<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CENDANT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
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DELAWARE 8699 06-0918165
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(973) 428-9700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAMES E. BUCKMAN, ESQ.
SENIOR EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
CENDANT CORPORATION
6 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(973) 428-9700
FAX (973) 496-5331
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
DAVID FOX, ESQ.
ERIC J. FRIEDMAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
FAX (212) 735-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered in this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE (4)
- ---------------------------------------------- -------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share ....... -- -- $1,086,544,160(1) $320,531
- ---------------------------------------------- -------------- ---------------- ----------------- ------------------
$3.125 Cumulative Convertible Preferred Stock,
Series A, par value $.01 per share ........... 2,200,100(2) $113.38(3) $ 249,447,338 $ 73,587
- ---------------------------------------------- -------------- ---------------- ----------------- ------------------
Total ......................................... $394,118
- ---------------------------------------------- -------------- ---------------- ----------------- ------------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Calculated in accordance with Rule 457(o), based on multiplying (A)
18,733,320, representing the estimate of the maximum number of shares
of the common stock, par value $1.00 per share ("American Bankers
Common Shares"), of American Bankers Insurance Group, Inc. ("American
Bankers") presently outstanding and reserved for issuance under various
plans or otherwise expected to be exchanged in connection with the
Proposed Cendant Merger (as defined in the enclosed Proxy
Statement/Prospectus) and not beneficially owned by Cendant Corporation
("Cendant") or subject to the Cendant Offer (as defined in the enclosed
Proxy Statement/Prospectus), by (B) $58.00, representing the value of
the shares of common stock, par value $.01 per share, of Cendant
("Cendant Common Stock") to be issued per American Bankers Common Share
in the Proposed Cendant Merger.
(2) The number of shares to be registered is based upon the number of
shares of $3.125 Series B Cumulative Convertible Preferred Stock, no
par value, of American Bankers (the "American Bankers Preferred
Shares") presently outstanding and expected to be exchanged in
connection with the Proposed Cendant Merger and not beneficially owned
by Cendant for shares of $3.125 Series A Cumulative Convertible
Preferred Stock, par value $.01 per share, of Cendant ("Cendant
Preferred Stock"), including such indeterminate number of shares of
Cendant Common Stock as may be issued upon conversion of the Cendant
Preferred Stock.
(3) Calculated in accordance with Rule 457(f)(1) under the Securities Act,
based on the average of the high and low prices as reported on the New
York Stock Exchange Composite Transaction Tape on February 18, 1998 of
the American Bankers Preferred Shares.
(4) The registration fee of $394,118 was calculated pursuant to Rule 457(f)
under the Securities Act, by multiplying .000295 and the proposed
maximum aggregate offering price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION DATED FEBRUARY 20, 1998
PRELIMINARY COPY
PROXY STATEMENT OF
AMERICAN BANKERS INSURANCE GROUP, INC.
PROSPECTUS OF
CENDANT CORPORATION
On January 28, 1998, Cendant Corporation, a Delaware corporation
("Cendant"), through Season Acquisition Corp., a New Jersey corporation and a
wholly owned subsidiary of Cendant ("Cendant Sub"), commenced a tender offer
to purchase 23,501,260 shares of common stock, par value $1.00 per share
("American Bankers Common Shares"), of American Bankers Insurance Group,
Inc., a Florida corporation ("American Bankers"), including the associated
Series A Participating Preferred Stock Purchase Rights (including any
successors thereto, the "Rights") issued pursuant to the Rights Agreement,
dated as of February 24, 1988, as amended and restated as of November 14,
1990, between American Bankers and ChaseMellon Shareholder Services, L.L.C.,
as successor Rights Agent (as such agreement may be further amended and
including any successor agreement, the "Rights Agreement"), at a price of
$58.00 per share, net to seller in cash, without interest thereon (the
"Cendant Offer Price"), upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated January 27, 1998 (such offer, as it may
be amended from time to time, the "Cendant Offer"). Cendant currently
intends, as soon as practicable following the consummation of the Cendant
Offer, to seek to have American Bankers consummate a merger with and into a
direct wholly owned subsidiary of Cendant with such subsidiary continuing as
the surviving corporation (the "Proposed Cendant Merger").
Pursuant to the Proposed Cendant Merger, each American Bankers Common
Share that remains outstanding (other than American Bankers Common Shares
owned by Cendant or any of its wholly owned subsidiaries, American Bankers
Common Shares held in the treasury of American Bankers, and if shareholder
appraisal rights are available with respect to American Bankers Common
Shares, American Bankers Common Shares held by shareholders who perfect
appraisal rights under the Florida Business Corporation Act (the "FBCA"))
would be converted into that number of shares of common stock, par value $.01
per share, of Cendant ("Cendant Common Stock") having a value equal to the
Cendant Offer Price (as determined as of the time of the Proposed Cendant
Merger which, consistent with the valuation methodology for the Proposed AIG
Merger (as defined below), would be based on the average closing prices of
the Cendant Common Stock on the New York Stock Exchange ("NYSE") for the ten
trading days ending on the third trading day prior to the date that the
Proposed Cendant Merger is consummated). In addition, pursuant to the
Proposed Cendant Merger, each of the then outstanding shares of the $3.125
Series B Cumulative Convertible Preferred Stock, no par value, of American
Bankers (the "American Bankers Preferred Shares" and, together with the
American Bankers Common Shares, the "American Bankers Shares") would be
converted into one share of a new series of $3.125 Cumulative Convertible
Preferred Stock, Series A, of Cendant (the "Cendant Series A Preferred
Stock") having substantially similar terms as the American Bankers Preferred
Shares, except that such shares would be convertible into shares of Cendant
Common Stock in accordance with the terms of the American Bankers Preferred
Shares.
American Bankers shareholders would receive in the Proposed Cendant Merger
shares of Cendant Common Stock with a value of $58.00 for each of their
American Bankers Common Shares -representing a premium of $11.00 (in excess
of 23%) over the value of the Proposed AIG Merger and a premium of $11.75 (in
excess of 25%) over the closing price of the American Bankers Common Shares
on January 26, 1998 (the last trading day before the announcement of the
Cendant Offer).
