avis has an affiliation (such as AARP and USAA). Our franchisees also have the option to participate in these contracts. Unaffiliated business and leisure travelers are solicited by direct mail promotions and advertising campaigns.

Customers can make Avis reservations through the Avis toll-free reservation center at 1-888-777-AVIS, via our Avis web site at www.avis.com, through online portals or by contacting their travel agent. Travel agents can access Avis through all major global distribution systems, and can obtain information with respect to our rental locations, vehicle availability and applicable rate structures through these systems. An automated link between these systems and the Wizard System gives them the ability to reserve and confirm rentals directly. We also maintain strong links to the travel industry. Avis offers customers the ability to earn frequent traveler points with virtually all the major airlines including Delta Air Lines, Inc., American Airlines, Inc., Continental Airlines, Inc. and United Air Lines, Inc. Avis is also affiliated with TripRewards, our recently launched loyalty marketing program and with the frequent traveler programs of various hotels including the Hilton Hotels Corporation, Hyatt Corporation, and Starwood Hotels and Resorts Worldwide, Inc. These arrangements provide various incentives to all program participants and cooperative

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marketing opportunities for Avis and the partner. We also have an arrangement with our lodging brands whereby lodging customers who are making reservations by telephone may be transferred to Avis if they desire to rent a vehicle. In addition, through partnerships with American Express, MBNA Corporation and Sears, Roebuck and Co., we are able to provide their customers with incentives to rent from Avis.

Internationally, we utilize a multi-faceted approach to sales and marketing throughout our global network by employing or contracting with teams of trained and qualified account executives to negotiate contracts with major corporate accounts and leisure and travel industry partners. In addition, we utilize a wide range of marketing and direct mail initiatives to continuously broaden our customer base. Sales efforts are designed to secure customer commitment and support customer requirements for both domestic and international car rental needs. Our international operations maintain close relationships with the travel industry including participation in several airline frequent flyer programs, such as those operated by Air Canada and Qantas as well as participation in Avis Europe programs with British Airways, Lufthansa and other carriers.

Budget (10% and 1% of revenue for 2003 and 2002, respectively)

We purchased substantially all of the domestic assets and selected international operations of the Budget vehicle rental system (the "Budget System") on November 22, 2002.

Budget Rent A Car System is one of the largest car and truck rental systems in the world, based on total revenue and number of locations. We operate and/or franchise 1,987 of the approximately 2,900 rental locations that comprise the Budget System, including locations at most of the largest airports and cities in the United States and internationally. The rental locations that we do not operate or franchise are located in Europe, Africa, and the Middle East and are operated under a royalty-free franchise by Zodiac Europe Limited, an independent third party. We operate approximately 625 Budget car rental locations in both airport and non-airport (downtown and suburban) locations in the United States, Canada, Puerto Rico, Australia and New Zealand and our Budget car rental operations generated total vehicle rental revenue of $1.24 billion, of which 93% (or $1.15 billion) was derived from U.S. operations. For 2003, our Budget car rental operations had an average fleet of approximately 103,000 vehicles. We also franchise the Budget System to independent business owners in approximately 1,362 locations including locations in the United States, Canada, Latin America, the Caribbean and the Asia Pacific region. Approximately 86.1% of our Budget System rental revenues in the United States are generated by locations owned by us or operated for us under agency arrangements, with the remainder generated by locations operated by independent franchisees. Independent franchisees generally pay fees based on gross rental revenue.

We also operate a combined truck rental fleet of approximately 30,000 trucks through a network of approximately 2,500 corporate-owned, dealer and franchised locations throughout the continental United States. Our truck rental business serves both the consumer and light commercial sectors. The consumer sector primarily serves individuals who rent trucks to move household goods on either a one-way or local basis. The light commercial sector serves a wide range of businesses that rent light- to medium-duty trucks, which we define as trucks having a gross vehicle weight of less than 26,000 pounds, for a variety of commercial applications.

In addition to fees from car and truck rentals and franchisee royalties, we generate revenue through optional products and services such as supplemental equipment (child seats and ski racks, with respect to car rentals, and hand trucks, packaging materials and furniture pads, with respect to truck rentals), loss damage waivers, supplemental liability insurance, personal accident and effects insurance, fuel option and service charges.

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Marketing

Car Rental.    In connection with its focus on leisure travelers, Budget primarily uses retail advertising and value pricing to drive improved results on its web site, in the reservation center, and in other leisure channels. In addition, proprietary marketing programs such as Fastbreak, a counter bypass program for frequent travelers, and Unlimited Budget, a travel agent rewards program, drive increased revenues.

Budget also launched a small business program, the "Budget Means Business" Program, in 2003. Understanding the constraints of small business customers, the Budget Means Business Program focuses primarily on offering a value proposition. In addition, Budget continued to build its affiliated base of customers through relationships with various entities like Costco and with travel partners like Southwest Airlines and TripRewards, our recently launched loyalty program.

Customers can make Budget reservations through the Budget toll-free reservation center at 1-800-BUDGET7, via our Budget web site at www.budget.com, through online travel portals, or through their travel agent. Travel agents can access Budget through all major global distribution systems and can obtain information with respect to our rental locations, vehicle availability and applicable rate structures through these systems. In addition, Budget offers Unlimited Budget, a loyalty incentive program for travel agents. Participating travel agents earn cash for every eligible U.S. business and leisure rental completed by their clients. As of December 31, 2003, approximately 80,000 travel agents were enrolled in this program.

Truck Rental.    Budget primarily advertises in the yellow pages to promote its trucks to potential customers. Customers can make truck reservations through the Budget truck toll-free reservation center at 1-800-BUDGET2, via our Budget truck web site at www.budgettruck.com or by calling a location directly. In addition, Budget has established online affiliations with web sites like monstermoving.com to reach its targeted audience.

Vehicle Rental Growth.    For 2003, we generated 83.9% and 75.7% of our Avis and Budget revenue, respectively, from our owned airport locations. We intend to increase business at existing off-airport locations through a combination of advertising, promotions, local sales calls and targeted marketing to members of various associations and corporations. We also intend to open new off-airport locations through relationships with major retailers. Avis formalized a partnership with Sears in October 2002 and since then has established 54 Avis locations at Sears stores. In connection with its nonexclusive arrangements with Wal-Mart Stores, Inc. and The Pep Boys—Manny, Moe & Jack, Budget intends to expand its off-airport reach and has begun to establish Budget locations at such stores. We also intend to increase our focus on Budget's truck business by upgrading the truck fleet and improving utilization.

Web Sites.    Avis and Budget have strong brand presence on the Internet through their web sites, avis.com and budget.com. A steadily increasing number of Avis and Budget vehicle rental customers obtain rate, location and fleet information and then reserve their rentals directly on these web sites. In addition, both Avis and Budget have agreements to promote their car rental services with major Internet portals, and have a strong advertising presence on Yahoo! During 2003, reservations through Internet sources increased to 18.3% and 30.3% of total reservations from 14.7% and 25.9% in the prior year for Avis and Budget owned operations, respectively.

Vehicle Rental Fleet Management.    With respect to the car rental operations owned and operated by us, we participate in a variety of vehicle purchase programs with major domestic and foreign manufacturers. Our featured supplier for the Avis brand is General Motors Corporation. Our featured supplier for the Budget brand is Ford Motor Company. Under the terms of our agreements with GM and Ford, which expire in 2006 and 2007, respectively, we are required to purchase a certain number of vehicles from these manufacturers. Our current operating strategy is to maintain an average fleet age of approximately five months. For model year 2003, approximately 99% of our domestic fleet vehicles were subject to repurchase

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programs. Under these programs, subject to certain conditions, such as mileage and vehicle condition, a manufacturer is required to repurchase those vehicles at a pre-negotiated price thereby reducing our risk on the resale of the vehicles. In 2003, approximately 2.3% of repurchase program vehicles did not meet the conditions for repurchase.

Vehicle Rental Airport Concession Fees.    In general, concession fees for airport locations are based on a percentage of total commissionable revenues (as determined by each airport authority), subject to minimum annual guaranteed amounts. Concessions are typically awarded by airport authorities every three to five years based upon competitive bids. Our concession agreements with the various airport authorities generally impose certain minimum operating requirements, provide for relocation in the event of future construction and provide for abatement of the minimum annual guarantee in the event of extended low passenger volume.

Vehicle Rental Competition.    The vehicle rental industry is characterized by intense price and service competition. In any given location, we and our franchisees may encounter competition from national, regional and local companies. Nationally, Avis' principal competitor is The Hertz Corporation and Budget's principal competitors are Alamo Rent-A-Car, LLC and Dollar Rent-A-Car System, Inc. However, both Avis and Budget also compete with each of these companies and with National Car Rental System, Inc., Thrifty Rent-A-Car System, Inc. and Enterprise Rent-A-Car Company. In addition, we compete with a large number of regional and local smaller vehicle rental companies throughout the country.

Competition in the U.S. vehicle rental operations business is based primarily upon price, reliability, national distribution, usability of booking systems, ease of rental and return and other elements of customer service. In addition, competition is influenced strongly by advertising and marketing.

Commercial Fleet Management Services Business (8%, 10% and 14% of revenue for 2003, 2002 and 2001, respectively)

PHH Arval, the second largest provider of outsourced commercial fleet management services in North America, and Wright Express, the largest proprietary fleet card service provider in the United States, compose our fleet management services business.

We provide corporate clients and government agencies the following services and products for which we are generally paid a monthly fee:

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Growth.    We intend to focus our efforts for growth on the large fleet segment and middle market fleets as well as fee-based services to new and existing clients. Wright Express has also made a substantial investment in its technology to aggressively pursue new business opportunities both in the United States and internationally.

Competition.    The principal factors for competition in vehicle management services are service, quality and price. We are a fully integrated provider of fleet management services with a broad range of product offerings. Among providers of outsourced fleet management services, we rank second in North America in the number of leased vehicles under management and first in the number of proprietary fuel and maintenance cards for fleet use in circulation. Our competitors in the United States include GE Capital Fleet Services, Wheels Inc., Automotive Resources International (ARI), Lease Plan International and hundreds of local and regional competitors, including numerous competitors who focus on one or two products. In the United States, it is estimated that only 59% of fleets are leased by third-party providers. The continued focus by corporations on cost efficiency and outsourcing is expected to provide growth opportunities in the future.

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Vehicle Services Trademarks and Intellectual Property

The service marks "Avis" and "Budget", related marks incorporating the words "Avis" or "Budget", and related logos are material to our Vehicle Rental Operations and Franchise Businesses. Our subsidiaries and franchisees, actively use these marks. All of the material marks used in the Avis and Budget businesses are registered (or have applications pending for registration) with the United States Patent and Trademark Office as well as major countries worldwide where Avis and Budget franchises are in operation. We own the marks used in the Avis and Budget businesses. The service marks "Wright Express," "WEX," "PHH" and related trademarks and logos are material to our commercial fleet management services business. Wright Express, PHH Arval and their licensees actively use these marks. All of the material marks used by Wright Express and PHH Arval are registered (or have applications pending for registration) with the United States Patent and Trademark Office. All of the material marks used by PHH Arval are also registered in major countries throughout the world where the fleet management services are offered by Arval PHH. We own the marks used in Wright Express' and PHH Arval's business.

Vehicle Services Seasonality

For our Avis and Budget businesses, the third quarter of the year, which covers the summer vacation period, represents the peak season for vehicle rentals. Any occurrence that disrupts travel patterns during the summer period could have a greater adverse effect on Avis' and Budget's annual performance than in other periods. The fourth quarter is generally the weakest financial quarter for the Avis and Budget systems. In 2003 our average monthly Avis rental fleet, excluding franchisees, ranged from a low of approximately 195,000 vehicles in December to a high of approximately 234,000 vehicles in July. In 2003, our average monthly Budget car rental fleet, excluding franchisees, ranged from a low of approximately 84,000 vehicles in December to a high of approximately 124,000 vehicles in July. Rental utilization for Avis, which is based on the number of hours vehicles are rented compared to the total number of hours vehicles are available for rental, ranged from 65.8% in December to 82% in August and averaged 73.4% for all of 2003. Rental utilization for Budget, which is based on the number of days vehicles are rented compared to the total number of days vehicles are available for rental, ranged from 84.8% in August to 74.0% in December and averaged 80.8% for all of 2003.

Our commercial fleet management services business is generally not seasonal.

Vehicle Services Employees

The businesses that make up our Vehicle Services segment employed approximately 32,700 people as of December 31, 2003.

FINANCIAL SERVICES SEGMENT (8%, 9% and 16% of our revenue for 2003, 2002 and 2001, respectively)

Loyalty/Insurance Marketing Business (2%, 3% and 5% of our revenue for 2003, 2002 and 2001, respectively)

Our Loyalty/Insurance Marketing Business provides enhancement packages for financial institutions and marketing for accidental death and dismemberment insurance and certain other insurance products through our Progeny Marketing Innovations Inc. subsidiary. With approximately 40.5 million customers, we offer the following products and services:

Enhancement Package Service.    We sell enhancement packages for financial institution consumer and business checking and deposit account holders primarily through our Progeny subsidiary. Progeny's financial institution clients select a customized package of our products and services and then usually add their own services (such as unlimited check writing privileges, personalized checks, cashiers' or travelers' checks without issue charge, or discounts on safe deposit box charges or installment loan interest rates). With our marketing and promotional assistance, the financial institution then offers the complete package of enhancements to its checking account holders as a special program for a monthly fee. Most of these

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financial institutions choose a standard enhancement package, which generally includes $10,000 of accidental death and dismemberment insurance and travel discounts. Other enhancements may include our shopping and credit card registration services, a travel newsletter or pharmacy, eyewear or entertainment discounts. The common carrier coverage is underwritten under group insurance policies with two third-party underwriters. We generally charge a financial institution client an initial fee to implement this program and monthly fees thereafter based on the number of customer accounts participating in that financial institution's program.

AD&D Insurance.    Through our Progeny subsidiary, we serve as an agent and third-party administrator for marketing accidental death and dismemberment insurance throughout the country to the customers of financial institutions. Progeny's insurance products and other services are offered primarily to customers of banks, credit unions, credit card issuers and mortgage companies. These products are primarily marketed through direct mail solicitations and telemarketing which generally offer $1,000 of accidental death and dismemberment insurance at no cost to the customers and the opportunity to choose additional coverage of up to $250,000. The annual premium generally ranges from $10 to $250 and we derive revenue primarily from commissions based on premiums received pursuant to agreements with the insurance carriers that issue the policies we market. Progeny also acts as an administrator for, and markets, term life and hospital accident insurance as well as a number of other insurance products Progeny is currently testing.

Long Term Care Insurance.    In June 2003, our Long Term Preferred Care subsidiary discontinued the marketing and sale of long term care insurance policies. We continue to derive revenue from commissions based on premiums received pursuant to agreements with the insurance carriers that issued the policies we sold. Our decision to discontinue the marketing and sale of long term care insurance policies was driven by changes in the long term care insurance market and our initiative to concentrate on core businesses. Even prior to discontinuing the marketing and sale of long term care insurance, the revenues derived from this business were immaterial. Although LTPC discontinued such marketing and sales activities, LTPC continues to provide customer service and related services to the existing block of insurance policies and policyholders.

Distribution Channels.    We market our products to consumers (i) of financial institutions or other associations through direct marketing; (ii) of financial institutions or other associations through a direct sales force, participating merchants or general advertising; and (iii) through companies and various other entities.

Growth.    Primary growth drivers include expanding our customer base to include a greater number of financial institutions and targeted non-financial partners. In addition, we are expanding the array of insurance products and services sold through the direct marketing channels to existing clients.

Competition.    Our checking account enhancement packages and services compete with similar services offered by other companies, including insurance companies and other third-party marketers such as Sisk Company, Generations Gold and Econ-O-Check Corporation. In larger financial institutions, we may also compete with a financial institution's internal marketing staff. Competition for the offering of our insurance products through financial institutions is growing and intense. Our competitors include other third-party marketers and large national insurance companies with established reputations that offer products with rates, benefits and compensation similar to ours.

Loyalty Solutions Business (1%, 1% and 2% of our revenue for 2003, 2002 and 2001, respectively)

Our Cims subsidiary operates our Loyalty Solutions Business and develops customer loyalty solutions and insurance products for the benefit of financial institutions and businesses in other industries. The primary customer loyalty solution offered to Cims clients is the loyalty package. Loyalty packages provide targeted consumers of client organizations with a "package" of benefits and services for the purpose of improving customer retention, attracting consumers to become customers of the client organization and encouraging them to buy additional services. For example, packages include discounted travel services such as discounts

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on vacation rentals, car rentals, travel insurance, timeshare weeks, cruises, hotels and airlines. As of December 31, 2003, Cims has expanded its membership base to approximately 18.9 million individuals. Cims clients include over 50 financial institutions throughout Europe, South Africa and Asia. Cims offers travel and real estate benefits and other services within its loyalty packages for the benefit of consumers. Cims also uses its internal insurance competencies and strategic relationships to provide insurance benefits to consumers. Cims derives fees from its financial institution and other corporate clients for its loyalty packages.

Growth.    The primary growth drivers for Cims are (i) to increase the number of consumers, from within our existing client base, who participate in loyalty programs for their particular financial institution, (ii) to increase the number of financial institutions we partner with for their respective loyalty marketing programs, (iii) to develop marketing relationships with clients in other industries (wireless providers for example) and (iv) to offer multiple loyalty solutions to our clients.

Competition.    Cims represents an outsourcing alternative to marketing departments of large retail organizations. Cims competes with certain other niche loyalty solution providers throughout Europe and internal marketing groups of large financial institutions.

Tax Preparation Business (1%, 1% and 1% of our revenue for 2003, 2002 and 2001, respectively)

Our Jackson Hewitt subsidiary is the second largest tax preparation service system in the United States. In 2003, the Jackson Hewitt franchise system consisted of a 48-state network (and the District of Columbia) with over 4,200 offices operating under the trade name and service mark "Jackson Hewitt Tax Service." Office locations range from stand-alone store front offices to kiosk offices within Wal-Mart, Kmart Corporation, Simon Malls and General Growth Malls and other retail stores. Through the use of proprietary interactive tax preparation software, franchisees are engaged in the preparation and electronic filing of federal and state individual income tax returns. During 2003, the Jackson Hewitt system prepared over 2.8 million tax returns, which represented an increase of 13% from 2002. To complement tax preparation services, our franchisees also offer accelerated check refunds, assisted direct deposits, refund anticipation loans and related financial products to tax preparation customers through designated banks, as well as Gold Guarantee, our enhanced warranty product. In 2003, Jackson Hewitt launched a MasterCard branded stored-value card, the Jackson Hewitt CashCard which provides customers an additional payment option to conveniently receive their tax-related funds. Franchisees pay an initial franchise fee as well as royalty and marketing fees.

Through our Tax Services of America subsidiary we operated over 650 tax preparation offices in 2003 preparing over 350,000 tax returns through these offices.

Growth.    We believe growth in the tax preparation industry will come primarily from organic growth in franchised and corporate-owned offices, selling new franchises, the application of proven management techniques, and continued growth in new product and service offerings. We also intend to continue to acquire independent tax preparation firms and convert them to the Jackson Hewitt system.

Competition.    The tax preparation industry is highly competitive. There are a substantial number of tax preparation firms and accounting firms that offer tax preparation services. The industry is highly competitive with regard to price, service and quality. Our largest competitor, H&R Block, is a nationwide tax preparation service with more than 9,000 locations.

Individual Membership Business (4%, 4% and 8% of our revenue for 2003, 2002 and 2001, respectively)

Trilegiant Transaction.    On January 30, 2004, we terminated Trilegiant's right to market membership programs that we had previously licensed to Trilegiant Corporation in July 2001, terminated our license of the Trilegiant trademark and terminated our outsourcing arrangement whereby Trilegiant provided membership fulfillment services to our members. We will therefore be responsible for providing fulfillment services to our members. In connection with this transaction, we have hired substantially all Trilegiant

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employees, agreed to service Trilegiant's members and made a $13 million cash payment to Trilegiant as consideration for the early termination of the rights referred to above. Trilegiant has now changed its name to TRL Group, Inc. and we have renamed one of our subsidiaries Trilegiant Corporation. In connection with such transaction, we also acquired Trilegiant Loyalty Solutions, Inc., a wholly-owned subsidiary of TRL Group, for $20 million in cash. Trilegiant Loyalty Solutions offers wholesale loyalty enhancement services primarily to credit card issuers who make such services available to their credit card holders to foster increased product usage and loyalty and will serve as the administrator of our points database for our TripRewards Loyalty Program. We continue to own preferred stock of TRL Group, which is currently convertible, at any time at our option, into approximately 43% of TRL Group common stock (taken together with the shares of common stock currently held by us). As a result of this transaction, we now have managerial control of TRL Group through our majority representation on the TRL Group Board of Directors.

Our Individual Membership Business markets various clubs and services to individuals through joint marketing arrangements with various institutions such as banks, financial institutions, retailers, oil companies and Internet service providers. For a membership fee, we provide members with access to a variety of discounted products and services. Our programs offer consumers discounts on many brand categories along with shop-at-home convenience in such areas as retail merchandise, travel, automotive and home improvement. Participating institutions generally receive commissions on initial and renewal memberships, based on a percentage of the net membership fees. We also provide our products to such institutions on a wholesale or resale basis upon request. As of January 31, 2004, we serviced approximately 18.5 million memberships, approximately 8.3 million of which consist of our memberships and 10.2 million consist of members that we service on behalf of TRL Group.

We offer a variety of membership programs, including Shoppers Advantage, a discount shopping program; Travelers Advantage, a discount travel service program; AutoVantage, a program which offers preferred prices on new cars and discounts on maintenance, tires and parts; AutoVantage Gold, a program which provides a premium version of the AutoVantage service; Credit Card Guardian and Hot-Line, services which enable consumers to register their credit and debit cards to keep the account numbers securely in one place; PrivacyGuard and Credentials, services which provide monitoring of a member's credit history and access to driving records and medical files; Buyers Advantage, a service which extends manufacturer's warranties; CompleteHome, a service designed to save members time and money in maintaining and improving their homes; Family FunSaver Club, a program which provides the opportunity to purchase family travel services and other family related products at a discount; and HealthSaver, a program which provides discounts on prescription drugs, eyewear, eye care, dental care, selected health-related services and fitness equipment.

Growth.    Primary growth drivers include expanding our customer base to include a greater number of financial institutions and targeted non-financial partners. In addition, we are expanding the array of our products and services sold through the direct marketing channels to existing clients.

Competition.    The membership services industry is highly competitive. Competitors include membership services companies, such as MemberWorks Incorporated, as well as large retailers, travel agencies, insurance companies and financial service institutions, some of which have financial resources, product availability, technological capabilities or customer bases that may be greater than ours.

Financial Services Trademarks and Other Intellectual Property

The service marks "Jackson Hewitt" and "Jackson Hewitt Tax Service" and related marks and logos are material to Jackson Hewitt's business. We together with our franchisees actively use these marks. The trademarks and logos are registered (or have applications pending for registration) with the United States Patent and Trademark Office. We own the marks used in the Jackson Hewitt business. The service mark "Progeny Marketing Innovations" and its associated logo is material to Progeny's business. Progeny

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actively uses this mark which is registered in the United States Patent and Trademark Office. The Individual Membership Business trademarks and service marks listed above and related logos, together with the "Trilegiant" trademark, are material to the Individual Membership Business. The "Trilegiant" trademark and Individual Membership Business trademarks and logos are registered (or have applications pending for registration) with the United States Patent and Trademark Office. We own the material marks used in the Individual Membership Business.

Financial Services Seasonality

Substantially all of Jackson Hewitt franchisees' customers file their tax returns during the period from January through April of each year. As a result, nearly all franchise royalties are received during the first and second quarters, and Jackson Hewitt operates at a loss for the remainder of the year. These losses primarily reflect payroll of year-round personnel, the update of tax software and other costs relating to preparation for the subsequent tax season. The other businesses in our Financial Services segment generally are not seasonal.

Financial Services Employees

The businesses that make up our Financial Services segment employed approximately 5,500 people as of December 31, 2003. In connection with the Trilegiant transaction, we hired approximately 1,930 employees on January 30, 2004.

GEOGRAPHIC SEGMENTS

Financial data for geographic segments are reported in Note 27—Segment Information to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

REGULATION

Franchise Regulation.    The sale of franchises is regulated by various state laws, as well as by the Federal Trade Commission (the "FTC"). The FTC requires that franchisors make extensive disclosure to prospective franchisees but does not require registration. Although no assurance can be given, proposed changes in the FTC's franchise rule should have no adverse impact on our franchised businesses. A number of states require registration or disclosure in connection with franchise offers and sales. In addition, several states have "franchise relationship laws" or "business opportunity laws" that limit the ability of the franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements. While our franchising operations have not been materially adversely affected by such existing regulation, we cannot predict the effect of any future federal or state legislation or regulation. Our franchisors may engage in certain lending transactions common in their respective industries that provide loans to franchisees as part of the sale of the franchise. Such transactions may require the franchisor to register under state laws governing business lenders. We cannot predict the effect of the impact of those laws or any decision not to register under such laws and cease offering such loans.

Real Estate Regulation.    The federal Real Estate Settlement Procedures Act ("RESPA") and state real estate brokerage laws restrict payments which real estate and mortgage brokers and other parties may receive or pay in connection with the sales of residences and referral of settlement services (e.g., mortgages, homeowners insurance, title insurance). Such laws may to some extent restrict preferred alliance and other arrangements involving our Real Estate Brokerage Franchise, Real Estate Brokerage, Settlement Services, Mortgage and Relocation Businesses. Our title insurance operations are subject to numerous state laws and regulations. Our Mortgage Business is also subject to numerous federal, state and local laws and regulations, including those relating to real estate settlement procedures, fair lending, fair credit reporting, truth in lending, federal and state disclosure and licensing. Our Settlement Services businesses are subject to various federal and state regulations including those promulgated by state

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departments of insurance and departments of corporations. Currently, there are local efforts in certain states, which could limit referral fees to our Relocation Business.

In addition, with respect to our Real Estate Brokerage Business, RESPA and similar state laws require timely disclosure of the relationships or financial interests between providers of real estate settlement services. Our Real Estate Brokerage Business is also subject to numerous federal, state and local laws and regulations that contain general standards for and prohibitions on the conduct of real estate brokers and sales associates, including those relating to licensing of brokers and sales associates, fiduciary and agency duties, administration of trust funds, collection of commissions, advertising and consumer disclosures. Under state law, our real estate brokers have the duty to supervise and are responsible for the conduct of their brokerage business.

Timeshare Exchange Regulation.    Our Timeshare Exchange Business, which includes RCI exchange programs and other exchange programs operated by our timeshare sales and marketing business, is subject to foreign, federal, state and local laws and regulations including those relating to taxes, consumer credit, environmental protection and labor matters. In addition, we are subject to state statutes in those states regulating timeshare exchange services, and must prepare and file annually certain disclosure guides with regulators in states where required. While our Timeshare Exchange Business is not subject to those state statutes governing the development of timeshare properties and the sale of timeshare interests, such statutes directly affect both our Timeshare Sales and Marketing Business (see below) and the other members and resorts that participate in the RCI exchange programs and other exchange programs operated by our Timeshare Sales and Marketing Business. Therefore, the statutes indirectly impact our Timeshare Exchange Business.

Timeshare Sales and Marketing Regulation.    Our Timeshare Sales and Marketing Business, which includes our resort management business, is subject to extensive regulation by the states and countries in which our resorts are located and in which its vacation ownership interests are marketed and sold. In addition, we are subject to federal legislation, including without limitation, the Federal Trade Commission Act and rules promulgated by the Federal Trade Commission thereunder, including the federal Telemarketing Sales Rule with its Do Not Call provisions; the Fair Housing Act; the Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to borrowers regarding the terms of their loans; the Real Estate Settlement Procedures Act and Regulation X promulgated thereunder which require certain disclosures to borrowers regarding the settlement and servicing of loans; the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination in the extension of credit on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, the Telemarketing and Fraud and Abuse Prevention Act; the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act, which address privacy of consumer financial information; and the Civil Rights Acts of 1964, 1968 and 1991. In Australia, we are regulated by the Australian Securities and Investments Commission.

Many states have laws and regulations regarding the sale of vacation ownership interests. The laws of most states require a designated state authority to approve a timeshare public report, a detailed offering statement describing the resort operator and all material aspects of the resort and the sale of vacation ownership interests. In addition, the laws of most states in which we sell vacation ownership interests grant the purchaser of such an interest the right to rescind a contract of purchase at any time within a statutory rescission period, which generally ranges from three to ten days. Furthermore, most states have other laws that regulate our timeshare sales and marketing activities, such as real estate licensing laws, travel sales licensing laws, anti-fraud laws, telemarketing laws, telephone solicitation laws including Do Not Call legislation and restrictions on the use of predictive dialers, prize, gift and sweepstakes laws, labor laws and various regulations governing access and use of our resorts by disabled persons.

Internet Regulation.    Although our business units' operations on the Internet are not currently regulated by any government agency in the United States beyond regulations discussed above and applicable to

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businesses generally, it is likely that a number of laws and regulations may be adopted governing the Internet. In addition, existing laws may be interpreted to apply to the Internet in ways not currently applied. Regulatory and legal requirements are subject to change and may become more restrictive, making our business units' compliance more difficult or expensive or otherwise restricting their ability to conduct their businesses as they are now conducted.

Vehicle Rental and Fleet Leasing Regulation.    We are subject to federal, state and local laws and regulations including those relating to taxing and licensing of vehicles, franchising, consumer credit, environmental protection and labor matters. The principal environmental regulatory requirements applicable to our vehicle and rental operations relate to the ownership or use of tanks for the storage of petroleum products, such as gasoline, diesel fuel and waste oils; the treatment or discharge of waste waters; and the generation, storage, transportation and off-site treatment or disposal of solid or liquid wastes. We operate 466 Avis and Budget locations at which petroleum products are stored in underground or above ground tanks. We have instituted an environmental compliance program designed to ensure that these tanks are in compliance with applicable technical and operational requirements, including the replacement and upgrade of underground tanks to comply with the December 1998 EPA upgrade mandate and periodic testing and leak monitoring of underground storage tanks. We believe that the locations where we currently operate are in compliance, in all material respects, with such regulatory requirements.

We may also be subject to requirements related to the remediation of, or the liability for remediation of, substances that have been released to the environment at properties owned or operated by us or at properties to which we send substances for treatment or disposal. Such remediation requirements may be imposed without regard to fault and liability for environmental remediation can be substantial.

We may be eligible for reimbursement or payment of remediation costs associated with future releases from its regulated underground storage tanks and have established funds to assist in the payment of remediation costs for releases from certain registered underground tanks. Subject to certain deductibles, the availability of funds, compliance status of the tanks and the nature of the release, these tank funds may be available to us for use in remediating future releases from our tank systems.

A traditional revenue source for the vehicle rental industry has been the sale of loss damage waivers, by which rental companies agree to relieve a customer from financial responsibility arising from vehicle damage incurred during the rental period. Approximately 5% of our vehicle operations revenue during 2003 was generated by the sale of loss damage waivers. Approximately 40 states have considered legislation affecting the loss damage waivers. To date, 24 states have enacted legislation which requires disclosure to each customer at the time of rental that damage to the rented vehicle may be covered by the customer's personal automobile insurance and that loss damage waivers may not be necessary. In addition, in the late 1980's, New York enacted legislation which eliminated our right to offer loss damage waivers for sale and limited potential customer liability to $100. Pursuant to new legislation effective in 2003, New York permits the sale of loss damage waivers at a capped rate per day based on the vehicle's manufacturer's suggested retail price. Nevada and California have similar rules regarding fees for loss damage waivers.

We are also subject to regulation under the insurance statutes, including insurance holding company statutes, of the jurisdictions in which our insurance company subsidiaries are domiciled. These regulations vary from state to state, but generally require insurance holding companies and insurers that are subsidiaries of insurance holding companies to register and file certain reports including information concerning their capital structure, ownership, financial condition and general business operations with the state regulatory authority, and require prior regulatory agency approval of changes in control of an insurer and intercorporate transfers of assets within the holding company structure. Such insurance statutes also require that we obtain limited licenses to sell optional insurance coverage to our customers at the time of rental.

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The payment of dividends to us by our insurance company subsidiaries is restricted by government regulations in Colorado, Bermuda and Barbados affecting insurance companies domiciled in those jurisdictions.

Our vehicle rental and fleet leasing businesses could be liable for damages in connection with motor vehicle accidents under the theory of vicarious liability. Under this theory, companies that lease or rent motor vehicles may be subject to liability for the tortuous acts of their lessees/renters, even in situations where the leasing/rental company has not been negligent and there is no product defect involved.

Wright Express Financial Services Corporation is subject to a variety of state and federal laws and regulations applicable to FDIC-insured, state-chartered financial institutions.

Marketing Regulation.    The products and services offered by our various businesses, including our Real Estate Brokerage, Timeshare Exchange, Timeshare Sales and Marketing, Loyalty/Insurance Marketing and Individual Membership Businesses, are marketed via a number of distribution channels, including direct mail, telemarketing and online. These channels are regulated on the state and federal levels and we believe that these activities will increasingly be subject to such regulation. Such regulation, including anti-fraud laws, consumer protection laws, privacy laws, telemarketing laws and telephone solicitation laws, may limit our ability to solicit new customers or to offer one or more products or services to existing customers. In addition to direct marketing, our Loyalty/Insurance Marketing Business is subject to various state and local regulations including, as applicable, those of state insurance departments. While we have not been materially adversely affected by existing regulations, we cannot predict the effect of any future foreign, federal, state or local legislation or regulation.

We are also aware of, and are actively monitoring the status of, certain proposed privacy-related state legislation that might be enacted in the future; it is unclear at this point what effect, if any, such state legislation might have on our businesses. A number of our businesses are significant users of email marketing to existing and prospective customers. It is unclear what effect, if any, legislation restricting such marketing practices would have on those businesses.

Some of our business units use sweepstakes and contests as part of their marketing and promotional programs. These activities are regulated primarily by state laws that require certain disclosures and providing certain assurances that the prizes will be available to the winners.

Global Distribution Services Regulation.    Our GDS business is subject to regulation primarily in the United States, the European Union ("EU") and Canada. However, each jurisdiction has announced plans to significantly reduce or eliminate the existing regulations as more fully discussed below.

Throughout 2003, each jurisdiction's rules were largely based on the same set of core premises: that a computerized reservation system must treat all participating airlines equally, whether or not they are owners of the system; that airlines owning computerized reservations systems must not discriminate against the computerized reservation systems they do not own; and that computerized reservation system relationships with travel agencies should not be an impediment to competition from other computerized reservation systems or to the provision of services to the traveler. The U.S. and EU rules have the greatest impact on us because of the volume of business transacted by us in those jurisdictions. Neither jurisdiction currently seeks to regulate computerized reservation system relationships with non-airline participants, such as hotel and car rental companies, although the EU rules allow computerized reservation systems to incorporate rail services into their displays and such rail services are therefore subject to certain sections of the EU rules.

Regulators in the United States, the European Union, and Canada have announced proposed changes to the existing rules. On December 31, 2003, the United States Department of Transportation approved a new set of abbreviated rules effective January 31 through July 31, 2004. After July 31, 2004, all GDS rules in the U.S. are scheduled to terminate unless otherwise extended. The new rules in effect in the United States until July 31, 2004 primarily 1) continue the existing ban upon display bias of flights made available to

35


travel agents by GDSs; 2) continue the existing ban on certain contract clauses in contracts between GDSs and airlines; and 3) continue the existing ban on discriminatory loading of data into the GDS system.

The proposed EU rules have not yet been issued in draft form but are expected in 2004. The EU has advised that it is considering the elimination of many rules including the rules that require GDSs to treat all airlines and travel agents equally not only in terms of services offered but also with regard to fees charged. In addition, the EU has proposed the elimination of many rules relating to subscribers as well as the rule that requires an airline that owns a GDS to treat all GDSs equally. The Company has actively provided its views to the EU commission and plans to comment on the draft rules when issued.

On October 24, 2003, the Canadian government published a proposed revision of its GDS rules. The proposed revision eliminated several rules and modified several others. However, on February 9, 2004, Canada hosted an industry meeting to discuss whether GDS regulations were required any longer in view of the deregulation of the GDS industry in the United States. The new rules, if any, will not become effective until sometime in 2004.

Travel Agency Regulation.    The products and services we provide are subject to various federal, state and local regulations. We must comply with laws and regulations relating to our sales and marketing activities, including those prohibiting unfair and deceptive advertising or practices. Our travel service is subject to laws governing the offer and/or sale of travel products and services, including laws requiring us to register as a "seller of travel," to comply with disclosure. In addition, many of our travel suppliers are heavily regulated by the United States and other governments and we are indirectly affected by such regulation.

EMPLOYEES

As of December 31, 2003, we employed approximately 87,000 people. We have approximately 6,500 U.S. employees and 700 international employees covered under collective bargaining arrangements. Management considers our employee relations to be satisfactory and does not anticipate any material interruptions to operations from labor disputes.

ITEM 2.    PROPERTIES

Our principal executive offices are located in leased space at 9 West 57th Street, New York, NY 10019 with a lease term expiring in 2013. Many of our general corporate functions are conducted at leased offices at One Campus Drive, 7 Sylvan Way, 6 Sylvan Way, 1 Sylvan Way and 10 Sylvan Way, Parsippany, New Jersey 07054. Executive offices are also located at Landmark House, Hammersmith Bridge Road, London, England W69EJ.

Real Estate Franchise Business.    Our Real Estate Franchise Business conducts its main operations at our leased offices at One Campus Drive in Parsippany, New Jersey. There are also leased facilities at regional offices located in Atlanta, Georgia, Mission Viejo, CA; Chicago, IL and Scottsdale, AZ.

Real Estate Brokerage Business.    Our Real Estate Brokerage Business leases over 6.7 million square feet of domestic office space under 1,293 leases. Its corporate headquarters are located at 339 Jefferson Road, Parsippany, New Jersey pursuant to leases expiring in 2005 and 2007. NRT leases approximately 22 facilities under 33 leases serving as regional headquarters; 71 facilities serving as location administration, training facilities or storage, and approximately 955 offices under approximately 1,118 leases serving as brokerage sales offices. These offices are generally located in shopping centers and small office parks, generally with lease terms of five years. In addition, there are 71 leases representing vacant office space, principally as a result of acquisition-related brokerage sales office consolidations.

Settlement Services Business.    Our Settlement Services Business conducts its main operations at a leased facility in Moorestown, New Jersey under a lease expiring in 2004 and has leased regional and branch offices in fourteen states.

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Mortgage Business.    Our Mortgage Business has centralized its operations to one main area occupying various leased offices in Mt. Laurel, New Jersey for a total of approximately 900,000 square feet. The lease terms expire in 2004, 2006, 2008, 2013 and 2022. Our Mortgage Business has recently entered into a lease for a new building, also in the Mt. Laurel area, which is anticipated to be completed and occupied in 2004. The new lease expires in 2014. There is a second area of centralized offices in Jacksonville, Florida, where space is occupied pursuant to two leases expiring in 2005 and 2008. In addition, there are approximately 24 smaller regional offices located throughout the United States.

Relocation Business.    Our Relocation Business has its main corporate operations in two leased buildings in Danbury, Connecticut with lease terms expiring in 2004 and 2008. There are also five leased regional offices located in Mission Viejo and Walnut Creek, California; Chicago, Illinois; Irving, Texas and Bethesda, Maryland, which provide operation support services. Facilities referred to in the preceding sentence are pursuant to leases that expire in 2013, 2005, 2004, 2008 and 2005, respectively. International offices are located in Swindon and Hammersmith, United Kingdom; Melbourne and Sydney, Australia; Hong Kong and Singapore pursuant to leases that expire in 2012, 2017, 2005, 2005, 2004 and 2004, respectively.

Lodging Franchise Business.    Our Lodging Franchise Business leases space for its reservations centers and data warehouse in Aberdeen, South Dakota; Knoxville, Tennessee and St. John, New Brunswick, Canada pursuant to leases that expire in 2004, 2007, and 2013 respectively. In addition, our lodging and real estate businesses share approximately four leased office spaces within the United States and have one vacant property in Phoenix, Arizona with a lease expiring in 2007.

Timeshare Exchange Business.    Our Timeshare Exchange Business has six properties which we own. The most significant owned properties for this business are call centers in Carmel, Indiana; Cork, Ireland and Kettering, UK. Our Timeshare Exchange Business also has approximately seven leased offices located within the United States and approximately 43 additional leased spaces in various countries outside the United States.

Timeshare Sales and Marketing Business.    Our Timeshare Sales and Marketing Business owns a facility in Redmond, Washington and leases space for call center and administrative functions in Syracuse, New York; Bellevue, Washington; Las Vegas, Nevada; Margate, Florida and Orlando, Florida, pursuant to leases expiring in 2005, 2006, 2007, 2010 and 2012, respectively. In addition, approximately 113 marketing and sales offices are leased throughout the United States and nine offices are leased internationally.

Vacation Home Rental Business.    Our Vacation Home Rental Business operations are managed in two owned locations (Earby, England and Monterrigioni, Italy) and three leased locations (Leeds, England; Copenhagen, Denmark and Hamburg, Germany). Our leased locations operate pursuant to leases that expire in 2004, 2005 and 2006, respectively. We intend to vacate the leased location expiring in 2004.

Travel Distribution Business.    Our travel distribution business has three properties, which we own: a data center in Greenwood, Colorado; a facility in Atlanta, Georgia and a call center in Lakeport, California, which is currently vacant. Our travel distribution business also leases 16 additional facilities within the United States that function as call centers or fulfillment or sales offices, and 46 additional properties in various countries outside the United States, which function as administration, sales, call center and fulfillment offices. Our travel distribution businesses leases have various expiration dates.

Vehicle Rental Operations and Franchise Businesses.    Our Vehicle Services segment owns a facility in Virginia Beach, Virginia, which serves as a satellite administrative facility for our car rental operations. Office space is also leased in Orlando, Florida; Redding, California; Denver, Colorado; Wichita Falls, Texas; Tulsa, Oklahoma; and Federicton, Canada pursuant to leases expiring in 2005, 2011, 2007, 2010, 2006, and 2009, respectively. Budget offices at Carrollton, Texas and LeMoore, California have been recently closed and are therefore vacant. These spaces are subject to leases expiring in 2016 and 2010, respectively. In addition, there are approximately 19 leased office locations in the United States.

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We lease or have vehicle rental concessions for both the Avis and Budget brands at multiple locations throughout the world. Avis operates 738 locations in the United States and 244 locations outside the United States. Of those locations, 233 in the United States and 78 outside the United States are at airports. Budget operates at 550 locations in the United States of which 127 are at airports. Budget also operates at 75 locations outside the United States. Typically, an airport receives a percentage of vehicle rental revenues, with a guaranteed minimum. Because there is a limit to the number of vehicle rental locations in an airport, vehicle rental companies frequently bid for the available locations, usually on the basis of the size of the guaranteed minimums.

Commercial Fleet Management Services Business.    PHH Arval leases office space and marketing centers in six locations in Canada. PHH Arval maintains a headquarters office in Hunt Valley, Maryland pursuant to a lease expiring in the first quarter of 2004. At that time, these functions will be relocated to a new 210,000 square foot office in Sparks, Maryland, which has a lease expiring in 2014. In addition, Wright Express leases office space in Portland, Maine and Salt Lake City, Utah, under leases expiring in 2006, 2007, 2008, 2012 and 2004.

Loyalty/Insurance Marketing Business.    Our Loyalty/Insurance Marketing Business leases three domestic office spaces in Franklin, Tennessee with lease terms ending in 2006 and 2009.

Loyalty Solutions.    Our Loyalty Solutions Business leases 11 locations internationally that function as sales and administrative offices for Cims with the main office shared with our travel distribution business in Langley, England.

Tax Preparation Business.    Our Tax Preparation Business leases a facility in Sarasota, Florida.

Individual Membership Business.    Our Individual Membership Services Business leases 115,000 square feet in Norwalk, Connecticut under a lease expiring in 2014. Administrative offices are located in Dublin, Ohio pursuant to a lease expiring in 2008 and call center functions are located in an owned facility in Cheyenne, WY and a leased facility in Westerville, OH with a lease expiring in 2005. In addition, two offices are located in Trumbull, CT with leases expiring in 2005 housing data center and production center functions.

We believe that such properties are sufficient to meet our present needs and we do not anticipate any difficulty in securing additional space, as needed, on acceptable terms.

ITEM 3.    LEGAL PROCEEDINGS

After the April 15, 1998 announcement of the discovery of accounting irregularities in the former CUC business units, and prior to the date of this Annual Report on Form 10-K, approximately 70 lawsuits claiming to be class actions and other proceedings were commenced against us and other defendants.

In re Cendant Corporation Litigation, Master File No. 98-1664 (WHW) (D.N.J.) (the "Securities Action"), is a consolidated class action brought on behalf of all persons who acquired securities of the Company and CUC, except our PRIDES securities, between May 31, 1995 and August 28, 1998. Named as defendants are the Company; twenty-eight current and former officers and directors of the Company, CUC and HFS; and Ernst & Young LLP, CUC's former independent accounting firm.

The Amended and Consolidated Class Action Complaint in the Securities Action alleges that, among other things, the lead plaintiffs and members of the class were damaged when they acquired securities of the Company and CUC because, as a result of accounting irregularities, the Company's and CUC's previously issued financial statements were materially false and misleading, and the allegedly false and misleading financial statements caused the prices of the Company's and CUC's securities to be inflated artificially.

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On December 7, 1999, we announced that we had reached an agreement to settle claims made by class members in the Securities Action for approximately $2.85 billion in cash. This settlement received all necessary court approvals and was fully funded by us on May 24, 2002.

On January 25, 1999, the Company asserted cross-claims against Ernst & Young alleging that Ernst & Young failed to follow professional standards to discover and recklessly disregarded the accounting irregularities, and is therefore liable to the Company for damages in unspecified amounts. The cross-claims assert claims for breaches of Ernst & Young's audit agreements with the Company, negligence, breaches of fiduciary duty, fraud, and contribution.

On March 26, 1999, Ernst & Young filed cross-claims against the Company and certain of the Company's present and former officers and directors, alleging that any failure to discover the accounting irregularities was caused by misrepresentations and omissions made to Ernst & Young in the course of its audits and other reviews of the Company's financial statements. Ernst & Young's cross-claims assert claims for breach of contract, fraud, fraudulent inducement, negligent misrepresentation and contribution. Damages in unspecified amounts are sought for the costs to Ernst & Young associated with defending the various shareholder lawsuits and for harm to Ernst & Young's reputation.

Welch & Forbes, Inc. v. Cendant Corp., et al., No. 98-2819 (WHW) (the "PRIDES Action"), is a consolidated class action filed on behalf of purchasers of the Company's PRIDES securities between February 24 and August 28, 1998. Named as defendants are the Company; Cendant Capital I, a statutory business trust formed by the Company to participate in the offering of PRIDES securities; seventeen current and former officers and directors of the Company, CUC and HFS; Ernst & Young; and the underwriters for the PRIDES offering, Merrill Lynch & Co.; Merrill Lynch, Pierce, Fenner & Smith Incorporated; and Chase Securities Inc. The allegations in the Amended Consolidated Complaint in the PRIDES Action are substantially similar to those in the Securities Action.

On March 17, 1999, we entered into an agreement to settle the claims of class members in the PRIDES Action who purchased PRIDES securities on or prior to April 15, 1998 ("eligible persons"). The settlement did not resolve claims based upon purchases of PRIDES after April 16, 1998 and, as of December 31, 2001, other than Welch & Forbes, Inc. v. Cendant Corp., et al., which is previously discussed, no purchasers of PRIDES securities after April 16, 1998 have instituted proceedings against us.

Semerenko v. Cendant Corp., et al., Civ. Action No. 98-5384 (D.N.J.), and P. Schoenfield Asset Management LLC v. Cendant Corp., et al., Civ. Action No. 98-4734 (D.N.J.) (the "ABI Actions"), were initially commenced in October and November of 1998, respectively, on behalf of a putative class of persons who purchased securities of American Bankers Insurance Group, Inc. ("ABI") between January 27, 1998 and October 13, 1998. Named as defendants are the Company, four former CUC officers and directors and Ernst & Young. The complaints in the ABI actions, as amended on February 8, 1999, assert violations of Sections 10(b), 14(e) and 20(a) of the Exchange Act. The plaintiffs allege that they purchased shares of ABI common stock at prices artificially inflated by the accounting irregularities after we announced a cash tender offer for 51% of ABI's outstanding shares of common stock in January 1998. Plaintiffs also allege that after the disclosure of the accounting irregularities, we misstated our intention to complete the tender offer and a second step merger pursuant to which the remaining shares of ABI stock were to be acquired by us. Plaintiffs seek, among other things, unspecified compensatory damages. On April 30, 1999, the United States District Court for the District of New Jersey dismissed the complaints on motions of the defendants. In an opinion dated August 10, 2000, the United States Court of Appeals for the Third Circuit vacated the District Court's judgment and remanded the ABI Actions for further proceedings. On December 15, 2000, we filed a motion to dismiss those claims based on ABI purchases after April 15, 1998, and the District Court granted this motion on May 7, 2001. The plaintiffs subsequently moved for leave to file a Second Amended Complaint to reallege claims based on ABI purchases between April 16, 1998 and October 13, 1998. That motion was denied on August 15, 2002.

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The settlements described herein do not encompass all litigation asserting claims against us associated with the accounting irregularities. We cannot give any assurance as to the final outcome or resolution of these unresolved proceedings. An adverse outcome from certain 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 consolidated financial position or liquidity.

In Re Homestore.com Securities Litigation, No. 10-CV-11115 (MJP) (U.S.D.C., C.D. Cal.). On November 15, 2002, Cendant and Richard A. Smith, one of our officers, were added as defendants in a purported class action. The 26 other defendants in such action include Homestore.com, Inc., certain of its officers and directors and its auditors. Such action was filed on behalf of persons who purchased stock of Homestore.com (an Internet-based provider of residential real estate listings) between January 1, 2000 and December 31, 2001. The complaint in this action alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act based on purported misconduct in connection with the accounting of certain revenues in financial statements published by Homestore during the class period. On January 10, 2003, we, together with Mr. Smith, filed a motion to dismiss plaintiffs' claims for failure to state a claim upon which relief could be granted. On March 7, 2003, the court granted our motion and dismissed the complaint, as against us and Mr. Smith, with prejudice. On April 14, 2003, plaintiffs filed a motion for an order certifying an issue for interlocutory appeal, which the court denied on July 11, 2003.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Price on Common Stock

Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol "CD". At February 23, 2004, the number of stockholders of record was approximately 8,732. The following table sets forth the quarterly high and low sales prices per share of CD common stock as reported by the NYSE for 2003 and 2002.

2003
   High
   Low
First Quarter   $ 13.95   $ 10.56
Second Quarter     18.39     12.67
Third Quarter     19.30     16.94
Fourth Quarter     22.30     18.37

2002
 
High
 
Low
First Quarter   $ 19.99   $ 15.35
Second Quarter     19.03     15.15
Third Quarter     15.66     10.75
Fourth Quarter     12.88     9.04

On February 27, 2004, the last sale price of our CD common stock on the NYSE was $22.70 per share.

Dividend Policy

We will pay a cash dividend on our common stock beginning on March 16, 2004 to holders of record as of February 23, 2004. The initial quarterly dividend of $0.07 per share was approved by our Board of Directors on February 11, 2004. Future dividends will depend upon our earnings, financial condition and other factors. We did not pay cash dividends on our common stock in fiscal years 2002 and 2003.

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ITEM 6.    SELECTED FINANCIAL DATA

 
   At or For the Year Ended
December 31,
 
   2003
   2002
   2001
   2000
   1999
 
   (In millions, except per share data)
Results of Operations                              
Net revenues   $ 18,192   $ 14,187   $ 8,693   $ 4,320   $ 5,755
   
 
 
 
 
Income (loss) from continuing operations   $ 1,465   $ 1,051   $ 342   $ 567   $ (307)
Income (loss) from discontinued operations, net of tax     —     (205)     81     91     252
Cumulative effect of accounting changes, net of tax     (293)     —     (38)     (56)     —
   
 
 
 
 
Net income (loss)   $ 1,172   $ 846   $ 385   $ 602   $ (55)
   
 
 
 
 
Per Share Data                              
CD Common Stock                              
Income (loss) from continuing operations:                              
  Basic   $ 1.44   $ 1.03   $ 0.37   $ 0.79   $ (0.41)
  Diluted     1.41     1.01     0.36     0.77     (0.41)
Income (loss) from discontinued operations:                              
  Basic   $ —   $ (0.20)   $ 0.10   $ 0.13   $ 0.34
  Diluted     —     (0.20)     0.09     0.12     0.34
Cumulative effect of accounting changes:                              
  Basic   $ (0.29)   $ —   $ (0.05)   $ (0.08)   $ —
  Diluted     (0.28)     —     (0.04)     (0.08)     —
Net income (loss):                              
  Basic   $ 1.15   $ 0.83   $ 0.42   $ 0.84   $ (0.07)
  Diluted     1.13     0.81     0.41     0.81     (0.07)

Financial Position
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets   $ 39,037   $ 35,897   $ 33,544   $ 15,153   $ 15,412
Assets under management and mortgage programs     17,593     15,180     12,054     2,999     2,805
Total long-term debt, excluding Upper DECS     5,139     5,601     6,132     1,948     2,845
Upper DECS     863     863     863     —     —
Debt under management and mortgage programs (*)     14,785     12,747     9,844     2,040     2,314
Mandatorily redeemable preferred interest in a subsidiary     —     375     375     375     —
Mandatorily redeemable preferred securities issued by subsidiary holding solely senior debentures issued by the Company     —     —     —     1,683     1,478
Stockholders' equity     10,186     9,315     7,068     2,774     2,206
(*)
Includes related-party debt due to AESOP Funding II, LLC. See Note 16 to our Consolidated Financial Statements.

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In presenting the financial data above in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported. See "Critical Accounting Policies" under Item 7 included elsewhere herein for a detailed discussion of the accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

During 2003, we consolidated a number of entities pursuant to Financial Accounting Standards Board Interpretation No. 46R, "Consolidation of Variable Interest Entities," and/or as a result of amendments to the underlying structures of certain of the facilities we use to securitize assets. See Notes 2, 16 and 17 to the Consolidated Financial Statements for more information.

See Note 10 to the Consolidated Financial Statements for a detailed discussion of restructuring and other unusual charges recorded for the years ended December 31, 2003, 2002 and 2001. During 2000 and 1999, we recorded restructuring and other unusual charges of $109 million and $117 million, respectively. Additionally, in 1999 we recorded a charge of approximately $2.9 billion in connection with the settlement of our class action securities litigation. We also recorded net gains on the dispositions of businesses of approximately $1.1 billion during 1999 primarily related to the disposition of our former fleet businesses.

During 2002 and 2001, we completed a number of acquisitions, which materially impacted our results of operations and financial position. See Note 4 to our Consolidated Financial Statements for a detailed discussion of such acquisitions and the pro forma impact thereof on our results of operations. Additionally, during 2002 we adopted the non-amortization provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Accordingly, our results of operations for 2001, 2000 and 1999 reflect the amortization of goodwill and indefinite-lived intangible assets, while our results of operations for 2003 and 2002 do not reflect such amortization. See Note 5—Intangible Assets to our Consolidated Financial Statements for a pro forma disclosure depicting our results of operations during 2001 after applying the non-amortization provisions of SFAS No. 142.

Income (loss) from discontinued operations, net of tax includes the after tax results of discontinued operations and the gain (loss) on disposal of discontinued operations. See Notes 1 and 3 to our Consolidated Financial Statements for detailed information regarding discontinued operations.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our Business Section and our Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts are in millions and those relating to our results of operations are presented before taxes.

We are one of the foremost providers of travel and real estate services in the world. Our businesses provide consumer and business services primarily in the travel and real estate services industries, which are intended to complement one another and create cross-marketing opportunities both within and among our following five business segments.

Our management team is committed to building long-term value through operational excellence. Historically, a significant portion of our growth had been generated through strategic acquisitions of businesses that have strengthened our position in the travel and real estate services industries and furthered our strategy of building a hedged and diversified portfolio of businesses. Now that we have assembled our vertically integrated portfolio of businesses, we have sharply curtailed the pace of acquisitions and have emphasized organic growth and cash flow generation as principal objectives in achieving operational excellence and building long-term value. In 2003, our spending on new acquisitions aggregated only $149 million in cash. Although we remain highly disciplined in our acquisition activity, we may augment organic growth through the select acquisition of (or possible joint venture with) complementary businesses primarily in the real estate and travel services industries. We expect to fund the purchase price of any such acquisition with cash generated by our core operations and/or available lines of credit. We also routinely review and evaluate our portfolio of existing businesses to determine if they continue to meet our growth objectives and, from time to time, engage in discussions concerning possible divestitures, joint ventures and related corporate transactions to redirect our portfolio of businesses to achieve company-wide objectives.

We are steadfast in our commitment to deploy our cash to increase shareholder value. To this end, in late 2002, we initiated a corporate debt reduction program with the goal of decreasing our outstanding corporate indebtedness by $2 billion. We completed the first phase of this program during first quarter 2003, which was to replace current maturities of corporate indebtedness with longer-term debt, and we are well into the second phase of the program where as of December 31, 2003 we have already reduced our outstanding corporate indebtedness by over $800 million. We further reduced our outstanding indebtedness by $430 million in February 2004 as a result of the conversion of our zero coupon senior convertible notes. We intend to use the cash that otherwise would have been used to redeem these notes to repurchase a corresponding number of shares of our CD common stock in the open market. We also plan to use call provisions and maturities wherever possible rather than paying a significant premium to repurchase our

44


debt in the open market. See "Liquidity and Capital Resources—Financial Obligations" for more information regarding our corporate indebtedness. During 2003, we repurchased approximately 64.5 million shares of our common stock at an average price of $17.04 and through February 27, 2004, we repurchased another 20.7 million shares of our common stock at an average price of $22.79. Beginning in first quarter 2004, we will return additional value to our shareholders through the payment of a quarterly cash dividend of seven cents per share (28 cents per share annually) and, while no assurances can be given, we expect to increase this dividend over time as our earnings and cash flow grow.

While the war in Iraq, SARS and other factors dampened organic growth in our travel-related businesses in 2003, we have demonstrated our ability to achieve organic earnings and cash flow growth for the company as a whole, particularly due to the strong operating results within our real estate services businesses, which benefited from greater mortgage loan refinancing activity and increased home sales volume across both our franchised and owned brokerage operations. Although no assurances can be given, we currently believe that a decrease in mortgage refinancing activity resulting from an expected rise in interest rates during 2004 should be more than offset by organic growth in our other businesses. We also expect that organic growth will benefit in the future from our ongoing investment in technology and from cross-selling opportunities across the company.


RESULTS OF OPERATIONS—2003 vs. 2002

Our consolidated results from continuing operations comprised the following:

 
   2003
   2002
   Change
Net revenues   $ 18,192   $ 14,187   $ 4,005
   
 
 
Total expenses     15,961     12,570     3,391
   
 
 
Income before income taxes, minority interest and equity in Homestore     2,231     1,617     614
Provision for income taxes     745     544     201
Minority interest, net of tax     21     22     (1)
   
 
 
Income from continuing operations   $ 1,465   $ 1,051   $ 414
   
 
 

Net revenues and total expenses increased approximately $4.0 billion (28%) and $3.4 billion (27%), respectively, during 2003 principally due to the acquisitions of the following businesses, which contributed revenues and expenses (including depreciation and amortization expense) for the period January 1, 2003 through the anniversary date of the acquisition (the "Pre-Anniversary" period), as follows:

Acquired Business
   Date of Acquisition
   Pre-Anniversary
Net Revenues
   Pre-Anniversary
Total Expenses
NRT Incorporated (a)   April 2002   $ 1,023   $ 1,072
Trendwest Resorts, Inc. (b)   April 2002     169     150
Net assets of Budget Group, Inc. (c)   November 2002     1,585     1,610
       
 
Total Contributions       $ 2,777   $ 2,832
       
 
(a)
Represents NRT and NRT's significant brokerage acquisitions subsequent to our ownership. Principally reflects the results of operations from January 1 through April 16, 2003 (the corresponding period during which these businesses were not included during 2002).
(b)
Reflects the results of operations from January 1 through April 30, 2003 (the corresponding period during which this business was not included during 2002).
(c)
Principally reflects the results of operations from January 1 through November 22, 2003 (the corresponding period during which this business was not included during 2002).

45

The above table reflects the net revenues and total expenses of the NRT, Trendwest and Budget businesses from January 1, 2003 to the anniversary date of our acquisitions thereof and, for NRT and Trendwest, are not indicative of the full year operating results contributed by these businesses. The amounts for NRT reflect the seasonality of the real estate brokerage business whereby the operating results are typically weakest in the early part of the calendar year and strengthen in the second and third quarters (which are not reflected in the above amounts, as NRT was acquired on April 17, 2002). The amounts for Budget include acquisition and integration-related costs, which were substantially incurred in the first year following the acquisition date; however, the benefits resulting from such costs are not realized until future periods. The integration of Budget represents a significant growth opportunity in future periods and is proceeding according to plan.

In addition to the contributions made by the aforementioned acquired businesses, revenues and expenses also increased during 2003 from (i) organic growth in our real estate services businesses, especially our real estate brokerage and mortgage businesses (even after adjusting for the $275 million non-cash provision for impairment of our mortgage servicing rights asset, which we recorded in 2002 and discuss in greater detail below under "Real Estate Services") and (ii) the consolidation of Trilegiant Corporation, which contributed incremental revenues and expenses (after elimination entries) of $200 million and $205 million, respectively. The growth in our mortgage and real estate brokerage businesses also contributed to the increase in total expenses as we incurred additional expenses to support the continued high level of mortgage loan production, related servicing activities and home sale transactions. The increases in total expenses were partially offset by a reduction of $231 million in acquisition and integration related costs primarily due to the amortization in 2002 of the pendings and listings intangible asset acquired as part of the acquisition of NRT, which was amortized over the closing period of the underlying contracts (approximately five months). In addition, total expenses benefited by a $92 million reduction in litigation and related charges. Our overall effective tax rate decreased to 33.4% for 2003 from 33.6% for 2002 primarily due to the utilization of capital loss carryforwards and lower taxes on foreign earnings, partially offset by an increase in state taxes, taxes on the redemption of our $375 million mandatorily redeemable preferred interest and other non-deductible items. As a result of the above-mentioned items, income from continuing operations increased $414 million (39%).

Discussed below are the results of operations for each of our reportable segments. Management evaluates the operating results of each of our reportable segments based upon revenue and "EBITDA," which is defined as income from continuing operations before non-program related depreciation and amortization, non-program related interest, amortization of pendings and listings, income taxes, minority interest and, in 2001, losses related to equity in Homestore. On January 1, 2003, we changed the performance measure we use to evaluate the operating results of our reportable segments and, as such, the information presented

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below for 2002 has been revised to reflect this change. Our presentation of EBITDA may not be comparable to similar measures used by other companies.

 
   Revenues
   EBITDA
  
 
   2003
   2002
   % Change
   2003
   2002
   % Change
  
Real Estate Services   $ 6,720   $ 4,687   43 % $ 1,272   $ 832   53 %
Hospitality Services     2,523     2,180   16     633     625   1  
Travel Distribution Services     1,659     1,695   (2)     459     526   (13)  
Vehicle Services     5,851     4,274   37     442     408   8  
Financial Services     1,401     1,325   6     363     450   (19)  
   
 
     
 
     
Total Reportable Segments     18,154     14,161   28     3,169     2,841   12  
Corporate and Other (a)     38     26   *     (35 )   (198)   *  
   
 
     
 
     

Total Company
 
$
18,192
 
$
14,187
 
28
%
 
3,134
 
 
2,643
 
 
 
   
 
                     

Less:  Non-program related depreciation and amortization
 
 
518
 
 
466
 
 
 
           Non-program related interest expense, net     307     262      
           Early extinguishment of debt                     58     42      
           Amortization of pendings and listings     20     256      
                   
 
     
  Income before income taxes, minority interest and
equity in Homestore		       $ 2,231   $ 1,617      
                   
 
     
*
Not meaningful.
(a)
Includes the results of operations of our non-strategic businesses, unallocated corporate overhead and the elimination of transactions between segments.

Real Estate Services

Revenues and EBITDA increased $2,033 million (43%) and $440 million (53%), respectively, in 2003 compared with 2002, reflecting growth across all of our real estate businesses.

Revenues and EBITDA were primarily impacted by increased production volume and servicing revenues at our mortgage business and by the April 17, 2002 acquisition of NRT, our real estate brokerage subsidiary, and subsequent acquisitions by NRT of other real estate brokerages.

Revenues from mortgage-related activities grew $545 million (113%) in 2003 compared with 2002 due to a significant increase in mortgage loan production, partially offset by an increase in amortization of the mortgage servicing rights ("MSR") asset, as comparatively lower interest rates during 2003 resulted in record levels of mortgage refinancing activity. Revenues and EBITDA in 2002 were adversely impacted by a $275 million non-cash provision for impairment of our MSR asset. Declines in interest rates at such time resulted in increases to our current and estimated future loan prepayment rates and a corresponding provision for impairment against the value of our MSR asset. Excluding the $275 million non-cash MSR impairment provision in 2002, revenues from mortgage-related activities increased $270 million (56%) in 2003.

Revenues from mortgage loan production increased $433 million (49%) in 2003 compared with the prior year and were derived from growth in our fee-based mortgage origination operations (in which we broker or are outsourced mortgage origination activity for a fee) and a 56% increase in the volume of loans that we sold. We sold $59.5 billion of mortgage loans in 2003 compared with $38.1 billion in 2002, generating incremental production revenues of $330 million. In addition, production revenues generated from our fee-based mortgage-origination activity increased $103 million (41%) as compared with 2002. Production fee income on fee-based loans is generated at the time of closing, whereas originated mortgage loans held for sale generate revenues at the time of sale (within 60 days after closing). Accordingly, our production revenue in any given period is driven

47


by a mix of mortgage loans closed and mortgage loans sold. Total mortgage loans closed increased $24.4 billion (41%) to $83.7 billion in 2003, comprised of a $21.9 billion (57%) increase in closed loans to be securitized (sold by us) and a $2.5 billion (12%) increase in closed loans that were fee-based. Refinancings increased $18.1 billion (59%) to $48.7 billion and purchase mortgage closings grew $6.3 billion (22%) to $35.0 billion.

Net revenues from servicing mortgage loans increased $112 million primarily due to the $275 million non-cash provision for impairment of our MSR asset recorded in 2002, as discussed above. Apart from this impairment charge, net servicing revenues declined $163 million primarily due to a period-over-period increase in MSR amortization and provision for impairment (recorded as a contra revenue) of $246 million, partially offset by $48 million of incremental gains from hedging and other derivative activities. The increase in MSR amortization and provision for impairment is a result of the high levels of refinancings and related mortgage loan prepayments that occurred in 2003 due to low mortgage interest rates during 2003. The incremental gains from hedging and other derivative activities resulted from our strategies to protect earnings in the event that there was a decline in the value of our MSR asset, which can be caused by, among other factors, reductions in interest rates, as such reductions tend to increase borrower prepayment activity. In addition, recurring servicing fees (fees received for servicing existing loans in the portfolio), increased $33 million (8%) driven by a 16% period-over-period increase in the average servicing portfolio, which rose to $122.9 billion in 2003.

Interest rates have risen from their lows in the earlier part of 2003 and, as a result, in fourth quarter 2003 mortgage refinancing volume and resulting net production revenues comparatively declined. This decline in mortgage production revenues has been partially offset by an increase in revenues from mortgage servicing activities. Assuming interest rates remain constant or continue to rise, although no assurances can be given, we expect this trend (lower production revenue, partially offset by increased servicing revenue, net of hedging and other derivative activity) to continue during 2004. Historically, mortgage production and mortgage servicing operations have been counter-cyclical in nature and represented a naturally offsetting relationship. Additionally, to supplement this relationship, we have maintained a comprehensive, non-speculative mortgage risk management program to further mitigate the impact of fluctuations in interest rates on our operating results.

We acquired NRT (inclusive of its title and closing business, which are now included in our settlement services business) on April 17, 2002 and, in addition, NRT acquired real estate brokerage businesses subsequent to our ownership. The operating results of NRT and its significant acquisitions were included from their acquisition dates forward and, therefore, contributed $1,023 million of revenues and an EBITDA decline of $21 million during the Pre-Anniversary period in 2003. The EBITDA decline is reflective of the seasonality of the real estate brokerage business, whereby the operating results are typically weakest in the early part of the calendar year and strengthen in the second and third quarters. Excluding the impact of NRT's brokerage acquisitions, NRT generated incremental net revenues of $280 million, a 10% increase in the comparable post-acquisition periods in 2003 versus 2002. The increase in NRT's revenues was substantially comprised of incremental commission income on home sale transactions, primarily due to a 10% increase in the average price of homes sold. Real estate agent commission expenses also increased $180 million as a result of the incremental revenues earned on home sale transactions. During 2002, prior to our acquisition of NRT, we received royalty and marketing fees from NRT of $66 million, real estate referral fees of $9 million, and a $16 million termination fee related to a franchise agreement under which NRT operated brokerage offices under our ERA real estate brand. We also had a preferred stock investment in NRT, which generated dividend income of $10 million prior to our acquisition in 2002. In addition, revenues in 2003 benefited from $82 million (with no impact on EBITDA) relating to certain accounting reclassifications made in 2003 primarily in connection with the merger of our pre-existing title and closing businesses with and into the larger-scale title and appraisal business of NRT. Upon combining such businesses, we changed certain accounting presentations used by our pre-existing businesses to conform to the presentations used by NRT. Excluding such reclassifications, our settlement services business generated incremental revenues of $65 million compared with 2002. Title, appraisal and other closing fees all increased due to higher volumes, consistent with the growth in the mortgage origination markets through the first nine months of 2003, as well as cross-selling initiatives.

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On a comparable basis, including royalties paid by NRT to our real estate franchise business, our real estate franchise business generated year-over-year incremental royalties and marketing fund revenues of $77 million in 2003, an increase of 12% over 2002. NRT contributed $303 million of royalties to our real estate franchise business in 2003 and $274 million of royalties in 2002, of which $208 million was contributed after our acquisition of NRT. The increase in royalties and marketing fund revenues within our real estate franchise business was principally driven by a 7% increase in volume of home sale transactions and a 9% increase in the average price of homes sold. Royalty increases in the real estate franchise business are recognized with little or no corresponding increase in expenses due to the significant operating leverage within our franchise operations.

Excluding the impact from our acquisition of NRT, NRT's significant acquisitions and NRT's real estate agent commission expenses (discussed above), operating and administrative expenses within this segment increased approximately $295 million compared to 2002 primarily due to the direct costs incurred in connection with increased mortgage loan production and related servicing activities.

Hospitality Services

Revenues and EBITDA increased $343 million (16%) and $8 million (1%), respectively, in 2003 compared with 2002. We completed the acquisitions of Trendwest, a leading vacation ownership company, in June 2002 (90% was acquired in April 2002); Equivest Finance, Inc. in February 2002; and several European vacation rental companies during 2002. The operating results of the acquired companies were included from the acquisition dates forward and therefore were incremental for the portions of 2003 that were pre-acquisition periods in 2002. Accordingly, Trendwest, Equivest, and the acquired vacation rental companies contributed incremental revenues of $169 million, $8 million and $53 million, respectively, and EBITDA of $23 million, $2 million and $15 million, respectively, in 2003 compared with 2002. In February 2003, we acquired the common interests of FFD Development Company, LLC ("FFD"), the primary developer of timeshare inventory for our Fairfield Resorts subsidiary. The operating results of FFD were included from the acquisition date forward and were not significant to our segment results subsequent to our acquisition. Prior to our acquisition, we owned a preferred stock investment in FFD, which accrued a dividend, and we also received additional fees from FFD for providing various support services. Accordingly, prior to our acquisition, FFD contributed revenues and EBITDA of $16 million and $4 million, respectively, to 2002 results.

Excluding the impact from acquisitions described above, revenues in 2003 increased $129 million (6%) while EBITDA declined $28 million (5%) and the EBITDA margin (EBITDA as a percentage of revenues) dropped from 29% in 2002 to 25% in 2003. The reduction in EBITDA margin was driven principally by a shift in the mix of business operations comprising segment results in 2003 compared with 2002 and a reduction in travel demand during 2003 due to the military conflict in Iraq as well as economic pressures, which contributed to suppressing volumes within certain of our hospitality businesses.

Despite a challenging travel environment, revenues from sales of vacation ownership interests ("VOIs") in our timeshare sales and marketing business increased $103 million in 2003, an 11% increase over 2002. This increase was driven primarily by a 4% increase in tour flow and a 3% increase in the average revenue generated per tour at our timeshare resort sites. The growth in our timeshare sales and marketing businesses positively impacted the segment results and also contributed to a lower year-over-year segment EBITDA margin, as this business typically operates with lower margins than our lodging franchise and timeshare exchange businesses, which have greater operating leverage. Net interest income generated from the financing extended to VOI buyers decreased $8 million as the effects of growth in the loan portfolio were more than offset by the impact of consolidating our principal timeshare securitization structure in September 2003 and, at such time, no longer recording gains on the sale of receivables to such entity (see Note 16 to our Consolidated Financial Statements). Timeshare subscription and exchange fee revenues within our timeshare exchange business increased $36 million (8%), primarily due to a 13% increase in the average fee per exchange, which was partially offset by a 3% reduction in the volume of exchange transactions. The increase in the average exchange fee includes a favorable yield on increased rentals of excess RCI vacation interval inventory to RCI members in 2003 compared with 2002.

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Royalties and marketing and reservation fund revenues within our lodging franchise operations declined $8 million (2%) in 2003 due to a 5% decline in the number of weighted average rooms available following our decision to terminate from our franchise system certain properties that were not meeting required standards. However, such quality control initiatives also contributed to an increase in the occupancy levels and average daily room rates at our lodging brands, and, as a result, revenue per available room increased 2% period-over-period and partially offset the impact on royalties from the reduction in available rooms. Our lodging franchise business and our franchisees were unfavorably impacted by the weaker travel environment, as previously discussed, and as a result, during 2003, we recorded an incremental $6 million of non-cash expenses related to the doubtful collectability of certain franchisee receivables. In addition, although revenues and EBITDA were nominally impacted on a consolidated basis, preferred alliance revenues within this segment declined $19 million in 2003 due to a change in the allocation of such revenues. Revenues received from preferred vendors in 2002 substantially benefited the Hospitality Services segment whereas in 2003, the benefits of such revenues extended to business units within other reportable segments. Excluding acquisitions, operating and administrative expenses within this segment increased approximately $130 million in 2003 principally due to increased timeshare sales-related expenses, including marginal expense increases on higher sales volumes, higher product costs on developed timeshare inventory and an increased investment in marketing spending to enhance tour flow.

Travel Distribution Services

Revenues and EBITDA declined $36 million (2%) and $67 million (13%), respectively, in 2003 compared with 2002. Our Travel Distribution Services segment derives revenue from (i) Galileo booking fees paid by travel suppliers for electronic global distribution and computer reservation services ("GDS"), (ii) fees and commissions for retail travel services provided by Cendant Travel, Cheap Tickets and Lodging.com and (iii) transaction and other fees from providing travel distribution services. Like other industry participants, this segment was unfavorably impacted by weak global travel demand during 2003. Travel demand in 2003 was negatively affected by various factors, including the military conflict in Iraq and terrorist threat alerts, continuing economic pressures and SARS concerns in the Asia-Pacific region and other parts of the world. Such factors suppressed bookings and revenues across our travel distribution businesses, but primarily impacted international travel volumes.

Galileo worldwide air booking fees decreased $71 million (6%) primarily due to a 10% decline in international GDS booking volumes, partially offset by domestic GDS booking volumes, which stabilized in 2003 compared with 2002. Galileo acquired certain European national distribution companies ("NDCs") during 2002. NDCs are independent organizations that market and sell Galileo global distribution and computer reservation services to travel agents and other subscribers. The NDC acquisitions contributed incremental subscriber fee revenues and EBITDA of $29 million and $12 million, respectively, in 2003. During the summer of 2002, we also acquired two other companies that supply reservation and distribution services to the hospitality industry. The operating results of such companies were included from the acquisition dates forward and collectively contributed revenue of $24 million with a nominal EBITDA impact during 2003.

In April 2003, we completed the acquisition of Trip Network Inc., an online travel agent that operated the online travel services business of Cheap Tickets. From the acquisition date forward, Trip Network generated $30 million of revenues and had an EBITDA loss of $23 million in 2003. In addition, principally as a result of our ownership of Trip Network, an incremental $15 million of intercompany segment revenues were eliminated in 2003, most of which were Trip Network revenues earned from Galileo for airline bookings made by Trip Network using Galileo's GDS System. Our online booking volumes grew 58% in 2003 compared with 2002, primarily due to (i) a shift in travel bookings from the traditional off-line channels to online channels, (ii) an increase in online travel bookings; and (iii) increased merchant model hotel bookings where we, as a travel distributor, obtain access to content from travel suppliers at a pre-determined price and sell the content, either individually or in a package, to travelers at retail prices that we determine with little or no risk of inventory loss. Additionally, revenues from our off-line travel agency business declined $24 million in 2003, as we accelerated our shift to the online channel. The results of our online and off-line travel agency operations are reflective of

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the general industry decline in travel demand during 2003, as previously discussed, reductions in commission rates paid by airlines, the lack of reduced-rate air inventory availability and a decline in travel-related clubs (which we service). Such results also reflect our investment in the marketing and administration of our online travel services business, which we believe represents a significant opportunity for future growth.

The EBITDA impact of lower GDS and travel agency revenues was partially offset by a corresponding decline in variable expenses, reductions in retiree medical costs as a result of post-retirement plan amendments and other net reductions in operating expenses from segment-wide re-engineering and cost containment initiatives implemented in 2002 and 2003. These operating expense reductions helped mitigate the negative impact of the weak travel environment that existed during 2003. Additionally, EBITDA in 2003 was favorably impacted by $8 million in connection with a contract termination settlement during first quarter 2003.

Vehicle Services

Revenues and EBITDA increased $1,577 million (37%) and $34 million (8%), respectively, in 2003 compared with 2002 primarily due to our November 2002 acquisition of substantially all of the domestic assets, as well as selected international operations, of the vehicle rental business of Budget Group, Inc. Budget's operating results, including integration costs, were included from the acquisition date forward and contributed incremental revenues of $1,585 million with an EBITDA decline of $2 million in 2003. Excluding the impact of Budget, segment revenues declined $8 million (less than 1%), while EBITDA increased $36 million (9%) in 2003, which is primarily attributable to reduced car rental demand, offset by increased pricing, at Avis and favorable results at our Wright Express fuel card services subsidiary.

Avis domestic car rental revenues declined $91 million (4%) in 2003 compared with 2002. The net reduction in domestic car rental revenues at Avis was primarily due to a 7% period-over-period reduction in the total number of car rental days. This was partially offset by a 2% increase in time and mileage revenue per rental day reflecting an increase in pricing, which has minimal associated incremental costs. In addition, EBITDA, period-over-period, includes favorable program-related interest costs of $33 million on the financing of vehicles due to lower interest rates and $35 million of lower program-related depreciation expense on vehicles due to a different mix of vehicles in Avis' fleet bearing a lower cost in 2003 compared with 2002. This favorable impact on EBITDA was substantially offset by incremental vehicle-related net expenses and other operating costs. The increase in net expenses includes incremental maintenance and damage costs, higher vehicle license and registration fees and unfavorable conditions in the used car market in 2003 compared with 2002 for vehicles that did not meet the eligibility criteria under our manufacturers repurchase program. However, the percentage of Avis' fleet that was determined ineligible for manufacturer repurchase decreased to 1.7% in 2003 from 2.7% in 2002. Revenues from Avis' international operations increased $60 million due to increased transaction volume and the favorable impact to revenues of exchange rates in Canada, Australia and New Zealand, which was principally offset in EBITDA by the unfavorable impact on expenses.

Wright Express, our fuel card services subsidiary, recognized incremental revenues of $30 million (24%) in 2003 compared with the prior year. The organic growth was driven by a combination of the addition of new customers and an increase in usage of Wright Express' proprietary fleet fuel card product. Higher gasoline prices also contributed to the revenue growth, since Wright Express earns a percentage of total gasoline purchases by its clients.

Financial Services

Revenues increased $76 million (6%) and EBITDA declined $87 million (19%), respectively, in 2003 compared with 2002. Effective July 1, 2003, pursuant to the provisions of FASB Interpretation No. 46 ("FIN 46"), we consolidated Trilegiant. Trilegiant (on a stand-alone basis before elimination of intercompany transactions with our retained membership business) contributed revenues of $241 million and an EBITDA loss of $8 million subsequent to consolidation in 2003. Apart from the consolidation of Trilegiant, revenues and EBITDA declined $165 million and $79 million, respectively, reflecting, as expected, the continued attrition of the membership base retained by us in connection with the outsourcing of our individual membership business to Trilegiant. However, the unfavorable impact of reduced revenues on EBITDA was mitigated by a net reduction

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in expenses from servicing fewer members. A smaller membership base resulted in a net revenue reduction of $194 million (net of $26 million of increased royalty income from Trilegiant), which was partially offset in EBITDA by net favorable membership operating and marketing expenses of $111 million. As a result of the consolidation of Trilegiant, we eliminated $34 million of intercompany revenues within this segment in 2003, which was substantially comprised of royalty and lease payments made from Trilegiant to our pre-existing membership business subsequent to the consolidation of Trilegiant on July 1, 2003. For a more detailed discussion of our relationship with Trilegiant and the consolidation thereof as a result of FIN 46, see Note 23 to our Consolidated Financial Statements. Additionally, in January 2004, we made modifications to the existing relationship with Trilegiant. See Note 30 to our Consolidated Financial Statements for a detailed account of such modifications.

Partially offsetting the impact of the attrition in our retained membership business, was revenue growth in our Jackson Hewitt Tax Service operations, favorable results of our insurance-wholesale-related operations and the favorable impact of foreign currency exchange rates on the revenues of our international membership business (which was principally offset in EBITDA by the unfavorable impact of foreign exchange rates on expenses). In 2003, Jackson Hewitt generated incremental franchise royalty and tax preparation revenues of $12 million and $7 million, respectively, which was partially offset by a $6 million reduction in revenues generated from financial product programs and other tax-related services. The increase in royalties and tax preparation fees was principally driven by a 13% increase in total system tax return volume and a 7% increase in the average price per return. Royalties generated in our franchise operations are typically recognized with nominal increases in expenses due to significant operating leverage within this business, however, during 2003, we invested an incremental $6 million in marketing for the Jackson Hewitt business and were negatively impacted by a $9 million expense incurred in connection with a litigation settlement. Revenues from insurance-wholesale-related operations increased $13 million as a result of favorable claims experience period-over-period and increased insurance premium collections. Additionally, in second quarter 2003, we ceased marketing and selling new long-term care policies within our long-term preferred care business, but will continue servicing the existing in-force block of policy holders. This resulted in a reduction in revenue of $9 million with a nominal impact to EBITDA. In 2003, EBITDA was also impacted by a $7 million charge for actions taken in third quarter 2003 at our international membership business, which included the closure and consolidation of certain facilities and a reduction in staff in the United Kingdom.

Corporate and Other

Revenues and EBITDA increased $12 million and $163 million, respectively, in 2003 compared with 2002. Revenues and EBITDA include a $30 million gain in connection with the sale of our equity investment in Entertainment Publication, Inc. recorded during first quarter 2003. Also, we earned revenues in both 2003 and 2002 in connection with credit card marketing programs whereby we earn revenues based on a percentage of credit card spending. Additionally, we recognized expenses as cardholders earned points based on credit card usage. We generated $20 million of incremental revenues and incurred $19 million of additional point-related liabilities during 2003 in connection with these programs. Partially offsetting the revenue increases were $33 million of incremental intersegment revenue eliminations in 2003 due to increased intercompany business activities.

EBITDA was favorable year-over-year principally due to a $92 million net reduction in securities-related litigation charges (litigation charges less insurance recoveries) in 2003 compared with 2002 principally as a result of the absence in 2003 of litigation settlements and accruals established in 2002 in connection with all remaining CUC-related securities litigation. Also contributing to the favorable EBITDA change was a $33 million reduction in bonus expenses and other incentive-based compensation. In addition, EBITDA was favorably impacted by a greater absorption of overhead expenses by our reportable operating segments during 2003 compared with 2002 principally due to revenue growth at our business units (expenses are allocated on a percentage of revenue basis) and expense allocations in 2003 to companies acquired during 2002. Partially offsetting favorable EBITDA was a $10 million accrual recorded in 2003 to revise our original estimate of costs to exit a facility in connection with the previous outsourcing of our data center operations.

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RESULTS OF OPERATIONS—2002 vs. 2001

Our consolidated results from continuing operations comprised the following:

 
   2002
   2001
   Change
  
Net revenues   $ 14,187   $ 8,693   $ 5,494  
   
 
 
 
Total expenses     12,570     8,006     4,564  
Gains on dispositions of businesses     —     443     (443 )
Losses on dispositions of businesses     —     (26 )   26  
Impairment of investments     —     (441 )   441  
   
 
 
 
Income before income taxes, minority interest and equity in Homestore     1,617     663     954  
Provision for income taxes     544     220     324  
Minority interest, net of tax     22     24     (2 )
Losses related to equity in Homestore, net of tax     —     77     (77 )
   
 
 
 
Income from continuing operations   $ 1,051   $ 342   $ 709  
   
 
 
 

Net revenues and total expenses increased approximately $5.5 billion and approximately $4.6 billion, respectively, during 2002 primarily due to the acquisitions of the following businesses, which contributed revenues and expenses (including depreciation and amortization expense) for the relative Pre-Anniversary periods as follows:

Acquired Business
   Date of Acquisition
   Pre-Anniversary
Net Revenues
   Pre-Anniversary
Total Expenses
  
Avis Group Holdings, Inc.   March 2001   $ 575   $ 582  
Fairfield Resorts, Inc.   April 2001     137     123  
Galileo International, Inc.   October 2001     1,199     852  
NRT   April 2002     3,034     2,881 (a)
Trendwest   April 2002     348     289 (b)
Net asset of Budget Group, Inc.   November 2002     164     162  
       
 
 
Total Contributions       $ 5,457   $ 4,889  
       
 
 
(a)
Excludes $235 million of non-cash amortization of the pendings and listings intangible asset and $27 million of acquisition and integration related costs, which are discussed below.
(b)
Excludes $21 million of non-cash amortization of the pendings and listings intangible asset and $1 million of acquisition and integration related costs, which are discussed below.

In addition to the contributions made by acquired businesses, net revenues were favorably impacted by growth in our Real Estate Services and Vehicle Services segments (exclusive of acquisitions), which also contributed to the increase in total expenses as we incurred additional expenses to support this growth. Further contributing to the increase in total expenses is $173 million of additional acquisition and integration related charges recorded during 2002—see Note 4 to our Consolidated Financial Statements for a detailed discussion of acquisition and integration related charges recorded in 2002 and 2001. Partially offsetting the increase in total expenses recorded during 2002 was a $393 million reduction in restructuring and other unusual charges—see Note 10 to our Consolidated Financial Statements for a detailed discussion of restructuring and other unusual charges recorded during 2002 and 2001.

Additionally, our 2001 operating results were impacted by gains and losses related to the dispositions of businesses, as well as by losses related to the impairment of investments, while our 2002 results were not impacted by such events. During 2001, these events resulted in (i) $443 million of gains primarily related to the sale of our real estate Internet portal ($436 million), (ii) $26 million of losses related to the dispositions of non-strategic businesses and (iii) $441 million of losses related to the impairment of our investments in Homestore, Inc. ($407 million) and lodging and Internet-related businesses ($34 million).

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Our overall effective tax rate was 33.6% and 33.2% for 2002 and 2001, respectively. The effective rate for 2002 was higher due to the negative impact of a reduction in the amount of foreign tax credits and state net operating losses that were utilized, which were only partially offset by the benefit from the impact on the tax provision from the elimination of goodwill amortization.

Our 2001 operating results were also negatively impacted by after-tax losses of $77 million related to our equity ownership in Homestore, which was received in connection with the sale of our Internet real estate portal to Homestore in February 2001. For a detailed discussion regarding the sale of our real estate Internet portal and our investment in Homestore, refer to Notes 2 and 26 to our Consolidated Financial Statements.

As a result of the above-mentioned items, income from continuing operations increased $709 million during 2002.

Discussed below are the results of operations for each of our reportable segments, which has been revised to reflect the previously described change in the performance measure that we use to evaluate the operating results of our reportable segments.

 
   Revenues
   EBITDA
  
 
   2002
   2001
   % Change
   2002
   2001
   % Change
  
Real Estate Services   $ 4,687   $ 1,859   152 % $ 832   $ 719   16 %
Hospitality Services     2,180     1,522   43     625     450   39  
Travel Distribution Services     1,695     437   288     526     78   574  
Vehicle Services     4,274     3,402   26     408     226   81  
Financial Services     1,325     1,402   (5 )   450     299   51  
   
 
     
 
     
Total Reportable Segments     14,161     8,622   64     2,841     1,772   60  
Corporate and Other (a)     26     71   *     (198 )   (380 ) *  
   
 
     
 
     
Total Company   $ 14,187   $ 8,693   63     2,643     1,392      
   
 
                     
Less:    Non-program related depreciation and amortization     466     477      
             Non-program related interest expense, net     262     252      
             Early extinguishment of debt     42     —      
             Amortization of pendings and listings     256     —      
                   
 
     
Income before income taxes, minority interest and
    equity in Homestore		   $ 1,617   $ 663      
                   
 
     
*
Not meaningful.
(a)
Includes the results of operations of our non-strategic businesses, unallocated corporate overhead and the elimination of transactions between segments.

Real Estate Services

Revenues and EBITDA increased $2.8 billion (152%) and $113 million (16%), respectively, during 2002 principally driven by the acquisition of NRT (the operating results of which have been included in our consolidated results since April 17, 2002) NRT contributed revenue and EBITDA of $3.0 billion and $167 million, respectively. Prior to our acquisition of NRT, we received royalty and marketing fees of $220 million, real estate referral fees of $37 million and termination fees of $16 million from NRT during 2001. For the period from January 1, 2002 through April 17, 2002, NRT paid us royalty and marketing fees of $66 million, real estate referral fees of $9 million and a termination fee of $16 million. We also had a preferred stock investment in NRT prior to our acquisition that generated dividend income of $10 million and $27 million during 2002 and 2001, respectively.

On a comparable basis, including post-acquisition intercompany royalties paid by NRT, our real estate franchise brands generated year-over-year incremental royalties of $92 million in 2002, an increase of 18% over 2001. The increase in royalties from our real estate franchise brands primarily resulted from a 10% increase in home sale transactions by franchisees and NRT, and a 10% increase in the average price of

54


homes sold. Royalty increases in the real estate franchise business are recognized with little or no corresponding increase in expenses due to the significant operating leverage within our franchise operations. Industry statistics provided by the National Association of Realtors for the twelve months ended December 31, 2002 indicate that the number of single-family homes sold increased 5% versus the prior year, while the average price of those homes sold increased approximately 9%. Through our continued franchise sales efforts, we have grown our franchised operations and in conjunction with NRT acquisitions of real estate brokerages, we have increased market share as our transaction volume has significantly outperformed the industry.

