EXHIBIT 10.4



 






Exhibit 10.4



TAX SHARING AGREEMENT




by and among




CENDANT CORPORATION




and




PHH CORPORATION





 


























































*The term
“Confidential” indicates material that has been omitted and
for which confidential treatment has been requested. All such omitted
material has been filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.











 








TAX SHARING AGREEMENT



This Tax Sharing Agreement (this “Agreement”) is dated as of January 31, 2005, by and among
Cendant Corporation, a Delaware corporation (“Cendant”), PHH Corporation, a Maryland corporation
(“PHH”), and each PHH Affiliate that executes this Agreement. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to such terms in Article VII hereof.



RECITALS



WHEREAS, as of the date hereof, Cendant and its direct and indirect domestic subsidiaries are
members of an Affiliated Group, of which Cendant is the common parent corporation;


WHEREAS, Cendant’s Board of Directors has determined that it is appropriate and desirable for
Cendant to distribute all of its shares of PHH common stock to Cendant shareholders;


WHEREAS, Cendant and PHH have agreed to undertake a series of transactions including (i) as
more fully set forth in the Steps Memo, the contribution by PHH to Cendant Mobility Services
Corporation, a Delaware corporation (“Mobility”), of certain assets, and, in connection therewith,
the distribution by Mobility to PHH of $100 million to be distributed by PHH to its creditors,
followed by the distribution by PHH to Cendant of all of the stock of Mobility (collectively, the
“Internal Distribution”), (ii) the distribution by Cendant to its common shareholders pro rata of
all of the stock of PHH (the “Distribution”), and (iii) each of the other transactions set forth in
the Steps Memo and each other transaction effected on or before the Distribution Date that is
related to the transactions set forth in the Steps Memo (collectively, the “Internal
Reorganization”); and


WHEREAS, the Internal Distribution is intended to qualify as a reorganization and distribution
that are tax-free to PHH, Mobility, and Cendant under sections 368(a)(1)(D), 361(c), and 355 of the
Code; the Distribution is intended to qualify as a distribution that is tax-free to Cendant and its
shareholders under section 355 of the Code; and steps comprising the Internal Reorganization are
intended to be tax-free to Cendant and PHH and their respective affiliates.


WHEREAS, in contemplation of the Distribution pursuant to which PHH and its direct and
indirect domestic subsidiaries will cease to be members of the Affiliated Group of which Cendant is
the common parent, Cendant and PHH desire to set forth their agreement on the rights and
obligations of Cendant and PHH and their respective groups with respect to handling and allocating
Taxes for periods beginning before and after the Distribution Date, Taxes, if any, resulting from
transactions effectuated in connection with the Internal Distribution, the Distribution, the
Internal Reorganization, and various other Tax matters.



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NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and
provisions of this Agreement, Cendant and PHH mutually covenant and agree as follows:



ARTICLE I




PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES



Section 1.1      Cendant’s Responsibility. (a) Cendant shall have sole and exclusive
responsibility for the preparation and timely filing of:


(i)      all Cendant Separate Income Tax Returns;


(ii)      all Cendant Consolidated and Combined Income Tax Returns; and


(iii)      all Tax Returns required to be filed by Cendant or any Cendant Affiliate
with respect to Other Taxes

as determined pursuant to Section 1.3 hereof.


(b)           Subject to Section 1.2(c), and Sections 2.1(b), (c), and (d), Cendant shall be liable for
and shall timely pay, or cause to be paid, to the applicable Taxing Authority all Taxes required to
be reported on Tax Returns for which it has responsibility under this Section 1.1 and shall be
entitled to receive and retain any refunds of Taxes paid with respect thereto.


Section 1.2      PHH’s Responsibility. (a) PHH shall have sole and exclusive
responsibility for the preparation and timely filing of:


(i)      all PHH Separate Income Tax Returns;


(ii)      all PHH Consolidated and Combined Income Tax Returns; and


(iii)      all Tax Returns required to be filed by PHH or any PHH Affiliate with
respect to Other Taxes as

determined pursuant to Section 1.3 hereof.


(b)      Subject to Section 2.1(a), (c), and (d), PHH shall be liable for and shall timely pay, or
cause to be paid, to the applicable Taxing Authority all Taxes required to be reported on Tax
Returns for which it has responsibility under this Section 1.2 and subject to Section 1.6, shall be
entitled to receive and retain any refunds of Taxes paid with respect thereto.


(c)      Notwithstanding Section 1.1 or any other provision of this Agreement to the contrary, PHH
shall be liable for any Taxes attributable to transactions or actions taken by



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PHH or any PHH Affiliate on the Distribution Date, except for (i) any transactions or actions
undertaken in the ordinary course of business consistent with past practices or (ii) the
Distribution, to the extent PHH would not otherwise be liable for any such Taxes under Section
2.1(b), (c), or (d). To the extent required or permissible, any extraordinary item, within the
meaning of Treasury Regulation Section 1.1502-76(b)(2)(ii)(C), of PHH or any PHH Affiliate that
occurs or results from a transaction that takes place on the Distribution Date shall be treated as
occurring at the beginning of the day following the Distribution Date.


Section 1.3      Liability for Other Taxes. PHH shall and shall cause each PHH Affiliate
to prepare and timely file all Tax Returns for Other Taxes in respect of which the legal incidence
of the Other Tax is imposed on PHH or any PHH Affiliate, as the case may be, and PHH shall be
liable for and timely pay (or cause to be paid) all such Other Taxes. Cendant shall and shall
cause each Cendant Affiliate to prepare and timely file all Tax Returns for Other Taxes in respect
of which the legal incidence of the Other Tax is imposed on Cendant or any Cendant Affiliate, as
the case may be, and Cendant shall be liable for and timely pay (or cause to be paid) all such
Other Taxes. Responsibility for filing any Tax Return and liability for paying any Other Tax that
is legally imposed on more than one legal entity (e.g., joint and several liability) shall be
allocated in accordance with past practices as reasonably determined by Cendant, or in the absence
of such practices, in accordance with any reasonable allocation method determined by Cendant.


Section 1.4      Agent. PHH hereby irrevocably designates, and agrees to cause each PHH
Affiliate to so designate, Cendant as its sole and exclusive agent and attorney-in-fact and agrees
to take such action and to cause the PHH Affiliates to take such action (including execution of
powers of attorney and other documents) as Cendant may reasonably request in connection with any
matter relating to Taxes, provided, that except as otherwise provided in Section 1.6(g) and
Section 5.4, this Section 1.4 shall not apply to Taxes described in Section 1.2(b).


Section 1.5      Manner of Tax Return Preparation.