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is February , 1998
<PAGE>
(continued from previous page)
Cendant believes that the Proposed Cendant Merger represents a unique and
compelling opportunity to enhance value for shareholders of both American
Bankers and Cendant. Cendant's vision for American Bankers is one of
exceptional growth and opportunity, which involves utilizing Cendant's
distribution channels and customer base as an additional outlet for American
Bankers' products and capitalizing on American Bankers' existing
relationships with financial institutions and retailers to increase
penetration of Cendant's products. In addition, the Proposed Cendant Merger
is expected to be accretive to earnings in the first full year following
consummation of the transaction. Cendant is confident that it will be able to
obtain the regulatory approvals required for the Proposed Cendant Merger on a
timely basis and without imposition of any condition that would have a
material adverse effect on the combined company. Accordingly, Cendant
believes that the Board of Directors of American Bankers (the "American
Bankers Board") should find the Proposed Cendant Merger highly attractive.
However, as of the date of this Proxy Statement/Prospectus, the American
Bankers Board has purportedly been unable to enter into any negotiations
concerning the Proposed Cendant Merger or any other business combination
between Cendant and American Bankers because of restrictions contained in the
AIG Merger Agreement (as defined below). Cendant intends to continue to seek
to negotiate with American Bankers with respect to the acquisition of
American Bankers by Cendant.
Assuming the American Bankers Board approves the Proposed Cendant Merger,
a definitive version of this Proxy Statement/Prospectus would be furnished by
American Bankers in connection with the solicitation of proxies for use at
separate special meetings of shareholders of American Bankers Common Shares
(the "Common Shareholders Special Meeting") and American Bankers Preferred
Shares (the "Preferred Shareholders Special Meeting" and, together with the
Common Shareholders Special Meeting, the "American Bankers Meetings"),
including any postponements, adjournments or reschedulings thereof. At the
American Bankers Meetings, holders of American Bankers Common Shares and
American Bankers Preferred Shares, voting separately as a class, would be
asked to consider and vote upon a proposal to approve and adopt the Proposed
Cendant Merger and the transactions contemplated thereby. This Proxy
Statement/Prospectus also constitutes a prospectus of Cendant with respect to
the shares of Cendant Common Stock and the Cendant Preferred Stock that will
ultimately be issuable to holders of American Bankers Shares in connection
with the Proposed Cendant Merger.
According to the Current Report on Form 8-K filed by American Bankers with
the Securities and Exchange Commission (the "Commission") on January 13,
1998, American Bankers entered into a definitive merger agreement with
American International Group, Inc., a Delaware corporation ("AIG") and AIGF,
Inc., a Florida corporation and wholly owned subsidiary of AIG ("AIG Sub"),
dated as of December 21, 1997, and amended and restated as of January 7, 1998
(the "AIG Merger Agreement"), which provides that, following the satisfaction
or waiver of certain conditions, American Bankers would be merged with and
into a subsidiary of AIG, with the separate corporate existence of American
Bankers ceasing and the AIG subsidiary continuing as the surviving
corporation (the "Proposed AIG Merger"). Pursuant to the Proposed AIG Merger,
each outstanding American Bankers Common Share would be converted, based upon
elections made by the respective holders and subject to certain limitations,
into the right to receive (i) $47.00 in cash, without interest, (ii) a
portion of a share of common stock, par value $2.50 per share, of AIG (the
"AIG Common Stock") with a value equal to $47.00 (as determined based on the
average closing prices of the AIG Common Stock on the NYSE for the ten
trading days ending on the third trading day prior to the date that the
Proposed AIG Merger is consummated) or (iii) in certain circumstances, a
combination of cash and shares of AIG Common Stock with an aggregate value
equal to $47.00. In addition, pursuant to the Proposed AIG Merger, each of
the then outstanding American Bankers Preferred Shares would be converted
into one share of AIG preferred stock having substantially similar terms,
except that such shares would be convertible into shares of AIG Common Stock.
All references to the American Bankers Common Shares in this Proxy
Statement/Prospectus include the associated Rights issued pursuant to the
Rights Agreement.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION..................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................... iii
AMERICAN BANKERS INFORMATION.............................................................. iv
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................................. v
SUMMARY................................................................................... 1
MARKET PRICE AND DIVIDEND INFORMATION..................................................... 7
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA............................................ 9
SELECTED CONSOLIDATED FINANCIAL DATA OF AMERICAN BANKERS.................................. 10
SELECTED CONSOLIDATED FINANCIAL DATA OF CENDANT........................................... 12
INFORMATION CONCERNING THE SPECIAL MEETINGS............................................... 15
THE PROPOSED CENDANT TRANSACTION.......................................................... 15
Overview of the Proposed Cendant Transaction............................................. 15
Reasons for the Proposed Cendant Merger.................................................. 17
Background of the Cendant Offer.......................................................... 18
Recommendations of the American Bankers Board and Cendant Board ......................... 19
Effects of the Proposed Cendant Merger................................................... 19
Votes Required........................................................................... 20
Exchange of Certificates; Fractional Shares.............................................. 20
Proposed Cendant Merger Agreement........................................................ 21
Cendant's Plans for American Bankers..................................................... 22
Regulatory Approvals..................................................................... 23
Overview of the Proposed AIG Merger...................................................... 25
Cendant Actions Related to the Proposed AIG Merger....................................... 27
Certain Federal Income Tax Consequences.................................................. 27
Tax Consequences if the Cendant Offer and the Proposed Cendant Merger are Treated as a
Single Integrated Transaction........................................................... 28
Tax Consequences if the Cendant Offer and the Proposed Cendant Merger are Treated as
Separate Transactions................................................................... 31
Accounting Treatment..................................................................... 32
Appraisal Rights......................................................................... 32
Interests of Certain Persons in the Proposed Cendant Merger.............................. 32
Resale of Cendant Series A Preferred Stock and Cendant Common Stock...................... 32
Lack of Established Market for the Cendant Series A Preferred Stock...................... 32
CERTAIN LITIGATION........................................................................ 33
INFORMATION REGARDING CENDANT............................................................. 37
INFORMATION REGARDING AMERICAN BANKERS.................................................... 39
DESCRIPTION OF CENDANT CAPITAL STOCK...................................................... 40
General.................................................................................. 40
Cendant Common Stock..................................................................... 40
Cendant Preferred Stock.................................................................. 40
Cendant Series A Preferred Stock......................................................... 40
COMPARATIVE RIGHTS OF COMMON SHAREHOLDERS................................................. 48
LEGAL MATTERS............................................................................. 59
EXPERTS................................................................................... 59
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS............................ F-1
</TABLE>
i
<PAGE>
AVAILABLE INFORMATION
Cendant and American Bankers are each subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith file reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information filed by each of Cendant and American Bankers may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices located
at Seven World Trade Center, Suite 1300, New York, New York 10048 and,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other materials that are filed through
the Commission's Electronic Data Gathering, Analysis and Retrieval system.