Revenues and EBITDA in 2002 were negatively impacted by a $275 million non-cash provision for impairment of our MSR asset. As noted elsewhere herein under "Critical Accounting Policies," the valuation of our MSR asset is generated by numerous estimates and assumptions, the most noteworthy being future prepayment rates, which represent the borrowers' propensity to refinance their mortgages. Today's mortgage industry enables homeowners to more easily refinance than they could in the past producing a change in consumer behavior that results in a greater likelihood to refinance in periods of declining interest rates, as experienced in the third quarter of 2002. During such period, interest rates on ten-year Treasury notes and 30-year mortgages declined by 120 basis points and 80 basis points, respectively, which at such time, resulted in the lowest interest rate levels in 41 years. As a result, we recognized that steep declines in interest rates experienced throughout the quarter and the related impact on current borrower prepayment behavior necessitated an increase to our estimate of future prepayment rates. Therefore, we updated the third party model we use to value our MSR asset to one that had recently become available in the marketplace, and revised our assumptions in order to better reflect more current borrower prepayment behavior. The combination of these factors resulted in increases to our estimated future loan prepayment rates, which negatively impacted the value of our MSR asset, hence requiring the provision for impairment of our MSR asset. Further declines in interest rates due to a weakening economy and geopolitical risks, which result in an increase in refinancing activity or changes in the methodology of valuing our MSR asset, could adversely impact the valuation.

Excluding the $275 million non-cash provision for impairment of our MSR asset, revenues from mortgage-related activities increased $28 million in 2002 compared with 2001 as revenue growth from mortgage production was principally offset by a decline in net revenues from mortgage servicing activities. Revenues from mortgage loan production increased $228 million (35%) in 2002 compared with the prior year due to substantial growth in our fee-based mortgage origination operations (explained below) and a 6% increase in the volume of loans that we packaged and securitized (sold by us). In 2002, revenues generated from our fee-based outsourcing and broker origination business grew at a faster rate than revenues generated from packaging and selling mortgage loans to the secondary market ourselves. Production fee income on fee-based loans is generated at the time of closing, whereas originated mortgage loans held for sale generate revenues at the time of sale (within 60 days after closing). Accordingly, our production revenue is driven by more of a mix in both mortgage loans closed and mortgage loans sold (as opposed to just loans sold). Production loans sold increased $2.1 billion (6%), generating incremental production revenues of $83 million. Mortgage loans closed increased $14.8 billion (33%) to $59.3 billion, comprised of a $14.0 billion (206%) increase in closed loans that were fee-based and a $750 million (2%) increase in closed loans to be securitized. The increase in fee-based loan volume contributed incremental production revenues of $145 million in 2002 compared with 2001. Purchase mortgage closings grew 14% to $28.7 billion, and refinancings increased 58% to $30.6 billion. Additionally, in connection with our securitized loans we realized an increase in margin which is consistent with the mortgage industry operating at a higher percentage of loan production capacity.

Net revenues from servicing mortgage loans declined $199 million, excluding the $275 million non-cash provision for impairment of our MSR asset. However, recurring servicing fees (fees received for servicing existing loans in the portfolio) increased $59 million (17%) primarily due to a 20% year-over-year increase in the average servicing portfolio. Such recurring activity was more than offset by $361 million of increased

55


mortgage servicing rights amortization and valuation adjustments due to the high levels of refinancings and related loan prepayments, resulting from the lower interest rate environment, partially offset by $112 million of incremental net gains from hedging and other derivative activities to protect against changes in the fair value of our MSR asset due to fluctuations in interest rates.

Revenues and EBITDA of this segment were also negatively impacted by a reduction of $44 million in revenue generated from relocation activities as a result of a decline in relocation-related homesale activity and lower interest rates charged to our clients. Also contributing to the increase in EBITDA is the absence in 2002 of the following charges recorded during 2001: (i) $95 million related to the funding of an irrevocable contribution to the Real Estate Technology Trust and (ii) $94 million related to the impairment of our mortgage servicing rights. This $94 million charge did not impact revenue as it was separately presented as an expense on our Consolidated Statement of Income for 2001 (see Note 6 to our Consolidated Financial Statements for more information concerning this presentation). Excluding the acquisition of NRT, operating and administrative expenses within this segment increased $74 million. Higher expenses incurred to operate the mortgage business to support the continued high levels of mortgage loan production and related servicing activities were partially offset by a reduction in relocation-related costs, adjusting to a weaker corporate spending environment.

Hospitality Services

Revenues and EBITDA increased $658 million (43%) and $175 million (39%), respectively, primarily due to the acquisitions of Fairfield Resorts, Inc. in April 2001, Trendwest in April 2002 and Equivest in February 2002 and certain other vacation rental companies abroad in 2002 and 2001. Fairfield, for the first quarter of 2002 (the period in which no comparable results were included in 2001), Trendwest, Equivest and the other acquired vacation rental companies, contributed incremental revenues of $137 million, $348 million, $107 million, and $41 million, respectively, and incremental EBITDA of $18 million, $62 million, $24 million and $5 million, respectively, in 2002 compared with 2001.

Excluding the impact from these acquisitions, revenues and EBITDA increased $18 million and $66 million, respectively, year-over-year. Growth within our Vacation Rental Group (exclusive of acquisitions) contributed incremental revenues of $13 million in 2002 due to an increase in vacation weeks sold, primarily attributable to improved marketing efforts. Timeshare subscription and transaction revenues within our timeshare exchange business increased $29 million (7%) primarily due to increases in exchange transactions and the average exchange fee. During 2002, we recognized an incremental $14 million of income from providing the financing on timeshare unit sales at our Fairfield subsidiary. The additional financing income was generated as a result of a 9% increase in the volume of contracts sold and a greater margin realized on contract sales as we benefited from a lower interest rate environment in 2002 compared with 2001. Results within our lodging franchise operation continued to be suppressed during 2002, subsequent to the September 11, 2001 terrorist attacks and their impact on an already weakening travel industry. Accordingly, royalties, marketing fund and reservations revenues within our lodging franchise operations were down $10 million (3%) in 2002 compared with 2001 and initial franchise fees were down $7 million over the same periods. However, comparable year-over-year occupancy levels in our franchised lodging brands have shown improvement during 2002. In addition, Preferred Alliance revenues and EBITDA declined $9 million in 2002 compared with 2001, primarily from contract expirations and a contract termination payment received in the prior year.

Further contributing to the increase in EBITDA is a benefit of $20 million from a venture master license agreement with Marriott International, Inc. entered into during 2002, which converted the ownership of a third party license agreement. Upon the change in ownership, the license fee, formerly included within operating expenses, is now recorded as a minority interest expense (below EBITDA). EBITDA in this segment also benefited in 2002 from the absence of $62 million of charges incurred during 2002 primarily in connection with the September 11, 2001 terrorist attacks ($51 million principally related to restructuring and other initiatives and $11 million related to the impairment of a lodging investment). Excluding

56


acquisitions, operating and administrative expenses within this segment increased approximately $47 million in 2002 principally to support continued volume-related growth in our timeshare exchange business throughout 2002 compared to 2001.

Travel Distribution Services

Revenues and EBITDA increased $1.3 billion and $448 million, respectively, in 2002 compared with 2001, due to the October 2001 acquisitions of Galileo and Cheap Tickets. The Galileo acquisition for the nine months ended September 30, 2002 (the period in which no comparable results were included in 2001) contributed incremental revenues and EBITDA of $1.2 billion and $410 million, respectively, while Cheap Tickets contributed incremental revenues of $36 million and EBITDA losses of $7 million over the same period. In addition, during the summer of 2002, we acquired Lodging.com and Trust International, two companies that supply reservation and distribution solution services to the hospitality industry. Lodging.com and Trust International's operating results were included from the acquisition dates forward and collectively contributed revenue of $16 million with no contribution to EBITDA during 2002. Excluding the incremental contributions from the above-mentioned acquisitions, revenues and EBITDA of this segment increased $7 million and $45 million, respectively, in 2002 compared with 2001.

Galileo subscriber fees and EBITDA increased $26 million and $3 million, respectively, during 2002 due to the acquisition of national distribution companies ("NDCs") in Europe. NDCs are independent organizations that market and sell Galileo global distribution and computer reservation services to travel agents and other subscribers. Partially offsetting this increase was a decline of $15 million in revenues generated from our travel agency business due to reductions in commission rates paid by the airlines, available net rate air inventory and members of travel-related clubs which are serviced by us.

EBITDA in this segment also benefited in 2002 from the absence of $23 million of charges incurred during 2001 in connection with the acquisitions of Galileo and Cheap Tickets.

Beginning with the fourth quarter 2002, all quarterly periods became comparable in terms of being subsequent to the acquisitions of Galileo and Cheap Tickets and the September 2001 terrorist attacks. In fourth quarter 2002, Galileo air travel booking fees were relatively constant, compared with fourth quarter 2001, as a 5% increase in booking volumes was substantially offset by a 4% decline in the effective yield per booking. The decline in effective yield was heavily influenced by unusually high cancellation and re-booking activity in the fourth quarter of 2001 due to the September 11, 2001 terrorist attacks. EBITDA in fourth quarter 2002 (the period comparable with 2001) includes cost savings of approximately $10 million that were realized in connection with the integration of the Galileo and Cheap Tickets businesses, including cost reduction efforts that were initiated during fourth quarter 2001 to reflect expected business volumes subsequent to the September 11, 2001 terrorist attacks.

Vehicle Services

Revenues and EBITDA increased $872 million (26%) and $182 million (81%), respectively, in 2002 versus the comparable prior year. Principally driving these increases were the incremental contributions made by Avis Group Holdings, Inc. (comprised of the Avis rental car business and our fleet management operations), which we acquired on March 1, 2001. Prior to the acquisition of Avis, revenues and EBITDA of this segment consisted of franchise royalties received from Avis and earnings (losses) from our equity investment in Avis. Avis' operating results were included from the acquisition date forward and therefore included ten months of results in 2001 (March through December). Accordingly, the Avis acquisition for January and February of 2002 (the period for which no comparable results were included in 2001) contributed incremental revenues and EBITDA of $575 million and $6 million, respectively. Additionally, the operating results of Budget were also included from the acquisition date of November 22, 2002 forward and contributed revenues and EBITDA of $164 million and $6 million, respectively, in 2002.

57

On a comparable basis, excluding the acquisition of Budget (ten months ended December 31, 2002 versus the comparable prior year period), revenues and EBITDA increased $133 million and $162 million, respectively.

For the ten months ended December 31, 2002, Avis car rental revenues increased $157 million (7%) over the comparable period in 2001, primarily due to a 7% increase in time and mileage revenue per rental day. A majority of the increase in time and mileage revenue per rental day was supported by an increase in pricing, the impact of which flows to EBITDA, and an increased share of domestic airport revenue generated by car rental companies. The increase in EBITDA was principally supported by the gross margin on the revenue growth. Avis' revenues are primarily derived from car rentals at airport locations. Through November 2002 (the last period for which information is available), approximately 84% of Avis' revenues were generated from car rental locations at airports. Avis increased its share of total car rental revenues generated at domestic airports through November 2002 to 23.7% compared with a 22.5% share over the same eleven month period last year and has recognized airport revenue share gains in consecutive months since February 2002. For the eleven months ended November 30, 2002, Avis realized a 3.5% increase in its comparable year-over-year domestic airport revenues versus a total market segment decline of 1.6% over the same periods.

In our vehicle leasing and fleet management program businesses, revenues collectively declined $25 million (2%) during the comparable ten months ended December 31, 2002 compared with 2001, principally due to lower interest expense on vehicle funding, which is substantially passed through to clients and therefore results in lower revenues but has minimal EBITDA impact. This was partially offset by an increase in depreciation on leased vehicles which is also passed through to clients. EBITDA for this segment also benefited in 2002 from the absence of $58 million of charges recorded in 2001 primarily in connection with restructuring and other initiatives undertaken as a result of the September 11, 2001 terrorist attacks.

Financial Services

EBITDA increased $151 million (51%) in 2002 compared with 2001, despite a $77 million (5%) decrease in revenue. EBITDA was favorably impacted by the outsourcing of our individual membership business, in which a net decline of $143 million in membership-related revenues (net of $6 million of royalty income from Trilegiant) due to a lower membership base was more than offset by a net reduction in expenses from servicing fewer members and not directly incurring the cost of marketing to solicit new members. Marketing expenses decreased by $122 million in 2002 compared with 2001 due to a reduction in new member marketing costs in 2002. In addition, during fourth quarter 2001, Trilegiant increased its solicitation efforts and incurred $56 million of marketing costs that we were contractually required to fund and, as such, expense. In addition, membership operating expenses decreased by approximately $110 million due to cost savings from servicing fewer members. During third quarter 2001, we incurred $41 million of transaction-related expenses in connection with the outsourcing of our membership business to Trilegiant, the absence of which in 2002 also contributed to the increase in EBITDA.

Jackson Hewitt generated incremental revenues of $81 million in 2002. In January 2002, we acquired our largest tax preparation franchisee, Tax Services of America ("TSA"). TSA contributed incremental revenues of $42 million and EBITDA of approximately $4 million (net of intercompany royalties) to Jackson Hewitt's 2002 results. Jackson Hewitt also generated incremental revenues of $33 million in 2002 from various financial products. Additionally, on a comparable basis, including post-acquisition intercompany royalties paid by TSA, Jackson Hewitt franchise royalties increased $14 million (30%). The increase in Jackson Hewitt royalties was driven by a 13% increase in tax return volume, and a 15% increase in the average price per return. Additional operating and overhead costs were incurred in 2002 due to an expansion of Jackson Hewitt's infrastructure to support increased business activity and a reorganization and relocation of the Jackson Hewitt technology group.

Our domestic insurance/wholesale businesses generated $14 million less revenue in 2002 compared with 2001 from a lower profit share from insurance companies as a result of higher than expected claims. This

58


was offset by growth within our international loyalty solutions operations. Partially offsetting the decline in EBITDA for this segment was a benefit in 2002 from the absence of $10 million of charges recorded in 2001 in connection with restructuring and other initiatives undertaken as a result of the September 11, 2001 terrorist attacks.

Corporate and Other

Revenue decreased $45 million and EBITDA increased $182 million in 2002 compared with 2001. In February 2001, we sold our real estate Internet portal, move.com, and certain ancillary businesses, the operations of which collectively accounted for a year-over-year decline in revenues of $14 million and EBITDA of $7 million. Revenues recognized from providing electronic reservation processing services to Avis prior to the acquisition of Avis resulted in a $15 million revenue decrease with no EBITDA impact as Avis paid royalties but was billed for reservation services at cost. Revenues also included incremental inter-segment revenue eliminations in 2002 due to increased intercompany business activities, principally resulting from acquisitions. EBITDA benefited in 2002 from $453 million of losses recorded during 2001, which were principally related to the impairment of our investment in Homestore. Partially offsetting this improvement was the absence in 2002 of a gain of $436 million that was recorded in 2001 in connection with the sale of our real estate Internet portal. EBITDA for this segment also benefited in 2002 from the absence of the following charges recorded during 2001: (i) the funding of Trip Network ($85 million), (ii) the outsourcing of our information technology operations to IBM in connection with the acquisition of Galileo ($78 million) and (iii) restructuring and other initiatives undertaken as a result of the September 11, 2001 terrorist attacks ($35 million). Partially offsetting such year-over-year EBITDA benefits were higher unallocated corporate overhead costs in 2002 due to increased administrative expenses and infrastructure expansion to support company growth.


FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We present separately the financial data of our management and mortgage programs. These programs are distinct from our other activities as the assets are generally funded through the issuance of debt that is collateralized by such assets. Specifically, in our vehicle rental, fleet management, relocation, mortgage services and vacation ownership businesses, assets under management and mortgage programs are funded through either borrowings under asset-backed funding arrangements or unsecured borrowings at our PHH subsidiary. Such borrowings are classified as debt under management and mortgage programs. The income generated by these assets is used, in part, to repay the principal and interest associated with the debt. Cash inflows and outflows relating to the generation or acquisition of such assets and the principal debt repayment or financing of such assets are classified as activities of our management and mortgage programs. We believe it is appropriate to segregate the financial data of our management and mortgage programs because, ultimately, the source of repayment of such debt is the realization of such assets.

FINANCIAL CONDITION

 
   2003
   2002
   Change
  
Total assets exclusive of assets under management and mortgage programs   $ 21,444   $ 20,717   $ 727  
Total liabilities exclusive of liabilities under management and mortgage programs     12,743     12,443     300  

Assets under management and mortgage programs
 
 
17,593
 
 
15,180
 
 
2,413
 

Liabilities under management and mortgage programs
 
 
16,108
 
 
13,764
 
 
2,344
 

Mandatorily redeemable preferred interest in a subsidiary
 
 
—
 
 
375
 
 
(375
)

Stockholders' equity
 
 
10,186
 
 
9,315
 
 
871
 

59

Total assets exclusive of assets under management and mortgage programs increased primarily due to increases in cash and cash equivalents (see "Liquidity and Capital Resources—Cash Flows" for a detailed discussion) and goodwill, which primarily resulted from current period acquisitions and the ultimate settlement of tax bases on prior period acquisitions with the tax authorities (see Note 5 to our Consolidated Financial Statements). Such increases were partially offset by (i) a reduction in timeshare-related inventory as a result of a reclassification to assets under management and mortgage programs, as such assets were financed under a program during first quarter 2003; (ii) a decrease in non-current deferred income taxes primarily resulting from the utilization of a portion of our net operating loss carryforward and the ultimate settlements with tax authorities discussed above and (iii) the sale of real estate in the normal course of our mortgage services business.

Total liabilities exclusive of liabilities under management and mortgage programs increased primarily due to (i) an increase in deferred income principally resulting from the consolidation of Trilegiant and (ii) gains on derivatives we use to hedge the interest rate risk associated with our outstanding corporate indebtedness, which are deferred and will be recognized over future periods as an offset to interest expense. Such increases were offset by a net reduction in outstanding corporate debt (see "Liquidity and Capital Resources—Financial Obligations—Corporate Indebtedness" for a detailed account of this reduction).

Assets under management and mortgage programs increased primarily due to growth in our mortgage and vehicle businesses, the impact of FIN 46 and the impact of changes to the underlying structures of certain of our securitization facilities. Specifically contributing to the increase were increases in (i) our mortgage loans held for sale principally due to the consolidation of Bishop's Gate Residential Mortgage Trust; (ii) our MSR asset principally resulting from an increase in the aggregate amount of the mortgage portfolio we service; (iii) our relocation receivables principally due to the consolidation of Apple Ridge Funding LLC; (iv) our timeshare-related assets principally resulting from the consolidation of the Sierra Receivable Funding entities, the acquisition of FFD Development Company, LLC and the reclassification of timeshare-related inventory (referred to above) and (v) our vehicle-related assets primarily due to the purchase of vehicles used in our vehicle rental operations. See "Liquidity and Capital Resources—Financial Obligations—Debt under Management and Mortgage Programs" for a more extensive discussion regarding the impact of FIN 46 and the changes to the underlying structures of Apple Ridge and the Sierra entities.

Liabilities under management and mortgage programs increased primarily due to the consolidation of Bishop's Gate, the Sierra entities and Apple Ridge and additional debt borrowings to support the growth in our portfolio of assets under management and mortgage programs, as discussed above (see "Liquidity and Capital Resources—Financial Obligations—Debt Under Management and Mortgage Programs" for a detailed account of the change in debt related to management and mortgage programs).

The decrease in mandatorily redeemable preferred interest represents our prepayment of these securities in September 2003.

Stockholders' equity increased primarily due to (i) $1,172 million of net income generated during 2003, (ii) $540 million related to the exercise of employee stock options (including $106 million of tax benefit) and (iii) $143 million of favorable foreign currency translation adjustments. Such increases were partially offset by our repurchase of $1,099 million (65 million shares) in CD common stock.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are cash on hand and our ability to generate cash through operations and financing activities, as well as available funding arrangements and committed credit facilities, each of which is discussed below.

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CASH FLOWS

At December 31, 2003, we had $840 million of cash on hand, an increase of $714 million from $126 million at December 31, 2002. The following table summarizes such increase:

 
   Year Ended December 31,
  
 
   2003
   2002
   Change
  
Cash provided by (used in):                    
  Operating activities   $ 7,202   $ 1,077 (a) $ 6,125  
  Investing activities     (3,400 )   (1,747) (b)   (1,653 )
  Financing activities     (3,081 )   (1,261 )   (1,820 )
Effects of exchange rate changes on cash and cash equivalents     (7 )   41     (48 )
Cash provided by discontinued operations     —     74     (74 )
   
 
 
 
Net change in cash and cash equivalents   $ 714   $ (1,816 ) $ 2,530  
   
 
 
 
(a)
Includes (i) the 2002 application of $1.41 billion of payments made to the stockholder litigation settlement trust in 2001 to extinguish a portion of the principal stockholder litigation settlement liability and (ii) $1.44 billion of payments made during 2002 to extinguish a portion of the principal stockholder litigation settlement liability.
(b)
Includes $1.41 billion of proceeds from the principal stockholder litigation settlement trust, which were used during the same period to extinguish a portion of the principal stockholder litigation settlement liability, as discussed in (a) above.

During 2003, we generated approximately $6.1 billion more cash from operating activities as compared to 2002. This change principally reflects the completion of our funding the principal stockholder litigation settlement liability in 2002, as noted in the table above. Excluding the effects of the principal stockholder litigation settlement funding, net cash provided by operating activities increased by approximately $3.3 billion. Such change primarily represents (i) stronger operating results, (ii) better management of our working capital, (iii) proceeds received from the termination of fair value interest rate hedges of corporate debt instruments and (iv) activities of our management and mortgage programs, which produced a larger cash inflow in 2003 resulting primarily from timing differences between the receipt of cash on the sale of previously originated mortgage loans and the origination of new mortgage loans.

During 2003, we used approximately $1.7 billion more cash in investing activities as compared to 2002. This change principally reflects the absence in 2003 of (i) $1.41 billion of proceeds received in 2002 from the stockholder litigation settlement trust, which represented funds that we deposited to the trust in 2001 that were then used in 2002 to fund the stockholder litigation settlement liability, as discussed above, and (ii) approximately $1.2 billion in net proceeds received from the May 2002 sale of our car parking facility business. Excluding these amounts, we used approximately $900 million less cash for investing activities during 2003 as compared to 2002. This decrease primarily reflects our decision to significantly curtail acquisitions, as evidenced by a reduction of more than $1 billion in cash used for this purpose. Also contributing to this change were incremental proceeds received in 2003 on the sale of assets, including our investment in Entertainment Publications, Inc. and the sale/leaseback of two of our facilities. We also increased our capital expenditures in 2003 by $64 million to support operational growth and businesses acquired in 2002, and to enhance marketing opportunities and develop operating efficiencies through technological improvements. We anticipate aggregate capital expenditure investments for 2004 to be in the range of $525 million to $575 million. We also used $315 million more cash in 2003 compared to 2002 in the investment activities of our management and mortgage programs due primarily to timing differences within our timeshare and relocation programs similar to those discussed above with respect to mortgage activities. The increase in cash utilization was partially offset by a reduction in the year-over-year net cash outflow resulting from investments in and payments received on vehicles.

During 2003, we used approximately $3.1 billion of net cash in financing activities as compared to using approximately $1.3 billion of net cash during 2002. While we benefited from approximately $2.6 billion of proceeds received during 2003 on the issuance of fixed-rate debt, this cash was deployed primarily to increase debt repayments and share repurchases period-over-period. These actions demonstrate our commitment to reducing outstanding corporate indebtedness and returning shareholder value. Further contributing to this change is an increase of $1.9 billion in the cash used in the financing activities of our management and mortgage programs, primarily resulting from greater repayments of borrowings in 2003. See "Liquidity and Capital Resources—Financial Obligations" for a detailed discussion of financing activities during 2003.

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Throughout 2004, we intend to continue to demonstrate our commitment to improving our balance sheet by reducing corporate indebtedness and repurchasing outstanding shares of our common stock. In February 2004, virtually all holders of our zero coupon senior convertible contingent notes elected to convert their notes into shares of our common stock. As a result, our corporate indebtedness decreased by an additional $430 million. In order to reduce the impact on our outstanding shares of holders converting these notes into approximately 22 million shares of common stock, we intend to use available cash that otherwise would have been used to redeem these notes to repurchase a corresponding number of shares of our common stock in the open market. We currently also expect to use cash to redeem our zero coupon convertible debentures and 37/8% convertible senior debentures on or subsequent to their call dates (May 2004 and November 2004, respectively); however, holders of these instruments may convert them into shares of our common stock if the price of such stock exceeds the stipulated thresholds (which were not met as of February 27, 2004) or upon the exercise of our call provisions. We also expect to utilize cash during second quarter 2004 to redeem our outstanding 11% senior subordinated notes. Finally, on February 11, 2004, our Board of Directors declared a quarterly cash dividend of $0.07 per share. While we expect to use approximately $280 million of cash to pay dividends in 2004, although no assurances can be made, we anticipate increasing the dividend over time as our earnings and cash flow grow.

FINANCIAL OBLIGATIONS

At December 31, 2003, we had approximately $20.8 billion of indebtedness (including corporate indebtedness of $5.1 billion, Upper DECS of $863 million and debt under management and mortgage programs of $14.8 billion).

Corporate Indebtedness

Corporate indebtedness consisted of:

 
   Earliest
Mandatory
Redemption
Date
   Final
Maturity
Date
   As of
December 31,
2003
   As of
December 31,
2002
   Change
  
Term notes                            
  73/4% notes   December 2003   December 2003   $ —   $ 966   $ (966 )
  67/8% notes   August 2006   August 2006     849     849     —  
  61/4% notes   January 2008   January 2008     797     —     797  
  11% senior subordinated notes   May 2009   May 2009     333     530     (197 )
  61/4% notes   March 2010   March 2010     348     —     348  
  73/8% notes   January 2013   January 2013     1,190     —     1,190  
  71/8% notes   March 2015   March 2015     250     —     250  

Contingently convertible debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Zero coupon senior convertible contingent notes   February 2004   February 2021     430     420     10  
  Zero coupon convertible debentures   May 2004   May 2021     7     857     (850 )
  37/8% convertible senior debentures   November 2004   November 2011     804     1,200     (396 )

Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Revolver borrowings       December 2005     —     600     (600 )
  Net hedging gains (*)             31     89     (58 )
  Other             100     90     10  
           
 
 
 
              5,139     5,601     (462 )

Mandatorily redeemable preferred interest in a subsidiary
 
 
—
 
 
375
 
 
(375
)
Upper DECS             863     863     —  
           
 
 
 
            $ 6,002   $ 6,839   $ (837 )
           
 
 
 
(*)
As of December 31, 2003, the balance represents $201 million of realized gains resulting from the termination of fair value interest rate hedges, which we will amortize to reduce future interest expense. Such gains are partially offset by $170 million of mark-to-market adjustments on new fair value interest rate hedges. As of December 31, 2002, the balance represents $51 million of realized gains resulting from the termination of fair value interest rate hedges and $38 million of mark-to-market adjustments on new fair value interest rate hedges.

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The change in our total corporate debt reflects the issuance of $2.6 billion in notes with maturity dates ranging from five to twelve years, the proceeds of which were primarily used to repurchase debt with nearer-term maturities or mandatory redemption provisions. During 2003, we repurchased/repaid approximately $3.5 billion of our outstanding corporate debt, approximately $1.8 billion of which was scheduled to mature or potentially become due in 2003 (73/4% notes and zero coupon convertible debentures) and $396 million of which was scheduled to potentially become due in November 2004 (37/8% convertible senior debentures). Through these repurchases, we have not only eliminated a significant liquidity need, we also removed 49.7 million shares of potential dilution from our future earnings per share. The number of shares of common stock potentially issuable for each of our contingently convertible debt securities is detailed below (in millions):

 
   As of
December 31, 2003
   As of
December 31, 2002
   Change
  
Zero coupon senior convertible contingent notes (*)   22.0   22.0   —  
Zero coupon convertible debentures   0.3   33.5   (33.2 )
37/8% convertible senior debentures   33.4   49.9   (16.5 )
   
 
 
 
    55.7   105.4   (49.7 )
   
 
 
 
(*)
As previously discussed, in February 2004, holders of our zero coupon senior convertible contingent notes converted such notes into shares of CD common stock. We intend to use the cash that otherwise would have been used to redeem these notes to repurchase a corresponding number of shares of CD common stock in the open market.

The 37/8% senior convertible debentures may be converted prior to maturity during each three-month period if the closing sale price of CD common stock exceeds a threshold, which through November 27, 2004 is $28.32. In addition, the holders of the debentures have the right to require us to repurchase the debentures on November 27, 2004, and we have the right to redeem the debentures at any time after such date, in each case at par plus accrued interest, if any. Although no assurances can be given, it is currently our intention to redeem the remaining debentures for cash following such date. We would expect to have cash on hand, as well as available capacity under our credit facilities in order to fund such redemption. Upon notice of our intent to redeem the debentures, the holders will have the right to convert their debentures, and we would expect holders to exercise such conversion right if the price of CD common stock exceeds $24.05 per share. To the extent that holders convert their debentures, we would expect to use amounts intended to fund redemptions to repurchase shares of CD common stock in the open market. The significant terms for our outstanding debt instruments at December 31, 2003 can be found in Note 15 to our Consolidated Financial Statements.

Upper DECS

Because the Upper DECS obligate holders to purchase shares of our CD common stock at a price determined by the average closing price of CD common stock during a 20-trading-day period ending in August 2004, the Upper DECS are functionally equivalent to issuing shares of CD common stock subject to an issue-price collar, with a delay in issuance until 2004. At the time of issuance of the Upper DECS, we believed that the impact of issuing the Upper DECS would be favorable compared to an equivalent immediate issuance of common stock. Upon settlement of the forward purchase contracts, we expect to issue shares of CD common stock in the range of approximately 30.3 million to 40.1 million (depending upon the price of CD common stock) and to receive gross proceeds in cash of approximately $863 million. Upon maturity of the senior notes that are currently a component of the Upper DECS in August 2006 we would be required to repay $863 million in cash. The significant terms for the Upper DECS can be found in Note 15 to our Consolidated Financial Statements.

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Debt Under Management and Mortgage Programs

In connection with FIN 46, our debt under management and mortgage programs now reflects the debt issued by Bishop's Gate, a bankruptcy remote special purpose entity ("SPE") that we utilize to warehouse mortgage loans we originate prior to selling them into the secondary market. Additionally, as a result of the adoption of FIN 46R, the debt of AESOP Funding II, LLC, a bankruptcy remote special purpose limited liability company that we utilize to finance the acquisition of vehicles, which was previously reflected within our debt under management and mortgage programs, is now presented separately on our Consolidated Balance Sheet as related party debt under management and mortgage programs. See Note 16 to our Consolidated Financial Statements for more information regarding Bishop's Gate and AESOP Funding.

Debt under management and mortgage programs also reflects the debt issued by the Sierra entities, which are bankruptcy remote SPEs that we utilize to securitize timeshare receivables generated from the sale of vacation ownership interests by our timeshare business, and Apple Ridge, a bankruptcy remote SPE that we utilize to securitize relocation receivables generated from advancing funds to clients of our relocation business. During 2003, the underlying structures of the Sierra entities and Apple Ridge were amended in a manner that resulted in these entities no longer meeting the criteria to qualify as off-balance sheet entities. Consequently, we now consolidate these entities and the debt issued is reflected within debt under management and mortgage programs as of December 31, 2003. The following table summarizes the components of our debt under management and mortgage programs (including related party debt due to AESOP Funding):

 
   As of December 31,
  
 
   2003
   2002
   Change
  
Asset-Backed Debt:                    
  Vehicle rental program                    
    AESOP Funding   $ 5,644   $ 4,029   $ 1,615  
    Other     651     2,053     (1,402 )
  Vehicle management program     3,118     3,058     60  
  Mortgage program                    
    Bishop's Gate (a)     1,651     —     1,651  
    Other     —     871     (871 )
  Timeshare program                    
    Sierra (b)     774     —     774  
    Other     335     145     190  
  Relocation program                    
    Apple Ridge (c)     400     —     400  
    Other     —     80     (80 )
   
 
 
 
      12,573     10,236     2,337  
   
 
 
 
Unsecured Debt:                    
  Term notes     1,916     1,421     495  
  Commercial paper     164     866     (702 )
  Bank loans     —     107     (107 )
  Other     132     117     15  
   
 
 
 
      2,212     2,511     (299 )
   
 
 
 
Total debt under management and mortgage programs   $ 14,785   $ 12,747   $ 2,038  
   
 
 
 
(a)
As of December 31, 2002, Bishop's Gate had $2.5 billion of debt outstanding.
(b)
As of December 31, 2002, the Sierra entities had $550 million of debt outstanding.
(c)
As of December 31, 2002, Apple Ridge had $490 million of debt outstanding.

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The significant terms for our outstanding debt instruments under management and mortgage programs at December 31, 2003 can be found in Note 16 to our Consolidated Financial Statements.

AVAILABLE FUNDING ARRANGEMENTS AND COMMITTED CREDIT FACILITIES

At December 31, 2003, we had approximately $7.6 billion of available funding arrangements and committed credit facilities (comprised of approximately $1.7 billion of availability at the corporate level and approximately $5.9 billion available for use in our management and mortgage programs). As of December 31, 2003, the committed credit facilities at the corporate level consisted of:

 
   Total Capacity
   Borrowings
Outstanding
   Letters of Credit Issued
   Available Capacity
Maturing in December 2005   $ 2,900   $ —   $ 1,169   $ 1,731

Available funding under our asset-backed debt programs and committed credit facilities related to our management and mortgage programs as of December 31, 2003 consisted of (including related party debt due to AESOP Funding):

 
   Total Capacity
   Outstanding Borrowings
   Available Capacity
Asset-Backed Funding Arrangements (a)                  
  Vehicle rental program                  
    AESOP Funding II, LLC   $ 6,514   $ 5,644   $ 870
    Other     911     651     260
  Vehicle management program     3,917     3,118     799
  Mortgage program                  
    Bishop's Gate     3,151     1,651     1,500
    Other     500     —     500
  Timeshare program                  
    Sierra     1,242     774     468
    Other     425     335     90
  Relocation program                  
    Apple Ridge     500     400     100
    Other     100     —     100
   
 
 
      17,260     12,573     4,687
   
 
 
Committed Credit Facilities (b)                  
  Maturing in February 2005     1,250     —     1,250
   
 
 
    $ 18,510   $ 12,573   $ 5,937
   
 
 
(a)
Capacity is subject to maintaining sufficient assets to collateralize debt.
(b)
These committed credit facilities were entered into by and are for the exclusive use of our PHH subsidiary.

The significant terms of these committed credit facilities and available funding arrangements can be found in Notes 15 and 16 to our Consolidated Financial Statements.

We also had $400 million of availability for public debt or equity issuances under a shelf registration statement and our PHH subsidiary had an additional $874 million of availability for public debt issuances under a shelf registration statement.

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LIQUIDITY RISK

Our liquidity position may be negatively affected by unfavorable conditions in any one of the industries in which we operate. Additionally, our liquidity as it relates to both management and mortgage programs could be adversely affected by (i) the deterioration in the performance of the underlying assets of such programs, (ii) the impairment of our ability to access the principal financing program for our vehicle rental subsidiaries if General Motors Corporation or Ford Motor Company should not be able to honor its obligations to repurchase a substantial number of our vehicles and (iii) our inability to access the secondary market for mortgage loans or certain of our securitization facilities and our inability to act as servicer thereto, which could occur in the event that our or PHH's credit ratings are downgraded below investment grade and, in certain circumstances, where we or PHH fail to meet certain financial ratios. Further, access to our credit facilities may be limited if we were to fail to meet certain financial ratios. We do not believe that our or PHH's credit ratings are likely to fall below investment grade. Additionally, we monitor the maintenance of required financial ratios and, as of December 31, 2003, we were in compliance with all financial covenants under our credit and securitization facilities.

Currently, our credit ratings are as follows:

 
   Moody's
Investor Service
   Standard &
Poor's
   Fitch
Ratings
Cendant            
Senior unsecured debt   Baa1   BBB   BBB+

PHH
 
 
 
 
 
 
Senior debt   Baa1   BBB+   BBB+
Short-term debt   P-2   A-2   F-2

All of the above credit ratings, with the exception of those assigned to PHH's short-term debt, are currently on negative outlook. A security rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.

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CONTRACTUAL OBLIGATIONS

The following table summarizes our future contractual obligations:

 
   2004
   2005
   2006
   2007
   2008
   Thereafter
   Total
Long-term debt (a)   $ 1,629   $ 22   $ 913   $ 2   $ 805   $ 1,768   $ 5,139
Upper DECS (b)     —     —     863     —     —     —     863
Debt under management and mortgage programs (c)                                          
  Asset-backed     2,532     3,479     3,047     1,262     1,748     505     12,573
  Unsecured     114     405     —     190     432     1,071     2,212
Operating leases     547     435     353     288     193     877     2,693
Capital leases     20     13     6     1     —     —     40
Commitments to purchase vehicles (d)     4,916     —     —     —     —     —     4,916
Other purchase commitments (e)     731     319     282     236     179     412     2,159
   
 
 
 
 
 
 
Total   $ 10,489   $ 4,673   $ 5,464   $ 1,979   $ 3,357   $ 4,633   $ 30,595
   
 
 
 
 
 
 
(a)
Represents long-term debt (which includes current portion).
(b)
Assumes that the senior note component of the Upper DECS are successfully remarketed in 2004. If such remarketing is not successful, the senior notes would be retired (without any payment of cash by us) in August 2004 in satisfaction of the related forward purchase contracts, whereby holders of the Upper DECS are required to purchase shares of our CD common stock.
(c)
Represents debt under management and mortgage programs (including related party debt due to AESOP Funding), which was issued to support the purchase of assets under management and mortgage programs. These amounts represent the contractual maturities for such debt, except for notes issued under our vehicle management and Sierra timeshare programs, where the underlying indentures require payments based on cash inflows relating to the corresponding assets under management and mortgage programs and for which estimates of repayments have been used. Unsecured commercial paper borrowings of $164 million are assumed to be repaid with borrowings under our PHH subsidiary's committed credit facilities, which expire in February 2005, as such amount is fully supported by these committed credit facilities.
(d)
Represents commitments to purchase vehicles from either General Motors Corporation or Ford Motor Company. The purchase of such vehicles are financed through the issuance of debt under management and mortgage programs in addition to cash received upon the sale of vehicles primarily under repurchase programs (see Note 16—Debt Under Management and Mortgage Programs and Borrowing Arrangements to our Consolidated Financial Statements).
(e)
Primarily represents commitments under service contracts for information technology and telecommunications.

ACCOUNTING POLICIES

Critical Accounting Policies
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our businesses operate in environments where we are paid a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.

Mortgage Servicing Rights.    A mortgage servicing right is the right to receive a portion of the interest coupon and fees collected from the mortgagor for performing specified mortgage servicing activities. The value of mortgage servicing rights is estimated based upon an internal valuation that reflects management's

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estimates of expected future cash flows considering prepayment estimates (developed using a third party model described below), our historical prepayment rates, portfolio characteristics, interest rates based on interest rate yield curves and other economic factors. More specifically, we incorporate a probability weighted Option Adjusted Spread ("OAS") model to generate and discount cash flows for the MSR valuation. The OAS model generates numerous interest rate paths then calculates the MSR cash flow at each monthly point for each interest rate path and discounts those cash flows back to the current period. The MSR value is determined by averaging the discounted cash flows from each of the interest rate paths. The interest rate paths are generated with a random distribution centered around implied forward interest rates, which are determined from the interest rate yield curve at any given point of time. As of December 31, 2003, the implied forward interest rates project an increase of approximately 48 basis points in the yield of the 10-year Treasury Note over the next 12 months. Changes in the yield curve will result in changes to the forward rates implied from that yield curve.

As noted above, a key assumption in our estimate of the MSR valuation are forecasted prepayments. We use a third party model, adjusted to reflect the historical prepayment behavior exhibited by our portfolio, to forecast prepayment rates at each monthly point for each interest rate path in the OAS model. The prepayment forecast is based on historical observations of prepayment behavior in similar circumstances. The prepayment forecast incorporates loan characteristics (e.g., loan type and note rate) and factors such as recent prepayment experience, previous refinance opportunities and estimated levels of home equity to determine the prepayment forecast at each monthly point for each interest rate path.

To the extent that fair value is less than carrying value at the individual strata level, we would consider the portfolio to have been impaired and record a related charge. Reductions in interest rates different than those used in our models could cause us to use different assumptions in the MSR valuation, which could result in a decrease in the estimated fair value of our MSR asset, requiring a corresponding reduction in the carrying value of the asset. To mitigate this risk, we use derivatives that generally increase in value as interest rates decline and conversely decline in value as interest rates increase. Additionally, as interest rates decrease, we have historically experienced increased production revenue resulting from a greater level of refinancings, which over time has historically mitigated the impact on earnings of the decline in our MSR asset.

Changes in the estimated fair value of the mortgage servicing rights based upon variations in the assumptions (e.g., future interest rate levels, prepayment speeds) cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Changes in one assumption may result in changes to another, which may magnify or counteract the fair value sensitivity analysis and would make such an analysis not meaningful. Additionally, further declines in interest rates due to a weakening economy and geopolitical risks, which result in an increase in refinancing activity or changes in assumptions, could adversely impact the valuation. During 2003, the interest rate environment caused loans with coupon rates at or below 6% to become a significant component of the Company's overall loan servicing portfolio. Therefore, we adjusted the strata of the portfolio during third quarter 2003, which did not have an impact on the MSR valuation. The carrying value of our MSR asset was approximately $1.6 billion as of December 31, 2003 and the total portfolio that we were servicing approximated $136.4 billion as of December 31, 2003 (refer to Note 6 to our Consolidated Financial Statements for a detailed discussion of the effect of any changes to the value of this asset during 2003 and 2002). The effects of any adverse potential changes in the estimated fair value of our MSR asset are detailed in Note 17 to our Consolidated Financial Statements.

Financial Instruments.    We estimate fair values for each of our financial instruments, including derivative instruments. Most of these financial instruments are not publicly traded on an organized exchange. In the absence of quoted market prices, we must develop an estimate of fair value using dealer quotes, present value cash flow models, option pricing models or other conventional valuation methods, as appropriate. The use of these fair value techniques involves significant judgments and assumptions, including estimates

68


of future interest rate levels based on interest rate yield curves, prepayment and volatility factors, and an estimation of the timing of future cash flows. The use of different assumptions may have a material effect on the estimated fair value amounts recorded in the financial statements, which are disclosed in Note 25 to our Consolidated Financial Statements. In addition, hedge accounting requires that at the beginning of each hedge period, we justify an expectation that the relationship between the changes in fair value of derivatives designated as hedges compared to changes in the fair value of the underlying hedged items be highly effective. This effectiveness assessment involves an estimation of changes in fair value resulting from changes in interest rates and corresponding changes in prepayment levels, as well as the probability of the occurrence of transactions for cash flow hedges. The use of different assumptions and changing market conditions may impact the results of the effectiveness assessment and ultimately the timing of when changes in derivative fair values and the underlying hedged items are recorded in earnings. See Item 7a. "Quantitative and Qualitative Disclosures about Market Risk" for a discussion of the effect of hypothetical changes to these assumptions.

Goodwill.    We have reviewed the carrying value of our goodwill as required by Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," by comparing the carrying value of our reporting units to their fair value and determined that the carrying amount of our reporting units did not exceed their respective fair value. When determining fair value, we utilized various assumptions, including projections of future cash flows. A change in these underlying assumptions will cause a change in the results of the tests and, as such, could cause fair value to be less than the respective carrying amount. In such event, we would then be required to record a charge, which would impact earnings. We will continue to review the carrying value of goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred.

We provide a wide range of consumer and business services and, as a result, our goodwill is allocated among many diverse reporting units. Accordingly, it is difficult to quantify the impact of an adverse change in financial results and related cash flows, as such change may be isolated to a small number of our reporting units or spread across our entire organization. In either case, the magnitude of an impairment to goodwill, if any, cannot be extrapolated. However, our businesses are concentrated in a few industries and, as such, an adverse change to any of these industries will impact our consolidated results and may result in impairment of our goodwill. The aggregate carrying value of our goodwill was approximately $11.1 billion at December 31, 2003. Refer to Note 5 to our Consolidated Financial Statements for more information on goodwill.

Changes in Accounting Policies During 2003
On January 1, 2003, we adopted the fair value method of accounting for stock-based compensation provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and all the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." As a result, we changed our accounting policy for stock-based compensation using the prospective transition method.

In addition, on January 1, 2003, we adopted the following standards as a result of the issuance of new accounting pronouncements by the FASB in 2002:


On January 17, 2003, the FASB issued FIN 46 and on December 24, 2003, the FASB issued a complete replacement of FIN 46, entitled FIN 46 Revised ("FIN 46R"), which clarifies certain complexities of FIN 46. As of September 30, 2003, we had applied the provisions of FIN 46 for all transactions initiated

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subsequent to January 31, 2003 and also to Bishop's Gate and Trilegiant. We adopted FIN 46R in its entirety as of December 31, 2003 (even though adoption for non-SPEs was not required until March 31, 2004).

During 2003, the FASB also issued the following literature, which we have adopted as of July 1, 2003:

For more detailed information regarding any of these pronouncements and the impact thereof on our business, see Note 2 to our Consolidated Financial Statements.

Recently Issued Accounting Pronouncements
During 2003, the SEC provided interim guidance in a speech pertaining to the measurement of interest rate lock commitments related to loans that will be held for resale (commonly referred to as commitments to fund mortgages). See Note 2—Summary of Significant Accounting Policies for more information.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use various financial instruments, particularly swap contracts, forward delivery commitments and futures and options contracts to manage and reduce the interest rate risk related specifically to our committed mortgage pipeline, mortgage loan inventory, mortgage servicing rights, mortgage-backed securities, debt and certain other interest bearing liabilities. Foreign currency forwards are also used to manage and reduce the foreign currency exchange rate risk associated with our foreign currency denominated receivables and forecasted royalties, forecasted earnings of foreign subsidiaries and forecasted foreign currency denominated acquisitions.

We are exclusively an end user of these instruments, which are commonly referred to as derivatives. We do not engage in trading, market-making or other speculative activities in the derivatives markets. More detailed information about these financial instruments is provided in Note 25—Financial Instruments to our Consolidated Financial Statements.

Our principal market exposures are interest and foreign currency rate risks.

We assess our market risk based on changes in interest and foreign currency exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact in earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in interest and currency rates.

We use a discounted cash flow model in determining the fair values of relocation receivables, timeshare receivables, equity advances on homes, mortgage servicing rights and our retained interests in securitized assets. The fair value of mortgage loans, commitments to fund mortgages and mortgage-backed securities

70


are determined from market sources. The primary assumptions used in determining fair value are prepayment speeds, estimated loss rates and discount rates. In determining the fair value of mortgage servicing rights, the model also utilizes credit losses and mortgage servicing revenues and expenses as primary assumptions. In addition, for commitments to fund mortgages, the borrower's propensity to close their mortgage loan under the commitment is used as a primary assumption. For mortgage loans, commitments to fund mortgages, forward delivery contracts and options, we rely on market sources in determining the impact of interest rate shifts. We also utilize a probability weighted option-adjusted spread ("OAS") model to determine the impact of interest rate shifts on mortgage servicing rights and mortgage-backed securities. The primary assumption in an OAS model is the implied market volatility of interest rates and prepayment speeds and the same primary assumptions are used in determining fair value.

We use a duration-based model in determining the impact of interest rate shifts on our debt portfolio, certain other interest bearing liabilities and interest rate derivatives portfolios. The primary assumption used in these models is that a 10% increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.

We use a current market pricing model to assess the changes in the value of the U.S. dollar on foreign currency denominated monetary assets and liabilities and derivatives. The primary assumption used in these models is a hypothetical 10% weakening or strengthening of the U.S. dollar against all our currency exposures at December 31, 2003, 2002 and 2001.

Our total market risk is influenced by a wide variety of factors including the volatility present within the markets and the liquidity of the markets. There are certain limitations inherent in the sensitivity analyses presented. While probably the most meaningful analysis, these "shock tests" are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.

We used December 31, 2003, 2002 and 2001 market rates on our instruments to perform the sensitivity analyses separately for each of our market risk exposures—interest and currency rate instruments. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves and exchange rates.

We have determined that the impact of a 10% change in interest and foreign currency exchange rates and prices on our earnings, fair values and cash flows would not be material. While these results may be used as benchmarks, they should not be viewed as forecasts.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial Statements and Financial Statement Index commencing on Page F-1 hereof.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

71

ITEM 9A.    CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures.    The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting.    There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's fiscal fourth quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained in the Company's Annual Proxy Statement under the sections titled "Board of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" are incorporated herein by reference in response to this item.

ITEM 11.    EXECUTIVE COMPENSATION

The information contained in the Company's Annual Proxy Statement under the section titled "Executive Compensation and Other Information" is incorporated herein by reference in response to this item.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained in the Company's Annual Proxy Statement under the section titled "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference in response to this item.

72

Equity Compensation Plan Information

The following table provides information about shares of CD common stock ("Common Stock") that may be issued upon the exercise of options and restricted stock units under all of the Company's existing equity compensation plans as of December 31, 2003. The table excludes 8.5 million shares of Common Stock approved by stockholders issued or available for issuance pursuant to the 1998 Employee Stock Purchase Plan.

 
   Number of securities to be
issued upon exercise of
outstanding options,
warrants, rights and
restricted stock units
   Weighted-average exercise
price of outstanding
options, warrants and
rights (excludes
restricted stock units)
   Number of securities
remaining available
for future issuance
under equity compensation
plans (excluding securities
reflected in first column)
Plan Category              
Equity compensation plans approved by Company stockholders (a)   68,369,430   $ 19.37   68,534,011
Equity compensation plans not approved by Company stockholders (b) (d)   91,013,836     16.33   79,999,450
Equity compensation plans assumed in mergers, acquisitions and corporate transactions (c)   2,791,213     12.98   13,057,953
Total   162,174,479     17.53   161,591,414
             

73

74

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the Company's Annual Proxy Statement under the section titled "Certain Relationships and Related Transactions" is incorporated herein by reference in response to this item.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The information contained in the Company's Annual Proxy Statement under the section titled "Ratification of Appointment of Auditors" is incorporated herein by reference in response to this item.


PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

ITEM 15(A)(1)    FINANCIAL STATEMENTS

See Financial Statements and Financial Statements Index commencing on page F-1 hereof.

ITEM 15(A)(3)    EXHIBITS

See Exhibit Index commencing on page G-1 hereof.

ITEM 15(B)    REPORTS ON FORM 8-K

On October 20, 2003, we filed a current report on Form 8-K to report under Item 5 our third quarter 2003 results.

On December 16, 2003, we filed a current report on Form 8-K to report under Item 5 that George Herrera, former CEO and President, United States Hispanic Chamber of Commerce, would be joining our Board of Directors on January 26, 2004 as an independent Director replacing The Honorable William S. Cohen, Chairman and Chief Executive Officer of The Cohen Group.

75


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
 
CENDANT CORPORATION

 
 
By:
/s/  JAMES E. BUCKMAN      
James E. Buckman
 Vice Chairman and General Counsel
Date: March 1, 2004

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature
   Title
   Date

 
 
 
 
 
/s/  HENRY R. SILVERMAN      
(Henry R. Silverman)		   Chairman of the Board, President, Chief Executive Officer and Director   March 1, 2004

/s/  JAMES E. BUCKMAN      
(James E. Buckman)
 
Vice Chairman, General Counsel and Director
 
March 1, 2004

/s/  STEPHEN P. HOLMES      
(Stephen P. Holmes)
 
Vice Chairman and Director
 
March 1, 2004

/s/  RONALD L. NELSON      
(Ronald L. Nelson)
 
Chief Financial Officer and Director
 
March 1, 2004

/s/  VIRGINIA M. WILSON      
(Virginia M. Wilson)
 
Executive Vice President and Chief Accounting Officer
 
March 1, 2004

/s/  MYRA J. BIBLOWIT      
(Myra J. Biblowit)
 
Director
 
March 1, 2004

/s/  LEONARD S. COLEMAN      
(Leonard S. Coleman)
 
Director
 
March 1, 2004
         

76


/s/  MARTIN L. EDELMAN      
(Martin L. Edelman)
 
Director
 
March 1, 2004

/s/  GEORGE HERRERA      
(George Herrera)
 
Director
 
March 1, 2004

/s/  CHERYL D. MILLS      
(Cheryl D. Mills)
 
Director
 
March 1, 2004

/s/  BRIAN MULRONEY      
(The Right Honourable Brian Mulroney)
 
Director
 
March 1, 2004

/s/  ROBERT E. NEDERLANDER      
(Robert E. Nederlander)
 
Director
 
March 1, 2004

/s/  ROBERT W. PITTMAN      
(Robert W. Pittman)
 
Director
 
March 1, 2004

/s/  PAULINE D. E. RICHARDS      
(Pauline D. E. Richards)
 
Director
 
March 1, 2004

/s/  SHELI Z. ROSENBERG      
(Sheli Z. Rosenberg)
 
Director
 
March 1, 2004

/s/  ROBERT F. SMITH      
(Robert F. Smith)
 
Director
 
March 1, 2004

77


INDEX TO FINANCIAL STATEMENTS

 
   Page
Independent Auditors' Report   F-2

Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001
 
F-3

Consolidated Balance Sheets as of December 31, 2003 and 2002
 
F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001
 
F-5

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001
 
F-7

Notes to Consolidated Financial Statements
 
F-9

F-1


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Cendant Corporation:

We have audited the accompanying consolidated balance sheets of Cendant Corporation and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, on January 1, 2003, the Company adopted the fair value method of accounting for stock-based compensation, and during 2003, the Company adopted the consolidation provisions for variable interest entities. Also, as discussed in Note 2, on January 1, 2002, the Company adopted the non-amortization provisions for goodwill and other indefinite-lived intangible assets. Also, as discussed in Note 2, on January 1, 2001, the Company modified the accounting treatment relating to securitization transactions and the accounting for derivative instruments and hedging activities.

/s/ Deloitte & Touche LLP
New York, New York
February 25, 2004

F-2


Cendant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)

 
   Year Ended December 31,
  
 
   2003
   2002
   2001
  
Revenues                    
  Service fees and membership, net   $ 12,491   $ 10,062   $ 5,426  
  Vehicle-related     5,645     4,078     3,214  
  Other     56     47     53  
   
 
 
 
Net revenues     18,192     14,187     8,693  
   
 
 
 
Expenses                    
  Operating     9,408     6,820     2,738  
  Vehicle depreciation, lease charges and interest, net     2,487     2,094     1,789  
  Marketing and reservation     1,756     1,392     1,114  
  General and administrative     1,368     1,120     965  
  Non-program related depreciation and amortization     518     466     477  
  Non-program related interest, net:                    
    Interest expense (net of interest income of $21, $41 and $91)     307     262     252  
    Early extinguishment of debt     58     42     —  
  Acquisition and integration related costs:                    
    Amortization of pendings and listings     20     256     —  
    Other     34     29     112  
  Litigation and related charges, net     11     103     86  
  Restructuring and other unusual charges     (6 )   (14 )   379  
  Mortgage servicing rights impairment     —     —     94  
   
 
 
 
Total expenses     15,961     12,570     8,006  
   
 
 
 
Gains on dispositions of businesses     —     —     443  
   
 
 
 
Losses on dispositions of businesses     —     —     (26 )
   
 
 
 
Impairment of investments     —     —     (441 )
   
 
 
 
Income before income taxes, minority interest and equity in Homestore     2,231     1,617     663  
Provision for income taxes     745     544     220  
Minority interest, net of tax     21     22     24  
Losses related to equity in Homestore, net of tax     —     —     77  
   
 
 
 
Income from continuing operations     1,465     1,051     342  
Income from discontinued operations, net of tax     —     51     81  
Loss on disposal of discontinued operations, net of tax     —     (256 )   —  
   
 
 
 
Income before cumulative effect of accounting changes     1,465     846     423  
Cumulative effect of accounting changes, net of tax     (293 )   —     (38 )
   
 
 
 
Net income   $ 1,172   $ 846   $ 385  
   
 
 
 

CD common stock earnings per share:
 
 
 
 
 
 
 
 
 
 
  Basic                    
    Income from continuing operations   $ 1.44   $ 1.03   $ 0.37  
    Net income     1.15     0.83     0.42  
  Diluted                    
    Income from continuing operations   $ 1.41   $ 1.01   $ 0.36  
    Net income     1.13     0.81     0.41  

See Notes to Consolidated Financial Statements.

F-3


Cendant Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

 
   December 31,
  
 
   2003
   2002
  
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 840   $ 126  
  Restricted cash     448     307  
  Receivables (net of allowance for doubtful accounts of $160 and $136)     1,671     1,457  
  Deferred income taxes     455     334  
  Other current assets     1,064     1,108  
   
 
 
Total current assets     4,478     3,332  

Property and equipment, net
 
 
1,803
 
 
1,780
 
Deferred income taxes     668     1,115  
Goodwill     11,119     10,699  
Other intangibles, net     2,402     2,464  
Other non-current assets     974     1,327  
   
 
 
Total assets exclusive of assets under programs     21,444     20,717  
   
 
 
Assets under management and mortgage programs:              
  Program cash     542     354  
  Mortgage loans held for sale     2,494     1,923  
  Relocation receivables     534     239  
  Vehicle-related, net     10,143     10,052  
  Timeshare-related, net     1,803     675  
  Mortgage servicing rights, net     1,641     1,380  
  Derivatives related to mortgage servicing rights     316     385  
  Other     120     172  
   
 
 
      17,593     15,180  
   
 
 
Total assets   $ 39,037   $ 35,897  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:              
  Accounts payable and other current liabilities   $ 4,688   $ 4,287  
  Current portion of long-term debt     1,629     30  
  Deferred income     854     680  
   
 
 
Total current liabilities     7,171     4,997  

Long-term debt, excluding Upper DECS
 
 
3,510
 
 
5,571
 
Upper DECS     863     863  
Deferred income     311     320  
Other non-current liabilities     888     692  
   
 
 
Total liabilities exclusive of liabilities under programs     12,743     12,443  
   
 
 

Liabilities under management and mortgage programs:
 
 
 
 
 
 
 
  Debt     9,141     12,747  
  Debt due to AESOP Funding II, LLC—related party     5,644     —  
  Derivatives related to mortgage servicing rights     231     —  
  Deferred income taxes     1,092     1,017  
   
 
 
      16,108     13,764  
   
 
 
Mandatorily redeemable preferred interest in a subsidiary     —     375  
   
 
 

Commitments and contingencies (Note 19)
 
 
 
 
 
 
 

Stockholders' equity:
 
 
 
 
 
 
 
  Preferred stock, $.01 par value—authorized 10 million shares; none issued and outstanding     —     —  
  CD common stock, $.01 par value—authorized 2 billion shares; issued 1,260,397,204 and
1,238,952,970 shares		     13     12  
  Additional paid-in capital     10,284     10,090  
  Retained earnings     4,430     3,258  
  Accumulated other comprehensive income (loss)     209     (14 )
  CD treasury stock, at cost—251,553,531 and 207,188,268 shares     (4,750 )   (4,031 )
   
 
 
Total stockholders' equity     10,186     9,315  
   
 
 
Total liabilities and stockholders' equity   $ 39,037   $ 35,897  
   
 
 

See Notes to Consolidated Financial Statements.

F-4


Cendant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 
   Year Ended December 31,
  
 
   2003
   2002
   2001
  
Operating Activities                    
Net income   $ 1,172   $ 846   $ 385  
Adjustments to arrive at income from continuing operations     293     205     (43 )
   
 
 
 
Income from continuing operations     1,465     1,051     342  

Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities exclusive of management and mortgage programs:
 
 
 
 
 
 
 
 
 
 
  Non-program related depreciation and amortization     518     466     477  
  Amortization of pendings and listings     20     256     —  
  Gain on dispositions of business     —     —     (443 )
  Losses on dispositions of business     —     —     26  
  Impairment of investments     —     —     441  
  Proceeds from sales of trading securities     —     —     110  
  Deferred income taxes     453     425     418  
  Net change in assets and liabilities, excluding the impact of acquisitions and dispositions:                    
    Receivables     32     (74 )   10  
    Income taxes     292     46     (201 )
    Accounts payable and other current liabilities     (171 )   (37 )   530  
    Payment of stockholder litigation settlement liability     —     (2,850 )   —  
    Deferred income     (85 )   (210 )   (162 )
  Proceeds from termination of fair value hedges     200     65     —  
  Other, net     189     (52 )   (171 )
   
 
 
 
Net cash provided by (used in) operating activities exclusive
of management and mortgage programs		     2,913     (914 )   1,377  
   
 
 
 
Management and mortgage programs:                    
  Vehicle depreciation     2,031     1,742     1,403  
  Amortization and impairment of mortgage servicing rights     893     922     287  
  Net gain on mortgage servicing rights and related derivatives     (163 )   (115 )   (3 )
  Origination of mortgage loans     (62,843 )   (44,017 )   (40,963 )
  Proceeds on sale of and payments from mortgage loans held for sale     64,371     43,459     40,643  
   
 
 
 
      4,289     1,991     1,367  
   
 
 
 
Net cash provided by operating activities     7,202     1,077     2,744  
   
 
 
 
Investing Activities                    
Property and equipment additions     (463 )   (399 )   (329 )
Net assets acquired (net of cash acquired of $99, $178 and $308) and acquisition-related payments     (327 )   (1,381 )   (2,757 )
Proceeds received on asset sales     133     21     26  
Proceeds from sales of available-for-sale securities     4     14     17  
Purchases of non-marketable securities     (63 )   (3 )   (101 )
Proceeds from (payments to) stockholder litigation settlement trust     —     1,410     (1,060 )
Proceeds from dispositions of businesses, net of transaction-related payments     —     1,151     109  
Other, net     145     (46 )   (95 )
   
 
 
 
Net cash provided by (used in) investing activities exclusive
of management and mortgage programs		     (571 )   767     (4,190 )
   
 
 
 

F-5

Management and mortgage programs:                    
  (Increase) decrease in program cash     (110 )   676     (579 )
  Investment in vehicles     (14,782 )   (10,643 )   (8,144 )
  Payments received on investment in vehicles     13,026     7,988     7,142  
  Origination of timeshare-related assets     (1,015 )   (1,031 )   (490 )
  Principal collection of investment in timeshare-related assets     799     952     538  
  Equity advances on homes under management     (5,699 )   (5,968 )   (6,306 )
  Repayment on advances on homes under management     5,635     6,028     6,340  
  Additions to mortgage servicing rights     (1,008 )   (928 )   (955 )
  Proceeds from sales of mortgage servicing rights     10     16     58  
  Cash received on derivatives related to mortgage servicing rights, net     295     370     163  
  Other, net     20     26     10  
   
 
 
 
      (2,829 )   (2,514 )   (2,223 )
   
 
 
 
Net cash used in investing activities     (3,400 )   (1,747 )   (6,413 )
   
 
 
 
Financing Activities                    
Proceeds from borrowings     2,593     637     5,608  
Principal payments on borrowings     (3,479 )   (2,111 )   (2,213 )
Issuances of common stock     446     112     877  
Repurchases of common stock     (1,090 )   (278 )   (254 )
Other, net     (86 )   (56 )   (148 )
   
 
 
 
Net cash provided by (used in) financing activities exclusive
of management and mortgage programs		     (1,616 )   (1,696 )   3,870  
   
 
 
 
Management and mortgage programs:                    
  Proceeds from borrowings     27,757     15,171     9,460  
  Principal payments on borrowings     (28,495 )   (14,614 )   (8,798 )
  Net change in short-term borrowings     (702 )   (114 )   116  
  Other, net     (25 )   (8 )   (6 )
   
 
 
 
      (1,465 )   435     772  
   
 
 
 
Net cash provided by (used in) financing activities     (3,081 )   (1,261 )   4,642  
   
 
 
 
Effect of changes in exchange rates on cash and cash equivalents     (7 )   41     (8 )
   
 
 
 
Cash provided by discontinued operations     —     74     121  
   
 
 
 
Net increase (decrease) in cash and cash equivalents     714     (1,816 )   1,086  
Cash and cash equivalents, beginning of period     126     1,942     856  
   
 
 
 
Cash and cash equivalents, end of period   $ 840   $ 126   $ 1,942  
   
 
 
 
Supplemental Disclosure of Cash Flow Information                    
Interest payments   $ 806   $ 788   $ 609  
Income tax payments, net   $ 2   $ 62   $ 40  

See Notes to Consolidated Financial Statements.

F-6


Cendant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)

 
   Common Stock
    
    
   Accumulated
Other
Comprehensive
Income (Loss)
   Treasury Stock
    
  
 
   Additional
Paid-in
Capital
   Retained
Earnings
   Total
Stockholders'
Equity
  
 
   Shares
   Amount
   Shares
   Amount
  
Balance at January 1, 2001   917   $ 9   $ 4,540   $ 2,027   $ (234 ) (179 ) $ (3,568 ) $ 2,774  
Comprehensive income:                                              
Net income   —     —     —     385     —   —     —        
Currency translation adjustment   —     —     —     —     (65 ) —     —        
Unrealized losses on cash flow hedges, net of tax of ($22)   —     —     —     —     (33 ) —     —        
Unrealized gains on available-for-sale securities, net of tax of $21   —     —     —     —     33   —     —        
Reclassification for realized holding losses, net of tax of $29   —     —     —     —     56   —     —        
Minimum pension liability adjustment, net of tax of ($13)   —     —     —     —     (21 ) —     —        
Total comprehensive income                                           355  
Issuances of CD common stock   108     1     2,342     —     —   —     —     2,343  
Exercise of stock options   26     —     237     —     —   2     27     264  
Tax benefit from exercise of stock options   —     —     59     —     —   —     —     59  
Repurchases of CD common stock   —     —     —     —     —   (12 )   (226 )   (226 )
Repurchases of Move.com common stock   (2 )   —     (75 )   —     —   —     —     (75 )
Present value of forward purchase contract distributions and related costs   —     —     (48 )   —     —   —     —     (48 )
Modifications to stock options   —     —     25     —     —   —     —     25  
Issuance of CD common stock and conversion of stock options for acquisitions   117     1     1,604     —     —   —     —     1,605  
Other   —     —     (8 )   —     —   —     —     (8 )
   
 
 
 
 
 
 
 
 
Balance at December 31, 2001   1,166     11     8,676     2,412     (264 ) (189 )   (3,767 )   7,068  

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income   —     —     —     846     —   —     —        
Currency translation adjustment   —     —     —     —     66   —     —        
Reclassification of foreign currency translation losses realized upon the sale of NCP   —     —     —     —     245   —     —        
Unrealized losses on cash flow hedges, net of tax of ($5)   —     —     —     —     (8 ) —     —        
Unrealized losses on available-for-sale securities, net of tax of ($12)   —     —     —     —     (19 ) —     —        
Reclassification for realized holding losses, net of tax of $2   —     —     —     —     3   —     —        
Minimum pension liability adjustment, net of tax of ($23)   —     —     —     —     (37 ) —     —        
Total comprehensive income                                           1,096  
Issuances of CD common stock   6     —     62     —     —   —     —     62  
Exercise of stock options   8     —     72     —     —   2     27     99  
Tax benefit from exercise of stock options   —     —     25     —     —   —     —     25  
Repurchases of CD common stock   —     —     —     —     —   (20 )   (291 )   (291 )
Issuance of CD common stock and conversion of stock options for acquisitions   59     1     1,139     —     —   —     —     1,140  
Issuance of subsidiary stock   —     —     98     —     —   —     —     98  
Other   —     —     18     —     —   —     —     18  
   
 
 
 
 
 
 
 
 
Balance at December 31, 2002   1,239     12     10,090     3,258     (14 ) (207 )   (4,031 )   9,315  

F-7


Cendant Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
(In millions)

 
   Common Stock
    
    
   Accumulated
Other
Comprehensive
Income (Loss)
   Treasury Stock
    
  
 
   Additional
Paid-in
Capital
   Retained
Earnings
   Total
Stockholders'
Equity
  
 
   Shares
   Amount
   Shares
   Amount
  
Balance at January 1, 2003   1,239     12     10,090     3,258     (14 ) (207 )   (4,031 )   9,315  
Comprehensive income:                                              
Net income   —     —     —     1,172     —   —     —        
Currency translation adjustment   —     —     —     —     143   —     —        
Unrealized gains on cash flow hedges, net of tax of $27   —     —     —     —     38   —     —        
Unrealized gains on available-for-sale securities, net of tax of $25   —     —     —     —     45   —     —        
Reclassification for realized holding gains, net of tax of ($1)   —     —     —     —     (3 ) —     —        
Total comprehensive income                                           1,395  
Issuances of CD common stock         —     (4 )   —     —   1     21     17  
Exercise of stock options   21     —     75     —     —   19     359     434  
Tax benefit from exercise of stock options   —     —     106     —     —   —     —     106  
Repurchases of CD common stock   —     —     —     —     —   (65 )   (1,099 )   (1,099 )
Amortization of deferred compensation   —     —     15     —     —   —     —     15  
Other   —     1     2     —     —   —     —     3  
   
 
 
 
 
 
 
 
 
Balance at December 31, 2003   1,260   $ 13   $ 10,284   $ 4,430   $ 209   (252 ) $ (4,750 ) $ 10,186  
   
 
 
 
 
 
 
 
 

See Notes to Consolidated Financial Statements.

F-8


Cendant Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all amounts are in millions, except per share amounts)

1.     Basis of Presentation

F-9

2.     Summary of Significant Accounting Policies

 
   Assets
   Liabilities
Bishop's Gate (a)   $ 1,720   $ 1,651
Trilegiant (b)     97     405
AESOP Funding (c)     264     264

F-10

F-11

 
   Year Ended December 31,
  
 
   2003
   2002
   2001
  
Reported net income   $ 1,172   $ 846   $ 385  
Add back: Stock-based employee compensation expense included in reported net income, net of tax (a)     10     2     15  
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax (b)     (50 )   (297 )   (233 )
   
 
 
 
Pro forma net income   $ 1,132   $ 551   $ 167  
   
 
 
 
Earnings per share:                    
Reported                    
  Basic   $ 1.15   $ 0.83   $ 0.42  
  Diluted     1.13     0.81     0.41  
Pro forma                    
  Basic   $ 1.11   $ 0.54   $ 0.17  
  Diluted     1.09     0.53     0.16  

F-12

F-13

F-14

F-15

F-16

F-17

F-18

        Financial Services

F-19

F-20

 
    
   2001
Investment in Homestore, Inc.       $ (407)
Other (*)         (34)
       
        $ (441)
       
         
 
   As of December 31,
 
   2003
   2002
Trading—retained interest in securitized timeshare receivables   $ 81   $ 274
Available for sale:            
  Mortgage-backed securities     102     114
  Retained interest in securitized relocation receivables     —     91
   
 
Total   $ 183   $ 479
   
 

F-21

F-22

F-23

3.     Earnings Per Share

 
   Year Ended December 31,
  
 
   2003
   2002
   2001
  
Income from continuing operations:                    
Cendant Group   $ 1,465   $ 1,051   $ 87  
Cendant Group's retained interest in Move.com Group     —     —     238  
   
 
 
 
Income from continuing operations for basic EPS     1,465     1,051     325  
Convertible debt interest, net of tax     —     1     11  
Adjustment to Cendant Group's retained interest in Move.com Group (*)     —     —     (3 )
   
 
 
 
Income from continuing operations for diluted EPS   $ 1,465   $ 1,052   $ 333  
   
 
 
 
                     

F-24


Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
 
Basic     1,017     1,019     869  
  Stock options, warrants and non-vested shares     23     22     30  
  Convertible debt     —     2     18  
   
 
 
 
Diluted     1,040     1,043     917  
   
 
 
 

Earnings per share:
 
 
 
 
 
 
 
 
 
 
Basic                    
  Income from continuing operations   $ 1.44   $ 1.03   $ 0.37  
  Income from discontinued operations     —     0.05     0.10  
  Loss on disposal of discontinued operations     —     (0.25 )   —  
  Cumulative effect of accounting changes     (0.29 )   —     (0.05 )
   
 
 
 
  Net income   $ 1.15   $ 0.83   $ 0.42  
   
 
 
 

Diluted
 
 
 
 
 
 
 
 
 
 
  Income from continuing operations   $ 1.41   $ 1.01   $ 0.36  
  Income from discontinued operations     —     0.05     0.09  
  Loss on disposal of discontinued operations     —     (0.25 )   —  
  Cumulative effect of accounting changes     (0.28 )   —     (0.04 )
   
 
 
 
  Net income   $ 1.13   $ 0.81   $ 0.41  
   
 
 
 
                   
 
   Year Ended
December 31, 2001
Income from continuing operations:      
Move.com Group   $ 255
Less: Cendant Group's retained interest in Move.com Group     238
   
Income from continuing operations for basic EPS     17
Adjustment to Cendant Group's retained interest in Move.com Group (*)     3
   
Income from continuing operations for diluted EPS   $ 20
   
Weighted average shares outstanding:      
  Basic and Diluted     2
   
Earnings per share:      
  Basic      
    Income from continuing operations   $ 9.94
    Cumulative effect of accounting changes     (0.07)
   
    Net income   $ 9.87
   
  Diluted      
    Income from continuing operations   $ 9.81
    Cumulative effect of accounting changes     (0.07)
   
    Net income   $ 9.74
   

F-25

    
 
   Year Ended December 31,
 
   2003
   2002
   2001
CD Common Stock            
  Options (a)   113   128   98
  Warrants (b)   2   2   2
  Upper DECS (c)   40   40   40
           

4.     Acquisitions

F-26

 
   Amount
Real Estate Services   $ 98
Travel Distribution Services     16
Vehicle Services     8
Financial Services     4
   
    $ 126
   

F-27

 
   Amount
Real Estate Services   $ 241
Hospitality Services     257
Travel Distribution Services     157
Vehicle Services     13
Financial Services     64
   
    $ 732
   

F-28

 
   Amount
Real Estate Services   $ 15
Hospitality Services     670
Travel Distribution Services     411
Vehicle Services     13
   
    $ 1,109
   
Budget Group, Inc.
 
Personnel
Related
  
Contract
Termination
  
Facility
Related
  

Total
  
Costs and balance at December 31, 2002   $ 35   $ 6   $ 7   $ 48  
Cash payments     (28 )   —     (4 )   (32 )
Additions     6     —     14     20  
   
 
 
 
 
Balance at December 31, 2003   $ 13   $ 6   $ 17   $ 36  
   
 
 
 
 

F-29

Galileo International, Inc.
 

Personnel
Related
  
Asset Fair Value
Adjustments
& Contract
Terminations
  

Facility
Related
  


Total
  
Costs   $ 44   $ 93   $ 16   $ 153  
Cash payments     (26 )   (10 )   —     (36 )
Reductions/utilization     —     (46 )   —     (46 )
   
 
 
 
 
Balance at December 31, 2001     18     37     16     71  
Cash payments     (36 )   (15 )   (2 )   (53 )
Additions/(reductions/utilization)     33     (10 )   8     31  
   
 
 
 
 
Balance at December 31, 2002     15     12     22     49  
Cash payments     (9 )   (6 )   (7 )   (22 )
Additions/(reductions/utilization)     (5 )   (6 )   1     (10 )
   
 
 
 
 
Balance at December 31, 2003   $ 1   $ —   $ 16   $ 17  
   
 
 
 
 
Avis Group Holdings, Inc.
 
Personnel
Related
  
Asset Fair Value
Adjustments
  
Facility
Related
  

Total
  
Costs   $ 39   $ 19   $ 7   $ 65  
Cash payments     (22 )   —     —     (22 )
Reductions/utilization     —     (19 )   —     (19 )
   
 
 
 
 
Balance at December 31, 2001     17     —     7     24  
Cash payments     (20 )   —     (2 )   (22 )
Other additions     8     —     —     8  
   
 
 
 
 
Balance at December 31, 2002     5     —     5     10  
Cash payments     (3 )   —     (3 )   (6 )
   
 
 
 
 
Balance at December 31, 2003   $ 2   $ —   $ 2   $ 4  
   
 
 
 
 

F-30

 
   (Unaudited)
Year Ended December 31,
 
   2002
   2001
Net revenues   $ 15,039   $ 13,760
Income from continuing operations     1,033     416
Net income     798     451

CD common stock pro forma earnings per share:
 
 
 
 
 
 
Basic            
  Income from continuing operations   $ 1.00   $ 0.38
  Net income     0.77     0.42

Diluted
 
 
 
 
 
 
  Income from continuing operations   $ 0.97   $ 0.37
  Net income     0.75     0.41

F-31

5.     Intangible Assets

 
   As of December 31, 2003
   As of December 31, 2002
 
   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount
   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount
Amortized Intangible Assets                                    
Franchise agreements (a)   $ 1,157   $ 339   $ 818   $ 1,151   $ 301   $ 850
Customer lists (b)     550     152     398     544     116     428
Pendings and listings (c)     22     17     5     267     256     11
Other (d)     105     42     63     99     34     65
   
 
 
 
 
 
    $ 1,834   $ 550   $ 1,284   $ 2,061   $ 707   $ 1,354
   
 
 
 
 
 

Unamortized Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill   $ 11,119               $ 10,699            
   
             
           

Trademarks (e)
 
$
1,084
 
 
 
 
 
 
 
$
1,076
 
 
 
 
 
 
Other (f)     34                 34            
   
             
           
    $ 1,118               $ 1,110            
   
             
           
                                   

F-32

 
   Balance at
January 1,
2003
   Goodwill
Acquired
during
2003
   Adjustments
to Goodwill
Acquired
during 2002
   Foreign
Exchange
and
Other
   Balance at
December 31,
2003
Real Estate Services   $ 2,658   $ 98   (a) $ 19   (f) $ 1   $ 2,776
Hospitality Services     2,386     16   (b)   12   (g)   100   (f)   2,514
Travel Distribution Services     2,463     89   (c)   10   (h)   (7 )(j)   2,555
Vehicle Services     2,576     8   (d)   6   (i)   63   (f)   2,653
Financial Services     616     4   (e)   —     1     621
   
 
 
 
 
Total Company   $ 10,699   $ 215   $ 47   $ 158   $ 11,119
   
 
 
 
 
 
   Year Ended December 31,
 
   2003
   2002
   2001
Goodwill(a)   $ —   $ —   $ 184
Trademarks(b)     —     —     15
Franchise agreements(b)     38     43     53
Customer lists(b)     36     38     24
Pendings and listings(c)     20     256     —
Other(b)     10     14     10
   
 
 
Total   $ 104   $ 351   $ 286
   
 
 

F-33

 
   Year Ended
December 31,
2001
Reported net income   $ 385
Add back: Goodwill amortization, net of tax     145
Add back: Trademark amortization, net of tax     9
   
Pro forma net income   $ 539
   
Net income per share:      
Basic      
  Reported net income   $ 0.42
  Add back: Goodwill amortization, net of tax     0.17
  Add back: Trademark amortization, net of tax     0.01
   
  Pro forma net income   $ 0.60
   
Diluted      
  Reported net income   $ 0.41
  Add back: Goodwill amortization, net of tax     0.16
  Add back: Trademark amortization, net of tax     0.01
   
  Pro forma net income   $ 0.58
   

6.    Mortgage Activities

 
   2003
   2002
   2001
  
Balance, January 1   $ 114,079   $ 97,205   $ 82,187  
Additions     63,870     47,045     30,317  
Payoffs/curtailments     (54,079 )   (35,514 )   (23,973 )
Purchases, net     12,557     5,343     8,674  
   
 
 
 
Balance, December 31,(*)   $ 136,427   $ 114,079   $ 97,205  
   
 
 
 

F-34

 
   2003
   2002
   2001
  
Balance, January 1,   $ 1,883   $ 2,081   $ 1,596  
Additions, net     1,008     928     855  
Changes in fair value     168     (540 )   (103 )
Amortization     (700 )   (468 )   (237 )
Sales/deletions     (29 )   (26 )   (30 )
Permanent impairment     (315 )   (92 )   —  
   
 
 
 
Balance, December 31,     2,015     1,883     2,081  
   
 
 
 
Valuation allowance                    
Balance, January 1,     (503 )   (144 )   —  
Additions     (193 )(a)   (454 )(b)   (144 )(c)
Reductions     7     3     —  
Permanent impairment     315     92     —  
   
 
 
 
Balance, December 31,     (374 )   (503 )   (144 )
   
 
 
 
Mortgage Servicing Rights, net   $ 1,641   $ 1,380   $ 1,937  
   
 
 
 
                           
 
   2003
   2002
   2001
  
Net balance, January 1,(a)   $ 385   $ 100   $ 215  
Additions, net     402     389     259  
Changes in fair value     (5 )   655     106  
Sales/proceeds received     (697 )   (759 )   (480 )
   
 
 
 
Net balance, December 31,(b)   $ 85   $ 385   $ 100  
   
 
 
 
                   

F-35

 
   Year Ended December 31,
  
 
   2003
   2002
   2001
  
Adjustment of MSR asset under hedge accounting   $ 168   $ (540 ) $ (103 )
Net gain (loss) on derivatives related to MSR asset     (5 )   655     106  
   
 
 
 
  Net gain     163     115     3  
Provision for impairment of MSR asset     (193 )   (454 )   (144 )
   
 
 
 
  Net impact   $ (30 ) $ (339 ) $ (141 )
   
 
 
 

7.     Franchising and Marketing/Reservation Activities

 
   Year Ended December 31,
 
   2003
   2002
   2001
Real estate brokerage offices(*)   $ 394   $ 412   $ 523
Lodging properties     198     204     200
Vehicle rental locations     41     18     26
Tax preparation offices     50     42     38
   
 
 
Total   $ 683   $ 676   $ 787
   
 
 
                 
 
   Year Ended December 31,
 
   2003
   2002
   2001
Real estate brokerage offices   $ 9   $ 8   $ 11
Lodging properties     7     5     12
Tax preparation offices     6     6     6
   
 
 
Total   $ 22   $ 19   $ 29
   
 
 

F-36

 
   As of December 31,
 
   2003
   2002
   2001
Company-owned            
Real estate brokerage offices(a)   956   950   —
Vehicle rental locations            
  Avis brand   982   964   867
  Budget brand(b)   859   729   —
Tax preparation offices(c)   655   520   —

Franchised
 
 
 
 
 
 
Real estate brokerage offices   11,784   11,716   12,361
Lodging properties   6,402   6,513   6,624
Vehicle rental locations            
  Avis brand   820   814   847
  Budget brand   1,496   1,417   —
Tax preparation offices   4,290   3,677   4,013

F-37

8.     Vehicle Rental and Leasing Activities

 
   As of December 31,
  
 
   2003
   2002
  
 
   Rental
   Leasing
   Rental
   Leasing
  
Rental vehicles   $ 6,177   $ —   $ 6,216   $ —  
Vehicles under open-end operating leases     —     5,474     —     4,991  
Vehicles under closed-end operating leases     —     158     —     172  
   
 
 
 
 
Vehicles held for rental/leasing     6,177     5,632     6,216     5,163  
Vehicles held for sale     58     13     145     34  
   
 
 
 
 
      6,235     5,645     6,361     5,197  
Less: accumulated depreciation     (525 )   (2,323 )   (395 )   (1,736 )
   
 
 
 
 

Total investment in vehicles
 
 
5,710
 
 
3,322
 
 
5,966
 
 
3,461
 
Plus: Investment in AESOP Funding II LLC (*)     361     —     —     —  
Plus: Receivables under direct financing leases     —     82     —     82  
Plus: Fuel card related receivables     —     282     —     230  
Plus: Receivables from manufacturers     386     —     313     —  
   
 
 
 
 
Total vehicle-related, net   $ 6,457   $ 3,686   $ 6,279   $ 3,773  
   
 
 
 
 
                           
 
   Year Ended December 31,
 
   2003
   2002
   2001
 
   Rental
   Leasing
   Rental
   Leasing
   Rental
   Leasing
Depreciation expense   $ 942   $ 1,089   $ 673   $ 1,069   $ 524   $ 879
Interest expense, net(*)     265     87     211     106     187     145
Lease charges     54     —     30     —     27     —
Loss on sales of vehicles, net     50     —     5     —     27     —
   
 
 
 
 
 
    $ 1,311   $ 1,176   $ 919   $ 1,175   $ 765   $ 1,024
   
 
 
 
 
 
                           

F-38

Year
   Amount
2004   $ 1,166
2005     975
2006     651
2007     315
2008     107
Thereafter     108
   
    $ 3,322
   
9.
Litigation and Related Costs
10.
Restructuring and Other Unusual Charges

F-39

 
   Personnel
Related
   Asset Impairments
& Contract
Terminations
   Facility
Related
   Total
  
Costs   $ 68   $ 17   $ 25   $ 110  
Cash payments     (11 )   (3 )   (1 )   (15 )
Reductions/utilization     (5 )   (10 )   —     (15 )
   
 
 
 
 
Balance at December 31, 2001     52     4     24     80  
Cash payments     (33 )   —     (9 )   (42 )
Reductions/utilization     (11 )   (3 )   (6 )   (20 )
   
 
 
 
 
Balance at December 31, 2002     8     1     9     18  
Cash payments     (3 )   (1 )   (5 )   (9 )
Reductions/utilization     (4 )   —     (2 )   (6 )
   
 
 
 
 
Balance at December 31, 2003   $ 1   $ —   $ 2   $ 3  
   
 
 
 
 

F-40

11.
Income Taxes
 
   Year Ended December 31,
  
 
   2003
   2002
   2001
  
Current                    
  Federal   $ 199   $ (37 ) $ 48  
  State     34     18     21  
  Foreign     59     53     43  
   
 
 
 
      292     34     112  
   
 
 
 
Deferred                    
  Federal     399     474     113  
  State     45     36     (5 )
  Foreign     9     —     —  
   
 
 
 
      453     510     108  
   
 
 
 
Provision for income taxes   $ 745   $ 544   $ 220  
   
 
 
 
 
   Year Ended December 31,
 
   2003
   2002
   2001
Domestic   $ 1,810   $ 1,234   $ 529
Foreign     421     383     134
   
 
 
Pre-tax income   $ 2,231   $ 1,617   $ 663
   
 
 

F-41

 
   As of December 31,
  
 
   2003
   2002
  
Current deferred income tax assets:              
  Litigation settlement and related liabilities   $ 42   $ 18  
  Accrued liabilities and deferred income     416     280  
  Provision for doubtful accounts     85     73  
  Acquisition and integration-related liabilities     17     44  
  Other     —     20  
   
 
 
Current deferred income tax assets     560     435  
   
 
 
Current deferred income tax liabilities:              
  Insurance retention refund     20     20  
  Franchise acquisition costs     14     21  
  Prepaid expenses     66     60  
  Other     5     —  
   
 
 
Current deferred income tax liabilities     105     101  
   
 
 
Current net deferred income tax asset   $ 455   $ 334  
   
 
 
Non-current deferred income tax assets:              
  Net operating loss carryforwards   $ 816   $ 1,051  
  State net operating loss carryforwards     287     360  
  Capital loss carryforward     33     103  
  Acquisition and integration-related liabilities     195     258  
  Accrued liabilities and deferred income     —     64  
  Other     78     —  
  Valuation allowance(*)     (370 )   (392 )
   
 
 
Non-current deferred income tax assets     1,039     1,444  
   
 
 
Non-current deferred income tax liabilities:              
  Depreciation and amortization     233     311  
  Accrued liabilities and deferred income     138     —  
  Other     —     18  
   
 
 
Non-current deferred income tax liabilities     371     329  
   
 
 
Non-current net deferred income tax asset   $ 668   $ 1,115  
   
 
 

F-42

 
   As of December 31,
 
   2003
   2002
Unamortized mortgage servicing rights   $ 426   $ 392
Depreciation and amortization     625     575
Other     41     50
   
 
Deferred income tax liability under management and mortgage programs   $ 1,092   $ 1,017
   
 
 
   Year Ended December 31,
  
 
   2003
   2002
   2001
  
Federal statutory rate   35.0 % 35.0 % 35.0 %
State and local income taxes, net of federal tax benefits   2.3   2.2   1.4  
Amortization of non-deductible goodwill   —   —   4.4  
Taxes on foreign operations at rates different than U.S. federal statutory rates   (3.4 ) (2.9 ) (0.4 )
Taxes on repatriated foreign income, net of tax credits   0.6   0.4   (3.2 )
Changes in valuation allowance   (4.3 ) (0.3 ) (2.3 )
Redemption of preferred interest   2.8   —   —  
Other   0.4   (0.8 ) (1.7 )
   
 
 
 
    33.4 % 33.6 % 33.2 %
   
 
 
 
12.
Other Current Assets
 
    
   As of December 31,
 
    
   2003
   2002
Prepaid expenses       $ 473   $ 445
Timeshare inventory         150     355
Other         441     308
       
 
        $ 1,064   $ 1,108
       
 
13.
Property and Equipment, net
 
    
   As of December 31,
  
 
    
   2003
   2002
  
Land       $ 85   $ 97  
Building and leasehold improvements         644     600  
Capitalized software         703     485  
Furniture, fixtures and equipment         1,761     1,600  
       
 
 
          3,193     2,782  
Less: accumulated depreciation and amortization         (1,390 )   (1,002 )
       
 
 
        $ 1,803   $ 1,780  
       
 
 

F-43

14.   Accounts Payable and Other Current Liabilities

 
   As of December 31,
 
   2003
   2002
Accounts payable   $ 1,166   $ 1,139
Accrued payroll and related     676     619
Acquisition and integration-related     334     470
Income taxes payable     588     195
Other     1,924     1,864
   
 
    $ 4,688   $ 4,287
   
 

15.   Long-term Debt and Borrowing Arrangements

 
    
   As of December 31,
 
   Maturity Date
   2003
   2002
Term notes:                
  73/4% notes   December 2003   $ —   $ 966
  67/8% notes   August 2006     849     849
  61/4% notes   January 2008     797     —
  11% senior subordinated notes   May 2009     333     530
  61/4% notes   March 2010     348     —
  73/8% notes   January 2013     1,190     —
  71/8% notes   March 2015     250     —

Contingently convertible debt securities:
 
 
 
 
 
 
 
 
  Zero coupon senior convertible contingent notes   February 2004 (*)     430     420
  Zero coupon convertible debentures   May 2004 (*)     7     857
  37/8% convertible senior debentures   November 2004 (*)     804     1,200

Other:
 
 
 
 
 
 
 
 
  Revolver borrowings   December 2005     —     600
  Net hedging gains (a)         31     89
  Other         100     90
       
 
Total long-term debt, excluding Upper DECS         5,139     5,601
Less: current portion (b)         1,629     30
       
 
Long-term debt, excluding Upper DECS         3,510     5,571
Upper DECS         863     863
       
 
Long-term debt, including Upper DECS       $ 4,373   $ 6,434
       
 
                           