(a)      Unless otherwise required by a Taxing Authority, the parties hereto shall prepare and file
all Tax Returns and take all other actions in a manner consistent with this Agreement. All Tax
Returns shall be filed on a timely basis (taking into account applicable extensions) by the party
responsible for filing such Tax Returns under this Agreement.


(b)      Subject to Section 1.5(a), Cendant shall have the exclusive right in its reasonable
discretion with respect to any Tax Return described in Section 1.1 to determine all relevant
matters, including without limitation (1) the manner in which such Tax Return shall be prepared and
filed, including the elections, methods of accounting, positions, conventions and principles of
taxation to be used and the manner in which any Tax Asset or Tax related matter regarding such Tax
Return shall be reported, provided that Cendant shall elect out of bonus depreciation under
section 168(k) of the Code for PHH and each PHH Affiliate for the taxable year ended December 31,
2004, (2) whether any extensions may be requested, (3) the elections that will be made by Cendant,
any Cendant Affiliate, PHH, or any PHH Affiliate on such Tax



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Return, (4) whether any amended Tax Return(s) shall be filed, (5) whether any claim(s) for
refund shall be made, (6) whether any refund shall be paid by way of refund or credited against any
liability for the related Tax, and (7) whether to retain outside firms to prepare or review such
Tax Returns.


Section 1.6      Certain Tax Benefits.


(a)      PHH shall pay to Cendant the amount of any Tax Benefit Realized by PHH or any PHH
Affiliate in each taxable year that is attributable to the transactions undertaken pursuant to the
Avis Merger Agreement being characterized in a manner other than as reported by Cendant or any
Cendant Affiliate on its originally filed applicable income Tax Returns. Within sixty (60) days of
any Final Determination that may give rise to an obligation of PHH under this Section 1.6(a) (an
“Avis Final Determination”), Cendant shall notify PHH in writing of such Avis Final Determination
and shall provide PHH with such information reasonably required by PHH for PHH and each relevant
PHH Affiliate to account for any Tax Asset (or any increase in any Tax Asset) and to determine the
Tax Benefit potentially available attributable to the Avis Final Determination. Notwithstanding
the foregoing, the failure of Cendant to provide notice to PHH within the time required by the
preceding sentence shall not relieve PHH of any liability and/or obligation which it may have under
this Section 1.6.


(b)      Within sixty (60) days after PHH receives notice of any Avis Final Determination, PHH
shall provide to Cendant a schedule showing, in reasonable detail, the effect of the Avis Final
Determination (the “Tax Benefit Schedule”) on any Tax Asset or Tax liability of PHH and the PHH
Affiliates for each taxable period ending on or before the date of the notice for which PHH filed
the applicable Tax Return. Within thirty (30) days of the finalization of the Tax Benefit
Schedule, as described in subsection (d) below, PHH shall take or cause to be taken all steps
necessary or appropriate to Realize any Tax Benefit attributable to past taxable periods, including
the prompt filing of amended Tax Returns and/or claims for refund.


(c)      PHH shall file and shall cause each PHH Affiliate to file all current and future Tax
Returns consistent with the Avis Final Determination and so as to Realize as quickly as possible
any Tax Benefit potentially available to PHH and each PHH Affiliate, and shall provide to Cendant a
Tax Benefit Schedule and a calculation of the Tax Benefit Realized annually, no later than 120 days
prior to the due date, including applicable extensions, of PHH’s federal Income Tax Return until
such time as the parties in good faith agree that PHH has no remaining obligation for any Tax
Benefit.


(d)      Each time PHH delivers the Tax Benefit Schedule to Cendant, PHH shall also (i) deliver to
Cendant schedules and work papers providing reasonable detail regarding the preparation of the Tax
Benefit Schedule and the Tax Benefit Realized and an Advisory Firm Letter supporting such Tax
Benefit Schedule and Tax Benefit Realized and (ii) allow Cendant reasonable access to the
appropriate representatives at PHH and each PHH Affiliate and the Advisory Firm in connection with
its review of such schedule. The Tax Benefit Schedule shall become final and binding on the
parties unless Cendant, within thirty (30) calendar days after receiving such schedule, provides
PHH with notice of a good faith objection to such Tax Benefit



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Schedule. If a Dispute arises between PHH and Cendant with respect to the Tax Benefit
Schedule, Tax Benefit or the Tax Benefit Realized, such Dispute shall be resolved in accordance
with the principles and procedures set forth in Section 6.3.


(e)      PHH shall pay Cendant the amount of Tax Benefit Realized by PHH and each PHH Affiliate
within thirty (30) days of the date on which such Tax Benefit is Realized by PHH or such PHH
Affiliate, as the case may be.


(f)      There shall be an adjustment to any Tax Benefit calculated under Section 1.6 hereof in the
event of an Audit which results in a Final Determination that increases or decreases the amount of
such Tax Benefit to PHH or any PHH Affiliate reported on any relevant Tax Return of PHH or any PHH
Affiliate. PHH shall promptly inform Cendant of any such Audit, shall use its reasonable best
efforts to sustain the Tax Benefit at issue in the Audit, and shall, at Cendant’s request, allow
Cendant to participate in the Audit. Upon receiving written notice of a Final Determination
affecting any Tax Benefit, PHH shall redetermine the relevant Tax Benefit, taking into account the
Final Determination (the “Restated Tax Benefit”). If the Restated Tax Benefit is greater than the
relevant Tax Benefit, PHH shall promptly pay Cendant the difference between such amounts. If the
Restated Tax Benefit is less than the relevant Tax Benefit, Cendant shall pay to PHH the difference
between such amounts promptly after receipt of written notice setting forth the amount due and the
computation thereof.


(g)      New Jersey Business Incentive Program.


(i)      Notwithstanding anything to the contrary set forth in this Agreement,
Cendant shall have the exclusive right and sole discretion to control, contest and
represent the interests of PHH and each PHH Affiliate in any filing, claim and/or
proceeding relating or attributable to the New Jersey Business Employment Incentive
Program (the “BEIP”) for all periods ending on or prior to the Distribution Date.
In connection with this Section 1.6(g), PHH shall designate, and shall cause each
PHH Affiliate to designate, Cendant (and Cendant employees and representatives of
Cendant) as its attorney-in-fact and agrees to take such action and cause each PHH
Affiliate to take such action (including execution of appropriate powers of attorney
and other documents) as Cendant may reasonably request for all periods ending on or
prior to the Distribution Date. With respect to a filing, claim and/or proceeding
relating or attributable to the BEIP for a Straddle Period (as defined below), PHH
shall have the right and discretion to control, contest and represent the interests
of PHH and each PHH Affiliate, provided that (x) Cendant shall have the
right to participate in any such contest or other matter relating to the BEIP for
such Straddle Period, and PHH and each PHH Affiliate shall keep Cendant fully
informed of all matters relating to such contest or other matter and (y) PHH shall
use reasonable best efforts to obtain any BEIP Payments (as defined below) that are
attributable to such Straddle Period and are otherwise legally obtainable by PHH
and/or one or more PHH Affiliates.




