NEW YORK (CNNfn) - Walter Forbes, the embattled chairman of Cendant Corp., resigned Tuesday in a massive shakeup of the consumer services firm.
Cendant, which has been hounded by accounting errors and growing shareholder dissent, said eight other board members also agreed to step down and a ninth is expected to leave the company by the end of the year.
The company unanimously elected Henry Silverman, its sitting president and chief executive officer, to fill the position.
"Walter Forbes's decision and the corporate governance changes approved today end any uncertainty about the future direction and leadership of Cendant," Silverman said in a statement. "That uncertainty was a serious impediment to conducting our business and the process of restoring trust in our company."
Because Forbes resigned, he is entitled to a $35 million severance package plus unspecified options. Had he been terminated for "reasons other than for cause," Forbes would not have been able to collect severance benefits.
Package to reduce 3Q profit by 10 percent
In order to pay for Forbes' package, Cendant said it will record a one-time charge of 3 cents a share in the third quarter. According to First Call, analysts had expected the company to earn about 30 cents a share in the period.
Forbes maintains he was unaware of the accounting irregularities at CUC, which merged last year with HFS Inc. to form Cendant.
"Together with my talented, hard working and decent people, I devoted 25 years of my life to creating and building CUC International, which became an innovative force in developing and marketing consumer services," he said.
"Today, it is apparent that the actions of a few have profoundly hurt us all," he added. "And, as I have said on many occasions, I had absolutely no knowledge of the accounting irregularities. However, I now believe it is in the best interest of our shareholders and employees to resolve this uncertainty."
Cendant, based in Stamford, Conn., and Parsippany, N.J., is a marketer and franchiser of travel and real estate services.
In April, the company revealed "accounting irregularities" at CUC that it said would reduce 1997 net income by 11 cents to 13 cents a share. But two weeks ago, Cendant revised the impact estimate, saying the problems were much larger than thought and included $300 million in fabricated revenues over a three-year period.
Cendant reported 1997 earnings of $1 a share before one-time charges.
Execs called for Cendant to fire Forbes
The disclosure created a rift in company ranks, reports say, and prompted 44 senior executives to call on the company's board to fire Forbes, who once headed the CUC business units at the center of the controversy.
Cendant said Tuesday it will reset the exercise price of incentive stock options granted to middle management and other key employees in the period between December 1997 and March 1998. The options to be reset were granted with exercise prices between $31.38 and $37.50 per share, significantly higher than the company's current price of about $17 per share.
Incentive options for upper management will not be reset.
Cendant also noted that the audit committee's accountants, Arthur Andersen, and Cendant's auditor, Deloitte & Touche, had reported to the directors on the findings of their probes, which were said to be nearly complete. The findings were consistent with the company's announcement two weeks ago that a restatement will lower 1997 net income by 22 to 28 cents a share, before one-time and extraordinary items.
Cendant said it also expects the restatement will "reverse significantly more" one-time merger charges in 1997 than the $200 million, or 22 cents a share, originally projected.
The reversal of merger charges will not add to 1997 net income before one-time and extraordinary items, the company said. But Cendant said the change will reduce the impact of the restatement on 1997 net income and on Cendant's shareholder equity.
Cendant added it expects to issue full restated and audited historical financial results in early August.
In their letter to Cendant's board last week, the senior executives deplored the current state of affairs within the firm and contended "we cannot go forward under these circumstances."
The letter, signed jointly by the senior executives, pleaded: "The continuation of Walter Forbes' employment as chairman of Cendant, or in any other capacity, represents the probability of substantial irreparable future damage to the company's respective business units."
Cendant operates three principal business units offering services ranging from discount-club memberships to travel and hospitality through hotels it owns, such as Howard Johnson, Ramada and Days Inn. Cendant had total sales of $5.3 billion in its last fiscal year, ended December 1997.
Shares of Cendant (CD) gained 1-1/4 to 17 in New York Stock Exchange trading.