F-44

F-45

 
   Issuance
Date
   Earliest
Redemption
Date
   Maturity
Date
   Principal
Amount
at
Issuance
   Gross
Proceeds
Received at
Issuance
   CD Common
Stock
Conversion
Rate Per
$1,000 Face
Zero coupon senior convertible
contingent notes		   Feb. 2001   Feb. 2004   Feb. 2021   $ 1.5 billion   $ 0.9 billion   33.40
Zero coupon convertible debentures   May 2001   May 2004   May 2021   $ 1.0 billion   $ 1.0 billion   39.08
37/8% convertible senior debentures   Nov. 2001   Nov. 2004   Nov. 2011   $ 1.2 billion   $ 1.2 billion   41.58
 
   As of December 31,
 
   2003
   2002
Zero coupon senior convertible contingent notes   22.0   22.0
Zero coupon convertible debentures   0.3   33.5
37/8% convertible senior debentures   33.4   49.9
   
 
    55.7   105.4
   
 

F-46

F-47

F-48

 
   Amount
2004(a)   $ 1,629
2005     22
2006(b)     913
2007     2
2008     805
Thereafter     1,768
   
    $ 5,139
   
 
   Total
Capacity
   Outstanding
Borrowings
   Letters of
Credit Issued
   Available
Capacity
Maturing in December 2005   $ 2,900   $ —   $ 1,169   $ 1,731

F-49

16.
Debt Under Management and Mortgage Programs and Borrowing Arrangements
 
   As of
December 31,
2003
   As of
December 31,
2002
Asset-Backed Debt:            
  Vehicle rental program            
    AESOP Funding   $ 5,644   $ 4,029
    Other     651     2,053
  Vehicle management program     3,118     3,058
  Mortgage program            
    Bishop's Gate     1,651     —
    Other     —     871
  Timeshare program            
    Sierra     774     —
    Other     335     145
  Relocation program            
    Apple Ridge     400     —
    Other     —     80
   
 
      12,573     10,236
   
 
Unsecured Debt:            
  Term notes     1,916     1,421
  Commercial paper     164     866
  Bank loans     —     107
  Other     132     117
   
 
      2,212     2,511
   
 
Total debt under management and mortgage programs   $ 14,785   $ 12,747
   
 

F-50

F-51

F-52

F-53

 
   Asset-Backed
   Unsecured (*)
   Total
2004   $ 2,532   $ 114   $ 2,646
2005     3,479     405     3,884
2006     3,047     —     3,047
2007     1,262     190     1,452
2008     1,748     432     2,180
Thereafter     505     1,071     1,576
   
 
 
    $ 12,573   $ 2,212   $ 14,785
   
 
 
 
   Total
Capacity
   Outstanding
Borrowings
   Available
Capacity
Asset-Backed Funding Arrangements (a)                  
  Vehicle rental program                  
    AESOP Funding     6,514     5,644     870
    Other     911     651     260
  Vehicle management program     3,917     3,118     799
  Mortgage program                  
    Bishop's Gate     3,151     1,651     1,500
    Other     500     —     500
  Timeshare program                  
    Sierra     1,242     774     468
    Other     425     335     90
  Relocation program                  
    Apple Ridge     500     400     100
    Other     100     —     100
   
 
 
      17,260     12,573     4,687
   
 
 
Committed Credit Facilities (b)                  
  Maturity in February 2005     1,250     —     1,250
   
 
 
    $ 18,510   $ 12,573   $ 5,937
   
 
 

F-54

17.
Securitizations
 
   2003
   2002
   2001
  
 
   Mortgage-
Backed
Securities (*)
   MSRs
   Mortgage-
Backed
Securities (*)
   MSRs
   Mortgage-
Backed
Securities (*)
   MSRs
  
Prepayment speed   7-25 % 11-50 % 7-22 % 12-54 % 7-43 % 9-42 %
Weighted average life (in years)   1.9-6.9   1.3-6.8   2.1-10.6   1.3-6.3   2.9-7.2   2.5-9.1  
Discount rate   5-15 % 6-21 % 5-18 % 6-14 % 5-26 % 6-16 %

F-55

 
   Assets
Serviced
   Funding
Capacity
   Debt
Issued (b)
   Available
Capacity (c)
Timeshare QSPEs (a)   $ 390   $ 340   $ 340   $ —
 
   2001
  
Prepayment speed   13-21 %
Weighted average life (in years)   7.1-7.4  
Discount rate   12-17 %
Anticipated credit losses   8-12 %
 
   Mortgage Loans
    
  
 
   Mortgage-
Backed
Securities
   MSR (*)
   Timeshare
Receivables
  
Fair value of retained interests   $ 102   $ 1,641   $ 81  
Weighted average life (in years)     4.2     5.7     7.5-8.4  
Annual servicing fee     —     0.33 %   0.75-1.75 %
Prepayment speed (annual rate)     9-88 %   10-47 %   7-13.5 %
Impact of 10% adverse change   $ (12 ) $ (93 ) $ —  
Impact of 20% adverse change   $ (15 ) $ (178 ) $ (1 )
Discount rate (annual rate)     2-26 %   10.5 %   15 %
Impact of 10% adverse change   $ (14 ) $ (63 ) $ (2 )
Impact of 20% adverse change   $ (17 ) $ (121 ) $ (3 )
Anticipated credit losses (annual rate)     —     —     9.5-11.9 %
Impact of 10% adverse change   $ —   $ —   $ (1 )
Impact of 20% adverse change   $ —   $ —   $ (3 )

F-56

 
   Total
Principal
Amount
   Principal
Amount 60
Days or More
Past Due (a)
   Net
Credit
Losses (c)
   Average
Principal
Balance
Residential mortgage loans (b)   $ 273   $ 35   $ 2   $ 275
Timeshare receivables     390     11     —     448
   
 
 
 
Total securitized assets   $ 663   $ 46   $ 2   $ 723
   
 
 
 
 
   Mortgage Loans
  
 
   2003
   2002
   2001
  
Proceeds from new securitizations   $ 59,511   $ 38,722   $ 35,776  
Servicing fees received     444     411     352  
Other cash flows received on retained interests (a)     24     25     31  
Purchases of delinquent or foreclosed loans (b)     (677 )   (681 )   (228 )
Servicing advances     (512 )   (161 )   (498 )
Repayment of servicing advances     473     139     495  
 
   Timeshare Receivables
  
 
   2003
   2002
   2001
  
Proceeds from new securitizations   $ 620   $ 345   $ 259  
Proceeds from collections reinvested in securitizations     39     33     —  
Servicing fees received     10     10     4  
Other cash flows received on retained interests (a)     28     50     16  
Purchases of delinquent or foreclosed loans (b)     (57 )   (52 )   (16 )
Cash received upon release of reserve account     12     2     2  
Purchases of defective contracts     (55 )   (40 )   (23 )
 
   Relocation Receivables
  
 
   2003
   2002
   2001
  
Proceeds from new securitizations   $ 35   $ 770   $ 1,964  
Proceeds from collections reinvested in securitizations     2,717     2,433     1,984  
Servicing fees received     3     4     5  
Other cash flows received on retained interests (a)     38     48     (6 )
Cash (paid)/received upon (funding)/release of reserve account     (17 )   1     3  

F-57

18.   Mandatorily Redeemable Preferred Interest in a Subsidiary

19.   Commitments and Contingencies

F-58

Year
   Amount
2004   $ 547
2005     435
2006     353
2007     288
2008     193
Thereafter     877
   
    $ 2,693
   

F-59

F-60

20.   Stockholders' Equity

F-61

 
   Currency
Translation
Adjustments
   Unrealized
Gains/(Losses)
on Cash Flow
Hedges
   Unrealized
Gains/(Losses)
on Available-for-
Sale Securities
   Minimum
Pension
Liability
Adjustment
   Accumulated
Other
Comprehensive
Income/(Loss)
  
Balance, January 1, 2001   $ (165 ) $ —   $ (69 ) $ —   $ (234 )
Current period change     (65 )   (33 )   89     (21 )   (30 )
   
 
 
 
 
 
Balance, December 31, 2001     (230 )   (33 )   20     (21 )   (264 )
Current period change     311     (8 )   (16 )   (37 )   250  
   
 
 
 
 
 
Balance, December 31, 2002     81     (41 )   4     (58 )   (14 )
Current period change     143     38     42     —     223  
   
 
 
 
 
 
Balance, December 31, 2003   $ 224   $ (3 ) $ 46   $ (58 ) $ 209  
   
 
 
 
 
 
21.
Stock-Based Compensation
 
   2003
   2002
   2001
 
   Options
   Weighted
Average
Exercise
Price
   Options
   Weighted
Average
Exercise
Price
   Options
   Weighted
Average
Exercise
Price
Balance at beginning of year   237   $ 16.23   218   $ 15.82   187   $ 16.90
  Granted at fair market value   1     13.40   42     18.45   59     10.96
  Granted in connection with acquisitions   1     15.02   3     10.05   16     12.70
  Exercised   (40 )   10.77   (10 )   10.35   (28 )   9.19
  Forfeited   (11 )   19.45   (16 )   17.59   (16 )   18.46
   
       
       
     
Balance at end of year   188   $ 17.21   237   $ 16.23   218   $ 15.82
   
       
       
     

F-62

 
   Outstanding Options
    
    
 
   Exercisable Options
 
    
   Weighted
Average
Remaining
Contractual
Life
    
Range of
Exercise Prices
   Number
of
Options
   Weighted
Average
Exercise
Price
   Number
of
Options
   Weighted
Average
Exercise
Price
$0.01 to $10.00   50   4.6   $ 9.16   44   $ 9.13
$10.01 to $20.00   91   6.0     17.20   82     17.50
$20.01 to $30.00   30   4.4     22.37   30     22.37
$30.01 to $40.00   17   3.8     31.92   17     31.92
   
           
     
    188   5.2   $ 17.21   173   $ 17.65
   
           
     
 
   2003
   2002
   2001
  
Dividend yield   —   —   —  
Expected volatility   49.0 % 50.0 % 50.0 %
Risk-free interest rate   2.4 % 4.2 % 4.4 %
Expected holding period (years)   3.6   4.5   4.5  

F-63

22.   Two Flags Joint Venture LLC

23.   Trilegiant Corporation

F-64

F-65

F-66

24.
Employee Benefit Plans
25.
Financial Instruments

F-67

F-68

F-69

 
   2003
   2002
  
 
   Carrying
Amount
   Estimated
Fair
Value
   Carrying
Amount
   Estimated
Fair
Value
  
Assets                          
  Cash and cash equivalents   $ 840   $ 840   $ 126   $ 126  
  Restricted cash     448     448     307     307  
  Preferred stock investments in related parties     —     —     87     87  
  Investment in Homestore (a)     81     81     —     —  
  Other preferred stock investments and marketable securities     16     16     14     14  
Debt                          
  Current portion of long-term debt     1,629     1,791     30     30  
  Long-term debt, excluding Upper DECS     3,510     3,892     5,571     5,554  
  Upper DECS     863     864     863     556  
Mandatorily redeemable preferred interest in a subsidiary     —     —     375     375  
Derivatives (c)                          
  Foreign exchange forwards     1     1     (4 )   (4 )
  Equity range forward     (3 )   (3 )   —     —  
  Interest rate swaps     (170 )   (170 )   38     38  
Assets under management and mortgage programs                          
  Program cash     542     542     354     354  
  Mortgage loans held for sale     2,494     2,528     1,923     1,958  
  Relocation receivables     534     534     148     148  
  Timeshare contract receivables     1,372     1,372     401     401  
  Mortgage servicing rights, net     1,641     1,641     1,380     1,380  
  Derivatives related to mortgage servicing rights     316     316     385     385  
  Mortgage-backed securities (a)     102     102     114     114  
  Retained interest in securitization of timeshare receivables (b)     81     81     274     274  
  Retained interest in securitization of relocation receivables (a)     —     —     91     91  
  Derivatives (c) (d)                          
    Commitments to fund mortgages     18     18     63     63  
    Forward delivery commitments     (27 )   (27 )   (82 )   (82 )
    Interest rate swaps     (39 )   (39 )   —     —  
    Option contracts     132     132     309     309  
    Constant maturity floors     1     1     124     124  
Liabilities under management and mortgage programs                          
  Debt     14,702     14,917     12,639     12,688  
  Derivatives related to mortgage servicing rights (c)     (231 )   (231 )   —     —  
  Derivatives (c)                          
    Interest rate swaps     (83 )   (83 )   (108 )   (108 )
    Interest rate swaps     18     18     58     58  
                         

F-70

26.   Dispositions of Businesses

27.   Segment Information

F-71

 
   Real Estate
Services
   Hospitality
Services
   Travel
Distribution
Services
   Vehicle
Services
Net revenues (a)   $ 6,720   $ 2,523   $ 1,659   $ 5,851
EBITDA     1,272     633     459     442
Non-program depreciation and amortization     121     103     110     90
Segment assets exclusive of assets under programs     4,786     4,531     4,000     5,111
Assets under management and mortgage programs     5,266     1,869     —     10,450
Capital expenditures     83     88     100     139
 
   Financial
Services
   Corporate
and Other (b)
   Total
Net revenues (a)   $ 1,401   $ 38   $ 18,192
EBITDA     363     (35 )   3,134
Non-program depreciation and amortization     62     32     518
Segment assets exclusive of assets under programs     1,668     1,348     21,444
Assets under management and mortgage programs     —     8     17,593
Capital expenditures     16     37     463
 
   Real Estate
Services
   Hospitality
Services
   Travel
Distribution
Services
   Vehicle
Services
Net revenues (a)   $ 4,687   $ 2,180   $ 1,695   $ 4,274
EBITDA     832     625     526     408
Non-program depreciation and amortization     113     96     92     64
Segment assets exclusive of assets under programs     4,673     4,680     4,088     5,134
Assets under management and mortgage programs     4,041     685     —     10,421
Capital expenditures     74     67     97     100
 
   Financial
Services
   Corporate
and Other (b)
   Total
Net revenues (a)   $ 1,325   $ 26   $ 14,187
EBITDA     450     (198 )   2,643
Non-program depreciation and amortization     65     36     466
Segment assets exclusive of assets under programs     1,615     527     20,717
Assets under management and mortgage programs     —     33     15,180
Capital expenditures     27     34     399

F-72

 
   Real Estate
Services
   Hospitality
Services
   Travel
Distribution
Services
   Vehicle
Services
Net revenues (a)   $ 1,859   $ 1,522   $ 437   $ 3,402
EBITDA     719     450     78     226
Non-program depreciation and amortization     116     119     26     102
Capital expenditures     41     70     22     74
 
   Financial
Services
   Corporate
and Other (b)
   Total
Net revenues (a)   $ 1,402   $ 71   $ 8,693
EBITDA     299     (380 )   1,392
Non-program depreciation and amortization     73     41     477
Capital expenditures     64     58     329
 
   Year Ended December 31,
  
 
   2003
   2002
   2001
  
EBITDA   $ 3,134   $ 2,643   $ 1,392  
Non-program related depreciation and amortization     (518 )   (466 )   (477 )
Non-program related interest expense, net     (307 )   (262 )   (252 )
Early extinguishments of debt     (58 )   (42 )   —  
Amortization of pendings and listings     (20 )   (256 )   —  
   
 
 
 
Income before income taxes, minority interest and equity in Homestore   $ 2,231   $ 1,617   $ 663  
   
 
 
 
 
   United
States
   United
Kingdom
   All Other
Countries
   Total
2003                        
Net revenues   $ 15,997   $ 429   $ 1,766   $ 18,192
Total assets     35,657     1,021     2,359     39,037
Net property and equipment     1,601     57     145     1,803
2002                        
Net revenues   $ 12,256   $ 389   $ 1,542   $ 14,187
Total assets     32,771     860     2,266     35,897
Net property and equipment     1,611     50     119     1,780
2001                        
Net revenues   $ 7,837   $ 240   $ 616   $ 8,693

F-73

28.   Related Party Transactions

F-74

F-75

F-76

 
   Year Ended December 31,
 
   2002 (a)
   2001
Royalty and marketing fees   $ 66   $ 220
Real estate referral fees (b)     9     37
Dividend income     10     27
Other fees (c)     16     16

F-77

F-78

29.
Selected Quarterly Financial Data—(unaudited)
 
   2003 (*)
 
   First
   Second
   Third
   Fourth
Net revenues   $ 4,128   $ 4,617   $ 5,098   $ 4,349
   
 
 
 
EBITDA   $ 729   $ 801   $ 951   $ 653
Non-program related depreciation and amortization     129     129     129     131
Non-program related interest expense, net     79     80     75     73
Early extinguishments of debt     48     6     4     —
Amortization of pendings and listings     3     4     5     8
   
 
 
 
Income before income taxes and minority interest   $ 470   $ 582   $ 738   $ 441
   
 
 
 
Income from continuing operations   $ 309   $ 382   $ 486   $ 288
Cumulative effect of accounting change     —     —     (293 )   —
   
 
 
 
Net income   $ 309   $ 382   $ 193   $ 288
   
 
 
 

CD common stock per share information:
 
 
 
 
 
 
 
 
 
 
 
 
  Basic                        
    Income from continuing operations   $ 0.30   $ 0.38   $ 0.48   $ 0.29
    Net income   $ 0.30   $ 0.38   $ 0.19   $ 0.29
    Weighted average shares     1,028     1,017     1,013     1,011
  Diluted                        
    Income from continuing operations   $ 0.30   $ 0.37   $ 0.47   $ 0.28
    Net income   $ 0.30   $ 0.37   $ 0.19   $ 0.28
    Weighted average shares     1,040     1,039     1,039     1,042

CD common stock market prices:
 
 
 
 
 
 
 
 
 
 
 
 
  High   $ 13.95   $ 18.39   $ 19.30   $ 22.30
  Low   $ 10.56   $ 12.67   $ 16.94   $ 18.37

F-79

 
   2002
 
   First
   Second (a)
   Third (b)
   Fourth (c)
Net revenues   $ 2,637   $ 3,811   $ 3,863   $ 3,876
   
 
 
 
EBITDA   $ 651   $ 778   $ 617   $ 597
Non-program related depreciation and amortization     105     111     121     129
Non-program related interest expense, net     65     60     68     69
Early extinguishments of debt     —     38     4     —
Amortization of pendings and listings     —     194     45     17
   
 
 
 
Income before income taxes and minority interest   $ 481   $ 375   $ 379   $ 382
   
 
 
 
Income from continuing operations   $ 315   $ 239   $ 250   $ 247
Income from discontinued operations, net of tax     27     24     —     —
Loss on disposal from discontinued operations, net of tax     —     (256 )   —     —
   
 
 
 
Net income   $ 342   $ 7   $ 250   $ 247
   
 
 
 

CD common stock per share information:
 
 
 
 
 
 
 
 
 
 
 
 
  Basic                        
    Income from continuing operations   $ 0.32   $ 0.23   $ 0.24   $ 0.24
    Net income   $ 0.35   $ 0.01   $ 0.24   $ 0.24
    Weighted average shares     979     1,023     1,039     1,034
  Diluted                        
    Income from continuing operations   $ 0.31   $ 0.23   $ 0.24   $ 0.24
    Net income   $ 0.34   $ 0.01   $ 0.24   $ 0.24
    Weighted average shares     1,018     1,053     1,058     1,045

CD common stock market prices:
 
 
 
 
 
 
 
 
 
 
 
 
  High   $ 19.99   $ 19.03   $ 15.66   $ 12.88
  Low   $ 15.35   $ 15.15   $ 10.75   $ 9.04

F-80

30.   Subsequent Events

F-81

* * * *

F-82


EXHIBIT INDEX

Exhibit No.
   Description
3.1   Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q/A for the quarterly period ended March 31, 2000 dated July 28, 2000).
3.2   Amended and Restated By-Laws of the Company (Incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q/A for the quarterly period ended March 31, 2000 dated July 28, 2000).
4.1   Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 dated March 29, 2001.)
4.2   Indenture, dated as of February 24, 1998, between the Company and The Bank of Nova Scotia Trust Company of New York, as Trustee (Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 filed on January 29, 1998).
4.3   Form of 67/8% Note due 2006 (Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-4 filed on November 2, 2001).
4.4   Indenture, dated as of January 13, 2003, between Cendant Corporation and The Bank of Nova Scotia Trust Company of New York, as Trustee (Incorporated by reference to the Company's Current Report on Form 8-K dated January 17, 2003).
4.5   Form of 6.250% Senior Note due 2013 and Form of 7.375% Senior Note due 2008 (Incorporated by reference to Exhibits 4.2 and 4.3, respectively, to the Company's Current Report on Form 8-K dated January 17, 2003).
4.6   Indenture, dated as of May 4, 2001, between the Company and The Bank of New York, as Trustee (pursuant to which the Zero Coupon Convertible Debentures due 2021 were issued) (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated May 10, 2001).
4.7   First Supplemental Indenture, dated as of May 1, 2002, to the Indenture, dated as of May 4, 2001, between the Company and The Bank of New York, as Trustee (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated May 1, 2002).
4.8   Fourth Supplemental Indenture, dated as of July 27, 2001, to the Indenture, dated as of February 24, 1998, between Cendant Corporation and The Bank of Nova Scotia Trust Company of New York, as Trustee (pursuant to which the 6.75% Senior Notes making up a portion of the Upper DECS were issued) (Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated July 31, 2001).
4.9   Forward Purchase Contract Agreement, dated as of July 27, 2001, between Cendant Corporation and Bank One Trust Company, National Association, as Forward Purchase Contract Agent (relating to the Upper DECS) (Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K dated July 31, 2001).
4.10   Form of Upper DECS Certificate (included in Exhibit 4.9).
4.11   Form of 6.75% Senior Note (included in Exhibit 4.8).
4.12   Pledge Agreement, dated as of July 27, 2001, among Cendant Corporation, The Chase Manhattan Bank, as Collateral Agent, and Bank One Trust Company, National Association, as Forward Purchase Contract Agent (relating to the Upper DECS) (Incorporated by reference to Exhibit 4.7 to the Company's Current Report on Form 8-K dated July 31, 2001).
     

G-1

4.13   Indenture, dated as of November 27, 2001, between Cendant Corporation and The Bank of Nova Scotia Trust Company of New York, as Trustee (pursuant to which the 37/8% Convertible Senior Debentures Due 2011 were issued) (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated December 6, 2001).
4.14   Form of 37/8% Convertible Senior Debenture due 2011 (included in Exhibit 4.13).
4.15   Indenture, dated as of November 6, 2000, between PHH Corporation and Bank One Trust Company, N.A., as Trustee (Incorporated by reference to Exhibit 4.0 to PHH Corporation's Current Report on Form 8-K dated December 12, 2000).
4.16   Supplemental Indenture No. 1, dated as of November 6, 2000, to the Indenture, dated as of November 6, 2000, between PHH Corporation and Bank One Trust Company, N.A., as Trustee (Incorporated by reference to Exhibit 4.1 to PHH Corporation's Current Report on Form 8-K dated December 12, 2000).
4.17   Supplemental Indenture No. 3, dated as of May 30, 2002, to the Indenture dated, as of November 6, 2000, between PHH Corporation and Bank One Trust Company, N.A., as Trustee (Incorporated by reference to Exhibit 4.1 to PHH Corporation's Current Report on Form 8-K dated June 4, 2002).
4.18   Form of 6.000% Note due 2008 of PHH Corporation (Incorporated by reference to Exhibit 4.4 of PHH Corporation's Current Report on Form 8-K dated February 24, 2003).
4.19   Form of 7.125% Note due 2013 of PHH Corporation (Incorporated by reference to Exhibit 4.5 of PHH Corporation's Current Report on Form 8-K dated February 24, 2003).
4.20   PHH Corporation $443 Million Note Purchase Agreement dated as of May 3, 2002 (Incorporated by reference to Exhibit 4.1 of PHH Corporation's Form 10-Q for the quarterly period ended June 30, 2002 dated August 14, 2002).
4.21   Form of PHH Corporation Internote (Incorporated by reference to PHH Corporation's Form 10-K for the year ended December 31, 2002 dated March 5, 2003).
4.22(a)   Indenture, dated as of June 30, 1999, among Avis Group Holdings, Inc., the Subsidiary Guarantors and The Bank of New York, as Trustee (Incorporated by reference to Avis Group Holdings, Inc.'s Registration Statement on Form S-4 filed on August 31, 1999).
4.22(b)   Form of 11% Senior Subordinated Note due 2009 of Avis Group Holdings. (Included in Exhibit 4.22(a).
4.22(c)   Supplemental Indenture, dated as of April 2, 2001, to the Indenture, dated as of June 30, 1999, among Avis Group Holdings, Inc., the Subsidiary Guarantors and The Bank of New York, as Trustee (Incorporated by reference to Avis Group Holdings, Inc.'s Current Report on Form 8-K dated April 13, 2001).
10.1(a)   Amended and Extended Employment Agreement dated as of July 1, 2002 by and between Cendant Corporation and Henry R. Silverman (Incorporated by reference to Exhibit 10.73 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002).
10.1(b)   First Amendment to Amended and Extended Employment Agreement of Henry R. Silverman, dated July 28, 2003 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
     

G-2

10.2(a)   Agreement with Stephen P. Holmes, dated September 12, 1997 (Incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-4, Registration No. 333-34517, dated August 28, 1997).
10.2(b)   Amendment to Agreement with Stephen P. Holmes, dated January 11, 1999 (Incorporated by reference to Exhibit 10.2(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 dated March 29, 1999).
10.2(c)   Amendment to Agreement with Stephen P. Holmes, dated January 3, 2001 (Incorporated by reference to Exhibit 10.2(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 dated April 1, 2002).
10.2(d)   Letter Agreement of Stephen P. Holmes, dated May 2, 2003 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.3(a)   Agreement with James E. Buckman, dated September 12, 1997 (Incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-4, Registration No. 333-34517, dated August 28, 1997).
10.3(b)   Amendment to Agreement with James E. Buckman, dated January 11, 1999 (Incorporated by reference to Exhibit 10.4(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 dated March 29, 1999).
10.3(c)   Amendment to Agreement with James E. Buckman, dated January 3, 2001 (Incorporated by reference to Exhibit 10.3(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 dated April 1, 2002).
10.3(d)   Letter Agreement of James E. Buckman, dated May 2, 2003 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.4(a)   Agreement with Richard A. Smith, dated June 2, 2001 (Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 dated April 1, 2002).
10.4(b)   Letter Agreement of Richard A. Smith, dated May 2, 2003 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.5   Agreement with Samuel L. Katz, dated October 1, 2003.
10.6(a)   Employment Agreement with Kevin M. Sheehan, dated April 1, 2003 (Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on From 10-Q for the quarterly period ended March 31, 2003 dated May 9, 2003).
10.6(b)   Letter Agreement of Kevin M. Sheehan, dated May 2, 2003 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.7(a)   Agreement with Scott E. Forbes, dated April 1, 2003 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 dated May 9, 2003).
10.7(b)   Letter Agreement of Scott E. Forbes, dated May 2, 2003 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.8   Agreement with Ronald L. Nelson, dated April 14, 2003 (Incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated April 16, 2003).
     

G-3

10.9(a)   1987 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.16 to the Company's Form 10-Q for the quarterly period ended October 31, 1996 dated December 13, 1996).
10.9(b)   Amendment to 1987 Stock Option Plan dated January 3, 2001 (Incorporated by reference to Exhibit 10.7(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 dated March 29, 2001).
10.10   Galileo International 1999 Equity and Performance Incentive Plan (Incorporated by reference to the Company's Registration Statement on Form S-8, File No. 333-64738, dated October 2, 2001).
10.11   Trendwest Resorts, Inc. 1997 Employee Stock Option Plan (Incorporated by reference to the Company's Registration Statement on Form S-8, File No. 333-89686, dated June 3, 2002).
10.12(a)   1997 Stock Option Plan (Incorporated by reference to Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1997 dated June 16, 1997).
10.12(b)   Amendment to 1997 Stock Option Plan dated January 3, 2001 (Incorporated by reference to Exhibit 10.11(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 dated March 29, 2001).
10.12(c)   Amendment to 1997 Stock Option Plan dated March 19, 2002 (Incorporated by reference to Exhibit 10.11(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 dated March 5, 2003).
10.13(a)   1997 Stock Incentive Plan (Incorporated by reference to Appendix E to the Joint Proxy Statement/ Prospectus included as part of the Company's Registration Statement on Form S-4, Registration No. 333-34517, dated August 28, 1997).
10.13(b)   Amendment to 1997 Stock Incentive Plan dated March 27, 2000 (Incorporated by reference to Exhibit 10.12(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 dated March 29, 2001).
10.13(c)   Amendment to 1997 Stock Incentive Plan dated March 28, 2000 (Incorporated by reference to Exhibit 10.12(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 dated March 29, 2001).
10.13(d)   Amendment to 1997 Stock Incentive Plan dated January 3, 2001 (Incorporated by reference to Exhibit 10.12(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 dated March 29, 2001).
10.14(a)   HFS Incorporated's Amended and Restated 1993 Stock Option Plan (Incorporated by reference to Exhibit 4.1 to HFS Incorporated's Registration Statement on Form S-8, Registration No. 33-83956).
10.14(b)   First Amendment to the Amended and Restated 1993 Stock Option Plan dated May 5, 1995 (Incorporated by reference to Exhibit 4.1 to HFS Incorporated's Registration Statement on Form S-8, Registration No. 33-094756).
10.14(c)   Second Amendment to the Amended and Restated 1993 Stock Option Plan dated January 22, 1996 (Incorporated by reference to Exhibit 10.21(b) to HFS Incorporated's Annual Report on Form 10-K for the year ended December 31, 1995).
10.14(d)   Third Amendment to the Amended and Restated 1993 Stock Option Plan dated January 22, 1996 (Incorporated by reference to Exhibit 10.21(c) to HFS Incorporated's Annual Report on Form 10-K for the year ended December 31, 1995).
     

G-4

10.14(e)   Fourth Amendment to the Amended and Restated 1993 Stock Option Plan dated May 20, 1996 (Incorporated by reference to Exhibit 4.5 to HFS Incorporated's Registration Statement on Form S-8, Registration No. 333-06733).
10.14(f)   Fifth Amendment to the Amended and Restated 1993 Stock Option Plan dated July 24, 1996 (Incorporated by reference to Exhibit 10.21(e) to HFS Incorporated's Annual Report on Form 10-K for the year ended December 31, 1995).
10.14(g)   Sixth Amendment to the Amended and Restated 1993 Stock Option Plan dated September 24, 1996 (Incorporated by reference to Exhibit 10.21(e) to HFS Incorporated's Annual Report on Form 10-K for the year ended December 31, 1995).
10.14(h)   Seventh Amendment to the Amended and Restated 1993 Stock Option Plan dated April 30, 1997 (Incorporated by reference to Exhibit 10.17(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.14(i)   Eighth Amendment to the Amended and Restated 1993 Stock Option Plan dated May 27, 1997 (Incorporated by reference to Exhibit 10.17(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.15(a)   1997 Employee Stock Plan (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration No. 333-45183, dated January 29, 1998).
10.15(b)   Amendment to 1997 Employee Stock Plan dated January 3, 2001.
10.16(a)   Deferred Compensation Plan (Incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 dated March 29,1999).
10.16(b)   1999 Directors Deferred Compensation Plan (Incorporated by reference to Exhibit 10.16(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 dated March 5, 2003).
10.16(c)   Amendment to Certain Stock Plans (Incorporated by reference to Exhibit 10.16(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2003 dated March 5, 2003).
10.17   1999 Broad-Based Employee Stock Option Plan, including the Third Amendment dated March 19, 2002, Second Amendment dated April 2, 2001 and First Amendment dated March 29, 1999 (Incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form10-K for the year ended December 31, 2002 dated March 5, 2003).
10.18(a)   Three Year Competitive Advance and Revolving Credit Agreement dated as of December 10, 2002 among Cendant Corporation, as Borrower, the lenders referred to therein, JPMorgan Chase Bank, as Administrative Agent, Bank of America, N.A., as Syndication Agent, and The Bank of Nova Scotia, Citibank, N.A. and Barclays Bank Plc, as Co-Documentation Agents (Incorporated by reference to the Company's Current Report on Form 8-K dated December 11, 2002).
10.18(b)   First Amendment, dated as of June 26, 2003, to the Three Year Competitive Advance and Revolving Credit Agreement dated as of December 10, 2002 among Cendant Corporation and the financial institutions parties thereto (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 dated November 6, 2003).
     

G-5

10.18(c)   Second Amendment, dated as of October 29, 2003, to the Three Year Competitive Advance and Revolving Credit Agreement dated as of December 10, 2002 among Cendant Corporation and the financial institutions parties thereto (Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 dated November 6, 2003).
10.19   Amended and Restated Competitive Advance and Revolving Credit Agreement, dated as of March 4, 1997, as amended and restated through July 3, 2003, among PHH Corporation, the lenders thereto, and JPMorgan Chase Bank, as Administrative Agent (Incorporated by reference to Exhibit 10.1 to PHH Corporation's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.20(a)   Five-Year Competitive Advance and Revolving Credit Agreement dated March 4, 1997, as amended and restated through February 28, 2000, among PHH Corporation, the financial institutions parties thereto and The Chase Manhattan Bank, as Administrative Agent (Incorporated by reference to Exhibit 10.24(b) to PHH Corporation's Annual Report on Form 10-K for the year ended December 31, 1999).
10.20(b)   Amendment to the Five-Year Competitive Advance and Revolving Credit Agreement, dated as of February 22, 2001, among PHH Corporation, the financial institutions parties thereto and The Chase Manhattan Bank, as Administrative Agent (Incorporated by reference to Exhibit 10.25(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 dated March 29, 2001).
10.20(c)   Amendment to the Five-Year Competitive Advance and Revolving Credit Agreement, dated as of February 21, 2002, among PHH Corporation, the financial institutions parties thereto and The Chase Manhattan Bank, as Administrative Agent (Incorporated by reference to PHH Corporation's Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
10.21   The Company's 1999 Non-Employee Directors Deferred Compensation Plan (Incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 dated March 1, 2000).
10.22   Agreement and Plan of Merger, dated as of June 15, 2001 among the Company, Galaxy Acquisition Corp. and Galileo International, Inc. (Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 15, 2001).
10.23   Remarketing Agreement, dated as of July 27, 2001, among Cendant Corporation, Bank One Trust Company, National Association, as Forward Purchase Contract Agent, and Salomon Smith Barney Inc., as Remarketing Agent (relating to the Upper DECS) (Incorporated by reference to Exhibit 4.8 to the Company's Current Report on Form 8-K dated July 31, 2001).
10.24   Agreement and Plan of Merger by and among Cendant Corporation, Diamondhead Corporation and CheapTickets, Inc. dated August 13, 2001 (Incorporated by reference to Exhibit 99(D)(6) of the Company's Schedule TO filed on August 24, 2001).
10.25   Agreement and Plan of Merger by and among Cendant Corporation, Grand Slam Acquisition Corp. and Fairfield Communities, Inc. dated as of November 1, 2000 (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000 dated November 14, 2000).
10.26   Loan Agreement, dated as of July 30, 1997, between AESOP Leasing Corp. II, as borrower, AESOP Leasing Corp., as permitted nominee of the borrower, and AESOP Funding II L.L.C., as lender. (Incorporated by reference to Avis Group Holdings Inc.'s Registration Statement on Form S-1/A filed on August 11, 1997).
     

G-6

10.27   Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997, by and among AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., as lessee, individually and as the administrator, and Avis Rent A Car, Inc., as guarantor. (Incorporated by reference to Avis Group Holdings Inc.'s Registration Statement on Form S-1/A filed on August 11, 1997).
10.28   Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and among AESOP Leasing Corp. II, as lessor, Avis Rent A Car System, Inc., individually and as the administrator, certain Eligible Rental Car Companies, as lessees, and the Avis Rent A Car, Inc., as guarantor. (Incorporated by reference to Avis Group Holdings Inc.'s Registration Statement on Form S-1/A filed on August 11, 1997).
10.29   Supplemental Indenture No. 1, dated as of July 31, 1998, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and The Bank of New York. (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 dated March 29, 1999).
10.30   Amendment No. 1, dated as of July 31, 1998, to Loan Agreement, dated as of July 30, 1997 between AESOP Leasing L.P., as borrower, and AESOP Funding II L.L.C., as lender. (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 dated March 29, 1999).
10.31   Amended and Restated Loan Agreement, dated as of September 15, 1998, among AESOP Leasing L.P., as borrower, PV Holding Corp., as a permitted nominee of the borrower, Quartz Fleet Management, Inc., as a permitted nominee of the borrower, and AESOP Funding II L.L.C., as lender. (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 dated March 29, 1999).
10.32   Amended and Restated Master Motor Vehicle Operating Lease Agreement, dated as of September 15, 1998, among AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., individually and as Administrator, certain Eligible Rental Car Companies, as lessees, and Avis Rent A Car, Inc., as guarantor. (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 dated March 29, 1999).
10.33   Supplemental Indenture No. 2, dated as of September 15, 1998, to Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and The Bank of New York (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998 dated March 29, 1999).
10.34   Amended and Restated Administration Agreement, dated as of September 15, 1998, between AESOP Funding II L.L.C., AESOP Leasing L.P., AESOP Leasing Corp. II, Avis Rent A Car System, Inc., as Administrator and The Bank of New York, as Trustee (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
10.35   The Amended and Restated Series 1998-1 Supplement, dated as of June 2001 between AESOP Funding II L.L.C., as issuer, and The Bank of New York, as trustee and Series 1998-1 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and The Bank of New York (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
     

G-7

10.36   The Amended and Restated Series 2000-2 Supplement, dated as of June 2001, between AESOP Funding II L.L.C., as issuer, and The Bank of New York, as trustee and Series 2000-2 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and The Bank of New York (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
10.37   The Amended and Restated Series 2000-4 Supplement, dated as of June 2001, between AESOP Funding II L.L.C., as issuer, and The Bank of New York, as trustee and Series 2000-4 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and The Bank of New York (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
10.38   The Amended and Restated Series 2001-2 Supplement, dated as of June 2001, between AESOP Funding II L.L.C., as issuer, and The Bank of New York, as trustee and Series 2001-2 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and The Bank of New York. (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
10.39   Series 2002-1 Supplement, dated as of July 25, 2002, between AESOP Funding II L.L.C., as issuer, and The Bank of New York, as trustee and Series 2002-1 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and The Bank of New York (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2002 dated March 6, 2003).
10.40   Amended and Restated Series 2002-2 Supplement, dated as of November 22, 2002, among AESOP Funding II L.L.C., as issuer, Avis Rent A Car System, Inc., as servicer, JPMorgan Chase Bank, as administrative agent, certain CP Conduit Purchasers, certain Funding Agents, certain APA banks, and The Bank of New York, as trustee and Series 2002-2 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and The Bank of New York (Incorporated by reference to Avis Group Holdings, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2002 dated March 6, 2003).
10.41   Series 2003-5 Supplement, dated as of October 9, 2003, among AESOP Funding II L.L.C., as issuer and The Bank of New York, as trustee and Series 2003-5 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer and The Bank of New York, as trustee.
10.42   Series 2003-1 Indenture Supplement, dated as of August 14, 2003, between Chesapeake Funding LLC, as issuer and JPMorgan Chase Bank, as indenture trustee (Incorporated by reference to Exhibit 10.2 of Chesepeake Funding LLC's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 dated November 13, 2003).
10.43   Series 2003-2 Indenture Supplement, dated as of November 19, 2003, between Chesapeake Funding LLC, as issuer and JPMorgan Chase Bank, as indenture trustee.
10.44   Series 2003-4 Supplement, dated as of June 19, 2003, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as Issuer, and The Bank of New York, as Trustee and Series 2003-4 Agent (Incorporated by reference to Avis Group Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 13, 2003).
     

G-8

10.45   Supplemental Indenture No. 1, dated as of October 28, 1999, between Greyhound Funding LLC and The Chase Manhattan Bank, as Indenture Trustee, to the Base Indenture, dated as of June 30, 1999 (Incorporated by reference to Greyhound Funding LLC's Amendment to its Registration Statement on Form S-1, File No. 333-40708, filed on March 19, 2001).*
10.46   Series 2001-1 Indenture Supplement between Greyhound Funding LLC and The Chase Manhattan Bank, as Indenture Trustee, dated as of October 25, 2001 (Incorporated by reference to Greyhound Funding LLC's Annual Report on Form 10-K for the year ended December 31, 2001).*
10.47   Series 2002-1 Indenture Supplement, between Chesapeake Funding LLC (formerly known as Greyhound Funding LLC), as issuer and JPMorgan Chase Bank, as indenture trustee, dated as of June 10, 2002 (Incorporated by reference to Chesapeake Funding LLC's Annual Report on Form 10-K for the year ended December 31, 2002).
10.48   Series 2002-2 Indenture Supplement, between Chesapeake Funding LLC (formerly known as Greyhound Funding LLC), as issuer and JPMorgan Chase Bank, as indenture trustee, dated as of December 16, 2002 (Incorporated by reference to Chesapeake Funding LLC's Annual Report on Form 10-K for the year ended December 31, 2002).
10.49   Series 1999-3 Indenture Supplement among Greyhound Funding LLC, PHH Vehicle Management Services, LLC, as Administrator, certain CP Conduit Purchasers, certain APA Banks, certain Funding Agents and The Chase Manhattan Bank, as Administrative Agent and Indenture Trustee, dated as of October 28, 1999 (Incorporated by reference to Greyhound Funding LLC's Annual Report on Form 10-K for the year ended December 31, 2001).*
10.50(a)   Supplemental Indenture No. 2, dated as of May 27, 2003, to Base Indenture, dated as of June 30, 1999, as supplemented by Supplemental Indenture No. 1, dated as of October 28, 1999, between Chesapeake Funding LLC (formerly known as Greyhound Funding LLC) and JPMorgan Chase Bank, as trustee (Incorporated by reference to Chesapeake Funding LLC's Quarterly Report on Form 10-Q for the period ended June 30, 2003).
10.50(b)   Series 2003-2 Supplement dated as of March 6, 2003 to the Amended and Restated Base Indenture dated as of July 30, 1997 between AESOP Funding II L.L.C., as Issuer and The Bank of New York, as Trustee and Series 2003-2 Agent (Incorporated by reference to Avis Group Holdings, Inc.'s quarterly report on Form 10-Q for the quarterly period ended March 31, 2003 dated May 14, 2003).
10.50(c)   Series 2003-1 Supplement dated as of January 28, 2003 to the Amended and Restated Base Indenture dated as of July 30, 1997 between AESOP Funding II LLC, as Issuer, Avis Rent A Car System, Inc., as Administrator, Cendant Corporation, as Purchaser and The Bank of New York, as Trustee and Series 2003-1 Agent (Incorporated by reference to Avis Group Holdings, Inc.'s quarterly report on Form 10-Q for the quarterly period ended March 31, 2003 dated May 14, 2003).
10.51   Supplemental Indenture No. 3, dated as of June 18, 2003, to Base Indenture, dated as of June 30, 1999, as supplemented by Supplemental Indenture No. 1, dated as of October 28, 1999, and Supplemental Indenture No. 2, dated as of May 27, 2003, between Chesapeake Funding LLC (formerly known as Greyhound Funding LLC) and JPMorgan Chase Bank, as trustee (Incorporated by reference to Exhibit 10.2 to Chesapeake Funding LLC's Quarterly Report on Form 10-Q for the period ended June 30, 2003).
     

G-9

10.52   Second Amended and Restated Mortgage Loan Purchase and Servicing Agreement, dated as of October 31, 2000, among the Bishop's Gate Residential Mortgage Trust, Cendant Mortgage Corporation, Cendant Mortgage Corporation, as Servicer and PHH Corporation (Incorporated by reference to PHH Corporation's Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
10.53   Purchase Agreement dated as of April 25, 2000 by and between Cendant Mobility Services Corporation and Cendant Mobility Financial Corporation (Incorporated by reference to PHH Corporation's Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
10.54   Receivables Purchase Agreement dated as of April 25, 2000 by and between Cendant Mobility Financial Corporation and Apple Ridge Services Corporation (Incorporated by reference to PHH Corporation's Annual Report on Form 10-K for the year ended December 31, 2001 dated March 29, 2002).
10.55   Master Indenture and Servicing Agreement dated as of August 29, 2002 by and among Sierra Receivables Funding Company, LLC, as Issuer, Fairfield Acceptance Corporation-Nevada, as Master Servicer and Wachovia Bank, National Association, as Trustee and as Collateral Agent (Incorporated by reference to Exhibit 10.61 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002).
10.56   Series 2002-1 Supplement to Master Indenture and Servicing Agreement dated as of August 29, 2002 among Sierra Receivables Funding Company, LLC, as Issuer, Fairfield Acceptance Corporation-Nevada, as Master Servicer and Wachovia Bank, National Association, as Trustee and as Collateral Agent (Incorporated by reference to Exhibit 10.62 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002).
10.57   Master Loan Purchase Agreement dated as of August 29, 2002 among Fairfield Acceptance Corporation-Nevada, as Seller, Fairfield Resorts, Inc., as Co- Originator, Fairfield Myrtle Beach, Inc., as Co-Originator, each VB Subsidiary referred to therein, each VB Partnership referred to therein and Sierra Deposit Company, LLC, as Purchaser (Incorporated by reference to Exhibit 10.63 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated on November 4, 2002).
10.58(a)   Series 2002-1 Supplement dated as of August 29, 2002 to Master Loan Purchase Agreement dated as of August 29, 2002 among Fairfield Acceptance Corporation-Nevada, as Seller, Fairfield Resorts, Inc., as Co-Originator, Fairfield Myrtle Beach, Inc., as Co-Originator, each VB Subsidiary referred to therein, each VB Partnership referred to therein and Sierra Deposit Company, LLC, as Purchaser (Incorporated by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002).
10.58(b)   Master Loan Purchase Agreement dated as of August 29, 2002 between Trendwest Resorts, Inc., as Seller and Sierra Deposit Company, LLC, as Purchaser (Incorporated by reference to Exhibit 10.65 to the Company's Annual Report on Form10-K/A for the year ended December 31, 2001 dated November 4, 2002).
10.58(c)   Series 2001 Supplement dated as of August 29, 2002 to Master Loan Purchase Agreement dated as of August 29, 2002 between Trendwest Resorts, Inc., as Seller and Sierra Deposit Company, LLC, as Purchaser (Incorporated by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002).
     

G-10

10.59   Series 2002-1 Supplement dated as of August 29, 2002 to Master Loan Purchase Agreement dated as of August 29, 2002 between EFI Development Funding, Inc., as Seller and Sierra Deposit Company, LLC, as Purchaser (Incorporated by reference to Exhibit 10.68 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002).
10.60   Master Pool Purchase Agreement dated as of August 29, 2002 between Sierra Deposit Company, LLC, as Depositor and Sierra Receivables Funding Company, LLC, as Issuer (Incorporated by reference to Exhibit 10.69 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002).
10.61   Series 2002-1 Supplement dated as of August 29, 2002 to Master Pool Purchase Agreement dated as of August 29, 2002 between Sierra Deposit Company, LLC, as Depositor and Sierra Receivables Funding Company, LLC, as Issuer (Incorporated by reference to Exhibit 10.70 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002).
10.62   First Amendment, dated as of July 17, 2003, to Master Indenture and Servicing Agreement, dated as of August 29, 2002, among Sierra Receivables Funding Company, LLC, Fairfield Acceptance Corporation—Nevada, as Master Servicer, Wachovia Bank, National Association, as Trustee and as Collateral Agent (Incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.63(a)   Third Amendment, dated as of July 17, 2003, to Series 2002-1 Supplement to Master Indenture and Servicing Agreement, dated as of August 29, 2002, among Sierra Receivables Funding Company, LLC, Fairfield Acceptance Corporation—Nevada, as Master Servicer, Wachovia Bank, National Association, as Trustee and as Collateral Agent (Incorporated by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.63(b)   Fourth Amendment, dated as of October 14, 2003, to Series 2002-1 Supplement to Master Indenture and Servicing Agreement, dated as of August 19, 2002 among Sierra Receivables Funding Company, LLC, Fairfield Acceptance Corporation-Nevada, as Master Servicer, Wachovia Bank, National Association, as Trustee and as Collateral Agent (Incorporated by reference to Exhibit 10.2 of the Company's quarterly report on Form 10-Q for the quarterly period ended September 30, 2003).
10.64   Second Amendment, dated as of July 17, 2003, to Master Loan Purchase Agreement, dated as of August 29, 2002, among Fairfield Acceptance Corporation-Nevada, as Seller, Fairfield Resorts, Inc. and Fairfield Myrtle Beach, Inc., as Co-Orginators, Kona Hawaiian Vacation Ownership, LLC, as an Originator, each VB Subsidiary referred to therein and each VB Partnership referred to therein and Sierra Deposit Company, LLC (Incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.65   Second Amendment, dated as of July 17, 2003, to Series 2002-1 Supplement to Master Loan Purchase Agreement, dated as of August 29, 2002, among Fairfield Acceptance Corporation—Nevada, as Seller, Fairfield Resorts, Inc. and Fairfield Myrtle Beach, Inc., as Co-Originators, Kona Hawaiian Vacation Ownership, LLC, as an Originator, each VB Subsidiary referred to therein and each VB Partnership referred to therein and Sierra Deposit Company, LLC, as Purchaser (Incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
     

G-11

10.66   First Amendment, dated as of July 17, 2003, to Master Loan Purchase Agreement, dated as of August 29, 2002, between Trendwest Resorts, Inc., as Seller and Sierra Deposit Company, LLC, as Purchaser (Incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.67   First Amendment, dated as of July 17, 2003, to Series 2002-1 Supplement to Master Loan Purchase Agreement, dated as of August 29, 2002, between Trendwest Resorts, Inc., as Seller, and Sierra Deposit Company, LLC, as Purchaser (Incorporated by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.68   First Amendment, dated as of July 17, 2003, to Pool Purchase Agreement Supplement, dated as of August 29, 2002, between Sierra Deposit Company, LLC, as Depositor and Sierra Receivables Funding Company, LLC, as Issuer (Incorporated by reference to Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 dated August 7, 2003).
10.69   Indenture and Servicing Agreement dated as of March 31, 2003 by and among Sierra 2003-1 Receivables Funding Company, LLC, as Issuer and Fairfield Acceptance Corporation—Nevada, as Servicer and Wachovia Bank, National Association, as Trustee and Wachovia Bank, National Association, as Collateral Agent (Incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 dated May 14, 2003).
10.70   Indenture and Servicing Agreement dated as of December 5, 2003 by and among Sierra 2003-2 Receivables Funding Company, LLC, as Issuer and Fairfield Acceptance Corporation -Nevada, as Servicer and Wachovia Bank, National Association, as Trustee and Wachovia Bank, National Association, as Collateral Agent.
10.71   Asset and Stock Purchase Agreement by and among Budget Group, Inc. and certain of its Subsidiaries, Cendant Corporation and Cherokee Acquisition Corporation dated as of August 22, 2002 (Incorporated by reference to Exhibit 10.71 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001dated November 4, 2002).
10.72   First Amendment to Asset and Stock Purchase Agreement by and among Budget Group, Inc. and certain of its Subsidiaries, Cendant Corporation and Cherokee Acquisition Corporation dated as of September 10, 2002 (Incorporated by reference to Exhibit 10.72 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 dated November 4, 2002 dated November 4, 2002).
10.73   Series 2002-2 Supplement dated as of September 12, 2002 to the Amended and Restated Base Indenture dated as of July 30, 1997 among Aesop Funding II, L.L.C., Avis Rent A Car System, Inc., JPMorgan Chase Bank, Certain CP Conduit Purchasers, Certain Funding Agents, Certain APA Banks and The Bank of New York, as Trustee (incorporated by reference to Avis Group Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 dated November 4, 2002).
10.74   Second Amended and Restated Mortgage Loan Repurchase and Servicing Agreement dated as of December 16, 2002 among Sheffield Receivables Corporation, as Purchaser, Barclays Bank Plc, New York Branch, as Administrative Agent, Cendant Mortgage Corporation, as Seller and Servicer and PHH Corporation, as Guarantor (Incorporated by reference to PHH Corporation's Form 10-K for the year ended December 31, 2002 dated March 5, 2003).
     

G-12

10.75   Agreement with Thomas D. Christopoul, dated October 1, 2003.
10.76   Cendant Corporation Executive Officer Supplemental Life Insurance Program.
12   Statement Re: Computation of Ratio of Earnings to Fixed Charges.
21   Subsidiaries of Registrant.
23   Consent of Deloitte & Touche LLP.
31.1   Certification of Chief Executive Officer Pursuant to Rules 13(a)-14(a) and 15(d)-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended.
31.2   Certification of Chief Financial Officer Pursuant to Rules 13(a)-14(a) and 15(d)-14(a) Promulgated Under the Securities Exchange Act of 1934, as amended.
32   Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
Greyhound Funding LLC is now known as Chesapeake Funding LLC.

G-13



QuickLinks

TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PART I
PART II
RESULTS OF OPERATIONS—2003 vs. 2002
RESULTS OF OPERATIONS—2002 vs. 2001
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
PART III
PART IV
SIGNATURES
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Cendant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data)
Cendant Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In millions, except share data)
Cendant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)
Cendant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In millions)
Cendant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) (In millions)
Cendant Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise noted, all amounts are in millions, except per share amounts)
EXHIBIT INDEX

Exhibit 10.5

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

This Employment Agreement dated as of April 1, 1999 and amended and restated as of June 5, 2000, by and between Cendant Corporation, a Delaware corporation (“Cendant”) and Samuel L. Katz (the “Executive”), is hereby further amended and restated as of October 1, 2003 (this “Agreement”).

 

WHEREAS, Cendant desires to employ the Executive as Chairman and Chief Executive Officer of Cendant’s Travel Distribution Services Division, and Co-Chairman of Cendant’s Financial Services Division, and the Executive desires to serve Cendant in such capacities.

 

NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

SECTION I

EMPLOYMENT

 

Cendant agrees to employ the Executive and the Executive agrees to be employed by Cendant for the Period of Employment as provided in Section III below and upon the terms and conditions provided in this Agreement.

 

SECTION II

POSITION AND RESPONSIBILITIES

 

During the Period of Employment, the Executive will serve as Chairman and Chief Executive Officer of Cendant’s Travel Distribution Services Division (“TDSD”), and Co-Chairman of Cendant’s Financial Services Division (“FSD”), and subject to the direction of the Chief Executive Officer of Cendant (the “CEO”), will perform such duties and exercise such supervision with regard to the business of Cendant as are associated with such position, as well as such additional duties as may be prescribed from time to time by the CEO.  The Executive will, during the Period of Employment, devote substantially all of his time and attention during normal business hours to the performance of services for Cendant.  The Executive will be required to certify the accuracy of financial statements and results applicable to business units under his control, subject to and in accordance with Cendant policy in effect from time to time.  The Executive will maintain a primary office and conduct his business in New York, New York, except for normal and reasonable business travel in connection with his duties hereunder.

 

 

SECTION III

PERIOD OF EMPLOYMENT

 

The period of the Executive’s employment under this Agreement (the “Period of Employment”) will begin on the date hereof and end on December 31, 2005, subject to extension or termination as provided in this Agreement.

 

SECTION IV

COMPENSATION AND BENEFITS

 

A.            Compensation.

 

For all services rendered by the Executive pursuant to this Agreement during the Period of Employment, including services as an executive, officer, director or committee member of Cendant or any subsidiary or affiliate thereof, the Executive will be compensated as follows:

 

i.              Base Salary.

 

Cendant will pay the Executive a fixed base salary (“Base Salary”) of not less than $762,500 per year.  From time to time, the Executive will be eligible to receive annual increases as the Compensation Committee of the Board of Directors of Cendant (the “Committee”) deems appropriate, in accordance with Cendant’s customary procedures regarding the salaries of senior officers, but with due consideration given to the published Consumer Price Index applicable to the New York/New Jersey greater metropolitan area.  Base Salary will be payable according to the customary payroll practices of Cendant, but in no event less frequently than once each month.

 

ii.             Annual Incentive Awards

 

The Executive will be eligible for discretionary annual incentive compensation awards; provided, that the Executive will be eligible to receive an annual bonus opportunity in respect of each fiscal year of Cendant during the Period of Employment based upon a target bonus (“Target Bonus”) equal to not less than 100% of Base Salary, subject to Cendant’s, TDSD’s and/or FSD’s attainment of applicable performance targets established and certified by the Committee.  The parties acknowledge that it is currently contemplated that such performance targets will be stated in terms of “earnings before interest and taxes” of Cendant, TDSD and/or FSD, however such targets may relate to such other financial and business criteria of Cendant, or any of their respective subsidiaries or business units, as determined by the Committee in its sole discretion (each such annual bonus, an “Incentive Compensation Award”). The Target Bonus in respect of each Incentive Compensation Award will be no less favorable (with respect to the opportunity to

 

 

earn a percentage of Base Salary) than the Target Bonus applicable to other similarly situated senior executive officers who report directly to the CEO.

 

iii.            Long-Term Incentive Awards

 

The Executive will be eligible for annual equity incentive awards, subject to the sole discretion of the Committee.  To the extent any such awards are granted pursuant to a company-wide grant or award program, the aggregate compensatory opportunity to be granted to the Executive will be targeted to provide an aggregate compensatory opportunity to the Executive which is no less favorable than the aggregate compensatory opportunity granted to other similarly situated senior executive officers who report to the CEO; provided, however, that (i) the actual value of the award granted to the Executive may be modified based upon the past performance of the Executive and/or his managed business units and (ii) the vesting of such award may be subject to the future performance of the Executive and/or his managed business units and; further, provided, that in both cases the application of such performance considerations (whether past or future, and whether individual or business unit related) is applied to each other similarly situation senior executive officer in a comparable manner.

 

iv.            Additional Benefits

 

The Executive will be entitled to participate in all other employee benefit plans or programs generally provided to active full time employees of Cendant, and will be entitled to receive such other executive benefits and perquisites generally provided to similarly situated senior executive officers of Cendant, under any plan, program or arrangement now in effect, or later established by Cendant.  The Executive will participate to the extent permissible under the terms and provisions of such plans, programs or arrangements, and in accordance with the terms of such plans, programs and arrangements.

 

Pursuant to prior agreement by letter dated May 2, 2003, the Executive agrees that Cendant may terminate the Executive’s existing split dollar insurance policy and that the Executive will transfer, immediately upon request by Cendant, all of his rights pursuant to such policy (including rights to the cash surrender value) to Cendant.  The Executive will execute such documents necessary to effectuate the foregoing.

 

SECTION V

BUSINESS EXPENSES

 

Cendant will reimburse the Executive for all reasonable travel and other expenses incurred by the Executive in connection with the performance of his duties and obligations under this Agreement.  The Executive will comply with such limitations and reporting requirements with respect to expenses as may be established

 

 

by Cendant from time to time and will promptly provide all appropriate and requested documentation in connection with such expenses.

 

SECTION VI

DISABILITY

 

If the Executive becomes Disabled, as defined below, during the Period of Employment, the Period of Employment may be terminated at the option of the Executive upon notice of resignation to Cendant, or at the option of Cendant upon notice of termination to the Executive.  Cendant’s obligation to make payments to the Executive under this Agreement will cease as of such date of termination, except for Base Salary and Incentive Compensation Awards earned but unpaid as of the date of such termination.  In addition, upon such event, each of the Executive’s then outstanding options to purchase shares of Cendant common stock which were granted on or after June 5, 2000 will become immediately and fully vested and exercisable and, notwithstanding any term or provision of such option to the contrary, shall remain exercisable until the first to occur of the third (3rd) anniversary of the date of such termination and the original expiration date of such option.  In addition, upon such event, the restricted stock units granted to the Executive on May 15, 2003 will become immediately and fully vested.  For purposes of this Agreement, “Disabled” means the Executive’s inability to perform his duties hereunder as a result of serious physical or mental illness or injury for a period of no less than 90 days, together with a determination by an independent medical authority that (i) the Executive is currently unable to perform such duties and (ii) in all reasonable likelihood such disability will continue for a period in excess of 180 days.  Such medical authority shall be mutually and reasonably agreed upon by Cendant and the Executive and such opinion shall be binding on Cendant and the Executive.

 

SECTION VII

DEATH

 

In the event of the death of the Executive during the Period of Employment, the Period of Employment will end and Cendant’s obligation to make payments under this Agreement will cease as of the date of death, except for Base Salary and Incentive Compensation Awards earned but unpaid through the date of death, which will be paid to the Executive’s surviving spouse, estate or personal representative, as applicable.  In addition, upon such event, each of the Executive’s then outstanding options to purchase shares of Cendant common stock which were granted on or after June 5, 2000 will become immediately and fully vested and exercisable and, notwithstanding any term or provision of such options to the contrary, shall remain exercisable (by the Executive’s beneficiary or estate, as provided in any applicable option plan or agreement) until the first to occur of the third (3rd) anniversary of such date of termination and the original expiration date of such option.  In addition, upon such event, the restricted stock units granted to the Executive on May 15, 2003 will become immediately and fully vested.

 

 

SECTION VIII

EFFECT OF TERMINATION OF EMPLOYMENT

 

A.            Without Cause Termination and Constructive Discharge.  If the Executive’s employment terminates during the Period of Employment due to either a Without Cause Termination or a Constructive Discharge, as defined below, Cendant will pay the Executive (or his surviving spouse, estate or personal representative, as applicable) upon such Without Cause Termination or Constructive Discharge (i) a lump sum amount equal to the sum of the Executive’s then current Base Salary, plus the Executive’s then current target Incentive Compensation Award, multiplied by three (3); provided, however, that in no event will the Incentive Compensation Award exceed 100% of the Executive’s then current Base Salary for purposes of such calculation and (ii) any and all Base Salary and Incentive Compensation Awards earned but unpaid through the date of such termination.  In addition, in the event of the termination of the Executive’s employment due to a Without Cause Termination or a Constructive Discharge (i) each of the Executive’s then outstanding options to purchase shares of Cendant common stock which were granted on or after June 5, 2000 will become immediately and fully vested and exercisable and, notwithstanding any term or provision of such option to the contrary, shall remain exercisable until the first to occur of the third (3rd) anniversary of the date of such termination, and the original expiration date of such option and (ii) the restricted stock units granted to the Executive on May 15, 2003 will become immediately and fully vested.

 

B.            Termination for Cause; Resignation.  If the Executive’s employment terminates due to a Termination for Cause or a Resignation, Base Salary and any Incentive Compensation Awards earned but unpaid as of the date of such termination will be paid to the Executive in a lump sum.  Except as set forth in this paragraph, Cendant will have no further obligations to the Executive hereunder.

 

C.            For purposes of this Agreement, the following terms have the following meanings:

 

i.              “Termination for Cause” means (i) the Executive’s willful failure to substantially perform his duties as an employee of Cendant or any subsidiary thereof (other than any such failure resulting from incapacity due to physical or mental illness), (ii) any act of fraud, misappropriation, dishonesty, embezzlement or similar conduct against Cendant or any subsidiary, (iii) the Executive’s conviction of a felony or any crime involving moral turpitude (which conviction, due to the passage of time or otherwise, is not subject to further appeal), (iv) the Executive’s gross negligence in the performance of his duties or (v) the Executive purposefully or negligently makes (or has been found to have made) a false certification to Cendant pertaining to its financial statements.

 

 

ii.             “Constructive Discharge” means (i) any material failure of Cendant to fulfill its obligations under this Agreement (including without limitation any reduction of the Base Salary, as the same may be increased during the Period of Employment, or other element of compensation), (ii) a material and adverse change to the Executive’s duties and responsibilities to Cendant; provided, that the foregoing (A) includes, without limitation, the Executive no longer directly reporting to the CEO and (B) excludes, without limitation, the Executive no longer serving as Co-Chairman (or Chairman) of FSD in connection with an FSD Sale (as defined below), (iii) the occurrence of a Change of Control Transaction (as defined below), (iv) the occurrence of a Business Unit Event (as defined below), or (v) the Period of Employment expires on December 31, 2005 and Cendant does not offer to extend such Period of Employment on substantially similar professional and economic terms by at least two, and not more than three, additional year(s). The Executive will provide Cendant a written notice which describes the circumstances being relied on for the termination with respect to this Agreement within thirty (30) days after the event giving rise to the notice.  Cendant will have thirty (30) days after receipt of such notice to remedy the situation prior to the termination for Constructive Discharge.

 

iii.            “Without Cause Termination” or “Terminated Without Cause” means termination of the Executive’s employment by Cendant other than due to death, disability, or Termination for Cause.

 

iv.            “Resignation” means a termination of the Executive’s employment (and each applicable officer and director position held by the Executive) by the Executive, other than in connection with a Constructive Discharge.

 

v.             “Change of Control Transaction” means any transaction or series of transactions pursuant to or as a result of which (i) during any period of not more than 24 months, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a third party who has entered into an agreement to effect a transaction described in clause (ii), (iii) or (iv) of this paragraph (v)) whose election by the Board or nomination for election by Cendant’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (other than approval given in connection with an actual or threatened proxy or election contest), cease for any reason to constitute at least a majority of the members of the Board, (ii) beneficial ownership of 50% or more of the shares of Cendant common stock (or other securities having generally the right to vote for election of the Board) (“Shares”) shall be sold, assigned or otherwise transferred, directly or indirectly, other than pursuant to a public offering, to a third party, whether by sale or issuance of Shares or other securities or otherwise, (iii) Cendant or any subsidiary thereof shall sell, assign or otherwise transfer, directly or indirectly, assets (including stock or other securities of subsidiaries) having a fair market or book value or earning power (in terms of current budgeted net income) of 50% or more of the assets or earning power of Cendant and

 

 

its subsidiaries (taken as a whole) to any third party, other than Cendant or a wholly-owned subsidiary thereof or (iv) control over management or operations with respect to 50% or more of the business of Cendant shall be sold, assigned or otherwise transferred directly or indirectly to any third party.

 

vi.            “Business Unit Event” means (i) the sale or disposition by Cendant of all or substantially all of the assets of TDSD or (ii) the Executive is no longer both the Chairman of TDSD and the Co-Chairman (or Chairman) of FSD; provided, however, that a Business Unit Event will not occur in the event of a sale or disposition by Cendant of all or substantially all of the assets of FSD (“FSD Sale”), or in the event that the Executive is no longer Co-Chairman (or Chairman) of FSD in connection with an FSD Sale.

 

D.            Conditions to Payment and Acceleration.  All payments due to the Executive under this Section VIII shall be made as soon as practicable; provided, however, that such payments, as well as the modification of the terms of any Cendant options provided under this Section VIII, shall be subject to, and contingent upon, the execution by the Executive (or his beneficiary or estate) of a release of claims against Cendant and its affiliates in such form reasonably agreed to by the parties.  The payments due to the Executive under this Section VIII shall be in lieu of any other severance benefits otherwise payable to the Executive under any severance plan of Cendant or its affiliates.  To the extent any term or condition of any option to purchase Cendant common stock conflicts with any term or condition of this Agreement applicable to such option, the term or condition set forth in this Agreement shall govern.

 

SECTION IX

OTHER DUTIES OF THE EXECUTIVE

DURING AND AFTER THE PERIOD OF EMPLOYMENT

 

A.            The Executive will, with reasonable notice during or after the Period of Employment, furnish information as may be in his possession and fully cooperate with Cendant and its affiliates as may be requested in connection with any claims or legal action in which Cendant or any of its affiliates is or may become a party.

 

B.            The Executive recognizes and acknowledges that all information pertaining to this Agreement or to the affairs; business; results of operations; accounting methods, practices and procedures; members; acquisition candidates; financial condition; clients; customers or other relationships of Cendant or any of its affiliates (“Information”) is confidential and is a unique and valuable asset of Cendant or any of its affiliates.  Access to and knowledge of certain of the Information is essential to the performance of the Executive’s duties under this Agreement.  The Executive will not during the Period of Employment or thereafter, except to the extent reasonably necessary in performance of his duties under this Agreement, give to any person, firm, association, corporation, or governmental

 

 

agency any Information, except as may be required by law.  The Executive will not make use of the Information for his own purposes or for the benefit of any person or organization other than Cendant or any of its affiliates.  The Executive will also use his best efforts to prevent the disclosure of this Information by others.  All records, memoranda, etc. relating to the business of Cendant or its affiliates, whether made by the Executive or otherwise coming into his possession, are confidential and will remain the property of Cendant or its affiliates.

 

C.            i.              During the Period of Employment and for a two year period thereafter (the “Restricted Period”), irrespective of the cause, manner or time of any termination, the Executive will not make any statements or perform any acts intended to or which may have the effect of advancing the interest of any existing or prospective competitors of Cendant or any of its affiliates or in any way injuring the interests of Cendant or any of its affiliates.  During the Restricted Period, the Executive, without prior express written approval by the Board (which will not be unreasonably withheld), will not engage in, or directly or indirectly (whether for compensation or otherwise) own or hold proprietary interest in, manage, operate, or control, or join or participate in the ownership, management, operation or control of, or furnish any capital to or be connected in any manner with, any party which competes with the business of Cendant or any of its affiliates, as such business or businesses may be conducted from time to time, either as a general or limited partner, proprietor, common or preferred shareholder, officer, director, agent, employee, consultant, trustee, affiliate, or otherwise.  The Executive acknowledges that Cendant’s and its affiliates’ businesses are conducted nationally and internationally and agrees that the provisions in the foregoing sentence will operate throughout the United States and the world.

 

ii.             During the Restricted Period, the Executive, without express prior written approval from the Board, will not solicit any members or the then-current clients of Cendant or any of its affiliates for any existing business of Cendant or any of its affiliates or discuss with any employee of Cendant or any of its affiliates information or operation of any business intended to compete with Cendant or any of its affiliates.

 

iii.            During the Restricted Period, the Executive will not interfere with the employees or affairs of Cendant or any of its affiliates or solicit or induce any person who is an employee of Cendant or any of its affiliates to terminate any relationship such person may have with Cendant or any of its affiliates, nor will the Executive during such period directly or indirectly engage, employ or compensate, or cause or permit any person with which the Executive may be affiliated, to engage, employ or compensate, any employee of Cendant or any of its affiliates.  The Executive hereby represents and warrants that the Executive has not entered into any agreement, understanding or arrangement with any employee of Cendant or any of its affiliates pertaining to any business in which the Executive has participated or plans to participate, or to the employment, engagement or compensation of any such employee.

 

 

iv.            For the purposes of this Agreement, proprietary interest means legal or equitable ownership, whether through stock holding or otherwise, of an equity interest in a business, firm or entity or ownership of more than 10% of any class of equity interest in a publicly-held company and the term “affiliate” will include without limitation all subsidiaries and licensees of Cendant.

 

D.            The Executive hereby acknowledges that damages at law may be an insufficient remedy to Cendant if the Executive violates the terms of this Agreement and that Cendant will be entitled, upon making the requisite showing, to preliminary and/or permanent injunctive relief in any court of competent jurisdiction to restrain the breach of or otherwise to specifically enforce any of the covenants contained in this Section IX without the necessity of showing any actual damage or that monetary damages would not provide an adequate remedy.  Such right to an injunction will be in addition to, and not in limitation of, any other rights or remedies Cendant may have.  Without limiting the generality of the foregoing, neither party will oppose any motion the other party may make for any expedited discovery or hearing in connection with any alleged breach of this Section IX.

 

E.             The period of time during which the provisions of this Section IX will be in effect will be extended by the length of time during which the Executive is in breach of the terms hereof as determined by any court of competent jurisdiction on Cendant’s application for injunctive relief.

 

F.             The Executive agrees that the restrictions contained in this Section IX are an essential element of the compensation the Executive is granted hereunder and but for the Executive’s agreement to comply with such restrictions, Cendant would not have entered into this Agreement.

 

SECTION X

INDEMNIFICATION

 

Cendant will indemnify the Executive to the fullest extent permitted by the laws of the state of Cendant’s incorporation in effect at that time, or the certificate of incorporation and by-laws of Cendant, whichever affords the greater protection to the Executive.

 

SECTION XI

MITIGATION

 

The Executive will not be required to mitigate the amount of any payment provided for hereunder by seeking other employment or otherwise, nor will the amount of any such payment be reduced by any compensation earned by the Executive as the result of employment by another employer after the date the Executive’s employment hereunder terminates.

 

 

SECTION XII

WITHHOLDING TAXES

 

The Executive acknowledges and agrees that Cendant may directly or indirectly withhold from any payments under this Agreement all federal, state, city or other taxes that will be required pursuant to any law or governmental regulation.

 

SECTION XIII

EFFECT OF PRIOR AGREEMENTS

 

This Agreement will supersede any prior employment agreement between Cendant and the Executive and any such prior employment agreement will be deemed terminated without any remaining obligations of either party thereunder.

 

SECTION XIV

CONSOLIDATION, MERGER OR SALE OF ASSETS

 

Nothing in this Agreement will preclude Cendant from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of Cendant hereunder.  Upon such a consolidation, merger or sale of assets the term “Cendant” will mean the other corporation and this Agreement will continue in full force and effect.

 

In the event of any corporate transaction, restructuring or similar event pursuant to which Cendant no longer owns at least 50% of the stock of TDSD or no longer owns substantially all of the assets of TDSD, then Cendant shall have the unilateral right to assign this Agreement to the entity which becomes the successor entity in interest to the business of TDSD in connection with such transaction or event, but only if and to the extent that such successor entity agrees in writing to assume this Agreement and all obligations and undertakings of Cendant hereunder.  Upon such event, the term “Cendant” will mean successor entity and this Agreement will continue in full force and effect.  Nothing contained in this paragraph is intended to reduce or alter the Executive’s right hereunder to claim a Constructive Discharge pursuant to Sections VIII.A and VIII.C.ii above.

 

SECTION XV

MODIFICATION

 

This Agreement may not be modified or amended except in writing signed by the parties.  No term or condition of this Agreement will be deemed to have been waived except in writing by the party charged with waiver.  A waiver will operate only as to the specific term or condition waived and will not constitute a waiver for the future or act on anything other than that which is specifically waived.

 

 

SECTION XVI

GOVERNING LAW

 

This Agreement has been executed and delivered in the State of New York and its validity, interpretation, performance and enforcement will be governed by the internal laws of that state.

 

SECTION XVII

ARBITRATION

 

A.            Any controversy, dispute or claim arising out of or relating to this Agreement or the breach hereof which cannot be settled by mutual agreement (other than with respect to the matters covered by Section IX for which Cendant may, but will not be required to, seek injunctive relief) will be finally settled by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state arbitration law) as follows:  Any party who is aggrieved will deliver a notice to the other party setting forth the specific points in dispute.  Any points remaining in dispute twenty (20) days after the giving of such notice may be submitted to arbitration in New York, New York, to the American Arbitration Association, before a single arbitrator appointed in accordance with the arbitration rules of the American Arbitration Association, modified only as herein expressly provided.  After the aforesaid twenty (20) days, either party, upon ten (10) days notice to the other, may so submit the points in dispute to arbitration.  The arbitrator may enter a default decision against any party who fails to participate in the arbitration proceedings.

 

B.            The decision of the arbitrator on the points in dispute will be final, unappealable and binding, and judgment on the award may be entered in any court having jurisdiction thereof.

 

C.            Except as otherwise provided in this Agreement, the arbitrator will be authorized to apportion its fees and expenses and the reasonable attorneys’ fees and expenses of any such party as the arbitrator deems appropriate.  In the absence of any such apportionment, the fees and expenses of the arbitrator will be borne equally by each party, and each party will bear the fees and expenses of its own attorney.

 

D.            The parties agree that this Section XVII has been included to rapidly and inexpensively resolve any disputes between them with respect to this Agreement, and that this Section XVII will be grounds for dismissal of any court action commenced by either party with respect to this Agreement, other than post-arbitration actions seeking to enforce an arbitration award.  In the event that any court determines that this arbitration procedure is not binding, or otherwise allows any litigation regarding a dispute, claim, or controversy covered by this Agreement to proceed, the parties hereto hereby waive any and all right to a trial by jury in or with respect to such litigation.

 

 

E.             The parties will keep confidential, and will not disclose to any person, except as may be required by law, the existence of any controversy hereunder, the referral of any such controversy to arbitration or the status or resolution thereof.

 

SECTION XVIII

SURVIVAL

 

Sections IX, X, XI, XII, and XVII will continue in full force in accordance with their respective terms notwithstanding any termination of the Period of Employment.

 

SECTION XIX

SEPARABILITY

 

All provisions of this Agreement are intended to be severable.  In the event any provision or restriction contained herein is held to be invalid or unenforceable in any respect, in whole or in part, such finding will in no way affect the validity or enforceability of any other provision of this Agreement.  The parties hereto further agree that any such invalid or unenforceable provision will be deemed modified so that it will be enforced to the greatest extent permissible under law, and to the extent that any court of competent jurisdiction determines any restriction herein to be unreasonable in any respect, such court may limit this Agreement to render it reasonable in the light of the circumstances in which it was entered into and specifically enforce this Agreement as limited.

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

CENDANT CORPORATION

 

 

 

 

 

/s/ Terry Conley

 

By:

Terry Conley

 

Title:

Executive Vice President,

 

 

Human Resources

 

 

 

 

 

SAMUEL L. KATZ

 

 

 

 

 

/s/ Samuel L. Katz

 



Exhibit 10.15(b)

 

AMENDMENT TO

AMENDED AND RESTATED 1997 EMPLOYEE STOCK PLAN

OF CENDANT CORPORATION

 

The Amended and Restated 1997 Employee Stock Plan of Cendant Corporation (the “Plan”) is hereby amended as follows:

 

1.                    The first paragraph of Section 3 of the Plan is hereby amended and restated to read, in its entirety, as follows:

 

The total number of shares of Common Stock reserved and available for grant under the Plan shall be [the sum of (i)] twenty-five million (25,000,000) and (ii) two million, three hundred and seventy eight thousand, nine hundred (2,378,900).  Shares subject to an Award under the Plan may be authorized and unissued shares or may be treasury shares; [provided however that no less than 2,378,900 shares shall be treasury shares.]

 

2.                    Ratification.  Except as expressly set forth in this Amendment, the Plan is hereby ratified and confirmed without modification.

 

3.                    Effective Date.  This Amendment shall be effective as of January 3, 2001.

 



Exhibit 10.41

 

CONFORMED COPY

 

 

AESOP FUNDING II L.L.C.,
as Issuer

 

and

 

 

THE BANK OF NEW YORK,
as Trustee and Series 2003-5 Agent

 

 

 

 

SERIES 2003-5 SUPPLEMENT
dated as of October 9, 2003

 

 

to

 

 

AMENDED AND RESTATED BASE INDENTURE
dated as of July 30, 1997

 

 

 

 

SERIES 2003-5 SUPPLEMENT, dated as of October 9, 2003 (this “Supplement”), among AESOP FUNDING II L.L.C., a special purpose limited liability company estab­lished under the laws of Delaware (“AFC-II”), THE BANK OF NEW YORK, a New York banking corporation, as successor in interest to the corporate trust administration of Harris Trust and Savings Bank, as trustee (together with its successors in trust thereunder as pro­vided in the Base Indenture referred to below, the “Trustee”), and THE BANK OF NEW YORK, a New York banking corporation, as agent for the benefit of the Series 2003-5 Noteholders and the Surety Provider (the “Series 2003-5 Agent”), to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AFC-II and the Trustee (as amended, modi­fied or supplemented from time to time, exclusive of Supplements creating a new Series of Notes, the “Base Indenture”).

 

PRELIMINARY STATEMENT

 

WHEREAS, Sections 2.2 and 12.1 of the Base Indenture provide, among other things, that AFC-II and the Trustee may at any time and from time to time enter into a supplement to the Base Indenture for the purpose of authorizing the issuance of one or more Series of Notes;

 

NOW, THEREFORE, the parties hereto agree as follows:

 

DESIGNATION

 

There is hereby created a Series of Notes of two classes to be issued pursuant to the Base Inden­ture and this Supplement and such Series of Notes shall be designated generally as Series 2003-5 Rental Car Asset Backed Notes.

 

The Series 2003-5 Notes will be issued in two classes:  one of which shall be designated as the Series 2003-5 2.78% Rental Car Asset Backed Notes, Class A-1 and one of which shall be designated as the Series 2003-5 Floating Rate Rental Car Asset Backed Notes, Class A-2.

 

The proceeds from the sale of the Series 2003-5 Notes shall be deposited in the Collection Account and shall be paid to AFC-II and used to make Loans under the Loan Agreements to the extent that the Borrowers have requested Loans thereunder and Eligible Vehicles are available for acquisition or refinancing thereunder on the date hereof.  Any such portion of proceeds not so used to make Loans shall be deemed to be Principal Collections.

 

The Series 2003-5 Notes are a non-Segregated Series of Notes (as more fully described in the Base Indenture).  Accordingly, all references in this Supplement to “all” Series of Notes (and all references in this Supplement to terms defined in the Base Indenture that contain references to “all” Series of Notes) shall refer to all Series of Notes other than Segregated Series of Notes.

 

 

ARTICLE I

 

DEFINITIONS

 

(a)           All capitalized terms not otherwise defined herein are defined in the Definitions List attached to the Base Indenture as Schedule I thereto.  All Article, Section or Subsection references herein shall refer to Articles, Sections or Subsections of this Supplement, except as otherwise provided herein.  Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Base Indenture, each capitalized term used or defined herein shall relate only to the Series 2003-5 Notes and not to any other Series of Notes issued by AFC-II.

 

(b)           The following words and phrases shall have the following meanings with respect to the Series 2003-5 Notes and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms:

 

“AGH” means Avis Group Holdings, Inc., a Delaware corporation.

 

“Authorized Newspaper” means the Luxemburger Wort or other daily newspaper of general circulation in Luxembourg (or if publication is not practical in Luxembourg, in Europe).

 

“Business Day” means any day other than (a) a Saturday or a Sunday or (b) a day on which the Surety Provider or banking institutions in New York City or in the city in which the corporate trust office of the Trustee is located are authorized or obligated by law or executive order to close.

 

“Certificate of Lease Deficit Demand” means a certificate in the form of Annex A to the Series 2003-5 Letters of Credit.

 

“Certificate of Termination Date Demand” means a certificate in the form of Annex D to the Series 2003-5 Letters of Credit.

 

“Certificate of Termination Demand” means a certificate in the form of Annex C to the Series 2003-5 Letters of Credit.

 

“Certificate of Unpaid Demand Note Demand” means a certificate in the form of Annex B to the Series 2003-5 Letters of Credit.

 

“Class” means a class of the Series 2003-5 Notes, which may be the Class A-1 Notes or the Class A-2 Notes.

 

“Class A-1 Carryover Controlled Amortization Amount” means, with respect to each Related Month during the Class A-1 Controlled Amortization Period, the amount, if any, by which the portion of the Monthly Total Principal Allocation paid to the Class A-1 Noteholders pursuant to Section 2.5(e) for the previous Related Month was less than the Class A-1 Controlled Distribution Amount for the previous Related Month; provided, however, that for the first

 

2

 

Related Month in the Class A-1 Controlled Amortization Period, the Class A-1 Carryover Controlled Amortization Amount shall be zero.

 

“Class A-1 Controlled Amortization Amount” means with respect to each Related Month during the Class A-1 Notes Controlled Amortization Period $33,333,333.33 ($33,333,333.35 on the Class A-1 Notes Expected Final Distribution Date).

 

“Class A-1 Controlled Amortization Period” means the period commencing at the opening of business June 1, 2006 (or, if such day is not a Business Day, the Business Day immediately preceding such day) and continuing to the earliest of (i) the commencement of the Series 2003-5 Rapid Amortization Period, (ii) the date on which the Class A-1 Notes are fully paid and (iii) the termination of the Indenture.

 

 “Class A-1 Controlled Distribution Amount” means, with respect to any Related Month during the Class A-1 Notes Controlled Amortization Period, an amount equal to the sum of the Class A-1 Controlled Amortization Amount and any Class A-1 Carryover Controlled Amortization Amount for such Related Month.

 

“Class A-1 Expected Final Distribution Date” means the December 2006 Distribution Date.

 

“Class A-1 Final Distribution Date” means the December 2007 Distribution Date.

 

“Class A-1 Initial Invested Amount” means the aggregate initial principal amount of the Class A-1 Notes, which is $200,000,000.

 

“Class A-1 Invested Amount” means, when used with respect to any date, an amount equal to the Class A-1 Outstanding Principal Amount plus the sum of (a) the amount of any principal payments made to the Class A-1 Noteholders on or prior to such date with the proceeds of a demand on the Surety Bond and (b) the amount of any principal payments made to Class A-1 Noteholders that have been rescinded or otherwise returned by the Class A-1 Noteholders for any reason.

 

“Class A-1 Monthly Interest” means, with respect to (i) the initial Series 2003-5 Interest Period, an amount equal to $633,222.22 and (ii) any other Series 2003-5 Interest Period, an amount equal to the product of (A) one-twelfth of the Class A-1 Note Rate and (B) the Class A-1 Invested Amount on the first day of such Series 2003-5 Interest Period, after giving effect to any principal payments made on such date.

 

“Class A-1 Noteholder” means the Person in whose name a Class A-1 Note is registered in the Note Register.

 

“Class A-1 Note Rate” means 2.78% per annum.

 

“Class A-1 Notes” means any one of the Series 2003-5 2.78% Rental Car Asset Backed Notes, Class A-1, executed by AFC-II and authenticated by or on behalf of the Trustee,

 

3

 

substantially in the form of Exhibit A-1-1, Exhibit A-1-2 or Exhibit A-1-3.  Definitive Class A-1 Notes shall have such insertions and deletions as are necessary to give effect to the provisions of Section 2.18 of the Base Indenture.

 

“Class A-1 Outstanding Principal Amount” means, when used with respect to any date, an amount equal to (a) the Class A-1 Initial Invested Amount minus (b) the amount of principal payments made to Class A-1 Noteholders on or prior to such date.

 

“Class A-2 Carryover Controlled Amortization Amount” means, with respect to any Related Month during the Class A-2 Controlled Amortization Period, the amount, if any, by which the portion of the Monthly Total Principal Allocation paid to the Class A-2 Noteholders pursuant to Section 2.5(e) for the previous Related Month was less than the Class A-2 Controlled Distribution Amount for the previous Related Month; provided, however, that for the first Related Month in the Class A-2 Notes Controlled Amortization Period, the Class A-2 Carryover Controlled Amortization Amount shall be zero.

 

“Class A-2 Controlled Amortization Amount” means with respect to each Related Month during the Class A-2 Notes Controlled Amortization Period, $50,000,000.

 

“Class A-2 Controlled Amortization Period” means the period commencing at the opening of business on June 1, 2008 (or, if such day is not a Business Day, the Business Day immediately preceding such day) and continuing to the earliest of (i) the commencement of the Series 2003-5 Rapid Amortization Period, (ii) the date on which the Class A-2 Notes are fully paid and (iii) the termination of the Indenture.

 

“Class A-2 Controlled Distribution Amount” means, with respect to any Related Month during the Class A-2 Notes Controlled Amortization Period, an amount equal to the sum of the Class A-2 Controlled Amortization Amount and any Class A-2 Carryover Controlled Amortization Amount for such Related Month.

 

“Class A-2 Expected Final Distribution Date” means the December 2008 Distribution Date.

 

“Class A-2 Final Distribution Date” means the December 2009 Distribution Date.

 

“Class A-2 Initial Invested Amount” means the aggregate initial principal amount of the Class A-2 Notes, which is $300,000,000.

 

“Class A-2 Invested Amount” means, when used with respect to any date, an amount equal to the Class A-2 Outstanding Principal Amount plus the sum of (a) the amount of any principal payments made to the Class A-2 Noteholders on or prior to such date with the proceeds of a demand on the Surety Bond and (b) the amount of any principal payments made to Class A-2 Noteholders that have been rescinded or otherwise returned by the Class A-2 Noteholders for any reason.

 

“Class A-2 Monthly Interest” means, with respect to any Series 2003-5 Interest Period, an amount equal to the product of (A) the Class A-2 Invested Amount on the first day of such Series 2003-5 Interest Period, after giving effect to any principal payments made on such

 

4

 

date, (B) the Class A-2 Note Rate for such Series 2003-5 Interest Period and (C) the number of days in such Series 2003-5 Interest period divided by 360.

 

“Class A-2 Noteholder” means the Person in whose name a Class A-2 Note is registered in the Note Register.

 

“Class A-2 Note Rate” means, for (i) the initial Series 2003-5 Interest Period 1.50% per annum and (ii) any other Series 2003-5 Interest Period, the sum of 0.38% plus LIBOR for such Series 2003-5 Interest Period.

 

“Class A-2 Notes” means any one of the Series 2003-5 Floating Rate Rental Car Asset Backed Notes, Class A-2, executed by AFC-II and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-2-1, Exhibit A-2-2 or Exhibit A-2-3.  Definitive Class A-2 Notes shall have such insertions and deletions as are necessary to give effect to the provisions of Section 2.18 of the Base Indenture.

 

“Class A-2 Outstanding Principal Amount” means, when used with respect to any date, an amount equal to (a) the Class A-2 Initial Invested Amount minus (b) the amount of principal payments made to Class A-2 Noteholders on or prior to such date.

 

“Clearstream” is defined in Section 5.2.

 

“Consent” is defined in Article IV.

 

“Consent Period Expiration Date” is defined in Article IV.

 

“Demand Note Issuer” means each issuer of a Series 2003-5 Demand Note.

 

“Designated Amounts” is defined in Article IV.

 

“Disbursement” means any Lease Deficit Disbursement, any Unpaid Demand Note Disbursement, any Termination Date Disbursement or any Termination Disbursement under a Series 2003-5 Letter of Credit, or any combination thereof, as the context may require.

 

“Excess Collections” is defined in Section 2.3(f)(i).

 

“Euroclear” is defined in Section 5.2.

 

“Insurance Agreement” means the Insurance Agreement, dated as of October 9, 2003, among the Surety Provider, the Trustee and AFC-II, which shall constitute an “Enhancement Agreement” with respect to the Series 2003-5 Notes for all purposes under the Indenture.

 

“Insured Principal Deficit Amount” means, with respect to any Distribution Date, the excess, if any, of (a) the Series 2003-5 Outstanding Principal Amount on such Distribution Date (after giving effect to the distribution of the Monthly Total Principal Allocation for the Related Month) over (b) the sum of the Series 2003-5 Available Reserve Account Amount on such Distribution Date, the Series 2003-5 Letter of Credit Amount on such Distribution Date and

 

5

 

the Series 2003-5 AESOP I Operating Lease Loan Agreement Borrowing Base on such Distribution Date.

 

“Lease Deficit Disbursement” means an amount drawn under a Series 2003-5 Letter of Credit pursuant to a Certificate of Lease Deficit Demand.