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\





(ii)      Notwithstanding anything to the contrary set forth in this Agreement, PHH
shall pay to Cendant, no later than five calendar days after receipt by PHH and each
PHH Affiliate, as the case may be, of each BEIP Payment (as defined below), an
amount equal to (x) with respect to all periods ending on or before the Distribution
Date, the Net BEIP Payment (as defined below) attributable to each BEIP Payment and
(y) with respect to any period that begins on or before and ends after the
Distribution Date (a “Straddle Period”), the Net BEIP Payment for such Straddle
Period multiplied by a fraction the numerator of which is the number of calendar
days in the Straddle Period ending on (and including) the Distribution Date and the
denominator of which is the number of calendar days in such entire Straddle Period.
For purposes of the Agreement, (i) “BEIP Payment” means each payment received by PHH
and each PHH Affiliate from the State of New Jersey attributable to the BEIP, (ii)
“Net BEIP Payment” means the excess of (x) one hundred percent (100%) of each BEIP
Payment received by PHH and each PHH Affiliate over (y) the PHH BEIP Deductible
Amount, and (iii) “PHH BEIP Deductible Amount” means, with respect to each BEIP
Payment, the lesser of (x) 10 percent of such BEIP Payment
and (y) *CONFIDENTIAL. PHH shall provide to Cendant promptly upon request any contract
(and any modification or amendments thereto) between PHH and the PHH Consultant.


Section 1.7      Net Operating Losses. Notwithstanding any other provision of this
Agreement, PHH shall elect (under section 172(b)(3) of the Code and, to the extent feasible, any
similar provision of any state, local or foreign Tax law) to relinquish any right to carry back net
operating losses to any Cendant Consolidated and Combined Income Tax Return.



ARTICLE II




DISTRIBUTION TAXES AND INTERNAL REORGANIZATION TAXES



Section 2.1      Distribution Taxes and Internal Reorganization Taxes.


(a)      Cendant’s Liability for Distribution Taxes and Internal Reorganization Taxes.
Notwithstanding any other provision of this Agreement to the contrary other than Section 2.1(c),
Cendant shall be liable for one hundred percent (100%) of any Distribution Taxes and/or Internal
Reorganization Taxes that are attributable to, or result from, one or more of the following:


(i)      any action, or failure or omission to act, by Cendant or any Cendant
Affiliate that is inconsistent with any material, information, fact, or statement,
or that constitutes a breach of any covenant or representation, pertaining to
Cendant or any Cendant Affiliate in the Cendant Representation Letters;



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*The term
“Confidential” indicates material that has been omitted and
for which confidential treatment has been requested. All such omitted
material has been filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.










 




(ii)      any action, or failure or omission to act, by Cendant or any Cendant
Affiliate after the Distribution, including, without limitation, a cessation,
transfer to affiliates, or disposition of its active trades or businesses or other
businesses, or an issuance of stock, stock buyback, or payment of an extraordinary
dividend by Cendant or any Cendant Affiliate following the Distribution;


(iii)      any acquisition of stock or other equity or assets of Cendant or any
Cendant Affiliate by one or more other Persons occurring prior to or following the
Distribution; or


(iv)      any issuance of stock by Cendant or any Cendant Affiliate, or change in
ownership of stock in Cendant or any Cendant Affiliate, that causes section 355(d)
or section 355(e) of the Code to apply to the Distribution.


(b)      PHH’s Liability for Distribution Taxes and Internal Reorganization Taxes.
Notwithstanding any other provision of this Agreement to the contrary other than Section 2.1(c),
PHH shall be liable for one hundred percent (100%) of any Distribution Taxes and/or Internal
Reorganization Taxes that are attributable to, or result from, one or more of the following:


(i)      any action, or failure or omission to act, by PHH or any PHH Affiliate that
is inconsistent with any material, information, fact, or statement, or that
constitutes a breach of any covenant or representation, pertaining to PHH in the PHH
Representation Letter;


(ii)      any action, or failure or omission to act, by PHH or any PHH Affiliate
after the Distribution, including without limitation, a cessation, transfer to
affiliates or disposition of its active trades or businesses or other businesses, or
an issuance of stock, stock buyback, or payment of an extraordinary dividend by PHH
or any PHH Affiliate following the Distribution;


(iii)      any acquisition of stock or other equity or assets of PHH or any PHH
Affiliate by one or more other Persons following the Distribution; or


(iv)      any issuance of stock by PHH or any PHH Affiliate, or change in ownership
of stock in PHH or any PHH Affiliate, that causes section 355(d) or section 355(e)
of the Code to apply to the Distribution.


(c)      First Party Responsible. The first party to act or fail to act in a manner that
results in the imposition of Distribution Taxes and/or Internal Reorganization Taxes shall be
liable for one hundred percent (100%) of such Distribution Taxes and/or Internal Reorganization
Taxes pursuant to Section 2.1(a) or 2.1(b), as applicable; provided, that if such first
party is subsequently able to act, and does act, in a manner that results in Distribution Taxes
and/or Internal Reorganization Taxes not being imposed, then such first party shall not be liable
for any



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Distribution Taxes and/or Internal Reorganization Taxes imposed as a result of any act, or
failure or omission to act, by the other party subsequent to the first party’s action, or failure
or omission to act.


(d)      “No Fault” Allocation. In the event of the imposition of Distribution Taxes or
Internal Reorganization Taxes for which neither party is liable pursuant to Sections 2.1(a) or
2.1(b), such Taxes shall be borne 86.3 percent by Cendant and 13.7 percent by PHH.


Section 2.2      Continuing Covenants.


(a)      PHH shall not and shall cause the PHH Affiliates not to take any action, or fail or omit
to take any action that would cause any of the facts, representations or statements set forth in
the PHH Representation Letter to be untrue. Moreover, (x) during the two-year period following the
Distribution Date, PHH will not cease to be engaged in the active trade or business relied upon for
purposes of satisfying the requirements of Section 355(b) of the Code with respect to the Internal
Distribution and/or the Distribution, and (y) during the applicable period provided in Section
355(e)(2)(B) of the Code with respect to the Distribution, PHH will not enter into any transaction
or make or permit any change in equity structure (including, without limitation, stock issuances,
pursuant to the exercise of options, option grants or otherwise, capital contributions, or mergers
or acquisitions, but not including the Distribution) that could cause the Distribution or the
Internal Distribution to be treated as part of a plan pursuant to which one or more Persons acquire
directly or indirectly PHH stock representing a “50-percent or greater interest” within the meaning
of Section 355(e) of the Code.