This World Wide Web site can be accessed at http://www.sec.gov. In addition,
material filed by each of Cendant and American Bankers can be inspected at
the offices of the NYSE, at 20 Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus constitutes a part of the Registration
Statement on Form S-4 (together with all amendments and exhibits thereto, the
"Registration Statement") filed by Cendant under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the offering of Cendant
Series A Preferred Stock and Cendant Common Stock in connection with the
Proposed Cendant Merger. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits certain information
contained or incorporated by reference in the Registration Statement.
Reference is made to the Registration Statement for further information with
respect to Cendant, the Cendant Series A Preferred Stock, the Cendant Common
Stock, American Bankers and the Proposed Cendant Merger. Statements contained
in this Proxy Statement/Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such
reference. For further information, reference is hereby made to the
Registration Statement.
Cendant and Cendant Sub have filed a Schedule 14D-1 with respect to the
Cendant Offer with the Commission (the "Schedule 14D-1"). For additional
information relating to the Cendant Offer, including the terms and conditions
thereto, reference is made to the Schedule 14D-1 as it has and may hereafter
be amended from time to time. Pursuant to Rules 14d-9 and 14e-2 under the
Exchange Act, on February 6, 1998, American Bankers filed with the Commission
a Solicitation/Recommendation Statement on Schedule 14D-9 regarding its
position concerning the Cendant Offer and certain other information. In
addition, on January 30, 1998, AIG filed a Registration Statement on Form S-4
(the "AIG Form S-4") with the Commission relating to the Proposed AIG Merger.
The AIG Form S-4 includes the Proxy Statement/Prospectus (the "AIG Proxy
Statement/Prospectus") mailed to holders of American Bankers Shares in
connection with special meetings of American Bankers shareholders to be held
to consider the Proposed AIG Merger. For additional information concerning
American Bankers, AIG and the Proposed AIG Merger, including the material
terms thereof and financial information relating thereto, reference is made
to the AIG Form S-4. Such documents and any amendments thereto should be
available for inspection and copying as set forth above (except that such
documents and any amendments thereto will not be available at the regional
offices of the Commission).
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Cendant under File
No. 1-10308 and by American Bankers under File No. 0-9633 pursuant to the
Exchange Act are incorporated herein by reference:
(a)(1) Cendant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997 ("Cendant's 1997 Form 10-K");
(2) Cendant's Quarterly Reports on Form 10-Q for the fiscal quarters ended
April 30, 1997, July 31, 1997 and October 31, 1997 ("Cendant's 1997
Form 10-Qs");
(3) Cendant's Current Reports on Form 8-K dated February 4, 1997, February
13, 1997, February 26, 1997, March 17, 1997, May 29, 1997, August 15,
1997, October 31, 1997, November 4, 1997, December 18, 1997, January
14, 1998, January 22, 1998, January 27, 1998, January 29, 1998,
February 4, 1998, February 6, 1998 and February 17, 1998; and
(4) the description of the Cendant Common Stock which is contained in
Cendant's Registration Statements on Form 8-A dated July 27, 1984 and
August 15, 1989.
(b)(1) American Bankers' Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 ("American Bankers' 1996 Form 10-K");
(2) American Bankers' Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997;
(3) American Bankers' Current Report on Form 8-K dated January 13, 1998,
as amended by the Form 8-K/As dated January 20, 1998 and February 3,
1998;
(4) the description of American Bankers' Series A Participating Preferred
Stock as contained in Item 1 of American Bankers' Registration
Statement on Form 8-A dated March 10, 1988, as amended by the Form 8
dated November 27, 1990;
(5) the description of the American Bankers Preferred Shares as contained
in Item 1 of American Bankers' Registration Statement on Form 8-A
filed on July 16, 1996; and
(6) the description of the American Bankers Common Shares as contained in
Item 1 of American Bankers' Registration Statement on Form 8-A filed
on April 20, 1981.
The financial statements filed as part of the Current Report on Form 8-K
dated January 29, 1998 are now the historical financial statements of Cendant
(the "Historical Financial Statements"). The Historical Financial Statements
supersede the financial statements appearing in Cendant's 1997 Form 10-K and
Cendant's 1997 Form 10-Qs.
All documents filed by Cendant and American Bankers with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date hereof and prior to the termination of the offering of any
securities offered hereby shall be deemed to be incorporated by reference
into this Proxy Statement/Prospectus and to be a part hereof from the date of
filing of such documents. See "Available Information." Any statement
contained herein, or in a document incorporated or deemed to be incorporated
herein by reference, shall be deemed to be modified or superseded for
purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document incorporated or
deemed to be incorporated herein by reference, which statement is also
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
ON REQUEST FROM CENDANT CORPORATION, 707 SUMMER ST., STAMFORD, CONNECTICUT
06901, ATTENTION: DIRECTOR OF INVESTOR RELATIONS (TELEPHONE: (203) 324-9261).
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE MADE
BY MARCH , 1998.
iii
<PAGE>
AMERICAN BANKERS INFORMATION
Although Cendant has included or incorporated by reference information
concerning American Bankers insofar as it is known or reasonably available to
Cendant, Cendant is not currently affiliated with American Bankers and
American Bankers has not to date permitted access by Cendant to American
Bankers' books and records. Therefore, information concerning American
Bankers which has not been made public is not available to Cendant. In
addition, Cendant has included or referred to information concerning AIG and
the Proposed AIG Merger insofar as it is known or reasonably available to
Cendant. However, information concerning AIG and the Proposed AIG Merger
which has not been made public is not available to Cendant. Other than as
disclosed in "Certain Litigation," Cendant has no knowledge that would
indicate that statements relating to American Bankers, AIG or the Proposed
AIG Merger contained or referred to in this Proxy Statement/Prospectus in
reliance upon publicly available information are inaccurate or incomplete,
Cendant was not involved in the preparation of such information and
statements and, for the foregoing reasons, is not in a position to verify any
such information or statements. Accordingly, Cendant takes no responsibility
for the accuracy of such information or statements.