 

“LIBOR” means, with respect to each Series 2003-5 Interest Period, a rate per annum to be determined by the Trustee as follows:

 

(i)            On each LIBOR Determination Date, the Trustee will determine the London interbank offered rate for U.S. dollar deposits for one month that appears on Telerate Page 3750 as it relates to U.S. dollars as of 11:00 a.m., London time, on such LIBOR Determination Date:

 

(ii)           If, on any LIBOR Determination Date, such rate does not appear on Telerate Page 3750, the Trustee will request that the principal London offices of each of four major banks in the London interbank market selected by the Trustee provide the Trustee with offered quotations for deposits in U.S. dollars for a period of one month, commencing on the first day of such Series 2003-5 Interest Period, to prime banks in the London interbank market at approximately 11:00 a.m., London time, on such LIBOR Determination Date and in a principal amount equal to an amount of not less than $250,000 that is representative of a single transaction in such market at such time.  If at least two such quotations are provided, “LIBOR” for such Series 2003-5 Interest Period will be the arithmetic mean of such quotations; or

 

(iii)          If fewer than two such quotations are provided, “LIBOR” for such Series 2003-5 Interest Period will be the arithmetic mean of rates quoted by three major banks in the City of New York selected by the Trustee at approximately 11:00 a.m., New York City time, on such LIBOR Determination Date for loans in U.S. dollars to leading European banks, for a period of one month, commencing on the first day of such Series 2003-5 Interest Period, and in a principal amount equal to an amount of not less than $250,000 that is representative of a single transaction in such market at such time; provided, however, that if the banks selected as aforesaid by such Trustee are not quoting rates as mentioned in this sentence, “LIBOR” for such Series 2003-5 Interest Period will be the same as “LIBOR” for the immediately preceding Series 2003-5 Interest Period.

 

“LIBOR Determination Date” means, with respect to any Series 2003-5 Interest Period, the second London Banking Day preceding the first day of such Series 2003-5 Interest Period.

 

“London Banking Day” means any business day on which dealings in deposits in United States dollars are transacted in the London interbank market.

 

“Monthly Total Principal Allocation” means for any Related Month the sum of all Series 2003-5 Principal Allocations with respect to such Related Month.

 

“Moody’s” means Moody’s Investors Service.

 

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“Past Due Rent Payment” is defined in Section 2.2(g).

 

“Permanent Global Class A-1 Note” is defined in Section 5.2.

 

“Permanent Global Class A-2 Note” is defined in Section 5.2.

 

“Pre-Preference Period Demand Note Payments” means, as of any date of determination, the aggregate amount of all proceeds of demands made on the Series 2003-5 Demand Notes included in the Series 2003-5 Demand Note Payment Amount as of the Series 2003-5 Letter of Credit Termination Date that were paid by the Demand Note Issuers more than one year before such date of determination; provided, however, that if an Event of Bankruptcy (or the occurrence of an event described in clause (a) of the definition thereof, without the lapse of a period of sixty (60) consecutive days) with respect to a Demand Note Issuer occurs during such one year period, (x) the Pre-Preference Period Demand Note Payments as of any date during the period from and including the date of the occurrence of such Event of Bankruptcy to and including the conclusion or dismissal of the proceedings giving rise to such Event of Bankruptcy without continuing jurisdiction by the court in such proceedings shall equal the Pre-Preference Period Demand Note Payments as of the date of such occurrence for all Demand Note Issuers and (y) the Pre-Preference Period Demand Note Payments as of any date after the conclusion or dismissal of such proceedings shall equal the Series 2003-5 Demand Note Payment Amount as of the date of the conclusion or dismissal of such proceedings.

 

“Principal Deficit Amount” means, as of any date of determination, the excess, if any, of (i) the Series 2003-5 Invested Amount on such date (after giving effect to the distribution of the Monthly Total Principal Allocation for the Related Month if such date is a Distribution Date) over (ii) the Series 2003-5 AESOP I Operating Lease Loan Agreement Borrowing Base on such date; provided, however the Principal Deficit Amount on any date occurring during the period commencing on and including the date of the filing by any of the Lessees of a petition for relief under Chapter 11 of the Bankruptcy Code to but excluding the date on which each of the Lessees shall have resumed making all payments of the portion of Monthly Base Rent relating to Loan Interest required to be made under the AESOP I Operating Lease, shall mean the excess, if any, of (x) the Series 2003-5 Invested Amount on such date (after giving effect to the distribution of Monthly Total Principal Allocation for the Related Month if such date is a Distribution Date) over (y) the sum of (1) the Series 2003-5 AESOP I Operating Lease Loan Agreement Borrowing Base on such date and (2) the lesser of (a) the Series 2003-5 Liquidity Amount on such date and (b) the Series 2003-5 Required Liquidity Amount on such date.

 

“Pro Rata Share” means, with respect to any Series 2003-5 Letter of Credit Provider as of any date, the fraction (expressed as a percentage) obtained by dividing (A) the available amount under such Series 2003-5 Letter of Credit Provider’s Series 2003-5 Letter of Credit as of such date by (B) an amount equal to the aggregate available amount under all Series 2003-5 Letters of Credit as of such date; provided, that only for purposes of calculating the Pro Rata Share with respect to any Series 2003-5 Letter of Credit Provider as of any date, if such Series 2003-5 Letter of Credit Provider has not complied with its obligation to pay the Trustee the amount of any draw under its Series 2003-5 Letter of Credit made prior to such date, the available amount under such Series 2003-5 Letter of Credit Provider’s Series 2003-5 Letter of Credit as of such date shall be treated as reduced (for calculation purposes only) by the amount

 

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of such unpaid demand and shall not be reinstated for purposes of such calculation unless and until the date as of which such Series 2003-5 Letter of Credit Provider has paid such amount to the Trustee and been reimbursed by the Lessee or the applicable Demand Note Issuer, as the case may be, for such amount (provided that the foregoing calculation shall not in any manner reduce the undersigned’s actual liability in respect of any failure to pay any demand under its Series 2003-5 Letter of Credit).

 

“Qualified Interest Rate Cap Counterparty” means a counterparty to any Series 2003-5 Interest Rate Cap (A) who is acceptable to the Surety Provider and (B) who is a bank or other financial institution, which is acceptable to each Rating Agency or has (i) a short-term senior unsecured debt, deposit or credit (as the case may be) rating of at least “A-1” from Standard & Poor’s and of “P-1” from Moody’s and (ii) (a) on the date such Series 2003-5 Interest Rate Cap is executed, a long-term senior unsecured debt, deposit or credit (as the case may be) rating of at least “AA-” from Standard & Poor’s and of at least “Aa3” from Moody’s and (b) on any other date, a long-term senior unsecured debt, deposit or credit (as the case may be) rating of at least “A+” from Standard & Poor’s and of at least “A1” from Moody’s.

 

“Requisite Noteholders” means Series 2003-5 Noteholders holding more than 50% of the Series 2003-5 Invested Amount.

 

“Restricted Global Class A-1 Note” is defined in Section 5.1.

 

“Restricted Global Class A-2 Note” is defined in Section 5.1.

 

“Series 1998-1 Notes” means the Series of Notes designated as the Series 1998-1 Notes.

 

“Series 2000-2 Notes” means the Series of Notes designated as the Series 2000-2 Notes.

 

“Series 2000-3 Notes” means the Series of Notes designated as the Series 2000-3 Notes.

 

“Series 2000-4 Notes” means the Series of Notes designated as the Series 2000-4 Notes.

 

“Series 2001-1 Notes” means the Series of Notes designated as the Series 2001-1 Notes.

 

“Series 2001-2 Notes” means the Series of Notes designated as the Series 2001-2 Notes.

 

“Series 2002-1 Notes” means the Series of Notes designated as the Series 2002-1 Notes.

 

“Series 2002-2 Notes” means the Series of Notes designated as the Series 2002-2 Notes.

 

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“Series 2002-3 Notes” means the Series of Notes designated as the Series 2002-3 Notes.

 

“Series 2002-4 Notes” means the Series of Notes designated as the Series 2002-4 Notes.

 

“Series 2003-1 Notes” means the Series of Notes designated as the Series 2003-1 Notes.

 

“Series 2003-2 Notes” means the Series of Notes designated as the Series 2003-2 Notes.

 

“Series 2003-3 Notes” means the Series of Notes designated as the Series 2003-3 Notes.

 

“Series 2003-4 Notes” means the Series of Notes designated as the Series 2003-4 Notes.

 

“Series 2003-5 Accounts” means each of the Series 2003-5 Distribution Account, the Series 2003-5 Reserve Account, the Series 2003-5 Collection Account, the Series 2003-5 Excess Collection Account and the Series 2003-5 Accrued Interest Account.

 

“Series 2003-5 Accrued Interest Account” is defined in Section 2.1(b).

 

“Series 2003-5 Adjusted Monthly Interest” means (a) for the initial Distribution Date, an amount equal to $1,158,222.22 and (b) for any other Distribution Date, the sum of (i) the sum of (A) for the Series 2003-5 Interest Period ending on the day preceding such Distribution Date, an amount equal to the product of (1) the Class A-1 Note Rate and (2) the Class A-1 Outstanding Principal Amount on the first day of such Series 2003-5 Interest Period, divided by twelve and (B) an amount equal to the product of (1) the Class A-2 Note Rate for such Series 2003-5 Interest Period, (2) the Class A-2 Outstanding Principal Amount on the first day of such Series 2003-5 Interest Period and (3) a fraction, the numerator of which is the number of days in such Series 2003-5 Interest Period and the denominator of which is 360 and (ii) any amount described in clause (b)(i) with respect to a prior Distribution Date that remains unpaid as of such Distribution Date (together with any accrued interest on such amount).

 

“Series 2003-5 Agent” is defined in the recitals hereto.

 

“Series 2003-5 AESOP I Operating Lease Loan Agreement Borrowing Base” means, as of any date of determination, the product of (a) the Series 2003-5 AESOP I Operating Lease Vehicle Percentage as of such date and (b) the AESOP I Operating Lease Loan Agreement Borrowing Base as of such date.

 

“Series 2003-5 AESOP I Operating Lease Vehicle Percentage” means, as of any date of determination, a fraction, expressed as a percentage (which percentage shall never exceed 100%), the numerator of which is the Series 2003-5 Required AESOP I Operating Lease Vehicle Amount as of such date and the denominator of which is the sum of the Required AESOP I Operating Lease Vehicle Amounts for all Series of Notes as of such date.

 

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“Series 2003-5 Available Cash Collateral Account Amount” means, as of any date of determination, the amount on deposit in the Series 2003-5 Cash Collateral Account (after giving effect to any deposits thereto and withdrawals and releases therefrom on such date).

 

“Series-2003-5 Available Reserve Account Amount” means, as of any date of determination, the amount on deposit in the Series 2003-5 Reserve Account (after giving effect to any deposits thereto and with­drawals and releases therefrom on such date).

 

“Series 2003-5 Cash Collateral Account” is defined in Section 2.8(f).

 

“Series 2003-5 Cash Collateral Account Collateral” is defined in Section 2.8(a).

 

“Series 2003-5 Cash Collateral Account Surplus” means, with respect to any Distribution Date, the lesser of (a) the Series 2003-5 Available Cash Collateral Account Amount and (b) the lesser of (A) the excess, if any, of the Series 2003-5 Liquidity Amount (after giving effect to any withdrawal from the Series 2003-5 Reserve Account on such Distribution Date) over the Series 2003-5 Required Liquidity Amount on such Distribution Date and (B) the excess, if any, of the Series 2003-5 Enhancement Amount (after giving effect to any withdrawal from the Series 2003-5 Reserve Account on such Distribution Date) over the Series 2003-5 Required Enhancement Amount on such Distribution Date; provided, however that, on any date after the Series 2003-5 Letter of Credit Termination Date, the Series 2003-5 Cash Collateral Account Surplus shall mean the excess, if any, of (x) the Series 2003-5 Available Cash Collateral Account Amount over (y) the Series 2003-5 Demand Note Payment Amount minus the Pre-Preference Period Demand Note Payments as of such date.

 

“Series 2003-5 Cash Collateral Percentage” means, as of any date of determination, the percentage equivalent of a fraction, the numerator of which is the Series 2003-5 Available Cash Collateral Amount as of such date and the denominator of which is the Series 2003-5 Letter of Credit Liquidity Amount as of such date.

 

“Series 2003-5 Closing Date” means October 9, 2003.

 

“Series 2003-5 Collateral” means the Collateral, each Series 2003-5 Letter of Credit, each Series 2003-5 Demand Note, the Series 2003-5 Distribution Account Collateral, the Series 2003-5 Interest Rate Cap Collateral, the Series 2003-5 Cash Collateral Account Collateral and the Series 2003-5 Reserve Account Collateral.

 

“Series 2003-5 Collection Account” is defined in Section 2.1(b).

 

“Series 2003-5 Controlled Amortization Period” means the Class A-1 Controlled Amortization Period and/or the Class A-2 Controlled Amortization Period, as the case may be.

 

“Series 2003-5 Demand Note” means each demand note made by a Demand Note Issuer, substantially in the form of Exhibit C to this Supplement, as amended, modified or restated from time to time.

 

“Series 2003-5 Demand Note Payment Amount” means, as of the Series 2003-5 Letter of Credit Termination Date, the aggregate amount of all proceeds of demands made on the

 

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Series 2003-5 Demand Notes pursuant to Section 2.5(b) or (c) that were deposited into the Series 2003-5 Distribution Account and paid to the Series 2003-5 Noteholders during the one year period ending on the Series 2003-5 Letter of Credit Termination Date; provided, however, that if an Event of Bankruptcy (or the occurrence of an event described in clause (a) of the definition thereof, without the lapse of a period of sixty (60) consecutive days) with respect to a Demand Note Issuer shall have occurred during such one year period, the Series 2003-5 Demand Note Payment Amount as of the Series 2003-5 Letter of Credit Termination Date shall equal the Series 2003-5 Demand Note Payment Amount as if it were calculated as of the date of such occurrence.

 

“Series 2003-5 Deposit Date” is defined in Section 2.2.

 

“Series 2003-5 Distribution Account” is defined in Section 2.9(a).

 

“Series 2003-5 Distribution Account Collateral” is defined in Section 2.9(d).

 

“Series 2003-5 Eligible Letter of Credit Provider” means a person satisfactory to ARAC, the Demand Note Issuers and the Surety Provider and having, at the time of the issuance of the related Series 2003-5 Letter of Credit, a long-term senior unsecured debt rating (or the equivalent thereof in the case of Moody’s or Standard & Poor’s, as applicable) of at least “A+” from Standard & Poor’s and at least “Al” from Moody’s and a short-term senior unsecured debt rating of at least “A-1” from Standard & Poor’s and “P-1” from Moody’s that is (a) a commercial bank having total assets in excess of $500,000,000, (b) a finance company, insurance company or other financial institution that in the ordinary course of business issues letters of credit and has total assets in excess of $200,000,000 or (c) any other financial institution; provided, however, that if a person is not a Series 2003-5 Letter of Credit Provider (or a letter of credit provider under the Supplement for any other Series of Notes), then such person shall not be a Series 2003-5 Eligible Letter of Credit Provider until AFC-II has provided ten (10) days’ prior notice to the Rating Agencies that such person has been proposed as a Series 2003-5 Letter of Credit Provider.

 

“Series 2003-5 Enhancement” means the Series 2003-5 Cash Collateral Account Collateral, the Series 2003-5 Letters of Credit, the Series 2003-5 Demand Notes, the Series 2003-5 Overcollateralization Amount and the Series 2003-5 Reserve Account Amount.

 

“Series 2003-5 Enhancement Amount” means, as of any date of determination, the sum of (i) the Series 2003-5 Overcollateralization Amount as of such date, (ii) the Series 2003-5 Letter of Credit Amount as of such date, (iii) the Series 2003-5 Available Reserve Account Amount as of such date and (iv) the amount of cash and Permitted Investments on deposit in the Series 2003-5 Collection Account (not including amounts allocable to the Series 2003-5 Accrued Interest Account) and the Series 2003-5 Excess Collection Account as of such date.

 

“Series 2003-5 Enhancement Deficiency” means, on any date of determination, the amount by which the Series 2003-5 Enhancement Amount is less than the Series 2003-5 Required Enhancement Amount as of such date.

 

“Series 2003-5 Excess Collection Account” is defined in Section 2.1(b).

 

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“Series 2003-5 Final Distribution Date” means the Class A-1 Final Distribution Date or the Class A-2 Final Distribution Date.

 

“Series 2003-5 Initial Invested Amount” means the sum of the Class A-1 Initial Invested Amount and the Class A-2 Initial Invested Amount.

 

“Series 2003-5 Interest Period” means a period commencing on and including a Distribution Date and ending on and including the day preceding the next succeeding Distribution Date; provided, however that the initial Series 2003-5 Interest Period shall commence on and include the Series 2003-5 Closing Date and end on and include November 19, 2003.

 

“Series 2003-5 Interest Rate Cap” is defined in Section 2.10(a).

 

“Series 2003-5 Interest Rate Cap Collateral” is defined in Section 2.10(c).

 

“Series 2003-5 Interest Rate Cap Counterparty” means AFC-II’s counterparty under any Series 2003-5 Interest Rate Cap.

 

“Series 2003-5 Interest Rate Cap Proceeds” means the amounts received by the Trustee from a Series 2003-5 Interest Rate Cap Counterparty from time to time in respect of any Series 2003-5 Interest Rate Cap (including amounts received from a guarantor or from collateral).

 

“Series 2003-5 Invested Amount” means, as of any date of determination, the sum of the Class A-1 Invested Amount as of such date and the Class A-2 Invested Amount as of such date.

 

“Series 2003-5 Invested Percentage” means as of any date of determination:

 

(a)           when used with respect to Principal Collections, the percentage equivalent (which percentage shall never exceed 100%) of a fraction the numerator of which shall be equal to the sum of the Series 2003-5 Invested Amount and the Series 2003-5 Overcollateralization Amount, determined during the Series 2003-5 Revolving Period as of the end of the Related Month (or, until the end of the initial Related Month, on the Series 2003-5 Closing Date), or, during the Series 2003-5 Controlled Amortization Period and the Series 2003-5 Rapid Amortization Period, as of the end of the Series 2003-5 Revolving Period, and the denominator of which shall be the greater of (I) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 2003-5 Closing Date, and (II) as of the same date as in clause (I), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all Series of Notes and all classes of such Series of Notes) and (ii) overcollateralization percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); and

 

(b)           when used with respect to Interest Collections, the percentage equivalent (which percentage shall never exceed 100%) of a fraction the numerator of which shall be

 

12

 

the Accrued Amounts with respect to the Series 2003-5 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination.

 

“Series 2003-5 Lease Interest Payment Deficit” means on any Distribution Date an amount equal to the excess, if any, of (a) the aggregate amount of Interest Collections which pursuant to Section 2.2(a), (b), (c) or (d) would have been allocated to the Series 2003-5 Accrued Interest Account if all payments of Monthly Base Rent required to have been made under the Leases from and excluding the preceding Distribution Date to and including such Distribution Date were made in full over (b) the aggregate amount of Interest Collections which pursuant to Section 2.2(a), (b), (c) or (d) have been allocated to the Series 2003-5 Accrued Interest Account (excluding any amounts paid into the Series 2003-5 Accrued Interest Account pursuant to the proviso in Sections 2.2(c)(ii) and/or 2.2(d)(ii)) from and excluding the preceding Distribution Date to and including such Distribution Date.

 

“Series 2003-5 Lease Payment Deficit” means either a Series 2003-5 Lease Interest Payment Deficit or a Series 2003-5 Lease Principal Payment Deficit.

 

“Series 2003-5 Lease Principal Payment Carryover Deficit” means (a) for the initial Distribution Date, zero and (b) for any other Distribution Date, the excess of (x) the Series 2003-5 Lease Principal Payment Deficit, if any, on the preceding Distribution Date over (y) the amount deposited in the Distribution Account on such preceding Distribution Date pursuant to Section 2.5(b) on account of such Series 2003-5 Lease Principal Payment Deficit.

 

“Series 2003-5 Lease Principal Payment Deficit” means on any Distribution Date the sum of (a) the Series 2003-5 Monthly Lease Principal Payment Deficit for such Distribution Date and (b) the Series 2003-5 Lease Principal Payment Carryover Deficit for such Distribution Date.

 

“Series 2003-5 Letter of Credit” means an irrevocable letter of credit, if any, substantially in the form of Exhibit D to this Supplement issued by a Series 2003-5 Eligible Letter of Credit Provider in favor of the Trustee for the benefit of the Series 2003-5 Noteholders and the Surety Provider in form and substance satisfactory to the Surety Provider.

 

“Series 2003-5 Letter of Credit Amount” means, as of any date of determination, the lesser of (a) the sum of (i) the aggregate amount available to be drawn on such date under each Series 2003-5 Letter of Credit, as specified therein, and (ii) if the Series 2003-5 Cash Collateral Account has been established and funded pursuant to Section 2.8, the Series 2003-5 Available Cash Collateral Account Amount on such date and (b) the aggregate outstanding principal amount of the Series 2003-5 Demand Notes on such date.

 

“Series 2003-5 Letter of Credit Expiration Date” means, with respect to any Series 2003-5 Letter of Credit, the expiration date set forth in such Series 2003-5 Letter of Credit, as such date may be extended in accordance with the terms of such Series 2003-5 Letter of Credit.

 

“Series 2003-5 Letter of Credit Liquidity Amount” means, as of any date of determination, the sum of (a) the aggregate amount available to be drawn on such date under

 

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each Series 2003-5 Letter of Credit, as specified therein, and (b) if the Series 2003-5 Cash Collateral Account has been established and funded pursuant to Section 2.8, the Series 2003-5 Available Cash Collateral Account Amount on such date.

 

“Series 2003-5 Letter of Credit Provider” means the issuer of a Series 2003-5 Letter of Credit.

 

“Series 2003-5 Letter of Credit Termination Date” means the first to occur of (a) the date on which the Series 2003-5 Notes are fully paid and the Surety Provider has been paid all Surety Provider Fees and all other Surety Provider Reimbursement Amounts then due, (b) the Series 2003-5 Termination Date and (c) such earlier date consented to by the Surety Provider and the Rating Agencies which consent by the Surety Provider shall be in writing.

 

“Series 2003-5 Limited Liquidation Event of Default” means, so long as such event or condition continues, any event or condition of the type specified in clauses (a) through (j) of Article III; provided, however, that any event or condition of the type specified in clauses (a) through (e) and (h) through (j) of Article III shall not constitute a Series 2003-5 Limited Liquidation Event of Default if (i) within such thirty (30) day period, such Amortization Event shall have been cured and, after such cure of such Amortization Event is provided for, the Trustee shall have received the written consent of the Surety Provider waiving the occurrence of such Series 2003-5 Limited Liquidation Event of Default or (ii) the Trustee shall have received the written consent of the Surety Provider waiving the occurrence of such Series 2003-5 Limited Liquidation Event of Default.

 

“Series 2003-5 Liquidity Amount” means, as of any date of determination, the sum of (a) the Series 2003-5 Letter of Credit Liquidity Amount on such date and (b) the Series 2003-5 Available Reserve Account Amount on such date.

 

“Series 2003-5 Maximum Aggregate Kia/Isuzu/Subaru/Hyundai/Suzuki Amount” means, as of any day, with respect to Kia, Isuzu, Subaru, Hyundai and Suzuki, in the aggregate, an amount equal to 15% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day or such lesser percentage as may be agreed to in writing by AFC-II and the Surety Provider of the aggregate Net Book Value of all Vehicles leased under the Leases on such day.

 

“Series 2003-5 Maximum Amount” means any of the Series 2003-5 Maximum Manufacturer Amounts, the Series 2003-5 Maximum Non-Eligible Manufacturer Amount, the Series 2003-5 Maximum Non-Program Vehicle Amount or the Series 2003-5 Maximum Specified States Amount.

 

“Series 2003-5 Maximum Individual Kia/Isuzu/Subaru/Hyundai/Suzuki Amount” means, as of any day, with respect to Kia, Isuzu, Subaru, Hyundai or Suzuki, individually, an amount equal to 5% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day.

 

“Series 2003-5 Maximum Manufacturer Amount” means, as of any day, any of the Series 2003-5 Maximum Mitsubishi Amount, the Series 2003-5 Maximum Individual Kia/Isuzu/Subaru/Hyundai/Suzuki Amount or the Series 2003-5 Maximum Aggregate Kia/Isuzu/Subaru/Hyundai/Suzuki Amount.

 

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“Series 2003-5 Maximum Mitsubishi Amount” means, as of any day, an amount equal to 10% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day.

 

“Series 2003-5 Maximum Non-Eligible Manufactur­er Amount” means, as of any day, an amount equal to 3% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day.

 

“Series 2003-5 Maximum Non-Program Vehicle Amount” means, as of any day, an amount equal to the Series 2003-5 Maximum Non-Program Vehicle Percentage of the aggregate Net Book Value of all Vehicles leased under the Leases on such day.

 

“Series 2003-5 Maximum Non-Program Vehicle Percentage” means 25% or such lesser percentage as may be agreed to in writing by AFC-II and the Surety Provider on or after the Series 2003-5 Closing Date, with prompt written notice thereof delivered by AFC-II to the Trustee.

 

“Series 2003-5 Maximum Specified States Amount” means, as of any day, an amount equal to 7.5% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day.

 

“Series 2003-5 Monthly Interest” means, with respect to any Series 2003-5 Interest Period, the sum of the Class A-1 Monthly Interest and the Class A-2 Monthly Interest with respect to such Series 2003-5 Interest Period.

 

“Series 2003-5 Monthly Lease Principal Payment Deficit” means, on any Distribution Date, an amount equal to the excess, if any, of (a) the aggregate amount of Principal Collections which pursuant to Section 2.2(a), (b), (c) or (d) would have been allocated to the Series 2003-5 Collection Account if all payments required to have been made under the Leases from and excluding the preceding Distribution Date to and including such Distribution Date were made in full over (b) the aggregate amount of Principal Collections which pursuant to Section 2.2(a), (b), (c) or (d) have been allocated to the Series 2003-5 Collection Account (without giving effect to any amounts paid into the Series 2003-5 Accrued Interest Account pursuant to the proviso in Sections 2.2(c)(ii) and/or 2.2(d)(ii)) from and excluding the preceding Distribution Date to and including such Distribution Date.

 

“Series 2003-5 Non-Program Vehicle Percentage” means, as of any date of deter­mination, a fraction, expressed as a percentage, the numerator of which is the aggregate Net Book Value of all Non-Program Vehicles leased under the AESOP I Operating Lease as of such date and the denominator of which is the aggregate Net Book Value of all Vehicles leased under the AESOP I Operating Lease as of such date.

 

“Series 2003-5 Note Rate” means, the Class A-1 Note Rate or the Class A-2 Rate, as the context may require.

 

“Series 2003-5 Noteholder” means any Class A-1 Noteholder or any Class A-2 Noteholder.

 

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“Series 2003-5 Notes” means, collectively, the Class A-1 Notes and the Class A-2 Notes.

 

“Series 2003-5 Outstanding Principal Amount” means, as of any date of determination, the sum of the Class A-1 Outstanding Principal Amount and the Class A-2 Outstanding Principal Amount.

 

“Series 2003-5 Overcollateralization Amount” means (i) as of any date on which no AESOP I Operating Lease Vehicle Deficiency exists, the Series 2003-5 Required Overcollateralization Amount as of such date and (ii) as of any date on which an AESOP I Operating Lease Vehicle Deficiency exists, the excess, if any, of (x) the Series 2003-5 AESOP I Operating Lease Loan Agreement Borrowing Base as of such date over (y) the Series 2003-5 Invested Amount as of such date.

 

“Series 2003-5 Past Due Rent Payment” is defined in Section 2.2(g).

 

“Series 2003-5 Percentage” means, as of any date of determination, a fraction, expressed as a per­centage, the numerator of which is the Series 2003-5 Invested Amount as of such date and the denominator of which is the Aggregate Invested Amount as of such date.

 

“Series 2003-5 Principal Allocation” is defined in Section 2.2(a)(ii).

 

“Series 2003-5 Program Vehicle Percentage” means, as of any date of determination, 100% minus the Series 2003-5 Non-Program Vehicle Percentage.

 

“Series 2003-5 Rapid Amortization Period” means the period beginning at the close of business on the Business Day immediately preceding the day on which an Amortization Event is deemed to have occurred with respect to the Series 2003-5 Notes and ending upon the earliest to occur of (i) the date on which the Series 2003-5 Notes are fully paid and the Surety Provider has been paid all Surety Provider Fees and all other Surety Provider Reimbursement Amounts then due, (ii) the Series 2003-5 Termination Date and (iii) the termination of the Indenture.

 

“Series 2003-5 Reimbursement Agreement” means any and each agreement provid­ing for the reimbursement of a Series 2003-5 Letter of Credit Provider for draws  under its Series 2003-5 Letter of Credit as the same may be amended, supplemented, restated or otherwise modified from time to time.

 

“Series 2003-5 Repurchase Amount” is defined in Section 6.1.

 

“Series 2003-5 Required AESOP I Operating Lease Vehicle Amount” means, as of any date of determination, the sum of the Series 2003-5 Invested Amount and the Series  2003-5 Required Overcollateralization Amount as of such date.

 

“Series 2003-5 Required Enhancement Amount” means, as of any date of determi­nation, the sum of (i) the product of the Series 2003-5 Required Enhancement Percentage as of such date and the Series 2003-5 Invested Amount as of such date, (ii) the Series 2003-5 AESOP I Operating Lease Vehicle Per­centage as of the immediately preceding Business Day of

 

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the excess, if any, of the Non-Program Vehicle Amount as of such date over the Series 2003-5 Maximum Non-Program Vehicle Amount as of such date, (iii) the Series 2003-5 AESOP I Operating Lease Vehicle Percentage as of the immediately preceding Business Day of the excess, if any, of the aggregate Net Book Value of all Vehicles manufactured by Mitsubishi and leased under the Leases as of such date over the Series 2003-5 Maximum Mitsubishi Amount as of such date, (iv) the Series 2003-5 AESOP I Operating Lease Vehicle Percentage as of the immediately preceding Business Day of the excess, if any, of the aggre­gate Net Book Value of all Vehicles manufac­tured by Kia, Isuzu, Subaru, Hyundai or Suzuki, individually, and leased under the Leases as of such date over the Series 2003-5 Maximum Individual Kia/Isuzu/Subaru/ Hyundai/Suzuki Amount as of such date, (v) the Series 2003-5 AESOP I Operating Lease Vehicle Percentage as of the immediately preceding Business Day of the excess, if any, of the aggregate Net Book Value of all Vehicles manufactured by Kia, Isuzu, Subaru, Hyundai or Suzuki, in the aggregate, and leased under the Leases as of such date over the Series 2003-5 Maximum Aggre­gate Kia/Isuzu/Subaru/Hyundai/Suzuki Amount as of such date, (vi) the Series 2003-5 AESOP I Operating Lease Vehicle Percentage as of the immediately preceding Business Day of the excess, if any, of the Specified States Amount as of such date over the Series 2003-5 Maximum Specified States Amount as of such date and (vii) the Series 2003-5 AESOP I Operating Lease Vehicle Percentage as of the immediately preceding Business Day of the excess, if any, of the Non-Eligible Manufacturer Amount as of such date over the Series 2003-5 Maximum Non-Eligible Manufacturer Amount as of such date.

 

“Series 2003-5 Required Enhancement Percentage” means, as of any date of deter­mination, the sum of (i) the product of (A) 14.65% times (B) the Series 2003-5 Program Vehicle Percentage as of such date and (ii) the product of (A) the Series 2003-5 Required Non-Program Enhancement Percentage as of such date times (B) the Series 2003-5 Non-Program Vehicle Percentage as of such date.

 

“Series 2003-5 Required Liquidity Amount” means, with respect to any Distribution Date, an amount equal to 3.0% of the Series 2003-5 Invested Amount on such Distribution Date (after giving effect to any payments of principal to be made on the Series 2003-5 Notes on such Distribution Date).

 

“Series 2003-5 Required Non-Program Enhancement Percentage” means, as of any date of determination, the greater of (a) 20.25% and (b) the sum of (i) 20.25% and (ii) the highest, for any calendar month within the preceding twelve calendar months, of the greater of (x) an amount (not less than zero) equal to 100% minus the Measurement Month Average for the immediately preceding Measurement Month and (y) an amount (not less than zero) equal to 100% minus the Market Value Average as of the Determination Date within such calendar month (excluding the Market Value Average for any Determination Date which has not yet occurred).

 

“Series 2003-5 Required Overcollateralization Amount” means, as of any date of determination, the excess, if any, of the Series 2003-5 Required Enhancement Amount over the sum of (i) the Series 2003-5 Letter of Credit Amount as of such date, (ii) the Series 2003-5 Available Reserve Account Amount on such date and (iii) the amount of cash and Permitted Investments on deposit in the Series 2003-5 Collection Account (not including amounts allocable

 

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to the Series 2003-5 Accrued Interest Account) and the Series 2003-5 Excess Collection Account on such date.

 

“Series 2003-5 Required Reserve Account Amount” means, with respect to any Distribution Date, an amount equal to the greater of (a) the excess, if any, of the Series 2003-5 Required Liquidity Amount on such Distribution Date over the Series 2003-5 Letter of Credit Liquidity Amount on such Distribution Date (after giving effect to any payments of principal to be made on the Series 2003-5 Notes on such Distribution Date) and (b) the excess, if any, of the Series 2003-5 Required Enhancement Amount over the Series 2003-5 Enhancement Amount (excluding therefrom the Series 2003-5 Available Reserve Account Amount and calculated after giving effect to any payments of principal to be made on the Series 2003-5 Notes) on such Distribution Date.

 

“Series 2003-5 Reserve Account” is defined in Section 2.7(a).

 

“Series 2003-5 Reserve Account Collateral” is defined in Section 2.7(d).

 

“Series 2003-5 Reserve Account Surplus” means, with respect to any Distribution Date, the excess, if any, of the Series 2003-5 Available Reserve Account Amount over the Series 2003-5 Required Reserve Account Amount on such Distribution Date.

 

“Series 2003-5 Revolving Period” means, the period from and including the Series 2003-5 Closing Date to the earlier of (i) the commencement of the Class A-1 Controlled Amortization Period and (ii) the commencement of the Series 2003-5 Rapid Amortization Period; provided that if the Class A-1 Notes are paid in full on or prior to the December 2006 Distribution Date, then the Series 2003-5 Revolving Period shall also include the period from and including the first day of the calendar month during which the Distribution Date on which the Class A-1 Notes are paid in full occurs to the earlier of (i) the commencement of the Class A-2 Controlled Amortization Period and (ii) the commencement of the Series 2003-5 Rapid Amortization Period.

 

“Series 2003-5 Shortfall” is defined in Section 2.3(g).

 

“Series 2003-5 Termination Date” means the December 2009 Distribution Date.

 

“Series 2003-5 Unpaid Demand Amount” means, with respect to any single draw pursuant to Section 2.5(c) or (d) on the Series 2003-5 Letters of Credit, the aggregate amount drawn by the Trustee on all Series 2003-5 Letters of Credit.

 

“Shadow Rating” means the rating of the Series 2003-5 Notes by Standard & Poor’s or Moody’s, as applicable, without giving effect to the Surety Bond.

 

“Standard & Poor’s” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.

 

“Supplement” is defined in the preamble hereto.

 

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“Surety Bond” means the Note Guaranty Insurance Policy No. CA00724A, dated October 9, 2003, issued by the Surety Provider.

 

“Surety Default” means (i) the occurrence and continuance of any failure by the Surety Provider to pay upon a demand for payment in accordance with the requirements of the Surety Bond or (ii) the occurrence of an Event of Bankruptcy with respect to the Surety Provider.

 

“Surety Provider” means XL Capital Assurance Inc., a New York corporation.  The Surety Provider shall constitute an “Enhancement Provider” with respect to the Series 2003-5 Notes for all purposes under the Indenture and the other Related Documents.

 

“Surety Provider Fee” is defined in the Insurance Agreement.

 

“Surety Provider Reimbursement Amounts” means, as of any date of determination, (i) an amount equal to the aggregate of any amounts due as of such date to the Surety Provider pursuant to the Insurance Agreement in respect of unreimbursed draws under the Surety Bond, including interest thereon determined in accordance with the Insurance Agreement, and (ii) an amount equal to the aggregate of any other amounts due as of such date to the Surety Provider pursuant to the Insurance Agreement.

 

“Telerate Page 3750” means the display page currently so designated on the Moneyline Telerate Service (or such other page as may replace that page on that service for the purpose of displaying comparable rates or prices).

 

“Temporary Global Class A-1 Note” is defined in Section 5.2.

 

“Temporary Global Class A-2 Note” is defined in Section 5.2.

 

“Termination Date Disbursement” means an amount drawn under a Series 2003-5 Letter of Credit pursuant to a Certificate of Termination Date Demand.

 

“Termination Disbursement” means an amount drawn under a Series 2003-5 Letter of Credit pursuant to a Certificate of Termination Demand.

 

“Trustee” is defined in the recitals hereto.

 

“Unpaid Demand Note Disbursement” means an amount drawn under a Series 2003-5 Letter of Credit pursuant to a Certificate of Unpaid Demand Note Demand.

 

“Waivable Amount” is defined in Article IV.

 

“Waiver Event” means the occurrence of the delivery of a Waiver Request and the subsequent waiver of any Series 2003-5 Maximum Amount.

 

“Waiver Request” is defined in Article IV.

 

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ARTICLE II

 

SERIES 2003-5 ALLOCATIONS

 

With respect to the Series 2003-5 Notes, the following shall apply:

 

Section 2.1             Establishment of Series 2003-5 Collection Account, Series 2003-5 Excess Collection Account and Series 2003-5 Accrued Interest Account.  (a)  All Collections allocable to the Series 2003-5 Notes shall be allocated to the Collection Account.

 

(b)           The Trustee will create three administrative subaccounts within the Collection Account for the benefit of the Series 2003-5 Noteholders and the Surety Provider:  the Series 2003-5 Collection Account (such sub-account, the “Series 2003-5 Collection Account”), the Series 2003-5 Excess Collection Account (such sub-account, the “Series 2003-5 Excess Collection Account”) and the Series 2003-5 Accrued Interest Account (such sub-account, the “Series 2003-5 Accrued Interest Account”).

 

Section 2.2             Allocations with Respect to the Series 2003-5 Notes.  The net proceeds from the initial sale of the Series 2003-5 Notes will be deposited into the Collection Account.  On each Business Day on which Collections are deposited into the Collection Account (each such date, a “Series 2003-5 Deposit Date”), the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate all amounts deposited into the Collection Account in accordance with the provisions of this Section 2.2:

 

(a)           Allocations of Collections During the Series 2003-5 Revolving Period.  During the Series 2003-5 Revolving Period, the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate on each day, prior to 11:00 a.m. (New York City time) on each Series 2003-5 Deposit Date, all amounts deposited into the Collection Account as set forth below:

 

(i)            allocate to the Series 2003-5 Collection Account an amount equal to the sum of (A) the Series 2003-5 Invested Percentage (as of such day) of the aggregate amount of Interest Collections on such day and (B) any amounts received by the Trustee on such day in respect of the Series 2003-5 Interest Rate Caps.  All such amounts allocated to the Series 2003-5 Collection Account shall be further allocated to the Series 2003-5 Accrued Interest Account; and

 

(ii)           allocate to the Series 2003-5 Excess Collection Account an amount equal to the Series 2003-5 Invested Percentage (as of such day) of the aggregate amount of Principal Collections on such day (for any such day, the “Series 2003-5 Principal Allocation”); provided, however, if a Waiver Event shall have occurred, then such allocation shall be modified as provided in Article IV.

 

(b)           Allocations of Collections During any Series 2003-5 Controlled Amortization Period.  With respect to any Series 2003-5 Controlled Amortization Period, the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate, prior to 11:00 a.m.  (New York City time) on any Series 2003-5 Deposit Date, all amounts deposited into the Collection Account as set forth below:

 

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(i)            allocate to the Series 2003-5 Collection Account an amount determined as set forth in Section 2.2(a)(i) above for such day, which amount shall be further allocated to the Series 2003-5 Accrued Interest Account; and

 

(ii)           (A) with respect to the Class A-1 Controlled Amortization Period, allocate to the Series 2003-5 Collection Account an amount equal to the Series 2003-5 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class A-1 Notes; provided, however, that if the Monthly Total Principal Allocation exceeds the Class A-1 Controlled Distribution Amount, then the amount of such excess shall be allocated to the Series 2003-5 Excess Collection Account; and provided, further, that if a Waiver Event shall have occurred, then such allocation shall be modified as provided in Article IV and (B) with respect to the Class A-2 Controlled Amortization Period, allocate to the Series 2003-5 Collection Account an amount equal to the Series 2003-5 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class A-2 Notes; provided, however, that if the Monthly Total Principal Allocation exceeds the Class A-2 Controlled Distribution Amount, then the amount of such excess shall be allocated to the Series 2003-5 Excess Collection Account; and provided, further, that if a Waiver Event shall have occurred, then such allocation shall be modified as provided in Article IV.

 

(c)           Allocations of Collections During the Series 2003-5 Rapid Amortization Period.  With respect to the Series 2003-5 Rapid Amortization Period, other than after the occurrence of an Event of Bankruptcy with respect to ARAC, any other Lessee or AGH, the Adminis­trator will direct the Trustee in writing pursuant to the Administration Agree­ment to allocate, prior to 11:00 a.m. (New York City time) on any Series 2003-5 Deposit Date, all amounts deposited into the Collection Account as set forth below:

 

(i)            allocate to the Series 2003-5 Collection Account an amount deter­mined as set forth in Section 2.2(a)(i) above for such day, which amount shall be further allocated to the Series 2003-5 Accrued Interest Account; and

 

(ii)           allocate to the Series 2003-5 Collection Account an amount equal to the Series 2003-5 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class A-1 Notes and the Class A-2 Notes, ratably, without preference or priority of any kind, until the Series 2003-5 Invested Amount is paid in full; provided that if on any Determination Date (A) the Administrator determines that the amount anticipated to be available from Interest Collections allocable to the Series 2003-5 Notes, any amounts payable to the Trustee in respect of the Series 2003-5 Interest Rate Caps and other amounts available pursuant to Section 2.3 to pay Series 2003-5 Adjusted Monthly Interest on the next succeeding Distribution Date will be less than the Series 2003-5 Adjusted Monthly Interest for such Distribution Date and (B) the Series 2003-5 Enhancement Amount is greater than zero, then the Administrator shall direct the Trustee in writing to reallocate a portion of the Principal Collections allocated to the Series 2003-5 Notes during the Related Month equal to the lesser

 

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of such insufficiency and the Series 2003-5 Enhancement Amount to the Series 2003-5 Accrued Interest Account to be treated as Interest Collections on such Distribution Date.

 

(d)           Allocations of Collections after the Occurrence of an Event of Bankruptcy.  After the occurrence of an Event of Bankruptcy with respect to ARAC, any other Lessee or AGH, the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate, prior to 11:00 a.m.  (New York City time) on any Series 2003-5 Deposit Date, all amounts attributable to the AESOP I Operating Lease Loan Agreement deposited into the Collection Account as set forth below:

 

(i)            allocate to the Series 2003-5 Collection Account an amount equal to the sum of (A) the Series 2003-5 AESOP I Operating Lease Vehicle Percentage as of the date of the occurrence of such Event of Bankruptcy of the aggregate amount of Interest Collections made under the AESOP I Operating Lease Loan Agreement for such day and (B) any amounts received by the Trustee in respect of the Series 2003-5 Interest Rate Caps on such day.  All such amounts allocated to the Series 2003-5 Collection Account shall be further allocated to the Series 2003-5 Accrued Interest Account;

 

(ii)           allocate to the Series 2003-5 Col­lection Account an amount equal to the Series 2003-5 AESOP I Operating Lease Vehicle Percentage as of the date of the occurrence of such Event of Bankruptcy of the aggregate amount of Principal Collections made under the AESOP I Operating Lease Loan Agree­ment, which amount shall be used to make principal payments in respect of the Series Class A-1 Notes and the Class A-2 Notes, ratably, without preference or priority of any kind, until the Series 2003-5 Invested Amount is paid in full; provided that if on any Determination Date (A) the Administrator determines that the amount anticipated to be available from Interest Collections allocable to the Series 2003-5 Notes, any amounts payable to the Trustee in respect of Series 2003-5 Interest Rate Caps and other amounts available pursuant to Section 2.3 to pay Series 2003-5 Adjusted Monthly Interest on the next succeeding Distribution Date will be less than the Series 2003-5 Adjusted Monthly Interest for such Distribution Date and (B) the Series 2003-5 Enhancement Amount is greater than zero, then the Administrator shall direct the Trustee in writing to reallocate a portion of the Principal Collections allocated to the Series 2003-5 Notes during the Related Month equal to the lesser of such insufficiency and the Series 2003-5 Enhancement Amount to the Series 2003-5 Accrued Interest Account to be treated as Interest Collections on such Distribution Date.

 

(e)           Series 2003-5 Excess Collection Account.  Amounts allocated to the Series 2003-5 Excess Collection Account on any Series 2003-5 Deposit Date will be (w) first, deposited in the Series 2003-5 Reserve Account in an amount up to the excess, if any, of the Series 2003-5 Required Reserve Account Amount for such date over the Series 2003-5 Available Reserve Account Amount for such date, (x) second, used to pay the principal amount of other Series of Notes that are then in amortization, (y) third, released to AESOP Leasing in an amount equal to the product of (A) the Loan

 

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Agreement’s Share with respect to the AESOP I Operating Lease Loan Agreement as of such date times (B) 100% minus the Loan Payment Allocation Percentage with respect to the AESOP I Operating Lease Loan Agreement as of such date times (C) the amount of any remaining funds and (z) fourth, paid to AFC-II for any use permitted by the Related Documents including to make Loans under the Loan Agreements to the extent the Borrowers have requested Loans thereunder and Eligible Vehicles are available for financing thereunder; provided, however, that in the case of clauses (x), (y) and (z), that no Amortization Event, Series 2003-5 Enhancement Deficiency or AESOP I Operating Lease Vehicle Deficiency would result there­from or exist immedi­ately thereafter.  Upon the occurrence of an Amor­tization Event, funds on deposit in the Series 2003-5 Excess Collection Account will be with­drawn by the Trustee, deposited in the Series 2003-5 Collection Account and allocated as Princi­pal Collections to reduce the Series 2003-5 Invest­ed Amount on the immediately succeeding Distribution Date.

 

(f)            Allocations From Other Series.  Amounts allocated to other Series of Notes that have been reallocated by AFC-II to the Series 2003-5 Notes (i) during the Series 2003-5 Revolving Period shall be allocated to the Series 2003-5 Excess Collection Account and applied in accordance with Section 2.2(e) and (ii) during the Series 2003-5 Amortization Period shall be allocated to the Series 2003-5 Collection Account and applied in accordance with Section 2.2(b) or 2.2(c), as applicable, to make principal payments in respect of the Series 2003-5 Notes.

 

(g)           Past Due Rent Payments.  Notwithstanding the foregoing, if in the case of Section 2.2(a) or (b), after the occurrence of a Series 2003-5 Lease Payment Deficit, the Lessees shall make pay­ments of Monthly Base Rent or other amounts payable by the Lessees under the Leases on or prior to the fifth Business Day after the occurrence of such Series 2003-5 Lease Payment Deficit (a “Past Due Rent Payment”), the Administrator shall direct the Trustee in writing pursuant to the Administration Agreement to allocate to the Series 2003-5 Collection Account an amount equal to the Series 2003-5 Invested Percentage as of the date of the occurrence of such Series 2003-5 Lease Payment Deficit of the Collections attributable to such Past Due Rent Payment (the “Series 2003-5 Past Due Rent Payment”).  The Administrator shall instruct the Trustee in writing pursuant to the Administration Agreement to withdraw from the Series 2003-5 Collection Account and apply the Series 2003-5 Past Due Rent Payment in the following order:

 

(i)            if the occurrence of such Series 2003-5 Lease Payment Deficit resulted in one or more Lease Deficit Disbursements being made under the Series 2003-5 Letters of Credit, pay to each Series 2003-5 Letter of Credit Provider who made such a Lease Deficit Disbursement for application in accor­dance with the provisions of the applicable Series 2003-5 Reimbursement Agreement an amount equal to the lesser of (x) the unreimbursed amount of such Series 2003-5 Letter of Credit Provider’s Lease Deficit Disbursement and (y) such Series 2003-5 Letter of Credit Provider’s Pro Rata Share of the Series 2003-5 Past Due Rent Payment;

 

(ii)           if the occurrence of such Series 2003-5 Lease Payment Deficit resulted in a withdrawal being made from the Series 2003-5 Cash Collateral

 

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Account, deposit in the Series 2003-5 Cash Collateral Account an amount equal to the lesser of (x) the amount of the Series 2003-5 Past Due Rent Payment remaining after any payment pursuant to clause (i) above and (y) the amount withdrawn from the Series 2003-5 Cash Collateral Account on account of such Series 2003-5 Lease Payment Deficit;

 

(iii)          if the occurrence of such Series 2003-5 Lease Payment Deficit resulted in a withdrawal being made from the Series 2003-5 Reserve Account pursuant to Section 2.3(d), deposit in the Series 2003-5 Reserve Account an amount equal to the lesser of (x) the amount of the Series 2003-5 Past Due Rent Payment remaining after any payments pursuant to clauses (i) and (ii) above and (y) the excess, if any, of the Series 2003-5 Required Reserve Account Amount over the Series 2003-5 Available Reserve Account Amount on such day;

 

(iv)          allocate to the Series 2003-5 Accrued Interest Account the amount, if any, by which the Series 2003-5 Lease Interest Payment Deficit, if any, relating to such Series 2003-5 Lease Payment Deficit exceeds the amount of the Series 2003-5 Past Due Rent Payment applied pursuant to clauses (i), (ii) and (iii) above; and

 

(v)           treat the remaining amount of the Series 2003-5 Past Due Rent Payment as Principal Collections allocated to the Series 2003-5 Notes in accordance with Section 2.2(a)(ii) or 2.2(b)(ii), as the case may be.

 

Section 2.3             Payments to Noteholders.  On each Determination Date, as provided below, the Administrator shall instruct the Paying Agent in writing pursuant to the Administration Agreement to with­draw, and on the following Distribution Date the Paying Agent, acting in accordance with such instructions, shall withdraw the amounts required to be withdrawn from the Collection Account pursuant to Section 2.3(a) below in respect of all funds available from Series 2003-5 Interest Rate Cap Proceeds and Interest Collections processed since the preceding Distribution Date and allocated to the holders of the Series 2003-5 Notes.

 

(a)           Note Interest with respect to the Series 2003-5 Notes.  On each Determination Date, the Administrator shall instruct the Trustee and the Paying Agent in writing pursuant to the Administration Agreement as to the amount to be withdrawn and paid pursuant to Section 2.4 from the Series 2003-5 Accrued Interest Account to the extent funds are anticipated to be available from Interest Collections allocable to the Series 2003-5 Notes and the Series 2003-5 Interest Rate Cap Proceeds processed from but not including the preceding Distribution Date through the succeeding Distribution Date in respect of (x) first, an amount equal to the Series 2003-5 Monthly Interest for the Series 2003-5 Interest Period ending on the day preceding the related Distribution Date, (y) second, an amount equal to the amount of any unpaid Series 2003-5 Shortfall as of the preceding Distribution Date (together with any accrued interest on such Series 2003-5 Shortfall) and (z) third, an amount equal to the Surety Provider Fee for such Series 2003-5 Interest Period plus any Surety Provider Reimbursement Amounts then due and owing.  On the following Distribution Date, the Trustee shall withdraw the amounts described in the first sentence of this Section 2.3(a) from the Series 2003-5 Accrued Interest Account and deposit such amounts in the Series 2003-5 Distribution Account.

 

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(b)           Lease Payment Deficit Notice.  On or before 10:00 a.m. (New York City time) on each Distribution Date, the Administrator shall notify the Trustee and the Surety Provider of the amount of any Series 2003-5 Lease Payment Deficit, such notification to be in the form of Exhibit E to this Supplement (each a “Lease Payment Deficit Notice”).

 

(c)           Draws on Series 2003-5 Letters of Credit For Series 2003-5 Lease Interest Payment Deficits.  If the Administrator determines on any Distribution Date that there exists a Series 2003-5 Lease Interest Payment Deficit, the Administrator shall instruct the Trustee in writing to draw on the Series 2003-5 Letters of Credit, if any, and, the Trustee shall, by 12:00 noon (New York City time) on such Distribution Date draw an amount as set forth in such notice equal to the least of (i) such Series 2003-5 Lease Interest Payment Deficit, (ii) the excess, if any, of the sum of the amounts described in clauses (x), (y) and (z) of Section 2.3(a) above on such Distribution Date over the amounts available from the Series 2003-5 Accrued Interest Account and (iii) the Series 2003-5 Letter of Credit Liquidity Amount on the Series 2003-5 Letters of Credit by presenting to each Series 2003-5 Letter of Credit Provider (with a copy to the Surety Provider) a draft accompanied by a Certificate of Lease Deficit Demand and shall cause the Lease Deficit Disbursements to be deposited in the Series 2003-5 Distribution Account on such Distribution Date; provided, however, that if the Series 2003-5 Cash Collateral Account has been established and funded, the Trustee shall withdraw from the Series 2003-5 Cash Collateral Account and deposit in the Series 2003-5 Distribution Account an amount equal to the lesser of (x) the Series 2003-5 Cash Collateral Percentage on such Distribution Date of the least of the amounts described in clauses (i), (ii) and (iii) above and (y) the Series 2003-5 Available Cash Collateral Account Amount on such Distribution Date and draw an amount equal to the remainder of such amount on the Series 2003-5 Letters of Credit.  During the continuance of a Surety Default, no amounts in respect of the Surety Provider Fee shall be drawn on the Series 2003-5 Letters of Credit.

 

(d)           Withdrawals from Series 2003-5 Reserve Account.  If the Administrator determines on any Distribution Date that the amounts available from the Series 2003-5 Accrued Interest Account plus the amount, if any, to be drawn under the Series 2003-5 Letters of Credit and /or withdrawn from the Series 2003-5 Cash Collateral Account pursuant to Section 2.3(c) are insufficient to pay the sum of the amounts described in clauses (x), (y) and (z) of Section 2.3(a) above on such Distribution Date, the Administrator shall instruct the Trustee in writing to withdraw from the Series 2003-5 Reserve Account and deposit in the Series 2003-5 Distribution Account on such Distribution Date an amount equal to the lesser of the Series 2003-5 Available Reserve Account Amount and such insufficiency.  During the continuance of a Surety Default, no amounts in respect of the Surety Provider Fee shall be withdrawn from the Series 2003-5 Reserve Account.  The Trustee shall withdraw such amount from the Series 2003-5 Reserve Account and deposit such amount in the Series 2003-5 Distribution Account.

 

(e)           Surety Bond.  If the Administrator determines on any Distribution Date that the sum of the amounts available from the Series 2003-5 Accrued Interest Account plus the amount, if any, to be drawn under the Series 2003-5 Letters of Credit and/or to be withdrawn from the Series 2003-5 Cash Collateral Account pursuant to Section 2.3(c) above plus the amount, if any, to be withdrawn from the Series 2003-5 Reserve Account pursuant to Section 2.3(d) above is insufficient to pay the Series 2003-5 Adjusted Monthly Interest for such Distribution Date, the Administrator shall instruct the Trustee in writing to make a demand on

 

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the Surety Bond and, upon receipt of such notice by the Trustee on or prior to 11:00 a.m. (New York City time) on such Distribution Date, the Trustee shall, by 12:00 noon (New York City time) on such Distribution Date, make a demand on the Surety Bond in an amount equal to such insufficiency in accordance with the terms thereof and shall cause the proceeds thereof to be deposited in the Series 2003-5 Distribution Account.

 

(f)            Balance.  On or prior to the second Business Day preceding each Distribution Date, the Administrator shall instruct the Trustee and the Paying Agent in writing pursuant to the Administration Agreement to pay the balance (after making the payments required in Section 2.4), if any, of the amounts available from the Series 2003-5 Accrued Interest Account and the Series 2003-5 Distribution Account, plus the amount, if any, drawn under the Series 2003-5 Letters of Credit and/or withdrawn from the Series 2003-5 Cash Collateral Account pursuant to Section 2.3(c) plus the amount, if any, withdrawn from the Series 2003-5 Reserve Account pursuant to Section 2.3(d) as follows:

 

(i)            on each Distribution Date during the Series 2003-5 Revolving Period or a Series 2003-5 Controlled Amortization Period, (1) first, to the Surety Provider, in an amount equal to (x) the Surety Provider Fee for the related Series 2003-5 Interest Period and, without duplication, (y) any Surety Provider Reimbursement Amounts then due and owing, (2) second, to the Administrator, an amount equal to the Series 2003-5 Percentage as of the beginning of such Series 2003-5 Interest Period of the portion of the Monthly Administration Fee payable by AFC-II (as specified in clause (iii) of the definition thereof) for such Series 2003-5 Interest Period, (3) third, to the Trustee, an amount equal to the Series 2003-5 Percentage as of the beginning of such Series 2003-5 Interest Period of the Trustee’s fees for such Series 2003-5 Interest Period, (4) fourth, to pay any Carrying Charges (other than Carrying Charges provided for above) to the Persons to whom such amounts are owed, an amount equal to the Series 2003-5 Percentage as of the beginning of such Series 2003-5 Interest Period of such Carrying Charges (other than Carrying Charges provided for above) for such Series 2003-5 Interest Period, (5) fifth, if AFC-II is required to replace the Series 2003-5 Interest Rate Cap Counterparty pursuant to Section 2.10(b), the initial payment, if any, to be made by AFC-II to the replacement Series 2003-5 Interest Rate Cap Counterparty and (6) sixth, the balance, if any (“Excess Collections”), shall be withdrawn by the Paying Agent from the Series 2003-5 Collection Account and deposited in the Series 2003-5 Excess Collection Account; and

 

(ii)           on each Distribution Date during the Series 2003-5 Rapid Amortization Period, (1) first, to the Surety Provider, in an amount equal to (x) the Surety Provider Fee for the related Series 2003-5 Interest Period and, without duplication, (y) any Surety Provider Reimbursement Amounts then due and owing, (2) second, to the Trustee, an amount equal to the Series 2003-5 Percentage as of the beginning of such Series 2003-5 Interest Period of the Trustee’s fees for such Series 2003-5 Interest Period, (3) third, to the Administrator, an amount equal to the Series 2003-5 Percentage as of the beginning of such Series 2003-5 Interest Period of the portion of the Monthly Administration Fee (as specified in clause (iii) of the definition thereof) payable by AFC-II for such Series 2003-5 Interest Period, (4) fourth, to pay any Carrying Charges (other than Carrying Charges provided for above) to the Persons to whom such amounts are owed, an amount equal to the Series 2003-5 Percentage as of the beginning of such Series 2003-5 Interest

 

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Period of such Carrying Charges (other than Carrying Charges provided for above) for such Series 2003-5 Interest Period, (5) fifth, if AFC-II is required to replace the Series 2003-5 Interest Rate Cap Counterparty pursuant to Section 2.10(b), the initial payment, if any, to be made by AFC-II to the replacement Series 2003-5 Interest Rate Cap Counterparty and (6) sixth, so long as the Series 2003-5 Invested Amount is greater than the Series 2003-5 Principal Allocations on such Distribution Date, an amount equal to the excess of the Series 2003-5 Invested Amount over the Series 2003-5 Principal Allocations on such Distribution Date shall be treated as Principal Collections.

 

(g)           Shortfalls.  If the amounts described in Section 2.3 are insufficient to pay the Series 2003-5 Monthly Interest on any Distribution Date, payments of interest to the Series 2003-5 Noteholders will be reduced on a pro rata basis by the amount of such deficiency.  The aggregate amount, if any, of such deficiency on any Distribution Date shall be referred to as the “Series 2003-5 Shortfall.”  Interest shall accrue on the portion of the Series 2003-5 Shortfall allocable to the Class A-1 Notes at the Class A-1 Note Rate and on the portion of the Series 2003-5 Shortfall allocable to the Class A-2 Notes at the Class A-2 Note Rate.

 

(h)           Listing Information Requirement.  From the time of the Administrator’s written notice to the Trustee that the Class A-2 Notes are listed on the Luxembourg Stock Exchange until the Administrator shall give the Trustee written notice that the Class A-2 Notes are not listed on the Luxembourg Stock Exchange, the Trustee shall, or shall instruct the Paying Agent to, cause the Class A-2 Note Rate for the next succeeding Series 2003-5 Interest Period, the number of days in such Series 2003-5 Interest Period, the Distribution Date for such Series 2003-5 Interest Period and the amount of interest payable on the Class A-2 Notes on such Distribution Date to be (A) communicated to DTC, Euroclear, Clearstream, the Paying Agent in Luxembourg and the Luxembourg Stock Exchange no later than 11:00 a.m. (London time) on the Business Day immediately following each LIBOR Determination Date and (B) published in the Authorized Newspaper as soon as possible after its determination.

 

Section 2.4             Payment of Note Interest.  On each Distribution Date, subject to Sec­tion 9.8 of the Base Indenture, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay to the Series 2003-5 Noteholders from the Series 2003-5 Distribution Account the amount due to the Series 2003-5 Noteholders deposited in the Series 2003-5 Distribution Account pursuant to Section 2.3.

 

Section 2.5             Payment of Note Principal.  (a)  Monthly Payments During Controlled Amortization Period or Rapid Amortization Period.  Commencing on the second Determination Date during the Class A-1 Controlled Amortization Period or the Class A-2 Controlled Amortization Period, as the case may be, or the first Determination Date after the commencement of the Series 2003-5 Rapid Amortization Period, the Administrator shall instruct the Trustee and the Paying Agent in writing pursuant to the Administration Agreement and in accordance with this Section 2.5 as to (i) the amount allocated to the Series 2003-5 Notes during the Related Month pursuant to Section 2.2(b)(ii), (c)(ii) or (d)(ii), as the case may be, (ii) any amounts to be drawn on the Series 2003-5 Demand Notes and/or on the Series 2003-5 Letters of Credit (or withdrawn from the Series 2003-5 Cash Collateral Account), (iii) any amounts to be withdrawn from the Series 2003-5 Reserve Account and deposited into the Series 2003-5 Distribution Account and (iv) the amount of any demand on the Surety Bond in accordance with

 

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the terms thereof.  On the Distribution Date following each such Determination Date, the Trustee shall withdraw the amount allocated to the Series 2003-5 Notes during the Related Month pursuant to Section 2.2(b)(ii), (c)(ii) or (d)(ii), as the case may be, from the Series 2003-5 Collection Account and deposit such amount in the Series 2003-5 Distribution Account, to be paid to the holders of the Series 2003-5 Notes.

 

(b)           Principal Draws on Series 2003-5 Letters of Credit.  If the Administrator determines on any Distribution Date during the Series 2003-5 Rapid Amortization Period that there exists a Series 2003-5 Lease Principal Payment Deficit, the Administrator shall instruct the Trustee in writing to draw on the Series 2003-5 Letters of Credit, if any, as provided below; provided, however, that the Administrator shall not instruct the Trustee to draw on the Series 2003-5 Letters of Credit in respect of a Series 2003-5 Lease Principal Payment Deficit on or after the date of the filing by any of the Lessees of a petition for relief under Chapter 11 of the Bankruptcy Code unless and until the date on which each of the Lessees shall have resumed making all payments of the portion of Monthly Base Rent relating to Loan Interest required to be made under the AESOP I Operating Lease.  Upon receipt of a notice by the Trustee from the Administrator in respect of a Series 2003-5 Lease Principal Payment Deficit on or prior to 11:00 a.m. (New York City time) on a Distribution Date, the Trustee shall, by 12:00 noon (New York City time) on such Distribution Date draw an amount as set forth in such notice equal to the lesser of (i) such Series 2003-5 Lease Principal Payment Deficit and (ii) the Series 2003-5 Letter of Credit Liquidity Amount on the Series 2003-5 Letters of Credit by presenting to each Series 2003-5 Letter of Credit Provider a draft accompanied by a Certificate of Lease Deficit Demand and shall cause the Lease Deficit Disbursements to be deposited in the Series 2003-5 Distribution Account on such Distribution Date; provided, however, that if the Series 2003-5 Cash Collateral Account has been established and funded, the Trustee shall withdraw from the Series 2003-5 Cash Collateral Account and deposit in the Series 2003-5 Distribution Account an amount equal to the lesser of (x) the Series 2003-5 Cash Collateral Percentage on such Distribution Date of the Series 2003-5 Lease Principal Payment Deficit and (y) the Series 2003-5 Available Cash Collateral Account Amount on such Distribution Date and draw an amount equal to the remainder of such amount on the Series 2003-5 Letters of Credit.

 

(c)           Final Distribution Date.  The entire Class A-1 Invested Amount shall be due and payable on the Class A-1 Final Distribution Date, and the entire Class A-2 Invested Amount shall be due and payable on the Class A-2 Final Distribution Date.  In connection therewith:

 

(i)            Demand Note Draw.  If the amount to be deposited in the Series 2003-5 Distribution Account in accordance with Section 2.5(a) together with any amounts to be deposited therein in accordance with Section 2.5(b) allocable to the Class A-1 Notes on the Class A-1 Final Distribution Date or the Class A-2 Notes on the Class A-2 Final Distribution Date, as the case may be, is less than the Class A-1 Invested Amount or the Class A-2 Invested Amount, as the case may be, and there are any Series 2003-5 Letters of Credit on such date, then, prior to 10:00 a.m. (New York City time) on the second Business Day prior to such Series 2003-5 Final Distribution Date, the Administrator shall instruct the Trustee in writing (with a copy to the Surety Provider) to make a demand (a “Demand Notice”) substantially in the form attached hereto as Exhibit F on the Demand Note Issuers for payment under the Series 2003-5 Demand Notes in an amount equal to

 

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the lesser of (i) such insuf­fici­ency and (ii) the Series 2003-5 Letter of Credit Amount.  The Trustee shall, prior to 12:00 noon (New York City time) on the second Business Day preceding such Series 2003-5 Final Distribution Date, deliver such Demand Notice to the Demand Note Issuers; provided, however, that if an Event of Bankruptcy (or the occurrence of an event described in clause (a) of the definition thereof, without the lapse of a period of sixty (60) consecutive days) with respect to a Demand Note Issuer shall have occurred and be continuing, the Trustee shall not be required to deliver such Demand Notice to such Demand Note Issuer.  The Trustee shall cause the proceeds of any demand on the Series 2003-5 Demand Notes to be deposited into the Series 2003-5 Distribution Account.

 

(ii)           Letter of Credit Draw.  In the event that either (x) on or prior to 10:00 a.m. (New York City time) on the Business Day immediately preceding any Distribution Date next succeeding any date on which a Demand Notice has been transmitted by the Trustee to the Demand Note Issuers pursuant to clause (i) of this Section 2.5(c), any Demand Note Issuer shall have failed to pay to the Trustee or deposit into the Series 2003-5 Distribution Account the amount specified in such Demand Notice in whole or in part or (y) due to the occurrence of an Event of Bankruptcy (or the occurrence of an event described in clause (a) of the defini­tion thereof, without the lapse of a period of sixty (60) consecutive days) with respect to one or more of the Demand Note Issuers, the Trustee shall not have delivered such Demand Notice to any Demand Note Issuer on the second Business Day preceding such Series 2003-5 Final Distribution Date, then, in the case of (x) or (y) the Trustee shall draw on the Series 2003-5 Letters of Credit by 12:00 noon (New York City time) on such Business Day an amount equal to the lesser of (a) the amount that the Demand Note Issuers failed to pay under the Series 2003-5 Demand Notes (or, the amount that the Trustee failed to demand for payment thereunder) and (b) the Series 2003-5 Letter of Credit Amount on such Business Day by presenting to each Series 2003-5 Letter of Credit Provider (with a copy to the Surety Provider) a draft accompanied by a Certificate of Unpaid Demand Note Demand; provided, however, that if the Series 2003-5 Cash Collateral Account has been established and funded, the Trustee shall withdraw from the Series 2003-5 Cash Collateral Account and deposit in the Series 2003-5 Distribution Account an amount equal to the lesser of (x) the Series 2003-5 Cash Collateral Percentage on such Business Day of the amount that the Demand Note Issuers failed to pay under the Series 2003-5 Demand Notes (or, the amount that the Trustee failed to demand for payment thereunder) and (y) the Series 2003-5 Available Cash Collateral Account Amount on such Business Day and draw an amount equal to the remainder of the amount that the Demand Note Issuers failed to pay under the Series 2003-5 Demand Notes (or, the amount that the Trustee failed to demand for payment thereunder) on the Series 2003-5 Letters of Credit.  The Trustee shall deposit, or cause the deposit of, the proceeds of any draw on the Series 2003-5 Letters of Credit and the proceeds of any withdrawal from the Series 2003-5 Cash Collateral Account to be deposited in the Series 2003-5 Distribution Account.

 

(iii)          Reserve Account Withdrawal.  If, after giving effect to the deposit into the Series 2003-5 Distribution Account of the amount to be deposited in accordance with Section 2.5(a) and the amounts described in clauses (i) and (ii) of this Section 2.5(c), the amount to be deposited in the Series 2003-5 Distribution Account with respect to a Series

 

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2003-5 Final Distribution Date is or will be less than the Class A-1 Invested Amount or the Class A-2 Invested Amount, as the case may be, then, prior to 12:00 noon (New York City time) on the second Business Day prior to such Series 2003-5 Final Distribution Date, the Administrator shall instruct the Trustee in writing to withdraw from the Series 2003-5 Reserve Account, an amount equal to the lesser of the Series 2003-5 Available Reserve Account Amount and such remaining insufficiency and deposit it in the Series 2003-5 Distribution Account on such Series 2003-5 Final Distribution Date.

 

(iv)          Demand on Surety Bond.  If after giving effect to the deposit into the Series 2003-5 Distribution Account of the amount to be deposited in accordance with Section 2.5(a) and all other amounts described in clauses (i), (ii) and (iii) of this Section 2.5(c), the amount to be deposited in the Series 2003-5 Distribution Account with respect to such Series 2003-5 Final Distribution Date is or will be less than the Class A-1 Outstanding Principal Amount or the Class A-2 Outstanding Principal Amount, as the case may be, then the Trustee shall make a demand on the Surety Bond by 12:00 p.m. (New York City time) on the second Business Day preceding such Distribution Date in an amount equal to such insufficiency in accordance with the terms thereof and shall cause the proceeds thereof to be deposited in the Series 2003-5 Distribution Account.

 

(d)           Principal Deficit Amount.  On each Distribution Date, other than the Class A-1 Final Distribution Date and the Class A-2 Final Distribution Date, on which the Principal Deficit Amount is greater than zero, amounts shall be transferred to the Series 2003-5 Distribution Account as follows:

 

(i)            Demand Note Draw.  If on any Determination Date, the Administrator determines that the Principal Deficit Amount with respect to the next succeeding Distribution Date will be greater than zero and there are any Series 2003-5 Letters of Credit on such date, prior to 10:00 a.m. (New York City time) on the second Business Day prior to such Distribution Date, the Administrator shall instruct the Trustee in writing (with a copy to the Surety Provider) to deliver a Demand Notice to the Demand Note Issuers demanding payment of an amount equal to the lesser of (A) the Principal Deficit Amount and (B) the Series 2003-5 Letter of Credit Amount.  The Trustee shall, prior to 12:00 noon (New York City time) on the second Business Day preceding such Distribution Date, deliver such Demand Notice to the Demand Note Issuers; provided, however, that if an Event of Bankruptcy (or the occurrence of an event described in clause (a) of the definition thereof, without the lapse of a period of sixty (60) consecutive days) with respect to a Demand Note Issuer shall have occurred and be continuing, the Trustee shall not be required to deliver such Demand Notice to such Demand Note Issuer.  The Trustee shall cause the proceeds of any demand on the Series 2003-5 Demand Note to be deposited into the Series 2003-5 Distribution Account.

 

(ii)           Letter of Credit Draw.  In the event that either (x) on or prior to 10:00 a.m. (New York City time) on the Business Day prior to such Distribution Date, any Demand Note Issuer shall have failed to pay to the Trustee or deposit into the Series 2003-5 Distribution Account the amount specified in such Demand Notice in whole or in part or (y) due to the occurrence of an Event of Bankruptcy (or the occurrence of an event described in clause (a) of the definition thereof, without the lapse of a period of sixty (60)

 

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consecutive days) with respect to any Demand Note Issuer, the Trustee shall not have delivered such Demand Notice to any Demand Note Issuer on the second Business Day preceding such Distribution Date, then, in the case of (x) or (y) the Trustee shall on such Business Day draw on the Series 2003-5 Letters of Credit an amount equal to the lesser of (i) Series 2003-5 Letter of Credit Amount and (ii) the aggregate amount that the Demand Note Issuers failed to pay under the Series 2003-5 Demand Notes (or, the amount that the Trustee failed to demand for payment thereunder) by presenting to each Series 2003-5 Letter of Credit Provider (with a copy to the Surety Provider) a draft accompanied by a Certificate of Unpaid Demand Note Demand; provided, however, that if the Series 2003-5 Cash Collateral Account has been established and funded, the Trustee shall withdraw from the Series 2003-5 Cash Collateral Account and deposit in the Series 2003-5 Distribution Account an amount equal to the lesser of (x) the Series 2003-5 Cash Collateral Percentage on such Business Day of the aggregate amount that the Demand Note Issuers failed to pay under the Series 2003-5 Demand Notes (or, the amount that the Trustee failed to demand for payment thereunder) and (y) the Series 2003-5 Available Cash Collateral Account Amount on such Business Day and draw an amount equal to the remainder of the aggregate amount that the Demand Note Issuers failed to pay under the Series 2003-5 Demand Notes (or, the amount that the Trustee failed to demand for payment thereunder) on the Series 2003-5 Letters of Credit.  The Trustee shall deposit into, or cause the deposit of, the proceeds of any draw on the Series 2003-5 Letters of Credit and the proceeds of any withdrawal from the Series 2003-5 Cash Collateral Account to be deposited in the Series 2003-5 Distribution Account.

 

(iii)          Reserve Account Withdrawal.  If the Series 2003-5 Letter of Credit Amount will be less than the Principal Deficit Amount on any Distribution Date, then, prior to 12:00 noon (New York City time) on the second Business Day prior to such Distribution Date, the Administrator shall instruct the Trustee in writing to withdraw from the Series 2003-5 Reserve Account, an amount equal to the lesser of (x) the Series 2003-5 Available Reserve Account Amount and (y) the amount by which the Principal Deficit Amount exceeds the amounts to be deposited in the Series 2003-5 Distribution Account in accordance with clauses (i) and (ii) of this Section 2.5(d) and deposit it in the Series 2003-5 Distribution Account on such Distribution Date.

 

(iv)          Demand on Surety Bond.  If the sum of the Series 2003-5 Letter of Credit Amount and the Series 2003-5 Available Reserve Account Amount will be less than the Principal Deficit Amount on any Distribution Date, then the Trustee shall make a demand on the Surety Bond by 12:00 noon (New York City time) on the second Business Day preceding such Distribution Date in an amount equal to the Insured Principal Deficit Amount and shall cause the proceeds thereof to be deposited in the Series 2003-5 Distribution Account.

 

(e)           Distribution.  On each Distribution Date occurring on or after the date a withdrawal is made from the Series 2003-5 Collection Account pursuant to Section 2.5(a) or amounts are deposited in the Series 2003-5 Distribution Account pursuant to Section 2.5(b), (c) or (d) the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay pro rata to each Class A-1 Noteholder or Class A-2 Noteholder, as applicable, from the Series 2003-5 Distribution Account the amount deposited therein pursuant to Section 2.5(a), (b), (c) or (d), to

 

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the extent necessary to pay the Class A-1 Controlled Amortization Amount during the Class A-1 Controlled Amortization Period or the Class A-2 Controlled Amortization Amount during the Class A-2 Controlled Amortization Period, as the case may be, or to the extent necessary to pay the Class A-1 Invested Amount and the Class A-2 Invested Amount during the Series 2003-5 Rapid Amortization Period.

 

Section 2.6             Administrator’s Failure to Instruct the Trustee to Make a Deposit or Payment.  If the Administrator fails to give notice or instructions to make any payment from or deposit into the Collection Account required to be given by the Adminis­trator, at the time speci­fied in the Administration Agreement or any other Related Document (including appli­cable grace periods), the Trustee shall make such payment or deposit into or from the Collection Account without such notice or instruction from the Administrator, provided that the Adminis­tra­tor, upon request of the Trustee, promptly provides the Trustee with all information necessary to allow the Trustee to make such a payment or deposit.  When any payment or deposit hereunder or under any other Related Document is required to be made by the Trustee or the Paying Agent at or prior to a specified time, the Administrator shall deliver any applicable written instructions with respect thereto reasonably in advance of such specified time.

 

Section 2.7             Series-2003-5 Reserve Account.  (a)  Establishment of Series 2003-5 Reserve Account.  AFC-II shall establish and maintain in the name of the Series 2003-5 Agent for the benefit of the Series 2003-5 Noteholders and the Surety Provider, or cause to be established and maintained, an account (the “Series 2003-5 Reserve Account”), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2003-5 Noteholders and the Surety Provider.  The Series 2003-5 Reserve Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust depart­ment of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Series 2003-5 Reserve Account; provided that, if at any time such Qualified Institution is no longer a Qualified Institution or the credit rating of any securities issued by such depositary institution or trust company shall be reduced to below “BBB-” by Standard & Poor’s or “Baa2” by Moody’s, then AFC-II shall, within thirty (30) days of such reduction, establish a new Series 2003-5 Reserve Account with a new Qualified Institution.  If the Series 2003-5 Reserve Account is not maintained in accordance with the previous sentence, AFC-II shall establish a new Series 2003-5 Reserve Account, within ten (10) Business Days after obtaining knowledge of such fact, which complies with such sentence, and shall instruct the Series 2003-5 Agent in writing to transfer all cash and investments from the non-qualifying Series 2003-5 Reserve Account into the new Series 2003-5 Reserve Account.  Initially, the Series 2003-5 Reserve Account will be established with The Bank of New York.

 

(b)           Administration of the Series 2003-5 Reserve Account.  The Administrator may instruct the institution maintaining the Series 2003-5 Reserve Account to invest funds on deposit in the Series 2003-5 Reserve Account from time to time in Permitted Investments; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were received, unless any Permitted Investment held in the Series 2003-5 Reserve Account is held with the Paying Agent, then such investment may mature on such Distribution Date and such funds shall be available for withdrawal on or prior to such Distribution Date.  All such Permitted Investments will be credited to the Series 2003-5 Reserve Account and any such Permitted Investments that constitute

 

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(i) physical property (and that is not either a United States security entitlement or a security entitlement) shall be physically delivered to the Trustee; (ii) United States security entitlements or security entitlements shall be controlled (as defined in Section 8-106 of the New York UCC) by the Trustee pending maturity or disposition, and (iii) uncertificated securities (and not United States security entitlements) shall be delivered to the Trustee by causing the Trustee to become the registered holder of such securities.  The Trustee shall, at the direction and expense of AFC-II, take such action as is required to maintain the Trustee’s security interest in the Permitted Investments credited to the Series 2003-5 Reserve Account.  AFC-II shall not direct the Trustee to dispose of (or permit the disposal of) any Permitted Investments prior to the maturity thereof to the extent such disposal would result in a loss of the purchase price of such Permitted Investments.  In the absence of written investment instructions hereunder, funds on deposit in the Series 2003-5 Reserve Account shall remain uninvested.

 

(c)           Earnings from Series 2003-5 Reserve Ac­count.  All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Series 2003-5 Reserve Account shall be deemed to be on deposit therein and available for distribution.

 

(d)           Series 2003-5 Reserve Account Constitutes Additional Collateral for Series 2003-5 Notes.  In order to secure and provide for the repayment and payment of the AFC-II Obligations with respect to the Series 2003-5 Notes, AFC-II hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Series 2003-5 Agent, for the benefit of the Series 2003-5 Noteholders and the Surety Provider, all of AFC-II’s right, title and interest in and to the following (whether now or hereafter existing or acquired):  (i) the Series 2003-5 Reserve Account, including any security entitlement thereto; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Series 2003-5 Reserve Account or the funds on deposit therein from time to time; (iv) all investments made at any time and from time to time with monies in the Series 2003-5 Reserve Account, whether constituting securities, instruments, general intangibles, investment property, financial assets or other property; (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for the Series 2003-5 Reserve Account, the funds on deposit therein from time to time or the investments made with such funds; and (vi) all proceeds of any and all of the foregoing, including, without limitation, cash (the items in the foregoing clauses (i) through (vi) are referred to, collectively, as the “Series 2003-5 Reserve Account Collateral”).  The Series 2003-5 Agent shall possess all right, title and interest in and to all funds on deposit from time to time in the Series 2003-5 Reserve Account and in all proceeds thereof, and shall be the only person authorized to originate entitlement orders in respect of the Series 2003-5 Reserve Account.  The Series 2003-5 Reserve Account Collateral shall be under the sole dominion and control of the Series 2003-5 Agent for the benefit of the Series 2003-5 Noteholders and the Surety Provider.  The Series 2003-5 Agent hereby agrees (i) to act as the securities intermediary (as defined in Section 8-102(a)(14) of the New York UCC) with respect to the Series 2003-5 Reserve Account; (ii) that each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Series 2003-5 Reserve Account shall be treated as a financial asset (as defined in Section 8-102(a)(9) of the New York UCC) and (iii) to comply with any entitlement order (as defined in Section 8-102(a)(8) of the New York UCC) issued by the Trustee.

 

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(e)           Series 2003-5 Reserve Account Surplus.  In the event that the Series 2003-5 Reserve Account Surplus on any Distribution Date, after giving effect to all withdrawals from the Series 2003-5 Reserve Account, is greater than zero, if no Series 2003-5 Enhancement Deficiency or AESOP I Operating Lease Vehicle Deficiency would result therefrom or exist thereafter, the Trustee, acting in accordance with the written instructions of the Administrator (with a copy of such written instructions to be provided by the Administrator to the Surety Provider) pursuant to the Administration Agreement, shall withdraw from the Series 2003-5 Reserve Account an amount equal to the Series 2003-5 Reserve Account Surplus and shall pay such amount to AFC-II.

 

(f)            Termination of Series 2003-5 Reserve Ac­count.  Upon the termination of the Indenture pursuant to Section 11.1 of the Base Indenture, the Trustee, acting in accordance with the written instructions of the Administrator, after the prior payment of all amounts owing to the Series 2003-5 Noteholders and to the Surety Provider and payable from the Series 2003-5 Reserve Account as provided herein, shall withdraw from the Series 2003-5 Reserve Account all amounts on deposit therein for payment to AFC-II.

 

Section 2.8             Series 2003-5 Letters of Credit and Series 2003-5 Cash Collateral Account.  (a)        Series 2003-5 Letters of Credit and Series 2003-5 Cash Collateral Account Constitute Additional Collateral for Series 2003-5 Notes.  In order to secure and provide for the repayment and payment of the AFC-II Obligations with respect to the Series 2003-5 Notes, AFC-II hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Trustee, for the benefit of the Series 2003-5 Noteholders and the Surety Provider, all of AFC-II’s right, title and interest in and to the following (whether now or hereafter existing or acquired): (i) each Series 2003-5 Letter of Credit; (ii) the Series 2003-5 Cash Collateral Account, including any security entitlement thereto; (iii) all funds on deposit in the Series 2003-5 Cash Collateral Account from time to time; (iv) all certificates and instruments, if any, representing or evidencing any or all of the Series 2003-5 Cash Collateral Account or the funds on deposit therein from time to time; (v) all investments made at any time and from time to time with monies in the Series 2003-5 Cash Collateral Account, whether constituting securities, instruments, general intangibles, investment property, financial assets or other property; (vi) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for the Series 2003-5 Cash Collateral Account, the funds on deposit therein from time to time or the investments made with such funds; and (vii) all proceeds of any and all of the foregoing, including, without limitation, cash (the items in the foregoing clauses (ii) through (vii) are referred to, collectively, as the “Series 2003-5 Cash Collateral Account Collateral”).  The Trustee shall, for the benefit of the Series 2003-5 Noteholders and the Surety Provider, possess all right, title and interest in all funds on deposit from time to time in the Series 2003-5 Cash Collateral Account and in all proceeds thereof, and shall be the only person authorized to originate entitlement orders in respect of the Series 2003-5 Cash Collateral Account.  The Series 2003-5 Cash Collateral Account shall be under the sole dominion and control of the Trustee for the benefit of the Series 2003-5 Noteholders and the Surety Provider.  The Series 2003-5 Agent hereby agrees (i) to act as the securities intermediary (as defined in Section 8-102(a)(14) of the New York UCC) with respect to the Series 2003-5 Cash Collateral Account; (ii) that each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Series 2003-5 Cash Collateral Account shall be treated as a financial asset (as defined in Section 8-102(a)(9) of the

 

34

 

New York UCC) and (iii) to comply with any entitlement order (as defined in Section 8-102(a)(8) of the New York UCC) issued by the Trustee.

 

(b)           Series 2003-5 Letter of Credit Expiration Date.  If prior to the date which is ten (10) days prior to the then scheduled Series 2003-5 Letter of Credit Expiration Date with respect to any Series 2003-5 Letter of Credit, excluding the amount available to be drawn under such Series 2003-5 Letter of Credit but taking into account each substitute Series 2003-5 Letter of Credit which has been obtained from a Series 2003-5 Eligible Letter of Credit Provider and is in full force and effect on such date, the Series 2003-5 Enhancement Amount would be equal to or more than the Series 2003-5 Required Enhancement Amount and the Series 2003-5 Liquidity Amount would be equal to or greater than the Series 2003-5 Required Liquidity Amount, then the Administrator shall notify the Trustee and the Surety Provider (with the Surety Provider to be provided supporting calculations in reasonable detail) in writing no later than two Business Days prior to such Series 2003-5 Letter of Credit Expiration Date of such determination.  If prior to the date which is ten (10) days prior to the then scheduled Series 2003-5 Letter of Credit Expiration Date with respect to any Series 2003-5 Letter of Credit, excluding the amount available to be drawn under such Series 2003-5 Letter of Credit but taking into account a substitute Series 2003-5 Letter of Credit which has been obtained from a Series 2003-5 Eligible Letter of Credit Provider and is in full force and effect on such date, the Series 2003-5 Enhancement Amount would be less than the Series 2003-5 Required Enhancement Amount or the Series 2003-5 Liquidity Amount would be less than the Series 2003-5 Required Liquidity Amount, then the Administrator shall notify the Trustee and the Surety Provider (with the Surety Provider to be provided supporting calculations in reasonable detail) in writing no later than two Business Days prior to such Series 2003-5 Letter of Credit Expiration Date of (x) the greater of (A) the excess, if any, of the Series 2003-5 Required Enhancement Amount over the Series 2003-5 Enhancement Amount, excluding the available amount under such expiring Series 2003-5 Letter of Credit but taking into account any substitute Series 2003-5 Letter of Credit which has been obtained from a Series 2003-5 Eligible Letter of Credit Provider and is in full force and effect, on such date, and (B) the excess, if any, of the Series 2003-5 Required Liquidity Amount over the Series 2003-5 Liquidity Amount, excluding the available amount under such expiring Series 2003-5 Letter of Credit but taking into account any substitute Series 2003-5 Letter of Credit which has been obtained from a Series 2003-5 Eligible Letter of Credit Provider and is in full force and effect, on such date, and (y) the amount available to be drawn on such expiring Series 2003-5 Letter of Credit on such date.  Upon receipt of such notice by the Trustee on or prior to 10:00 a.m. (New York City time) on any Business Day, the Trustee shall, by 12:00 p.m. (New York City time) on such Business Day (or, in the case of any notice given to the Trustee after 10:00 a.m. (New York City time), by 12:00 p.m. (New York City time) on the next following Business Day), draw the lesser of the amounts set forth in clauses (x) and (y) above on such expiring Series 2003-5 Letter of Credit by presenting a draft (with a copy to the Surety Provider) accompanied by a Certificate of Termination Demand and shall cause the Termination Disbursement to be deposited in the Series 2003-5 Cash Collateral Account.

 

If the Trustee does not receive the notice from the Administrator described in the first paragraph of this Section 2.8(b) on or prior to the date that is two Business Days prior to each Series 2003-5 Letter of Credit Expiration Date, the Trustee shall, by 12:00 p.m. (New York City time) on such Business Day draw the full amount of such Series 2003-5 Letter of Credit by

 

35

 

presenting a draft accompanied by a Certificate of Termination Demand and shall cause the Termination Disbursement to be deposited in the Series 2003-5 Cash Collateral Account.

 

(c)           Series 2003-5 Letter of Credit Providers.  The Administrator shall notify the Trustee and the Surety Provider in writing within one Business Day of becoming aware that (i) the long-term senior unsecured debt credit rating of any Series 2003-5 Letter of Credit Provider has fallen below “A+” as determined by Standard & Poor’s or “Al” as determined by Moody’s or (ii) the short-term senior unsecured debt credit rating of any Series 2003-5 Letter of Credit Provider has fallen below “A-1” as determined by Standard & Poor’s or “P-1” as determined by Moody’s.  At such time the Administrator shall also notify the Trustee of (i) the greater of (A) the excess, if any, of the Series 2003-5 Required Enhancement Amount over the Series 2003-5 Enhancement Amount, excluding the available amount under the Series 2003-5 Letter of Credit issued by such Series 2003-5 Letter of Credit Provider, on such date, and (B) the excess, if any, of the Series 2003-5 Required Liquidity Amount over the Series 2003-5 Liquidity Amount, excluding the available amount under such Series 2003-5 Letter of Credit, on such date, and (ii) the amount available to be drawn on such Series 2003-5 Letter of Credit on such date.  Upon receipt of such notice by the Trustee on or prior to 10:00 a.m. (New York City time) on any Business Day, the Trustee shall, by 12:00 p.m. (New York City time) on such Business Day (or, in the case of any notice given to the Trustee after 10:00 a.m. (New York City time), by 12:00 p.m. (New York City time) on the next following Business Day), draw on such Series 2003-5 Letter of Credit in an amount equal to the lesser of the amounts in clause (i) and clause (ii) of the immediately preceding sentence on such Business Day by presenting a draft accompanied by a Certificate of Termination Demand and shall cause the Termination Disbursement to be deposited in the Series 2003-5 Cash Collateral Account.

 

(d)           Termination Date Demands on the Series 2003-5 Letters of Credit.  Prior to 10:00 a.m. (New York City time) on the Business Day immediately succeeding the Series 2003-5 Letter of Credit Termination Date, the Administrator shall determine the Series 2003-5 Demand Note Payment Amount, if any, as of the Series 2003-5 Letter of Credit Termination Date and, if the Series 2003-5 Demand Note Payment Amount is greater than zero, instruct the Trustee in writing to draw on the Series 2003-5 Letters of Credit.  Upon receipt of any such notice by the Trustee on or prior to 11:00 a.m. (New York City time) on a Business Day, the Trustee shall, by 12:00 noon (New York City time) on such Business Day draw an amount equal to the lesser of (i) the Series 2003-5 Demand Note Payment Amount and (ii) the Series 2003-5 Letter of Credit Liquidity Amount on the Series 2003-5 Letters of Credit by presenting to each Series 2003-5 Letter of Credit Provider (with a copy to the Surety Provider) a draft accompanied by a Certificate of Termination Date Demand and shall cause the Termination Date Disbursement to be deposited in the Series 2003-5 Cash Collateral Account; provided, however, that if the Series 2003-5 Cash Collateral Account has been established and funded, the Trustee shall draw an amount equal to the product of (a) 100% minus the Series 2003-5 Cash Collateral Percentage and (b) the lesser of the amounts referred to in clause (i) and (ii) on such Business Day on the Series 2003-5 Letters of Credit as calculated by the Administra­tor and provided in writing to the Trustee and the Surety Provider.