(b)      Notwithstanding Section 2.2(a), PHH shall be permitted to take and shall permit the PHH
Affiliates to take actions inconsistent with the covenants contained in such section if: (i) PHH
obtains a ruling from the IRS in form and substance acceptable to Cendant to the effect that such
actions will not result in the Distribution, the Internal Distribution or the Internal
Reorganization, as the case may be, being taxable transactions, in whole or in part, or (ii) PHH
obtains an opinion in form and substance acceptable to Cendant of nationally recognized tax counsel
acceptable to Cendant to the effect that such actions will not result in the Distribution, the
Internal Distribution or the Internal Reorganization being taxable transactions, in whole or in
part. Notwithstanding the receipt of an IRS ruling or a tax opinion described in this Section
2.2(b), PHH and the PHH Affiliates shall not be relieved of any indemnification obligations under
this Agreement.



ARTICLE III




INDEMNIFICATION



Section 3.1      Generally.


(a)      Cendant shall indemnify PHH, each PHH Affiliate, and their respective directors, officers
and employees, and hold them harmless from and against all Taxes and associated Losses, without
duplication, (i) for which Cendant is liable under this Agreement,



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(ii) imposed on PHH or any PHH Affiliate under Treasury Regulation Section 1.1502-6 (or any
corresponding provision of state, local, or foreign Tax law) as a result of PHH or any PHH
Affiliate being a member of the Affiliated Group (or similar group under state, local, or foreign
Tax law) of which Cendant or any Cendant Affiliate is the common parent, except to the extent that
PHH otherwise would be liable for such Taxes under Article II of this Agreement, or (iii)
attributable to a breach of any covenant or obligation of Cendant under this Agreement.


(b)      PHH shall indemnify Cendant, each Cendant Affiliate, and their respective directors,
officers, and employees, and hold them harmless from and against all Taxes and associated Losses,
without duplication, (i) for which PHH is liable under this Agreement, (ii) imposed on any Cendant
Affiliate under Treasury Regulation Section 1.1502-6 (or any corresponding provision of state,
local, or foreign Tax law) as a result of any Cendant Affiliate being a member of the Affiliated
Group (or similar group under state, local, or foreign Tax law) of which PHH or any PHH Affiliate
is the common parent, except to the extent that Cendant otherwise would be liable for such Taxes
under Article II of this Agreement, or (iii) attributable to a breach of any covenant or obligation
of PHH under this Agreement.


Section 3.2      No Indemnification for Tax Attributes. Notwithstanding anything to the
contrary contained in this Agreement, Cendant shall not indemnify PHH or any PHH Affiliate from and
against, and none of PHH or any PHH Affiliate shall be entitled to indemnification pursuant to this
Agreement, for any Taxes or Losses resulting from PHH or any PHH Affiliates not having, or having a
reduced amount, of Tax attributes (including basis of assets, net operating loss carryovers and
credit carryovers).



ARTICLE IV




PAYMENTS



Section 4.1      Payments Under This Agreement. Any payment required to be made pursuant
to this Agreement by one party to the other shall be made according to this Section 4.1.


(a)      In General. All payments shall be made within the time prescribed for payment in
this Agreement, or if no period is prescribed, within twenty (20) days after delivery of written
notice of payment owing together with a computation of the amounts due.


(b)      Treatment of Payments. Unless otherwise required by any Final Determination,
payments made by one party to another party (other than payments of interest pursuant to Section
4.1(e) and payments of After Tax Amounts pursuant to Section 4.1(d)) pursuant to this Agreement
shall be treated for all Tax and financial accounting purposes as nontaxable payments (dividend
distributions or capital contributions, as the case may be) made immediately prior to the
Distribution and, accordingly, as not includible in the taxable income of the recipient.



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(c)      Prompt Performance. All actions required to be taken by any party under this
Agreement shall be performed within the time prescribed for performance in this Agreement, or if no
period is prescribed, such actions shall be performed promptly.


(d)      After Tax Amounts. If, pursuant to a Final Determination, it is determined that
the receipt or accrual of any payment made under this Agreement (other than payments pursuant to
Section 1.6 or of interest pursuant to Section 4.1(e)), including any payment made pursuant to this
Section 4.1(d), is includible in income by the receiving party, the party making such payment shall
pay to the receiving party an additional amount equal to (a) the After Tax Amount with respect to
such payment and (b) interest at the rate described in Section 4.1(e) on the amount of any Tax
attributable to such inclusion in income from the date such Tax accrues through the date of payment
of such After Tax Amount. A party making a demand for a payment pursuant to this Agreement and for
a payment of an After Tax Amount with respect to such payment shall separately specify and compute
such After Tax Amount. However, a party may choose not to specify an After Tax Amount in a demand
for payment pursuant to this Agreement without thereby being deemed to have waived its right
subsequently to demand an After Tax Amount with respect to such payment.


(e)      Interest. Payments pursuant to this Agreement that are not made within the period
prescribed in this Agreement (the “Payment Period”) shall bear interest for the period from and
including the date immediately following the last date of the Payment Period through and including
the date of payment at a per annum rate equal to the prime rate as published in The Wall Street
Journal on the last day of such Payment Period, plus two percent (2%). Such interest shall be
payable at the same time as the payment to which it relates and shall be calculated on the basis of
a year of 365 days and the actual number of days for which due.



ARTICLE V




TAX PROCEEDINGS



Section 5.1      Audits. Subject to Section 5.4, the party responsible for preparing and
filing a Tax Return pursuant to Article I (the “Filing Party”) shall have the exclusive right to
control, contest, and represent the interests of Cendant, any Cendant Affiliate, PHH, and any PHH
Affiliate, as applicable, in any Audit relating to such Tax Return and, in its reasonable
discretion, to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted
or assessed in connection with or as a result of any such Audit. The Filing Party’s rights shall
extend to any matter pertaining to the management and control of an Audit, including execution of
waivers, choice of forum, scheduling of conferences and the resolution of any Tax related matter
regarding such Tax Return.