As used in this Proxy Statement/Prospectus, the term "American Bankers"
means American Bankers Insurance Group, Inc. and its subsidiaries, and the
term "Cendant" means Cendant Corporation and its subsidiaries.
Pursuant to Rule 409 promulgated under the Securities Act and Rule 12b-21
promulgated under the Exchange Act, Cendant is requesting that American
Bankers and its independent accountants provide to Cendant the information
required for complete disclosure concerning the business, operations,
financial condition and management of American Bankers. As of the date of
this Proxy Statement/Prospectus, neither American Bankers nor its independent
accountants had provided any information in response to such request. Cendant
will provide any and all information which it receives from American Bankers
or its independent accountants prior to the American Bankers Meetings and
which Cendant deems material, reliable and appropriate in a subsequently
prepared amendment or supplement hereto. In addition, pursuant to Rule 439
promulgated under the Securities Act, Cendant is requesting that Price
Waterhouse LLP, American Bankers' auditors, provide to Cendant the consent
required for the incorporation by reference into this Proxy
Statement/Prospectus of Price Waterhouse's report included in the American
Bankers' 1996 Form 10-K with respect to its audit of the consolidated
financial statements of American Bankers contained therein. If Cendant
receives such consent, it will promptly file such consent as an exhibit to
this Proxy Statement/Prospectus.
NO PERSON HAS BEEN AUTHORIZED BY CENDANT TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CENDANT. THIS PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SHARES OF CENDANT COMMON STOCK AND
CENDANT SERIES A PREFERRED STOCK TO WHICH IT RELATES OR AN OFFER OR
SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY
SHALL, UNDER ANY CIRCUMSTANCES, IMPLY OR CREATE ANY IMPLICATION THAT THERE
HAVE NOT BEEN ANY CHANGES IN THE AFFAIRS OF CENDANT OR AMERICAN BANKERS OR IN
THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO
THE DATE HEREOF.
iv
<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
Cendant has made forward-looking statements in this Proxy
Statement/Prospectus, and Cendant and American Bankers have each made
forward-looking statements in certain documents that are incorporated by
reference in this Proxy Statement/Prospectus. These statements are based on
the beliefs and assumptions of the respective company's management, and on
information available to such management. The following are or may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995:
(i) certain statements contained or incorporated by reference herein
regarding the anticipated earnings synergies to be realized from the
Proposed Cendant Merger, the anticipated accretion to Cendant's earnings
to be realized from the Proposed Cendant Merger, the future development of
Cendant's and American Bankers' businesses, the markets for Cendant's and
American Bankers' services and products, regulatory developments,
competition or the effect of the Proposed Cendant Merger;
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions
contained in this Proxy Statement/Prospectus or incorporated herein; and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results and values may differ materially from those expressed or implied by
such forward-looking statements. Many of the factors that will determine
these results and values are beyond Cendant's and American Bankers' ability
to control or predict. American Bankers' shareholders are cautioned not to
place undue reliance on such statements, which speak only as of the date
hereof or, in the case of documents incorporated by reference, the date of
such documents.
All subsequent written and oral forward-looking statements attributable to
Cendant or American Bankers or persons acting on its or their behalf are
expressly qualified in their entirety by the cautionary statements contained
or referred to in this section. Neither Cendant nor American Bankers
undertakes any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
American Bankers' shareholders should understand that the following
important factors, in addition to those discussed elsewhere in the documents
which are incorporated by reference into this Proxy Statement/Prospectus,
could affect the future results of the combined company following the
Proposed Cendant Merger, and could cause results to differ materially from
those expressed in such forward-looking statements: (i) the effect of
economic conditions and interest rates; (ii) the ability of Cendant to
successfully coordinate Cendant's distribution channels and customer base
with American Bankers' products; (iii) the ability of Cendant to capitalize
on American Bankers' existing relationships with financial institutions and
retailers to increase penetration of Cendant's products and services; (iv)
the impact of competitive services and pricing; (v) the financial resources
of, and products available to, competitors; (vi) changes in laws and
regulations; (vii) customer demand; and (viii) opportunities that may be
presented to and pursued by the combined company following the Proposed
Cendant Merger.
v
<PAGE>
SUMMARY
This summary highlights certain information from this document, is
qualified by reference thereto and may not contain all of the information
that is important to you. To understand the Proposed Cendant Merger more
fully and for a more complete description of the legal terms of the Proposed
Cendant Merger, you should read carefully this entire document, including the
documents referred to in the "Incorporation of Certain Documents by
Reference" section at the beginning of this document. The summary does not
contain a complete statement of material information relating to the Proposed
Cendant Merger or other matters discussed in this document.
THE COMPANIES
Cendant Corporation
Cendant is one of the foremost consumer and business services companies in
the world. Cendant was created through the merger of CUC International Inc.
("CUC") and HFS Incorporated ("HFS") in December 1997 and provides all of the
services formerly provided by each of CUC and HFS, including
technology-driven, membership-based consumer services, travel services, real
estate services, tax preparation services and multimedia software products.
Cendant also administers insurance package programs in connection with
certain discount shopping and travel programs. Cendant is subject to the
information and reporting requirements of the Exchange Act and is required to
file reports and other information with the Commission relating to its
business, financial condition and other matters. The principal executive
offices of Cendant are 6 Sylvan Way, Parsippany, New Jersey 07054 and the
telephone number is (973) 428-9700.
Season Acquisition Corp.
Cendant Sub is a newly incorporated New Jersey corporation organized in
connection with the Cendant Offer and has not carried on any activities other
than in connection with the Cendant Offer. Cendant Sub is a wholly owned
subsidiary of Cendant. Until immediately prior to the time that Cendant Sub
will purchase American Bankers Common Shares pursuant to the Cendant Offer,
it is not expected that Cendant Sub will have any significant assets or
liabilities or engage in activities other than those incident to its
formation and capitalization and the transactions contemplated by the
Proposed Cendant Merger. Because Cendant Sub is newly formed and has minimal
assets and capitalization, no meaningful financial information regarding
Cendant Sub is available. The principal executive offices of Cendant Sub are
6 Sylvan Way, Parsippany, New Jersey 07054 and the telephone number is (973)
428-9700.