 

(e)           Draws on the Series 2003-5 Letters of Credit.  If there is more than one Series 2003-5 Letter of Credit on the date of any draw on the Series 2003-5 Letters of Credit pursuant to the terms of this Supplement, the Administrator shall instruct the Trustee, in writing,

 

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to draw on each Series 2003-5 Letter of Credit in an amount equal to the Pro Rata Share of the Series 2003-5 Letter of Credit Provider issuing such Series 2003-5 Letter of Credit of the amount of such draw on the Series 2003-5 Letters of Credit.

 

(f)            Establishment of Series 2003-5 Cash Collateral Account.  On or prior to the date of any drawing under a Series 2003-5 Letter of Credit pursuant to Section 2.8(b), (c) or (d) above, AFC-II shall establish and maintain in the name of the Trustee for the benefit of the Series 2003-5 Noteholders and the Surety Provider, or cause to be established and maintained, an account (the “Series 2003-5 Cash Collateral Account”), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2003-5 Noteholders and the Surety Provider.  The Series 2003-5 Cash Collateral Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Series 2003-5 Cash Collateral Account; provided, however, that if at any time such Qualified Institution is no longer a Qualified Institution or the credit rating of any securities issued by such depository institution or trust company shall be reduced to below “BBB-” by Standard & Poor’s or “Baa3” by Moody’s, then AFC-II shall, within thirty (30) days of such reduction, establish a new Series 2003-5 Cash Collateral Account with a new Qualified Institution or a new segre­gated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Series 2003-5 Cash Collateral Account.  If a new Series 2003-5 Cash Collateral Account is established, AFC-II shall instruct the Trustee in writing to transfer all cash and investments from the non-qualifying Series 2003-5 Cash Collateral Account into the new Series 2003-5 Cash Collateral Account.

 

(g)           Administration of the Series 2003-5 Cash Collateral Account.  AFC-II may instruct (by standing instructions or otherwise) the institution maintaining the Series 2003-5 Cash Collateral Account to invest funds on deposit in the Series 2003-5 Cash Collateral Account from time to time in Permitted Investments; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were received, unless any Permitted Investment held in the Series 2003-5 Cash Collateral Account is held with the Paying Agent, in which case such investment may mature on such Distribution Date so long as such funds shall be available for withdrawal on or prior to such Distribution Date.  All such Permitted Investments will be credited to the Series 2003-5 Cash Collateral Account and any such Permitted Investments that constitute (i) physical property (and that is not either a United States security entitlement or a security entitlement) shall be physically delivered to the Trustee; (ii) United States security entitlements or security entitlements shall be controlled (as defined in Section 8-106 of the New York UCC) by the Trustee pending maturity or disposition, and (iii) uncertificated securities (and not United States security entitlements) shall be delivered to the Trustee by causing the Trustee to become the registered holder of such securities.  The Trustee shall, at the expense of AFC-II, take such action as is required to maintain the Trustee’s security interest in the Permitted Investments credited to the Series 2003-5 Cash Collateral Account.  AFC-II shall not direct the Trustee to dispose of (or permit the disposal of) any Permitted Investments prior to the maturity thereof to the extent such disposal would result in a loss of the purchase price of such Permitted Investments.  In the absence of written investment instructions hereunder, funds on deposit in the Series 2003-5 Cash Collateral Account shall remain uninvested.

 

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(h)           Earnings from Series 2003-5 Cash Collateral Account.  All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Series 2003-5 Cash Collateral Account shall be deemed to be on deposit therein and available for distribution.

 

(i)            Series 2003-5 Cash Collateral Account Surplus.  In the event that the Series 2003-5 Cash Collateral Account Surplus on any Distribution Date (or, after the Series 2003-5 Letter of Credit Termination Date, on any date) is greater than zero, the Trustee, acting in accordance with the written instructions (a copy of which shall be provided by the Administrator to the Surety Provider) of the Administrator, shall with­draw from the Series 2003-5 Cash Collateral Account an amount equal to the Series 2003-5 Cash Collateral Account Surplus and shall pay such amount:  first, to the Series 2003-5 Letter of Credit Providers to the extent of any unreimbursed drawings under the related Series 2003-5 Reimbursement Agreement, for application in accordance with the provisions of the related Series 2003-5 Reimbursement Agreement, and, second, to AFC-II any remaining amount.

 

(j)            Post-Series 2003-5 Letter of Credit Termination Date Withdrawals from the Series 2003-5 Cash Collateral Account.  If the Surety Provider notifies the Trustee in writing that the Surety Provider shall have paid a Preference Amount (as defined in the Surety Bond) under the Surety Bond, subject to the satisfaction of the conditions set forth in the next succeeding sentence, the Trustee shall withdraw from the Series 2003-5 Cash Collateral Account and pay to the Surety Provider an amount equal to the lesser of (i) the Series 2003-5 Available Cash Collateral Account Amount on such date and (ii) such Preference Amount.  Prior to any withdrawal from the Series 2003-5 Cash Collateral Account pursuant to this Section 2.8(j), the Trustee shall have received a certified copy of the order requiring the return of such Preference Amount.

 

(k)           Termination of Series 2003-5 Cash Collateral Account.  Upon the termina­tion of this Supplement in accordance with its terms, the Trustee, acting in accordance with the written instructions of the Administrator, after the prior payment of all amounts owing to the Series 2003-5 Noteholders and to the Surety Provider and payable from the Series 2003-5 Cash Collateral Account as provided herein, shall withdraw from the Series 2003-5 Cash Collateral Account all amounts on deposit therein (to the extent not withdrawn pursuant to Section 2.8(i) above) and shall pay such amounts:  first, to the Series 2003-5 Letter of Credit Providers to the extent of any unreimbursed drawings under the related Series 2003-5 Reimbursement Agreement, for application in accordance with the provisions of the related Series 2003-5 Reimbursement Agreement, and, second, to AFC-II any remaining amount.

 

Section 2.9             Series 2003-5 Distribution Account  (a)  Establishment of Series 2003-5 Distribution Account.  The Trustee shall establish and maintain in the name of the Series 2003-5 Agent for the benefit of the Series 2003-5 Noteholders and the Surety Provider, or cause to be established and maintained, an account (the “Series 2003-5 Distribution Account”), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2003-5 Noteholders and the Surety Provider.  The Series 2003-5 Distribution Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Series 2003-5 Distribution Account; provided, however, that if at any time such Qualified Institution is no longer a Qualified

 

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Institution or the credit rating of any securities issued by such depositary institution or trust company shall be reduced to below  “BBB-” by Standard & Poor’s or “Baa3” by Moody’s, then AFC-II shall, within thirty (30) days of such reduction, establish a new Series 2003-5 Distribution Account with a new Qualified Institution.  If the Series 2003-5 Distribution Account is not maintained in accordance with the previous sentence, AFC-II shall establish a new Series 2003-5 Distribution Account, within ten (10) Business Days after obtaining knowledge of such fact, which complies with such sentence, and shall instruct the Series 2003-5 Agent in writing to transfer all cash and investments from the non-qualifying Series 2003-5 Distribution Account into the new Series 2003-5 Distribution Account.  Initially, the Series 2003-5 Distribution Account will be established with The Bank of New York.

 

(b)           Administration of the Series 2003-5 Distribution Account.  The Administrator may instruct the institution maintaining the Series 2003-5 Distribution Account to invest funds on deposit in the Series 2003-5 Distribution Account from time to time in Permitted Investments; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were received, unless any Permitted Investment held in the Series 2003-5 Distribution Account is held with the Paying Agent, then such investment may mature on such Distribution Date and such funds shall be available for withdrawal on or prior to such Distribution Date.  All such Permitted Investments will be credited to the Series 2003-5 Distribution Account and any such Permitted Investments that constitute (i) physical property (and that is not either a United States security entitle­ment or a security entitlement) shall be physically delivered to the Trustee; (ii) United States security entitlements or security entitlements shall be controlled (as defined in Section 8-106 of the New York UCC) by the Trustee pending maturity or disposition, and (iii) uncertificated securities (and not United States security entitlements) shall be delivered to the Trustee by causing the Trustee to become the registered holder of such securities.  The Trustee shall, at the direction and expense of AFC-II, take such action as is required to maintain the Trustee’s security interest in the Permitted Investments credited to the Series 2003-5 Distribution Account.  AFC-II shall not direct the Trustee to dispose of (or permit the disposal of) any Permitted Investments prior to the maturity thereof to the extent such disposal would result in a loss of the purchase price of such Permitted Investments.  In the absence of written investment instructions hereunder, funds on deposit in the Series 2003-5 Distribution Account shall remain uninvested.

 

(c)           Earnings from Series 2003-5 Distribution Account.  All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Series 2003-5 Distribution Account shall be deemed to be on deposit and available for distribution.

 

(d)           Series 2003-5 Distribution Account Constitutes Additional Collateral for Series 2003-5 Notes.  In order to secure and provide for the repayment and payment of the AFC-II Obligations with respect to the Series 2003-5 Notes, AFC-II hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Series 2003-5 Agent, for the benefit of the Series 2003-5 Noteholders and the Surety Provider, all of AFC-II’s right, title and interest in and to the following (whether now or hereafter existing or acquired):  (i) the Series 2003-5 Distri­bution Account, including any security entitlement thereto; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Series 2003-5 Distribution Account or the funds on deposit therein from time to time;

 

39

 

(iv) all investments made at any time and from time to time with monies in the Series 2003-5 Distribution Account, whether constituting securities, instruments, general intangibles, investment property, financial assets or other property; (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for the Series 2003-5 Distribution Account, the funds on deposit therein from time to time or the investments made with such funds; and (vi) all proceeds of any and all of the foregoing, including, without limitation, cash (the items in the foregoing clauses (i) through (vi) are referred to, collectively, as the “Series 2003-5 Distribution Account Collateral”).  The Series 2003-5 Agent shall possess all right, title and interest in all funds on deposit from time to time in the Series 2003-5 Distribution Account and in and to all proceeds thereof, and shall be the only person authorized to originate entitlement orders in respect of the Series 2003-5 Distribution Account.  The Series 2003-5 Distribution Account Collateral shall be under the sole dominion and control of the Series 2003-5 Agent for the benefit of the Series 2003-5 Noteholders and the Surety Provider.  The Series 2003-5 Agent hereby agrees (i) to act as the securities intermediary (as defined in Section 8-102(a)(14) of the New York UCC) with respect to the Series 2003-5 Distribution Account; (ii) that each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Series 2003-5 Distribution Account shall be treated as a financial asset (as defined in Section 8-102(a)(9) of the New York UCC) and (iii) to comply with any entitlement order (as defined in Section 8-102(a)(8) of the New York UCC) issued by the Trustee.

 

Section 2.10           Series 2003-5 Interest Rate Caps.

 

(a)           On the Series 2003-5 Closing Date, AFC-II shall acquire one or more interest rate caps acceptable to the Surety Provider (each a “Series 2003-5 Interest Rate Cap”) from a Qualified Interest Rate Cap Counterparty.  The aggregate initial notional amount of all Series 2003-5 Interest Rate Caps shall equal the Class A-2 Initial Invested Amount, and the notional amount of any Series 2003-5 Interest Rate Cap may be reduced pursuant to its terms but at no time shall the aggregate notional amount of all Series 2003-5 Interest Rate Caps be less than the Class A-2 Invested Amount.  The strike rate of each Series 2003-5 Interest Rate Cap shall not be greater than 4.0%.

 

(b)           If, at any time, a Series 2003-5 Interest Rate Cap Counterparty is not a Qualified Interest Rate Cap Counterparty, then AFC-II will cause such Series 2003-5 Interest Rate Cap Counterparty within thirty (30) days following such occurrence, at the Series 2003-5 Interest Rate Cap Counterparty’s expense, to do either of the following (i) obtain a replacement interest rate cap on substantially the same terms as the Series 2003-5 Interest Rate Cap being replaced from a Qualified Interest Rate Cap Counterparty and simultaneously with such replacement, AFC-II shall terminate the Series 2003-5 Interest Rate Cap being replaced or (ii) enter into any arrangement satisfactory to Standard & Poor’s, Moody’s and the Surety Provider, which is sufficient to maintain or restore the immediately prior Shadow Rating.  Other than as provided in the last sentence of this Section 2.10(b), no termination of any Series 2003-5 Interest Rate Cap shall occur until AFC-II has entered into a replacement interest rate cap.  If AFC-II is unable to cause such Interest Rate Cap Counterparty to obtain such a replacement interest rate cap after making commercially reasonable efforts or enter into any other arrangement pursuant to this Section 2.10(b), AFC-II will obtain such replacement interest rate cap at the expense of the replaced Series 2003-5 Interest Rate Cap Counterparty or, if the replaced Series 2003-5 Interest

 

40

 

Rate Cap Counterparty fails to make such payment, at the expense of AFC-II (in which event, such amount will be paid solely from Interest Collections available pursuant to Section 2.3(f)(i) or (ii) hereof).  Each Series 2003-5 Interest Rate Cap must provide that if such Series 2003-5 Interest Rate Cap Counterparty thereto is required to obtain a replacement interest rate cap or enter into any other arrangement pursuant to this Section 2.10(b) and such action is not taken within thirty (30) days, then such Series 2003- 5 Interest Rate Cap Counterparty must, until a replacement Series 2003-5 Interest Rate Cap is executed and in effect, collateralize its obligations under such Series 2003-5 Interest Rate Cap in an amount equal to the greatest of (i) the marked-to-market value of such Series 2003-5 Interest Rate Cap, (ii) the next payment due from such Series 2003-5 Interest Rate Cap Counterparty and (iii) 1% of the notional amount of such Series 2003-5 Interest Rate Cap.  In the event that an “Event of Default” under a Series 2003-5 Interest Rate Cap has occurred (x) under Section 5(a)(i) of the ISDA Master Agreement governing such Series 2003-5 Interest Rate Cap in connection with the failure by the related Series 2003-5 Interest Rate Cap Counterparty to make payments due under such Series 2003-5 Interest Rate Cap or (y) under Section 5(a)(vii) of the ISDA Master Agreement governing such Series 2003-5 Interest Rate Cap in connection with certain bankruptcy events with respect to the related Series 2003-5 Interest Rate Cap Counterparty, then AFC-II shall, at the request of the Surety Provider, promptly terminate such Series 2003-5 Interest Rate Cap.

 

(c)           To secure payment of all AFC-II Obligations with respect to the Series 2003-5 Notes, AFC-II grants a security interest in, and assigns, pledges, grants, transfers and sets over to the Series 2003-5 Agent, for the benefit of the Series 2003-5 Noteholders and the Surety Provider, all of AFC-II’s right, title and interest in the Series 2003-5 Interest Rate Caps and all proceeds thereof (the “Series 2003-5 Interest Rate Cap Collateral”).  AFC-II shall require all Series 2003-5 Interest Rate Cap Proceeds to be paid to, and the Trustee shall allocate all Series 2003-5 Interest Rate Cap Proceeds to, the Series 2003-5 Accrued Interest Account of the Series 2003-5 Collection Account.

 

(d)           The failure of AFC-II to comply with its covenants contained in this Section 2.10 shall not constitute an Amortization Event with respect to the Series 2003-5 Notes.

 

Section 2.11           Series 2003-5 Accounts Permitted Investments.  AFC-II shall not, and shall not permit, funds on deposit in the Series 2003-5 Accounts to be invested in:

 

(i)            Permitted Investments that do not mature at least one Business Day before the next Distribution Date;

 

(ii)           demand deposits, time deposits or certificates of deposit with a maturity in excess of 360 days;

 

(iii)          commercial paper which is not rated “P-1” by Moody’s;

 

(iv)          money market funds or eurodollar time deposits which are not rated at least “AAA” by Standard & Poor’s;

 

(v)           eurodollar deposits that are not rated “P-1” by Moody’s or that are with financial institutions not organized under the laws of a G-7 nation; or

 

41

 

(vi)          any investment, instrument or security not otherwise listed in clause (i) through (vi) of the definition of “Permitted Investments” in the Base Indenture that is not approved in writing by the Surety Provider.

 

Section 2.12           Series 2003-5 Demand Notes Constitute Additional Collateral for Series 2003-5 Notes.  In order to secure and provide for the repayment and payment of the AFC-II Obligations with respect to the Series 2003-5 Notes, AFC-II hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Trustee, for the benefit of the Series 2003-5 Noteholders and the Surety Provider, all of AFC-II’s right, title and interest in and to the follow­ing (whether now or hereafter existing or acquired): (i) the Series 2003-5 Demand Notes; (ii) all certificates and instruments, if any, representing or evidencing the Series 2003-5 Demand Notes; and (iii) all proceeds of any and all of the foregoing, including, without limitation, cash.  On the date hereof, AFC-II shall deliver to the Trustee, for the benefit of the Series 2003-5 Noteholders and the Surety Provider, each Series 2003-5 Demand Note, endorsed in blank.  The Trustee, for the benefit of the Series 2003-5 Noteholders and the Surety Provider, shall be the only Person authorized to make a demand for payments on the Series 2003-5 Demand Notes.

 

ARTICLE III

 

AMORTIZATION EVENTS

 

In addition to the Amortization Events set forth in Section 9.1 of the Base Indenture, any of the following shall be an Amortization Event with respect to the Series 2003-5 Notes and collectively shall constitute the Amortization Events set forth in Section 9.1(n) of the Base Indenture with respect to the Series 2003-5 Notes (without notice or other action on the part of the Trustee or any holders of the Series 2003-5 Notes):

 

(a)           a Series 2003-5 Enhancement Deficiency shall occur and continue for at least two (2) Business Days; provided, however, that such event or condition shall not be an Amortization Event if during such two (2) Business Day period such Series 2003-5 Enhancement Deficiency shall have been cured in accordance with the terms and condi­tions of the Indenture and the Related Documents;

 

(b)           the Series 2003-5 Liquidity Amount shall be less than the Series 2003-5 Required Liquidity Amount for at least two (2) Business Days; provided, however, that such event or condition shall not be an Amortization Event if during such two (2) Business Day period such insufficiency shall have been cured in accordance with the terms and condi­tions of the Indenture and the Related Documents;

 

(c)           the Collection Account, the Series 2003-5 Collection Account, the Series 2003-5 Excess Collection Account or the Series 2003-5 Reserve Account shall be subject to an injunction, estoppel or other stay or a Lien (other than Liens permitted under the Related Documents);

 

(d)           all principal of and interest on the Class A-1 Notes is not paid in full on or before the Class A-1 Expected Final Distribution Date or all principal of and interest on

 

42

 

the Class A-2 Notes is not paid in full on or before the Class A-2 Expected Final Distribution Date;

 

(e)           the Trustee shall make a demand for payment under the Surety Bond;

 

(f)            the occurrence of an Event of Bankruptcy with respect to the Surety Provider;

 

(g)           the Surety Provider fails to pay a demand for payment in accordance with the requirements of the Surety Bond;

 

(h)           any Series 2003-5 Letter of Credit shall not be in full force and effect for at least two (2) Business Days and (x) either a Series 2003-5 Enhancement Deficiency would result from excluding such Series 2003-5 Letter of Credit from the Series 2003-5 Enhancement Amount or (y) the Series 2003-5 Liquidity Amount, excluding therefrom the available amount under such Series 2003-5 Letter of Credit, would be less than the Series 2003-5 Required Liquidity Amount;

 

(i)            from and after the funding of the Series 2003-5 Cash Collateral Account, the Series 2003-5 Cash Collateral Account shall be subject to an injunction, estoppel or other stay or a Lien (other than Liens permitted under the Related Documents) for at least two (2) Business Days and either (x) a Series 2003-5 Enhancement Deficiency would result from excluding the Series 2003-5 Available Cash Collateral Account Amount from the Series 2003-5 Enhancement Amount or (y) the Series 2003-5 Liquidity Amount, excluding therefrom the Series 2003-5 Available Cash Collateral Amount, would be less than the Series 2003-5 Required Liquidity Amount; and

 

(j)            an Event of Bankruptcy shall have occurred with respect to any Series 2003-5 Letter of Credit Provider or any Series 2003-5 Letter of Credit Provider repudiates its Series 2003-5 Letter of Credit or refuses to honor a proper draw thereon and either (x) a Series 2003-5 Enhancement Deficiency would result from excluding such Series 2003-5 Letter of Credit from the Series 2003-5 Enhancement Amount or (y) the Series 2003-5 Liquidity Amount, excluding therefrom the available amount under such Series 2003-5 Letter of Credit, would be less than the Series 2003-5 Required Liquidity Amount.

 

ARTICLE IV

 

RIGHT TO WAIVE PURCHASE RESTRICTIONS

 

Notwithstanding any provision to the contrary in the Indenture or the Related Documents, upon the Trustee’s receipt of notice from any Lessee, any Borrower or AFC-II (i) to the effect that a Manufacturer Program is no longer an Eligible Manufacturer Program and that, as a result, the Series 2003-5 Maximum Non-Program Vehicle Amount is or will be exceeded or (ii) that the Lessees, the Borrowers and AFC-II have determined to increase any Series 2003-5 Maximum Amount, (such notice, a “Waiver Request”), each Series 2003-5 Noteholder may, at its option, waive the Series 2003-5 Maximum Non-Program Vehicle Amount or any other Series

 

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2003-5 Maximum Amount (collectively, a “Waivable Amount”) if (i) no Amortization Event exists, (ii) the Requisite Noteholders and the Surety Provider consent to such waiver and (iii) sixty (60) days’ prior written notice of such proposed waiver is provided to the Rating Agencies by the Trustee.

 

Upon receipt by the Trustee of a Waiver Request (a copy of which the Trustee shall promptly provide to the Rating Agencies), all amounts which would otherwise be allocated to the Series 2003-5 Excess Collection Account (collectively, the “Designated Amounts”) from the date the Trustee receives a Waiver Request through the Consent Period Expiration Date will be held by the Trustee in the Series 2003-5 Collection Account for ratable distribution as described below.

 

Within ten (10) Business Days after the Trustee receives a Waiver Request, the Trustee shall furnish notice thereof to the Series 2003-5 Noteholders and the Surety Provider, which notice shall be accompanied by a form of consent (each a “Consent”) in the form of Exhibit B hereto by which the Series 2003-5 Noteholders may, on or before the Consent Period Expiration Date, consent to waiver of the applicable Waivable Amount.  If the Trustee receives the consent of the Surety Provider and Consents from the Requisite Noteholders agreeing to waiver of the applicable Waivable Amount within forty-five (45) days after the Trustee notifies the Series 2003-5 Noteholders of a Waiver Request (the day on which such forty-five (45) day period expires, the “Consent Period Expiration Date”), (i) the applicable Waivable Amount shall be deemed waived by the consenting Series 2003-5 Noteholders, (ii) the Trustee will distribute the Designated Amounts as set forth below and (iii) the Trustee shall promptly (but in any event within two days) provide the Rating Agency with notice of such waiver.  Any Series 2003-5 Noteholder from whom the Trustee has not received a Consent on or before the Consent Period Expiration Date will be deemed not to have consented to such waiver.

 

If the Trustee receives Consents from the Requisite Noteholders on or before the Consent Period Expiration Date, then on the immediately following Distribution Date, the Trustee will pay the Designated Amounts as follows:

 

(i)            to the non-consenting Series 2003-5 Noteholders, if any, pro rata up to the amount required to pay all Series 2003-5 Notes held by such non-consenting Series 2003-5 Noteholders in full; and

 

(ii)           any remaining Designated Amounts to the Series 2003-5 Excess Collection Account.

 

If the amount paid pursuant to clause (i) of the preceding paragraph is not paid in full on the date specified therein, then on each day following such Distribution Date, the Administrator will allocate to the Series 2003-5 Collection Account on a daily basis all Designated Amounts collected on such day.  On each following Distribution Date, the Trustee will withdraw a portion of such Designated Amounts from the Series 2003-5 Collection Account and deposit the same in the Series 2003-5 Distribution Account for distribution as follows:

 

(a)           to the non-consenting Series 2003-5 Noteholders, if any, pro rata an amount equal to the Designated Amounts in the Series 2003-5 Collection Account as of

 

44

 

the applicable Determination Date up to the aggregate outstanding principal balance of the Series 2003-5 Notes held by the non-consenting Series 2003-5 Noteholders; and

 

(b)           any remaining Designated Amounts to the Series 2003-5 Excess Collection Account.

 

If the Requisite Noteholders or the Surety Provider do not timely consent to such waiver, the Designated Amounts will be re-allocated to the Series 2003-5 Excess Collection Account for allocation and distribution in accordance with the terms of the Indenture and the Related Documents.

 

In the event that the Series 2003-5 Rapid Amortization Period shall commence after receipt by the Trustee of a Waiver Request, all such Designated Amounts will thereafter be considered Principal Collections allocated to the Series 2003-5 Noteholders.

 

ARTICLE V

 

FORM OF SERIES 2003-5 NOTES

 

Section 5.1             Restricted Global Series 2003-5 Notes.  The Series 2003-5 Notes to be issued in the United States will be issued in book-entry form and represented by one or more permanent global Notes in fully registered form without interest coupons (each, a “Restricted Global Class A-1 Note” or “Restricted Global Class A-2 Note”, as the case may be), substantially in the forms set forth in Exhibit A-1-1 and A-2-1 hereto, with such legends as may be applicable thereto as set forth in the Base Indenture, and will be sold only in the United States (1) initially to institutional accredited investors within the meaning of Regulation D under the Securities Act in reliance on an exemption from the registration requirements of the Securities Act and (2) thereafter to qualified institutional buyers within the meaning of, and in reliance on, Rule 144A under the Securities Act and shall be deposited on behalf of the purchasers of the Series 2003-5 Notes represented thereby, with the Trustee as custodian for DTC, and registered in the name of Cede as DTC’s nominee, duly executed by AFC-II and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture.

 

Section 5.2             Temporary Global Series 2003-5 Notes; Permanent Global Series 2003-5 Notes.  The Series 2003-5 Notes to be issued outside the United States will be issued and sold in transactions outside the United States in reliance on Regulation S under the Securities Act, as provided in the applicable note purchase agreement, and shall initially be issued in the form of one or more temporary notes in registered form without interest coupons (each, a “Temporary Global Class A-1 Note” or a “Temporary Global Class A-2 Note”, as the case may be), substantially in the forms set forth in Exhibits A-1-2 and A-2-2 hereto, which shall be deposited on behalf of the purchasers of the Series 2003-5 Notes represented thereby with a custodian for, and registered in the name of a nominee of DTC, for the account of Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”) or for Clearstream Banking, société anonyme (“Clearstream”), duly executed by AFC-II and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture.  Interests in a Temporary Global Class A-1 Note or a Temporary Global Class A-2 Note will be exchangeable, in whole or in part, for interests in one or more permanent global notes in registered form without interest coupons

 

45

 

(each, a “Permanent Global Class A-1 Note” or a “Permanent Global Class A-2 Note”, as the case may be), substantially in the form of Exhibits A-1-3 and A-2-3 hereto, in accordance with the provisions of such Temporary Global Class A-1 Note or Temporary Global Class A-2 Note and the Base Indenture (as modified by this Supplement).  Interests in a Permanent Global Class A-1 Note or a Permanent Global Class A-2 Note will be exchangeable for definitive Class A-1 Notes or definitive Class A-2 Notes, as the case may be, in accordance with the provisions of such Permanent Global Class A-1 Note or Permanent Global Class A-2 Note and the Base Indenture (as modified by this Supplement).

 

ARTICLE VI

 

GENERAL

 

Section 6.1             Optional Repurchase.  Each Class of the Series 2003-5 Notes shall be subject to repurchase by AFC-II at its option in accordance with Section 6.3 of the Base Indenture on any Distribution Date after the Class A-1 Invested Amount or the Class A-2 Invested Amount, as the case may be, is reduced to an amount less than or equal to 10% of the Class A-1 Initial Invested Amount or the Class A-2 Initial Invested Amount, as the case may be (the “Series 2003-5 Repurchase Amount”); provided, however, that as a condition precedent to any such optional repurchase, on or prior to the Distribution Date on which any Series 2003-5 Note is repurchased by AFC-II pursuant to this Section 6.1, AFC-II shall have paid the Surety Provider all Surety Provider Fees and all other Surety Provider Reimbursement Amounts due and unpaid as of such Distribution Date.  The repurchase price for any Series 2003-5 Note shall equal the aggregate outstanding principal balance of such Series 2003-5 Note (determined after giving effect to any payments of principal and interest on such Distribution Date), plus accrued and unpaid interest on such outstanding principal balance.

 

Section 6.2             Information.  The Trustee shall provide to the Series 2003-5 Noteholders, or their desig­nated agent, and the Surety Provider copies of all information furnished to the Trustee or AFC-II pursuant to the Related Documents, as such information relates to the Series 2003-5 Notes or the Series 2003-5 Collateral.  In connection with any Preference Amount payable under the Surety Bond, the Trustee shall furnish to the Surety Provider its records evi­dencing the distributions of principal of and interest on the Series 2003-5 Notes that have been made and subsequently recovered from Series 2003-5 Noteholders and the dates on which such payments were made.

 

Section 6.3             Exhibits.  The following exhibits attached hereto supplement the exhibits included in the Indenture.

Exhibit A-1-1:

Form of Restricted Global Class A-1 Note

Exhibit A-1-2:

Form of Temporary Global Class A-1 Note

Exhibit A-1-3:

Form of Permanent Global Class A-1 Note

Exhibit A-2-1

Form of Restricted Global Class A-2 Note

Exhibit A-2-2

Form of Temporary Global Class A-2 Note

Exhibit A-2-3

Form of Permanent Global Class A-2 Note

Exhibit B:

Form of Consent

Exhibit C:

Form of Series 2003-5 Demand Note

 

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Exhibit D:

Form of Letter of Credit

Exhibit E:

Form of Lease Payment Deficit Notice

Exhibit F:

Form of Demand Notice

 

Section 6.4             Ratification of Base Indenture.  As supplemented by this Supplement, the Base Indenture is in all respects ratified and confirmed and the Base Indenture as so supplemented by this Supplement shall be read, taken, and construed as one and the same instrument.

 

Section 6.5             Counterparts.  This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

 

Section 6.6             Governing Law.  This Supplement shall be construed in accordance with the law of the State of New York, and the obligations, rights and remedies of the parties hereto shall be determined in accordance with such law.

 

Section 6.7             Amendments.  This Supplement may be modified or amended from time to time with the consent of the Surety Provider and in accordance with the terms of the Base Indenture; provided, however, that if, pursuant to the terms of the Base Indenture or this Supplement, the consent of the Required Noteholders is required for an amendment or modification of this Supplement, such requirement shall be satisfied if such amendment or modification is consented to by the Series 2003-5 Noteholders representing more than 50% of the aggregate outstanding principal amount of the Series 2003-5 Notes affected thereby; provided, further, that if that consent of the Required Noteholders is required for a proposed amendment or modification of this Supplement that (i) affects only the Class A-1 Notes (and does not affect in any material respect the Class A-2 Notes, as evidenced by an opinion of counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by the Class A-1 Noteholders representing more than 50% of the aggregate outstanding principal amount of the Class A-1 Notes (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A-2 Notes) and (ii) affects only the Class A-2 Notes (and does not affect in material respect the Class A-1 Notes, as evidenced by an opinion of counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by the Class A-2 Noteholders representing more than 50% of the aggregate outstanding principal amount of the Class A-2 Notes (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A-1 Notes).

 

Section 6.8             Discharge of Indenture.  Notwithstanding anything to the contrary contained in the Base Indenture, no discharge of the Indenture pursuant to Section 11.1(b) of the Base Indenture will be effective as to the Series 2003-5 Notes without the consent of the Required Noteholders.

 

Section 6.9             Notice to Surety Provider and Rating Agencies.  The Trustee shall provide to the Surety Provider and each Rating Agency a copy of each notice, opinion of counsel, certificate or other item delivered to, or required to be provided by, the Trustee pursuant to this Supplement or any other Related Document.  Each such opinion of counsel shall be

 

47

 

addressed to the Surety Provider, shall be from counsel reasonably acceptable to the Surety Provider and shall be in form and substance reasonably acceptable to the Surety Provider.  All such notices, opin­ions, certificates or other items delivered to the Surety Provider shall be forwarded to XL Capital Assurance Inc., 1221 Avenue of the Americas, New York, New York 10020-1001, Attention: Surveillance, Telephone: (212) 478-3400.

 

Section 6.10           Certain Rights of Surety Provider.  The Surety Provider shall be deemed to be an En­hancement Provider entitled to receive confirmation of the rating on the Series 2003-5 Notes (without regard to the Surety Bond) pursuant to the definition of “Rating Agency Confirmation Condition.”  In addition, the Surety Provider shall be deemed to be an Enhancement Provider entitled to exercise the consent rights described in clause (ii) of the definition of “Rating Agency Consent Condition.”

 

Section 6.11           Surety Provider Deemed Noteholder and Secured Party.  Except for any period during which a Surety Default is continuing, the Surety Provider shall be deemed to be the holder of 100% of the Series 2003-5 Notes for the purposes of giving any consents, waivers, approvals, instructions, directions, requests, declarations and/or notices pursuant to the Base Indenture and this Supplement.  Any reference in the Base Indenture or the Related Documents (including, without limitation, in Sections 2.3, 8.14, 9.1, 9.2 or 12.1 of the Base Inden­ture) to materially, adversely, or detrimentally affecting the rights or interests of the Noteholders, or words of similar meaning, shall be deemed, for purposes of the Series 2003-5 Notes, to refer to the rights or interests of the Surety Provider.  The Surety Provider shall constitute an “Enhancement Provider” with respect to the Series 2003-5 Notes for all purposes under the Indenture and the other Related Documents.  Furthermore, the Surety Provider shall be deemed to be a “Secured Party” under the Base Indenture and the Related Documents to the extent of amounts payable to the Surety Provider pursuant to this Supplement and the Insurance Agreement shall constitute an “Enhancement Agreement” with respect to the Series 2003-5 Notes for all purposes under the Indenture and the Related Documents.  Moreover, wherever in the Related Documents money or other property is assigned, conveyed, granted or held for, a filing is made for, action is taken for or agreed to be taken for, or a representation or warranty is made for the benefit of the Noteholders, the Surety Provider shall be deemed to be the Noteholder with respect to 100% of the Series 2003-5 Notes for such purposes.

 

Section 6.12           Capitalization of AFC-II.  AFC-II agrees that on the Series 2003-5 Closing Date it will have capitalization in an amount equal to or greater than 3% of the sum of (x) the Series 2003-5 Invested Amount and (y) the invested amount of the Series 1998-1 Notes,  the Series 2000-2 Notes, the Series 2000-3 Notes, the Series 2000-4 Notes, the Series 2001-1 Notes, the Series 2001-2 Notes, the Series 2002-1 Notes, the Series 2002-2 Notes, the Series 2002-3 Notes, the Series 2003-1 Notes, the Series 2003-2 Notes, the Series 2003-3 Notes and the Series 2003-4 Notes.

 

Section 6.13           Series 2003-5 Required Non-Program Enhancement Percentage.  AFC-II agrees that it will not make any Loan under any Loan Agreement to finance the acquisition of any Vehicle by AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, if, after giving effect to the making of such Loan, the acquisition of such Vehicle and the inclusion of such Vehicle under the relevant Lease, the Series 2003-5 Required Non-Program Enhancement Percentage would exceed 25.0%.

 

48

 

Section 6.14           Third Party Beneficiary.  The Surety Provider is an express third party beneficiary of (i) the Base Indenture to the extent of provisions relating to any Enhancement Provider and (ii) this Supplement.

 

Section 6.15           Prior Notice by Trustee to Surety Provider.  Subject to Section 10.1 of the Base Indenture, the Trustee agrees that, so long as no Amortization Event shall have occurred and be continuing with respect to any Series of Notes other than the Series 2003-5 Notes, it shall not exercise any rights or remedies available to it as a result of the occurrence of an Amortization Event with respect to the Series 2003-5 Notes (except those set forth in clauses (f) and (g) of Article III) or a Series 2003-5 Limited Liquidation Event of Default until after the Trustee has given prior written notice thereof to the Surety Provider and obtained the direction of the Required Noteholders with respect to the Series 2003-5 Notes.  The Trustee agrees to notify the Surety Provider promptly following any exercise of rights or remedies available to it as a result of the occurrence of any Amortization Event or a Series 2003-5 Limited Liquidation Event of Default.

 

Section 6.16           Effect of Payments by the Surety Provider.  Anything herein to the contrary notwithstanding, any distribution of principal of or interest on the Series 2003-5 Notes that is made with moneys received pursuant to the terms of the Surety Bond shall not (except for the purpose of calculating the Principal Deficit Amount) be considered payment of the Series 2003-5 Notes by AFC-II.  The Trustee acknowledges that, without the need for any further action on the part of the Surety Provider, (i) to the extent the Surety Provider makes payments, directly or indirectly, on account of principal of or interest on the Series 2003-5 Notes to the Trustee for the benefit of the Series 2003-5 Noteholders or to the Series 2003-5 Noteholders (including any Preference Amounts as defined in the Surety Bond), the Surety Provider will be fully subrogated to the rights of such Series 2003-5 Noteholders to receive such princi­pal and interest and will be deemed to the extent of the payments so made to be a Series 2003-5 Noteholder and (ii) the Surety Provider shall be paid principal and interest in its capacity as a Series 2003-5 Noteholder until all such payments by the Surety Provider have been fully reimbursed, but only from the sources and in the manner provided herein for the distribution of such principal and interest and in each case only after the Series 2003-5 Noteholders have received all payments of principal and interest due to them hereunder on the related Distribution Date.

 

Section 6.17           Series 2003-5 Demand Notes.  Other than pursuant to a demand thereon pursuant to Section 2.5, AFC-II shall not reduce the amount of the Series 2003-5 Demand Notes or forgive amounts payable thereunder so that the outstanding principal amount of the Series 2003-5 Demand Notes after such reduction or forgiveness is less than the Series 2003-5 Letter of Credit Liquidity Amount.  AFC-II shall not agree to any amendment of the Series 2003-5 Demand Notes without first satisfying the Rating Agency Confirmation Condition and the Rating Agency Consent Condition.

 

Section 6.18           Subrogation.  In furtherance of and not in limitation of the Surety Provider’s equitable right of subrogation, each of the Trustee and AFC-II acknowledge that, to the extent of any payment made by the Surety Provider under the Surety Bond with respect to interest on or principal of the Series 2003-5 Notes, including any Preference Amount, as defined in the Surety Bond, the Surety Provider is to be fully subrogated to the extent of such payment

 

49

 

and any additional interest due on any late payment, to the rights of the Series 2003-5 Noteholders under the Indenture.  Each of AFC-II and the Trustee agree to such subrogation and, further, agree to take such actions as the Surety Provider may reasonably request in writing to evidence such subrogation.

 

Section 6.19           Termination of Supplement.  This Supplement shall cease to be of further effect when all outstanding Series 2003-5 Notes theretofore authenticated and issued have been delivered (other than destroyed, lost, or stolen Series 2003-5 Notes which have been replaced or paid) to the Trustee for cancellation, AFC-II has paid all sums payable hereunder, the Surety Provider has been paid all Surety Provider Fees and all other Surety Provider Reimbursement Amounts due under the Insurance Agreement and, if the Series 2003-5 Demand Note Payment Amount on the Series 2003-5 Letter of Credit Termination Date was greater than zero, all amounts have been withdrawn from the Series 2003-5 Cash Collateral Account in accordance with Section 2.8(i).

 

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IN WITNESS WHEREOF, AFC-II and the Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

 

 

AESOP FUNDING II L.L.C.

 

 

 

By:

/s/ Lori Gebron

 

Title:  Vice President

 

 

 

THE BANK OF NEW YORK (as successor in
interest to the corporate trust administration of
Harris Trust and Savings Bank), as Trustee

 

 

 

By:

/s/  Eric Lindahl

 

Title:  Agent

 

 

 

THE BANK OF NEW YORK, as Series 2003-5 Agent

 

 

 

By:

/s/  Eric Lindahl

 

Title:  Agent

 

 

Table of Contents

 

ARTICLE I  DEFINITIONS

 

 

 

ARTICLE II  SERIES 2003-5 ALLOCATIONS

 

 

 

 

 

Section 2.1

Establishment of Series 2003-5 Collection Account, Series 2003-5 Excess Collection Account and Series 2003-5 Accrued Interest Account

 

 

Section 2.2

Allocations with Respect to the Series 2003-5 Notes

 

 

Section 2.3

Payments to Noteholders

 

 

Section 2.4

Payment of Note Interest

 

 

Section 2.5

Payment of Note Principal

 

 

Section 2.6

Administrator’s Failure to Instruct the Trustee to Make a Deposit or Payment

 

 

Section 2.7

Series-2003-5 Reserve Account

 

 

Section 2.8

Series 2003-5 Letters of Credit and Series 2003-5 Cash Collateral Account

 

 

Section 2.9

Series 2003-5 Distribution Account

 

 

Section 2.10

Series 2003-5 Interest Rate Caps.

 

 

Section 2.11

Series 2003-5 Accounts Permitted Investments

 

 

Section 2.12

Series 2003-5 Demand Notes Constitute Additional Collateral for Series 2003-5 Notes

 

 

 

 

 

ARTICLE III  AMORTIZATION EVENTS

 

 

 

 

 

ARTICLE IV  RIGHT TO WAIVE PURCHASE RESTRICTIONS

 

 

 

ARTICLE V  FORM OF SERIES 2003-5 NOTES

 

 

 

 

 

 

Section 5.1

Restricted Global Series 2003-5 Notes

 

 

Section 5.2

Temporary Global Series 2003-5 Notes; Permanent Global Series 2003-5 Notes

 

 

 

 

 

ARTICLE VI  GENERAL

 

 

 

 

 

 

Section 6.1

Optional Repurchase

 

 

Section 6.2

 Information

 

 

Section 6.3

Exhibits

 

 

Section 6.4

Ratification of Base Indenture

 

 

Section 6.5

Counterparts

 

 

Section 6.6

Governing Law

 

 

Section 6.7

Amendments

 

 

Section 6.8

Discharge of Indenture

 

 

Section 6.9

Notice to Surety Provider and Rating Agencies

 

 

Section 6.10

Certain Rights of Surety Provider

 

 

i

 

 

Section 6.11

Surety Provider Deemed Noteholder and Secured Party

 

 

Section 6.12

Capitalization of AFC-II

 

 

Section 6.13

Series 2003-5 Required Non-Program Enhancement Percentage

 

 

Section 6.14

Third Party Beneficiary

 

 

Section 6.15

Prior Notice by Trustee to Surety Provider

 

 

Section 6.16

Effect of Payments by the Surety Provider

 

 

Section 6.17

Series 2003-5 Demand Notes

 

 

Section 6.18

Subrogation

 

 

Section 6.19

Termination of Supplement

 

 

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Exhibit 10.43

 

EXECUTION COPY

 

 

CHESAPEAKE FUNDING LLC,
as Issuer

 

and

 

JPMORGAN CHASE BANK,
as Indenture Trustee

 

 

SERIES 2003-2 INDENTURE SUPPLEMENT

 

dated as of November 19, 2003

 

to

 

BASE INDENTURE

 

dated as of June 30, 1999

 

 

$500,000,000
of
Floating Rate Callable Asset-Backed Investor Notes

 

 

Table of Contents

 

PRELIMINARY STATEMENT

 

 

 

 

 

DESIGNATION

 

 

 

 

 

ARTICLE I DEFINITIONS

 

 

 

 

 

ARTICLE II ARTICLE 5 OF THE BASE INDENTURE

 

 

 

 

 

Section 5A.1

Establishment of Series 2003-2 Subaccounts.

 

 

 

 

 

 

Section 5A.2

Allocations with Respect to the Series 2003-2 Investor Notes.

 

 

 

 

 

 

Section 5A.3

Determination of Interest.

 

 

 

 

 

 

Section 5A.4

Monthly Application of Collections.

 

 

 

 

 

 

Section 5A.5

Payment of Monthly Interest Payment.

 

 

 

 

 

 

Section 5A.6

Payment of Principal.

 

 

 

 

 

 

Section 5A.7

The Administrator’s Failure to Instruct the Indenture Trustee to Make a Deposit or Payment.

 

 

 

 

 

 

Section 5A.8

Series 2003-2 Reserve Account.

 

 

 

 

 

 

Section 5A.9

Series 2003-2 Yield Supplement Account.

 

 

 

 

 

 

Section 5A.10

Series 2003-2 Distribution Account.

 

 

 

 

 

 

Section 5A.11

Lease Rate Caps.

 

 

 

 

 

ARTICLE III AMORTIZATION EVENTS

 

 

 

 

 

ARTICLE IV OPTIONAL PREPAYMENT

 

 

 

 

 

ARTICLE V SERVICING AND ADMINISTRATOR FEES

 

 

 

 

 

 

Section 5.1

Servicing Fees

 

 

 

 

 

 

Section 5.2

Administrator Fee

 

 

 

 

 

ARTICLE VI FORM OF SERIES 2003-2 NOTES

 

 

 

 

 

 

Section 6.1

Initial Issuance of Series 2003-2 Investor Notes.

 

 

 

 

 

 

Section 6.2

Global Notes.

 

 

i

 

 

Section 6.3

Definitive  Notes.

 

 

 

 

 

ARTICLE VII INFORMATION

 

 

 

 

 

ARTICLE VIII MISCELLANEOUS

 

 

 

 

 

 

Section 8.1

Ratification of Indenture

 

 

 

 

 

 

Section 8.2

Obligations Unaffected

 

 

 

 

 

 

Section 8.3

Governing Law

 

 

 

 

 

 

Section 8.4

Further Assurances

 

 

 

 

 

 

Section 8.5

Exhibits

 

 

 

 

 

 

Section 8.6

No Waiver; Cumulative Remedies

 

 

 

 

 

 

Section 8.7

Amendments

 

 

 

 

 

 

Section 8.8

Severability

 

 

 

 

 

 

Section 8.9

Counterparts

 

 

 

 

 

 

Section 8.10

No Bankruptcy Petition

 

 

 

 

 

 

Section 8.11

SUBIs

 

 

 

 

 

 

Section 8.12

Notice to Rating Agencies

 

 

 

 

 

 

Section 8.13

Conflict of Instructions

 

 

EXHIBITS

 

Exhibit A-1:

Form of Class A-1 Note

Exhibit A-2:

Form of Class A-2 Note

Exhibit B:

Form of Monthly Settlement Statement

Exhibit C:

Form of Series 2003-2 Lease Rate Cap

 

ii

 

SERIES 2003-2 SUPPLEMENT, dated as of November 19, 2003 (as amended, supplemented, restated or otherwise modified from time to time, this “Indenture Supplement”) between CHESAPEAKE FUNDING LLC (formerly known as Greyhound Funding LLC), a special purpose limited liability company established under the laws of Delaware (the “Issuer”), and JPMORGAN CHASE BANK (formerly known as The Chase Manhattan Bank) (“JPMorgan Chase”), a New York banking corporation, in its capacity as Indenture Trustee (together with its successors in trust thereunder as provided in the Base Indenture referred to below, the “Indenture Trustee”), to the Base Indenture, dated as of June 30, 1999, between the Issuer and the Indenture Trustee (as amended, modified, restated or supplemented from time to time, exclusive of Indenture Supplements creating new Series of Investor Notes, the “Base Indenture”).

 

PRELIMINARY STATEMENT

 

WHEREAS, Sections 2.2 and 12.1 of the Base Indenture provide, among other things, that the Issuer and the Indenture Trustee may at any time and from time to time enter into a Indenture Supplement to the Base Indenture for the purpose of authorizing the issuance of one or more Series of Investor Notes.

 

NOW, THEREFORE, the parties hereto agree as follows:

 

DESIGNATION

 

There is hereby created a Series of Investor Notes to be issued pursuant to the Base Indenture and this Indenture Supplement and such Series of Investor Notes shall be designated generally as Series 2003-2 Floating Rate Callable Asset Backed Investor Notes.

 

The Series 2003-2 Investor Notes shall be issued in two classes:  one of which shall be designated as Series 2003-2 Floating Rate Callable Asset Backed Investor Notes, Class A-1, and referred to herein as the Class A-1 Investor Notes and the other of which shall be designated as the Series 2003-2 Floating Rate Callable Asset Backed Investor Notes, Class A-2, and referred to herein as the Class A-2 Investor Notes.  The Class A-1 Investor Notes and the Class A-2 Investor Notes are referred to herein collectively as the “Series 2003-2 Investor Notes.”  The Series 2003-2 Investor Notes shall be issued in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof.

 

The net proceeds from the sale of the Series 2003-2 Investor Notes (as defined herein) shall be applied in accordance with Section 5A.2(b) and the portion thereof deposited in the Series 2003-2 Principal Collection Subaccount shall be used by the Issuer to fund the maintenance of the SUBI Certificates under the Transfer Agreement and/or to reduce the Invested Amounts of other Series of Investor Notes.

 

ARTICLE I

DEFINITIONS

 

(a)  All capitalized terms not otherwise defined herein are defined in the Definitions List attached to the Base Indenture as Schedule 1 thereto. All Article, Section or

 

 

Subsection references herein shall refer to Articles, Sections or Subsections of the Base Indenture, except as otherwise provided herein. Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Base Indenture, each capitalized term used or defined herein shall relate only to the Series 2003-2 Investor Notes and not to any other Series of Investor Notes issued by the Issuer.

 

(b)  The following words and phrases shall have the following meanings with respect to the Series 2003-2 Investor Notes and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms:

 

“Additional Interest” is defined in Section 5A.3(c).

 

“Amortization Event” is defined in Article 3.

 

“Assumed Lease Term” means, with respect to any Series 2003-2 Yield Shortfall Lease, the number of months over which the Capitalized Cost of the related Leased Vehicle is being depreciated thereunder.

 

“Authorized Newspaper” means a daily newspaper published in the English language of general circulation in Luxembourg (or if publication is not practical in Luxembourg, in Europe).

 

“Avis” means Avis Group Holdings, Inc. and its successors and assigns.

 

“Calculation Agent” means JPMorgan Chase Bank, in its capacity as calculation agent with respect to the Series 2003-2 Note Rates.

 

“Car” means an automobile or a Light-Duty Truck.

 

“Cendant” means Cendant Corporation and its successors and assigns.

 

“Class A-1 Final Maturity Date” means the November 2008 Payment Date.

 

“Class A-1 Initial Invested Amount” means the aggregate initial principal amount of the Class A-1 Investor Notes, which is $230,000,000.

 

“Class A-1 Interest Shortfall Amount” is defined in Section 5A.3(c).

 

“Class A-1 Invested Amount” means as of any date of determination, an amount equal to (a) the Class A-1 Initial Invested Amount minus (b) the amount of principal payments made to Class A-1 Investor Noteholders on or prior to such date.

 

“Class A-1 Investor Noteholder” means the Person in whose name a Class A-1 Investor Note is registered in the Note Register.

 

“Class A-1 Investor Notes” means any one of the Series 2003-2 Floating Rate Callable Asset Backed Investor Notes, Class A-1, executed by the Issuer and

 

 

2

 

authenticated by or on behalf of the Indenture Trustee, substantially in the form of Exhibit A-1.  Definitive Class A-1 Investor Notes shall have such insertions and deletions as are necessary to give effect to the provisions of Section 2.11 of the Base Indenture.

 

“Class A-1 Monthly Interest” means, with respect to any Series 2003-2 Interest Period, an amount equal to the product of (i) the Class A-1 Note Rate for such Series 2003-2 Interest Period, (ii) the Class A-1 Invested Amount on the first day of such Series 2003-2 Interest Period, after giving effect to any principal payments made on such date, or, in the case of the initial Series 2003-2 Interest Period, the Class A-1 Initial Invested Amount and (iii) a fraction, the numerator of which is the number of days in such Series 2003-2 Interest Period and the denominator of which is 360.

 

“Class A-1 Note Rate” means, (i) with respect to the initial Series 2003-2 Interest Period, 1.32% per annum and (ii) with respect to each Series 2003-2 Interest Period thereafter, a rate per annum equal to One-Month LIBOR for such Series 2003-2 Interest Period plus 0.20% per annum.

 

“Class A-2 Final Maturity Date” means the November 2015 Payment Date.

 

“Class A-2 Initial Invested Amount” means the aggregate initial principal amount of the Class A-2 Investor Notes, which is $270,000,000.

 

“Class A-2 Interest Shortfall Amount” is defined in Section 5A.3(c).

 

“Class A-2 Invested Amount” means, as of any date of determination, an amount equal to (a) the Class A-2 Initial Invested Amount minus (b) the amount of principal payments made to Class A-2 Investor Noteholders on or prior to such date.

 

“Class A-2 Investor Noteholder” means the Person in whose name a Class A-2 Investor Note is registered in the Note Register.

 

“Class A-2 Investor Notes” means any one of the Series 2003-2 Floating Rate Asset Backed Callable Investor Notes, Class A-2, executed by the Issuer and authenticated by or on behalf of the Indenture Trustee, substantially in the form of Exhibit A-2.  Definitive Class A-2 Investor Notes shall have such insertions and deletions as are necessary to give effect to the provisions of Section 2.11 of the Base Indenture.

 

“Class A-2 Monthly Interest” means, with respect to any Series 2003-2 Interest Period, an amount equal to the product of (i) the Class A-2 Note Rate for such Series 2003-2 Interest Period, (ii) the Class A-2 Invested Amount on the first day of such Series 2003-2 Interest Period, after giving effect to any principal payments made on such date, or, in the case of the initial Series 2003-2 Interest Period, the Class A-2 Initial Invested Amount and (iii) a fraction, the numerator of which is the number of days in such Series 2003-2 Interest Period and the denominator of which is 360.

 

“Class A-2 Note Rate” means, (i) with respect to the initial Series 2003-2 Interest Period, 1.42% per annum and (ii) with respect to each Series 2003-2 Interest Period

 

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thereafter, a rate per annum equal to One-Month LIBOR for such Series 2003-2 Interest Period plus 0.30% per annum.

 

“Deficiency” is defined in Section 5A.4(b)(i).

 

“Dividend Amount” means, with respect to any Payment Date, the aggregate amount of dividends payable to the Series 2003-2 Preferred Members in respect of their Series 2003-2 Preferred Membership Interests pursuant to the LLC Agreement.

 

“Dollar”, “US$” and “$” means lawful currency of the United States.

 

“DTC” means The Depository Trust Company or its successor, as the Clearing Agency for the Series 2003-2 Investor Notes.

 

“Equipment” means any Vehicle that is not a Car, a Forklift, a Heavy-Duty Truck, a Medium-Duty Truck, a Truck Body or a Trailer.

 

“Excess Alternative Vehicle Amount” means, on any Settlement Date, an amount equal to the excess, if any, of (a) the sum of

 

(i) the aggregate Lease Balance of all Eligible Leases the related Leased Vehicle of which is not a Car allocated to the Lease SUBI as of the last day of the Monthly Period immediately preceding such Settlement Date plus

 

(ii) an amount equal to the aggregate for each Unit Vehicle which is not a Car subject to a Closed-End Lease allocated to the Lease SUBI as of the last day of such Monthly Period of the lesser of (A) the Stated Residual Value of such Unit Vehicle and (B) the Net Book Value of such Unit Vehicle as of the last day of such Monthly Period;

 

over (b) an amount equal to 31.5% of the Aggregate Unit Balance as of such Settlement Date.

 

“Excess Equipment Amount” means, on any Settlement Date, an amount equal to the excess, if any, of (a) the sum of

 

(i) the aggregate Lease Balance of all Eligible Leases the related Leased Vehicle of which is Equipment allocated to the Lease SUBI as of the last day of the Monthly Period immediately preceding such Settlement Date plus

 

(ii) an amount equal to the aggregate for each Unit Vehicle which is Equipment subject to a Closed-End Lease allocated to the Lease SUBI as of the last day of such Monthly Period of the lesser of (A) the Stated Residual Value of such Unit Vehicle and (B) the Net Book Value of such Unit Vehicle as of the last day of such Monthly Period;

 

over (b) an amount equal to 5% of the Aggregate Unit Balance as of such Settlement Date.

 

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“Excess Forklift Amount” means, on any Settlement Date, an amount equal to the excess, if any, of (a) the sum of

 

(i) the aggregate Lease Balance of all Eligible Leases the related Leased Vehicle of which is a Forklift allocated to the Lease SUBI as of the last day of the Monthly Period immediately preceding such Settlement Date plus

 

(ii) an amount equal to the aggregate for each Unit Vehicle which is a Forklift subject to a Closed-End Lease allocated to the Lease SUBI as of the last day of such Monthly Period of the lesser of (A) the Stated Residual Value of such Unit Vehicle and (B) the Net Book Value of such Unit Vehicle as of the last day of such Monthly Period;

 

over (b) an amount equal to 2% of the Aggregate Unit Balance as of such Settlement Date.

 

“Excess Heavy-Duty Truck Amount” means, on any Settlement Date, an amount equal to the excess, if any, of (a) the sum of

 

(i) the aggregate Lease Balance of all Eligible Leases the related Leased Vehicle of which is a Heavy-Duty Truck allocated to the Lease SUBI as of the last day of the Monthly Period immediately preceding such Settlement Date plus

 

(ii) an amount equal to the aggregate for each Unit Vehicle which is a Heavy-Duty Truck subject to a Closed-End Lease allocated to the Lease SUBI as of the last day of such Monthly Period of the lesser of (A) the Stated Residual Value of such Unit Vehicle and (B) the Net Book Value of such Unit Vehicle as of the last day of such Monthly Period;

 

over (b) an amount equal to 7.5% of the Aggregate Unit Balance as of such Settlement Date.

 

“Excess Medium-Duty Truck Amount” means, on any Settlement Date, an amount equal to the excess, if any, of (a) the sum of

 

(i) the aggregate Lease Balance of all Eligible Leases the related Leased Vehicle of which is a Medium-Duty Truck allocated to the Lease SUBI as of the last day of the Monthly Period immediately preceding such Settlement Date plus

 

(ii) an amount equal to the aggregate for each Unit Vehicle which is a Medium-Duty Truck subject to a Closed-End Lease allocated to the Lease SUBI as of the last day of such Monthly Period of the lesser of (A) the Stated Residual Value of such Unit Vehicle and (B) the Net Book Value of such Unit Vehicle as of the last day of such Monthly Period;

 

over (b) an amount equal to 15.0% of the Aggregate Unit Balance as of such Settlement Date.

 

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“Excess Trailer Amount” means, on any Settlement Date, an amount equal to the excess, if any, of (a) the sum of

 

(i) the aggregate Lease Balance of all Eligible Leases the related Leased Vehicle of which is a Trailer allocated to the Lease SUBI as of the last day of the Monthly Period immediately preceding such Settlement Date plus

 

(ii) an amount equal to the aggregate for each Unit Vehicle which is a Trailer subject to a Closed-End Lease allocated to the Lease SUBI as of the last day of such Monthly Period of the lesser of (A) the Stated Residual Value of such Unit Vehicle and (B) the Net Book Value of such Unit Vehicle as of the last day of such Monthly Period;

 

over (b) an amount equal to 3% of the Aggregate Unit Balance as of such Settlement Date.

 

“Excess Truck Amount” means, on any Settlement Date, an amount equal to the greater of (a) the sum of (i) the Excess Heavy-Duty Truck Amount on such Settlement Date and (ii) the Excess Medium-Duty Truck Amount on such Settlement Date and (b) an amount equal to the excess, if any, of (x) the sum of

 

(i) the aggregate Lease Balance of all Eligible Leases the related Leased Vehicle of which is a Medium-Duty Truck or a Heavy-Duty Truck allocated to the Lease SUBI as of the last day of the Monthly Period immediately preceding such Settlement Date plus

 

(ii) an amount equal to the aggregate for each Unit Vehicle which is a Medium-Duty Truck or a Heavy-Duty Truck subject to a Closed-End Lease allocated to the Lease SUBI as of the last day of such Monthly Period of the lesser of (A) the Stated Residual Value of such Unit Vehicle and (B) the Net Book Value of such Unit Vehicle as of the last day of such Monthly Period;

 

over (y) an amount equal to 21.5% of the Aggregate Unit Balance as of such Settlement Date.

 

“Excess Truck Body Amount” means, on any Settlement Date, an amount equal to the excess, if any, of (a) the sum of

 

(i) the aggregate Lease Balance of all Eligible Leases the related Leased Vehicle of which is a Truck Body allocated to the Lease SUBI as of the last day of the Monthly Period immediately preceding such Settlement Date plus

 

(ii) an amount equal to the aggregate for each Unit Vehicle which is a Truck Body subject to a Closed-End Lease allocated to the Lease SUBI as of the last day of such Monthly Period of the lesser of (A) the Stated Residual Value of such Unit Vehicle and (B) the Net Book Value of such Unit Vehicle as of the last day of such Monthly Period;

 

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over (b) an amount equal to 2% of the Aggregate Unit Balance as of such Settlement Date.

 

“Final Maturity Date” means the Class A-1 Final Maturity Date or the Class A-2 Final Maturity Date.

 

“Forklift” means a high-lift, self-loading mobile vehicle, equipped with load carriage and forks, for transporting and tiering loads.

 

“Gross Vehicle Weight” means the maximum manufacturer recommended weight that the axels of a Truck or Tractor can carry including the weight of the Truck or Tractor.

 

“Heavy-Duty Truck” means a Truck or Tractor having a Gross Vehicle Weight of over 33,000 thousand pounds.

 

“Indenture Supplement” has the meaning set forth in the preamble.

 

“Interest Shortfall Amount” is defined in Section 5A.3(c).

 

“LIBOR Determination Date” means, with respect to any Series 2003-2 Interest Period, the second London Business Day next preceding the first day of such Series 2003-2 Interest Period.

 

“Light-Duty Truck” means a Truck having a Gross Vehicle Weight of under 16,001 pounds.

 

“London Business Day” means any day on which dealings in deposits in Dollars are transacted in the London interbank market and banking institutions in London are not authorized or obligated by law or regulation to close.

 

“Medium-Duty Truck” means a Truck or Tractor having a Gross Vehicle Weight of between 16,001 thousand pounds and 33,000 thousand pounds.

 

“Monthly Interest Payment” is defined in Section 5A.4(c)(v).

 

“One-Month LIBOR” means, for each Series 2003-2 Interest Period, the rate per annum determined on the related LIBOR Determination Date by the Calculation Agent to be the rate for Dollar deposits having a maturity equal to one month that appears on Telerate Page 3750 at approximately 11:00 a.m., London time, on such LIBOR Determination Date; provided, however, that if such rate does not appear on Telerate Page 3750, One-Month LIBOR will mean, for such 2003-2 Interest Period, the rate per annum equal to the arithmetic mean (rounded to the nearest one-one-hundred-thousandth of one percent) of the rates quoted by the Reference Banks to the Calculation Agent as the rates at which deposits in Dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on the LIBOR Determination Date to prime banks in the London interbank market for a period equal to one month; provided, further, that if fewer than two quotations are provided as requested by the Reference Banks,

 

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“One-Month LIBOR” for such Series 2003-2 Interest Period will mean the arithmetic mean (rounded to the nearest one-one-hundred-thousandth of one percent) of the rates quoted by major banks in New York, New York selected by the Calculation Agent, at approximately 10:00 a.m., New York City time, on the first day of such Series 2003-2 Interest Period for loans in Dollars to leading European banks for a period equal to one month; provided, finally, that if no such quotes are provided, “One-Month LIBOR” for such Series 2003-2 Interest Period will mean One-Month LIBOR as in effect with respect to the preceding Series 2003-2 Interest Period.

 

“Outstanding” means, with respect to the Series 2003-2 Investor Notes, all Series 2003-2 Investor Notes theretofore authenticated and delivered under the Indenture, except (a) Series 2003-2 Investor Notes theretofore canceled or delivered to the Transfer Agent and Registrar for cancellation, (b) Series 2003-2 Investor Notes which have not been presented for payment but funds for the payment of which are on deposit in the Series 2003-2 Distribution Account and are available for payment of such Series 2003-2 Investor Notes, and Series 2003-2 Investor Notes which are considered paid pursuant to Section 11.1 of the Base Indenture, or (c) Series 2003-2 Investor Notes in exchange for or in lieu of other Series 2003-2 Investor Notes which have been authenticated and delivered pursuant to the Indenture unless proof satisfactory to the Indenture Trustee is presented that any such Series 2003-2 Investor Notes are held by a purchaser for value.

 

“Payment Date” means the 7th day of each month, or if such date is not a Business Day, the next succeeding Business Day, commencing December 8, 2003.

 

“PHH” means PHH Corporation and its successors and assigns.

 

“Prepayment Date” is defined in Article 4.

 

“Rating Agencies” means, with respect to the Series 2003-2 Investor Notes, Standard & Poor’s, Moody’s and any other nationally recognized rating agency rating the Series 2003-2 Investor Notes at the request of the Issuer.

 

“Rating Agency Condition” means, with respect to any action specified herein as requiring satisfaction of the Rating Agency Condition, that each Rating Agency shall have been given 10 days’ (or such shorter period as shall be acceptable to each Rating Agency) prior notice thereof and that each of the Rating Agencies shall have notified the Issuer and the Indenture Trustee in writing that such action will not result in a reduction or withdrawal of the then current rating of the Series 2003-2 Investor Notes or of any Series 2003-2 Preferred Membership Interests.

 

“Record Date” means, with respect to each Payment Date, the last day of the immediately preceding calendar month.

 

“Reference Banks” means four major banks in the London interbank market selected by the Calculation Agent.

 

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“Series 2003-2” means Series 2003-2, the Principal Terms of which are set forth in this Indenture Supplement.

 

“Series 2003-2 Administrator Fee” is defined in Section 5.2.

 

“Series 2003-2 Allocated Adjusted Aggregate Unit Balance” means, as of any date of determination, the product of (a) the Adjusted Aggregate Unit Balance and (b) the percentage equivalent of a fraction the numerator of which is the Series 2003-2 Required Asset Amount as of such date and the denominator of which is the sum of (x) the Series 2003-2 Required Asset Amount and (y) the aggregate Required Asset Amounts with respect to each other Series of Investor Notes as of such date, including all Series of Investor Notes that have been paid in full but as to which the Amortization Period shall have not ended.

 

“Series 2003-2 Allocated Asset Amount Deficiency” means, as of any date of determination, the amount, if any, by which the Series 2003-2 Allocated Adjusted Aggregate Unit Balance is less than the Series 2003-2 Required Asset Amount as of such date.

 

“Series 2003-2 Amortization Period” means the period beginning at the earlier of (a) the close of business on the Business Day immediately preceding the day on which an Amortization Event is deemed to have occurred with respect to the Series 2003-2 Investor Notes and (b) the close of business on the Period End Date in May 2005 and ending on the date when (i) the Series 2003-2 Investor Notes are fully paid, (ii) all dividends accrued and accumulated on the Series 2003-2 Preferred Membership Interests shall have been declared and paid in full, (iii) the Series 2003-2 Preferred Membership Interests shall have been redeemed in accordance with their terms and (iv) all amounts owing in respect of the Series 2003-2 Preferred Membership Interests under the Series 2003-2 Preferred Membership Interest Purchase Agreement shall have been paid in full by the Issuer.

 

“Series 2003-2 Available Excess Collections Amount” means, on any Business Day during the period commencing on a Period End Date to but excluding the next succeeding Settlement Date, an amount equal to the excess, if any, of (a) the amount deposited in the Series 2003-2 General Collection Subaccount during the immediately preceding Monthly Period pursuant to Section 5A.2(a) over (b) the sum of (i) the amounts to be distributed from the Series 2003-2 Settlement Collection Subaccount pursuant to paragraphs (i) through (xii) of Section 5A.4(c) on such Settlement Date, and (ii) any amounts owing in respect of the Series 2003-2 Preferred Membership Interests under the Series 2003-2 Preferred Membership Interest Purchase Agreement on such Settlement Date.

 

“Series 2003-2 Basic Servicing Fee” is defined in Section 5.1.

 

“Series 2003-2 Closing Date” means November 19, 2003.

 

9

 

“Series 2003-2 Collateral” means the Collateral, the Series 2003-2 Reserve Account, the Series 2003-2 Yield Supplement Account, the Series 2003-2 Distribution Account and the Series 2003-2 Lease Rate Caps.

 

“Series 2003-2 Collection Subaccount” is defined in Section 5A.1(a).

 

“Series 2003-2 Distribution Account” is defined in Section 5A.10(a).

 

“Series 2003-2 Eligible Counterparty” means a financial institution having on the date of any acquisition of a Lease Rate Cap short-term debt ratings of at least A-1 by Standard & Poor’s and P-1 by Moody’s and long-term unsecured debt ratings of at least A+ by Standard & Poor’s and Aa3 by Moody’s.

 

“Series 2003-2 Excess Fleet Receivable Amount” means, for any Settlement Date, an amount equal to the product of (a) the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period and (b) the Excess Fleet Receivable Amount for such Settlement Date.

 

“Series 2003-2 Gain on Sale Account Percentage” means 10%.

 

“Series 2003-2 Global Notes” is defined in Section 6.2.

 

“Series 2003-2 Hypothetical Yield Shortfall Amount” means, for any Settlement Date, an amount equal to the product of (x) the excess, if any, of the Series 2003-2 Minimum Yield Rate for such Settlement Date over the CP Rate as of the last day of the immediately preceding Monthly Period, (y) the Series 2003-2 Invested Percentage on such Settlement Date of the aggregate Lease Balance of all Floating Rate Leases as of the last day of the immediately preceding Monthly Period and (z) 2.75.

 

“Series 2003-2 Initial Invested Amount” means the sum of the Class A-1 Initial Invested Amount and the Class A-2 Initial Invested Amount.

 

“Series 2003-2 Interest Period” means a period commencing on and including a Payment Date and ending on and including the day preceding the next succeeding Payment Date; provided, however, that the initial Series 2003-2 Interest Period shall commence on and include the Series 2003-2 Closing Date and end on and include December 7, 2003.

 

“Series 2003-2 Invested Amount” means, as of any date of determination, the sum of the Class A-1 Invested Amount and the Class A-2 Invested Amount as of such date.

 

“Series 2003-2 Invested Percentage” means, with respect to any Business Day (i) during the Series 2003-2 Revolving Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction the numerator of which shall be equal to the Series 2003-2 Allocated Adjusted Aggregate Unit Balance as of the end of the immediately preceding Business Day and the denominator of which is the sum of the numerators used to determine invested percentages for allocations for all Series of Investor Notes (and all classes of such Series of Investor Notes), including all Series of Investor Notes that have

 

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been paid in full but as to which the Amortization Period has not ended, as of the end of such immediately preceding Business Day or (ii) during the Series 2003-2 Amortization Period, the percentage equivalent (which percentage shall never exceed 100%) of a fraction the numerator of which shall be equal to the Series 2003-2 Allocated Adjusted Aggregate Unit Balance as of the end of the Series 2003-2 Revolving Period, and the denominator of which is the sum of the numerators used to determine invested percentages for allocations for all Series of Investor Notes (and all classes of such Series of Investor Notes), including all Series of Investor Notes that have been paid in full but as to which the Amortization Period has not ended, as of the end of the immediately preceding Business Day.

 

“Series 2003-2 Investor Noteholder” means, collectively, the Class A-1 Investor Noteholders and the Class A-2 Investor Noteholders.

 

“Series 2003-2 Investor Note Owner” means, with respect to a Series 2003-2 Global Note, the Person who is the beneficial owner of an interest in such Series 2003-2 Global Note, as reflected on the books of DTC, or on the books of a Person maintaining an account with DTC (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of DTC).

 

“Series 2003-2 Investor Notes” means, collectively, the Class A-1 Investor Notes and the Class A-2 Investor Notes.

 

“Series 2003-2 Junior Preferred Membership Interests” means the Junior Preferred Membership Interests relating to the Series 2003-2 Investor Notes, if any, issued by the Issuer pursuant to the LLC Agreement.

 

“Series 2003-2 Lease Rate Cap” means one or more interest rate caps whether now or hereafter existing or acquired, substantially in the form of Exhibit C, from a Series 2003-2 Eligible Counterparty.

 

“Series 2003-2 Liquid Credit Enhancement Deficiency” means, on any date of determination, the amount by which the Series 2003-2 Reserve Account Amount is less than the Series 2003-2 Required Reserve Account Amount.

 

“Series 2003-2 Minimum Yield Rate” means, for any Settlement Date, a rate per annum equal to the sum of (i) the Series 2003-2 Weighted Average Cost of Funds for such Settlement Date, (ii) 0.225% and (iii) 0.48%.

 

“Series 2003-2 Monthly Interest” means, with respect to any Series 2003-2 Interest Period, the sum of Class A-1 Monthly Interest and Class A-2 Monthly Interest for such Series 2003-2 Interest Period.

 

“Series 2003-2 Monthly Residual Value Gain” means, for any Settlement Date, an amount equal to the product of (a) the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period and (b) the Monthly Residual Value Gain for such Settlement Date.

 

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“Series 2003-2 Note Rate” means the Class A-1 Note Rate or the Class A-2 Note Rate, as the context may require.

 

“Series 2003-2 Note Termination Date” means the date on which the Series 2003-2 Investor Notes are fully paid.

 

“Series 2003-2 Preferred Member Distribution Account” means the account established in respect of the Series 2003-2 Preferred Membership Interests pursuant to the LLC Agreement.

 

“Series 2003-2 Preferred Members” means the registered holders of the Series 2003-2 Preferred Membership Interests.

 

“Series 2003-2 Preferred Membership Interest Purchase Agreement” means, collectively, one or more purchase agreements among the Issuer, one or more purchasers of the Series 2003-2 Senior Preferred Membership Interests thereunder, any agents of such purchasers, any banks or other financial institutions providing liquidity funding to such purchasers and the Administrator, as the same may from time to time be amended, supplemented or otherwise modified in accordance with its terms, and one or more purchase agreements relating to the Series 2003-2 Junior Preferred Membership Interests among the Issuer, one or more purchasers of the Series 2003-2 Junior Preferred Membership Interests and the Administrator, as the same may from time to time be amended, supplemented or otherwise modified in accordance with its terms.

 

“Series 2003-2 Preferred Membership Interests” means the Series 2003-2 Senior Preferred Membership Interests and the Series 2003-2 Junior Preferred Membership Interests, if any.

 

“Series 2003-2 Principal Collection Subaccount” is defined in Section 5A.1(a).

 

“Series 2003-2 Principal Payment Amount” means, for any Settlement Date, an amount equal to the product of (a) the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period and (b) the Principal Payment Amount for such Settlement Date.

 

“Series 2003-2 Required Asset Amount” means, as of any date of determination, the sum of the Series 2003-2 Invested Amount and the Series 2003-2 Required Overcollateralization Amount as of such date.

 

“Series 2003-2 Required Enhancement Amount” means, on any date, the sum of (a) the Series 2003-2 Required Percentage on such date of the Series 2003-2 Initial Invested Amount plus (b) the sum of:

 

(i)                                     if the Three-Month Average Residual Value Loss Ratio with respect to the most recent Settlement Date exceeded 12.50%, an amount equal to the product of (A) the Series 2003-2 Invested Percentage as of the last day of the Monthly Period immediately preceding such Settlement Date and (B) 90% of the amount

 

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by which the Aggregate Residual Value Amount exceeded the Excess Residual Value Amount, in each case, as of that date; plus

 

(ii)                                  the greater of

 

(A) the sum of:

 

 (1) an amount equal to the product of (x) the Series 2003-2 Invested Percentage as of the last day of the Monthly Period immediately preceding the most recent Settlement Date and (y) the Excess Equipment Amount on such Settlement Date;

 

(2) an amount equal to the product of (x) the Series 2003-2 Invested Percentage as of the last day of the Monthly Period immediately preceding the most recent Settlement Date and (y) the Excess Forklift Amount on such Settlement Date;

 

(3) an amount equal to the product of (x) the Series 2003-2 Invested Percentage as of the last day of the Monthly Period immediately preceding the most recent Settlement Date and (y) the Excess Truck Amount on such Settlement Date;

 

(4) an amount equal to the product of (x) the Series 2003-2 Invested Percentage as of the last day of the Monthly Period immediately preceding the most recent Settlement Date and (y) the Excess Trailer Amount on such Settlement Date; and

 

(5) an amount equal to the product of (x) the Series 2003-2 Invested Percentage as of the last day of the Monthly Period immediately preceding the most recent Settlement Date and (y) the Excess Truck Body Amount on such Settlement Date; or

 

(B) an amount equal to the product of (x) the Series 2003-2 Invested Percentage as of the last day of the Monthly Period immediately preceding such Settlement Date and (y) the Excess Alternative Vehicle Amount on such Settlement Date.

 

; provided, however, that, after the declaration or occurrence of an Amortization Event, the Series 2003-2 Required Enhancement Amount shall equal the Series 2003-2 Required Enhancement Amount on the date of the declaration or occurrence of such Amortization Event.

 

“Series 2003-2 Required Investor Noteholders” means Series 2003-2 Investor Noteholders holding more than 50% of the Series 2003-2 Invested Amount (excluding any Series 2003-2 Investor Notes held by the Issuer or any Affiliate of the Issuer).

 

“Series 2003-2 Required Lease Rate Cap” means one or more Series 2003-2 Lease Rate Caps having, in the aggregate, a notional amount on each Payment Date equal

 

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to the lesser of (x) the average daily Series 2003-2 Invested Percentage during the Monthly Period immediately preceding such Payment Date of the aggregate Lease Balance of all Fixed Rate Leases allocated to the Lease SUBI Portfolio as of the last day of the immediately preceding Monthly Period that were not Fixed Rate Leases when initially allocated to the Lease SUBI Portfolio or on the Series 2003-2 Closing Date, plus, in the case of all such Fixed Rate Leases that are Closed-End Leases, the aggregate Stated Residual Values of the related Leased Vehicles and (y) the sum of the Series 2003-2 Invested Amount and the aggregate stated liquidation preference of the Series 2003-2 Preferred Membership Interests on such Payment Date and an effective strike rate based on the eurodollar rate set forth therein in effect on the dates set forth therein at the most equal to the weighted average fixed rate of interest on such Fixed Rate Leases minus 0.705% per annum.

 

“Series 2003-2 Required Overcollateralization Amount” means, on any date of determination during an Accrual Period, the amount by which the Series 2003-2 Required Enhancement Amount exceeds the sum of (a) the Series 2003-2 Reserve Account Amount and (b) the amount on deposit in the Series 2003-2 Principal Collection Subaccount on such date (excluding any amounts deposited therein pursuant to Section 5A.2(d) during the Monthly Period commencing after the first day of such Accrual Period).

 

“Series 2003-2 Required Percentage” means, on any date of determination, 13.19% unless:

 

(a)  for the most recent Settlement Date all of the following were true:

 

(i)  the Three Month Average Charge-Off Ratio was 0.50 % or less;
 
(ii)  the Twelve Month Average Charge-Off Ratio was 0.25% or less;
 
(iii)  the Three Month Average Residual Value Loss Ratio was 10.00% or less;
 
(iv)  the Twelve Month Average Residual Value Loss Ratio was 5.00% or less;
 
(v)  the Three Month Average Paid-In Advance Loss Ratio was 1.00% or less;
 
(vi)  the Twelve Month Average Paid-In Advance Loss Ratio was 0.50% or less; and
 
(vii)  the Three Month Average Delinquency Ratio was 4.50% or less;
 

in which case, the Series 2003-2 Required Percentage on such date will equal 12.36% or

 

(b)  for the most recent Settlement Date any one of the following was true:

 

(i)  the Three Month Average Charge-Off Ratio exceeded 0.75%;
 
(ii)  the Twelve Month Average Charge-Off Ratio exceeded 0.50%;

 

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(iii)  the Three Month Average Residual Value Loss Ratio exceeded 12.50%;
 
(iv)  the Twelve Month Average Residual Value Loss Ratio exceeded 10.00%;
 
(v)  the Twelve Month Average Paid-In Advance Loss Ratio exceeded 0.75%; or
 
(vi)  the Three Month Average Delinquency Ratio exceeded 6.00%;
 

in which case, the Series 2003-2 Required Percentage on such date will equal 14.01%.

 

“Series 2003-2 Required Reserve Account Amount” means an amount equal to 2.2032% of the Series 2003-2 Initial Invested Amount.

 

“Series 2003-2 Required Yield Supplement Amount” means, on any Settlement Date, the excess, if any, of (a) the Series 2003-2 Yield Shortfall Amount for such Settlement Date over (b) 70% of the product of (x) the Series 2003-2 Invested Percentage on such Settlement Date and (y) the Class X 1999-1B Invested Amount as of such Settlement Date (after giving effect to any increase thereof on such Settlement Date); provided, however that upon the occurrence of a Receivable Purchase Termination Event, the Series 2003-2 Required Yield Supplement Amount on any Settlement Date will equal the Series 2003-2 Yield Shortfall Amount for such Settlement Date.

 

“Series 2003-2 Reserve Account” is defined in Section 5A.8(a).

 

“Series 2003-2 Reserve Account Amount” means, on any date of determination, the amount on deposit in the Series 2003-2 Reserve Account and available for withdrawal therefrom.

 

“Series 2003-2 Reserve Account Surplus” means, on any date of determination, the amount, if any, by which the Series 2003-2 Reserve Account Amount exceeds the Series 2003-2 Required Reserve Account Amount.

 

“Series 2003-2 Revolving Period” means the period from and including the Series 2003-2 Closing Date to but excluding the commencement of the Series 2003-2 Amortization Period.

 

“Series 2003-2 Senior Preferred Membership Interests” means each series of Senior Preferred Membership Interests relating to the Series 2003-2 Investor Notes issued by the Issuer pursuant to the LLC Agreement.

 

“Series 2003-2 Series Servicing Fee Percentage” is defined in Section 5.1.

 

“Series 2003-2 Supplemental Servicing Fee” is defined in Section 5.1.

 

“Series 2003-2 Settlement Collection Subaccount” is defined in Section 5A.1(a).

 

“Series 2003-2 Subaccounts” is defined in Section 5A.1(a).

 

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“Series 2003-2 Weighted Average Cost of Funds” means, for any Settlement Date, the product of (a) the quotient of the sum of (i) the aggregate amount of interest payable on the Series 2003-2 Investor Notes on such Settlement Date and (ii) the aggregate amount of dividends payable on the Series 2003-2 Preferred Membership Interests on such Settlement Date, divided by the sum of (i) the Series 2003-2 Invested Amount as of the first day of the immediately preceding Series 2003-2 Interest Period and (ii) the aggregate stated liquidation preference of the Series 2003-2 Preferred Membership Interests as of such day and (b) a fraction, the numerator of which is 360 and the denominator of which is the number of days in the Series 2003-2 Interest Period ending on such Settlement Date.

 

“Series 2003-2 Weighted Average Yield Shortfall” means, for any Settlement Date, the excess, if any, of (a) the Series 2003-2 Minimum Yield Rate for such Settlement Date over (b) the Series 2003-2 Weighted Average Yield Shortfall Lease Yield for such Settlement Date.

 

“Series 2003-2 Weighted Average Yield Shortfall Lease Yield” means, for any Settlement Date, the quotient of the sum of the product with respect to each Series 2003-2 Yield Shortfall Lease of (a) the actual or implicit finance charge rate applicable to such Series 2003-2 Yield Shortfall Lease and (b) the Net Book Value of the Leased Vehicle subject to such Series 2003-2 Yield Shortfall Lease as of the last day of the immediately preceding Monthly Period divided by the aggregate Net Book Value of the Leased Vehicles subject to all of the Series 2003-2 Yield Shortfall Leases as of the last day of the immediately preceding Monthly Period.

 

“Series 2003-2 Weighted Average Yield Shortfall Life” means, for any Settlement Date, 50% of the weighted (on the basis of Net Book Value of the related Leased Vehicle) average Assumed Lease Term of the Series 2003-2 Yield Shortfall Leases, assuming that all scheduled lease payments are made thereon when scheduled and that the Obligors thereunder do not elect to convert such Series 2003-2 Yield Shortfall Leases to Fixed Rate Leases, as of the last day of the immediately preceding Monthly Period.

 

“Series 2003-2 Yield Shortfall Amount” means, for any Settlement Date, (i) if the Series 2003-2 Hypothetical Yield Shortfall Amount for such Settlement Date is less than 70% of the product of the Series 2003-2 Invested Percentage and the Class X 1999-1B Invested Amount as of such Settlement Date (after giving effect to any increase thereof on such Settlement Date), an amount equal to the Series 2003-2 Hypothetical Yield Shortfall Amount and (ii) otherwise, an amount equal to the product of (x) the Series 2003-2 Weighted Average Yield Shortfall for such Settlement Date, (y) the Series 2003-2 Invested Percentage on such Settlement Date of the aggregate Lease Balance of all Series 2003-2 Yield Shortfall Leases as of the last day of the immediately preceding Monthly Period and (z) the Series 2003-2 Weighted Average Yield Shortfall Life for such Settlement Date.

 

“Series 2003-2 Yield Shortfall Lease” means, as of any Settlement Date, each Unit Lease that is a Floating Rate Lease with an actual or implicit finance charge rate of

 

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less than the Series 2003-2 Minimum Yield Rate as of the last day of the immediately preceding Monthly Period.

 

“Series 2003-2 Yield Supplement Account” is defined in Section 5A.9(a).

 

“Series 2003-2 Yield Supplement Account Amount” means, on any date of determination, the amount on deposit in the Series 2003-2 Yield Supplement Account and available for withdrawal therefrom.

 

“Series 2003-2 Yield Supplement Account Surplus” means, on any date of determination, the amount, if any, by which the Series 2003-2 Yield Supplement Account Amount exceeds the Series 2003-2 Required Yield Supplement Amount.

 

“Series 2003-2 Yield Supplement Deficiency” means, on any date of determination, the amount by which the Series 2003-2 Yield Supplement Account Amount is less than the Series 2003-2 Required Yield Supplement Amount.

 

“Telerate Page 3750” has the meaning set forth in the International Swaps Derivatives Association, Inc. 1991 Interest Rate and Currency Exchange Definitions.

 

“Total Cash Available” means, for any Settlement Date, the excess, if any, of (a) the sum of (i) the aggregate amount of Collections allocated to the Series 2003-2 General Collection Subaccount pursuant to Section 5A.2(a) during the immediately preceding Monthly Period, (ii) an amount equal to the product of the average daily Series 2003-2 Invested Percentage during such Monthly Period and the amount of the Unit Repurchase Payments paid by the Servicer and/or SPV on such Settlement Date, (iii) an amount equal to the product of the average daily Series 2003-2 Invested Percentage during such Monthly Period and the amount of the Monthly Servicer Advance made by the Servicer on such Settlement Date, (iv) an amount equal to the product of the average daily Series 2003-2 Invested Percentage during such Monthly Period and the amount withdrawn from the Gain on Sale Account pursuant to Section 5.2(e) of the Base Indenture on the Transfer Date immediately preceding such Settlement Date and (v) the investment income on amounts on deposit in the Series 2003-2 Principal Collection Subaccount and the Series 2003-2 General Collection Subaccount transferred to the Series 2003-2 Settlement Collection Subaccount on such Settlement Date pursuant to Section 5A.1(b) over (b) the  amount withdrawn from the Series 2003-2 General Collection Subaccount pursuant to Section 5A.2(f) during the period commencing on the Period End Date immediately preceding such Settlement Date to but excluding such Settlement Date.

 

“Tractor” means a vehicle designed to pull a Trailer by means of a fifth wheel mounted over its rear axel.

 

“Trailer” means a truck trailer supported at the rear by its own wheels and at the front by a fifth wheel mounted to a Tractor.

 

“Truck” means a vehicle that carries cargo in a body mounted to its chassis rather than in a Trailer towed by the vehicle.

 

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“Truck Body” means the outer shell of a motor vehicle that is mounted to a cab chassis and that covers that chassis from the back of the cab to the end of the body.  A Vehicle shall not be a Truck Body if it also includes the cab.

 

ARTICLE II

ARTICLE 5 OF THE BASE INDENTURE

 

Sections 5.1 through 5.4 of the Base Indenture and each other Section of Article 5 of the Indenture relating to another Series shall read in their entirety as provided in the Base Indenture or any applicable Indenture Supplement.  Article 5 of the Indenture (except for Sections 5.1 through 5.4 thereof and any portion thereof relating to another Series) shall read in its entirety as follows and shall be exclusively applicable to the Series 2003-2 Investor Notes:

 

Section 5A.1                            Establishment of Series 2003-2 Subaccounts.

 

(a)  The Indenture Trustee shall establish and maintain in the name of the Indenture Trustee for the benefit of the Series 2003-2 Investor Noteholders (i) a subaccount of the Collection Account (the “Series 2003-2 Collection Subaccount”); and (ii) three subaccounts of the Series 2003-2 Collection Subaccount: (1) the Series 2003-2 General Collection Subaccount, (2) the Series 2003-2 Principal Collection Subaccount and (3) the Series 2003-2 Settlement Collection Subaccount (respectively, the “Series 2003-2 General Collection Subaccount,” the “Series 2003-2 Principal Collection Subaccount” and the “Series 2003-2 Settlement Collection Subaccount”); the accounts established pursuant to this Section 5A.1(a), collectively, the “Series 2003-2 Subaccounts”), each Series 2003-2 Subaccount to bear a designation indicating that the funds deposited therein are held for the benefit of the Series 2003-2 Investor Noteholders.  The Indenture Trustee shall possess all right, title and interest in all moneys, instruments, securities and other property on deposit from time to time in the Series 2003-2 Subaccounts and the proceeds thereof for the benefit of the Series 2003-2 Investor Noteholders.  The Series 2003-2 Subaccounts shall be under the sole dominion and control of the Indenture Trustee for the benefit of the Series 2003-2 Investor Noteholders.

 

(b)  The Issuer shall instruct the institution maintaining the Collection Account in writing to invest funds on deposit in the Series 2003-2 Subaccounts at all times in Permitted Investments selected by the Issuer (by standing instructions or otherwise); provided, however, that funds on deposit in a Series 2003-2 Subaccount may be invested together with funds held in other subaccounts of the Collection Account. Amounts on deposit and available for investment in the Series 2003-2 General Collection Subaccount shall be invested by the Indenture Trustee at the written direction of the Issuer in Permitted Investments that mature, or that are payable or redeemable upon demand of the holder thereof, on or prior to the Business Day immediately preceding the next Payment Date. Amounts on deposit and available for investment in the Series 2003-2 Principal Collection Subaccount shall be invested by the Indenture Trustee at the written direction of the Issuer in Permitted Investments that mature, or that are payable or redeemable upon demand of the holder thereof, (i) in the case of any such investment made during the Series 2003-2 Revolving Period, on or prior to the next Business Day and (ii) in the case of any such investment made on any day during the Series 2003-2 Amortization Period, on or prior to the Business Day immediately preceding the next Payment Date. On each Settlement Date, all

 

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interest and other investment earnings (net of losses and investment expenses) on funds deposited in the Series 2003-2 Principal Collection Subaccount and the Series 2003-2 General Collection Subaccount shall be deposited in the Series 2003-2 Settlement Collection Subaccount.  The Issuer shall not direct the Indenture Trustee to dispose of (or permit the disposal of) any Permitted Investments prior to the maturity thereof to the extent such disposal would result in a loss of principal of such Permitted Investment.  In the absence of written direction as provided hereunder, all funds on deposit in the Collection Account shall remain uninvested.