Section 5.2      Notice. Within ten (10) days after a party receives a written notice or
other information from a Taxing Authority of the existence of a Tax issue that may require the
indemnifying party to indemnify the receiving party under this Agreement, such party shall notify
the indemnifying party of such issue, and thereafter shall promptly forward to the other



10









 






party copies of notices and material communications with any Taxing Authority relating to such
issue. The failure of one party to notify the other party of any matter relating to a particular
Tax for a taxable period or to take any action specified in this Agreement shall not relieve such
other party of any liability and/or obligation which it may have under this Agreement with respect
to such Tax for such taxable period, except to the extent that such other party’s rights under this
Agreement are materially prejudiced by such failure.


Section 5.3      Remedies. PHH shall make no claim against Cendant and shall not raise or
assert any defense to PHH’s liabilities and/or obligations to Cendant under this Agreement based
upon the resolution by Cendant of any deficiency, claim or adjustment relating to any Tax related
matter pertaining to Cendant or any Cendant Affiliate.


Section 5.4      Control of Distribution Tax and Internal Reorganization Tax Proceedings.
Notwithstanding any other provision of this Agreement to the contrary, Cendant shall have the
exclusive right and sole discretion to control, contest, and represent the interests of Cendant,
any Cendant Affiliate, PHH, and any PHH Affiliate in any Audits (including, without limitation,
audits of PHH Separate Income Tax Returns) relating to Distribution Taxes and/or Internal
Reorganization Taxes and to resolve, settle or agree to any deficiency, claim or adjustment
proposed, asserted or assessed in connection with or as a result of any such Audit,
provided that to the extent that Cendant reasonably believes that PHH may potentially have
liability for such Distribution Taxes and/or Internal Reorganization Taxes pursuant to this
Agreement, Cendant shall permit PHH to participate in the relevant Audit. Cendant’s rights shall
extend to any matter pertaining to the management and control of such Audit, including execution of
waivers, choice of forum, scheduling of conferences and the resolution of any Tax related matter
regarding such Tax Return. In connection with this Section 5.4, PHH shall designate and shall
cause the PHH Affiliates to designate, Cendant (and Cendant employees and representatives of
Cendant) as its attorney-in-fact and agrees to take such action and to cause the PHH Affiliates to
take such action (including execution of appropriate powers of attorney and other documents) as
Cendant may reasonably request.



ARTICLE VI




MISCELLANEOUS PROVISIONS



Section 6.1      Effectiveness. This Agreement shall become effective on the Distribution
Date.


Section 6.2      Cooperation and Exchange of Information.


(a)      Cooperation. PHH and Cendant shall each cooperate fully (and each shall cause its
respective affiliates to cooperate fully) with all reasonable requests from the other party hereto,
or from an agent, representative or advisor to such party, in connection with the preparation and
filing of Tax Returns, claims for refund, Audits, and other matters related to



11









 






Taxes covered by this Agreement. Such cooperation shall include, without limitation, at each
party’s own cost:



(i)      the retention until the expiration of the applicable statute of
limitations, and the provision upon request, of Tax Returns, books, records
(including information regarding ownership and Tax basis of property), documentation
and other information relating to the Tax Returns, including accompanying schedules,
related work papers, and documents relating to rulings or other determinations by
Taxing Authorities;


(ii)      the execution of any document that may be necessary or reasonably helpful
in connection with any Audit, or the filing of a Tax Return or refund claim by
Cendant or any Cendant Affiliate or PHH or any PHH Affiliate, including
certification, to the best of a party’s knowledge, of the accuracy and completeness
of the information it has supplied; and


(iii)      the use of the party’s reasonable best efforts to obtain any
documentation that may be necessary or reasonably helpful in connection with any of
the foregoing.


Each party shall make its employees and facilities available on a reasonable and mutually
convenient basis in connection with the foregoing matters. Notwithstanding anything to the
contrary contained in this Agreement or otherwise, neither PHH nor any PHH Affiliate shall have the
right to receive or obtain any information relating to Taxes of Cendant, any Cendant Affiliate or
its predecessors, in each case, other than information relating solely to PHH or a PHH Affiliate.


(b)      Retention of Records. Subject to Section 6.2(a), a party intending to dispose of
documentation relating to the Taxes of Cendant or any Cendant Affiliate or PHH or any PHH
Affiliate, including without limitation, Tax Returns, books, records, documentation and other
information relating to the Tax Returns, including accompanying schedules, related work papers, and
documents relating to rulings or other determinations by Taxing Authorities (after the expiration
of the applicable statute of limitations) as permitted by this Agreement, shall provide written
notice to the other party describing the documentation to be destroyed or disposed of sixty (60)
business days prior to taking such action. The other party may arrange to take delivery of the
documentation described in the notice at its expense during the succeeding sixty (60) day period.


Section 6.3      Dispute Resolution. Any dispute, controversy or claim arising out of or
relating to this Agreement or the breach, termination or validity hereof (“Dispute”) shall first be
negotiated between the appropriate senior executives of Cendant and PHH who have the authority to
resolve the matter. Such executives shall meet to attempt in good faith to negotiate a resolution
of the Dispute prior to pursuing other available remedies, within ten (10) days of receipt by
Cendant or PHH, as applicable, of notice of a Dispute, which date of receipt shall be referred to
herein as the “Dispute Resolution Commencement Date.” If the senior executives are



12









 






unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement
Date, then Cendant and PHH shall jointly retain an Independent Firm to resolve the Dispute. If
Cendant and PHH cannot mutually agree upon an Independent Firm, then any Dispute which Cendant and
PHH cannot resolve within thirty (30) days from the Dispute Resolution Commencement Date shall be
resolved by a nationally recognized accounting firm selected by the American Arbitration
Association; provided, that the American Arbitration Association shall not select any
accounting firm that is then providing auditing services to Cendant, any Cendant Affiliate, PHH or
any PHH Affiliate. The accounting firm selected by Cendant and PHH or the American Arbitration
Association, as the case may be, shall act as an arbitrator to resolve all points of disagreement,
and its decision shall be final and binding upon all parties involved. Following the decision of
such firm, Cendant and PHH shall each take or cause to be taken any action necessary to implement
the decision of such firm. Cendant and PHH shall share equally the administrative costs of the
arbitration and such firm’s fees and expenses, and shall each bear their respective other costs and
expenses related to the arbitration.