American Bankers Insurance Group, Inc.
American Bankers is a specialty insurer providing primarily credit-related
insurance products in the U.S. and Canada as well as in Latin America, the
Caribbean and the United Kingdom. The majority of American Bankers' gross
collected premiums are derived from credit-related insurance products sold
through financial institutions and other entities which provide consumer
financing as a regular part of their businesses. The principal executive
offices of American Bankers are 11222 Quail Roost Drive, Miami, Florida 33157
and the telephone number is (305) 253-2244.
OVERVIEW OF THE PROPOSED CENDANT TRANSACTION
On January 28, 1998, Cendant, through Cendant Sub, commenced a tender
offer to purchase 23,501,260 American Bankers Common Shares, including the
associated Rights, at a price of $58.00 per share, net to seller in cash,
without interest thereon, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated January 27, 1998.
The purpose of the Cendant Offer and the Proposed Cendant Merger is to
enable Cendant to acquire control of, and ultimately the entire equity
interest in, American Bankers. The Cendant Offer, as the first step in the
acquisition of American Bankers, is intended to facilitate the acquisition of
a majority of the
1
<PAGE>
outstanding American Bankers Common Shares. Cendant is seeking to negotiate
with American Bankers a definitive merger agreement pursuant to which
American Bankers would, as soon as practicable following consummation of the
Cendant Offer, consummate a merger with and into a direct wholly owned
subsidiary of Cendant with such subsidiary continuing as the surviving
corporation. In the Proposed Cendant Merger, each American Bankers Common
Share that remains outstanding would be converted into that number of shares
of Cendant Common Stock having a value equal to the Cendant Offer Price (as
determined as of the time of the Proposed Cendant Merger which, consistent
with the valuation methodology for the Proposed AIG Merger, would be based on
the average closing prices of the Cendant Common Stock on the NYSE for the
ten trading days ending on the third trading day prior to the date that the
Proposed Cendant Merger is consummated). In addition, pursuant to the
Proposed Cendant Merger, each then outstanding American Bankers Preferred
Share would be converted into one share of Cendant Series A Preferred Stock
having substantially similar terms as the American Bankers Preferred Shares,
except that such shares would be convertible into shares of Cendant Common
Stock in accordance with the terms of the American Bankers Preferred Shares.
American Bankers shareholders would receive in the Proposed Cendant Merger
shares of Cendant Common Stock with a value of $58.00 for each of their
American Bankers Common Shares -representing a premium of $11.00 (in excess
of 23%) over the value of the Proposed AIG Merger and a premium of $11.75 (in
excess of 25%) over the closing price of the American Bankers Common Shares
on January 26, 1998 (the last trading day before the announcement of the
Cendant Offer).
REASONS FOR THE PROPOSED CENDANT MERGER
Cendant believes that the Proposed Cendant Merger represents a unique and
compelling opportunity to enhance value for shareholders of both American
Bankers and Cendant. Cendant's vision for American Bankers is one of
exceptional growth and opportunity, which involves utilizing Cendant's
distribution channels and customer base as an additional outlet for American
Bankers' products and capitalizing on American Bankers' existing
relationships with financial institutions and retailers to increase
penetration of Cendant's products. See "The Proposed Cendant Transaction --
Reasons for the Proposed Cendant Merger."
BACKGROUND OF THE CENDANT OFFER
Over the past several years, representatives of Cendant (formerly known as
CUC), including John H. Fullmer, Cendant's Executive Vice President and Chief
Marketing Officer, and representatives of American Bankers, including Gerald
N. Gaston, American Bankers' Vice Chairman, President and Chief Executive
Officer, met on various occasions to discuss possible strategic marketing
alliances.
In the summer of 1997, representatives of HFS separately identified
American Bankers as a possible acquisition candidate. HFS's interest in
American Bankers increased as a result of its decision to acquire Providian
Auto & Home Insurance Company and its property and casualty subsidiaries,
which predominately market personal automobile insurance through direct
marketing channels.
During the course of planning for the then-pending merger of CUC and HFS,
their mutual interest in American Bankers was identified and scheduled to be
pursued following completion of the merger.
Mr. Fullmer ultimately spoke with Mr. Gaston in mid-December 1997 and
described the merger of CUC and HFS which created Cendant and inquired
whether American Bankers was actively engaged in discussions relating to an
acquisition. In response to Mr. Gaston's assurances that American Bankers was
not actively engaged in acquisition discussions, Mr. Fullmer agreed to
forward to Mr. Gaston information regarding Cendant and to contact Mr. Gaston
to schedule a meeting in early January to discuss a possible acquisition
transaction.
On December 22, 1997, American Bankers and AIG announced that they had
entered into the AIG Merger Agreement pursuant to which the Proposed AIG
Merger would be consummated following the receipt of required regulatory and
shareholder approvals and satisfaction of various other conditions.
2
<PAGE>
Following a series of meetings among representatives of Cendant and
Cendant's outside financial advisors and legal counsel and a meeting of
Cendant's Executive Committee, on January 26, 1998, Cendant's Board of
Directors (the "Cendant Board") met to review its strategic options in light
of the announcement of the Proposed AIG Merger. The Cendant Board believed
that a combination of Cendant and American Bankers would offer compelling
benefits to both companies, their shareholders and their other
constituencies. The Cendant Board determined that Cendant should make a
competing offer for American Bankers.
On January 27, 1998, Cendant submitted to the American Bankers Board a
written proposal for the acquisition of American Bankers by Cendant Sub
pursuant to the Cendant Offer and the Proposed Cendant Merger and announced
its intention to commence the Cendant Offer. In its proposal, Cendant
indicated that its strong preference would be to enter into a merger
agreement with American Bankers containing substantially the same terms and
conditions as the AIG Merger Agreement but at the significantly higher value
reflected in the Cendant Offer Price (the "Proposed Cendant Merger
Agreement").
As of the date of this Proxy Statement/Prospectus, the American Bankers
Board has purportedly been unable to enter into any negotiations concerning
the Proposed Cendant Merger or any other business combination between Cendant
and American Bankers because of restrictions contained in the AIG Merger
Agreement.