 

Section 5A.2                            Allocations with Respect to the Series 2003-2 Investor Notes.

 

(a)  Prior to 1:00 P.M., New York City time, on each Deposit Date, the Administrator shall direct the Indenture Trustee in writing to allocate to the Series 2003-2 Investor Noteholders and deposit in the Series 2003-2 General Collection Subaccount an amount equal to the product of the Series 2003-2 Invested Percentage on such Deposit Date and the Collections deposited into the Collection Account on such Deposit Date.

 

(b)  On the Series 2003-2 Closing Date, the Indenture Trustee shall (i) deposit $545,379.51 of the net proceeds from the sale of the Series 2003-2 Investor Notes in the Series 2003-2 Settlement Collection Subaccount, (ii) deposit $11,016,000 of the net proceeds from the sale of the Series 2003-2 Investor Notes in the Series 2003-2 Reserve Account and (iii) deposit the remainder of the net proceeds from the sale of the Series 2003-2 Investor Notes in the Series 2003-2 Principal Collection Subaccount.

 

(c)  On each Determination Date, the Administrator shall direct the Indenture Trustee in writing to allocate to the Series 2003-2 Investor Noteholders and deposit in the Series 2003-2 Settlement Collection Subaccount on the immediately succeeding Transfer Date amounts withdrawn from the Gain on Sale Account on such Transfer Date, in an amount equal to the product of the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period and the amount withdrawn from the Gain on Sale Account pursuant to Section 5.2(e) of the Base Indenture on such Transfer Date.

 

(d)  On each Determination Date, the Administrator shall direct the Indenture Trustee in writing to allocate to the Series 2003-2 Investor Noteholders and deposit in the Series 2003-2 Settlement Collection Subaccount on the immediately succeeding Settlement Date the following amounts:

 

(i)  any Unit Repurchase Payments made by the Servicer and/or SPV, in an amount equal to the product of the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period and the amount of such Unit Repurchase Payments;
 
(ii)  the Monthly Servicer Advance made by the Servicer, in an amount equal to the product of the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period and the amount of such Monthly Servicer Advance;

 

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(iii)  payments made under the Lease Rate Caps maintained by the Issuer pursuant to Sections 5A.11(a) and (b), in an amount equal to the product of the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period and the amount of such payments; and
 
(iv)  all payments made to the Indenture Trustee under the Series 2003-2 Lease Rate Cap.
 

(e)  During the Series 2003-2 Revolving Period, the Administrator may direct the Indenture Trustee in writing on any Business Day to withdraw amounts on deposit in the Series 2003-2 Principal Collection Subaccount for either of the following purposes:

 

(i)  if such Business Day is an Additional Closing Date, to remit all or a portion of the Transferred Asset Payment due on such Additional Closing Date pursuant to the Transfer Agreement; or
 
(ii)  to reduce the Invested Amount of any Series of Investor Notes.
 

(f)  Prior to the occurrence of a Potential Amortization Event or an Amortization Event, on any Business Day during the period commencing on a Period End Date to but excluding the next succeeding Settlement Date on which the Administrator is able to determine the amounts to be distributed from the Series 2003-2 Settlement Collection Subaccount pursuant to paragraphs (i) through (xii) of Section 5A.4(c) on such Settlement Date and any amounts owing in respect of the Series 2003-2 Preferred Membership Interests under the Series 2003-2 Preferred Membership Interest Purchase Agreement on such Settlement Date, the Administrator may direct the Indenture Trustee in writing to withdraw from the Series 2003-2 General Collection Subaccount and remit to the Issuer the Series 2003-2 Available Excess Collections Amount for such Business Day.

 

Section 5A.3                            Determination of Interest.

 

(a)  JPMorgan Chase is hereby appointed Calculation Agent for the purpose of determining the Series 2003-2 Note Rates for each Series 2003-2 Interest Period.  On each LIBOR Determination Date, the Calculation Agent shall determine the Series 2003-2 Note Rate for each Class of Series 2003-2 Investor Notes for the next succeeding Series 2003-2 Interest Period and deliver notice of such Series 2003-2 Note Rates to the Indenture Trustee.  On each LIBOR Determination Date, the Indenture Trustee shall deliver to the Administrator notice of the Series 2003-2 Note Rate for each Class of Series 2003-2 Investor Notes for the next succeeding Series 2003-2 Interest Period.

 

(b)  Until the Administrator shall give the Indenture Trustee written notice that neither Class of the Series 2003-2 Investor Notes is listed on the Luxembourg Stock Exchange, the Indenture Trustee shall, or shall instruct the Calculation Agent to, cause (i) the Series 2003-2 Note Rate applicable to each Class of the Series 2003-2 Investor Notes for the next succeeding Series 2003-2 Interest Period, the number of days in such Series 2003-2 Interest Period, the Payment Date for such Series 2003-2 Interest Period and the amount of interest payable on each Class of Series 2003-2 Investor Notes on such Payment Date to be (A) communicated to DTC,

 

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the Paying Agent in Luxembourg and the Luxembourg Stock Exchange no later than the Business Day immediately following each LIBOR Determination Date and (B) published in the Authorized Newspaper as soon as possible after its determination.

 

(c)  On each Determination Date, the Administrator shall determine the excess, if any (the “Interest Shortfall Amount”), of (i) the sum of (A) the Series 2003-2 Monthly Interest for the Series 2003-2 Interest Period ending on the next succeeding Payment Date and (B) the amount of any unpaid Interest Shortfall Amount, as of the preceding Payment Date (together with any Additional Interest on such Interest Shortfall Amount) over (ii) the amount which will be available to pay interest on the Series 2003-2 Investor Notes in accordance with Section 5A.4(c) on such Payment Date.  If the Interest Shortfall Amount with respect to any Payment Date is greater than zero, payments of interest to the Series 2003-2 Investor Noteholders will be reduced on a pro rata basis, based on the amount of interest payable to each such Series 2003-2 Investor Noteholder, by the Interest Shortfall Amount.  The portion of the Interest Shortfall Amount allocable to each Class of Series 2003-2 Investor Notes shall be referred to as the “Class A-1 Interest Shortfall Amount” and the “Class A-2 Interest Shortfall Amount”, respectively.  An additional amount of interest (“Additional Interest”) shall accrue on the Class A-1 Interest Shortfall Amount and the Class A-2 Interest Shortfall Amount for each Series 2003-2 Interest Period at the applicable Series 2003-2 Note Rate for such Series 2003-2 Interest Period.  Until the Administrator shall give the Indenture Trustee written notice that neither Class of the Series 2003-2 Investor Notes is listed on the Luxembourg Stock Exchange, the Indenture Trustee shall, or shall instruct the Calculation Agent to, notify the Luxembourg Stock Exchange if, based solely on the information contained in the Monthly Settlement Statement with respect to the Series 2003-2 Investor Notes, the amount of interest to be paid on any Class of the Series 2003-2 Investor Notes on any Payment Date is less than the amount payable thereon on such Payment Date, the amount of such deficit and the amount of interest that will accrue on such deficit during the next succeeding Series 2003-2 Interest Period by the Business Day prior to such Payment Date.

 

(d)  All communications by or on behalf of the Indenture Trustee to the Luxembourg Stock Exchange pursuant to this Section 5A.3 shall be sent by electronic mail to The Bank of New York c/o listings@bankofny.com.

 

Section 5A.4                            Monthly Application of Collections.

 

(a)  On each Settlement Date, the Administrator shall direct the Indenture Trustee in writing to withdraw from the Series 2003-2 General Collection Subaccount and allocate to the Series 2003-2 Settlement Collection Subaccount an amount equal to Total Cash Available for such Settlement Date (less an amount equal to the investment income from the Series 2003-2 General Collection Subaccount and the Series 2003-2 Principal Collection Subaccount transferred to the Series 2003-2 Settlement Collection Subaccount pursuant to Section 5A.1(b)).

 

(b)  (i)   If the Administrator determines that the aggregate amount distributable from the Series 2003-2 Settlement Collection Subaccount pursuant to paragraphs (i) through (ix) of Section 5A.4(c) on any Payment Date exceeds the Total Cash Available for such Payment Date (the “Deficiency”), the Administrator shall notify the Indenture Trustee thereof in writing at or before 10:00 a.m., New York City time, on the Business Day immediately preceding such

 

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Payment Date, and the Indenture Trustee shall, in accordance with such notice, by 11:00 a.m., New York City time, on such Payment Date, withdraw from the Series 2003-2 Reserve Account and deposit in the Series 2003-2 Settlement Collection Subaccount an amount equal to the least of (x) such Deficiency, (y) the product of the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period and Aggregate Net Lease Losses for such Monthly Period and (z) the Series 2003-2 Reserve Account Amount and, to the extent that such amount is less than the Deficiency, withdraw from the Series 2003-2 Yield Supplement Account and deposit in the Series 2003-2 Settlement Collection Subaccount an amount equal to the lesser of the amount of such insufficiency and the Series 2003-2 Yield Supplement Account Amount.  If the Deficiency with respect to any Payment Date exceeds the amounts to be withdrawn from the Series 2003-2 Reserve Account and the Series 2003-2 Yield Supplement Account pursuant to the immediately preceding sentence, the Administrator shall instruct the Indenture Trustee in writing at or before 10:00 a.m., New York City time, on the Business Day immediately preceding such Payment Date, and the Indenture Trustee shall, in accordance with such notice, by 11:00 a.m., New York City time, on such Payment Date, withdraw from the Series 2003-2 Reserve Account and deposit in the Series 2003-2 Settlement Collection Subaccount an amount equal to the lesser of (x) the remaining portion of the Deficiency and (y) the Series 2003-2 Reserve Account Amount (after giving effect to the withdrawal described in the immediately preceding sentence).

 

(ii)                                  If the Administrator determines that (A) the amount to be deposited in the Series 2003-2 Distribution Account in accordance with Section 5A.4(c)(ix) and paid to the Class A-1 Investor Noteholders pursuant to Section 5A.6 on the Class A-1 Final Maturity Date is less than the Class A-1 Invested Amount or (B) the amount to be deposited in the Series 2003-2 Distribution Account in accordance with Section 5A.4(c)(ix) and paid to the Class A-2 Investor Noteholders pursuant to Section 5A.6 on the Class A-2 Final Maturity Date is less than the Class A-2 Invested Amount, the Administrator shall notify the Indenture Trustee thereof in writing at or before 10:00 a.m., New York City time, on the Business Day immediately preceding such Final Maturity Date, and the Indenture Trustee shall, in accordance with such notice, by 11:00 a.m., New York City time, on such Final Maturity Date, withdraw from the Series 2003-2 Reserve Account and deposit in the Series 2003-2 Distribution Account an amount equal to the lesser of such insufficiency and the Series 2003-2 Reserve Account Amount (after giving effect to any withdrawal therefrom pursuant to Section 5A.4(b)(i) on such Final Maturity Date). In addition, if the Series 2003-2 Reserve Account Amount is less than such insufficiency on the Class A-2 Final Maturity Date, the Administrator shall notify the Indenture Trustee thereof in writing at or before 10:00 a.m., New York City time, on the Business Day immediately preceding the Class A-2 Final Maturity Date, and the Indenture Trustee shall, in accordance with such notice, by 11:00 a.m., New York City time, on the Class A-2 Final Maturity Date, withdraw from the Series 2003-2 Yield Supplement Account and deposit in the Series 2003-2 Distribution Account an amount equal to the lesser of such remaining insufficiency and the Series 2003-2 Yield Supplement Account Amount (after giving effect to any withdrawal therefrom pursuant to Section 5A.4(b)(i) on the Class A-2 Final Maturity Date).
 

(c)  On each Payment Date, based solely on the information contained in the Monthly Settlement Statement with respect to Series 2003-2 Investor Notes, the Indenture

 

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Trustee shall apply the following amounts allocated to, or deposited in, the Series 2003-2 Settlement Collection Subaccount on such Payment Date in the following order of priority:

 

(i)  to SPV, an amount equal to the Series 2003-2 Excess Fleet Receivable Amount, if any, for such Payment Date;
 
(ii)  to the Gain On Sale Account, an amount equal to the Series 2003-2 Monthly Residual Value Gain, if any, for such Payment Date;
 
(iii)  to the Servicer, an amount equal to the product of the Monthly Servicer Advance Reimbursement Amount for such Payment Date and the average daily Series 2003-2 Invested Percentage during the immediately preceding Monthly Period;
 
(iv)  if VMS is not the Servicer, to the Servicer, an amount equal to the Series 2003-2 Basic Servicing Fee for the Series 2003-2 Interest Period ending on such Payment Date plus, on the first Payment Date following the transfer of the servicing from VMS to a successor Servicer pursuant to Section 9.1 of the Series 1999-1 SUBI Servicing Supplement, to the extent not reimbursed by VMS, the reasonable costs and expenses of the successor Servicer incurred in connection with the transfer of the servicing, in an amount up to $250,000;
 
(v)  to the Series 2003-2 Distribution Account, an amount equal to the Series 2003-2 Monthly Interest payable on such Payment Date plus the amount of any unpaid Interest Shortfall Amount, as of the preceding Payment Date, together with any Additional Interest on such Interest Shortfall Amount (such amount, the “Monthly Interest Payment”);
 
(vi)  if VMS is the Servicer, to the Servicer, an amount equal to the Series 2003-2 Basic Servicing Fee for the Series 2003-2 Interest Period ending on such Payment Date;
 
(vii)  to the Administrator, an amount equal to the Series 2003-2 Administrator Fee for the Series 2003-2 Interest Period ending on such Payment Date;
 
(viii)  other than during a Lockout Period, to the Series 2003-2 Preferred Member Distribution Account, an amount equal to the Dividend Amount for such Payment Date;
 
(ix)  (A) on any Payment Date immediately succeeding a Monthly Period falling in the Series 2003-2 Revolving Period, to the Series 2003-2 Principal Collection Subaccount, an amount equal to the Series 2003-2 Allocated Asset Amount Deficiency, if any, on such Payment Date, (B) on the earlier of (x) the second Payment Date following the May 2005 Period End Date or (y) the first Payment Date following the occurrence of an Amortization Event, to the Series 2003-2 Distribution Account, an amount equal to the lesser of the Series 2003-2 Principal Payment Amount for such Payment Date and the Series 2003-2 Invested Amount on such Payment Date and (C) if any Series 2003-2 Preferred Membership Interests are issued and outstanding, on any Payment Date on and after the Series 2003-2 Note Termination Date, to the Series 2003-2 Preferred Member Distribution Account, an amount equal to the Series 2003-2 Principal Payment Amount

 

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for such Payment Date (or, on the Series 2003-2 Note Termination Date, the portion thereof not deposited into the Series 2003-2 Distribution Account); provided, however that on or after the Series 2003-2 Note Termination Date during a Lockout Period, the Series 2003-2 Principal Payment Amount for such Payment Date (or, on the Series 2003-2 Note Termination Date, the portion thereof not deposited into the Series 2003-2 Distribution Account) shall be applied by the Indenture Trustee in accordance with Section 5.4(d) of the Base Indenture;
 
(x)  to the Series 2003-2 Reserve Account, to the extent that a Series 2003-2 Liquid Credit Enhancement Deficiency exists or, on any Payment Date immediately succeeding a Monthly Period falling in the Series 2003-2 Amortization Period, to the extent that a Series 2003-2 Allocated Asset Amount Deficiency exists, an amount equal to the greater of such deficiencies;
 
(xi)  to the Series 2003-2 Yield Supplement Account, to the extent that a Series 2003-2 Yield Supplement Deficiency exists (or, will exist after giving effect to any reduction in the Class X 1999-1B Invested Amount on such Payment Date), an amount equal to such deficiency;
 
(xii)  if VMS is not the Servicer, to the Servicer, an amount equal to any Series 2003-2 Supplemental Servicing Fee for the Series 2003-2 Interest Period ending on such Payment Date;
 
(xiii)  if any Series 2003-2 Preferred Membership Interests are issued and outstanding, to the Series 2003-2 Preferred Member Distribution Account, an amount equal to the balance remaining in the Series 2003-2 Settlement Collection Subaccount;
 
(xiv)  if no Series 2003-2 Preferred Membership Interests are issued and outstanding, to, or at the written direction of, the Issuer, an amount equal to the balance remaining in the Series 2003-2 Settlement Collection Subaccount.

 

Section 5A.5                            Payment of Monthly Interest Payment.

 

On each Payment Date, based solely on the information contained in the Monthly Settlement Statement with respect to the Series 2003-2 Investor Notes, the Indenture Trustee shall, in accordance with Section 6.1 of the Base Indenture, distribute to the Series 2003-2 Investor Noteholders, from the Series 2003-2 Distribution Account the Monthly Interest Payment to the extent of the amount deposited in the Series 2003-2 Distribution Account for the payment of interest pursuant to Section 5A.4(c)(v).

 

Section 5A.6                            Payment of Principal.

 

(a)  The principal amount of each Class of the Series 2003-2 Investor Notes shall be due and payable on the Final Maturity Date with respect to such Class.

 

(b)  On each Payment Date on which a deposit is made to the Series 2003-2 Distribution Account pursuant to Section 5A.4(c)(ix) or an amount is deposited in the Series 2003-2 Distribution Account pursuant to Section 5A.4(b)(ii), based solely on the information

 

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contained in the Monthly Settlement Statement with respect to Series 2003-2 Investor Notes, the Indenture Trustee shall, in accordance with Section 6.1 of the Base Indenture, distribute during the Series 2003-2 Amortization Period, pro rata to each Class A-1 Investor Noteholder from the Series 2003-2 Distribution Account the amount deposited therein pursuant to Section 5A.4(c)(ix) and Section 5A.4(b)(ii) in order to pay the Class A-1 Invested Amount, and thereafter pro rata to each Class A-2 Investor Noteholder from the Series 2003-2 Distribution Account the amount deposited therein pursuant to Section 5A.4(c)(ix) and Section 5A.4(b)(ii) in order to pay the Class A-2 Invested Amount; provided however that on any Payment Date falling after the occurrence of an Amortization Event resulting from the occurrence of an Event of Default described in Section 9.1(a), (b) or (f) of the Base Indenture the Indenture Trustee shall distribute pro rata to each Series 2003-2 Investor Noteholder from the Series 2003-2 Distribution Account the amounts deposited therein pursuant to Section 5A.4(c)(ix) and Section 5A.4(b)(ii) in order to pay the Class A-1 Invested Amount and the Class A-2 Invested Amount.

 

(c)  The Indenture Trustee shall notify the Person in whose name a Series 2003-2 Investor Note is registered at the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of and interest on such Series 2003-2 Investor Note will be paid.  Such notice shall be made at the expense of the Administrator and shall be mailed within three (3) Business Days of receipt of a Monthly Settlement Statement indicating that such final payment will be made and shall specify that such final installment will be payable only upon presentation and surrender of such Series 2003-2 Investor Note and shall specify the place where such Series 2003-2 Investor Note may be presented and surrendered for payment of such installment.  Notices in connection with redemptions of Series 2003-2 Investor Notes shall be (i) transmitted by facsimile to Series 2003-2 Investor Noteholders holding Global Notes and (ii) sent by registered mailed to Series 2003-2 Investor Noteholders holding Definitive Notes and shall specify that such final installment will be payable only upon presentation and surrender of such Series 2003-2 Investor Note and shall specify the place where such Series 2003-2 Investor Note may be presented and surrendered for payment of such installment.

 

Section 5A.7                            The Administrator’s Failure to Instruct the Indenture Trustee to Make a Deposit or Payment.

 

When any payment or deposit hereunder or under any other Transaction Document is required to be made by the Indenture Trustee at or prior to a specified time, the Administrator shall deliver any applicable written instructions with respect thereto reasonably in advance of such specified time.  If the Administrator fails to give notice or instructions to make any payment from or deposit into the Collection Account or any subaccount thereof required to be given by the Administrator, at the time specified herein or in any other Transaction Document (after giving effect to applicable grace periods), the Indenture Trustee shall make such payment or deposit into or from the Collection Account or such subaccount without such notice or instruction from the Administrator; provided that the Administrator, upon request of the Indenture Trustee, promptly provides the Indenture Trustee with all information necessary to allow the Indenture Trustee to make such a payment or deposit in the event that the Indenture Trustee shall take or refrain from taking action pursuant to this Section 5A.7, the Administrator shall, by 5:00 p.m., New York City time, on any day the Indenture Trustee makes a payment or deposit based on information or direction from the Administrator, provide (i) written

 

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confirmation of any such direction and (ii) written confirmation of all information used by the Administrator in giving any such direction.

 

Section 5A.8                            Series 2003-2 Reserve Account.

 

(a)  The Indenture Trustee shall establish and maintain in the name of the Indenture Trustee for the benefit of the Series 2003-2 Investor Noteholders an account (the “Series 2003-2 Reserve Account”), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2003-2 Investor Noteholders.  The Series 2003-2 Reserve Account shall be an Eligible Deposit Account; provided that, if at any time such account is not an Eligible Deposit Account, then the Indenture Trustee shall, within 30 days of obtaining knowledge of such reduction, establish a new Series 2003-2 Reserve Account that is an Eligible Deposit Account. If the Indenture Trustee establishes a new Series 2003-2 Reserve Account, it shall transfer all cash and investments from the non-qualifying Series 2003-2 Reserve Account into the new Series 2003-2 Reserve Account. Initially, the Series 2003-2 Reserve Account will be established with JPMorgan Chase Bank.

 

(b)  The Issuer may instruct the institution maintaining the Series 2003-2 Reserve Account in writing to invest funds on deposit in the Series 2003-2 Reserve Account from time to time in Permitted Investments selected by the Issuer (by standing instructions or otherwise); provided, however, that any such investment shall mature not later than the Business Day prior to the Payment Date following the date on which such funds were received.  All such Permitted Investments will be credited to the Series 2003-2 Reserve Account and any such Permitted Investments that constitute (i)  Physical Property (and that is not either a United States Security Entitlement or a Security Entitlement) shall be delivered to the Indenture Trustee in accordance with paragraph (a) of the definition of “Delivery” and shall be held by the Indenture Trustee pending maturity or disposition; (ii) United States Security Entitlements or Security Entitlements shall be Controlled by the Indenture Trustee pending maturity or disposition; and (iii) Uncertificated Securities (and not United States Security Entitlements) shall be delivered to the Indenture Trustee in accordance with paragraph (b) of the definition of “Delivery” and shall be maintained by the Indenture Trustee pending maturity or disposition.  The Indenture Trustee shall, at the direction and expense of the Administrator, take such additional action as is required to maintain the Indenture Trustee’s security interest in the Permitted Investments credited to the Series 2003-2 Reserve Account.  In absence of written direction as provided hereunder, funds on deposit in the Series 2003-2 Reserve Account shall remain uninvested.

 

(c)  All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Series 2003-2 Reserve Account shall be deemed to be on deposit and available for distribution.

 

(d)  If there is a Series 2003-2 Reserve Account Surplus on any Settlement Date, the Administrator may notify the Indenture Trustee thereof in writing and instruct the Indenture Trustee to withdraw from the Series 2003-2 Reserve Account and deposit in the Series 2003-2 Preferred Member Distribution Account, and the Indenture Trustee shall withdraw from the Series 2003-2 Reserve Account and deposit in the Series 2003-2 Preferred Member Distribution Account, so long as no Series 2003-2 Allocated Asset Amount Deficiency exists or would result

 

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therefrom, an amount up to the lesser of (i) such Series 2003-2 Reserve Account Surplus on such Business Day and (ii) the Series 2003-2 Reserve Account Amount on such Business Day.

 

(e)  Amounts will be withdrawn from the Series 2003-2 Reserve Account in accordance with Section 5A.4(b).

 

(f)  In order to secure and provide for the repayment and payment of the Issuer Obligations with respect to the Series 2003-2 Investor Notes, the Issuer hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Indenture Trustee, for the benefit of the Series 2003-2 Investor Noteholders, all of the Issuer’s right, title and interest in and to the following (whether now or hereafter existing or acquired): (i) the Series 2003-2 Reserve Account, including any security entitlement thereto; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Series 2003-2 Reserve Account or the funds on deposit therein from time to time; (iv) all investments made at any time and from time to time with monies in the Series 2003-2 Reserve Account, whether constituting securities, instruments, general intangibles, investment property, financial assets or other property; (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for the Series 2003-2 Reserve Account, the funds on deposit therein from time to time or the investments made with such funds; and (vi) all proceeds of any and all of the foregoing, including, without limitation, cash.  The Indenture Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Series 2003-2 Reserve Account and in all proceeds thereof and shall be the only person authorized to originate entitlement orders in respect of the Series 2003-2 Reserve Account.  The Indenture Trustee and the Series 2003-2 Investor Noteholders shall have no interest in any amounts withdrawn from the Series 2003-2 Reserve Account and deposited in the Series 2003-2 Preferred Member Distribution Account.

 

(g)  On the first Payment Date after the Series 2003-2 Note Termination Date on which the sum of (a) the Series 2003-2 Reserve Account Amount, (b) the Series 2003-2 Yield Supplement Account Amount and (c) the amount available to be deposited in the Series 2003-2 Preferred Member Distribution Account in accordance with Section 5A.4(c)(ix) is at least equal to the aggregate stated liquidation preference of the Series 2003-2 Preferred Membership Interests and on any Payment Date thereafter, the Indenture Trustee, acting in accordance with the written instructions of the Administrator shall withdraw from the Series 2003-2 Reserve Account all amounts on deposit therein for deposit in the Series 2003-2 Preferred Member Distribution Account.

 

Section 5A.9                            Series 2003-2 Yield Supplement Account.

 

(a)  The Indenture Trustee shall establish and maintain in the name of the Indenture Trustee for the benefit of the Series 2003-2 Investor Noteholders an account (the “Series 2003-2 Yield Supplement Account”), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2003-2 Investor Noteholders.  The Series 2003-2 Yield Supplement Account shall be an Eligible Deposit Account; provided that, if at any time such account is not an Eligible Deposit Account, then the Indenture Trustee shall, within 30 days of obtaining knowledge of such reduction, establish a new Series 2003-2 Yield Supplement Account that is an Eligible Deposit Account. If the Indenture Trustee establishes a

 

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new Series 2003-2 Yield Supplement Account, it shall transfer all cash and investments from the non-qualifying Series 2003-2 Yield Supplement Account into the new Series 2003-2 Yield Supplement Account. Initially, the Series 2003-2 Yield Supplement Account will be established with JPMorgan Chase Bank.

 

(b)  The Issuer may instruct the institution maintaining the Series 2003-2 Yield Supplement Account in writing to invest funds on deposit in the Series 2003-2 Yield Supplement Account from time to time in Permitted Investments selected by the Issuer (by standing instructions or otherwise); provided, however, that any such investment shall mature not later than the Business Day prior to the Payment Date following the date on which such funds were received.  All such Permitted Investments will be credited to the Series 2003-2 Yield Supplement Account and any such Permitted Investments that constitute (i)  Physical Property (and that is not either a United States Security Entitlement or a Security Entitlement) shall be delivered to the Indenture Trustee in accordance with paragraph (a) of the definition of “Delivery” and shall be held by the Indenture Trustee pending maturity or disposition; (ii) United States Security Entitlements or Security Entitlements shall be Controlled by the Indenture Trustee pending maturity or disposition; and (iii) Uncertificated Securities (and not United States Security Entitlements) shall be delivered to the Indenture Trustee in accordance with paragraph (b) of the definition of “Delivery” and shall be maintained by the Indenture Trustee pending maturity or disposition.  The Indenture Trustee shall, at the direction and expense of the Administrator, take such additional action as is required to maintain the Indenture Trustee’s security interest in the Permitted Investments credited to the Series 2003-2 Yield Supplement Account.  In absence of written direction as provided hereunder, funds on deposit in the Series 2003-2 Yield Supplement Account shall remain uninvested.

 

(c)  All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Series 2003-2 Yield Supplement Account shall be deemed to be on deposit and available for distribution.

 

(d)  If there is a Series 2003-2 Yield Supplement Account Surplus on any Settlement Date, the Administrator may notify the Indenture Trustee thereof in writing and request the Indenture Trustee to withdraw from the Series 2003-2 Yield Supplement Account and deposit in the Series 2003-2 Preferred Member Distribution Account, and the Indenture Trustee shall withdraw from the Series 2003-2 Yield Supplement Account and deposit in the Series 2003-2 Preferred Member Distribution Account an amount up to the lesser of (i) such Series 2003-2 Yield Supplement Account Surplus on such Business Day and (ii) the Series 2003-2 Yield Supplement Account Amount on such Business Day.

 

(e)  Amounts will be withdrawn from the Series 2003-2 Yield Supplement Account in accordance with Section 5A.4(b).

 

(f)  In order to secure and provide for the repayment and payment of the Issuer Obligations with respect to the Series 2003-2 Investor Notes, the Issuer hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Indenture Trustee, for the benefit of the Series 2003-2 Investor Noteholders, all of the Issuer’s right, title and interest in and to the following (whether now or hereafter existing or acquired): (i) the Series 2003-2 Yield Supplement Account, including any security entitlement thereto; (ii) all funds on deposit therein

 

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from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Series 2003-2 Yield Supplement Account or the funds on deposit therein from time to time; (iv) all investments made at any time and from time to time with monies in the Series 2003-2 Yield Supplement Account, whether constituting securities, instruments, general intangibles, investment property, financial assets or other property; (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for the Series 2003-2 Yield Supplement Account, the funds on deposit therein from time to time or the investments made with such funds; and (vi) all proceeds of any and all of the foregoing, including, without limitation, cash.  The Indenture Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Series 2003-2 Yield Supplement Account and in all proceeds thereof and shall be the only person authorized to originate entitlement orders in respect of the Series 2003-2 Yield Supplement Account.  The Indenture Trustee and the Series 2003-2 Investor Noteholders shall have no interest in any amounts withdrawn from the Series 2003-2 Yield Supplement Account and deposited in the Series 2003-2 Preferred Member Distribution Account.

 

(g)  On the first Payment Date after the Series 2003-2 Note Termination Date on which the sum of (a) the Series 2003-2 Reserve Account Amount, (b) the Series 2003-2 Yield Supplement Account Amount and (c) the amount available to be deposited in the Series 2003-2 Preferred Member Distribution Account in accordance with Section 5A.4(c)(ix) is at least equal to the aggregate stated liquidation preference of the Series 2003-2 Preferred Membership Interests and on any Payment Date thereafter, the Indenture Trustee, acting in accordance with the written instructions of the Administrator shall withdraw from the Series 2003-2 Yield Supplement Account all amounts on deposit therein for deposit in the Series 2003-2 Preferred Member Distribution Account.

 

Section 5A.10                      Series 2003-2 Distribution Account.

 

(a)  The Indenture Trustee shall establish and maintain in the name of the Indenture Trustee for the benefit of the Series 2003-2 Investor Noteholders an account (the “Series 2003-2 Distribution Account”), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 2003-2 Investor Noteholders.  The Series 2003-2 Distribution Account shall be an Eligible Deposit Account; provided that, if at any time such account is not an Eligible Deposit Account, then the Indenture Trustee shall, within 30 days of obtaining knowledge of such reduction, establish a new Series 2003-2 Distribution Account that is an Eligible Deposit Account. If the Indenture Trustee establishes a new Series 2003-2 Distribution Account, it shall transfer all cash and investments from the non-qualifying Series 2003-2 Distribution Account into the new Series 2003-2 Distribution Account. Initially, the Series 2003-2 Distribution Account will be established with JPMorgan Chase Bank.

 

(b)  In order to secure and provide for the repayment and payment of the Issuer Obligations with respect to the Series 2003-2 Investor Notes, the Issuer hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Indenture Trustee, for the benefit of the Series 2003-2 Investor Noteholders, all of the Issuer’s right, title and interest in and to the following (whether now or hereafter existing or acquired): (i) the Series 2003-2 Distribution Account, including any security entitlement thereto; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or

 

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all of the Series 2003-2 Distribution Account or the funds on deposit therein from time to time; (iv) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for the Series 2003-2 Distribution Account or the funds on deposit therein from time to time; and (v) all proceeds of any and all of the foregoing, including, without limitation, cash.  The Indenture Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Series 2003-2 Distribution Account and in all proceeds thereof and shall be the only person authorized to originate entitlement orders in respect of the Series 2003-2 Distribution Account.

 

Section 5A.11                      Lease Rate Caps.

 

(a)  The Issuer shall have obtained on the Series 2003-2 Closing Date and shall thereafter maintain one or more interest rate caps, each from a Series 2003-2 Eligible Counterparty, having, in the aggregate, a notional amount on the Series 2003-2 Closing Date at least equal to the aggregate Lease Balance of all Fixed Rate Leases allocated to the Lease SUBI Portfolio as of the Series 2003-2 Closing Date, plus, in the case of all such Fixed Rate Leases that are Closed-End Leases, the aggregate Stated Residual Values of the related Leased Vehicles and on each Payment Date thereafter at least equal to the aggregate scheduled Lease Balance of all such Fixed Rate Leases as of the last day of the Monthly Period immediately preceding such Payment Date, plus, in the case of all such Fixed Rate Leases that are Closed-End Leases, the aggregate Stated Residual Values of the related Leased Vehicles, and an effective strike rate based on the eurodollar rate set forth therein in effect on the dates set forth therein at the most equal to the weighted average fixed rate of interest on such Fixed Rate Leases minus 0.705% per annum.

 

(b)  On or prior to the date that any Fixed Rate Lease is allocated to the Lease SUBI Portfolio on or after the Series 2003-2 Closing Date, the Issuer shall have obtained and shall thereafter maintain an interest rate cap from a Series 2003-2 Eligible Counterparty having a notional amount equal to the initial Lease Balance of such Fixed Rate Lease, plus, in the case of a Closed-End Lease, the Stated Residual Value of the related Leased Vehicle and on each Payment Date thereafter at least equal to the scheduled Lease Balance of such Fixed Rate Lease as of the last day of the Monthly Period immediately preceding such Payment Date, plus, in the case of a Closed-End Lease, the Stated Residual Value of the related Leased Vehicle and an effective strike rate based on the eurodollar rate set forth therein in effect on the dates set forth therein at the most equal to the fixed rate of interest on such Fixed Rate Lease minus 0.705% per annum.

 

(c)  The Issuer may obtain an interest rate cap from a Series 2003-2 Eligible Counterparty in respect of any Fixed Rate Lease allocated to the Lease SUBI Portfolio that was not a Fixed Rate Lease when initially allocated to the Lease SUBI Portfolio or on the Series 2003-2 Closing Date having a notional amount equal to the Lease Balance of such Fixed Rate Lease as of the last day of the Monthly Period immediately preceding the date as of which such Lease became a Fixed Rate Lease, plus, in the case of a Closed-End Lease, the Stated Residual Value of the related Leased Vehicle and on each Payment Date thereafter at least equal to the scheduled Lease Balance of such Fixed Rate Lease as of the last day of the Monthly Period immediately preceding such Payment Date, plus, in the case of a Closed-End Lease, the Stated Residual Value of the related Leased Vehicle and an effective strike rate based on the eurodollar

 

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rate set forth therein in effect on the dates set forth therein at the most equal to the fixed rate of interest on such Fixed Rate Lease minus 0.705% per annum.  If the Issuer obtains an interest rate cap in respect of any Fixed Rate Lease satisfying the requirements of this Section 5A.11(c), it shall maintain such interest rate cap.

 

(d)  The Issuer shall have obtained on the Series 2003-2 Closing Date and shall thereafter maintain the Series 2003-2 Required Lease Rate Cap.

 

(e)  If the short-term credit rating of any provider of an interest rate cap required to be obtained and maintained by the Issuer pursuant to this Section 5A.11 falls below A-1 by Standard & Poor’s or P-1 by Moody’s or the long-term unsecured credit rating of any such provider falls below A+ by Standard & Poor’s or Aa3 by Moody’s, the Issuer shall obtain an equivalent interest rate cap from a Series 2003-2 Eligible Counterparty within 30 days of such decline in credit rating unless such provider provides some form of collateral for its obligations under its interest rate cap and the Rating Agency Condition is satisfied with respect to such arrangement.  The Issuer will not permit any interest rate cap required to be obtained and maintained by the Issuer pursuant to this Section 5A.11 to be terminated or transferred in whole or in part unless a replacement interest rate cap therefor has been provided as described in the immediately preceding sentence and, after giving effect thereto, the Issuer has the interest rate caps required to be obtained and maintained by the Issuer pursuant to this Section 5A.11.

 

(f)  In order to secure and provide for the repayment and payment of the Issuer Obligations with respect to the Series 2003-2 Investor Notes, the Issuer hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Indenture Trustee, for the benefit of the Series 2003-2 Investor Noteholders, all of the Issuer’s right, title and interest in and to the Series 2003-2 Lease Rate Cap and any and all payments thereunder and any and all proceeds thereof (including as a result of the termination thereof).

 

ARTICLE III

AMORTIZATION EVENTS

 

If any one of the following events shall occur with respect to the Series 2003-2 Investor Notes:

 

(a)  the Series 2003-2 Reserve Account shall have become subject to an injunction, estoppel or other stay or a Lien (other than a Permitted Lien);

 

(b)  the Series 2003-2 Yield Supplement Account shall have become subject to an injunction, estoppel or other stay or a Lien (other than a Permitted Lien);

 

(c)  a Series 2003-2 Liquid Credit Enhancement Deficiency shall occur and continue for at least two Business Days;

 

(d)  a Series 2003-2 Allocated Asset Amount Deficiency shall occur and continue for at least two Business Days;

 

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(e)  a Series 2003-2 Yield Supplement Deficiency shall occur and continue for at least two Business Days;

 

(f)  the Three Month Average Charge-Off Ratio with respect to any Settlement Date exceeds 1.00%;

 

(g)  the Three Month Average Paid-In Advance Loss Ratio with respect to any Settlement Date exceeds 1.50%;

 

(h)  the Three Month Average Delinquency Ratio with respect to any Settlement Date exceeds 7.00%;

 

(i)  the failure on the part of the Issuer to declare and pay dividends on the Series 2003-2 Senior Preferred Membership Interests or the Series 2003-2 Junior Preferred Membership Interests on any Payment Date in accordance with their terms;

 

(j)  any Servicer Termination Event shall occur;

 

(k)  any Termination Event shall occur;

 

(l)  an Event of Default with respect to the Series 2003-2 Investor Notes shall occur;

 

(m)  there is at least $10,000,000 on deposit in the Series 2003-2 Principal Collection Subaccount on two consecutive Settlement Dates during the Series 2003-2 Revolving Period;

 

(n)  an Insolvency Event shall occur with respect to SPV, the Origination Trust, Avis, PHH, Cendant or VMS;

 

(o)  all principal and interest of the Class A-1 Investor Notes is not paid in full on or before the Class A-1 Maturity Date or all principal and interest of the Class A-2 Investor Notes is not paid in full on or before the Class A-2 Maturity Date;

 

(p)  failure on the part of the Issuer (i) to make any payment or deposit required by the terms of the Indenture (or within the applicable grace period which shall not exceed two Business Days after the date such payment or deposit is required to be made) or (ii) duly to observe or perform in any material respect any covenants or agreements of the Issuer set forth in the Base Indenture or this Indenture Supplement, which failure continues unremedied for a period of 45 days after there shall have been given to the Issuer by the Indenture Trustee or the Issuer and the Indenture Trustee by the Series 2003-2 Required Investor Noteholders, written notice specifying such default and requiring it to be remedied;

 

(q)  any representation or warranty made by the Issuer in the Base Indenture or this Indenture Supplement, or any information required to be delivered by the Issuer to the Indenture Trustee shall prove to have been incorrect in any material respect when made or when delivered, which continues to be incorrect in any material respect for a period of 45 days after

 

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there shall have been given to the Issuer by the Indenture Trustee or the Issuer and the Indenture Trustee by the Series 2003-2 Required Investor Noteholders, written notice thereof;

 

(r)  the Indenture Trustee shall for any reason cease to have a valid and perfected first priority security interest in the Collateral or any of VMS, the Issuer or any Affiliate of either thereof shall so assert;

 

(s)  there shall have been filed against Cendant, PHH, VMS, the Origination Trust, SPV or the Issuer (i) a notice of federal tax Lien from the Internal Revenue Service, (ii) a notice of Lien from the PBGC under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which either of such sections applies or (iii) a notice of any other Lien the existence of which could reasonably be expected to have a material adverse effect on the business, operations or financial condition of such Person, and, in each case, 40 days shall have elapsed without such notice having been effectively withdrawn or such Lien having been released or discharged;

 

(t)  one or more judgments or decrees shall be entered against the Issuer involving in the aggregate a liability (not paid or fully covered by insurance) of $100,000 or more and such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or

 

(u)  any of the Transaction Documents shall cease, for any reason, to be in full force and effect, other than in accordance with its terms;

 

then, in the case of any event described in clause (p) through (u) above, an Amortization Event will be deemed to have occurred with respect to the Series 2003-2 Investor Notes only, if after the applicable grace period, either the Indenture Trustee or Series 2003-2 Investor Noteholders holding a Majority in Interest of the Series 2003-2 Investor Notes, declare that an Amortization Event has occurred with respect to the Series 2003-2 Investor Notes.  In the case of any event described in clauses (a) through (o) above, an Amortization Event with respect to the Series 2003-2 Investor Notes will be deemed to have occurred without notice or other action on the part of the Indenture Trustee or the Series 2003-2 Investor Noteholders.

 

ARTICLE IV

OPTIONAL PREPAYMENT

 

The Issuer shall have the option to prepay the Series 2003-2 Investor Notes in full on any Payment Date after the Payment Date in June 2005.  The Issuer shall give the Indenture Trustee at least ten Business Days’ prior written notice of the Payment Date on which the Issuer intends to exercise such option to prepay (the “Prepayment Date”).  The prepayment price for the Series 2003-2 Investor Notes shall equal the aggregate outstanding principal balance of the Series 2003-2 Investor Notes (determined after giving effect to any payments of principal and interest on such Payment Date), plus accrued and unpaid interest on such outstanding principal balance.  Not later than 11:00 a.m., New York City time, on such Prepayment Date, the Issuer shall deposit in the Series 2003-2 Distribution Account an amount equal to the prepayment price in immediately available funds.  The funds deposited into the Series 2003-2 Distribution Account

 

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will be paid by the Indenture Trustee to the Series 2003-2 Investor Noteholders on such Prepayment Date.

 

ARTICLE V

SERVICING AND ADMINISTRATOR FEES

 

Section 5.1  Servicing Fees.  A periodic servicing fee (the “Series 2003-2 Basic Servicing Fee”) shall be payable to the Servicer on each Payment Date for the Series 2003-2 Interest Period ending on such Payment Date in an amount equal to the product of (a) 0.215% (the “Series Servicing Fee Percentage”) times (b) the Series 2003-2 Allocated Adjusted Aggregate Unit Balance as of the first day of such Series 2003-2 Interest Period times (c) the number of days in such Series 2003-2 Interest Period divided by 365 (or 366, as applicable) days; provided, however that if VMS is not the Servicer, the servicing fee payable to the Servicer on each Payment Date hereunder may be increased such that the sum of the Series 2003-2 Basic Servicing Fee and the additional servicing fee payable to the Servicer hereunder (the “Series 2003-2 Supplemental Servicing Fee”) for each Series 2003-2 Interest Period equals 110% of the costs to the successor Servicer of servicing the portion of the Lease SUBI Portfolio allocated to Series 2003-2 during such Series 2003-2 Interest Period.  For this purpose, the portion of the Lease SUBI Portfolio allocated to Series 2003-2 for each Series 2003-2 Interest Period shall equal the average Series 2003-2 Invested Percentage during such Series 2003-2 Interest Period.  The Series 2003-2 Basic Servicing Fee and any Series 2003-2 Supplemental Servicing Fee shall be payable to the Servicer on each Payment Date pursuant to Section 5A.4(c).

 

Section 5.2  Administrator Fee.  A periodic fee (the “Series 2003-2 Administrator Fee”) shall be payable to the Administrator on each Payment Date for the Series 2003-2 Interest Period ending on such Payment Date in an amount equal to the product of (a) 0.01% times (b) the Series 2003-2 Allocated Adjusted Aggregate Unit Balance as of the first day of the immediately preceding Monthly Period times (c) the number of days in such Series 2003-2 Interest Period divided by 365 (or 366, as applicable) days.  The Series 2003-2 Administrator Fee shall be payable to the Administrator on each Payment Date pursuant to Section 5A.4(c)(vii).

 

ARTICLE VI

FORM OF SERIES 2003-2 NOTES

 

Section 6.1  Initial Issuance of Series 2003-2 Investor Notes.

 

The Series 2003-2 Investor Notes are being offered and sold by the Issuer in a registered public offering pursuant to an Underwriting Agreement, dated November 7, 2003, among the Issuer, VMS, PHH and J.P. Morgan Securities Inc. and Banc of America Securities LLC, as the representatives of the underwriters.

 

Section 6.2  Global Notes.

 

The Series 2003-2 Investor Notes of each Class will be issued in the form of one or more Global Notes in fully registered form, without coupons, substantially in the form set

 

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forth in Exhibits A-1 and A-2, registered in the name of Cede & Co., as nominee of DTC, and deposited with JPMorgan Chase, as custodian of DTC (collectively, the “Series 2003-2 Global Notes”).

 

The Series 2003-2 Global Notes shall bear the following legends:

 

THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (“DTC”), A NEW YORK CORPORATION, 55 WATER STREET, NEW YORK, NEW YORK 10004, OR A NOMINEE THEREOF.  THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN DTC OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

 

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE ISSUER OR THE TRANSFER AGENT AND REGISTRAR, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER, CEDE & CO., HAS AN INTEREST HEREIN.

 

Section 6.3  Definitive  Notes.

 

No Series 2003-2 Note Owner will receive a Definitive Note representing such Series 2003-2 Note Owner’s interest in the Series 2003-2 Investor Notes other than in accordance with Section 2.11 of the Base Indenture.

 

ARTICLE VII

INFORMATION

 

The Issuer hereby agrees to provide to the Indenture Trustee and each provider of the Series 2003-2 Required Lease Rate Cap, on each Determination Date, a Monthly Settlement Statement, substantially in the form of Exhibit B, setting forth as of the last day of the most recent Monthly Period and for such Monthly Period the information set forth therein.  The Indenture Trustee shall provide to the Series 2003-2 Investor Noteholders, or their designated agent, copies of each Monthly Settlement Statement.

 

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ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1  Ratification of Indenture.  As supplemented by this Indenture Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Indenture Supplement shall be read, taken and construed as one and the same instrument.

 

Section 8.2  Obligations Unaffected.  The obligations of the Issuer to the Series 2003-2 Investor Noteholders under this Indenture Supplement shall not be affected by reason of any invalidity, illegality or irregularity of any of the SUBI Certificates, the Sold Units or the Fleet Receivables.

 

Section 8.3  Governing Law.  THIS INDENTURE SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

Section 8.4  Further Assurances.  Each of the Issuer and the Indenture Trustee agrees, at the Administrator’s expense, from time to time, to do and perform any and all acts and to execute any and all further instruments required or reasonably requested by the Series 2003-2 Required Investor Noteholders more fully to effect the purposes of this Indenture Supplement and the sale of the Series 2003-2 Investor Notes hereunder.  The Issuer hereby authorizes the Indenture Trustee to file any financing statements or similar documents or notices or continuation statements relating to the Series 2003-2 Collateral under the provisions of the UCC or similar legislation of any applicable jurisdiction.

 

Section 8.5  Exhibits.  The following exhibits attached hereto supplement the exhibits included in the Base Indenture:

 

Exhibit A-1:                                  Form of Class A-1 Note
Exhibit A-2:                                  Form of Class A-2 Note
Exhibit B:                                              Form of Monthly Settlement Statement
Exhibit C:                                              Form of Series 2003-2 Lease Rate Cap

 

Section 8.6  No Waiver; Cumulative Remedies.  No failure to exercise and no delay in exercising, on the part of the Indenture Trustee, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law.

 

Section 8.7  Amendments.  (a)  This Indenture Supplement may be amended in writing from time to time in accordance with the terms of the Base Indenture.

 

36

 

(b)  No amendment specified in this Indenture Supplement as requiring satisfaction of the Rating Agency Condition shall be effective until the Rating Agency Condition is satisfied with respect thereto.

 

(c)  The Issuer reserves the right, without any consent or other action of the Series 2003-2 Investor Noteholders, to consent to the termination of the ARAC Guaranty.

 

Section 8.8  Severability.  If any provision hereof is void or unenforceable in any jurisdiction, such voidness or unenforceability shall not affect the validity or enforceability of (i) such provision in any other jurisdiction or (ii) any other provision hereof in such or any other jurisdiction.

 

Section 8.9  Counterparts.  This Indenture Supplement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement.

 

Section 8.10  No Bankruptcy Petition.  (a)  By acquiring a Series 2003-2 Investor Note or an interest therein, each Series 2003-2 Investor Noteholder and each Series 2003-2 Investor Note Owner hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other similar proceedings under any federal or state bankruptcy or similar law.

 

(a)  By acquiring a Series 2003-2 Investor Note or an interest therein, each Series 2003-2 Investor Noteholder and each Series 2003-2 Investor Note Owner and the Issuer and the Indenture Trustee hereby covenants and agrees that, prior to the date which is one year and one day after payment in full of all obligations under each Securitization, it will not institute against, or join any other Person in instituting against, the Origination Trust, SPV, any other Special Purpose Entity, or any general partner or single member of any Special Purpose Entity that is a partnership or limited liability company, respectively, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law.

 

Section 8.11  SUBIs.  By acquiring a Series 2003-2 Investor Note or an interest therein, each Series 2003-2 Investor Noteholder and each Series 2003-2 Investor Note Owner and the Issuer hereby represents, warrants and covenants that (a) each of the Lease SUBI and the Fleet Receivable SUBI is a separate series of the Origination Trust as provided in Section 3806(b)(2) of Chapter 38 of Title 12 of the Delaware Code, 12 Del.C. § 3801 et seq., (b)(i) the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Lease SUBI, the Lease SUBI Portfolio or the Fleet Receivable SUBI shall be enforceable against the Lease SUBI Portfolio or the Fleet Receivable SUBI only, as applicable, and not against any other SUBI Portfolio or the UTI Portfolio and (ii) the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to any other SUBI (used in this Section as defined in the Origination Trust Agreement), any other SUBI Portfolio (used in this Section as defined in the Origination Trust Agreement), the UTI or the UTI Portfolio shall be enforceable against such other SUBI Portfolio or the UTI Portfolio only,

 

37

 

as applicable, and not against any other SUBI Assets, (c) except to the extent required by law, UTI Assets or SUBI Assets with respect to any SUBI (other than the Lease SUBI and the Fleet Receivable SUBI) shall not be subject to the claims, debts, liabilities, expenses or obligations arising from or with respect to the Lease SUBI or Fleet Receivable SUBI, respectively, in respect of such claim, (d)(i) no creditor or holder of a claim relating to the Lease SUBI, the Fleet Receivable SUBI or the Lease Receivable SUBI Portfolio shall be entitled to maintain any action against or recover any assets allocated to the UTI or the UTI Portfolio or any other SUBI or the assets allocated thereto, and (ii) no creditor or holder of a claim relating to the UTI, the UTI Portfolio or any SUBI other than the Lease SUBI or the Fleet Receivable SUBI or any SUBI Assets other than the Lease SUBI Portfolio or the Fleet Receivables shall be entitled to maintain any action against or recover any assets allocated to the Lease SUBI or the Fleet Receivable SUBI, and (e) any purchaser, assignee or pledgee of an interest in the Lease SUBI, the Lease SUBI Certificate, the Fleet Receivable SUBI, the Lease SUBI Certificate, the Fleet Receivable SUBI Certificate, any other SUBI, any other SUBI Certificate (used in this Section as defined in the Origination Trust Agreement), the UTI or the UTI Certificate must, prior to or contemporaneously with the grant of any such assignment, pledge or security interest, (i) give to the Origination Trust a non-petition covenant substantially similar to that set forth in Section 6.9 of the Origination Trust Agreement, and (ii) execute an agreement for the benefit of each holder, assignee or pledgee from time to time of the UTI or UTI Certificate and any other SUBI or SUBI Certificate to release all claims to the assets of the Origination Trust allocated to the UTI and each other SUBI Portfolio and in the event that such release is not given effect, to fully subordinate all claims it may be deemed to have against the assets of the Origination Trust allocated to the UTI Portfolio and each other SUBI Portfolio.

 

Section 8.12  Notice to Rating Agencies.  The Indenture Trustee shall provide to each Rating Agency a copy of each notice delivered to, or required to be provided by, the Indenture Trustee pursuant to this Indenture Supplement or any other Transaction Document.

 

Section 8.13  Conflict of Instructions.  In the event the Issuer and the Administrator shall have delivered conflicting instructions to the Indenture Trustee to take or refrain from taking action hereunder, the Indenture Trustee shall follow the instructions of the Issuer.

 

38

 

IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture Supplement to be duly executed by their respective officers hereunto duly authorized as of the day and year first above written.

 

 

CHESAPEAKE FUNDING LLC

 

 

 

 

 

By:

/s/ Joseph W. Weikel

 

 

Name:

Joseph W. Weikel

 

 

Title:

Senior Vice President, General Counsel
and Assistant Secretary

 

 

 

 

 

JPMORGAN CHASE BANK,
   as Indenture Trustee

 

 

 

 

 

By:

/s/ Wen Hao Wang

 

 

Name:

Wen Hao Wang

 

 

Title:

Assistant Vice President

 

 

[2003-2 Indenture Supplement]

 

39

 

EXHIBIT A-1

TO SERIES 2003-2
INDENTURE SUPPLEMENT

 

FORM OF GLOBAL CLASS A-1 INVESTOR NOTE

 

REGISTERED

 

$230,000,000

No. R-001

 

 

 

SEE REVERSE FOR CERTAIN CONDITIONS

 

CUSIP (CINS) NO. 165182AH9
ISIN NO. US165182AH93

 

THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (“DTC”), A NEW YORK CORPORATION, 55 WATER STREET, NEW YORK, NEW YORK 10004, OR A NOMINEE THEREOF.  THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN DTC OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

 

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE ISSUER OR THE TRANSFER AGENT AND REGISTRAR, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER, CEDE & CO., HAS AN INTEREST HEREIN.

 

THE PRINCIPAL OF THIS CLASS A-1 INVESTOR NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-1 INVESTOR NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.

 

CHESAPEAKE FUNDING LLC

 

SERIES 2003-2 FLOATING RATE CALLABLE ASSET BACKED INVESTOR NOTES,
CLASS A-1

 

A-1

 

CHESAPEAKE FUNDING LLC, a limited liability company formed under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of Two Hundred Thirty Million Dollars, which amount shall be payable in the amounts and at the times set forth in the Indenture described herein, provided, however, that the entire unpaid principal amount of this Class A-1 Investor Note shall be due on the Class A-1 Final Maturity Date. However, principal with respect to the Class A-1 Investor Notes may be paid earlier under certain limited circumstances described in the Indenture.  The Issuer will pay interest on this Class A-1 Investor Note for each Series 2003-2 Interest Period, in accordance with the terms of the Indenture, at the Class A-1 Note Rate for such Interest Period.  Each “Series 2003-2 Interest Period” will be a period commencing on and including a Payment Date and ending on and including the day preceding the next succeeding Payment Date; provided, however, that the initial Series 2003-2 Interest Period shall commence on and include the Series 2003-2 Closing Date and end on and include December 7, 2003.  Such principal of and interest on this Class A-1 Investor Note shall be paid in the manner specified on the reverse hereof and in the Indenture.

 

The principal of and interest on this Class A-1 Investor Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Class A-1 Investor Note shall be applied as provided in the Indenture.  This Class A-1 Investor Note does not represent an interest in, or an obligation of, PHH Vehicle Management Services, LLC (“VMS”) or any affiliate of VMS other than the Issuer.

 

Reference is made to the further provisions of this Class A-1 Investor Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Class A-1 Investor Note. Although a summary of certain provisions of the Indenture is set forth below and on the reverse hereof and made a part hereof, this Class A-1 Investor Note does not purport to summarize the Indenture and reference is made to the Indenture for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Issuer and the Indenture Trustee. A copy of the Indenture may be requested from the Indenture Trustee by writing to the Indenture Trustee at:  JPMorgan Chase Bank, 4 New York Plaza, 6th Floor, New York, New York, 10004, Attention: Institutional Trust Services.  To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Indenture.

 

Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Class A-1 Investor Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.

 

A-2

 

IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer.

 

Date:

 

 

 

 

 

 

CHESAPEAKE FUNDING LLC

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

This is one of the Class A-1 Investor Notes issued under the within-mentioned Indenture.

 

 

JPMORGAN CHASE BANK, as Indenture Trustee

 

 

 

 

 

By:

 

 

 

 

Authorized Signatory

 

 

A-3

 

[REVERSE OF CLASS A-1 INVESTOR NOTE]

 

This Class A-1 Investor Note is one of a duly authorized issue of Class A-1 Investor Notes of the Issuer designated its Series 2003-2 Floating Rate Asset Backed Investor Notes (herein called the “Class A-1 Investor Notes”), all issued under (i) a Base Indenture dated as of June 30, 1999 (such Base Indenture, as amended or modified, is herein called the “Base Indenture”), between the Issuer and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as Indenture Trustee (the “Indenture Trustee”, which term includes any successor Indenture Trustee under the Base Indenture), and (ii) a Series 2003-2 Indenture Supplement dated as of November 19, 2003 (the “Series 2003-2 Indenture Supplement”) between the Issuer and the Indenture Trustee. The Base Indenture and the Series 2003-2 Supplement are referred to herein as the “Indenture”. The Class A-1 Investor Notes are subject to all terms of the Indenture. All terms used in this Class A-1 Investor Note that are defined in the Indenture, as supplemented, modified or amended, shall have the meanings assigned to them in or pursuant to the Indenture, as so supplemented, modified or amended.

 

The Class A-1 Investor Notes are and will be equally and ratably secured by the Series 2003-2 Collateral pledged as security therefor as provided in the Indenture and the Series 2003-2 Indenture Supplement.

 

Principal of the Class A-1 Investor Notes will be payable on each Payment Date specified in and in the amounts described in the Indenture. “Payment Date” means the 7th day of each month, or if such date is not a Business Day, the next succeeding Business Day, commencing December 8, 2003.

 

The entire unpaid principal amount of this Class A-1 Investor Note shall be due and payable on the Class A-1 Final Maturity Date. Notwithstanding the foregoing, principal on the Class A-1 Investor Notes will be paid earlier during the Series 2003-2 Amortization Period as described in the Indenture. All principal payments on the Class A-1 Investor Notes shall be made pro rata to the Class A-1 Investor Noteholders entitled thereto.

 

The Issuer will have the option to prepay the Series 2003-2 Investor Notes, in whole but not in part, on any Payment Date after the Payment Date in June 2005.  The prepayment price for the Series 2003-2 Investor Notes will be equal to the amount set forth in the Indenture.

 

Interest will accrue on this Class A-1 Investor Notes for each Series 2003-2 Interest Period at a rate equal to (i) with respect to the initial Series 2003-2 Interest Period, 1.32% per annum and (ii) with respect to each Series 2003-2 Interest Period thereafter, a rate per annum equal to One-Month LIBOR for such Series 2003-2 Interest Period plus 0.20% per annum (the “Class A-1 Note Rate”).  “One-Month LIBOR” means, for each Series 2003-2 Interest Period, the rate per annum determined on the related LIBOR Determination Date by the Calculation Agent to be the rate for Dollar deposits having a maturity equal to one month that appears on Telerate Page 3750 at approximately 11:00 a.m., London time, on such LIBOR Determination Date; provided, however, that if such rate does not appear on Telerate Page 3750, One-Month LIBOR will mean, for such 2003-2 Interest Period, the rate per annum equal to the arithmetic mean (rounded to the nearest one-one-hundred-thousandth of one percent) of the rates

 

A-4

 

quoted by the Reference Banks to the Calculation Agent as the rates at which deposits in Dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on the LIBOR Determination Date to prime banks in the London interbank market for a period equal to one month; provided, further, that if fewer than two quotations are provided as requested by the Reference Banks, “One-Month LIBOR” for such Series 2003-2 Interest Period will mean the arithmetic mean (rounded to the nearest one-one-hundred-thousandth of one percent) of the rates quoted by major banks in New York, New York selected by the Calculation Agent, at approximately 10:00 a.m., New York City time, on the first day of such Series 2003-2 Interest Period for loans in Dollars to leading European banks for a period equal to one month; provided, finally, that if no such quotes are provided, “One-Month LIBOR” for such Series 2003-2 Interest Period will mean One-Month LIBOR as in effect with respect to the preceding Series 2003-2 Interest Period.

 

The Issuer shall pay interest on overdue installments of interest at the Class A-1 Note Rate to the extent lawful.

 

As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Class A-1 Investor Note may be registered on the Note Register upon surrender of this Class A-1 Investor Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Class A-1 Investor Notes of authorized denominations in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Class A-1 Investor Note, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange.

 

By acquiring a Class A-1 Investor Note or an interest therein, each Class A-1 Investor Noteholder and each Class A-1 Investor Note Owner and the Issuer and the Indenture Trustee hereby covenants and agrees that, prior to the date which is one year and one day after payment in full of all obligations under each Securitization, it will not institute against, or join any other Person in instituting against, the Origination Trust, SPV, any other Special Purpose Entity, or any general partner or single member of any Special Purpose Entity that is a partnership or limited liability company, respectively, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law.

 

Each Class A-1 Investor Noteholder, by acceptance of a Class A-1 Investor Note or, in the case of a Class A-1 Investor Note Owner, a beneficial interest in a Class A-1 Investor Note, hereby represents, warrants and covenants that (a) each of the Lease SUBI and the Fleet Receivable SUBI is a separate series of the Origination Trust as provided in Section 3806(b)(2) of Chapter 38 of Title 12 of the Delaware Code, 12 Del.C. § 3801 et seq., (b)(i) the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Lease SUBI, the Lease SUBI Portfolio or the Fleet Receivable SUBI shall be enforceable against the Lease SUBI Portfolio or the Fleet Receivable SUBI only, as applicable, and not against any other SUBI Portfolio or the UTI Portfolio and (ii) the debts, liabilities, obligations

 

A-5

 

and expenses incurred, contracted for or otherwise existing with respect to any other SUBI (used in this paragraph as defined in the Origination Trust Agreement), any other SUBI Portfolio (used in this paragraph as defined in the Origination Trust Agreement), the UTI or the UTI Portfolio shall be enforceable against such other SUBI Portfolio or the UTI Portfolio only, as applicable, and not against any other SUBI Assets, (c) except to the extent required by law, UTI Assets or SUBI Assets with respect to any SUBI (other than the Lease SUBI and the Fleet Receivable SUBI) shall not be subject to the claims, debts, liabilities, expenses or obligations arising from or with respect to the Lease SUBI or Fleet Receivable SUBI, respectively, in respect of such claim, (d)(i) no creditor or holder of a claim relating to the Lease SUBI, the Fleet Receivable SUBI or the Lease SUBI Portfolio shall be entitled to maintain any action against or recover any assets allocated to the UTI or the UTI Portfolio or any other SUBI or the assets allocated thereto, and (ii) no creditor or holder of a claim relating to the UTI, the UTI Portfolio or any SUBI other than the Lease SUBI or the Fleet Receivable SUBI or any SUBI Assets other than the Lease SUBI Portfolio or the Fleet Receivables shall be entitled to maintain any action against or recover any assets allocated to the Lease SUBI or the Fleet Receivable SUBI, and (e) any purchaser, assignee or pledgee of an interest in the Lease SUBI, the Lease SUBI Certificate, the Fleet Receivable SUBI, the Lease SUBI Certificate, the Fleet Receivable SUBI Certificate, any other SUBI, any other SUBI Certificate (used in this Section as defined in the Origination Trust Agreement), the UTI or the UTI Certificate must, prior to or contemporaneously with the grant of any such assignment, pledge or security interest, (i) give to the Origination Trust a non-petition covenant substantially similar to that set forth in Section 6.9 of the Origination Trust Agreement, and (ii) execute an agreement for the benefit of each holder, assignee or pledgee from time to time of the UTI or UTI Certificate and any other SUBI or SUBI Certificate to release all claims to the assets of the Origination Trust allocated to the UTI and each other SUBI Portfolio and in the event that such release is not given effect, to fully subordinate all claims it may be deemed to have against the assets of the Origination Trust allocated to the UTI Portfolio and each other SUBI Portfolio.

 

Each Class A-1 Investor Noteholder or Class A-1 Investor Note Owner, by acceptance of a Class A-1 Investor Note or, in the case of a Class A-1 Investor Note Owner, a beneficial interest in a Class A-1 Investor Note, covenants and agrees that by accepting the benefits of the Indenture that such Class A-1 Investor Noteholder or Class A-1 Investor Note Owner will not institute against, or join with any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings, under any Federal or state bankruptcy or similar law.

 

It is the intent of the Issuer, each Class A-1 Investor Noteholder and each Class A-1 Investor Note Owner that, for Federal, state and local income and franchise tax purposes only, the Class A-1 Investor Notes will evidence indebtedness of the Issuer secured by the Series 2003-2 Collateral.  Each Class A-1 Investor Noteholder and each Class A-1 Investor Note Owner, by the acceptance of this Class A-1 Investor Note, agrees to treat this Class A-1 Investor Note for purposes of Federal, state and local income and franchise taxes and any other tax imposed on or measured by income, as indebtedness of the Issuer.

 

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Series 2003-2 Investor Notes under the Indenture at any time by the Issuer with the consent of the Holders of a Majority in Interest of the Series 2003-2 Investor Notes

 

A-6

 

affected by such amendment or modification.  The Indenture also contains provisions permitting the Holders of Series 2003-2 Investor Notes representing specified percentages of the aggregate outstanding amount of the Series 2003-2 Investor Notes, on behalf of the Holders of all the Series 2003-2 Investor Notes, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Class A-1 Investor Note (or any one or more predecessor Class A-1 Investor Notes) shall be conclusive and binding upon such Holder and upon all future Holders of this Class A-1 Investor Note and of any Class A-1 Investor Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Class A-1 Investor Note. The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Series 2003-2 Investor Notes issued thereunder.

 

The term “Issuer” as used in this Class A-1 Investor Note includes any successor to the Issuer under the Indenture.

 

The Class A-1 Investor Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations set forth therein.

 

This Class A-1 Investor Note and the Indenture shall be governed by, and construed in accordance with, the law of the State of New York, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such law.

 

No reference herein to the Indenture and no provision of this Class A-1 Investor Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Class A-1 Investor Note at the times, place and rate, and in the coin or currency herein prescribed.

 

Interests in this Global Note may be exchanged for Definitive Notes, subject to the provisions of the Indenture.

 

A-7

 

ASSIGNMENT

 

Social Security or taxpayer I.D. or other identifying number of assignee

 

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

 

(name and address of assignee)

 

the within  Class A-1 Investor Note and all rights thereunder, and hereby irrevocably constitutes and appoints                                         , attorney, to transfer said Class A-1 Investor Note on the books kept for registration thereof, with full power of substitution in the premises.

 

Dated:

By:

 

(1)

 

 

 

 

 

 

 

 

 

Signature Guaranteed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)                                  NOTE:  The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Class A-1 Investor Note, without alteration, enlargement or any change whatsoever.

 

A-8

 

EXHIBIT A-2

TO SERIES 2003-2
INDENTURE SUPPLEMENT

 

FORM OF GLOBAL CLASS A-2 INVESTOR NOTE

 

REGISTERED

 

$270,000,000

No. R-001

 

 

 

SEE REVERSE FOR CERTAIN CONDITIONS

 

CUSIP (CINS) NO. 165182AJ5
ISIN NO. US165182AJ59

 

THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (“DTC”), A NEW YORK CORPORATION, 55 WATER STREET, NEW YORK, NEW YORK 10004, OR A NOMINEE THEREOF.  THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN DTC OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

 

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE ISSUER OR THE TRANSFER AGENT AND REGISTRAR, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER, CEDE & CO., HAS AN INTEREST HEREIN.

 

THE PRINCIPAL OF THIS CLASS A-2 INVESTOR NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-2 INVESTOR NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.

 

CHESAPEAKE FUNDING LLC

 

SERIES 2003-2 FLOATING RATE CALLABLE ASSET BACKED INVESTOR NOTES,
CLASS A-2

 

A-9

 

CHESAPEAKE FUNDING LLC, a limited liability company formed under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of Two Hundred Seventy Million Dollars, which amount shall be payable in the amounts and at the times set forth in the Indenture described herein, provided, however, that the entire unpaid principal amount of this Class A-2 Investor Note shall be due on the Class A-2 Final Maturity Date. However, principal with respect to the Class A-2 Investor Notes may be paid earlier under certain limited circumstances described in the Indenture.  The Issuer will pay interest on this Class A-2 Note for each Series 2003-2 Interest Period, in accordance with the terms of the Indenture at the Class A-2 Note Rate for such Interest Period.  Each “Series 2003-2 Interest Period” will be a period commencing on and including a Payment Date and ending on and including the day preceding the next succeeding Payment Date; provided, however, that the initial Series 2003-2 Interest Period shall commence on and include the Series 2003-2 Closing Date and end on and include December 7, 2003.  Such principal of and interest on this Class A-2 Investor Note shall be paid in the manner specified on the reverse hereof and in the Indenture.

 

The principal of and interest on this Class A-2 Investor Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Class A-2 Investor Note shall be applied as provided in the Indenture.  This Class A-2 Investor Note does not represent an interest in, or an obligation of, PHH Vehicle Management Services LLC (“VMS”) or any affiliate of VMS other than the Issuer.

 

Reference is made to the further provisions of this Class A-2 Investor Note set forth on the reverse hereof, which shall have the same effect as though fully set forth on the face of this Class A-2 Investor Note. Although a summary of certain provisions of the Indenture is set forth below and on the reverse hereof and made a part hereof, this Class A-2 Investor Note does not purport to summarize the Indenture and reference is made to the Indenture for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Issuer and the Indenture Trustee. A copy of the Indenture may be requested from the Indenture Trustee by writing to the Indenture Trustee at:  JPMorgan Chase Bank, 4 New York Plaza, 6th Floor, New York, New York, 10004, Attention: Institutional Trust Services.  To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Indenture.

 

Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual signature, this Class A-2 Investor Note shall not be entitled to any benefit under the Indenture referred to on the reverse hereof, or be valid or obligatory for any purpose.

 

A-10

 

IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually or in facsimile, by its Authorized Officer.

 

Date:

 

 

 

 

 

 

CHESAPEAKE FUNDING LLC

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

INDENTURE TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

This is one of the Class A-2 Investor Notes issued under the within-mentioned Indenture.

 

 

JPMORGAN CHASE BANK, as Indenture Trustee

 

 

 

 

 

By:

 

 

 

 

Authorized Signatory

 

 

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[REVERSE OF CLASS A-2 INVESTOR NOTE]

 

This Class A-2 Investor Note is one of a duly authorized issue of Class A-2 Investor Notes of the Issuer designated its Series 2003-2 Floating Rate Asset Backed Investor Notes (herein called the “Class A-2 Investor Notes”), all issued under (i) a Base Indenture dated as of June 30, 1999 (such Base Indenture, as amended or modified, is herein called the “Base Indenture”), between the Issuer and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as Indenture Trustee (the “Indenture Trustee”, which term includes any successor Indenture Trustee under the Base Indenture), and (ii) a Series 2003-2 Indenture Supplement dated as of November 19, 2003 (the “Series 2003-2 Indenture Supplement”) between the Issuer and the Indenture Trustee. The Base Indenture and the Series 2003-2 Supplement are referred to herein as the “Indenture”. The Class A-2 Investor Notes are subject to all terms of the Indenture. All terms used in this Class A-2 Investor Note that are defined in the Indenture, as supplemented, modified or amended, shall have the meanings assigned to them in or pursuant to the Indenture, as so supplemented, modified or amended.

 

The Class A-2 Investor Notes are and will be equally and ratably secured by the Series 2003-2 Collateral pledged as security therefor as provided in the Indenture and the Series 2003-2 Indenture Supplement.

 

Principal of the Class A-2 Investor Notes will be payable on each Payment Date specified in and in the amounts described in the Indenture. “Payment Date” means the 7th day of each month, or if such date is not a Business Day, the next succeeding Business Day, commencing December 8, 2003.

 

The entire unpaid principal amount of this Class A-2 Investor Note shall be due and payable on the Class A-2 Final Maturity Date. Notwithstanding the foregoing, principal on the Class A-2 Investor Notes will be paid earlier during the Series 2003-2 Amortization Period as described in the Indenture. All principal payments on the Class A-2 Investor Notes shall be made pro rata to the Class A-2 Investor Noteholders entitled thereto.

 

The Issuer will have the option to prepay the Series 2003-2 Investor Notes, in whole but not in part, on any Payment Date after the Payment Date in June 2005.  The prepayment price for the Series 2003-2 Investor Notes will be equal to the amount set forth in the Indenture.

 

Interest will accrue on this Class A-2 Investor Notes for each Series 2003-2 Interest Period at a rate equal to (i) with respect to the initial Series 2003-2 Interest Period, 1.42% per annum and (ii) with respect to each Series 2003-2 Interest Period thereafter, a rate per annum equal to One-Month LIBOR for such Series 2003-2 Interest Period plus 0.30% per annum (the “Class A-2 Note Rate”).  “One-Month LIBOR” means, for each Series 2003-2 Interest Period, the rate per annum determined on the related LIBOR Determination Date by the Calculation Agent to be the rate for Dollar deposits having a maturity equal to one month that appears on Telerate Page 3750 at approximately 11:00 a.m., London time, on such LIBOR Determination Date; provided, however, that if such rate does not appear on Telerate Page 3750, One-Month LIBOR will mean, for such 2003-2 Interest Period, the rate per annum equal to the arithmetic mean (rounded to the nearest one-one-hundred-thousandth of one percent) of the rates

 

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quoted by the Reference Banks to the Calculation Agent as the rates at which deposits in Dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on the LIBOR Determination Date to prime banks in the London interbank market for a period equal to one month; provided, further, that if fewer than two quotations are provided as requested by the Reference Banks, “One-Month LIBOR” for such Series 2003-2 Interest Period will mean the arithmetic mean (rounded to the nearest one-one-hundred-thousandth of one percent) of the rates quoted by major banks in New York, New York selected by the Calculation Agent, at approximately 10:00 a.m., New York City time, on the first day of such Series 2003-2 Interest Period for loans in Dollars to leading European banks for a period equal to one month; provided, finally, that if no such quotes are provided, “One-Month LIBOR” for such Series 2003-2 Interest Period will mean One-Month LIBOR as in effect with respect to the preceding Series 2003-2 Interest Period.

 

The Issuer shall pay interest on overdue installments of interest at the Class A-2 Note Rate to the extent lawful.

 

As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Class A-2 Investor Note may be registered on the Note Register upon surrender of this Class A-2 Investor Note for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Class A-2 Investor Notes of authorized denominations in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Class A-2 Investor Note, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange.

 

By acquiring a Class A-2 Investor Note or an interest therein, each Class A-2 Investor Noteholder and each Class A-2 Investor Note Owner and the Issuer and the Indenture Trustee hereby covenants and agrees that, prior to the date which is one year and one day after payment in full of all obligations under each Securitization, it will not institute against, or join any other Person in instituting against, the Origination Trust, SPV, any other Special Purpose Entity, or any general partner or single member of any Special Purpose Entity that is a partnership or limited liability company, respectively, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law.

 

Each Class A-2 Investor Noteholder, by acceptance of a Class A-2 Investor Note or, in the case of a Class A-2 Investor Note Owner, a beneficial interest in a Class A-2 Investor Note, hereby represents, warrants and covenants that (a) each of the Lease SUBI and the Fleet Receivable SUBI is a separate series of the Origination Trust as provided in Section 3806(b)(2) of Chapter 38 of Title 12 of the Delaware Code, 12 Del.C. § 3801 et seq., (b)(i) the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Lease SUBI, the Lease SUBI Portfolio or the Fleet Receivable SUBI shall be enforceable against the Lease SUBI Portfolio or the Fleet Receivable SUBI only, as applicable, and not against any other SUBI Portfolio or the UTI Portfolio and (ii) the debts, liabilities, obligations

 

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and expenses incurred, contracted for or otherwise existing with respect to any other SUBI (used in this paragraph as defined in the Origination Trust Agreement), any other SUBI Portfolio (used in this paragraph as defined in the Origination Trust Agreement), the UTI or the UTI Portfolio shall be enforceable against such other SUBI Portfolio or the UTI Portfolio only, as applicable, and not against any other SUBI Assets, (c) except to the extent required by law, UTI Assets or SUBI Assets with respect to any SUBI (other than the Lease SUBI and the Fleet Receivable SUBI) shall not be subject to the claims, debts, liabilities, expenses or obligations arising from or with respect to the Lease SUBI or Fleet Receivable SUBI, respectively, in respect of such claim, (d)(i) no creditor or holder of a claim relating to the Lease SUBI, the Fleet Receivable SUBI or the Lease SUBI Portfolio shall be entitled to maintain any action against or recover any assets allocated to the UTI or the UTI Portfolio or any other SUBI or the assets allocated thereto, and (ii) no creditor or holder of a claim relating to the UTI, the UTI Portfolio or any SUBI other than the Lease SUBI or the Fleet Receivable SUBI or any SUBI Assets other than the Lease SUBI Portfolio or the Fleet Receivables shall be entitled to maintain any action against or recover any assets allocated to the Lease SUBI or the Fleet Receivable SUBI, and (e) any purchaser, assignee or pledgee of an interest in the Lease SUBI, the Lease SUBI Certificate, the Fleet Receivable SUBI, the Lease SUBI Certificate, the Fleet Receivable SUBI Certificate, any other SUBI, any other SUBI Certificate (used in this Section as defined in the Origination Trust Agreement), the UTI or the UTI Certificate must, prior to or contemporaneously with the grant of any such assignment, pledge or security interest, (i) give to the Origination Trust a non-petition covenant substantially similar to that set forth in Section 6.9 of the Origination Trust Agreement, and (ii) execute an agreement for the benefit of each holder, assignee or pledgee from time to time of the UTI or UTI Certificate and any other SUBI or SUBI Certificate to release all claims to the assets of the Origination Trust allocated to the UTI and each other SUBI Portfolio and in the event that such release is not given effect, to fully subordinate all claims it may be deemed to have against the assets of the Origination Trust allocated to the UTI Portfolio and each other SUBI Portfolio.

 

Each Class A-2 Investor Noteholder or Class A-2 Investor Note Owner, by acceptance of a Class A-2 Investor Note or, in the case of a Class A-2 Investor Note Owner, a beneficial interest in a Class A-2 Investor Note, covenants and agrees that by accepting the benefits of the Indenture that such Class A-2 Investor Noteholder or Class A-2 Investor Note Owner will not institute against, or join with any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings, under any Federal or state bankruptcy or similar law.

 

It is the intent of the Issuer, each Class A-2 Investor Noteholder and each Class A-2 Investor Note Owner that, for Federal, state and local income and franchise tax purposes only, the Class A-2 Investor Notes will evidence indebtedness of the Issuer secured by the Series 2003-2 Collateral.  Each Class A-2 Investor Noteholder and each Class A-2 Investor Note Owner, by the acceptance of this Class A-2 Investor Note, agrees to treat this Class A-2 Investor Note for purposes of Federal, state and local income and franchise taxes and any other tax imposed on or measured by income, as indebtedness of the Issuer.

 

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Series 2003-2 Investor Notes under the Indenture at any time by the Issuer with the consent of the Holders of a Majority in Interest of the Series 2003-2 Investor Notes

 

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affected by such amendment or modification.  The Indenture also contains provisions permitting the Holders of Series 2003-2 Investor Notes representing specified percentages of the aggregate outstanding amount of the Series 2003-2 Investor Notes, on behalf of the Holders of all the Series 2003-2 Investor Notes, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Class A-2 Investor Note (or any one or more predecessor Class A-2 Investor Notes) shall be conclusive and binding upon such Holder and upon all future Holders of this Class A-2 Investor Note and of any Class A-2 Investor Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Class A-2 Investor Note. The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Series 2003-2 Investor Notes issued thereunder.

 

The term “Issuer” as used in this Class A-2 Investor Note includes any successor to the Issuer under the Indenture.

 

The Class A-2 Investor Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations set forth therein.

 

This Class A-2 Investor Note and the Indenture shall be governed by, and construed in accordance with, the law of the State of New York, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such law.

 

No reference herein to the Indenture and no provision of this Class A-2 Investor Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Class A-2 Investor Note at the times, place and rate, and in the coin or currency herein prescribed.

 

Interests in this Global Note may be exchanged for Definitive Notes, subject to the provisions of the Indenture.

 

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ASSIGNMENT

 

Social Security or taxpayer I.D. or other identifying number of assignee

 

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

 

 

(name and address of assignee)

 

the within  Class A-2 Investor Note and all rights thereunder, and hereby irrevocably constitutes and appoints                                         , attorney, to transfer said Class A-2 Investor Note on the books kept for registration thereof, with full power of substitution in the premises.

 

Dated:

 

 

By:

 

(2)

 

 

 

 

 

 

 

 

Signature Guaranteed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)                                  NOTE:  The signature to this assignment must correspond with the name of the registered owner as it appears on the face of the within Class A-2 Investor Note, without alteration, enlargement or any change whatsoever.

 

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Exhibit 10.70

        EXECUTION COPY

INDENTURE AND SERVICING AGREEMENT

Dated as of December 5, 2003

by and among

SIERRA 2003-2 RECEIVABLES FUNDING COMPANY, LLC,

as Issuer

and

FAIRFIELD ACCEPTANCE CORPORATION—NEVADA,

as Servicer

and

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Trustee

and

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Collateral Agent


INDENTURE AND SERVICING AGREEMENT

        THIS INDENTURE AND SERVICING AGREEMENT dated as of December 5, 2003 is by and among SIERRA 2003-2 RECEIVABLES FUNDING COMPANY, LLC, a limited liability company organized under the laws of the State of Delaware as issuer, FAIRFIELD ACCEPTANCE CORPORATION-NEVADA, a Delaware corporation, as Servicer, and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as trustee and as collateral agent. This Indenture may be supplemented and amended from time to time in accordance with Article XV hereof.


RECITALS

        The Issuer has duly authorized the execution and delivery of this Indenture to provide for the issuance of its loan-backed notes as provided herein.

        All covenants and agreements made by the Issuer herein are for the benefit and security of the Trustee, acting on behalf of the Noteholders and the Swap Counterparty.

        The Issuer is entering into this Indenture, and the Trustee is accepting the trusts created hereby, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. All things necessary have been done to make the Notes, when executed by the Issuer and authenticated and delivered by the Trustee as provided herein, the valid obligations of the Issuer and to make this Indenture a valid agreement of the Issuer, enforceable in accordance with its terms.

        NOW THEREFORE, in consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other parties and for the benefit of the Noteholders and the Swap Counterparty.


GRANTING CLAUSES

        The Issuer hereby Grants to the Collateral Agent, for the benefit and security of the Trustee, acting on behalf of the Noteholders and the Swap Counterparty, all of the Issuer's right, title and interest, whether now owned or hereafter acquired, in, to and under the following:

The property described in the preceding sentence is collectively referred to as the "Collateral." The Grant of the Collateral to the Collateral Agent is for the benefit of the Trustee to secure the Notes equally and ratably without prejudice, priority or distinction among any Notes by reason of difference in time of issuance or otherwise, except as otherwise expressly provided in this Indenture and to secure (i) the payment of all amounts due on the Notes in accordance with their respective terms, (ii) the payment of all other sums payable by the Issuer under this Indenture or the Notes and (iii) compliance by the Issuer with the provisions of this Indenture and the Notes. This Indenture is a security agreement within the meaning of the UCC.

        The Collateral Agent and the Trustee acknowledge the Grant of the Collateral, and the Collateral Agent accepts the Collateral in trust hereunder in accordance with the provisions hereof and agrees to perform the duties herein to the end that the interests of the Noteholders may be adequately and effectively protected.

        The Trustee and the Collateral Agent each acknowledges that it has entered into the Collateral Agency Agreement pursuant to which the Collateral Agent acts as agent for the benefit of the Trustee for the purpose of maintaining a security interest in the Collateral. The Trustee and the Noteholders are bound by the terms of the Collateral Agency Agreement by the Trustee's execution thereof on their behalf.

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ARTICLE I

DEFINITIONS

        Section 1.1    Definitions    

        Whenever used in this Indenture, the following words and phrases shall have the following meanings:

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Class of Notes
   Note Interest Rate
Class A-1 Notes   3.03%
Class A-2 Notes   LIBOR as determined from time to time plus 0.45%
Class B Notes   3.33%
Class C Notes   3.87%
Class D Notes   4.85%

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        Section 1.2    Other Definitional Provisions.    

        (a)   Terms used in this Indenture and not otherwise defined herein such terms shall have the meanings ascribed to them in the Series 2003-2 Term Purchase Agreement.

        (b)   All terms defined in this Indenture shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.

        (c)   As used in this Indenture and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP as in effect from time to time. To the extent that the definitions of accounting terms herein or in any certificate or other document made or delivered pursuant hereto are inconsistent with the meanings of such terms under GAAP, the definitions contained herein or in any such certificate or other document shall control.

        (d)   Any reference to each Rating Agency shall only apply to any specific rating agency if such rating agency is then rating any outstanding Class of Notes.

        (e)   Unless otherwise specified, references to any amount as on deposit or outstanding on any particular date shall mean such amount at the close of business on such day.

        (f)    The words "hereof," "herein" and "hereunder" and words of similar import when used in this Indenture shall refer to this Indenture as a whole and not to any particular provision of this Indenture; and Article, Section, subsection, Schedule and Exhibit references contained in this Indenture are references to Articles, Sections, subsections, Schedules and Exhibits in or to this Indenture unless otherwise specified.

        Section 1.3    Intent and Interpretation of Documents    

        The arrangement established by this Indenture, the Series 2003-2 Term Purchase Agreement, the Sale and Assignment Agreement, the Purchase Agreements, the Custodial Agreements, the Collateral Agency Agreement and the other Transaction Documents is intended not to be a taxable mortgage pool for federal income tax purposes, and is intended to constitute a sale of the Loans by the applicable Seller to the Depositor for commercial law purposes. Each of the Depositor and the Issuer are and are intended to be a legal entity separate and distinct from each Seller for all purposes other than tax purposes. This Indenture and the other Transaction Documents shall be interpreted to further these intentions.


ARTICLE II

THE NOTES

        Section 2.1    Designation.    

        (a)   There is hereby created a series of Notes of the Issuer to be issued pursuant to this Indenture and which are hereby designated as "Sierra 2003-2 Receivables Funding Company, LLC Vacation Timeshare Loan-Backed Notes, Series 2003-2," the "Series 2003-2 Notes" or the "Notes."

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        (b)   The terms of the Notes shall be as set forth in this Indenture.

        Section 2.2    Form Generally.    The Notes and the Trustee's or Authentication Agent's certificate of authentication thereon (the "Certificate of Authentication") shall be in substantially the forms set forth as Exhibit A with respect to the Class A Notes, Exhibit B with respect to the Class B Notes, Exhibit C with respect to the Class C Notes and Exhibit D with respect to the Class D Notes, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may, consistent herewith, be determined by the Authorized Officers of the Issuer executing such Notes as evidenced by their execution of such Notes. Any portion of the text of any Note may be set forth on the reverse or subsequent pages thereof, with an appropriate reference thereto on the face of the Note.

        The Notes shall be typewritten, word processed, printed, lithographed or engraved or produced by any combination of these methods, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes.

        Section 2.3    [Reserved].    

        Section 2.4    Determination of LIBOR.    

        On each LIBOR Determination Date, the Trustee shall determine LIBOR on the basis of the rate for deposits in United States dollars for a one-month period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such date. If such rate does not appear on Telerate Page 3750, the rate for that LIBOR Determination Date will be determined on the basis of the rates at which deposits in United States dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on that day to prime banks in the London interbank market for a one-month period. If on such LIBOR Determination Date two or more Reference Banks provide such offered quotations, LIBOR for such related Interest Accrual Period will be the arithmetic mean of such offered quotations (rounded upwards if necessary to the nearest whole multiple of 0.0001%). If on such LIBOR Determination Date fewer than two Reference Banks provide such offered quotations, LIBOR for the related Interest Accrual Period will be the arithmetic mean (rounded upwards if necessary to the nearest whole multiple of 0.0001%) of the one-month U.S. dollar lending rates that three New York City banks selected by the Trustee are quoting at approximately 11:00 a.m. (New York City time) on the relevant LIBOR Determination Date to leading European banks.

        The establishment of LIBOR on each LIBOR Determination Date by the Trustee and the Trustee's calculation of the rate of interest applicable to the Floating Rate Notes for the related Interest Accrual Period will (in the absence of manifest error) be final and binding. The Trustee shall, upon the establishment of LIBOR on each LIBOR Determination Date, notify the Issuer and the Servicer of the rate.

        Section 2.5    Execution, Authentication and Delivery.    The Notes shall be executed on behalf of the Issuer by any of its Authorized Officers. The signature of any such Authorized Officer on the Notes may be manual or facsimile.

        Notes bearing the manual or facsimile signature of individuals who were at the time of execution of such Notes Authorized Officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes.

        The Trustee shall, upon written order of the Issuer, authenticate and deliver Notes for original issue in an aggregate principal amount of $375,000,000, including $179,400,000 principal amount of Class A-1 Notes, $75,000,000 of the Class A-2 Notes, $30,700,000 principal amount of Class B Notes, $39,450,000 principal amount of Class C Notes and $50,450,000 principal amount of Class D Notes.

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The Trustee shall be entitled to rely upon such written order as authority to so authenticate and deliver the Notes without further inquiry of any Person.

        Each Note shall be dated the date of its authentication. The Notes shall be issuable as registered Notes in the minimum denomination of $500,000 and in integral multiples of $1,000 in excess thereof.

        No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized signatories, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder.

        Section 2.6    Registration; Registration of Transfer and Exchange; Transfer Restrictions.    (a) The Issuer shall cause to be kept a register (the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Notes and the registration of transfers of Notes. The Trustee shall be the initial "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. Upon any resignation of any Note Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Note Registrar.

        If a Person other than the Trustee is appointed by the Issuer as Note Registrar, the Issuer will give the Trustee and the Swap Counterparty prompt written notice of the appointment of such Note Registrar and of the location, and any change in the location, of the Note Registrar, and the Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Trustee shall have the right to rely upon a certificate executed on behalf of the Note Registrar as to the names and addresses of the Holders of the Notes and the principal amounts and number of such Notes.

        Upon surrender for registration of transfer of any Note at the office of the Note Registrar as provided in this Section 2.6, if the requirements of Section 8-401(a) of the UCC are met, the Issuer shall execute, and upon receipt of such surrendered Note the Trustee shall authenticate and the Noteholder shall obtain from the Trustee, in the name of the designated transferee or transferees, one or more new Notes in any authorized denominations, of a like aggregate principal amount.

        At the option of the Holder, Notes may be exchanged for other Notes in any authorized denominations, of the same Class and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, if the requirements of Section 8-401(a) of the UCC are met, the Issuer shall execute, and upon receipt of such surrendered Note the Trustee shall authenticate and the Noteholder shall obtain from the Trustee, the Notes which the Noteholder making the exchange is entitled to receive.