Section 6.4      Notices. Notices, offers, requests or other communications required or
permitted to be given by any party pursuant to the terms of this Agreement shall be given in
writing to Cendant or PHH, as applicable, to the following addresses or facsimile numbers:


If to Cendant, at:


Cendant Corporation

9 West 57th Street

37th Floor

New York, NY 10019

Attention: Erick Bock

EVP, Legal Corporate Secretary

Fax Number: (212) 413-1922


with a copy to:

Cendant Corporation

1 Campus Drive

Parsippany, NJ 07054

Attention: Joseph Huber

Group Vice President, Corporate Taxes

Fax Number: (973) 496-7390


If to PHH, at:


Cendant Mortgage

3000 Leadenhall Road

Mailstop LGL

Mount Laurel, NJ 08054

Attention: William F. Brown



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Senior Vice President & General Counsel

Fax Number: (856) 917-0950


with a copy to:

PHH Corporation

940 Ridgebrook Road

Sparks, MD 21152-9390

Attention: Michael Morrison

VP Corporate Tax

Fax Number: (410) 771-3362


or to such other address or facsimile number as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice involving
non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight
courier or, within the United States, may also be sent via certified mail, return receipt
requested. All other notices may also be sent by facsimile, confirmed by first class mail. All
notices shall be deemed to have been given when received, if hand-delivered; when receipt
confirmed, if transmitted by facsimile or similar electronic transmission method; one (1) working
day after it is sent, if sent by recognized overnight courier; and three (3) days after it is
postmarked, if mailed by first class mail or certified mail, return receipt requested, with postage
prepaid.


Section 6.5      Changes in Law.


(a)      Any reference to a provision of the Code, Treasury Regulations, or a law of another
jurisdiction shall include a reference to any applicable successor provision or law.


(b)      If, due to any change in applicable law or regulations or their interpretation by any
court of law or other governing body having jurisdiction subsequent to the date hereof, performance
of any provision of this Agreement or any transaction contemplated hereby shall become
impracticable or impossible, the parties hereto shall use their commercially reasonable efforts to
find and employ an alternative means to achieve the same or substantially the same result as that
contemplated by such provision.


Section 6.6      Confidentiality. Each of the parties hereto shall hold and cause its
directors, officers, employees, advisors, and consultants to hold in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by
other requirements of law, all information (other than any such information relating solely to the
business or affairs of such party) concerning the other parties hereto furnished it by such other
party or its representatives pursuant to this Agreement (except to the extent that such information
can be shown to have been (1) in the public domain through no fault of such party or (2) later
lawfully acquired from other sources not under a duty of confidentiality by the party to which it
was furnished), and no party shall release or disclose such information to any other Person, except
its directors, officers, employees, auditors, attorneys, financial advisors, bankers or other
consultants who shall be advised of and agree to be bound by the provisions of this Section 6.6.



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Each of the parties hereto shall be deemed to have satisfied its obligation to hold
confidential information concerning or supplied by the other parties if it exercises the same care
as it takes to preserve confidentiality for its own similar information.


Section 6.7      Assignment. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective legal representatives and successors, and nothing in
this Agreement, express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement. No party may assign this
Agreement or any rights or obligations hereunder, without the prior written consent of the other
parties hereto, and any such assignment shall be void; provided, that each of Cendant and
PHH may assign this Agreement to a successor entity in conjunction with such party’s
reincorporation without obtaining the consent of the other.


Section 6.8      Affiliates. Cendant shall cause to be performed, and hereby guarantees
the performance of, all actions, agreements and obligations set forth herein to be performed by any
Cendant Affiliate, and PHH shall cause to be performed, and hereby guarantees the performance of,
all actions, agreements and obligations set forth herein to be performed by any PHH Affiliate. PHH
shall, upon the written request of Cendant, cause any PHH Affiliate formally to execute this
Agreement; upon execution, each such PHH Affiliate shall become a party to this Agreement and shall
be jointly and severally liable the obligations of PHH hereunder.


Section 6.9      Authority. Each of the parties hereto represents to the other that (a) it
has the corporate power and authority to execute, deliver and perform this Agreement, (b) the
execution, delivery and performance of this Agreement by it have been duly authorized by all
necessary corporate or other action, (c) it has duly and validly executed and delivered this
Agreement and (d) this Agreement is a legal, valid and binding obligation, enforceable against it
in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally and general equity
principles.


Section 6.10      Entire Agreement. This Agreement and Appendix A attached hereto,
constitute the entire agreement between the parties with respect to the subject matter hereof and
shall supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof. To the extent that this Agreement is
inconsistent with any of such other agreements with respect to the matters discussed herein, this
Agreement shall control. Except as set forth in Article III of the Transition Services Agreement,
(i) this Agreement shall exclusively control matters relating to Taxes and (ii) neither the
Transition Services Agreement nor the Separation Agreement shall have any application to any matter
that is governed by this Agreement.


Section 6.11      Governing Law and Jurisdiction. This Agreement shall be construed in
accordance with, and all Disputes hereunder shall be governed by, the laws of the State of New
York, excluding its conflict of law rules.



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Section 6.12      Counterparts. This Agreement, including Appendix A hereto, may be
executed in counterparts, each of which shall be deemed to be an original but all of which shall
constitute one and the same agreement.


Section 6.13      Severability. If any term or other provision of this Agreement is
determined by a non-appealable decision by a court, administrative agency or arbitrator to be
invalid, illegal or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the parties as closely
as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled
to the fullest extent possible.


Section 6.14      Parties in Interest. This Agreement, including Appendix A hereto, shall
be binding upon Cendant and PHH, and any PHH Affiliate that executes this Agreement, and inure
solely to the benefit of PHH, any PHH Affiliate that executes this Agreement, and Cendant and their
respective permitted assigns, and nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of
this Agreement.


Section 6.15      Failure or Indulgence Not Waiver. No failure or delay on the part of any
party hereto in the exercise of any right hereunder shall impair such right or be construed to be a
waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor
shall any failure to exercise, or any single or partial exercise, of any such right preclude other
or further exercise thereof or of any other right.


Section 6.16      Amendments. No change or amendment will be made to this Agreement except
by an instrument in writing signed on behalf of each of the parties to this Agreement.


Section 6.17      Interpretation. When a reference is made in this Agreement to an Article
or a Section, or to an Appendix, such reference shall be to an Article or Section of, or an
Appendix to, this Agreement unless otherwise indicated. The headings contained in this Agreement,
in any Appendix, and in the table of contents to this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement. The use of the term
“including” in the Agreement shall always mean “including, without limitation”.


Section 6.18      Tax Sharing Agreements. As of the Closing Date, all tax sharing
agreements (including the Cendant Tax Sharing Agreement) between PHH and/or any PHH Affiliate, on
the one hand, and Cendant and/or any Cendant Affiliate, on the other hand, shall be terminated as
of the Distribution Date and, after the Distribution Date, none of the parties to any such tax
sharing agreement shall have any further rights or obligations under any such agreement.
Notwithstanding anything to the contrary contained in this Agreement, this Section



16









 






6.18 shall not operate to terminate any tax sharing agreement (including the Cendant Tax
Sharing Agreement) between or as it relates to Cendant, on the one hand, and any Cendant Affiliate,
on the other hand.