THE AMERICAN BANKERS MEETINGS
Purposes of the American Bankers Meetings
It is intended that at the American Bankers Meetings, holders of American
Bankers Common Shares and American Bankers Preferred Shares would be asked to
approve and adopt the Proposed Cendant Merger Agreement and the transactions
contemplated thereby, including the Proposed Cendant Merger.
Voting Power
Holders of American Bankers Common Shares and American Bankers Preferred
Shares each will have one vote at the Common Shareholders Special Meeting and
Preferred Shareholders Special Meeting, respectively, for each American
Bankers Common Share or American Bankers Preferred Share.
Votes Required
The Proposed Cendant Merger would be conditioned on, among other things,
obtaining the approval of the American Bankers Board and obtaining required
approvals from the shareholders of American Bankers. Under the FBCA, the
affirmative vote of the holders of at least a majority of the total number of
outstanding shares of American Bankers Common Shares and American Bankers
Preferred Shares, voting separately as a class, at the American Bankers
Meetings would be required to approve and adopt the Proposed Cendant Merger
Agreement and consummate the Proposed Cendant Merger. As of January 30, 1998,
directors and executive officers of American Bankers and their affiliates as
a group (i) beneficially owned 4,177,200 American Bankers Common Shares, or
approximately 9.9% of the outstanding American Bankers Common Shares, and
(ii) did not beneficially own any American Bankers Preferred Shares. Each of
R. Kirk Landon, Chairman of American Bankers, and Gerald Gaston, in the
aggregate beneficially own 3,391,066 shares, or approximately 8.0% of
American Bankers Common Shares, and have contractually agreed with AIG to
vote in favor of the AIG Merger Agreement and the consummation of the
Proposed AIG Merger (the "AIG Voting Agreement"). In addition Messrs. Landon
and Gaston have agreed, if requested by AIG, to execute irrevocable proxies
in connection with the voting power of their American Bankers Common Shares.
If the AIG Voting Agreement is still valid and binding at the time of the
American Bankers Meetings, it is anticipated that Messrs. Landon and Gaston
would vote against the Proposed Cendant Merger Agreement and the Proposed
Cendant Merger.
The affirmative vote of the holders of a majority of the outstanding
shares of American Bankers Common Shares and a majority of the outstanding
shares of American Bankers Preferred Shares, each
3
<PAGE>
voting as a separate class, would be required to approve and adopt the
Proposed Cendant Merger Agreement and consummate the Proposed Cendant Merger.
If the approval of the Proposed Cendant Merger by holders of American
Bankers Preferred Shares is not obtained or Cendant reasonably determines
that such approval is not likely to be obtained, Cendant expects that the
Proposed Cendant Merger Agreement would provide for the change in structure
provided for in the AIG Merger Agreement such that a subsidiary of Cendant
would merge with and into American Bankers with American Bankers continuing
as the surviving corporation. Upon consummation of such revised Proposed
Cendant Merger, the American Bankers Preferred Shares would remain
outstanding pursuant to their existing terms (except that they would be
convertible into Cendant Common Stock).
CONDITIONS TO THE PROPOSED CENDANT MERGER
It is expected that, consistent with the terms of the AIG Merger
Agreement, the completion of the Proposed Cendant Merger would depend upon a
number of conditions being met, including the following: (a) the approval of
the Proposed Cendant Merger by the holders of a majority of the outstanding
American Bankers Common Shares and a majority of the outstanding American
Bankers Preferred Shares, each voting as a separate class; (b) no law having
been enacted or injunction having been entered which effectively prohibits
the Proposed Cendant Merger; (c) all necessary approvals of governmental
authorities and all material required consents of third parties having been
obtained; (d) the receipt of opinions from tax counsel for each company
regarding certain federal income tax consequences of the Proposed Cendant
Merger; (e) Cendant's and American Bankers' respective representations and
warranties being true and correct in all material respects and the parties
have performed in all material respects their respective obligations under
the Cendant Merger Agreement; and (f) the shares of Cendant Series A
Preferred Stock to be issued to holders of American Bankers Preferred Shares
and the shares of Cendant Common Stock to be issued to holders of American
Bankers Common Shares having been authorized for listing on the NYSE subject
to official notice of issuance.
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
prohibits the companies from completing the Proposed Cendant Merger until
after certain information and materials have been furnished to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and a
required waiting period has ended. On January 27, 1998 Cendant furnished that
information and the waiting period expired on February 11, 1998. However, the
Department of Justice and the Federal Trade Commission will continue to have
the authority to challenge the Proposed Cendant Merger on antitrust grounds
before or after the Proposed Cendant Merger is completed.
The Proposed Cendant Merger is also subject to the receipt of certain
approvals from various state and foreign insurance regulatory authorities. In
January and early February of 1998 Cendant made all applicable insurance
regulatory filings. As of the date of this Proxy Statement/Prospectus, such
approvals are pending. See "The Proposed Cendant Transaction -- Regulatory
Approvals."
ACCOUNTING TREATMENT
If the Proposed Cendant Merger is consummated, Cendant will account for
the acquisition of American Bankers using the "purchase" method of
accounting. Accordingly, the consideration to be paid in the Proposed Cendant
Merger would be allocated to assets acquired and liabilities assumed based on
their estimated fair values at the consummation date. Income (or loss) of
American Bankers prior to the consummation date will not be included in
income of Cendant. The excess of such purchase price over the amounts so
allocated will be treated as goodwill. See "The Proposed Cendant Transaction
- -- Accounting Treatment."