        All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange.

        Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing, and such other documents as the Trustee may require.

        No service charge shall be made to a Holder for any registration of transfer or exchange of Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge or expense that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to subsection 15.1(e) not involving any transfer.

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        The preceding provisions of this section notwithstanding, the Issuer shall not be required to make, and the Note Registrar need not register, transfers or exchanges of Notes (i) for a period of 20 days preceding the due date for any payment with respect to the Notes or (ii) after the Trustee sends a notice of redemption with respect to such Note in accordance with Section 2.18.

        (b)   The Notes have not been registered under the Securities Act or any state securities law. None of the Issuer, the Note Registrar or the Trustee is obligated to register the Notes under the Securities Act or any other securities or "Blue Sky" laws or to take any other action not otherwise required under this Indenture to permit the transfer of any Note without registration.

        (c)   No transfer of any Note or any interest therein (including, without limitation, by pledge or hypothecation) shall be made except in compliance with the restrictions on transfer set forth in this Section 2.6 (including the applicable legend to be set forth on the face of each Note as provided in Exhibits A through D to this Indenture) and in Section 2.12 and Section 2.13 in a transaction exempt from the registration requirements of the Securities Act and applicable state securities or "Blue Sky" laws (i) to a person (A) that the transferor reasonably believes is a "qualified institutional buyer" (a "QIB") within the meaning thereof in Rule 144A under the Securities Act ("Rule 144A") in the form of beneficial interests in the Rule 144A Global Note, and (B) that is aware that the resale or other transfer is being made in reliance on Rule 144A or (ii) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, in the form of beneficial interests in the applicable Regulation S Global Note.

        (d)   Each Note Owner, by its acceptance of its beneficial interest in a Note, will be deemed to have acknowledged, represented to and agreed with the Issuer and the Initial Purchasers as follows:

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        (e)   It understands and acknowledges that the Issuer has structured this Indenture and the Notes with the intention that the Notes will qualify under applicable tax law as indebtedness of the Issuer, and the Issuer and each Noteholder by acceptance of its Note agree to treat the Notes (or interests therein) as indebtedness for purposes of federal, state, local and foreign income or franchise taxes or any other applicable tax.

        (f)    Notwithstanding anything to the contrary contained herein, each Note and this Indenture may be amended or supplemented to modify the restrictions on and procedures for resale and other transfers of the Notes to reflect any change in applicable law or regulation (or the interpretation thereof) or in practices relating to the resale or transfer of restricted securities generally (provided, however, that no such amendment or supplement shall in any way impact the Interest Rate Swap). Each Noteholder shall, by its acceptance of such Note, have agreed to any such amendment or supplement.

        Section 2.7    Mutilated, Destroyed, Lost or Stolen Notes.    If (i) any mutilated Note is surrendered to the Trustee, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) in the case of a destroyed, lost or stolen Note, there is delivered to the Trustee such security or indemnity as may be required by it to hold the Issuer and the Trustee harmless, then, in the absence of notice to the Issuer, the Note Registrar or the Trustee that such Note has been acquired by a protected purchaser, and provided that the requirements of Section 8-405 of the UCC are met, the Issuer shall execute and upon its request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note; provided, however, that if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have become or within twenty (20) days shall become due and payable, or shall have been called for redemption, instead of issuing a replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so due or payable or upon the redemption date without surrender thereof. If, after the delivery of such replacement Note or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a protected purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer and the Trustee shall be entitled to recover such replacement Note (or such payment) from the Person to whom it was delivered or any Person taking such replacement Note from such Person to whom such replacement Note was delivered or any assignee of such Person, except a protected purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, claim, liability, cost or expense incurred by the Issuer or the Trustee, its agents and/or counsel, in connection therewith.

        Upon the issuance of any replacement Note under this Section 2.7, the Issuer may require the payment by the Holder of such Note of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Trustee, its agents and/or counsel) connected therewith.

        Except as set forth in the first paragraph of this Section 2.7, every replacement Note issued pursuant to this Section 2.7 in replacement of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder.

        The provisions of this Section 2.7 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes.

        Section 2.8    Persons Deemed Owner.    Prior to due presentment for registration of transfer of any Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Person in whose name any Note is registered (as of the day of determination) as the owner of such Note for the purpose of receiving payments of principal of and interest, if any, on such Note and for all other

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purposes whatsoever, whether or not such Note is overdue, and neither the Issuer, the Trustee nor any agent of the Issuer or the Trustee shall be affected by notice to the contrary.

        Section 2.9    Payment of Principal and Interest; Defaulted Interest.    

        (a)   The Notes of each Class shall accrue interest from and including the Closing Date at the Note Interest Rate for that Class. Interest on the Fixed Rate Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest on the Floating Rate Notes will be calculated on the basis of a 360-day year and the actual number of days that elapsed during the related Interest Accrual Period. Interest shall be due and payable on December 15, 2003 and each Payment Date thereafter until all principal amounts on the Notes have been repaid. The amount of interest due and payable on the Notes with respect to each Payment Date shall be an amount equal to the Accrued Interest with respect to such Payment Date plus any Interest Carry-Forward Amount. Any installment of interest or principal, if any, or any other amount, payable on any Note which is punctually paid or duly provided for by the Issuer on the applicable Payment Date shall be paid to the Person in whose name such Note (or one or more Predecessor Notes) is registered on the Record Date, by check mailed first-class, postage prepaid to such Person's address as it appears on the Note Register on such Record Date, (i) except that with respect to Notes registered on the Record Date in the name of the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.), payment will be made by wire transfer in immediately available funds to the account designated by such nominee, and (ii) except for (A) the final installment of principal payable with respect to such Note on a Payment Date and (B) the redemption price for any Note called for redemption pursuant to Section 2.18, in each case which shall be payable as provided below.

        (b)   To the extent of Available Funds, principal shall be due and payable on the Notes as provided in Section 3.1(a) or if a Sequential Order Event has occurred and is continuing as provided in Section 3.1(b), and the principal amount of the Notes to the extent not previously paid, shall be due and payable on the Final Maturity Date. Notwithstanding the foregoing, the entire unpaid principal amount of the Notes shall be due and payable, if not previously paid, on the date on which an Event of Default described in Section 11.1 shall have occurred and be continuing, if the Notes have been declared to be immediately due and payable as provided in Section 11.1. So long as no Sequential Order Event shall have occurred and be continuing, principal payments on the Notes shall be made pro rata to the Noteholders entitled thereto.

        Notices in connection with redemptions of Notes shall be mailed or sent by facsimile to Noteholders and the Swap Counterparty as provided in Section 15.5.

        (c)   If the Issuer defaults in a payment of interest on the Notes when such interest becomes due and payable on any Payment Date, the Issuer shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful) at the applicable Note Interest Rate in any lawful manner. The Issuer may pay such defaulted interest to the persons who are Noteholders on a subsequent special record date, which date shall be fixed or caused to be fixed by the Issuer and shall be at least three Business Days prior to the payment date. The Issuer shall fix or cause to be fixed any such payment date, and, prior to the third Business Day prior to any such special record date, the Issuer shall mail or transmit by facsimile to each Noteholder and the Swap Counterparty a notice that states the special record date, the payment date and the amount of defaulted interest to be paid.

        (d)   Holders of a beneficial interest in Notes sold in reliance on Regulation S as Temporary Regulation S Global Notes are prohibited from receiving payments or from exchanging beneficial interests in such Temporary Regulation S Global Notes for Permanent Regulation S Global Notes until the later of (i) the expiration of the Distribution Compliance Period (the "Exchange Date") and (ii) the furnishing of a certificate, substantially in the form of Exhibit F attached hereto, certifying that the beneficial owner of the Temporary Regulation S Global Note is a non-U.S. person (a "Regulation S Certificate") as provided in Section 2.12.

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        Section 2.10    Cancellation.    All Notes surrendered for payment, registration of transfer, exchange or redemption shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall, following its receipt thereof, be promptly canceled by the Trustee. The Issuer may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and all Notes so delivered shall, following its receipt thereof, be promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 2.10, except as expressly permitted by this Indenture. All canceled Notes shall be returned to the Issuer.

        Section 2.11    Global Notes.    The Notes, upon original issuance, will be issued in global form (i) to QIBs in transactions exempt from the registration requirements of the Securities Act in reliance on Rule 144A, as a single note in fully registered form, without interest coupons (the "Rule 144A Global Note"), authenticated and delivered in substantially the forms attached hereto included in Exhibits A through D and/or (ii) as a single note in "offshore transactions" (within the meaning of Regulation S), in fully registered form, without interest coupons (the "Temporary Regulation S Global Note"), authenticated and delivered in substantially the forms attached hereto included in Exhibits A through D. Such Notes shall be delivered to The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Issuer and shall initially be registered on the Note Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no Note Owner will receive a Definitive Note representing such Note Owner's interest in such Note, except as provided in Section 2.15. Unless and until definitive, fully registered Notes (the "Definitive Notes") have been issued to Note Owners pursuant to Section 2.15:

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        Section 2.12    Regulation S Global Notes.    

        (a)   Notes issued in reliance on Regulation S under the Securities Act will initially be in the form of a Temporary Regulation S Global Note. Any beneficial interest in a Note evidenced by the Temporary Regulation S Global Note is exchangeable for a beneficial interest in a Note in fully registered, global form, without interest coupons, authenticated and delivered in substantially the form with respect to each Class attached hereto in each of Exhibit A, B, C and D (the "Permanent Regulation S Global Note"), upon the later of (i) the Exchange Date and (ii) the furnishing of a Regulation S Certificate.

        (b)   (i) On or prior to the Exchange Date, each owner of a beneficial interest in a Temporary Regulation S Global Note shall deliver to Euroclear or Clearstream (as applicable) a Regulation S Certificate; provided, however, that any owner of a beneficial interest in a Temporary Regulation S Global Note on the Exchange Date or on any Payment Date that has previously delivered a Regulation S Certificate hereunder shall not be required to deliver any subsequent Regulation S Certificate (unless the certificate previously delivered is no longer true as of such subsequent date, in which case such owner shall promptly notify Euroclear or Clearstream, as applicable, thereof and shall deliver an updated Regulation S Certificate). Euroclear and/or Clearstream, as applicable, shall deliver to the Paying Agent or the Trustee a certificate substantially in the form of Exhibit F (a "Non-U.S. Certificate") attached hereto promptly upon the receipt of each such Regulation S Certificate, and no such owner (or transferee from such owner) shall be entitled to receive a beneficial interest in a Permanent Regulation S Global Note or any payment of or principal of interest on or any other payment with respect to its beneficial interest in a Temporary Regulation S Global Note prior to the Paying Agent or the Trustee receiving such Non-U.S. Certificate from Euroclear or Clearstream with respect to the portion of the Temporary Regulation S Global Note owned by such owner (and, with respect to a beneficial interest in the Permanent Regulation S Global Note, prior to the Exchange Date).

        (c)   Any payments of principal of, interest on or any other payment on a Temporary Regulation S Global Note received by Euroclear or Clearstream with respect to any portion of such Regulation S Global Note owned by a Note Owner that has not delivered the Regulation S Certificate required by this Section 2.12 shall be held by Euroclear and Clearstream solely as agents for the Paying Agent and the Trustee. Euroclear and Clearstream shall remit such payments to the applicable Note Owner (or to a Euroclear or Clearstream member on behalf of such Note Owner) only after Euroclear or Clearstream has received the requisite Regulation S Certificate. Until the Paying Agent or the Trustee has received a Non-U.S. Certificate from Euroclear or Clearstream, as applicable, that it has received the requisite Regulation S Certificate with respect to the ownership of a beneficial interest in any portion of a Temporary Regulation S Global Note, the Paying Agent or the Trustee may revoke the right of Euroclear or Clearstream, as applicable, to hold any payments made with respect to such portion of such Temporary Regulation S Global Note. If the Paying Agent or the Trustee exercises its right of revocation pursuant to the immediately preceding sentence, Euroclear or Clearstream, as applicable, shall return such payments to the Paying Agent or the Trustee and the Trustee shall hold such payments in the Collection Account until Euroclear or Clearstream, as applicable, has provided the necessary Non-U.S. Certificates to the Paying Agent or the Trustee (at which time the Paying Agent shall forward such payments to Euroclear or Clearstream, as applicable, to be remitted to the Note Owner that is entitled thereto on the records of Euroclear or Clearstream (or on the records of their respective members)).

        Each Note Owner with respect to a Temporary Regulation S Global Note shall exchange its beneficial interest therein for a beneficial interest in a Permanent Regulation S Global Note on or after the Exchange Date upon furnishing to Euroclear or Clearstream (as applicable) the Regulation S Certificate and upon receipt by the Paying Agent or the Trustee, as applicable, of the Non-U.S. Certificate thereof from Euroclear or Clearstream, as applicable, in each case pursuant to the terms of

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this Section 2.12. On and after the Exchange Date, upon receipt by the Paying Agent or the Trustee of any Non-U.S. Certificate from Euroclear or Clearstream described in the immediately preceding sentence (i) with respect to the first such certification, the Issuer shall execute, upon receipt of an order to authenticate, and the Trustee shall authenticate and deliver to the Clearing Agency Custodian the applicable Permanent Regulation S Global Note and (ii) with respect to the first and all subsequent certifications, the Clearing Agency Custodian shall exchange on behalf of the applicable owners the portion of the applicable Temporary Regulation S Global Note covered by such certification for a comparable portion of the applicable Permanent Regulation S Global Note. Upon any exchange of a portion of a Temporary Regulation S Global Note for a comparable portion of a Permanent Regulation S Global Note, the Clearing Agency Custodian shall endorse on the schedules affixed to each such Regulation S Global Note (or on continuations of such schedules affixed to each such Regulation S Global Note and made parts thereof) appropriate notations evidencing the date of transfer and (x) with respect to the Temporary Regulation S Global Note, a decrease in the principal amount thereof equal to the amount covered by the applicable certification and (y) with respect to the Permanent Regulation S Global Note, an increase in the principal amount thereof equal to the principal amount of the decrease in the Temporary Regulation S Global Note pursuant to clause (x) above.

        Section 2.13    Special Transfer Provisions.    

        (a)   If a holder of a beneficial interest in the Rule 144A Global Note wishes at any time to exchange its beneficial interest in the Rule 144A Global Note for a beneficial interest in the Regulation S Global Note, or to transfer a beneficial interest in the Rule 144A Global Note to a person who wishes to take delivery thereof in the form of a beneficial interest in the Regulation S Global Note, such holder may, subject to the rules and procedures of the Clearing Agency and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of the beneficial interest for an equivalent beneficial interest in the Regulation S Global Note. Upon receipt by the Trustee of (1) instructions given in accordance with the Clearing Agency's procedures from or on behalf of a Note Owner of the Rule 144A Global Note, directing the Trustee (via the Clearing Agency's Deposit/Withdrawal of Custodian System ("DWAC")), as transfer agent, to credit or cause to be credited a beneficial interest in the Regulation S Global Note in an amount equal to the beneficial interest in the Rule 144A Global Note to be exchanged or transferred, (2) a written order in accordance with the Clearing Agency's procedures containing information regarding the Euroclear or Clearstream account to be credited with such increase and the name of such account, and (3) a certificate given by such Note Owner stating that the exchange or transfer of such beneficial interest has been made pursuant to and in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, the Trustee, as transfer agent, shall promptly deliver appropriate instructions to the Clearing Agency (via DWAC), its nominee, or the custodian for the Clearing Agency, as the case may be, to reduce or reflect on its records a reduction of the Rule 144A Global Note by the aggregate principal amount of the beneficial interest in the Rule 144A Global Note to be so exchanged or transferred from the relevant participant, and the Trustee, as transfer agent, shall promptly deliver appropriate instructions (via DWAC) to the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Regulation S Global Note by the aggregate principal amount of the beneficial interest in the Rule 144A Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions (who may be Euroclear Bank S.A./N.V., as operator of Euroclear or Clearstream or another agent member of Euroclear, or Clearstream, or both, as the case may be, acting for and on behalf of them) a beneficial interest in such Regulation S Global Note equal to the reduction in the principal amount of the Rule 144A Global Note. Notwithstanding anything to the contrary, the Trustee may conclusively rely upon the completed schedule set forth in the certificate evidencing the Notes.

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        (b)   If a holder of a beneficial interest in the Regulation S Global Note wishes at any time to exchange its beneficial interest in the Regulation S Global Note for a beneficial interest in the Rule 144A Global Note, or to transfer a beneficial interest in the Regulation S Global Note to a person who wishes to take delivery thereof in the form of beneficial interest in the Rule 144A Global Note, such holder may, subject to the rules and procedures of Euroclear or Clearstream and the Clearing Agency, as the case may be, and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such beneficial interest for an equivalent beneficial interest in the Rule 144A Global Note. Upon receipt by the Trustee, as transfer agent of (1) instructions given in accordance with the procedures of Euroclear or Clearstream and the Clearing Agency, as the case may be, from or on behalf of a Note Owner of the Regulation S Global Note directing the Trustee, as transfer agent, to credit or cause to be credited a beneficial interest in the Rule 144A Global Note in an amount equal to the beneficial interest in the Regulation S Global Note to be exchanged or transferred, (2) a written order given in accordance with the procedures of Euroclear or Clearstream and the Clearing Agency, as the case may be, containing information regarding the account with the Clearing Agency to be credited with such increase and the name of such account, and (3) prior to the expiration of the Distribution Compliance Period, a certificate given by such Note Owner stating that the person transferring such beneficial interest in such Regulation S Global Note reasonably believes that the person acquiring such beneficial interest in the Rule 144A Global Note is a QIB and is obtaining such beneficial interest for its own account or the account of a QIB in a transaction meeting the requirements of Rule 144A under the Securities Act and any applicable securities laws of any state of the United States or any other jurisdiction, the Trustee, as transfer agent, shall promptly deliver (via DWAC) appropriate instructions to the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, to reduce or reflect on its records a reduction of the Regulation S Global Note by the aggregate principal amount of the beneficial interest in such Regulation S Global Note to be exchanged or transferred, and the Trustee, as transfer agent, shall promptly deliver (via DWAC) appropriate instructions to the Clearing Agency, its nominee, or the custodian for the Clearing Agency, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of the Rule 144A Global Note by the aggregate principal amount of the beneficial interest in the Regulation S Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the Rule 144A Global Note equal to the reduction in the principal amount of the Regulation S Global Note. After the expiration of the Distribution Compliance Period, the certification requirement set forth in clause (3) of the second sentence of this subsection 2.13(b) will no longer apply to such exchanges and transfers. Notwithstanding anything to the contrary, the Trustee may conclusively rely upon the completed schedule set forth in the certificate evidencing the Notes.

        (c)   Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of a beneficial interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and become a beneficial interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such a beneficial interest.

        (d)   Until the later of the Exchange Date and the provision of the certifications required by Section 2.9(d), beneficial interests in a Regulation S Global Note may only be held through Euroclear Bank S.A./N.V., as operator of Euroclear or Clearstream or another agent member of Euroclear and Clearstream acting for and on behalf of them. During the Distribution Compliance Period, beneficial interests in the Regulation S Global Note may be exchanged for beneficial interests in the Rule 144A Global Note only in accordance with the certification requirements described above.

        Section 2.14    Notices to Clearing Agency.    Whenever a notice or other communication to the Holders of the Notes is required under this Indenture, unless and until Definitive Notes shall have

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been issued to Note Owners pursuant to Section 2.15, the Trustee shall give all such notices and communications specified herein to be given to Holders of the Notes to the Clearing Agency, and shall have no obligation to the Note Owners.

        Section 2.15    Definitive Notes.    If (i) the Issuer advises the Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Notes, and the Issuer is unable to locate a qualified successor, or (ii) the Issuer, at its option advises the Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency, or (iii) after the occurrence of an Event of Default or a Servicer Default, Note Owners of beneficial interests aggregating a majority of the Aggregate Principal Amount of the Notes advise the Issuer and the Clearing Agency in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Note Owners, then the Clearing Agency shall notify all Note Owners and the Trustee of the occurrence of any such event and of the availability of Definitive Notes to Note Owners. Upon surrender to the Trustee of the typewritten Note or Notes representing the Global Notes by the Clearing Agency, accompanied by registration instructions, the Issuer shall execute and the Trustee shall authenticate the Definitive Notes in accordance with the instructions of the Clearing Agency. None of the Issuer, the Note Registrar or the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes to Note Owners, the Trustee shall recognize the Holders of such Definitive Notes as Noteholders.

        Section 2.16    Payments on the Notes.    

        (a)   Subject to the availability of funds and to the Priority of Payments, the Notes will provide for (i) the payment of Accrued Interest on each Payment Date through the Final Maturity Date, (ii) absent the occurrence of a Sequential Order Event the payment of the Principal Distribution Amount on each Payment Date through the Final Maturity Date and (iii) if a Sequential Order Event has occurred the payment of principal in Sequential Order until the earlier of the date on which all Notes are paid in full or the Final Maturity Date. All outstanding principal of the Notes will be due and payable (unless paid on an earlier date) on the Final Maturity Date.

        (b)   Interest and principal payable in respect of the Notes of any Class on any Payment Date shall be paid to the Holders of the Notes of such Class as of the related Record Date.

        (c)   All reductions in the principal amount of a Note (or one or more predecessor Notes) effected by payments of installments of principal made on any Payment Date shall be binding upon all future Holders of such Note and of any Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, whether or not such payment is noted on such Note.

        (d)   Notwithstanding any other provision of this Indenture, principal of, interest on and all other amounts payable on or in respect of the Notes will constitute limited recourse obligations of the Issuer secured by, and payable solely from and to the extent of, the Collateral. The Holders of the Notes shall have recourse to the Issuer only to the extent of the Collateral, and following realization of the Collateral any claims of the Holders of the Notes shall be extinguished and shall not revive thereafter. Neither the Issuer, nor any of its respective agents, members, partners, beneficiaries, officers, directors, employees or any Affiliate of any of them or any of their respective successors or assigns or any other Person or entity shall be personally liable for any amounts payable, or performance due, under the Notes or this Indenture. It is understood that the foregoing provisions of this paragraph shall not (i) prevent recourse to the Collateral for the sums due or to become due under any security, instrument or agreement which is secured by the Collateral, or (ii) constitute a waiver, release or discharge of any indebtedness or obligation evidenced by the Notes or secured by this Indenture until such Collateral has been realized whereupon any outstanding indebtedness or obligation shall be extinguished. It is further understood that the foregoing provisions of this paragraph shall not limit the right of any Person to name the Issuer as party defendant in any action, suit or in the exercise of any

36


other remedy under the Notes or in this Indenture, so long as no judgment in the nature of a deficiency judgment or seeking personal liability shall be asked for or (if obtained) enforced against the Issuer.

        (e)   For so long as any of the Notes are listed on the Luxembourg Stock Exchange or any other stock exchange, to the extent required by the rules of such exchange, the Issuer or, upon Issuer Order, the Trustee, in the name and at the expense of the Issuer, shall notify such stock exchange in the event that the Notes do not receive scheduled payments of principal or interest on any Payment Date and the Servicer at the expense of the Issuer will arrange for publication of such information in a daily newspaper in Luxembourg or as otherwise required by such stock exchange.

        Section 2.17    [Reserved].    

        Section 2.18    Clean-Up Call.    The Notes are subject to redemption by the Issuer on any Payment Date on or after the date on which the Aggregate Loan Balance as of the end of the related Due Period is 10% or less of the Aggregate Loan Balance as of the Cut-Off Date. The redemption price will be equal to the Aggregate Principal Amount plus accrued and unpaid interest to the date of redemption; provided that any Termination Payments due to the Swap Counterparty under the Interest Rate Swap will be required to be paid concurrently with or prior to any such redemption.

        At any time after the Issuer has delivered notice of an optional redemption, the Issuer will deposit or cause to be deposited funds into the Collection Account sufficient to pay all principal and interest due or to become due on the Notes in connection with such redemption and related costs and expenses incurred or to be incurred by the Trustee. Upon the payment of the Notes and all interest thereon and upon the payment of all amounts due to the Swap Counterparty, and at the written direction of the Issuer, the Trustee will release its lien on the Collateral. The Trustee will invest the funds in the Collection Account in specific investments pursuant to this Indenture and will apply such funds deposited into the Collection Account and earnings on such funds to the payment in full of all principal and interest due on the Notes.

        Section 2.19    Authentication Agent.    

        (a)   The Trustee may appoint one or more Authentication Agents with respect to the Notes which shall be authorized to act on behalf of the Trustee in authenticating the Notes in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Notes. Whenever reference is made in this Indenture to the authentication of Notes by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an Authentication Agent and a certificate of authentication executed on behalf of the Trustee by an Authentication Agent. Each Authentication Agent must be acceptable to the Issuer and the Servicer.

        (b)   Any institution succeeding to the corporate agency business of an Authentication Agent shall continue to be an Authentication Agent without the execution or filing of any paper or any further act on the part of the Trustee or such Authentication Agent.

        (c)   An Authentication Agent may at any time resign by giving notice of resignation to the Trustee, the Swap Counterparty and to the Issuer. The Trustee may at any time terminate the agency of an Authentication Agent by giving notice of termination to such Authentication Agent and to the Issuer, the Swap Counterparty and the Servicer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an Authentication Agent shall cease to be acceptable to the Trustee or the Issuer, the Trustee may promptly appoint a successor Authentication Agent. Any successor Authentication Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authentication Agent. No successor Authentication Agent shall be appointed unless acceptable to the Issuer and the Servicer.

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        (d)   The Issuer agrees to pay to each Authentication Agent from time to time reasonable compensation for its services under this Section 2.19.

        (e)   The provisions of Sections 13.1 and 13.3 shall be applicable to any Authentication Agent.

        (f)    Pursuant to an appointment made under this Section 2.19, the Notes may have endorsed thereon, in lieu of or in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in substantially the following form:

        "This is one of the Notes described in the within-mentioned Agreement.


 

 
  as Authentication Agent
for the Trustee

 
By:
 
  Authorized Signatory"

        Section 2.20    Appointment of Paying Agent.    The Paying Agent shall make payments to Noteholders from the Collection Account or other applicable Account pursuant to the provisions of this Indenture and shall report the amounts of such distributions to the Issuer. Any Paying Agent shall have the revocable power to withdraw funds from the Collection Account or other applicable Account for the purpose of making the distributions referred to above. The Issuer may revoke such power and remove the Paying Agent if the Issuer determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Indenture in any material respect. The Issuer reserves the right at any time to vary or terminate the appointment of a Paying Agent for the Notes, and to appoint additional or other Paying Agents, provided that it will at all times maintain the Trustee as a Paying Agent. In the event that any Paying Agent shall resign, the Issuer may appoint a successor to act as Paying Agent. Any reference in this Indenture to the Paying Agent shall include any co-paying agent unless the context requires otherwise.

        Section 2.21    Confidentiality.    The Trustee and the Collateral Agent hereby agree not to disclose to any Person any name or address of any Obligor under any Pledged Loan or other information contained in the Loan Schedule or the data transmitted to the Trustee or the Collateral Agent hereunder, except (i) as may be required by law, rule, regulation or order applicable to it or in response to any subpoena or other valid legal process, (ii) as may be necessary in connection with any request of any federal or state regulatory authority having jurisdiction over it or the National Association of Insurance Commissioners, (iii) in connection with the performance of its duties hereunder, (iv) to a Successor Servicer appointed pursuant to Section 12.2, (v) in enforcing the rights of Noteholders and (vi) as requested by any Person in connection with the financing statements filed pursuant to the Transaction Documents. The Trustee and the Collateral Agent hereby agree to take such measures as shall be reasonably requested by the Issuer of it to protect and maintain the security and confidentiality of such information. The Trustee and the Collateral Agent shall use reasonable efforts to provide the Issuer with written notice five days prior to any disclosure pursuant to this Section 2.21.

        Nothing in the foregoing paragraph should, however, be construed to limit the ability of the Trustee and the Collateral Agent (and their respective Affiliates, employees, officers, directors, agents and advisors) to disclose to any and all Persons, without limitation of any kind, the tax structure and tax treatment (as such terms are used in sections 6011, 6111, and 6112 of the Code and the regulations

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promulgated thereunder) of the Notes, and all materials of any kind (including opinions or other tax analyses) that have been provided to the Trustee or the Collateral Agent related to such tax structure and tax treatment. In this regard, the Trustee and the Collateral Agent acknowledge and agree that disclosure of the tax structure or tax treatment of the Notes is not limited in any way by an express or implied understanding or agreement, oral or written (whether or not such understanding or agreement is legally binding). Furthermore, the Trustee and the Collateral Agent acknowledge and agree that they do not know or have reason to know that the use or disclosure of information relating to the tax structure or tax treatment of the Notes is limited in any other manner (such as where the Notes are claimed to be proprietary or exclusive) for the benefit of any other Person. Neither the Trustee nor the Collateral Agent shall be permitted to disclose the tax structure and tax treatment of the Notes to the extent that such disclosure would constitute a violation of federal or state securities laws.

        Section 2.22    144A Information.    So long as the Issuer is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder of Notes, the Issuer shall promptly furnish or cause to be furnished to such Holder and to a prospective purchaser of such Note designated by such Holder, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to permit compliance with Rule 144A in connection with resales of the Notes in accordance with the terms hereof (such information being contemplated to consist of a copy of the Offering Circular together with all Monthly Servicing Reports delivered to the Issuer since the Closing Date).


ARTICLE III

PAYMENTS, SECURITY AND ALLOCATIONS

        Section 3.1    Priority of Payments, Sequential Order.    

        (a)   The Servicer shall apply, or by written instruction to the Trustee shall cause the Trustee to apply, on each Payment Date Available Funds for that Payment Date on deposit in the Collection Account and, pursuant to Section 3.5(b), amounts on deposit in the Reserve Account, if any, to make the following payments and in the following order of priority:

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        (b)    Sequential Order.    If a Sequential Order Event occurs and is continuing, principal payments shall not be made to the Class A Notes, Class B Notes, Class C Notes and Class D Notes on a pro rata basis but thereafter and so long as the Sequential Order Event has not been cured, on each Payment Date all Available Funds remaining after application of clause "NINTH" in subsection (a) above shall be applied in the following order of priority ("Sequential Order"):

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        Funds remaining on any Payment Date after making principal payments on the Notes as described above while a Sequential Order Event shall be in effect, shall be distributed as provided in provisions ELEVENTH through SIXTEENTH in subsection (a) above.

        Section 3.2    Information Provided to Trustee.    The Servicer shall promptly provide the Trustee in writing with all information necessary to enable the Trustee to make the payments and deposits required pursuant to Section 3.1 as required by Section 8.1 and the Trustee shall be entitled to rely thereon.

        Section 3.3    Payments.    On each Payment Date, the Trustee, as Paying Agent, shall distribute to the Holders and the other parties entitled thereto the amounts due and payable under this Indenture and the Notes.

        Section 3.4    Collection Account.    

        (a)    Collection Account.    The Trustee, for the benefit of the Noteholders and the Swap Counterparty, shall establish and maintain in the name of the Trustee, a segregated account designated as the "Sierra 2003-2 Receivables Funding Company, LLC Series 2003-2 Collection Account" bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders and the Swap Counterparty pursuant to this Indenture. Deposits made into the Collection Account shall be limited to amounts deposited therein on the Closing Date, amounts paid to the Issuer under the terms of the Interest Rate Swap, Collections and other Available Funds and earnings on the Account. If, at any time, the Collection Account ceases to be an Eligible Account, the Trustee (or the Servicer on its behalf) shall within 10 Business Days establish a new Collection Account as an Eligible Account and shall transfer any property in the Collection Account to the new Collection Account. So long as the Trustee is an Eligible Institution, the Collection Account may be maintained with it in an Eligible Account.

        (b)    Withdrawals.    The Trustee shall have the sole and exclusive right to withdraw or order a transfer of funds from the Collection Account, in all events in accordance with the terms and provisions of this Indenture and the information most recently delivered to the Trustee pursuant to Section 8.1; provided, however, that the Trustee shall be authorized to accept and act upon instructions from the Servicer regarding withdrawals or transfers of funds from the Collection Account, in all events in accordance with the provisions of this Indenture and the information most recently delivered pursuant to Sections 3.1 and 8.1. In addition, notwithstanding anything in the foregoing to the contrary, the Trustee shall be authorized to accept instructions from the Servicer on a daily basis regarding withdrawals or order transfers of funds from the Collection Account, to the extent such funds either (i) have been mistakenly deposited into the Collection Account (including without limitation funds representing assessments or dues payable by Obligors to property owners associations or other entities) or (ii) relate to items subsequently returned for insufficient funds or as a result of stop payments. In the case of any withdrawal or transfer pursuant to the foregoing sentence, the Servicer shall provide the Trustee and the Swap Counterparty with notice of such withdrawal or transfer, together with reasonable supporting details, on the next Monthly Servicing Report to be delivered by the Servicer following the date of such withdrawal or transfer (or in such earlier written notice as may be required by the Trustee from the Servicer from time to time). Notwithstanding anything therein to the contrary, the Trustee shall be entitled to make withdrawals or order transfers of funds from the Collection Account, in the amount of all reasonable and appropriate out-of-pocket costs and expenses incurred by the Trustee in connection with any misdirected funds described in clause (i) and (ii) of the second foregoing sentence.

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Within two Business Days of receipt, the Servicer shall transfer all Collections processed by the Servicer to the Trustee for deposit into the Collection Account. The Trustee shall deposit or cause to be deposited into the Collection Account upon receipt the Release Price in respect of releases of Pledged Loans by the Issuer. On each Payment Date, the Trustee shall apply amounts in the Collection Account to make the payments and disbursements described in Section 3.1 and this Section 3.4.

        (c)    Administration of the Collection Account.    Funds in the Collection Account shall, at the direction of the Servicer, at all times be invested in Permitted Investments; provided, however, that all Permitted Investments shall mature on or before the next Payment Date, in order to ensure that funds on deposit therein will be available on such Payment Date. Subject to the restrictions set forth in the first sentence of this subsection 3.4(c), the Servicer shall instruct the Trustee in writing regarding the investment of funds on deposit in the Collection Account. All investment earnings on such funds shall be deemed to be available to the Trustee for the uses specified in this Indenture. The Trustee shall be fully protected in following the investment instructions of the Servicer, and shall have no obligation for keeping the funds fully invested at all times or for making any investments other than in accordance with such written investment instructions. If no investment instructions are received from the Servicer, the Trustee is authorized to invest the funds in Permitted Investments described in clause (v) of the definition thereof. In no event shall the Trustee be liable for any investment losses incurred in connection with the investment of funds on deposit in the Collection Account by the Trustee pursuant to this Indenture.

        (d)    Irrevocable Deposit.    Any deposit made into the Collection Account hereunder shall, except as otherwise provided herein, be irrevocable and the amount of such deposit and any money, instrument, investment property or other property on deposit in, carried in or credited to the Collection Account hereunder and all interest thereon shall be held in trust by the Trustee and applied solely as provided herein.

        (e)    Source.    All amounts delivered to the Trustee shall be accompanied by information in reasonable detail and in writing specifying the source and nature of the amounts.

        Section 3.5    Reserve Account.    

        (a)    Creation and Funding of the Reserve Account.    The Trustee shall establish and maintain in the name of the Trustee, an Eligible Account designated as the "Sierra 2003-2 Receivables Funding Company, LLC Reserve Account" bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders and the Swap Counterparty pursuant to this Indenture. The Reserve Account shall be under the sole dominion and control of the Trustee; however, if so directed by the Servicer, the Reserve Account may be an Eligible Account in the name of the Trustee opened at another Eligible Institution. If, at any time, the Reserve Account ceases to be an Eligible Account, the Trustee (or the Servicer on its behalf) shall within 10 Business Days establish a new Reserve Account as an Eligible Account and shall transfer any property in the Reserve Account to such new Reserve Account. So long as the Trustee is an Eligible Institution, the Reserve Account may be maintained with it in an Eligible Account.

        A deposit shall be made to the Reserve Account on the Closing Date in an amount equal to the Reserve Required Amount and, on each Payment Date, deposits shall be made to the Reserve Account to the extent provided in provision THIRTEENTH of subsection 3.1(a).

        (b)    Withdrawals from the Reserve Account.    If on any Payment Date, the Available Funds are not sufficient to pay those amounts described in provisions FIRST through ELEVENTH of subsection 3.1(a), the Trustee, at the direction of the Servicer, shall withdraw an amount equal to the lesser of (i) the excess of those amounts described in provisions FIRST through ELEVENTH of subsection 3.1(a), over the Available Funds available to pay such amounts and (ii) the Reserve Account Amount

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and use such amount to pay amounts due but unpaid, in the order set forth in provisions FIRST through ELEVENTH of subsection 3.1(a).

        (c)    Release of Funds from Reserve Account.    On each Payment Date, the Trustee shall withdraw all cash on deposit in the Reserve Account in excess of the Reserve Required Amount and deposit such amount in the Collection Account, for application on such Payment Date as Available Funds in accordance with Section 3.1 of this Indenture.

        (d)    Termination of Reserve Account.    Any funds remaining in the Reserve Account after all Notes (including both principal and interest thereon) have been paid in full and in cash and all other obligations of the Issuer under this Indenture and the Notes have been paid in full and in cash shall be remitted by the Trustee to the Issuer free and clear of the lien of this Indenture.

        (e)    Administration of the Reserve Account.    Funds in the Reserve Account shall be invested in Permitted Investments as directed by the Servicer; provided, however, that all Permitted Investments shall mature on or before the next Payment Date. Subject to the restrictions set forth in the first sentence of this subsection (e), the Servicer shall instruct the Trustee in writing regarding the investment of funds on deposit in the Reserve Account. The Trustee shall be fully protected in following the investment instructions of the Servicer, and shall have no obligation for keeping the funds fully invested at all times or for making any investments other than in accordance with such written investment instructions. If no investment instructions are received from the Servicer, the Trustee is authorized to invest the funds in Permitted Investments described in clause (v) of the definition thereof. In no event shall the Trustee be liable for any investment losses incurred in connection with the investment of funds on deposit in the Reserve Account by the Trustee pursuant to this Indenture.

        (f)    Deposit Irrevocable.    Any deposit made into the Reserve Account hereunder shall, except as otherwise provided herein, be irrevocable and the amount of such deposit and any money, instruments, investment property, or other property credited to, carried in, or deposited in the Reserve Account hereunder and all interest thereon shall be held in trust by the Trustee and applied solely as provided herein.

        Section 3.6    Interest Rate Swap.    

        (a)   The Issuer shall enter into the Interest Rate Swap, certain terms of which are set forth herein for the convenience of the parties thereto for incorporation therein by reference, with the Swap Counterparty on the Closing Date. The Interest Rate Swap shall have a termination date which is the earliest of December 15, 2015 or when the notional amount thereunder has been reduced to zero, subject to early termination in accordance with the terms of the Interest Rate Swap. The Interest Rate Swap shall have a notional amount for each Interest Accrual Period equal to the Adjusted Principal Amount of the Class A-2 Notes as of the close of business on the first day of such Interest Accrual Period. Under the Interest Rate Swap, the Issuer shall be the fixed rate payer and shall pay a fixed rate of 3.20% and the Swap Counterparty shall be the floating rate payer and shall pay a floating rate of LIBOR plus 0.45%. Pursuant to the terms of the Interest Rate Swap, the Swap Counterparty shall pay to the Trustee, on behalf of the Issuer, on each Payment Date, the Net Swap Receipt, if any, plus the amount of any Net Swap Receipt due but not paid with respect to any previous Payment Date. The Trustee shall deposit such Net Swap Receipts, if any, into the Collection Account and shall apply such amounts as Available Funds pursuant to subsection 3.1 of this Indenture. In addition, in accordance with the terms of the Interest Rate Swap, the Issuer shall pay to the Swap Counterparty the Net Swap Payment, if any, for such Payment Date, plus the amount of any Net Swap Payment due but not paid on any previous Payment Date, from amounts available pursuant to provision THIRD of subsection 3.1(a).

        (b)   Following the termination of the Interest Rate Swap pursuant to the terms thereof, the Swap Counterparty shall pay to the Trustee for the benefit of the Issuer the amount of the Termination

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Receipt, if any, to be made by the Swap Counterparty pursuant to the Interest Rate Swap. The Trustee shall, promptly upon receipt of any such Termination Receipt, if any, at the written direction of the Servicer, deposit such Termination Receipt into the Collection Account to be applied as Available Funds.

        (c)   Following the termination of the Interest Rate Swap pursuant to the terms thereof, the Issuer shall pay to the Swap Counterparty the amount of the Termination Payment, if any, to be made by the Issuer pursuant to the Interest Rate Swap to the extent of funds available therefore under provision TENTH of subsection 3.1(a), if applicable, or provision FIFTEENTH, if applicable, or if a Sequential Order Event has occurred and is continuing, as provided in subsection 3.1(b).

        (d)   The Interest Rate Swap shall provide that if a Ratings Event (as defined below) shall occur and be continuing with respect to the Swap Counterparty, then the Swap Counterparty shall (A) within five Business Days of such Ratings Event, give notice to the Issuer of the occurrence of such Ratings Event, and (B) use reasonable efforts to transfer (at its own cost) the Swap Counterparty's rights and obligations under the Interest Rate Swap to another party, subject to satisfaction of the Rating Agency Condition solely in respect of the Class A-2 Notes. If a Ratings Event occurs, the Issuer, to the extent it has been notified of such event, shall notify the Trustee and the Servicer. Unless such a transfer by the Swap Counterparty has occurred within 20 Business Days after the occurrence of a Ratings Event, the Issuer shall demand that the Swap Counterparty post Eligible Collateral, as defined in the Interest Rate Swap, to secure the Issuer's exposure or potential exposure to the Swap Counterparty. The Eligible Collateral to be posted shall be subject to satisfaction of the Rating Agency Condition solely in respect of the Class A-2 Notes. Valuation and posting of Eligible Collateral shall be made as of each Payment Date as provided in the Interest Rate Swap. Notwithstanding the posting of Eligible Collateral, the Swap Counterparty shall continue to use reasonable efforts to transfer its rights and obligations under the Interest Rate Swap to an acceptable third party; provided, however, that the Swap Counterparty's obligations to find a transferee and to post Eligible Collateral shall remain in effect only for so long as a Ratings Event is continuing.

        (e)   The Interest Rate Swap shall provide that a "Ratings Event" will occur with respect to the Swap Counterparty if the long-term and short-term senior unsecured deposit ratings of the Swap Counterparty cease to be at least A and A-1 by S&P, or at least A1 and P-1 by Moody's, or at least A and F1 by Fitch, to the extent such obligations are rated by S&P or Moody's or Fitch.

        The Interest Rate Swap shall further provide that if the long-term and short-term senior unsecured deposit ratings of the Swap Counterparty cease to be at least A2 and P-1 by Moody's, then the Swap Counterparty shall not be entitled to post Eligible Collateral, as defined in the Interest Rate Swap, but rather shall be required to use reasonable efforts to transfer the Swap Counterparty's rights and obligations under the Interest Rate Swap to an eligible transferee within 20 Business Days of the publication date of such downgrade.

        If the Interest Rate Swap is terminated for any reason and no successor swap is entered into, the Servicer shall solicit bids from three or more prospective replacement swap counterparties for the price of a replacement swap agreement with a notional amount equal to the outstanding principal amount of the Class A-2 Notes. With the consent of Noteholders representing 51% or more of the Aggregate Principal Amount at such time, and upon satisfaction of the Rating Agency Condition solely in respect of the Class A-2 Notes, the Issuer will enter into such replacement swap agreement. If Noteholders representing 51% or more of the Aggregate Principal Amount do not consent to such replacement swap agreement, or if such Rating Agency Condition is not met, the Issuer will not enter into a replacement swap agreement.

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        Section 3.7    Custody of Permitted Investments and other Collateral.    

        The Trustee shall hold such of the Collateral (and any other collateral that may be granted to the Trustee) and the Permitted Investments (other than the Pledged Loans, the related Loan Files, or the related Timeshare Property) as consists of instruments, certificated securities, negotiable documents, money, goods, or tangible chattel paper in the State of New York or the State of North Carolina. The Trustee shall hold such of the Collateral (and any other collateral that may be granted to the Trustee) and the Permitted Investments (other than the Pledged Loans, the related Loan Files, or the related Timeshare Property) as constitutes investment property (other than certificated securities) through a securities intermediary, which securities intermediary shall agree with the Trustee that (I) such investment property shall at all times be credited to a securities account of the Trustee, (II) such securities intermediary shall treat the Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (III) all property credited to such securities account shall be treated as a financial asset, (IV) such securities intermediary shall comply with entitlement orders originated by the Trustee without the further consent of any other person or entity, (V) such securities intermediary will not agree with any person or entity other than the Trustee to comply with entitlement orders originated by any person or entity other than the Trustee, (VI) such securities accounts and the property credited thereto shall not be subject to any lien, security interest, encumbrance, or right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Trustee), (VII) such agreement shall be governed by the laws of the State of New York, and (VIII) the State of New York shall be the "securities intermediary's jurisdiction" of such securities intermediary for purposes of the New York Uniform Commercial Code (the "NYUCC"). The Trustee shall hold such of the Collateral (and any other collateral that may be granted to the Trustee) and the Permitted Investments (other than the Pledged Loans, the related Loan Files, or the related Timeshare Property) as constitutes a deposit account through a bank, which bank shall agree in writing with the Trustee and the Issuer that (i) such bank shall comply with instructions originated by the Trustee directing the disposition of the funds in the deposit account without further consent of any other person or entity, (ii) such bank will not agree with any person or entity other than the Trustee to comply with instructions originated by any person or entity other than the Trustee, (iii) such deposit account and the property credited thereto shall not be subject to any lien, security interest, encumbrance, or right of set-off in favor of such bank or anyone claiming through it (other than the Trustee), (iv) such agreement shall be governed by the laws of the State of New York, and (v) the State of New York shall be the "bank's jurisdiction" of such bank for purposes of Article 9 of the NYUCC. Terms used in this paragraph that are defined in the NYUCC and not otherwise defined herein shall have the meaning set forth in the NYUCC. Except as permitted by this paragraph, the Trustee shall not hold any part of the Collateral (or any other collateral that may be granted to the Trustee) or the Permitted Investments (other than the Pledged Loans, the related Loan Files, or the related Timeshare Property) through an agent or a nominee.


ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE ISSUER

        Section 4.1    Representations and Warranties Regarding the Issuer.    The Issuer hereby represents and warrants to the Trustee and the Collateral Agent on the date of execution of this Indenture as follows:

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        Section 4.2    Representations and Warranties Regarding the Loan Files.    The Issuer represents and warrants to each of the Trustee, the Collateral Agent, the Servicer and the Noteholders as to each Pledged Loan that:

        The representations and warranties of the Issuer set forth in this Section 4.2 shall be deemed to be remade without further act by any Person on and as of each date of substitution with respect to each Loan Granted by the Issuer on and as of each such date. The representations and warranties set forth in this Section 4.2 shall survive any Grant of the respective Loans by the Issuer.

        Section 4.3    Rights of Obligors and Release of Loan Files.    

        (a)   Notwithstanding any other provision contained in this Indenture, including the Collateral Agent's, the Trustee's and the Noteholders' remedies pursuant hereto and pursuant to the Collateral Agency Agreement, the rights of any Obligor to any Timeshare Property subject to a Pledged Loan

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shall, so long as such Obligor is not in default thereunder, be superior to those of the Collateral Agent, the Trustee and the Noteholders, and none of the Collateral Agent, the Trustee or the Noteholders, so long as such Obligor is not in default thereunder, shall interfere with such Obligor's use and enjoyment of the Timeshare Property subject thereto.

        (b)   If pursuant to the terms of this Indenture, the Collateral Agent or the Trustee shall acquire through foreclosure the Issuer's interest in any portion of the Timeshare Property subject to a Pledged Loan, the Collateral Agent and the Trustee hereby specifically agree to release or cause to be released any Timeshare Property from any Lien hereunder upon completion of all payments and the performance of all the terms and conditions required to be made and performed by such Obligor under such Pledged Loan, and each of the Collateral Agent and the Trustee hereby consents to any such release by, or at the direction of, the Collateral Agent.

        (c)   At such time as an Obligor has paid in full the purchase price or the requisite percentage of the purchase price for deeding pursuant to a Pledged Loan and has otherwise fully discharged all of such Obligor's obligations and responsibilities required to be discharged as a condition to deeding, the Servicer shall notify the Trustee by a certificate substantially in the form attached hereto as Exhibit E (which certificate shall include a statement to the effect that all amounts received in connection with such payment have been deposited in the Collection Account) of a Servicing Officer and shall request delivery to the Servicer from the Custodian of the related Loan Files. Upon receipt of such certificate and request or at such earlier time as is required by applicable law, the Trustee and the Collateral Agent (a) shall be deemed, without the necessity of taking any action, to have approved release by the Custodian of the Loan Files to the Servicer (in all cases in accordance with the provisions of the Custodial Agreement), (b) shall be deemed to approve the release by the Nominee of the related deed of title, and any documents and records maintained in connection therewith, to the Obligor as provided in the Title Clearing Agreement, provided that title to the Timeshare Property has not already been deeded to the Obligor and/or (c) shall execute such documents and instruments of transfer and assignment and take such other action as is necessary to release its interest in the Timeshare Property subject to deeding (in the case of any Pledged Loan which has been paid in full). The Servicer shall cause each Loan File or any document therein so released which relates to a Pledged Loan for which the Obligor's obligations have not been fully discharged to be returned to the Custodian for the sole benefit of the Collateral Agent when the Servicer's need therefor no longer exists.


ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE ISSUER;
ASSIGNMENT OF REPRESENTATIONS AND WARRANTIES

        Section 5.1    Representations and Warranties of the Issuer.    The Issuer hereby represents and warrants to the Trustee, the Collateral Agent and the Noteholders on the Closing Date as follows:

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        Section 5.2    Eligible Loans.    The Issuer hereby represents and warrants to the Trustee and the Collateral Agent that each of the Pledged Loans is an Eligible Loan. For purposes of this Indenture, the term "Eligible Loan" means a Loan purchased by the Issuer under the Series 2003-2 Term Purchase Agreement which has the following characteristics as of the Cut-Off Date:

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        Section 5.3    Assignment of Representations and Warranties.    The Issuer hereby assigns to the Trustee and the Collateral Agent all of its rights relating to the Pledged Loans and related Pledged Assets under the Series 2003-2 Term Purchase Agreement including the rights assigned to the Issuer by the Depositor of the Depositor's rights to payment due from the related Seller for repurchases of Defective Loans (as such term is defined in such Purchase Agreement) resulting from the breach of representations and warranties under such Purchase Agreement and the Depositor's rights under the First Guaranty Agreement.

        Section 5.4    Release of Defective Loans.    

        (a)    Deposit of Release Price or Substitution of Qualified Substitute Loan.    Subject to subsection (b) of this section, upon discovery by the Issuer or upon written notice from the Depositor or the Trustee that any Pledged Loan is a Defective Loan, the Issuer shall, within 90 days after the earlier of its discovery or receipt of notice thereof (i) if such Defective Loan constitutes a Defective Loan as defined in the Purchase Agreement pursuant to which the Depositor acquired such Defective Loan, direct the applicable Seller to perform its obligation under such Purchase Agreement to either (A) deposit the Release Price with the Trustee or (B) deliver to the Trustee one or more Qualified Substitute Loans in substitution for such Defective Loan and pay to the Trustee the Substitution Adjustment Amount, or (ii) if such Defective Loan does not constitute a Defective Loan as defined in the Purchase Agreement pursuant to which the Depositor acquired such Defective Loan, deposit the Release Price with the Trustee. If such Defective Loan constitutes a Defective Loan as defined in the Purchase Agreement pursuant to which the Depositor acquired such Defective Loan, then, notwithstanding any other provision of this Indenture, the Issuer shall have no obligation or liability with respect to such Defective Loan should the applicable Seller fail to perform its obligations under the Purchase Agreement with respect to such Defective Loan.

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        (b)    Substitution.    If under a Purchase Agreement, a Seller delivers a Qualified Substitute Loan for release of a Defective Loan, the Issuer shall execute a Supplemental Grant in substantially the form of Exhibit J hereto and deliver such Supplemental Grant to the Trustee and the Collateral Agent. Payments due with respect to Qualified Substitute Loans on or prior to the Calculation Date next preceding the date of substitution shall not be property of the Issuer, but, to the extent received by the Servicer, will be retained by the Servicer and remitted by the Servicer to the Seller on the next succeeding Payment Date. Payments due and other amounts received with respect to the Qualified Substitute Loans after the Calculation Date next preceding the date of substitution shall be property of the Issuer. Scheduled Payments due on a Defective Loan on or prior to the Calculation Date next preceding the date of substitution shall be property of the Issuer, and after such last day of the Due Period next preceding the date of substitution the Seller shall be entitled to retain all Scheduled Payments due thereafter and other amounts received in respect of such Defective Loan. The Issuer shall cause the Servicer to deliver a schedule of any Defective Loans so removed and Qualified Substitute Loans so substituted to the Trustee and the Collateral Agent and such schedule shall be an amendment to the Loan Schedule. Upon such substitution, the Qualified Substitute Loan or Qualified Substitute Loans shall be subject to the terms of this Indenture in all respects, the Issuer shall be deemed to have made the representations, and warranties with respect to each Qualified Substitute Loan set forth in Section 5.1 and 5.2 of this Indenture, in each case as of the date of substitution, and the Issuer shall be deemed to have made a representation and warranty that each Loan so substituted is a Qualified Substitute Loan as of the date of substitution. The provisions of Section 5.4(a) shall apply to any Qualified Substitute Loan as to which the Issuer has breached the Issuer's representations and warranties in Section 5.1 and 5.2 to the same extent as for any other Pledged Loan. In connection with the substitution of one or more Qualified Substitute Loans for one or more Defective Loans, the Servicer shall determine the Substitution Adjustment Amount. If such Defective Loan constitutes a Defective Loan as defined in the Purchase Agreement pursuant to which the Depositor acquired such Defective Loan, the Issuer shall direct the applicable Seller to perform its obligation under such Purchase Agreement to pay to the Trustee the Substitution Adjustment Amount in immediately available funds. Such Substitution Adjustment Amount shall be paid to the Trustee and treated as if it were a portion of the Release Price for the Defective Loan and included in Available Funds as such. If such Defective Loan constitutes a Defective Loan as defined in the Purchase Agreement pursuant to which the Depositor acquired such Defective Loan, then, notwithstanding any other provision of this Indenture, the Issuer shall have no obligation or liability to pay the Substitution Adjustment Amount with respect to such Defective Loan should the applicable Seller fail to perform its obligation under the Purchase Agreement to pay such Substitution Adjustment Amount to the Trustee.

        (c)    Release of Defective Loan.    If a Seller repurchases a Pledged Loan as a Defective Loan or provides a Qualified Substitute Loan and the related Substitution Adjustment Amount, if any, for a Defective Loan, then the Issuer shall automatically and without further action sell, transfer, assign, set over and otherwise convey to such Seller, without recourse, representation or warranty, all of the Issuer's right, title and interest in and to the related Defective Loan, the related Timeshare Property, the Loan File relating thereto and any other related Pledged Assets, all monies due or to become due with respect thereto and all Collections with respect thereto (including payments received from Obligors after the Calculation Date next preceding the date of transfer, subject to the payment of any Substitution Adjustment Amount). The Issuer shall execute such documents, releases and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the applicable Seller to effect the conveyance of such Defective Loan, the related Timeshare Property and related Loan File pursuant to this Section 5.4(c).

        Promptly after the repurchase of Defective Loans in respect of which the Release Price has been paid or a Qualified Substitute Loan has been provided, on such date, the Issuer shall direct the Servicer to delete such Defective Loans from the Loan Schedule.

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        The obligations of the Issuer set forth in Section 5.4(a) shall constitute the sole remedy against the Issuer with respect to any breach of the representations and warranties set forth in Section 5.2 available hereunder to the Trustee or the Collateral Agent.


ARTICLE VI

ADDITIONAL COVENANTS OF ISSUER

        Section 6.1    Affirmative Covenants.    The Issuer shall:

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        Section 6.2    Negative Covenants of the Issuer.    So long as any of the Notes are outstanding, the Issuer shall not:

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ARTICLE VII

SERVICING OF PLEDGED LOANS

        Section 7.1    Responsibility for Loan Administration.    The Servicer shall manage, administer, service and make collections on the Pledged Loans on behalf of the Trustee and Issuer. Without limiting the generality of the foregoing, but subject to all other provisions hereof, the Trustee and the Issuer grant to the Servicer a limited power of attorney to execute and the Servicer is hereby authorized and empowered to so execute and deliver, on behalf of itself, the Issuer and the Trustee or any of them,

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any and all instruments of satisfaction or cancellation or of partial or full release or discharge and all other comparable instruments with respect to the Pledged Loans, any related Mortgages and the related Timeshare Properties, but only to the extent deemed necessary by the Servicer.

        The Trustee, the Issuer and the Collateral Agent, at the request of a Servicing Officer, shall furnish the Servicer with any reasonable documents or take any action reasonably requested, necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder (subject, in the case of requests for documents contained in any Loan Files, to the requirements of Section 6.1(l)).

        FAC is hereby appointed as the Servicer until such time as any Service Transfer shall be effected under Article XII.

        Section 7.2    Standard of Care.    In managing, administering, servicing and making collections on the Pledged Loans pursuant to this Indenture, the Servicer will exercise that degree of skill and care consistent with Customary Practices and the Credit Standards and Collection Policies.

        Section 7.3    Records.    The Servicer shall, during the period it is Servicer hereunder, maintain such books of account, computer data files and other records as will enable the Trustee to determine the status of each Pledged Loan and will enable such Loan to be serviced in accordance with the terms of this Indenture by a Successor Servicer following a Service Transfer.

        Section 7.4    Loan Schedule.    The Servicer shall at all times maintain the Loan Schedule and provide to the Trustee, the Issuer, the Collateral Agent and the Custodian a current, complete copy of the Loan Schedule. The Loan Schedule may be in one or multiple documents including an original listing and monthly amendments listing changes.

        Section 7.5    Enforcement.    

        (a)   The Servicer will, consistent with Section 7.2, act with respect to the Pledged Loans in such manner as will maximize the receipt of Collections in respect of such Pledged Loans (including, to the extent necessary, instituting foreclosure proceedings against the Timeshare Property, if any, underlying a Pledged Loan or disposing of the underlying Timeshare Property, if any). The Servicer will diligently monitor the integration of the collection functions of FAC and Trendwest and to the extent the Servicer detects any deterioration in collections or any increase in delinquencies or defaults or other factors which indicate or might indicate any deterioration in collections, the Servicer will use its best efforts to determine the source of the problem and will use its best efforts to remedy such problem.

        (b)   The Servicer may sue to enforce or collect upon Pledged Loans, in its own name, if possible, or as agent for the Issuer. If the Servicer elects to commence a legal proceeding to enforce a Pledged Loan, the act of commencement shall be deemed to be an automatic assignment of the Pledged Loan to the Servicer for purposes of collection only. If, however, in any enforcement suit or legal proceeding it is held that the Servicer may not enforce a Pledged Loan on the grounds that it is not a real party in interest or a holder entitled to enforce the Pledged Loan, the Trustee on behalf of the Issuer shall, at the Servicer's expense, take such steps as the Servicer and the Trustee may mutually agree are necessary (such agreement not to be unreasonably withheld) to enforce the Pledged Loan, including bringing suit in its name or the name of the Issuer. The Servicer shall provide to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred thereby.

        (c)   The Servicer, upon notice to the Trustee, may grant to the Obligor on any Pledged Loan any rebate, refund or adjustment out of the appropriate Collection Account that the Servicer in good faith believes is required as a matter of law; provided that, on any Business Day on which such rebate, refund or adjustment is to be paid hereunder, such rebate, refund or adjustment shall only be paid to the extent of funds otherwise available for distribution from the Collection Account.

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        (d)   The Servicer will not extend, amend, waive or otherwise modify the terms of any Pledged Loan (other than in accordance with Customary Practices) or permit the rescission or cancellation of any Pledged Loan, whether for any reason relating to a negative change in the related Obligor's creditworthiness or inability to make any payment under the Pledged Loan or otherwise.

        (e)   The Servicer shall have discretion to sell the collateral which secures any Defaulted Loans free and clear of the Lien of this Indenture, in exchange for cash, in accordance with Customary Practices and Credit Standards and Collection Policies. All proceeds of any such sale of such collateral shall be deposited by the Servicer into the Collection Account.

        (f)    The Servicer shall not sell any Defaulted Loan or any collateral securing a Defaulted Loan to any Seller or Originator except for an amount at least equal to the fair market value thereof.

        (g)   Notwithstanding any other provision of this Indenture, the Servicer shall have no obligation to, and shall not, foreclose on the collateral securing any Pledged Loan unless the proceeds from such foreclosure will be sufficient to cover the expenses of such foreclosure. Notwithstanding any other provision of this Indenture, proceeds from the foreclosure by the Servicer on the collateral securing any Pledged Loans shall first be applied by the Servicer to reimburse itself for the expenses of such foreclosure, and any remaining proceeds shall be deposited into the Collection Account.

        Section 7.6    Trustee and Collateral Agent to Cooperate.    Upon request of a Servicing Officer, the Trustee and the Collateral Agent shall perform such other acts as are reasonably requested by the Servicer (including without limitation the execution of documents) and otherwise cooperate with the Servicer in enforcement of the Trustee's rights and remedies with respect to Pledged Loans.

        Section 7.7    Other Matters Relating to the Servicer.    The Servicer is hereby authorized and empowered to:

        Prior to the occurrence of an Event of Default hereunder, the Trustee agrees that it shall promptly follow the instructions of the Servicer duly given to withdraw funds from the Accounts.

        Section 7.8    Servicing Compensation.    As compensation for its servicing activities hereunder the Servicer shall be entitled to receive the Monthly Servicer Fee.

        Section 7.9    Costs and Expenses.    The costs and expenses incurred by the Servicer in carrying out its duties hereunder, including without limitation the fees and expenses incurred in connection with the enforcement of Pledged Loans, shall be paid by the Servicer and the Servicer shall be entitled to reimbursement hereunder from the Issuer as provided in Section 3.1. Failure by the Servicer to receive reimbursement shall not relieve the Servicer of its obligations under this Indenture.

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        Section 7.10    Representations and Warranties of the Servicer.    The Servicer hereby represents and warrants to the Trustee, the Collateral Agent and the Noteholders as of the date of this Indenture:

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        Section 7.11    Additional Covenants of the Servicer.    The Servicer further agrees as provided in this Section 7.11.

        (a)    Change in Payment Instructions to Obligors.    The Servicer will not add or terminate any bank as a Lockbox Bank from those listed in Schedule 3 to this Indenture or make any change in the instructions to Obligors regarding payments to be made to any Lockbox Bank, unless the Trustee shall have received (i) 30 Business Days' prior notice of such addition, termination or change and (ii) prior to the effective date of such addition, termination or change, (x) fully executed copies of the new or revised Lockbox Agreements executed by each new Lockbox Bank, the Issuer, the Trustee and the Servicer and (y) copies of all agreements and documents signed by either the Issuer or the respective Lockbox Bank with respect to any new Lockbox Account.

        (b)    Collections.    If the Servicer receives any Collections, the Servicer shall hold such Collections in trust for the benefit of the Trustee and deposit such Collections into a Lockbox Account or the Collection Account as soon as practicable but in any event within two Business Days following the Servicer's receipt thereof.

        (c)    Compliance with Requirements of Law.    The Servicer will maintain in effect all qualifications required under all relevant laws, rules, regulations and orders in order to service each Pledged Loan, and shall comply in all material respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties, and the servicing of the Pledged Loans (including without limitation the laws, rules and regulations of each state governing the sale of timeshare contracts).

        (d)    Protection of Rights.    The Servicer will take no action that would impair in any material respect the rights of any of the Collateral Agent or the Trustee in the Pledged Loans or any other Collateral, or violate the Collateral Agency Agreement.

        (e)    Credit Standards and Collection Policies.    The Servicer will comply in all material respects with the Credit Standards and Collection Policies and Customary Practices with respect to each Pledged Loan.

        (f)    Notice to Obligors.    The Servicer will ensure that the Obligor of each Pledged Loan either:

        (g)    Relocation of Servicer.    The Servicer shall at all times maintain each office from which it services Pledged Loans within the United States of America.

        (h)    Instruments.    The Servicer will not remove any portion of the Pledged Loans or other collateral that consists of money or is evidenced by an instrument, certificate or other writing (including

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any Pledged Loan) from the jurisdiction in which it is then held unless the Trustee has first received an Opinion of Counsel to the effect that the Lien created by this Indenture with respect to such property will continue to be maintained after giving effect to such action or actions; provided, however, that the Custodian, the Collateral Agent and the Servicer may remove Loans from such jurisdiction to the extent necessary to satisfy any requirement of law or court order, in all cases in accordance with the provisions of the Custodial Agreement, the Collateral Agency Agreement and this Indenture.

        (i)    Loan Schedule.    The Servicer will promptly amend the Loan Schedule to reflect terms or discrepancies that become known to the Servicer at any time.

        (j)    Segregation of Collections.    The Servicer will:

        (k)    Terminate or Reject Loans.    Except to the extent necessary to address defects in the sales process or in cases of exceptional hardship of the Obligor, and without limiting anything in subsection 6.2(b), the Servicer will not terminate any Pledged Loan prior to the end of the term of such Loan, whether such early termination is made pursuant to an equitable cause, statute, regulation, judicial proceeding or other applicable law, unless prior to such termination, the Issuer consents and any related Pledged Assets have been released from the Lien of this Indenture.

        (l)    Change in Business or Credit Standards and Collection Policies.    The Servicer will not make any change in the Credit Standards and Collection Policies or deviate from the exercise of Customary Practices, which change or deviation would materially impair the value or collectibility of any Pledged Loan.

        (m)    Keeping of Records and Books of Account.    The Servicer shall maintain and implement administrative and operating procedures (including without limitation an ability to recreate records evidencing the Pledged Loans in the event of the destruction or loss of the originals thereof) and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Pledged Loans (including without limitation records adequate to permit the daily identification of all Collections with respect to, and adjustments of amounts payable under, each Pledged Loan).

        (n)    Recordation of Collateral Assignments    The Servicer will cause the collateral Assignment of Mortgage to the Collateral Agent to be perfected as provided in the Fairfield Master Loan Purchase Agreement, except that the Servicer shall not be required to file or cause the filing of such collateral Assignment of Mortgage to the extent (a) the related Timeshare Property is located in the State of Florida and the Servicer shall have received an Opinion of Counsel to the effect that recordation of the Assignment of Mortgage is not necessary to perfect a security interest therein in favor of the Collateral Agent and (b) the long-term debt rating assigned by Moody's to the obligations of Cendant has not been withdrawn or reduced below Baa1. If the Servicer is unable to obtain the opinion described in clause (a) of the preceding sentence or if the rating described in clause (b) is withdrawn or reduced,

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then the Servicer will take or cause to be taken such action as is required to record the Assignment of Mortgage with respect to the Timeshare Properties located in the State of Florida.

        Section 7.12    Servicer not to Resign.    

        The entity then serving as Servicer shall not resign from the obligations and duties hereby imposed on it hereunder except upon determination that (i) the performance of its duties hereunder is no longer permissible under applicable law, (ii) there is no reasonable action which can be taken to make the performance of its duties hereunder permissible under applicable law and (iii) a Successor Servicer shall have been appointed and accepted the duties as Servicer pursuant to Section 12.2. Any such determination permitting the resignation of the Servicer pursuant to clause (i) of the preceding sentence shall be evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation shall be effective until a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 12.2.

        Section 7.13    Merger or Consolidation of, or Assumption of the Obligations of Servicer.    

        The Servicer shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person unless:

        Section 7.14    Examination of Records.    Each of the Issuer and the Servicer shall clearly and unambiguously identify each Pledged Loan in its respective computer or other records to reflect that such Pledged Loan has been Granted to the Collateral Agent pursuant to this Indenture. Each of the Issuer and the Servicer shall, prior to the sale or transfer to a third party of any Loan similar to the Pledged Loans held in its custody, examine its computer and other records to determine that such Loan is not a Pledged Loan.

        Section 7.15    Subservicing Agreements; Delegation of Duties.    

        (a)   Notwithstanding anything to the contrary in subsection 7.15(b), the Servicer, including any Successor Servicer, may enter into the Subservicing Agreements with the Subservicers for the servicing and administration of all or a part of the Pledged Loans for which the Servicer is responsible hereunder, provided that, in each case, the Subservicing Agreement is not inconsistent with this Indenture. References in this Indenture to actions taken or to be taken by the Servicer include actions taken or to be taken by a Subservicer. As part of its servicing activities hereunder, the Servicer shall monitor the performance and enforce the obligations of each Subservicer retained by it under the

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related Subservicing Agreement. Subject to the terms of the Subservicing Agreement, the Servicer shall have the right to remove a Subservicer retained by it at any time it considers to be appropriate provided that no Subservicer shall be removed unless Cendant has given its prior written consent to the Servicer and the Trustee. Upon the resignation or removal of a Servicer, all Subservicing Agreements shall also be terminated unless accepted or reaffirmed by the Successor Servicer.

        Notwithstanding anything to the contrary contained herein, or any Subservicing Agreement, the Servicer shall remain obligated and liable to the Trustee, the Issuer, the Collateral Agent and the Noteholders for the servicing and administration of the Pledged Loans in accordance with the provisions of this Indenture to the same extent and under the same terms and conditions as if it alone were servicing and administering the Pledged Loans.

        The fees of a Subservicer shall be the obligation of the Servicer and neither the Issuer nor any other Person shall bear any responsibility for such fees.

        (b)   In the ordinary course of business, the Servicer, including any Successor Servicer, and each Subservicer may at any time delegate any duties hereunder to any Person who agrees to conduct such duties in accordance with the terms of this Indenture. Any such delegations shall not constitute a resignation within the meaning of Section 7.12 of this Indenture. Notwithstanding anything to the contrary contained herein, or in any agreement relating to such delegations, the Servicer shall remain obligated and liable to the Trustee, the Issuer, the Collateral Agent and the Noteholders for the servicing and administration of the Pledged Loans in accordance with the provisions of this Indenture to the same extent and under the same terms and conditions as if it alone were servicing and administering the Pledged Loans.

        Section 7.16    Servicer Advances.    On or before each Determination Date the Servicer may deposit into the Collection Account an amount equal to the aggregate amount of Servicer Advances, if any, with respect to Scheduled Payments on Pledged Loans for the preceding Due Period which are not received on or prior to such Payment Date. Such Servicer Advances shall be included as Available Funds. Neither the Servicer, any Successor Servicer nor the Trustee, acting as Servicer, shall have any obligation to make any Servicer Advance and may refuse to make a Servicer Advance for any reason or no reason. The Servicer shall not make any Servicer Advance that, after reasonable inquiry and in its sole discretion, it determines is unlikely to be ultimately recoverable from subsequent payments or collections or otherwise with respect to the Pledged Loan with respect to which such Servicer Advance is proposed to be made.


ARTICLE VIII

REPORTS

        Section 8.1    Monthly Servicing Report.    On or before the Determination Date prior to each Payment Date, the Servicer shall deliver to the Trustee, the Issuer and S&P a Monthly Servicing Report in a form substantially like that attached as Exhibit G to this Indenture with such additions as the Trustee may from time to time request and containing information necessary to make payments and transfer funds as provided in Sections 3.1 and 3.4 of this Indenture. Each Monthly Servicing Report shall be accompanied by a certificate of a Servicing Officer substantially in the form of Exhibit G certifying the accuracy of such report and that no Event of Default or event that with the giving of notice or lapse of time or both would become an Event of Default has occurred, or if such event has occurred and is continuing, specifying the event and its status. Such certificate shall state whether or not a Sequential Order Event has occurred and shall also identify which, if any, Pledged Loans have been identified as Defective Loans or have become Defaulted Loans during the preceding Due Period and if a Cash Accumulation Event has occurred.

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        Section 8.2    Other Data.    In addition, the Servicer shall at the reasonable request of the Trustee, the Issuer or a Rating Agency, furnish to the Trustee, the Issuer or such Rating Agency such underlying data as can be generated by the Servicer's existing data processing system without undue modification or expense; provided, however, nothing in this Section 8.2 shall permit any of the Trustee, the Issuer or any Rating Agency to materially change or modify the ongoing data reporting requirements under this Article VIII.

        Section 8.3    Annual Servicer's Certificate.    The Servicer will deliver to the Issuer, the Trustee and each Rating Agency within forty-five (45) days after the end of each fiscal year, beginning with the fiscal year ending December 31, 2004, an Officer's Certificate substantially in the form of Exhibit H stating that (a) a review of the activities of the Servicer during the preceding calendar year (or, in the case of the first such Officer's Certificate, the period since the Closing Date) and of its performance under this Indenture during such period was made under the supervision of the officer signing such certificate and (b) to the Servicer's knowledge, based on such review, the Servicer has fully performed all of its obligations under this Indenture for the relevant time period, or, if there has been a default in the performance of any such obligation, specifying each such default known to such officer and the nature and status thereof.

        Section 8.4    Notices to FAC.    In the event that FAC is not acting as Servicer, any Successor Servicer appointed and acting pursuant to Section 12.2 shall deliver or make available to FAC each certificate and report required to be prepared, forwarded or delivered thereafter pursuant to the provisions of this Article VIII.

        Section 8.5    Tax Reporting.    The Trustee shall file or cause to be filed with the Internal Revenue Service and furnish or cause to be furnished to Noteholders Information Reporting Forms 1099, together with such other information reports or returns at the time or times and in the manner required by the Code consistent with the treatment of the Notes as indebtedness of the Issuer for federal income tax purposes.


ARTICLE IX

LOCKBOX ACCOUNTS

        Section 9.1    Lockbox Accounts.    The Issuer has established or has caused to be established and shall maintain or cause to be maintained a system of operations, accounts and instructions with respect to the Obligors and Lockbox Accounts at the Lockbox Banks as described in Sections 4.1(i) and 6.1. Pursuant to the Lockbox Agreement to which it is party, each Lockbox Bank shall be irrevocably instructed to initiate an electronic transfer of all funds on deposit in the relevant Lockbox Account or to the extent the Lockbox Account is operated under an intercreditor agreement all funds in the Lockbox Account that are derived from Pledged Loans, to the Collection Account on the Business Day on which such funds become available. Prior to the occurrence of an Event of Default, the Trustee shall be authorized to allow the Servicer to effect or direct deposits into the Lockbox Accounts. The Trustee is hereby irrevocably authorized and empowered, as the Issuer's attorney-in-fact, to endorse any item deposited in a Lockbox Account, or presented for deposit in any Lockbox Account or the Collection Account, requiring the endorsement of the Issuer, which authorization is coupled with an interest and is irrevocable.

        All funds in each Lockbox Account shall be transferred daily by or upon the order of the Trustee by electronic funds transfer or intra-bank transfer to the Collection Account.

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ARTICLE X

INDEMNITIES

        Section 10.1    Liabilities to Obligors.    No obligation or liability to any Obligor under any of the Pledged Loans is intended to be assumed by the Trustee or the Noteholders under or as a result of this Indenture and the transactions contemplated hereby and, to the maximum extent permitted by law, the Trustee and the Noteholders expressly disclaim any such obligation and liability.

        Section 10.2    Tax Indemnification.    The Issuer agrees to pay, and to indemnify, defend and hold harmless the Trustee, the Noteholders and the Swap Counterparty from, any taxes which may at any time be asserted with respect to, and as of the date of, the Grant of the Pledged Loans to the Collateral Agent for the benefit of the Trustee, the Noteholders and the Swap Counterparty, including without limitation any sales, gross receipts, general corporation, personal property, privilege or license taxes (but not including any federal, state or other income or intangible asset taxes arising out of the issuance of the Notes or distributions with respect thereto, other than any such intangible asset taxes in respect of a jurisdiction in which the indemnified person is not otherwise subject to tax on its intangible assets) and costs, expenses and reasonable counsel fees in defending against the same.

        Section 10.3    Servicer's Indemnities.    Each entity serving as Servicer shall defend and indemnify the Issuer and the Trustee against any and all costs, expenses, losses, damages, claims and liabilities, including reasonable fees and expenses of counsel and expenses of litigation, in respect of any action taken, or failure to take any action by such entity as Servicer (but not by any predecessor or successor Servicer) with respect to this Indenture or any Pledged Loan; provided, however, such indemnity shall apply only in respect of any negligent action taken, or negligent failure to take any action, or reckless disregard of duties hereunder, or bad faith or willful misconduct by the Servicer. This indemnity shall survive any Service Transfer (but a Servicer's obligations under this Section 10.3 shall not relate to any actions of any Successor Servicer after a Service Transfer) and any payment of the amount owing hereunder or any release by the Issuer of any such Pledged Loan.

        Section 10.4    Operation of Indemnities.    Indemnification under this Article X shall include without limitation reasonable fees and expenses of counsel and expenses of litigation. If the Servicer has made any indemnity payments to the Trustee, the Noteholders, the Swap Counterparty or the Issuer pursuant to this Article X and if either the Trustee or the Issuer thereafter collect any of such amounts from others, the Trustee, the Noteholders, the Swap Counterparty or the Issuer will promptly repay such amounts collected to the Servicer without interest.


ARTICLE XI

EVENTS OF DEFAULT

        Section 11.1    Events of Default.    If any one of the following events shall occur:

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THEN, with respect to the event described in subparagraph (d), an Event of Default shall occur as of the date of such event and with respect to each of the events described in subparagraphs (a), (b), (c), (e) and (f) an Event of Default shall occur upon the occurrence of the event, the passage of the applicable grace period, if any and the declaration that such event shall constitute an Event of Default which declaration shall be made by the Trustee or the Holders of at least 25% of the Aggregate Principal Amount of the Notes. If an Event of Default has occurred, it shall continue unless waived in writing by the Holders of at least 50% of the Aggregate Principal Amount of the Notes.

        Promptly after the automatic occurrence of an Event of Default, and, in any event, within two Business Days thereafter, the Trustee shall notify each Noteholder and each Rating Agency of the occurrence thereof to the extent a Responsible Officer of the Trustee has actual knowledge thereof based upon receipt of written information or other communication.

        Section 11.2    Acceleration of Maturity; Rescission and Annulment.    

        (a)   If any Event of Default occurs under subparagraph (d) of Section 11.1, the principal of each Class of Notes then outstanding, together with accrued and unpaid interest thereon, will automatically be accelerated and become immediately due and payable. If any other Event of Default occurs, the Majority Holders of the Notes may accelerate the Notes by declaring the principal of all the Notes then

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outstanding, together with accrued and unpaid interest thereon to be immediately due and payable, by a notice in writing to the Issuer, the Trustee and the Swap Counterparty and upon any such declaration such principal and interest shall become immediately due and payable.

        (b)   At any time after such an acceleration or declaration of acceleration of the Notes has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as provided in this Indenture, such acceleration may be rescinded by the Holders of at least 50% of the Aggregate Principal Amount by written notice to the Issuer, the Trustee and the Swap Counterparty. No such rescission shall affect any subsequent Event of Default or impair any right consequent thereon.

        (c)   If an Event of Default has occurred and the Notes have been accelerated, payments will continue to be made in accordance with the Priority of Payment unless a Sequential Order Event has also occurred, in which case payments will be made as provided in Section 3.1 upon the occurrence of a Sequential Order Event; provided, however, if the Trustee has sold the Collateral under this Indenture, then payments shall be made as provided in Section 11.7.

        Section 11.3    Collection of Indebtedness and Suits for Enforcement by Trustee.    The Issuer covenants that if the Notes of a Series are accelerated following the occurrence of an Event of Default, and such acceleration has not been rescinded and annulled, the Issuer shall, upon demand of the Trustee, pay to it, for the benefit of the Noteholders and the Swap Counterparty the whole amount then due and payable on the Notes for principal and interest, with interest upon the overdue principal and upon overdue installments of interest, as determined for each Class, and any amounts due to the Swap Counterparty, to the extent that payment of such interest shall be legally enforceable; and, in addition thereto, such further amount as shall be sufficient to cover the reasonable costs and expenses of collection, including the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; provided, however, the amount due under this Section 11.3 shall not exceed the aggregate proceeds from the sale of the relevant Collateral and amounts otherwise held by the Issuer and available for such purpose.

        Until such demand is made by the Trustee, the Issuer shall pay the principal of and interest on the Notes to the Trustee for the benefit of the registered Holders to be applied as provided in this Indenture, whether or not the Notes are overdue.

        If the Issuer fails to pay such amounts forthwith upon such demand, then the Trustee for the benefit of the Noteholders and the Swap Counterparty and as trustee of an express trust, may, with the prior written consent of or at the direction of the Majority Holders, institute suits in equity, actions at law or other legal, judicial or administrative proceedings (each, a "Proceeding") for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and may enforce the same against the Issuer and collect the monies adjudged or decreed to be payable in the manner provided by law out of the Collateral wherever situated. In the event a Proceeding shall involve the liquidation of Collateral, the Trustee shall pay all costs and expenses for such Proceeding and shall be reimbursed for such costs and expenses from the resulting liquidation proceeds. In the event that the Trustee determines that liquidation proceeds will not be sufficient to fully reimburse the Trustee, the Trustee shall receive indemnity satisfactory to it against such costs and expenses from the Noteholders (which indemnity may include, at the Trustee's option, consent by each Noteholder authorizing the Trustee to be reimbursed from amounts available in the Collection Account).

        If an Event of Default occurs and is continuing, the Trustee may, and with the prior written consent of or at the direction of the Majority Holders, shall, proceed to protect and enforce its rights and the rights of the Noteholders hereunder and under the Notes, by such appropriate Proceedings as are necessary to effectuate, protect and enforce any such rights, whether for the specific enforcement of any covenant, agreement, obligation or indemnity in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

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        Section 11.4    Trustee May File Proofs of Claim.    In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other Proceeding relative to the Issuer or the property of the Issuer or its creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise) shall be entitled and empowered, by intervention in such Proceeding or otherwise,

        (a)   to file a proof of claim for the whole amount of principal and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Noteholders allowed in such Proceeding, and

        (b)   to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same to the Noteholders;

and any receiver, assignee, trustee, liquidator or sequestrator (or other similar official) in any such Proceeding is hereby authorized by each Noteholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due to the Trustee under Article XIII.

        Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such Proceeding.

        Section 11.5    Remedies.    

        (a)   If an Event of Default shall have occurred and be continuing, the Trustee and the Collateral Agent (upon direction by the Trustee) may, with the prior written consent of or at the direction of the Majority Holders, do one or more of the following (subject to Section 11.6):

provided, however, that neither the Trustee nor the Collateral Agent may sell or otherwise liquidate the Collateral which constitutes Pledged Loans and Pledged Assets following an Event of Default other than an Event of Default described in this Indenture resulting from an Insolvency Event, unless either (i) the Holders of 100% of the Aggregate Principal Amount of the Notes then outstanding consent

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thereto, (ii) the proceeds of such sale or liquidation are sufficient to discharge in full the amounts then due and unpaid upon the Notes for principal and Accrued Interest and the fees and other amounts required to be paid prior to payment of amounts due on the Notes pursuant to Section 11.7 or (iii) the Holders of 662/3% of the Principal Amount of each Class consent thereto and the Trustee determines that the Collateral will not continue to provide sufficient funds for the payment of principal of, and interest on, the Notes as they would have become due if such Notes would not have been declared due and payable.

        For purposes of clause (ii) or clause (iii) of the preceding paragraph and Section 11.6, the Trustee may, but need not, obtain and rely upon an opinion of an independent accountant or an independent investment banking firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the distributions and other amounts receivable with respect to the Collateral to make the required payments of principal of and interest on the Notes, and any such opinion shall be conclusive evidence as to such feasibility or sufficiency. The Issuer shall bear the reasonable costs and expenses of any such opinion.

        (b)   In addition to the remedies provided in Section 11.5(a), the Trustee may, and at the request of the Majority Holders shall, institute a Proceeding in its own name and as trustee of an express trust solely to compel performance of a covenant, agreement, obligation or indemnity or to cure the representation or warranty or statement, the breach of which gave rise to the Event of Default; and the Trustee may enforce any equitable decree or order arising from such Proceeding.

        Section 11.6    Optional Preservation of Collateral.    If the Notes have been accelerated following an Event of Default and such acceleration and its consequences have not been rescinded and annulled, to the extent permitted by law, the Trustee may, and at the request of Holders of 662/3% of the Aggregate Principal Amount of the Notes shall, elect to retain the Collateral securing the Notes intact for the benefit of the Holders of the Notes and the Swap Counterparty and in such event it shall deposit all funds received with respect to the Collateral into the Collection Account and apply such funds in accordance with the payment priorities set forth in this Indenture, as if there had not been such an acceleration; provided that, the Trustee shall have determined that the distributions and other amounts receivable with respect to the Collateral are sufficient to provide the funds required to pay the principal of and interest on the Notes as and when such principal and interest would have become due and payable pursuant to the terms of this Indenture and of such Notes if there had not been a declaration of acceleration of maturity of the Notes.

        Until the Trustee has elected, or has determined not to elect, to retain the Collateral pursuant to this Section 11.6, the Trustee shall continue to apply all distributions received on such Collateral in accordance with this Indenture. If the Trustee determines to retain the Collateral as provided in this Section 11.6, such determination shall be deemed to be a rescission and annulment (but not a waiver) of the aforementioned Event of Default and its consequences pursuant to Section 11.2, but no such rescission and annulment shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.

        Section 11.7    Application of Monies Collected During Event of Default.    If the Notes have been accelerated following an Event of Default and such acceleration and its consequences have not been rescinded and annulled, and the Trustee has sold the Collateral, the proceeds collected by the Trustee pursuant to this Article XI or otherwise with respect to such Notes shall be applied as provided below:

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        Section 11.8    Limitation on Suits by Individual Noteholders.    Subject to Section 11.9, no Noteholder shall have any right to institute any Proceeding with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder or thereunder, unless:

it being understood and intended that no one or more Noteholders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Noteholders or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided.

        Section 11.9    Unconditional Rights of Noteholders to Receive Principal and Interest.    Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right,

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which right is absolute and unconditional, to receive payment of the principal and interest on such Note on or after the respective due dates thereof expressed in such Note or in this Indenture and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Noteholder.

        Section 11.10    Restoration of Rights and Remedies.    If the Trustee or any Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Noteholder, then and in every such case the Issuer, the Trustee and the Noteholders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Noteholders shall continue as though no such Proceeding had been instituted.

        Section 11.11    Waiver of Event of Default.    Prior to the Trustee's acquisition of a money judgment or decree for payment, in either case for the payment of all amounts owing by the Issuer in connection with this Indenture and the Notes issued thereunder the Holders of 50% or more of the Aggregate Principal Amount of Notes have the right to waive any Event of Default and its consequences.

        Upon any such waiver, such Event of Default shall cease to exist, and be deemed to have been cured, for every purpose of this Indenture but no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon.

        Section 11.12    Waiver of Stay or Extension Laws.    The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, on the basis of any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

        Section 11.13    Sale of Collateral.    

        (a)   The power to effect any sale (a "Sale") of any portion of the Collateral pursuant to Section 11.5 shall not be exhausted by any one or more Sales as to any portion of such Collateral remaining unsold, but shall continue unimpaired until the entire Collateral shall have been sold or all amounts payable on the Notes shall have been paid, whichever occurs later. The Trustee may from time to time postpone any Sale by public announcement made at the time and place of such Sale. The Trustee hereby expressly waives its right to any amount fixed by law as compensation for any Sale. The Trustee may reimburse itself from the proceeds of any sale for the reasonable costs and expenses incurred in connection with such sale. The net proceeds of such sale shall be applied as provided in this Indenture.

        (b)   The Trustee and the Collateral Agent shall execute and deliver an appropriate instrument of conveyance transferring its interest in any portion of the Collateral in connection with a Sale thereof. In addition, the Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the Issuer to transfer and convey the Issuer's interest in any portion of the Collateral in connection with a Sale thereof, and to take all action necessary to effect such Sale. No purchaser or transferee at such Sale shall be bound to ascertain the Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies.

        Section 11.14    Action on Notes.    The Trustee's right to seek and recover judgment on the Notes or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture. None of the rights or remedies of the Trustee or the Noteholders hereunder shall be impaired by the recovery of any judgment by the Trustee or any

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Noteholder against the Issuer or by the levy of any execution under such judgment upon any portion of the Collateral.

        Section 11.15    Control by Noteholders.    If an Event of Default has occurred and is continuing, the Majority Holders shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Trustee with respect to the Notes or exercising any trust or power conferred on the Trustee; provided that


ARTICLE XII

SERVICER DEFAULTS

        Section 12.1    Servicer Defaults.    If any one of the following events (each, a "Servicer Default") shall occur and be continuing:

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THEN, so long as such Servicer Default shall be continuing, either the Trustee, or the Majority Holders of all Notes by notice then given in writing to the Servicer, the Swap Counterparty, the Issuer and each Rating Agency (and to the Trustee if given by the Majority Holders) (a "Termination Notice"), may terminate all of the rights and obligations of the Servicer as Servicer under this Indenture (such termination being herein called a "Service Transfer"). After receipt by the Servicer and the Trustee of such Termination Notice and subject to the terms of Section 12.2(a), the Trustee shall automatically assume the responsibilities of the Servicer hereunder until the date that a Successor Servicer shall have been appointed pursuant to Section 12.2 and all authority and power of the Servicer under this Indenture shall pass to and be vested in the Trustee or such Successor Servicer, as the case may be, without further action on the part of any Person, and, without limitation, the Trustee at the direction of the Majority Holders is hereby authorized and empowered (upon the failure of the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of the Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights.

        The Servicer agrees to cooperate with the Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder, including without limitation the transfer to such Successor Servicer of all authority of the Servicer to service the Pledged Loans provided for under this Indenture, including without limitation all authority over any Collections which shall on the date of transfer be held by the Servicer for deposit in a Lockbox Account or which shall thereafter be received by the Servicer with respect to the Pledged Loans, and in assisting the Successor Servicer in enforcing all rights under this Indenture including, without limitation, allowing the Successor Servicer's personnel access to the Servicer's premises for the purpose of collecting payments on the Pledged Loans made at such premises. The Servicer shall promptly transfer its electronic records relating to the Pledged Loans to the Successor Servicer in such electronic form as the Successor Servicer may reasonably request and shall promptly transfer to the Successor Servicer all other records, correspondence and documents necessary for the continued servicing of the Pledged Loans in the manner and at such times as the Successor Servicer shall reasonably request. The Servicer shall allow the Successor Servicer access to the Servicer's officers and employees. To the extent that compliance with this Section 12.1 shall require the Servicer to disclose to the Successor Servicer information of any kind which the Servicer reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as the Servicer shall deem necessary to protect its interest and as shall be satisfactory in form and substance to the Successor Servicer. The Servicer hereby consents to the entry against it of an order for preliminary, temporary or permanent injunctive relief by any court of competent jurisdiction, to ensure compliance by the Servicer with the provisions of this paragraph.

        Section 12.2    Appointment of Successor.    