ARTICLE VII




DEFINITIONS



Section 7.1      Defined Terms. The following terms shall have the meanings given them in
this Section 7.1:


“Advisory Firm” means a nationally recognized accounting or law firm that is reasonably
acceptable to Cendant.


“Advisory Firm Letter” means a letter from an Advisory Firm stating that any Tax Benefit
Schedule or other information to be provided by PHH to Cendant pursuant to Section 1.6(d) and all
supporting schedules and work papers were prepared in a manner consistent with the terms of this
Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in
light of the facts and law in existence on the date of such Tax Benefit Schedule or other
information delivered to Cendant.


“Affiliated Group” means an affiliated group of corporations within the meaning of section
1504(a)(1) of the Code that files a United States federal consolidated Income Tax Return.


“After Tax Amount” means any additional amount necessary to eliminate (through a gross-up
mechanism) the Tax consequences of the receipt or accrual of any payment required to be made under
this Agreement (including payment of any additional amount required to gross up such additional
amounts), taking into account the effect of the deductions available for interest paid or accrued
and for Taxes such as state and local Income Taxes), and determined by assuming that the recipient
of the payment pays Tax at the highest applicable marginal corporate Tax rate (or rates, in the
case of an item that affects more than one Tax) for the relevant taxable period (or portion
thereof).


“Audit” includes any audit, assessment of Taxes, other examination by any Taxing Authority,
proceeding, or appeal of such a proceeding relating to Taxes, whether administrative or judicial,
including proceedings relating to competent authority determinations.


“Avis Final Determination” has the meaning set forth in Section 1.6(a).


“Avis Merger Agreement” means the Agreement and Plan of Merger and Reorganization by and
among PHH Corporation, PHH Holdings Corporation, Avis Rent A Car, Inc. and Avis Fleet Leasing and
Management Corporation, dated as of May 22, 1999.



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“Cendant Affiliate” means any corporation or other entity directly or indirectly Controlled
by Cendant immediately after the Distribution. For the avoidance of doubt, “Cendant
Affiliate” shall exclude PHH and each PHH Affiliate.


“Cendant Consolidated and Combined Income Tax Returns” means each Tax Return required to be
filed for Income Taxes of the federal Affiliated Group filing a consolidated Income Tax Return and
each state, local, or foreign affiliated, consolidated, combined, unitary, or similar group, in
each case, of which Cendant or any Cendant Affiliate is the common parent.


“Cendant Representation Letters” means the Tax Certificate from Cendant to Skadden dated
January 31, 2005, and the Business Purpose Letter from Cendant to Skadden dated January 31, 2005,
in which certain representations, warranties and covenants are made on behalf of Cendant in
connection with the issuance of the Tax Opinion.


“Cendant Separate Income Tax Return” means each Tax Return with respect to Income Taxes
required to be filed by Cendant or any Cendant Affiliate that is not a Cendant Consolidated or
Combined Return.


“Cendant Tax Sharing Agreement” means the Tax sharing agreement effective as of the first
day of the consolidated return year beginning January 1, 2003 by and between Cendant and its
subsidiaries.


“Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto.


“Control” means the ownership of stock, directly or indirectly, possessing at least 50
percent of the total combined voting power of all classes of stock entitled to vote.


“Dispute” has the meaning set forth in Section 6.3.


“Dispute Resolution Commencement Date” has the meaning set forth in Section 6.3.


“Distribution” has the meaning set forth in the recitals to this Agreement.


“Distribution Date” has the meaning set forth in the Separation Agreement between Cendant
and PHH dated as of January 31, 2005.


“Distribution Taxes” means the product of (x) the aggregate amount of any gain or income
recognized by Cendant, each Cendant Affiliate, PHH and each PHH Affiliate resulting from or arising
in connection with the failure of the Internal Distribution to be wholly tax-free under sections
355, 361(c), and/or 368(a)(1)(D) of the Code (or any other applicable section of the Code), or the
Distribution to be wholly tax-free under section 355 of the Code (or any other applicable sections
of the Code), including, without limitation, any gain or income resulting from the application of
section 355(d) or section 355(e) of the Code to the Distribution or the Internal Distribution, or
corresponding provisions of the laws of any other jurisdiction and (y) the highest applicable
marginal aggregate corporate Income Tax rate (for federal, state, local and foreign purposes) for
the relevant taxable period (or portion thereof). Notwithstanding the
foregoing,



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Distribution Taxes shall not include income or gain attributable to (i) intercompany items with
respect to (A) the December 31, 2002 transfer of Speedy Title and Appraisal Review Services
Corporation (“STARS”) by PHH Holdings to Cendant Settlement Services Group, Inc. (“CSSG”) or (B)
the transfer of certain domain names from Cendant Mortgage Corporation to one or more Cendant
Affiliates and/or (ii) any excess loss account with respect to the stock of PHH Corner Leasing,
Inc., PHH Market Leasing, Inc., PHH Milford Leasing, Inc., and PHH St. Paul Leasing, Inc. For
purposes of this definition, “intercompany items” and “excess loss accounts” shall be, in each
case, taken into account pursuant to the Treasury Regulations promulgated pursuant to section 1502
of the Code.


“Filing Party” has the meaning set forth in Section 5.1.


“Final Determination” means the final resolution of liability for any Tax for any taxable
period, by or as a result of: (i) a final and unappealable decision, judgment, decree or other
order by any court of competent jurisdiction; (ii) a final settlement with the IRS, a closing
agreement or accepted offer in compromise under Code sections 7121 or 7122, or a comparable
agreement under the laws of other jurisdictions, which resolves the entire Tax liability for any
taxable period; (iii) any allowance of a refund or credit in respect of an overpayment of Tax, but
only after the expiration of all periods during which such refund may be recovered by the
jurisdiction imposing the Tax; or (iv) any other final disposition, including by reason of the
expiration of the applicable statute of limitations.


“Income Tax” means any Tax determined by reference to income, net worth, gross receipts or
capital, or any such Taxes imposed in lieu of such Tax.


“Independent Firm” means a nationally recognized accounting firm acceptable to Cendant and
PHH.


“Internal Distribution” has the meaning set forth in the recitals to the Agreement.


“Internal Reorganization” has the meaning set forth in the recitals to the Agreement.