4
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Proposed Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that, accordingly, for federal
income tax purposes, no gain or loss will be recognized by Cendant, American
Bankers or Cendant Sub as a result of the Proposed Cendant Merger. Assuming
that the American Bankers Board approves the Proposed Cendant Merger, Cendant
expects that tax counsel to American Bankers and Skadden, Arps, Slate,
Meagher & Flom LLP ("Skadden Arps"), special counsel to Cendant, at the
effective time of the Proposed Cendant Merger, will deliver opinions
substantially to the effect that the Proposed Cendant Merger will qualify as
a "reorganization" within the meaning of Section 368(a) of the Code and that
each of Cendant, American Bankers and Cendant Sub will be a party to the
reorganization within the meaning of Section 368(b) of the Code. Assuming
that the Proposed Cendant Merger will be treated as a "reorganization" within
the meaning of Section 368(a) of the Code, and that the Cendant Offer and the
Proposed Cendant Merger will be treated as a single integrated transaction,
the Federal income tax consequences of such transactions to a shareholder of
American Bankers generally will depend on whether the shareholder owns only
American Bankers Common Shares or a combination of both American Bankers
Common Shares and American Bankers Preferred Shares and will further depend
on whether such shareholder exchanges such American Bankers Shares for (a)
cash pursuant to the Cendant Offer, (b) Cendant Common Stock and/or Cendant
Series A Preferred Stock pursuant to the Proposed Cendant Merger or (c) a
combination of both. Generally, (i) gain or loss will be recognized by a
shareholder of American Bankers who receives solely cash in exchange for
American Bankers Common Shares pursuant to the Cendant Offer and who does not
exchange any American Bankers Shares pursuant to the Proposed Cendant Merger,
(ii) no gain or loss will be recognized by a shareholder of American Bankers
who does not exchange any American Bankers Common Shares pursuant to the
Cendant Offer and who receives (A) solely shares of Cendant Common Stock in
exchange for American Bankers Common Shares pursuant to the Proposed Cendant
Merger (except in respect of cash received in lieu of a fractional share of
Cendant Common Stock) and/or (B) solely shares of Cendant Series A Preferred
Stock in exchange for American Bankers Preferred Shares pursuant to the
Proposed Cendant Merger, and (iii) a shareholder of American Bankers who
receives a combination of cash and shares of Cendant Common Stock and/or
Cendant Series A Preferred Stock in exchange for such shareholder's American
Bankers Shares pursuant to the Cendant Offer and the Proposed Cendant Merger
will not recognize loss but will recognize (i.e., pay tax on) gain realized,
if any, to the extent of the cash received.
All shareholders should carefully read the discussion of the material
federal income tax consequences of the Cendant Offer and the Proposed Cendant
Merger under "The Proposed Cendant Transaction -- Certain Federal Income Tax
Consequences" and are urged to consult with their tax advisors as to the
federal, state, local and foreign tax consequences in their particular
circumstances.
APPRAISAL RIGHTS
Under Florida law, it is expected that holders of American Bankers Common
Shares and American Bankers Preferred Shares would have no right to an
appraisal of the value of their shares in connection with the Proposed
Cendant Merger or the consummation of the transactions contemplated thereby.
See "The Proposed Cendant Transaction -- Appraisal Rights."
COMPARISON OF RIGHTS OF HOLDERS OF AMERICAN BANKERS COMMON SHARES AND CENDANT
COMMON STOCK
Assuming the Proposed Cendant Merger is consummated, shareholders of
American Bankers would become shareholders of Cendant. Cendant is
incorporated under the laws of the State of Delaware. American Bankers is
incorporated under the laws of the State of Florida. The holders of American
Bankers Common Shares, whose rights as shareholders are currently governed by
the FCBA, American Bankers' Articles of Incorporation (the "American Bankers
Articles") and American Bankers' Bylaws (the "American Bankers Bylaws"),
would, upon exchange of their shares pursuant to the Proposed Cendant Merger,
become holders of shares of Cendant Common Stock, and their rights would be
5
<PAGE>
governed by the Delaware General Corporation Law (the "DGCL"), Cendant's
Restated Certificate of Incorporation (the "Cendant Certificate") and
Cendant's Bylaws (the "Cendant Bylaws"). For a discussion of certain
similarities and differences between the rights of holders of American
Bankers Shares and holders of Cendant Common Stock, see "Comparative Rights
of Common Shareholders."
DESCRIPTION OF CENDANT COMMON STOCK
The authorized capital stock of Cendant consist of 2,000,000,000 shares of
Cendant Common Stock, par value $.01 per share, and 10,000,000 shares of
preferred stock, par value $.01 per share, (the "Cendant Preferred Stock").
As of February , 1998, there were shares of Cendant Common Stock and no
shares of Cendant Preferred Stock issued and outstanding.
Holders of shares of Cendant Common Stock are entitled to one vote per
share for each share held and may not cumulate votes in elections of
directors.
The Cendant Board is authorized at any time from time to time to provide
for the issuance of all or any shares of Cendant Preferred Stock in one or
more series, and to fix the designations and the powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions of each such series.
For additional information concerning the capital stock of Cendant, see
"Description of Cendant Capital Stock."
LISTING OF CENDANT COMMON STOCK AND CENDANT PREFERRED STOCK
It is anticipated that the shares of Cendant Series A Common Stock and
Cendant Preferred Stock to be issued in connection with the Proposed Cendant
Merger will be listed on the NYSE.
6
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Cendant Common Stock is listed on the NYSE (symbol: "CD"). American
Bankers Common Shares and American Bankers Preferred Shares are listed on the
NYSE (symbol: "ABI" and "ABI3 1/8Pfd," respectively). The table below sets
forth, for the calendar quarters indicated, the high and low closing sales
prices per share of Cendant Common Stock, American Bankers Common Shares and
American Bankers Preferred Shares reported on the NYSE Composite Tape (and,
for periods prior to July 9, 1997 with respect to American Bankers Common
Shares and American Bankers Preferred Shares, the Nasdaq National Market
("Nasdaq")) and the dividends declared for Cendant Common Stock, American
Bankers Common Shares and American Bankers Preferred Shares. Cendant has not
paid any dividends in respect of the Cendant Common Stock during the five
years ended December 31, 1997.
<TABLE>
<CAPTION>
AMERICAN
BANKERS
CENDANT AMERICAN BANKERS PREFERRED
COMMON STOCK(1) COMMON SHARES(2) SHARES(3)
---------------------- ---------------------------------- -----------
HIGH LOW HIGH LOW DIVIDENDS HIGH
---------------------- ----------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995:
First Quarter ....................... $17-9/32 $14-43/64 $15-5/16 $11-3/4 .090 $--
Second Quarter ...................... 18-23/32 16-21/64 16-1/8 13-5/16 .095 --
Third Quarter ....................... 23-21/64 18-3/4 18-5/8 15-7/16 .095 --
Fourth Quarter ...................... 25-21/64 20 19-1/2 17-7/16 .095 --
1996:
First Quarter ....................... 26-11/64 19-5/64 19-13/16 16-3/4 .095 --
Second Quarter ...................... 26-1/4 18-43/64 21-15/16 16-7/16 .100 --
Third Quarter ....................... 26-37/64 21-1/4 25-1/8 19-29/32 .100 59
Fourth Quarter ...................... 27-21/64 22-1/2 25-15/16 23-3/32 .100 60-1/4
1997:
First Quarter ....................... 26-7/8 22-1/2 29-1/2 24-3/8 .100 68-1/2
Second Quarter ...................... 26-3/4 20 34-1/32 25-3/16 .105 76-3/4
Third Quarter ....................... 31-3/4 23-11/16 38-5/16 33-11/16 .110 92-1/2
Fourth Quarter ...................... 34-3/8 26-15/16 45-15/16 36-11/16 .110 93-3/8
1998:
First Quarter (through February ) ..