        (a)    Appointment.    On and after the receipt by the Servicer of a Termination Notice pursuant to Section 12.1, or any permitted resignation of the Servicer pursuant to Section 7.12, the Servicer shall continue to perform all servicing functions under this Indenture until the date specified in the Termination Notice or otherwise specified by the Trustee or until a date mutually agreed upon by the Servicer and the Trustee. Upon receipt by the Servicer of a Termination Notice, the Trustee shall as promptly as possible after the giving of a Termination Notice appoint a successor servicer (in any case, the "Successor Servicer") and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Trustee; provided that such appointment shall be subject to satisfaction of the Rating Agency Condition. In the event a Successor Servicer has not been appointed and accepted the appointment by the date of termination stated in the Termination Notice the Trustee

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shall automatically assume responsibility for performing the servicing functions under this Indenture on the date of such termination. In the event that a Successor Servicer has not been appointed and has not accepted its appointment and the Trustee is legally unable or otherwise not capable of assuming responsibility for performing the servicing functions under this Indenture, the Trustee shall petition a court of competent jurisdiction to appoint any established financial institution having a net worth of not less than $100,000,000 and whose regular business includes the servicing of receivables similar to the Pledged Loans or other consumer finance receivables; provided, however, pending the appointment of a Successor Servicer, the Trustee will act as the Successor Servicer.

        (b)    Duties and Obligations of Successor Servicer.    Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Indenture and shall be subject to all the responsibilities and duties relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Indenture to the Servicer shall be deemed to refer to the Successor Servicer.

        (c)    Compensation of Successor Servicer; Costs and Expenses of Servicing Transfer.    In connection with such appointment and assumption, the Trustee may make such arrangements for the compensation of the Successor Servicer. The costs and expenses of transferring servicing shall be paid by the Servicer which is resigning or being replaced and to the extent such costs and expenses are not so paid, shall be paid from Collections as provided herein in Sections 3.1 and 11.7.

        Section 12.3    Notification to Noteholders.    Upon the occurrence of any Servicer Default or any event which, with the giving of notice or passage of time or both, would become a Servicer Default, the Servicer shall give prompt written notice thereof to the Trustee and the Issuer and the Trustee shall give notice to the Noteholders at their respective addresses appearing in the Note Register and to the Swap Counterparty. Upon any termination or appointment of a Successor Servicer pursuant to this Article XII, the Trustee shall give prompt written notice thereof to the Issuer and to the Noteholders at their respective addresses appearing in the Note Register and to the Swap Counterparty.

        Section 12.4    Waiver of Past Defaults.    With respect to a Servicer Default described in Section 12.1, the Majority Holders of the Notes may, on behalf of all Holders, waive any default by the Servicer in the performance of its obligations hereunder and its consequences. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of this Indenture. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived.

        Section 12.5    Termination of Servicer's Authority.    All authority and power granted to the Servicer under this Indenture shall automatically cease and terminate upon termination of this Indenture pursuant to Section 12.1, and shall pass to and be vested in the Issuer and without limitation the Issuer is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights upon termination of this Indenture. The Servicer shall cooperate with the Issuer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing on the Pledged Loans. The Servicer shall transfer its electronic records relating to the Pledged Loans to the Issuer in such electronic form as Issuer may reasonably request and shall transfer all other records, correspondence and documents relating to the Pledged Loans to the Issuer in the manner and at such times as the Issuer shall reasonably request. To the extent that compliance with this Section 12.5 shall require the Servicer to disclose information of any kind which the Servicer deems to be confidential, the Issuer shall be required to enter into such customary licensing and confidentiality agreements as the Servicer shall deem necessary to protect its interests and as shall be reasonably satisfactory in form and substance to the Issuer.

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        Section 12.6    Matters Related to Successor Servicer.    

        The Successor Servicer will not be responsible for delays attributable to the Servicer's failure to deliver information, defects in the information supplied by the Servicer or other circumstances beyond the control of the Successor Servicer.

        The Successor Servicer will make arrangements with the Servicer for the prompt and safe transfer of, and the Servicer shall provide to the Successor Servicer, all necessary servicing files and records, including (as deemed necessary by the Successor Servicer at such time): (i) microfiche loan documentation, (ii) servicing system tapes, (iii) Pledged Loan payment history, (iv) collections history and (v) the trial balances, as of the close of business on the day immediately preceding conversion to the Successor Servicer, reflecting all applicable Pledged Loan information.

        The Successor Servicer shall have no responsibility and shall not be in default hereunder nor incur any liability for any failure, error, malfunction or any delay in carrying out any of its duties under this Indenture if any such failure or delay results from the Successor Servicer acting in accordance with information prepared or supplied by a Person other than the Successor Servicer or the failure of any such Person to prepare or provide such information. The Successor Servicer shall have no responsibility, shall not be in default and shall incur no liability (i) for any act or failure to act by any third party, including the Servicer, the Issuer or the Trustee or for any inaccuracy or omission in a notice or communication received by the Successor Servicer from any third party or (ii) which is due to or results from the invalidity, unenforceability of any Pledged Loan under applicable law or the breach or the inaccuracy of any representation or warranty made with respect to any Pledged Loan.

        If the Trustee or any other Successor Servicer assumes the role of Successor Servicer hereunder, such Successor Servicer shall be entitled to appoint Subservicers whenever it shall be deemed necessary by such Successor Servicer.


ARTICLE XIII

THE TRUSTEE; THE COLLATERAL AGENT; THE CUSTODIAN

        Section 13.1    Duties of Trustee.    

        (a)   The Trustee, prior to the occurrence of an Event of Default of which a Responsible Officer of the Trustee shall have actual knowledge and after the curing of all such Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. If an Event of Default of which a Responsible Officer of the Trustee shall have actual knowledge has occurred and has not been cured or waived, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent institutional trustee would exercise or use under the circumstances in the conduct of such institution's own affairs. The Trustee is hereby authorized and empowered to make the withdrawals and payments from the Accounts in accordance with the instructions set forth in this Indenture until the termination of this Indenture in accordance with Section 14.1 unless this appointment is earlier terminated pursuant to the terms hereof.

        (b)   The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Indenture, shall examine them to determine whether they conform to such requirements; provided, however, that the Trustee shall not be responsible for the accuracy or content of any resolution, certificate, statement, opinion, report, document, order or other instrument furnished by the Servicer, the Issuer or any other Person hereunder (other than the Trustee). The Trustee shall give prompt written notice to the Noteholders of any material lack of conformity of any such instrument to the applicable requirements of this Indenture discovered by the Trustee.

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        (c)   Subject to Section 13.1(a), no provision of this Indenture shall be construed to relieve the Trustee from liability for its own gross negligence, reckless disregard of its duties, bad faith or misconduct; provided, however, that:

        (d)   The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it (which adequate indemnity may include, at the Trustee's option, consent by the Majority Holders authorizing the Trustee to be reimbursed for any funds from amounts available in the Collection Account for such Series), and none of the provisions contained in this Indenture shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under this Indenture except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Indenture.

        (e)   Except for actions expressly authorized by this Indenture, the Trustee shall take no action reasonably likely to impair the interests of the Issuer in any Pledged Loan now existing or hereafter created or to impair the value of any Pledged Loan now existing or hereafter created.

        (f)    Except as provided in this Indenture, the Trustee shall have no power to dispose of or vary any Collateral.

        (g)   In the event that the Note Registrar shall fail to perform any obligation, duty or agreement in the manner or on the day required to be performed by the Note Registrar, as the case may be, under this Indenture, the Trustee (if it is not then the Note Registrar) shall be obligated promptly to perform such obligation, duty or agreement in the manner so required.

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        (h)   The Trustee shall have no duty to (A) see to any recording, filing or depositing of this Indenture or any agreement referred to herein or any financing statement or continuation statement evidencing a security interest, or to see to the maintenance of any such recording or filing or depositing or to any rerecording, refiling or redepositing of any thereof, (B) see to any insurance, (C) see to the payment or discharge of any tax, assessment, or other governmental charge or any lien or encumbrance of any kind owing with respect to, assessed or levied against, any part of any Collateral other than from funds available in the Collection Account, or (D) confirm or verify the contents of any reports or certificates of the Servicer delivered to the Trustee pursuant to this Indenture believed by the Trustee to be genuine and to have been signed or presented by the proper party or parties.

        Section 13.2    Certain Matters Affecting the Trustee.    Except for its own gross negligence, reckless disregard of its duties, bad faith or misconduct:

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        Section 13.3    Trustee Not Liable for Recitals in Notes or Use of Proceeds of Notes.    The Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Notes (other than the certificate of authentication on the Notes) or for any statements, representations or warranties made herein by any Person other than the Trustee (except as expressly set forth herein). Except as set forth in Section 13.14, the Trustee makes no representations as to the validity, enforceability or sufficiency of this Indenture or of the Notes (other than the certificate of authentication on the Notes) or of any Pledged Loan or related document. The Trustee shall not be accountable for the use or application of funds properly withdrawn from any Account on the instructions of the Servicer or for the use or application by the Issuer of the proceeds of any of the Notes, or for the use or application of any funds paid to the Issuer in respect of the Pledged Loans. The Trustee shall not be responsible for the legality or validity of this Indenture or the validity, priority, perfection or sufficiency of the security for the Notes issued or intended to be issued hereunder. The Trustee shall have no responsibility for filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder or to record this Indenture.

        Section 13.4    Trustee May Own Notes; Trustee in its Individual Capacity.    Wachovia Bank, National Association, in its individual or any other capacity, may become the owner or pledgee of Notes with the same rights as it would have if it were not the Trustee. Wachovia Bank, National Association and its Affiliates may generally engage in any kind of business with the Issuer or the Servicer as though Wachovia Bank, National Association were not acting in such capacity hereunder and without any duty to account therefor. Nothing contained in this Indenture shall limit in any way the ability of Wachovia Bank, National Association and its Affiliates to act as a trustee or in a similar capacity for other interval ownership and lot contract and installment note financings pursuant to agreements similar to this Indenture.

        Section 13.5    Trustee's Fees and Expenses; Indemnification.    The Trustee shall be entitled to receive from time to time pursuant to this Indenture and the Trustee Fee Letter, (a) such compensation as shall be agreed to between the Issuer and the Trustee (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties hereunder as the Trustee and to be reimbursed for its out-of-pocket expenses (including reasonable attorneys' fees), incurred or paid in establishing, administering and carrying out its duties under this Indenture or the Collateral Agency Agreement and (b) subject to Section 10.3, the Issuer and the Servicer agree, jointly and severally, to pay, reimburse, indemnify and hold harmless the Trustee (without reimbursement from any Account or otherwise) upon its request for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or

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disbursements of any kind whatsoever (including without limitation fees, expenses and disbursements of counsel) which may at any time (including without limitation at any time following the termination of this Indenture and payment on account of the Notes) be imposed on, incurred by or asserted against the Trustee in any way relating to or arising out of this Indenture, the Collateral Agency Agreement or any other Transaction Document to which the Trustee is a party or the transactions contemplated hereby or any action taken or omitted by the Trustee under or in connection with any of the foregoing except for those liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence, reckless disregard of its duties, bad faith or willful misconduct of the Trustee and except that if the Trustee is appointed Successor Servicer pursuant to Section 10.2, the provisions of this Section 13.5 shall not apply to expenses, disbursements and advances made or incurred by the Trustee in its capacity as Successor Servicer. The agreements in this Section 13.5 shall survive the termination of this Indenture, the resignation or removal of the Trustee and all amounts payable on account of the Notes.

        Anything in this Indenture to the contrary notwithstanding, in no event shall the Trustee be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

        Section 13.6    Eligibility Requirements for Trustee.    The Trustee hereunder (if other than Wachovia Bank, National Association) shall at all times be an Eligible Institution and a corporation or banking association organized and doing business under the laws of the United States of America or any state thereof authorized under such laws to exercise corporate trust powers, and such Trustee (including Wachovia Bank, National Association) shall have a combined capital and surplus of at least $25,000,000 (or, in the case of a successor to the initial Trustee, $100,000,000) and subject to supervision or examination by federal or state authority. If such corporation or banking association publishes reports of condition at least annually, pursuant to law or to the requirements of federal or state supervising or examining authority, then for the purpose of this Section 13.6, the combined capital and surplus of such corporation or banking association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 13.6, the Trustee shall resign immediately in the manner and with the effect specified in Section 13.7.

        Section 13.7    Resignation or Removal of Trustee.    

        (a)   The Trustee may at any time resign and be discharged from the trust hereby created by giving 60 days prior written notice thereof to the Issuer, the Swap Counterparty, the Servicer, the Noteholders and each Rating Agency. Upon receiving such notice of resignation, the Issuer shall promptly arrange to appoint a successor trustee meeting the requirements of Section 13.6 and the Servicer shall notify the Trustee, the Swap Counterparty and each Rating Agency of such appointment by written instrument, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor Trustee. If no successor Trustee shall have been so appointed and have accepted within 30 days after the giving of such notice of resignation, a successor Trustee shall be appointed by Majority Holders (with notice to the Swap Counterparty). The successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the Trustee. If no successor Trustee shall have been so appointed by the Issuer or the Noteholders and shall have accepted appointment in the manner hereinafter provided, any Noteholder, on behalf of itself and all others similarly situated, or the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.

        (b)   If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 13.6 and shall fail to resign after written request therefor by the Issuer or the Servicer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a

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receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Issuer or the Majority Holders may remove the Trustee and promptly appoint a successor Trustee by written instrument, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor Trustee.

        (c)   At any time the Majority Holders may remove the Trustee and promptly appoint a successor Trustee by written instrument, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor Trustee.

        (d)   Any resignation or removal of the Trustee and appointment of a successor Trustee pursuant to any of the provisions of this Section 13.7 shall not become effective until acceptance of appointment by the successor Trustee as provided in Section 13.8.

        Section 13.8    Successor Trustee.    

        (a)   Any successor Trustee, appointed as provided in Section 13.7, shall execute, acknowledge and deliver to the Issuer, the Servicer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor Trustee all money, documents and other property held by it hereunder; and Issuer and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Trustee all such rights, power, duties and obligations.

        (b)   No successor Trustee shall accept appointment as provided in this Section 13.8 unless at the time of such acceptance such successor Trustee shall be eligible under the provisions of Section 13.6.

        (c)   Upon acceptance of appointment by a successor Trustee as provided in this Section 13.8, such successor Trustee shall mail notice of such succession hereunder to the Trustee, the Issuer, the Swap Counterparty, the Servicer and all Noteholders at their addresses as shown in the Note Register.

        Section 13.9    Merger or Consolidation of Trustee.    Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided, such corporation shall be eligible under the provisions of Section 13.6, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.

        Section 13.10    Appointment of Co-Trustee or Separate Trustee.    

        (a)   Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Collateral may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Collateral and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders and the Swap Counterparty, such title to the Collateral, or any part thereof, and subject to the other provisions of this Section 13.10, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 13.6 and no notice to the Noteholders of the appointment of any co-trustee or separate trustee shall be required under Section 13.8.

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        (b)   Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions:

        (c)   Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article XIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer.

        (d)   Any separate trustee or co-trustee may at any time constitute the Trustee its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or a successor trustee.

        Section 13.11    Trustee May Enforce Claims Without Possession of Notes.    All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the Noteholders in respect of which such judgment has been obtained.

        Section 13.12    Suits for Enforcement.    If an Event of Default or a Servicer Default shall occur and be continuing, the Trustee, in its discretion, may, subject to the provisions of Article XI and Section 12.1, proceed to protect and enforce its rights and the rights of the Noteholders under this Indenture by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Indenture or in aid of the execution of any power granted in this Indenture or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Noteholders.

        Section 13.13    Rights of Noteholders to Direct the Trustee.    The Majority Holders shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to

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the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that, subject to Section 13.1, the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unduly prejudicial to the rights of Noteholders not parties to such direction, or if the Trustee has not been offered reasonable security or indemnity, as contemplated by Section 13.2, by such Holders; and provided further, that nothing in this Indenture shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction by the Noteholders.

        Section 13.14    Representations and Warranties of the Trustee.    The Trustee represents and warrants that:

        Section 13.15    Maintenance of Office or Agency.    The Trustee will maintain at its expense in The City of New York, State of New York, an office or offices or agency or agencies where notices and demands to or upon the Trustee in respect of the Notes and this Indenture may be served. The Trustee will give prompt written notice to the Issuer, the Swap Counterparty, the Servicer and the Noteholders of any change in the location of any such office or agency.

        Section 13.16    No Assessment.    Wachovia Bank, National Association's agreement to act as Trustee hereunder shall not constitute or be construed as Wachovia Bank, National Association's assessment of the Issuer's or any Obligor's creditworthiness or a credit analysis of any Loans.

        Section 13.17    UCC Filings and Title Certificates.    The Trustee and the Noteholders expressly recognize and agree that the Collateral Agent may be listed as the secured party of record on the various Financing Statements required to be filed under this Indenture in order to perfect the security interest in the Collateral, and such listing will not affect in any way the respective status of the other secured parties under the Collateral Agency Agreement as the holders of their respective interests in other collateral. In addition, such listing shall impose no duties on the Collateral Agent other than those expressly and specifically undertaken in accordance with this Indenture and the Collateral Agency Agreement.

        Section 13.18    Replacement of the Custodian.    Each of the Issuer and the Servicer agree not to replace the Custodian unless the Rating Agency Condition has been satisfied with respect to such replacement.


ARTICLE XIV

TERMINATION

        Section 14.1    Termination of Agreement.    The respective obligations and responsibilities of the Issuer, the Servicer and the Trustee created hereby (other than the obligation of the Trustee to make payments to Noteholders as hereafter set forth) shall terminate (the "Termination Date") on the day

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after the Payment Date following the date on which funds shall have been deposited in the Collection Account sufficient to pay the Aggregate Principal Amount of all Notes plus all interest accrued on the Notes through the day preceding such Payment Date; provided that, all amounts required to be paid on such Payment Date pursuant to this Indenture shall have been paid.

        Section 14.2    Final Payment.    

        (a)   Written notice of any termination shall be given (subject to at least two Business Days' prior notice from the Servicer to the Trustee) by the Trustee to the Noteholders, the Swap Counterparty and each Rating Agency then rating any Notes mailed not later than the fifth day of the month of such final payment specifying (a) the Payment Date and (b) the amount of any such final payment. The Trustee shall give such notice to the Note Registrar at the time such notice is given to the Noteholders.

        (b)   On or after the final Payment Date, upon written request of the Trustee, the Noteholders shall surrender their Notes to the office specified in such request.

        Section 14.3    [Reserved].    

        Section 14.4    Release of Collateral.    Upon the termination of this Indenture pursuant to Section 14.1, the Trustee shall release all liens and assign to the Issuer (without recourse, representation or warranty) all right, title and interest of the Trustee in and to the Collateral and all proceeds thereof. The Trustee shall execute and deliver such instruments of assignment, in each case without recourse, representation or warranty, as shall be reasonably requested by the Issuer to release the security interest of the Trustee in the Collateral.

        Section 14.5    Release of Defaulted Loans.    

        (a)    Issuer May Obtain Release.    If any Pledged Loan becomes a Defaulted Loan during any Due Period, the Issuer may, subject to the limitation set forth in Section 14.5(d), obtain a release of such Pledged Loan from the Lien of this Indenture on any Payment Date thereafter. To obtain such release the Issuer shall be required either to (i) pay the Release Price of such Defaulted Loan to the Trustee for deposit into the Collection Account or (ii) deliver to the Trustee one or more Qualified Substitute Loans in substitution for such Defaulted Loan. The Issuer shall provide written notice to the Trustee and the Collateral Agent of any release pursuant to this Section 14.5 not less than two Business Days prior to the Payment Date on which such release is to be effected, specifying the Defaulted Loan and the Release Price therefor. The Issuer shall (i) pay the Release Price to the Trustee for deposit into the Collection Account not later than 12:00 noon, New York City time, on the Payment Date on which such release is made or (ii) deliver the Qualified Substitute Loan or Qualified Substitute Loans by 12:00 noon, New York City time, on the Payment Date on which such release is made and pay any Substitution Adjustment Amount to the Trustee for deposit into the Collection Account not later than 12:00 noon, New York City time, on such Release Date.

        (b)    Substitution.    If a Seller delivers to the Issuer a Qualified Substitute Loan or Qualified Substitute Loans in lieu of payment for the repurchase of a Defaulted Loan, the Issuer shall execute a Supplemental Grant in substantially the form of Exhibit J hereto and deliver such Supplemental Grant to the Trustee and the Collateral Agent. Payments due with respect to Qualified Substitute Loans on or prior to the Calculation Date next preceding the date of substitution shall not be property of the Issuer, but, to the extent received by the Servicer, will be retained by the Servicer and remitted by the Servicer to the Seller on the next succeeding Payment Date. Payments due with respect to the Qualified Substitute Loans after the Calculation Date next preceding the date of substitution shall be property of the Issuer. The Issuer shall cause the Servicer to deliver a schedule of any Defaulted Loans so removed and Qualified Substitute Loans so substituted to the Trustee and the Collateral Agent and such schedule shall be an amendment to the Loan Schedule. Upon such substitution, the Qualified Substitute Loan or Qualified Substitute Loans shall be subject to the terms of this Indenture in all respects, the Issuer shall be deemed to have made the representations, and warranties with respect to

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each Qualified Substitute Loan set forth in Section 5.1 and 5.2 of this Indenture, in each case as of the date of substitution, and the Issuer shall be deemed to have made a representation and warranty that each Loan so substituted is a Qualified Substitute Loan as of the date of substitution. The provisions of Section 5.4(a) shall apply to any Qualified Substitute Loan as to which the Issuer has breached the Issuer's representations and warranties in Section 5.1 and 5.2 to the same extent as for any other Pledged Loan. In connection with the substitution of one or more Qualified Substitute Loans for one or more Defaulted Loans, the Servicer shall determine the Substitution Adjustment Amount. Such Substitution Adjustment Amount shall be paid to the Trustee and treated as if it were a portion of the Release Price for the Defaulted Loan and included in Available Funds as such.

        (c)    Release of Defaulted Loans.    Upon each release of a Pledged Loan under this Section 14.5, the Collateral Agent and the Trustee shall automatically and without further action release, sell, transfer, assign, set over and otherwise convey to the Issuer, without recourse, representation or warranty, all of the Collateral Agent's and Trustee's right, title and interest in and to such Defaulted Loan and the Pledged Assets related thereto, all monies due or to become due with respect thereto and all Collections with respect thereto free and clear of the Lien of this Indenture. The Collateral Agent and the Trustee shall execute such documents, releases and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the Issuer to effect the release of such Defaulted Loans and the related Pledged Assets pursuant to this Section 14.5. Promptly after the occurrence of a Release Date and after the payment for or substitution for and release of a Defaulted Loan, in respect to which the Release Price has been paid or Qualified Substitute Loans have been provided, the Issuer shall direct the Servicer to delete such Defaulted Loans from the Loan Schedule.

        (d)    Limitations on Purchase of Defaulted Loans.    The amount of Defaulted Loans for which the Issuer is permitted to obtain a release and transfer to a Seller is limited as provided in the Fairfield Master Loan Purchase Agreement and the Trendwest Master Loan Purchase Agreement and as follows:

        Section 14.6    Release of Trendwest Timeshare Upgrades.    If a Trendwest Loan becomes a Trendwest Timeshare Upgrade, the Issuer, upon the written request of the Depositor and the receipt by the Issuer or the Trustee of the Release Price from or on behalf of the Depositor, shall obtain a release of such Pledged Loan from the Lien of this Indenture and upon such Release, shall transfer the Trendwest Loan to the Depositor. To obtain such release the Issuer shall be required to pay or cause to be paid to the Trustee the Release Price of such Trendwest Loan. Upon receipt of such Release Price, the Trustee shall deposit the Release Price into the Collection Account. The Issuer shall provide written notice to the Trustee and the Collateral Agent of any release pursuant to this Section 14.6 not less than two Business Days prior to the date on which such release is to be effected, specifying the Trendwest Loan which has become a Trendwest Timeshare Upgrade and the Release Price therefor. The Issuer shall pay the Release Price to the Trustee for deposit into the Collection Account not later than 12:00 noon, New York City time, on the day on which such release is made.

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        Upon each release of a Pledged Loan under this Section 14.6, the Collateral Agent and the Trustee shall automatically and without further action release, sell, transfer, assign, set over and otherwise convey to the Depositor, without recourse, representation or warranty, all of the Collateral Agent's and Trustee's right, title and interest in and to such Trendwest Loan and the Pledged Assets related thereto, all monies due or to become due with respect thereto and all Collections with respect thereto free and clear of the Lien of this Indenture. The Collateral Agent and the Trustee shall execute such documents, releases and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the Issuer to effect the release of such Trendwest Loans and the related Pledged Assets pursuant to this Section 14.6. Promptly after the occurrence of a Release Date and after the payment for and release of a Trendwest Loan, in respect to which the Release Price has been paid the Issuer shall direct the Servicer to delete such Trendwest Loan from the Loan Schedule.

        Section 14.7    Release Upon Payment in Full.    At such time as the Notes have been paid in full, all fees and expenses of the Trustee and the Collateral Agent with respect to the Notes have been paid in full and all obligations relating to this Indenture have been paid in full, then, the Collateral Agent shall, upon the written request of the Issuer, release all liens and assign to Issuer (without recourse, representation or warranty) all right, title and interest of the Collateral Agent in and to the Collateral, and all proceeds thereof. The Collateral Agent and the Trustee shall execute and deliver such instruments of assignment, in each case without recourse, representation or warranty, as shall be reasonably requested by the Issuer to release the security interest of the Collateral Agent in the Collateral.


ARTICLE XV

MISCELLANEOUS PROVISIONS

        Section 15.1    Amendment.    

        (a)    Supplemental Indentures and Amendments Without Consent of the Noteholders.    The Issuer, the Trustee, the Collateral Agent and the Servicer, at any time and from time to time, without the consent of any of the Noteholders, may enter into one or more amendments or indentures supplemental to this Indenture in form satisfactory to the Trustee for any of the following purposes:

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provided that, (x) in each case, the Issuer shall have satisfied the Rating Agency Condition with respect to such corrections, amendments, modifications or clarifications and (y), with respect to any changes described in subsection (vi), the Issuer shall have delivered to the Trustee an Officer's Certificate of the Issuer and an Officer's Certificate of the Servicer both to the effect that such change will not adversely affect the rights of any Noteholders.

        Subject to Section 15.1(c), the Trustee is hereby authorized to join in the execution of any such amendment or supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained. So long as any of the Notes are outstanding, at the cost of the Issuer, the Trustee shall provide to each Rating Agency then rating any Notes a copy of any proposed amendment or supplemental indenture prior to the execution thereof by the Trustee and, as soon as practicable after the execution by the Issuer, the Trustee and the Collateral Agent of any such amendment or supplemental indenture, provide to each Rating Agency a copy of the executed amendment or supplemental indenture, as the case may be.

        (b)    Amendments and Supplemental Indentures With Consent of the Noteholders.    With the consent of the Majority Holders and upon satisfaction of the Rating Agency Condition, the Issuer and the Trustee may enter into an amendment or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture, or modifying in any manner the rights of the Holders of the Notes under this Indenture; provided that, so long as the Interest Rate Swap is in effect, no such amendment or supplemental indenture shall be entered into without the prior written consent of the Swap Counterparty if the effect of such amendment or supplement would be to adversely affect the Swap Counterparty's ability or right to receive payment under the terms of the Interest Rate Swap, or if the amendment or supplemental indenture would modify the obligations of or impair the ability of the Issuer to fully perform any of its payment obligations under the Interest Rate Swap.

        No such amendment or supplemental indenture shall, without the consent of all affected Noteholders:

        It shall not be necessary in connection with any consent of the Noteholders under this Section 15.1(b) for the Noteholders to approve the specific form of any proposed amendment or supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. The Trustee will not be permitted to enter into any such supplemental indenture or amendment if, as a result of such supplemental indenture or amendment, the ratings of any outstanding Notes (if then rated) would be reduced without the consent of each affected Noteholder.

        Promptly after the execution by the Issuer, the Trustee, the Collateral Agent and the Servicer of any amendment or supplemental indenture pursuant to this Section 15.1(b), the Trustee, at the expense of the Issuer shall mail to the Noteholders, the Luxembourg Stock Exchange (if and for so long as any Class of Notes is listed thereon) and each Rating Agency rating any of the Notes, a copy thereof.

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        (c)    Execution of Amendments and Supplemental Indentures.    In executing or accepting the additional trusts created by any amendment or supplemental indenture permitted by this Section 15.1 or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Sections 13.1 and 13.2) shall be fully protected in relying in good faith upon, an Opinion of Counsel stating that the execution of such amendment or supplemental indenture is authorized or permitted by this Indenture and that all conditions precedent applicable thereto under this Indenture have been satisfied. The Trustee may, but shall not be obligated to, enter into any such amendment or supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.

        (d)    Effect of Amendments and Supplemental Indentures.    Upon the execution of any amendment or supplemental indenture under this Section 15.1, this Indenture shall be modified in accordance therewith, and such amendment or supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of a Note theretofore and thereafter authenticated and delivered hereunder shall be bound thereby.

        (e)    Reference in Notes to Amendments and Supplemental Indentures.    Notes executed, authenticated and delivered after the execution of any amendment or supplemental indenture pursuant to this Section 15.1 may, and if required by the Trustee shall, bear a notation in form approved by the Trustee as to any matter provided for in such amendment or supplemental indenture. If the Issuer shall so determine, new Notes, so modified as to conform in the opinion of the Trustee and the Issuer to any such amendment or supplemental indenture, may be prepared and executed by the Issuer and authenticated and delivered by the Trustee or the Authentication Agent in exchange for outstanding Notes.

        (f)    In determining whether the requisite percentage of Noteholders have concurred in any direction, waiver or consent, Notes owned by the Issuer or an Affiliate of the Issuer shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in making such determination or relying on any such direction, waiver or consent, only Notes which a Responsible Officer of the Trustee knows pursuant to written notice (or in the case of the Issuer, by reference to the Note Register if the Trustee is also the Note Registrar) are so owned shall be so disregarded.

        Section 15.2    Discretion with Respect to Derivative Financial Instruments.    The parties to this Indenture recognize and agree that, in the course of managing its assets and obligations, the Issuer may, from time to time, find it useful and prudent to enter into, or to terminate or modify, derivative financial instruments for the purpose of hedging its interest rate risk, and the parties hereby agree that, (a) in addition to the Interest Rate Swap, the Issuer may, from time to time, enter into derivative financial instruments for the purpose of hedging the Issuer's interest rate risk and (b) the Issuer may, in its discretion, terminate, or modify, any such derivative financial instrument; provided that the Issuer shall not terminate or modify the Interest Rate Swap except as provided in this Indenture and solely in accordance with the appropriate mechanism(s) as set forth in the Interest Rate Swap, and, with respect to any derivative financial instruments, other than the Interest Rate Swap, the Issuer shall not enter into any such instruments unless the Rating Agency Condition has been satisfied with respect to such derivative financial instrument; provided further, however, that, so long as the Interest Rate Swap is in effect, (x) no instrument shall be entered into pursuant to clause (a) above and (y) no termination (or modification) shall be effected pursuant to clause (b) above, without the prior written consent of the Swap Counterparty if the effect of such instrument, termination (or modification) would be to adversely affect the Swap Counterparty's ability or right to receive payment under the terms of the Interest Rate Swap, or if the instrument, termination (or modification) would modify the obligations of or impair the ability of the Issuer to fully perform any of its payment obligations under the Interest Rate Swap; and provided further, however, that any termination, modification or replacement with respect to the Interest

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Rate Swap effected otherwise in accordance with this Indenture and the appropriate mechanism(s) as set forth in the Interest Rate Swap shall not be subject to the provisions of this Section 15.2.

        Section 15.3    Limitation on Rights of the Noteholders.    

        (a)   The death or incapacity of any Noteholder shall not operate to terminate this Indenture, nor shall such death or incapacity entitle such Noteholder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Collateral, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them.

        (b)   Nothing herein set forth, or contained in the terms of the Notes, shall be construed so as to constitute the Noteholders from time to time as partners or members of an association; nor shall any Noteholder be under any liability to any third person by reason of any action taken by the parties to this Indenture pursuant to any provision hereof.

        Section 15.4    Governing Law.    This Indenture is governed by and shall be construed in accordance with the laws of the State of New York and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.

        Section 15.5    Notices.    All communications and notices hereunder shall be in writing and shall be deemed to have been duly given if personally delivered to, or transmitted by overnight courier, or transmitted by telex or telecopy and confirmed by a mailed writing:

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        All communications and notices pursuant hereto to a Noteholder will be given by first-class mail, postage prepaid, to the registered holders of such Notes at their respective address as shown in the Note Register. Any notice so given within the time prescribed in this Indenture shall be conclusively presumed to have been duly given, whether or not the Noteholder receives such notice.

        Section 15.6    Severability of Provisions.    If any one or more of the covenants, agreements, provisions or terms of this Indenture shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Indenture and shall in no way affect the validity or enforceability of the other provisions of this Indenture or of the Notes or rights of the Noteholders thereof.

        Section 15.7    Assignment.    Notwithstanding anything to the contrary contained herein, except as provided in Section 12.2, this Indenture may not be assigned by the Issuer or the Servicer without the prior consent of the Majority Holders and the Swap Counterparty.

        Section 15.8    Notes Non-assessable and Fully Paid.    It is the intention of the Issuer that the Noteholders shall not be personally liable for obligations of the Issuer and that the indebtedness represented by the Notes shall be non-assessable for any losses or expenses of the Issuer or for any reason whatsoever.

        Section 15.9    Further Assurances.    Each of the Issuer, the Servicer and the Collateral Agent agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of this Indenture, including without limitation the authorization of any financing statements, amendments thereto, or continuation statements relating to the Pledged Loans for filing under the provisions of the UCC of any applicable jurisdiction.

        Section 15.10    No Waiver; Cumulative Remedies.    No failure to exercise and no delay in exercising, on the part of the Trustee or the Noteholders, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. No waiver of any provision hereof shall be effective unless made in writing. The rights, remedies, powers and privileges therein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law.

        Section 15.11    Counterparts.    This Indenture may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument.

        Section 15.12    Third-Party Beneficiaries.    This Indenture will inure to the benefit of and be binding upon the parties hereto, the Swap Counterparty, the Noteholders and their respective successors and permitted assigns. Except as otherwise provided in this Article XV, no other person will have any right or obligation hereunder.

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        Section 15.13    Actions by the Noteholders.    

        (a)   Wherever in this Indenture a provision is made that an action may be taken or a notice, demand or instruction given by the Noteholders, such action, notice or instruction may be taken or given by any Noteholder, unless such provision requires a specific percentage of the Noteholders. If, at any time, the request, demand, authorization, direction, consent, waiver or other act of a specific percentage of the Noteholders is required pursuant to this Indenture, written notification of the substance thereof shall be furnished to all Noteholders.

        (b)   Any request, demand, authorization, direction, consent, waiver or other act by a Noteholder binds such Noteholder and every subsequent holder of such Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee, the Issuer or the Servicer in reliance thereon, whether or not notation of such action is made upon such Note.

        Section 15.14    Merger and Integration.    Except as set forth in the Trustee Fee Letter, and except as specifically stated otherwise herein, this Indenture and the other Transaction Documents set forth the entire understanding of the parties relating to the subject matter hereof, and, except as set forth in such Trustee Fee Letter, all prior understandings, written or oral, are superseded by this Indenture and the other Transaction Documents. This Indenture may not be modified, amended, waived or supplemented except as provided herein.

        Section 15.15    No Bankruptcy Petition.    The Trustee, the Servicer, the Collateral Agent and each Noteholder, by accepting a Note, hereby covenant and agree that they will not at any time institute against the Issuer or the Depositor, or join in instituting against the Issuer or the Depositor, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any Debtor Relief Law.

        Section 15.16    Headings.    The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof.

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        IN WITNESS WHEREOF, the Issuer, the Servicer, the Trustee and the Collateral Agent have caused this Indenture to be duly executed by their respective officers as of the day and year first above written.


 
 
SIERRA 2003-2 RECEIVABLES FUNDING COMPANY, LLC,
as Issuer

 
 
By:
 
/s/ John P. Cole
        Name:   John P. Cole
        Title:   President and Treasurer

 
 
FAIRFIELD ACCEPTANCE CORPORATION-NEVADA,
as Servicer

 
 
By:
 
/s/ John P. Cole
        Name:   John P. Cole
        Title:   President and Treasurer

 
 
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Trustee

 
 
By:
 
/s/ Gregory Yanok
        Name:   Gregory Yanok
        Title:   Vice President

 
 
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Collateral Agent

 
 
By:
 
/s/ Cheryl Whitehead
        Name:   Cheryl Whitehead
        Title:   Vice President

97


TABLE OF CONTENTS

 
    
   Page
ARTICLE I
DEFINITIONS

Section 1.1
 
Definitions
 
3
Section 1.2   Other Definitional Provisions   24
Section 1.3   Intent and Interpretation of Documents   24

ARTICLE II
THE NOTES

Section 2.1
 
Designation
 
24
Section 2.2   Form Generally   25
Section 2.3   [Reserved]   25
Section 2.4   Determination of LIBOR   25
Section 2.5   Execution, Authentication and Delivery   25
Section 2.6   Registration; Registration of Transfer and Exchange; Transfer Restrictions   26
Section 2.7   Mutilated, Destroyed, Lost or Stolen Notes   30
Section 2.8   Persons Deemed Owner   30
Section 2.9   Payment of Principal and Interest; Defaulted Interest   31
Section 2.10   Cancellation   32
Section 2.11   Global Notes   32
Section 2.12   Regulation S Global Notes   33
Section 2.13   Special Transfer Provisions   34
Section 2.14   Notices to Clearing Agency   35
Section 2.15   Definitive Notes   36
Section 2.16   Payments on the Notes   36
Section 2.17   [Reserved]   37
Section 2.18   Clean-Up Call   37
Section 2.19   Authentication Agent   37
Section 2.20   Appointment of Paying Agent   38
Section 2.21   Confidentiality   38
Section 2.22   144A Information   39

ARTICLE III
PAYMENTS, SECURITY AND ALLOCATIONS

Section 3.1
 
Priority of Payments, Sequential Order
 
39
Section 3.2   Information Provided to Trustee   41
Section 3.3   Payments   41
Section 3.4   Collection Account   41
Section 3.5   Reserve Account   42
Section 3.6   Interest Rate Swap   43
Section 3.7   Custody of Permitted Investments and other Collateral   45

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE ISSUER

Section 4.1
 
Representations and Warranties Regarding the Issuer
 
45
Section 4.2   Representations and Warranties Regarding the Loan Files   48
Section 4.3   Rights of Obligors and Release of Loan Files   48
         

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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ISSUER; ASSIGNMENT OF
REPRESENTATIONS AND WARRANTIES

Section 5.1
 
Representations and Warranties of the Issuer
 
49
Section 5.2   Eligible Loans   50
Section 5.3   Assignment of Representations and Warranties   52
Section 5.4   Release of Defective Loans   52

ARTICLE VI
ADDITIONAL COVENANTS OF ISSUER

Section 6.1
 
Affirmative Covenants
 
54
Section 6.2   Negative Covenants of the Issuer   60

ARTICLE VII
SERVICING OF PLEDGED LOANS

Section 7.1
 
Responsibility for Loan Administration
 
61
Section 7.2   Standard of Care   62
Section 7.3   Records   62
Section 7.4   Loan Schedule   62
Section 7.5   Enforcement   62
Section 7.6   Trustee and Collateral Agent to Cooperate   63
Section 7.7   Other Matters Relating to the Servicer   63
Section 7.8   Servicing Compensation   63
Section 7.9   Costs and Expenses   63
Section 7.10   Representations and Warranties of the Servicer   64
Section 7.11   Additional Covenants of the Servicer   65
Section 7.12   Servicer not to Resign   67
Section 7.13   Merger or Consolidation of, or Assumption of the Obligations of Servicer   67
Section 7.14   Examination of Records   67
Section 7.15   Subservicing Agreements; Delegation of Duties   67
Section 7.16   Servicer Advances   68

ARTICLE VIII
REPORTS

Section 8.1
 
Monthly Servicing Report
 
68
Section 8.2   Other Data   69
Section 8.3   Annual Servicer's Certificate   69
Section 8.4   Notices to FAC   69
Section 8.5   Tax Reporting   69

ARTICLE IX
LOCKBOX ACCOUNTS

Section 9.1
 
Lockbox Accounts
 
69

ARTICLE X
INDEMNITIES

Section 10.1
 
Liabilities to Obligors
 
70
Section 10.2   Tax Indemnification   70
Section 10.3   Servicer's Indemnities   70
         

ii

Section 10.4   Operation of Indemnities   70

ARTICLE XI
EVENTS OF DEFAULT

Section 11.1
 
Events of Default
 
70
Section 11.2   Acceleration of Maturity; Rescission and Annulment   71
Section 11.3   Collection of Indebtedness and Suits for Enforcement by Trustee   72
Section 11.4   Trustee May File Proofs of Claim   73
Section 11.5   Remedies   73
Section 11.6   Optional Preservation of Collateral   74
Section 11.7   Application of Monies Collected During Event of Default   74
Section 11.8   Limitation on Suits by Individual Noteholders   75
Section 11.9   Unconditional Rights of Noteholders to Receive Principal and Interest   75
Section 11.10   Restoration of Rights and Remedies   76
Section 11.11   Waiver of Event of Default   76
Section 11.12   Waiver of Stay or Extension Laws   76
Section 11.13   Sale of Collateral   76
Section 11.14   Action on Notes   76
Section 11.15   Control by Noteholders   77

ARTICLE XII
SERVICER DEFAULTS

Section 12.1
 
Servicer Defaults
 
77
Section 12.2   Appointment of Successor   78
Section 12.3   Notification to Noteholders   79
Section 12.4   Waiver of Past Defaults   79
Section 12.5   Termination of Servicer's Authority   79
Section 12.6   Matters Related to Successor Servicer   80

ARTICLE XIII
THE TRUSTEE; THE COLLATERAL AGENT; THE CUSTODIAN

Section 13.1
 
Duties of Trustee
 
80
Section 13.2   Certain Matters Affecting the Trustee   82
Section 13.3   Trustee Not Liable for Recitals in Notes or Use of Proceeds of Notes   83
Section 13.4   Trustee May Own Notes; Trustee in its Individual Capacity   83
Section 13.5   Trustee's Fees and Expenses; Indemnification   83
Section 13.6   Eligibility Requirements for Trustee   84
Section 13.7   Resignation or Removal of Trustee   84
Section 13.8   Successor Trustee   85
Section 13.9   Merger or Consolidation of Trustee   85
Section 13.10   Appointment of Co-Trustee or Separate Trustee   85
Section 13.11   Trustee May Enforce Claims Without Possession of Notes   86
Section 13.12   Suits for Enforcement   86
Section 13.13   Rights of Noteholders to Direct the Trustee   86
Section 13.14   Representations and Warranties of the Trustee   87
Section 13.15   Maintenance of Office or Agency   87
Section 13.16   No Assessment   87
Section 13.17   UCC Filings and Title Certificates   87
Section 13.18   Replacement of the Custodian   87
         

iii


ARTICLE XIV
TERMINATION

Section 14.1
 
Termination of Agreement
 
87
Section 14.2   Final Payment   88
Section 14.3   [Reserved]   88
Section 14.4   Release of Collateral   88
Section 14.5   Release of Defaulted Loans   88
Section 14.6   Release of Trendwest Timeshare Upgrades   89
Section 14.7   Release Upon Payment in Full   90

ARTICLE XV
MISCELLANEOUS PROVISIONS

Section 15.1
 
Amendment
 
90
Section 15.2   Discretion with Respect to Derivative Financial Instruments   92
Section 15.3   Limitation on Rights of the Noteholders   93
Section 15.4   Governing Law   93
Section 15.5   Notices   93
Section 15.6   Severability of Provisions   95
Section 15.7   Assignment   95
Section 15.8   Notes Non-assessable and Fully Paid   95
Section 15.9   Further Assurances   95
Section 15.10   No Waiver; Cumulative Remedies   95
Section 15.11   Counterparts   95
Section 15.12   Third-Party Beneficiaries   95
Section 15.13   Actions by the Noteholders   96
Section 15.14   Merger and Integration   96
Section 15.15   No Bankruptcy Petition   96
Section 15.16   Headings   96

iv



QuickLinks

INDENTURE AND SERVICING AGREEMENT
RECITALS
GRANTING CLAUSES
ARTICLE I DEFINITIONS
ARTICLE II THE NOTES
ARTICLE III PAYMENTS, SECURITY AND ALLOCATIONS
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE ISSUER
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ISSUER; ASSIGNMENT OF REPRESENTATIONS AND WARRANTIES
ARTICLE VI ADDITIONAL COVENANTS OF ISSUER
ARTICLE VII SERVICING OF PLEDGED LOANS
ARTICLE VIII REPORTS
ARTICLE IX LOCKBOX ACCOUNTS
ARTICLE X INDEMNITIES
ARTICLE XI EVENTS OF DEFAULT
ARTICLE XII SERVICER DEFAULTS
ARTICLE XIII THE TRUSTEE; THE COLLATERAL AGENT; THE CUSTODIAN
ARTICLE XIV TERMINATION
ARTICLE XV MISCELLANEOUS PROVISIONS
TABLE OF CONTENTS

Exhibit 10.75

 

THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

This Employment Agreement, first dated as of January 12, 2000, amended and restated as of March 1, 2000, further amended and restated as of February 14, 2003, by and between Cendant Corporation, a Delaware corporation (“Cendant”) and Thomas D. Christopoul (the “Executive”), is hereby further amended and restated effective as of October 1, 2003 (the “Agreement”).

 

WHEREAS, Cendant desires to employ the Executive as Co-Chairman and Chief Executive Officer of Cendant’s Financial Services Division, and the Executive desires to serve Cendant in such capacity.

 

NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

SECTION I

EMPLOYMENT

 

Cendant agrees to employ the Executive and the Executive agrees to be employed by Cendant for the Period of Employment as provided in Section III below and upon the terms and conditions provided in this Agreement.

 

SECTION II

POSITION AND RESPONSIBILITIES

 

During the Period of Employment, the Executive will serve as Co-Chairman and Chief Executive Officer of Cendant’s Financial Services Division (“FSD”), and subject to the direction of the Supervising Officer (as defined below), will perform such duties and exercise such supervision with regard to the business of FSD and Cendant as are associated with such position, as well as such additional duties as may be prescribed from time to time by the Supervising Officer.  The Supervising Officer will be a senior executive officer of Cendant designated by the Chief Executive Officer of Cendant (the “CEO”) from time to time; provided, that the Supervising Officer will be at all times either the CEO or an officer who reports directly to the CEO (excluding the Managing Director of Cendant EMEA and the Cendant General Counsel).  The Executive will, during the Period of Employment, devote substantially all of his time and attention during normal business hours to the performance of services for FSD and Cendant. The Executive will be required to certify the accuracy of financial statements and results applicable to business

 

 

units under his control, subject to and in accordance with Cendant policy in effect from time to time.   The Executive will maintain a primary office and conduct his business in Parsippany, New Jersey, except for normal and reasonable business travel in connection with his duties hereunder.

 

SECTION III

PERIOD OF EMPLOYMENT

 

The period of the Executive’s employment under this Agreement (the “Period of Employment”) will begin on the date hereof and end on October 31, 2006, subject to earlier termination as provided in this Agreement.

 

SECTION IV

COMPENSATION AND BENEFITS

 

A.                                   Compensation.

 

For all services rendered by the Executive pursuant to this Agreement during the Period of Employment, including services as an executive, officer, director or committee member of Cendant or any of their respective subsidiaries, divisions or affiliates, the Executive will be compensated as follows:

 

i.                                          Base Salary.

 

Cendant will pay the Executive a fixed base salary (“Base Salary”) of not less than $650,000, per annum. The Executive will be eligible to receive annual increases as the Board of Directors of Cendant (the “Board”) deems appropriate, in accordance with Cendant’s customary procedures regarding the salaries of senior officers, but with due consideration given to the published Consumer Price Index applicable to the New York/New Jersey greater metropolitan area.  Base Salary will be payable according to the customary payroll practices of Cendant, but in no event less frequently than once each month.

 

ii.                                       Annual Incentive Awards

 

The Executive will be eligible for discretionary annual incentive compensation awards; provided, that the Executive will be eligible to receive an annual bonus opportunity in respect of each fiscal year of Cendant during the Period of Employment based upon a target bonus of not less than 100% of Base Salary, subject to the attainment by Cendant of applicable performance targets established and certified by the Compensation Committee of the Board (the “Committee”).  The parties acknowledge that it is currently contemplated that such performance targets

 

 

will be stated in terms of “earnings before interest and taxes” of Cendant; however, such targets may relate to such other financial and business criteria of Cendant, or any of its subsidiaries or business units, as determined by the Committee in its sole discretion (each such annual bonus, an “Incentive Compensation Award”).

 

iii.                                    Long-Term Incentive Awards

 

The Executive will be eligible for stock option awards subject to the sole discretion of the Committee; provided, however, that such options shall be granted in accordance with the terms and conditions of the applicable option plans of Cendant and shall have such other terms and conditions as determined by the Committee in its sole discretion.

 

iv.                                   Additional Benefits

 

The Executive will be entitled to participate in all other compensation and employee benefit plans or programs, and receive all benefits and perquisites, for which salaried employees of Cendant are generally eligible under any plan or program now in effect, or later established by Cendant, on the same basis as similarly situated senior officers or Senior Executive Vice Presidents of Cendant with comparable duties and responsibilities.  Without limiting the generality of the foregoing, the Executive shall remain eligible to participate in the Cendant Deferred Compensation Plan and shall be entitled to supplemental executive medical benefits, tax and financial planning services, Park Avenue Club membership, one automobile under any Cendant officer automobile program, Fiddler’s Elbow Cendant Corporate Golf Membership, and air transportation benefits; provided, however, that all such benefits and perquisites referenced in this paragraph will be provided to the Executive if and to the extent Cendant continues to provide them to other Senior Executive Vice Presidents of Cendant.  The Executive will participate to the extent permissible under the terms and provisions of such plans or programs, and in accordance with the terms of such plans and program.  Cendant has no obligation hereunder or otherwise to maintain any plan or program referenced under this paragraph.

 

Pursuant to prior agreement by letter dated May 2, 2003, the Executive agrees that Cendant may terminate the Executive’s existing split dollar insurance policy and that the Executive will transfer, immediately upon request by Cendant, all of his rights pursuant to such policy (including rights to the cash surrender value) to Cendant.  The Executive will execute such documents necessary to effectuate the foregoing.

 

 

SECTION V

BUSINESS EXPENSES

 

Cendant will reimburse the Executive for all reasonable travel and other expenses incurred by the Executive in connection with the performance of his duties and obligations under this Agreement.  The Executive will comply with such limitations and reporting requirements with respect to expenses as may be established by Cendant from time to time and will promptly provide all appropriate and requested documentation in connection with such expenses.

 

SECTION VI

DISABILITY

 

A.                                   If the Executive becomes Disabled, as defined below, during the Period of Employment, the Period of Employment may be terminated at the option of the Executive upon notice of resignation to Cendant, or at the option of Cendant upon notice of termination to the Executive.  Cendant’s obligation to make payments to the Executive under this Agreement will cease as of such date of termination, except for Base Salary and Incentive Compensation Awards earned but unpaid as of the date of such termination. For purposes of this Agreement, “Disabled” means the Executive’s inability to perform his duties hereunder, with or without reasonable accommodation, as a result of serious physical or mental illness or injury for a period of no less than 90 consecutive days, together with a determination by an independent medical authority that (i) the Executive is currently unable to perform such duties and (ii) in all reasonable likelihood such disability will continue for a period in excess of 180 days.  Such medical authority shall be mutually and reasonably agreed upon by Cendant and the Executive and such opinion shall be binding on Cendant and the Executive.

 

SECTION VII

DEATH

 

In the event of the death of the Executive during the Period of Employment, the Period of Employment will end and Cendant’s obligation to make payments under this Agreement will cease as of the date of death, except for Base Salary and Incentive Compensation Awards earned but unpaid through the date of death, which will be paid to the Executive’s surviving spouse, estate or personal representative, as applicable, and except for benefits provided under the terms of any applicable employee benefit plan sponsored by Cendant.

 

 

SECTION VIII

EFFECT OF TERMINATION OF EMPLOYMENT

 

A.                                   Without Cause Termination and Constructive Discharge.  If the Executive’s employment terminates during the Period of Employment due to either a Without Cause Termination or a Constructive Discharge as defined below, subject to the Executive executing a release of claims against Cendant as more fully described in paragraph D of this Section VIII (i) Cendant will pay the Executive (or his surviving spouse, estate or personal representative, as applicable) upon such event  (a) a lump sum amount equal to the Executive’s then current Base Salary, plus the Executive’s then current target Incentive Compensation Award, multiplied by three (3); provided, however, that in no event will the Incentive Compensation Award exceed 100% of then current Base Salary for purposes of such calculation and (b) any and all Base Salary and Incentive Compensation Awards earned but unpaid through the date of such termination, (ii) each option to purchase shares of Cendant common stock granted to the Executive on or after January 12, 2000 shall, upon such event,  become fully vested and exercisable and shall remain exercisable until the first to occur of the second anniversary of such termination of employment or the original expiration date of such option and (iii) the Executive shall be provided with post-termination medical insurance benefits for such period of time, and on such terms and conditions, no less favorable than as provided to any other Senior Executive Vice President of Cendant following the date of this Agreement (such benefits shall be limited to medical, dental and vision benefits, and MERP and executive physical benefits; provided, that Cendant may provide such benefits pursuant to individual policies or arrangements or pursuant to Cendant plans).

 

B.                                     Termination for Cause; Resignation.  If the Executive’s employment terminates due to a Termination for Cause or a Resignation, Base Salary and any Incentive Compensation Awards earned but unpaid as of the date of such termination will be paid to the Executive in a lump sum. Except as provided in this paragraph, Cendant will have no further obligations to the Executive hereunder.

 

C.                                     For purposes of this Agreement, the following terms have the following meanings:

 

i.                                          “Termination for Cause” means (i) the Executive’s willful failure to substantially perform his duties as an employee of Cendant or any of its subsidiaries (other than any such failure resulting from incapacity due to physical or mental illness), (ii) any act of fraud, misappropriation, dishonesty, embezzlement or similar conduct against Cendant or any of its subsidiaries, (iii) the Executive’s conviction of a felony or any crime involving moral turpitude (which conviction, due to the passage of time or otherwise, is not subject to further appeal), (iv) the Executive’s

 

 

gross negligence in the performance of his duties or (v) the Executive purposefully or negligently makes (or has been found to have made) a false certification to Cendant pertaining to its financial statements.

 

ii.                                       “Constructive Discharge” means (i) any material failure of Cendant to fulfill its obligations under this Agreement (including without limitation any reduction of the Base Salary, as the same may be increased during the Period of Employment, or other material element of compensation), (ii) a material and adverse change to, or a material reduction of, the Executive’s duties and responsibilities to Cendant; provided, however, that a Constructive Discharge will not occur if Cendant requires the Executive to assume either of the following positions: (A) the Chief Administrative Officer Position (as defined below) or (B) the chairman and chief executive officer position of a division of Cendant, (iii) the relocation of the Executive’s primary office to any location more than fifty (50) miles from Parsippany, New Jersey, (iv) the Supervising Officer is neither the CEO nor a senior executive officer of Cendant who reports directly to the CEO or (v) the Period of Employment expires on October 31, 2006 and Cendant does not offer to extend such Period of Employment on substantially similar professional and economic terms by at least two, and not more than three, additional year(s).  The Executive will provide Cendant a written notice which describes the circumstances being relied on for the termination with respect to this Agreement within thirty (30) days after the event giving rise to the notice.  Cendant will have thirty (30) days after receipt of such notice to remedy the situation prior to the termination for Constructive Discharge.  For purposes of this paragraph, the Chief Administrative Officer Position is a senior executive officer position of Cendant, reporting to either the CEO, the Chief Operating Officer of Cendant, or the Chief Financial Officer of Cendant, and having responsibility for oversight, coordination, administration and management of all or substantially all of the following corporate functions: Human Resources, Facilities, Telecommunications, Telephone Call Centers, Information Technology and Corporate-based Marketing and Relationships (or such other function of equivalent size, scope and responsibility to Corporate-based Marketing and Relationships).

 

iii.                                    “Without Cause Termination” or “Terminated Without Cause” means termination of the Executive’s employment by Cendant other than due to death, Disability or Termination for Cause.

 

iv.                                   “Resignation” means a termination of the Executive’s employment by the Executive, other than in connection with a Constructive Discharge.

 

D.                                    Conditions to Payment and Acceleration.  All payments and benefits due to the Executive under this Section VIII shall be made or provided as soon as practicable; provided, however, that such payments and benefits shall be

 

 

subject to, and contingent upon, the execution by the Executive (or his beneficiary or estate) of a release of claims against Cendant and its affiliates in such form determined by Cendant in its sole discretion (so long as such release does not limit the Executive’s right to indemnification under Section X hereof).  The payments due to the Executive under this Section VIII shall be in lieu of any other severance benefits otherwise payable to the Executive under any severance plan of Cendant or its affiliates.  To the extent any term or condition of any option to purchase Cendant common stock conflicts with any term or condition of this Agreement applicable to such option, the term or condition set forth in this Agreement shall govern.

 

SECTION IX

OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT

 

A.                                   The Executive will, with reasonable notice during or after the Period of Employment, furnish information as may be in his possession and fully cooperate with Cendant and its affiliates as may be requested in connection with any claims or legal action in which Cendant or any of its affiliates is or may become a party; provided, that such cooperation does not impose unreasonable hardship on the Executive and; further, provided, that Cendant reimburses the Executive for reasonable expenses.

 

B.                                     The Executive recognizes and acknowledges that all information pertaining to this Agreement or to the affairs, business, results of operations, accounting methods, practices and procedures, members, acquisition candidates, financial condition, clients, customers or other relationships of Cendant or any of its affiliates (“Information”) is confidential and is a unique and valuable asset of Cendant or any of its affiliates.  Access to and knowledge of certain of the Information is essential to the performance of the Executive’s duties under this Agreement.  The Executive will not during the Period of Employment or thereafter, except to the extent reasonably necessary in performance of his duties under this Agreement, give to any person, firm, association, corporation, or governmental agency any Information, except as may be required by law.  The Executive will not make use of the Information for his own purposes or for the benefit of any person or organization other than Cendant or any of its affiliates.  The Executive will also use his best efforts to prevent the disclosure of this Information by others.  All records, memoranda, etc. relating to the business of Cendant or its affiliates, whether made by the Executive or otherwise coming into his possession, are confidential and will remain the property of Cendant or its affiliates.

 

C.                                     i.                                          During the Period of Employment and for a two (2) year period thereafter (the “Restricted Period”), irrespective of the cause, manner or

 

 

time of any termination, the Executive will not use his status with Cendant or any of its affiliates to obtain loans, goods or services from another organization on terms that would not be available to him in the absence of his relationship to Cendant or any of its affiliates.

 

ii.                                       During the Restricted Period, the Executive will not make any statements or perform any acts intended to or which may have the effect of advancing the interest of any existing or prospective competitors of Cendant or any of its affiliates or in any way injuring the interests of Cendant or any of its affiliates.  During the Restricted Period, the Executive, without prior express written approval by the Board, will not engage in, or directly or indirectly (whether for compensation or otherwise) own or hold proprietary interest in, manage, operate, or control, or join or participate in the ownership, management, operation or control of, or furnish any capital to or be connected in any manner with, any party which competes in any way or manner with the business of Cendant, as such business or businesses may be conducted from time to time, either as a general or limited partner, proprietor, common or preferred shareholder, officer, director, agent, employee, consultant, trustee, affiliate, or otherwise.  The Executive acknowledges that Cendant’s businesses are conducted nationally and internationally and agrees that the provisions in the foregoing sentence will operate throughout the United States and the world.

 

iii.                                    During the Restricted Period, the Executive, without express prior written approval from the Board, will not solicit any members or the then-current clients of Cendant or any of its affiliates for any existing business of Cendant or any of its affiliates or discuss with any employee of Cendant or any of its affiliates information or operation of any business intended to compete with Cendant or any of its affiliates.

 

iv.                                   During the Restricted Period, the Executive will not interfere with the employees or affairs of Cendant or any of its affiliates or solicit or induce any person who is an employee of Cendant or any of its affiliates to terminate any relationship such person may have with Cendant or any of its affiliates, nor will the Executive during such period directly or indirectly engage, employ or compensate, or cause or permit any person with which the Executive may be affiliated, to engage, employ or compensate, any employee of Cendant or any of its affiliates.  The Executive hereby represents and warrants that the Executive has not entered into any agreement, understanding or arrangement with any employee of Cendant or any of its affiliates pertaining to any business in which the Executive has participated or plans to participate, or to the employment, engagement or compensation of any such employee.

 

 

v.                                      For the purposes of this Agreement, proprietary interest means legal or equitable ownership, whether through stock holding or otherwise, of an equity interest in a business, firm or entity or ownership of more than 5% of any class of equity interest in a publicly-held company and the term “affiliate” will include without limitation all subsidiaries and licensees of Cendant.

 

D.                                    The Executive hereby acknowledges that damages at law may be an insufficient remedy to Cendant if the Executive violates the terms of this Agreement and that Cendant will be entitled, upon making the requisite showing, to preliminary and/or permanent injunctive relief in any court of competent jurisdiction to restrain the breach of or otherwise to specifically enforce any of the covenants contained in this Section IX without the necessity of showing any actual damage or that monetary damages would not provide an adequate remedy.  Such right to an injunction will be in addition to, and not in limitation of, any other rights or remedies Cendant may have.  Without limiting the generality of the foregoing, neither party will oppose any motion the other party may make for any expedited discovery or hearing in connection with any alleged breach of this Section IX.

 

E.                                      The period of time during which the provisions of this Section IX will be in effect will be extended by the length of time during which the Executive is in breach of the terms hereof as determined by any court of competent jurisdiction on Cendant’s application for injunctive relief.

 

F.                                      The Executive agrees that the restrictions contained in this Section IX are an essential element of the compensation the Executive is granted hereunder and but for the Executive’s agreement to comply with such restrictions, Cendant would not have entered into this Agreement.

 

SECTION X

INDEMNIFICATION

 

Cendant will indemnify the Executive to the fullest extent permitted by the laws of the state of Cendant’s incorporation in effect at that time, or the certificate of incorporation and by-laws of Cendant, whichever affords the greater protection to the Executive.

 

SECTION XI

MITIGATION

 

The Executive will not be required to mitigate the amount of any payment provided for hereunder by seeking other employment or otherwise, nor will the amount of any such payment be reduced by any compensation earned by the

 

 

Executive as the result of employment by another employer after the date the Executive’s employment hereunder terminates.

 

SECTION XII

WITHHOLDING TAXES

 

The Executive acknowledges and agrees that Cendant may directly or indirectly withhold from any payments under this Agreement all federal, state, city or other taxes that will be required pursuant to any law or governmental regulation.

 

SECTION XIII

EFFECT OF PRIOR AGREEMENTS

 

This Agreement will supersede any prior employment agreement between Cendant and the Executive hereof, including, without limitation, that certain letter agreement between Cendant and the Executive dated as of April 1, 1999 (except with respect to any provisions in such letter agreement applicable to the treatment of Cendant stock options in connection with any termination of the Executive’s employment), and any such prior employment agreement will be deemed terminated without any remaining obligations of either party thereunder.

 

SECTION XIV

CONSOLIDATION, MERGER OR SALE OF ASSETS

 

Nothing in this Agreement will preclude Cendant from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of Cendant hereunder.  Upon such a consolidation, merger or sale of assets the term “Cendant” will mean the other corporation and this Agreement will continue in full force and effect.

 

SECTION XV

MODIFICATION

 

This Agreement may not be modified or amended except in writing signed by the parties.  No term or condition of this Agreement will be deemed to have been waived except in writing by the party charged with waiver.  A waiver will operate only as to the specific term or condition waived and will not constitute a waiver for the future or act on anything other than that which is specifically waived.

 

 

SECTION XVI

GOVERNING LAW

 

This Agreement has been executed and delivered in the State of New York and its validity, interpretation, performance and enforcement will be governed by the internal laws of that state.

 

SECTION XVII

ARBITRATION

 

A.                                   Any controversy, dispute or claim arising out of or relating to this Agreement or the breach hereof which cannot be settled by mutual agreement (other than with respect to the matters covered by Section IX for which Cendant may, but will not be required to, seek injunctive relief) will be finally settled by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state arbitration law) as follows:  Any party who is aggrieved will deliver a notice to the other party setting forth the specific points in dispute.  Any points remaining in dispute twenty (20) days after the giving of such notice may be submitted to arbitration in New York, New York, to the American Arbitration Association, before a single arbitrator appointed in accordance with the arbitration rules of the American Arbitration Association applicable to employment disputes, modified only as herein expressly provided.  After the aforesaid twenty (20) days, either party, upon ten (10) days notice to the other, may so submit the points in dispute to arbitration.  The arbitrator may enter a default decision against any party who fails to participate in the arbitration proceedings.

 

B.                                     The decision of the arbitrator on the points in dispute will be final, unappealable and binding, and judgment on the award may be entered in any court having jurisdiction thereof.

 

C.                                     Except as otherwise provided in this Agreement, the arbitrator will be authorized to apportion its fees and expenses and the reasonable attorneys’ fees and expenses of any such party as the arbitrator deems appropriate.  In the absence of any such apportionment, the fees and expenses of the arbitrator will be borne equally by each party, and each party will bear the fees and expenses of its own attorney.

 

D.                                    The parties agree that this Section XVII has been included to rapidly and inexpensively resolve any disputes between them with respect to this Agreement, and that this Section XVII will be grounds for dismissal of any court action commenced by either party with respect to this Agreement, other than post-arbitration

 

 

actions seeking to enforce an arbitration award.  In the event that any court determines that this arbitration procedure is not binding, or otherwise allows any litigation regarding a dispute, claim, or controversy covered by this Agreement to proceed, the parties hereto hereby waive any and all right to a trial by jury in or with respect to such litigation.

 

E.                                      The parties will keep confidential, and will not disclose to any person, except as may be required by law, the existence of any controversy hereunder, the referral of any such controversy to arbitration or the status or resolution thereof.

 

SECTION XVIII

SURVIVAL

 

Sections IX, X, XI, XII, and XVII will continue in full force in accordance with their respective terms notwithstanding any termination of the Period of Employment.

 

SECTION XIX

SEPARABILITY

 

All provisions of this Agreement are intended to be severable.  In the event any provision or restriction contained herein is held to be invalid or unenforceable in any respect, in whole or in part, such finding will in no way affect the validity or enforceability of any other provision of this Agreement.  The parties hereto further agree that any such invalid or unenforceable provision will be deemed modified so that it will be enforced to the greatest extent permissible under law, and to the extent that any court of competent jurisdiction determines any restriction herein to be unreasonable in any respect, such court may limit this Agreement to render it reasonable in the light of the circumstances in which it was entered into and specifically enforce this Agreement as limited.

 

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

 

CENDANT CORPORATION

 

 

 

 

 

/s/ Terry Conley

 

 

By:

Terry Conley

 

Title:

Executive Vice President,
Human Resources

 

 

 

 

 

THOMAS D. CHRISTOPOUL

 

 

 

 

 

/s/ Thomas D. Christopoul

 

 



Exhibit 10.76

 

Cendant Corporation
Senior Executive Officer Supplemental Life Insurance Program

 

This Senior Executive Officer Supplemental Life Insurance Program (the “Program”) has been established by Cendant Corporation (the “Corporation”).  The Program will have substantially such terms and conditions as set forth below, and shall be subject to such amendments, modifications and interpretations determined from time to time by the Corporation’s Compensation Committee (the “Committee”) in its sole and absolute discretion.

 

1.                                       Participation.  Participation in the Program is limited solely to senior executive officers of the Corporation as determined by the Committee in its sole and absolute discretion.  No employee or officer of the Corporation shall have any right to participate in the Program absent the express written approval and designation of the Committee.  Upon the Commencement of the Program in August 2003, Participation in the Program is limited to the senior executive officers listed below.  From time to time, the Committee may approve and designate additional senior executive officers as eligible to participate.  A senior executive officer of the Corporation approved and designated as a participant in the Program pursuant to a duly authorized act of the Committee is referred to herein as a “Participant.”

 

Jim Buckman

Steve Holmes

Ron Nelson

Richard Smith

Sam Katz

Kevin Sheehan

Tom Christopoul

Scott Forbes

 

2.                                       Removal From Participation. A Participant may be, and shall be, terminated from participating in the Program on the first to occur of the following: (i) upon the Committee’s duly authorized action to terminate the Program for all then active Participants; provided, however, that each such Participant is provided no less than 30 days written notice of the termination of the Program; (ii) immediately upon a Participant’s termination of employment with the Corporation and its subsidiaries for any reason whatsoever; (iii) upon any duly executed determination by the Committee that a Participant shall no longer be a Participant for any reason, or no reason, in the sole and absolute discretion of the Committee; provided, however, that any such Participant is provided no less than 30 days written notice of his or her termination as a Participant of the Program and (iv) immediately upon a Participant’s failure to comply with the terms of the Program, including without limitation such Participant’s failure to apply the after-tax proceeds of the Program Bonus (as defined below) towards the payment of premiums into an Approved Policy (as defined below) or the termination or surrender of such Participant’s Approved Policy.

 

3.                                       Description of the Program.  Upon the commencement of the Program in August 2003 and upon each anniversary thereof, the Committee shall approve a lump sum cash bonus to each Participant (the “Program Bonus”).  The amount of the Program Bonus for each

 

 

Participant shall be determined by the Committee in its sole discretion, based upon such criteria and factors that it shall determine in its sole discretion.  The amounts of the Program Bonuses for each Participant for each Program year shall be submitted to and approved, or disapproved, by the Committee.  For the Program year commencing 2004, the Program Bonuses are set forth on Annex A hereto (under Alternative A).

 

Upon a Participant’s receipt of a Program Bonus, such Participant shall be required to apply the entire after-tax proceeds of such Program Bonus towards the payment of premiums into a life insurance policy on the life of such Participant which policy has been approved by the Corporation’s most senior human resources officer (an “Approved Policy”).  Such payment into an Approved Policy must occur within 30 days following the Participant’s receipt of the Program Bonus.  The Corporation may develop such criteria as it determines reasonable and appropriate with respect to whether an insurance policy qualifies as an Approved Policy.

 

Unless the Committee determines otherwise, instead of applying all or part of the Program Bonus towards an Approved Policy, each Participant may elect to defer receipt of all or part of the Program Bonus and apply the proceeds into the Corporation’s Deferred Compensation Plan, subject to execution of necessary deferral election forms.  If a Participant makes an election to defer the Program Bonus into the Deferred Compensation Plan, then the amount of the Program Bonus may be altered as set forth on Annex A hereto (under Alternative B).

 

There is no requirement hereunder that Program Bonuses to respective Participants be of equal value, or that Approved Policies have equivalent terms and conditions or face amounts.

 

Each participant (or his or her duly established insurance trust) shall at all times be the sole owner of the Approved Policy and shall maintain all rights under such Approved Policy.  Each Participant shall remain obligated to maintain his or her Approved Policy, and to make all required premium contributions.  Participants shall not take policy loans or surrender any portion of an Approved Policy without the written approval of the Corporation.  Any required premium payments into an Approved Policy in excess of the after-tax proceeds of the Program Bonus will be the sole responsibility of the Participant.  Notwithstanding the foregoing or anything to the contrary herein, each Participant may assign ownership of his/her policy to an appropriate insurance trust approved by the Corporation, and upon such approval, the Corporation will recognize as appropriate such trust’s ownership of such policy in accordance with the provisions hereunder.

 

For each of the initial Participants listed in paragraph 1 above, the initial Program Bonus will be made following each such Participant (i) providing the Corporation with a written acknowledgment stating they understand and agree with the terms of the Program and (ii) executing (or obtaining appropriate execution of) such appropriate documents as requested by the Corporation transferring all rights under their existing split dollar insurance policies to the Corporation.

 

3.                                       Amendment and Termination.  The Corporation intends to maintain the Program for each Participant so long as each such Participant remains an officer of the Corporation; provided, however, that the Corporation retains the right to amend, modify or terminate the Program at any time by the Committee in its sole and absolute discretion.  In the event the Program is terminated because it is determined to be unlawful, the Corporation

 

 

will use its reasonable efforts to provide each Participant with an equitable replacement benefit.  Upon the termination of the Program, no further Program Bonuses shall be paid, however each Participant shall retain all rights in respect of their respective Approved Policies.  Except as provided above, upon the termination of the Program, no Participant will be entitled to any benefits or consideration in lieu of participation.  The termination or amendment of the Program will not be deemed to constitute a constructive discharge of any Participant under applicable law or the employment agreement of any Participant, and will not be deemed to constitute a breach of any employment agreement of any Participant.

 

5.                                       Miscellaneous.  Any determinations made by the Committee in respect of the Program shall be final and binding on all parties, including Participants and the Corporation.  Nothing contained herein is intended to provide any Participant a right to continued employment with the Corporation.  Nothing contained herein is intended to modify or amend any provision in any employment agreement between the Corporation and any Participant.

 

 

Cendant Corporation
2003 Executive Life Insurance Program

Annex A

 

Participant

 

Alternative A-Policy
Program Bonus Amount

 

Alternative B-Deferred Comp
Program Bonus Amount

 

 

 

 

 

 

 

Jim Buckman

 

$

166,047

 

$

135,328

 

Steve Holmes

 

$

62,795

(1)

$

80,128

 

Ron Nelson

 

$

118,078

 

$

96,233

 

Richard Smith

 

$

96,582

 

$

91,833

 

Sam Katz

 

$

63,039

 

$

51,377

 

Kevin Sheehan

 

$

131,530

 

$

119,473

 

Tom Christopoul

 

$

56,820

 

$

54,027

 

Scott Forbes

 

$

80,498

 

$

76,540

 

 

(1)  Existing policy would remain in effect, Cendant would terminate its rights under Collateral Assignment and gift the value in the policy to Mr. Holmes.

 



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Exhibit 12


Cendant Corporation and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)

 
   Year Ended December 31,
  
 
   2003
   2002
   2001
   2000
   1999
  
Earnings available to cover fixed charges:                                
Income (loss) before income taxes, minority interest and equity in Homestore   $ 2,231   $ 1,617   $ 663   $ 993   $ (668 )
Plus: Fixed charges     1,025     828     963     546     594  
Less: Equity income (loss) in unconsolidated affiliates     —     2     (5 )   17     18  
  Minority interest (pre-tax) in mandatorily redeemable preferred interest in a subsidiary     6     14     23     25     —  
  Minority interest (pre-tax) in mandatorily redeemable trust preferred securities     —     —     14     106     96  
  Minority interest in pre-tax income of subsidiaries that have not incurred fixed charges     25     20     —     —     —  
   
 
 
 
 
 
  Earnings available to cover fixed charges   $ 3,225   $ 2,409   $ 1,594   $ 1,391   $ (188 )
   
 
 
 
 
 
Fixed charges (a):                                
Interest, including amortization of deferred financing costs   $ 880   $ 718   $ 816   $ 381   $ 463  
Minority interest (pre-tax) in mandatorily redeemable preferred interest in a subsidiary (b)     6     14     23     25     —  
Minority interest (pre-tax) in mandatorily redeemable trust preferred securities     —     —     14     106     96  
Interest portion of rental payment     139     96     110     34     35  
   
 
 
 
 
 
Total fixed charges   $ 1,025   $ 828   $ 963   $ 546   $ 594  
   
 
 
 
 
 
Ratio of earnings to fixed charges     3.15x     2.91x     1.66x     2.55x     (c)  
   
 
 
 
 
 
(a)
Consists 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. Interest expense on all indebtedness is detailed as follows:

 
   Year Ended December 31,
 
   2003
   2002
   2001
   2000
   1999
Incurred by the Company's PHH subsidiary   $ 264   $ 201   $ 258   $ 156   $ 133
Related to the Company's stockholder litigation settlement liability     —     —     131     63     —
Related to the debt under management and mortgage programs incurred by the Company's car rental subsidiary     270     213     189     —     —
All other     346     304     238     162     330
(b)
Includes minority expense related to the Company's (i) mandatorily redeemable preferred interest in a subsidiary of $6 million, $14 million, $23 million and $25 million during 2003, 2002, 2001 and 2000, respectively, (ii) mandatorily redeemable trust preferred securities issued by subsidiary holding solely senior debentures issued by the Company of $14 million, $106 million and $96 million during 2001, 2000 and 1999, respectively, and (iii) venture with Marriott International, Inc. of $25 million and $20 million during 2003 and 2002, respectively.

(c)
Earnings were inadequate to cover fixed charges for 1999 (deficiency of $688 million) as a result of other charges of $3,032 million, partially offset by $1,109 million related to the net gain on dispositions of businesses. Excluding such charges and net gain, the ratio of earnings to fixed charges is 2.92x.


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Cendant Corporation and Subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)

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Exhibit 21


Cendant Corporation

Subsidiary
   Jurisdiction of
Incorporation
Advance Ross Corporation   DE
Advance Ross Electronics Corporation   IL
Advance Ross Intermediate Corporation   DE
Advance Ross Sub Company   DE
Aesop Funding II L.L.C.   DE
Aesop Leasing L.P.   DE
AFL Management Services, Inc.   DE
AFS Mortgage   CA
Amerihost Franchise Systems, Inc.   DE
Apanage B.V.   Netherlands
Apex Marketing, Inc.   AR
Apex Real Estate Information Services LLP   PA
Apollo Galileo USA Sub I, Inc.   DE
Apollo Galileo USA Partnership   DE
Apollo Galileo USA Sub II, Inc.   DE
ARAC Management Services, Inc.   DE
Atrium Insurance Corporation   NY
Avis Asia and Pacific, Limited   DE
Avis Car Holdings LLC   DE
Avis Car Holdings, Inc.   DE
Avis Car Rental Group, Inc.   DE
Avis Caribbean, Limited   DE
Avis Enterprises, Inc.   DE
Avis Fleet Leasing and Management Corporation   TX
Avis Group Holdings, Inc.   DE
Avis International, Ltd.   DE
Avis Management Pty. Limited   Australia
Avis Rent A Car de Puerto Rico, Inc.   Puerto Rico
Avis Rent A Car Limited   New Zealand
Avis Rent A Car System, Inc.   DE
Aviscar Inc.   Canada
Axiom Financial, Inc.   Utah
Bassae Holding, B.V.   Netherlands
Benefit Consultants Membership, Inc.   DE
Budget Rent A Car Australia Pty. Ltd.   Australia
Budget Rent A Car Operations Pty. Ltd.   Australia
Budget Rent A Car System, Inc.   DE
Burnet Title, Inc.   MN
Burnet Title, L.L.C.   MN
Burrow Escrow Services, Inc.   CA
Cendant (UK) Holdings Limited   UK
Cendant Auto Services, Inc.   DE
Cendant Canada, Inc.   Canada
Cendant Car Rental Group, Inc.   DE
Cendant Denmark Aps   Denmark
Cendant Finance Holding Corporation   DE
Cendant Hotel Group, Inc.   DE
     
Cendant International Holdings Limited   UK
Cendant Internet Group, Inc.   DE
Cendant Membership Services Holdings Subsidiary, Inc.   DE
Cendant Membership Services Holdings, Inc.   DE
Cendant Membership Services, Inc.   DE
Cendant Mobility Financial Corporation   DE
Cendant Mobility Government Financial Services Corporation   DE
Cendant Mobility Holdings Limited   UK
Cendant Mobility II Ltd.   UK
Cendant Mobility Limited.   UK
Cendant Mobility Services Corporation   DE
Cendant Mortgage Corporation   NJ
Cendant Operations, Inc.   DE
Cendant Publishing, Inc.   DE
Cendant Real Estate Holdings Inc.   DE
Cendant Settlement Services Group, Inc.   DE
Cendant Timeshare Resort Group, Inc.   DE
Cendant Transportation Corp.   DE
Cendant Travel Distribution Service Group, Inc.   DE
Cendant Travel Germany Verwaltungs GmbH   Frankfurt
Cendant Travel Germany GmbH & Co, KG   Frankfurt
Cendant Travel, Inc.   TN
Cendant Vacation Holdco Subsidiary LLC   DE
Cendant Vacation Holdco, Inc.   DE
Central Florida Title Company   FL
Century 21 Mortgage Corporation   MA
Century 21 Real Estate Corporation   DE
Chaconne Pty. Ltd.   Australia
Cheap Tickets, Inc.   DE
Chesapeake Funding LLC   DE
Cims B.V.   Netherlands
Cims Limited   UK
Coldwell Banker Corporation   DE
Coldwell Banker Mortgage Corporation   MA
Coldwell Banker Real Estate Corporation   CA
Coldwell Banker Real Estate Services, Inc.   NJ
Coldwell Banker Residential Brokerage Company   CA
Coldwell Banker Residential Brokerage Corporation   DE
Coldwell Banker Residential Real Estate Services of Wisconsin, Inc.   WI
Coldwell Banker Residential Real Estate, Inc.   CA
Coldwell Banker Residential Referral Network, Inc.   CA
Comp-U-Card Services, Inc.   DE
Constellation Reinsurance Company Limited   Barbados
Corcoran Group Brooklyn Landmark LLC   NY
Cornish & Carey Residential, Inc.   CA
Credentials Services International, Inc.   DE
Cuendent S.p.A.   Italy
D. L. Peterson Trust   DE
Days Inns Worldwide, Inc.   DE
     

2

Distribution Systems, Inc.   DE
Douglas & Jean Burgdorff, Inc.   NJ
Driversshield.com FS Corp.   NY
Eastern Resorts Corporation   DE
EFI Development Funding, Inc.   DE
EFI Funding Company, Inc.   DE
EMEA Holdings C.V.   Netherlands
Entriks Holdings B.V.   Netherlands
Equity Title Company   CA
Equivest Capital, Inc.   DE
Equivest Finance, Inc.   DE
Equivest Louisiana, Inc.   DE
Equivest Maryland, Inc.   DE
Equivest St. Thomas, Inc.   US Virgin Islands
Equivest Vacation and Travel Club, Inc.   NC
ERA Franchise Systems, Inc.   DE
ERA Mortgage Corporation   MA
Extra Holidays, LLC   DE
FAH Company, Inc.   DE
Fairfield Acceptance Corporation—Nevada   DE
Fairfield Funding Corporation, II   DE
Fairfield Funding Corporation, III   DE
Fairfield Myrtle Beach, Inc.   DE
Fairfield Receivables Corporation   DE
Fairfield Resorts, Inc.   DE
Fairtide Insurance Ltd.   Bermuda
FFD Development Company, LLC   DE
Galileo BA, Inc.   DE
Galileo Canada Distribution Systems, Inc.   Canada
Galileo Canada Holding, ULC   Nova Scotia
Galileo International Canada ULC   Nova Scotia
Galileo International Limited   UK
Galileo International, Inc.   DE
Galileo International, L.L.C.   DE
Galileo Switzerland AG   Switzerland
Galileo Technologies, Inc.   DE
GI Worldwide Holdings C.V.   Netherlands
GIW Holdings, C.V.   Netherlands
Haddonfield Holding Corporation   DE
Hamera Corp.   CA
Hewfant, Inc.   VA
HFS Truck Funding Corporation   DE
Holiday Cottages Group Limited   UK
Howard Johnson International, Inc.   DE
Instamortgage.com Corporation   MD
Intercambios Endless Vacation IEV, Inc.   IN
International Life Leisure Group Limited   UK
Internetwork Publishing Corporation   FL
Jack Gaughen, Inc.   PA
     

3

Jackson Hewitt Inc.   VA
Joseph J. Murphy Realty, Inc.   NJ
Knights Franchise Systems, Inc.   DE
Long Term Preferred Care, Inc.   TN
Magellen Technologies, Inc.   DE
National Internet Travel Agency, LP   FL
NE Moves Mortgage Corporation   MA
Neat Group Corporation   DE
Netmarket Group Inc.   DE
Netmarket, Inc.   DE
NGI Holdings, Inc.   DE
Nisbet Corporation   OH
Novasol A/S   Denmark
NRT Colorado, Inc.   CO
NRT Columbus, Inc.   DE
NRT Incorporated   DE
NRT Mid-Atlantic, Inc.   MD
NRT Missouri, Inc.   MO
NRT New England Incorporated   DE
NRT New York, Inc.   DE
NRT Settlement Services of Missouri, Inc.   DE
NRT Sunshine Inc.   DE
NRT Texas, Inc.   TX
NRT Utah, Inc.   DE
Ocean City Coconut Malorie Resort Inc.   MD
Palm Resort Group, Inc.   FL
Palm Vacation Group   FL
Pathfinder Insurance Company   CO
Peppertree Resorts Ltd.   NC
Peppertree Resorts Villas, Inc.   NC
PHH Canadian Holdings, Inc.   DE
PHH Corporation   MD
PHH Do Brasil Participacoes, LTDA   Brazil
PHH Financial Services, Inc.   MD
PHH Holdings Corporation   TX
PHH National Leasing, Inc.   MD
PHH Solutions and Technologies, LLC   DE
PHH Title Services Corporation   DE
PHH Vehicle Management Services Inc.   Canada
PHH Vehicle Management Services LLC   DE
Pointtravel Co. Ltd.   UK
Pointuero V Limited   UK
Preferred Mortgage Group, Inc.   VA
Progeny Marketing Innovations, Inc.   DE
Progressive Title Company, Inc.   CA
Quantitude, Inc.   DE
Raccoon Acquisition I, LLC   DE
Ramada Franchise Systems, Inc.   DE
Raven Funding LLC   DE
     

4

RCI Argentina, Inc.   IN
RCI Asia-Pacific Pty. Ltd   Australia
RCI Brasil Ltda.   Brazil
RCI Call Centre (Ireland) Limited   Ireland
RCI Canada, Inc.   IN
RCI Consulting, Inc.   IN
RCI Europe   UK
RCI General Holdco 2, Inc.   DE
RCI India Pvt. Ltd.   India
RCI Resort Management, Inc.   IN
RCI Technology Corp.   CO
RCI Tourism Development (India) Ltd.   UK
Reserve Claims Management Co.   DE
Residential Equity LLC   DE
Resort Condominiums International De Mexico S. De R.L. De C.V.   Mexico
Resort Condominiums International, LLC   DE
RMR Financial   CA
S.D. Shepard Systems, Inc.   TX
SafeCard Services, Incorporated   DE
Sierra Deposit Company, LLC   DE
Sierra Receivable Funding Company, LLC   DE
Soleil Florida Corp.   FL
Speedy Title & Appraisal Review Services Corporation   MD
St. Joe Real Estate Services, Inc.   FL
St. Joe Title Services, Inc.   FL
Sunbelt Lending Services, Inc.   FL
Super 8 Motels, Inc.   SD
Tax Services of America, Inc.   DE
Team Fleet Financing Corporation   DE
Terramar Guaranty title & Trust, Inc.   FL
Terren Corporation   Canada
The DeWolfe Companies, Inc.   MA
The DeWolfe Company, Inc.   MA
The Galileo Company   UK
The Sunshine Group (Florida) Ltd. Corp.   DE
The Sunshine Group (Florida) Limited Partnership   FL
TM Acquisition Corp.   DE
Travel 2 Limited   England & Wales
Travel 4 Limited   England & Wales
Travel Industries, Inc. (d/b/a THOR, Inc.)   DE
Travelodge Hotels, Inc.   DE
Travelport Corporate Solutions, Inc.   WA
Travelwire A/S   Denmark
Trendwest Funding I, Inc.   DE
Trendwest Resorts, Inc.   OR
Trendwest South Pacific Pty. Limited   Australia
TRI Funding Company I, LLC   DE
TRI Funding II, Inc.   DE
TRI Funding III, Inc.   DE
     

5

TRI Funding IV, Inc.   DE
TRI Funding V, Inc.   DE
Trilegiant Corporation   DE
Trip.com, Inc.   DE
TRUST International Hotel Reservation Services GmbH   Germany
TTG Independent Holidays Group Limited   UK
TW Holdings III, Inc.   DE
Two Flags Joint Venture LLC   DE
Vacation Break Resorts at Palm Aire, Inc.   FL
Vacation Break U.S.A., Inc.   FL
Vacation Exchanges International Pty. Limited   South Africa
Vacation Management Services   South Africa
Valley of California, Inc.   CA
Villager Franchise Systems, Inc.   CA
VMS Holdings, Inc.   DE
Welcome Holidays Limited   UK
West Coast Escrow Company   CA
Wingate Inns International, Inc.   DE
Wizard Co., Inc.   DE
WizCom International, Ltd.   DE
Wright Express Financial Services Corporation   UT
Wright Express LLC   DE
Wright Express Solutions and Technologies, LLC   DE
WTH Canada, Inc.   Canada
WTH Pty Limited   Australia

6



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Exhibit 23


INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Cendant Corporation's Registration Statement Nos. 333-11035, 333-17323, 333-17411, 333-20391, 333-23063, 333-26927, 333-35707, 333-35709, 333-45155, 333-45227, 333-49405, 333-78447, 333-86469, 333-51586, 333-59246, 333-65578, 333-65456, 333-65858, 333-83334, 333-84626, 333-86674 and 333-87464 on Form S-3 and Registration Statement Nos. 33-74066, 33-91658, 333-00475, 333-03237, 33-58896, 33-91656, 333-03241, 33-26875, 33-75682, 33-93322, 33-93372, 33-80834, 333-09633, 333-09637, 333-30649, 333-42503, 333-34517-2, 333-42549, 333-45183, 333-47537, 333-69505, 333-75303, 333-78475, 333-51544, 333-38638, 333-64738, 333-71250, 333-58670, 333-89686, 333-98933, 333-102059 and 333-22003 on Form S-8 of our report dated February 25, 2004 (which expresses an unqualified opinion and includes an explanatory paragraph with respect to the adoption of the fair value method of accounting for stock-based compensation and the consolidation provisions for variable interest entities in 2003, the non-amortization provisions for goodwill and other indefinite-lived intangible assets in 2002, and the modification of the accounting treatment relating to securitization transactions and the accounting for derivative instruments and hedging activities in 2001) appearing in this Annual Report on Form 10-K of Cendant Corporation for the year ended December 31, 2003.

/s/ Deloitte & Touche LLP
New York, New York
February 25, 2004



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INDEPENDENT AUDITORS' CONSENT

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Exhibit 31.1


CERTIFICATIONS

I, Henry R. Silverman, certify that:

1.
I have reviewed this annual report on Form 10-K of Cendant Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 1, 2004

    /s/  HENRY R. SILVERMAN      
Chief Executive Officer		    


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CERTIFICATIONS

Exhibit 31.2

I, Ronald L. Nelson, certify that:

1.
I have reviewed this annual report on Form 10-K of Cendant Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 1, 2004

    /s/  RONALD L. NELSON      
Chief Financial Officer		    


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Exhibit 32


CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Cendant Corporation (the "Company") on Form 10-K for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Henry R. Silverman, as Chief Executive Officer of the Company, and Ronald L. Nelson, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:


/s/  HENRY R. SILVERMAN      
Henry R. Silverman
Chief Executive Officer
March 1, 2004		  

/s/  RONALD L. NELSON      
Ronald L. Nelson
Chief Financial Officer
March 1, 2004
 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.



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CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002