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“Internal Reorganization Taxes” means the product of (x) the aggregate amount of any gain
or income recognized by Cendant, each Cendant Affiliate, PHH and each PHH Affiliate resulting from
or arising in connection with the failure of any of the transactions set forth in the Steps Memo,
or any transactions related thereto, to be wholly tax-free and (y) the highest applicable marginal
aggregate corporate Income Tax rate (for federal, state, local and foreign purposes) for the
relevant taxable period (or portion thereof). Notwithstanding the forgoing, Internal
Reorganization Taxes shall not include (i) Distribution Taxes, (ii) income or gain attributable to
the sale, pursuant to the Steps Memo, of PHH stock by Cendant and/or the Cendant Rabbi Trust (as
defined in the Steps Memo), and (iii) income or gain attributable to (A) intercompany items with
respect to (x) the December 31, 2002 transfer of STARS by PHH Holdings to CSSG and (y) the transfer
of certain domain names from Cendant Mortgage Corporation to one or more Cendant Affiliates and/or
(B) any excess loss account with respect to the stock of PHH Corner Leasing, Inc., PHH Market
Leasing, Inc., PHH Milford Leasing, Inc., and PHH St. Paul Leasing, Inc. For purposes of this
definition, “intercompany items” and “excess loss
accounts” shall be, in each case, taken into account pursuant to the Treasury Regulations promulgated pursuant to section
1502 of the Code.


“IRS” means the United States Internal Revenue Service or any successor thereto, including,
but not limited to its agents, representatives, and attorneys.


“Losses” means any loss, cost, damage or expense, including reasonable attorneys’ fees and
costs attributable to the foregoing.


“Mobility” has the meaning set forth in the recitals.


“Other Taxes” means any Taxes other than Income Taxes.


“Payment Period” has the meaning set forth in Section 4.1(e).


“Person” means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity or any department, agency or political subdivision thereof.


“PHH Affiliate” means any corporation or other entity directly or indirectly Controlled by
PHH immediately after the Distribution. For purposes of this Agreement, PHH Affiliate shall also
include AFL, PHH Holdings, AFL Management, VMS Holdings, Inc., PHH Financial Services, Inc., PHH
Continental Leasing, Inc., PHH Auto Finance Corporation, Speedy Title & Appraisal Review Services
Corporation, and the successor of each of the foregoing.


“PHH Consolidated and Combined Income Tax Returns” means each Tax Return required to be
filed for Income Taxes of any federal Affiliated Group filing a consolidated Income Tax Return and
each state, local, or foreign affiliated, consolidated, combined, unitary, or similar group, in
each case, of which PHH or any PHH Affiliate is the common parent.


“PHH Representation Letter” means the Tax Certificate from PHH to Skadden dated January 31,
2005, in which certain representations, warranties and covenants are made on behalf of PHH in
connection with the issuance of the Tax Opinion.


“PHH Separate Income Tax Return” means each Tax Return with respect to Income Taxes
required to be filed by PHH or any PHH Affiliate that is not a PHH Consolidated or Combined Return.


“Realized” A Tax Benefit or other benefit shall be deemed to have been Realized from a Tax
Asset in a taxable period only if and to the extent that the Tax liability of the taxpayer (or of
the Affiliated Group or any other state, local, foreign or similar group of which it is a member)
for such period, after taking into account the effect of the Tax Asset on the Tax liability of such
taxpayer in the current period and all prior periods, is less than it would have been if such Tax
liability were determined without regard to such Tax Asset. For purposes of this definition and
Section 1.6, any carryback of a net operating loss or other tax attribute by PHH or any PHH
Affiliate to a taxable period shall be disregarded. For purposes of this Agreement, a Tax Benefit



20









 






shall be deemed to have been “Realized” (i) at the time of the filing of a Tax Return
(including any amended Tax Return or any Tax Return relating to estimated Taxes) on which a loss,
deduction or credit or increase in basis is applied to reduce the amount of Taxes which would
otherwise be payable and (ii) at the time of the filing of a claim or form for the refund of a Tax.


“Restated Tax Benefit” has the meaning set forth in Section 1.6(f).


“Separation Agreement” means the Separation Agreement between Cendant and PHH dated as of
January 31, 2005.


“Skadden” means Skadden, Arps, Slate, Meagher & Flom LLP.


“Steps Memo” means the memorandum attached hereto as Appendix A.


“Tax and Taxes” include all taxes, charges, fees, duties, levies, imposts, rates or other
assessments imposed by any federal, state, local or foreign Taxing Authority, including, but not
limited to, income, gross receipts, excise, property, sales, use, license, capital stock, transfer,
franchise, payroll, withholding, social security, value added and other taxes, and any interest,
penalties or additions attributable thereto.


“Tax Asset” means any loss, deduction (including any deduction attributable to depreciation
or amortization), credit, Tax basis, or other Tax attribute.


“Tax Benefit” means any reduction in the Tax liability of a taxpayer (or of the Affiliated
Group or any other state, local, foreign or similar group of which it is a member) for any taxable
period. For purposes of this Agreement, Tax Benefit shall include, without limitation, the
reduction of any Tax liability of a taxpayer resulting from any deductions from the amortization or
depreciation of property, or reduction in income or gain from the sale of property or increase in
any loss from the sale of property to the extent such loss reduces the Tax liability of the
taxpayer in such taxable year.


“Tax Benefit Schedule” has the meaning set forth in Section 1.6(b).


“Tax Opinion” means the opinions issued to Cendant by Skadden in connection with the
Internal Distribution, the Distribution and the Internal Reorganization.


“Tax Return” means any return, report, certificate, form or similar statement or document
(including any related or supporting information or schedule attached thereto and any information
return, amended tax return, claim for refund or declaration of estimated tax) required to be
supplied to, or filed with, a Taxing Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or administrative requirements
relating to any Tax.


“Taxing Authority” means any governmental authority or any subdivision, agency, commission
or authority thereof or any quasi-governmental or private body having jurisdiction over the
assessment, determination, collection or imposition of any Tax (including the IRS).



21









 




“Transition Services Agreement” means the Transition Services Agreement between Cendant and
PHH dated as of January 31, 2005.


“Treasury Regulations” means the final and temporary (but not proposed) income tax
regulations promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).



 

[SIGNATURE PAGE FOLLOWS]




22









 







WHEREFORE, the parties have signed this Tax Sharing Agreement effective as of the date first
set forth above.



	 	 	 	 	 	 
	 	 	CENDANT CORPORATION
	 
	 	 	 	 	 
	 
	 	/s/ Joseph J. Huber	 
	 	 	 	 
	 
	 	Name:	 	Joseph J. Huber
	 
	 	Title:	 	Group Vice President, Corporate Taxes
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	PHH CORPORATION
	 
	 	 	 	 
	 
	 	/s/ Terence W. Edwards 	 
	 	 	 	 
	 
	 	Name:	 	Terence W. Edwards
	 
	 	Title:	 	President & Chief Executive Officer






23