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LOW DIVIDENDS
----------------------
<S> <C> <C>
1995:
First Quarter ....................... $-- --
Second Quarter ...................... -- --
Third Quarter ....................... -- --
Fourth Quarter ...................... -- --
1996:
First Quarter ....................... -- --
Second Quarter ...................... -- --
Third Quarter ....................... 50 .807
Fourth Quarter ...................... 56-1/2 .781
1997:
First Quarter ....................... 60-5/8 .781
Second Quarter ...................... 61-7/8 .781
Third Quarter ....................... 72-1/2 .781
Fourth Quarter ...................... 79 .781
1998:
First Quarter (through February ) ..
</TABLE>
- ------------
(1) All Cendant Common Stock prices prior to the first quarter of 1998 are
for CUC. Cendant Common Stock prices have been adjusted to reflect a
three-for-two stock split which was effected in October 1996.
(2) All American Bankers Common Shares information has been adjusted to
reflect a two-for-one stock split which was effected in September 1997.
(3) American Bankers Preferred Shares were not publicly traded prior to
July 23, 1996.
Although the market price of Cendant Common Stock is subject to
fluctuation, the market value of the shares of Cendant Common Stock that
holders of American Bankers Common Shares would receive in the Proposed
Cendant Merger would be equal to the value of the Cendant Offer Price (as
determined as of the time of the Proposed Cendant Merger which, consistent
with the valuation methodology for the Proposed AIG Merger, would be based on
the average closing prices of the Cendant Common Stock on the NYSE for the
ten trading days ending on the third trading day prior to the date that the
Proposed Cendant Merger is consummated). American Bankers shareholders are
urged to obtain current market quotations for Cendant Common Stock, American
Bankers Common Shares and American Bankers Preferred Shares. No assurance can
be given as to the future prices or markets for Cendant Common Stock or
Cendant Series A Preferred Stock or American Bankers Common Shares or
American Bankers Preferred Shares.
<PAGE>
Assuming the Proposed Cendant Merger is consummated, the American Bankers
Shares would no longer exist, and, as a result, would no longer be listed on
the NYSE. It is expected that the Cendant Common Stock and the Cendant Series
A Preferred Stock issued in connection with the Proposed Cendant Merger would
be listed on the NYSE.
7
<PAGE>
RECENT CLOSING PRICES
The following table sets forth the closing prices per share of Cendant
Common Stock, American Bankers Common Share and American Bankers Preferred
Share as reported on the NYSE on January 26, 1998, the last trading day
before the announcement of Cendant's proposal to acquire American Bankers,
and on February , 1998, the latest practicable trading day before the
printing of this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
CENDANT AMERICAN BANKERS AMERICAN BANKERS
COMMON STOCK COMMON SHARES PREFERRED SHARES
---------------- -------------------- --------------------
<S> <C> <C> <C>
January 26, 1998...... $34-5/16 $46-1/4 $96-1/8
February , 1998....... $ $ $
</TABLE>
8
<PAGE>
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following table sets forth book value, net income and cash dividends
declared per share data for American Bankers and Cendant on a pro forma, pro
forma equivalent, historical and historical equivalent basis. The pro forma
amounts included in the table assume completion of the Proposed Cendant
Merger and are based on the purchase method of accounting, a preliminary
determination and allocation of the total purchase price and the assumptions
described in the Unaudited Pro Forma Consolidated Financial Statements
included herein. The pro forma amounts in the table below are presented for
information purposes and are not necessarily indicative of what the financial
position or the results of operations would actually have been had the
Proposed Cendant Merger been consummated as of the dates or at the beginning
of the relevant periods presented. The pro forma amounts are also not
necessarily indicative of the future financial position or future results of
operations of Cendant. The Cendant equivalent per share data for American
Banker shareholders represents Cendant information multiplied by a fraction,
the numerator of which is the Cendant Offer Price of $58.00 and the
denominator of which is the assumed Cendant stock price of $36 3/8 (the
closing price of the Cendant Common Stock on February 10, 1998). The
information set forth below should be read in conjunction with the historical
consolidated financial statements of American Bankers and Cendant, including
the notes thereto, incorporated by reference or appearing elsewhere in this
Proxy Statement/Prospectus. See "Available Information" and "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
AT
-------------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
BOOK VALUE PER SHARE
Pro Forma
Cendant.............................................. $ 6.98 $ --
Cendant--Equivalent for American Bankers'
shareholders........................................ 11.13 --
Historical
Cendant.............................................. 5.59 5.42
Cendant--Equivalent for American Bankers'
shareholders........................................ 8.91 8.64
American Bankers (1)................................. 16.36 14.56
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- ----------------
1997 1996 1996
--------- -------- ----------------
<S> <C> <C> <C>
NET INCOME PER SHARE
Pro Forma
Cendant (diluted) ....................................... $0.46 $ -- $0.52
Cendant--Equivalent for American Bankers' shareholders .. 0.74 -- 0.83
Historical
Cendant (diluted) ....................................... 0.47 0.34 0.52
Cendant--Equivalent for American Bankers' shareholders .. 0.75 0.54 0.83
American Bankers (fully diluted)(1) ..................... 1.81 1.59 2.16
CASH DIVIDENDS PER SHARE
Pro Forma
Cendant (2) ............................................. -- -- --
Cendant--Equivalent for American Bankers' shareholders .. -- -- --
Historical
Cendant (2) ............................................. -- -- --
Cendant--Equivalent for American Bankers' shareholders .. -- -- --
American Bankers (1)..................................... 0.32 0.30 0.40
</TABLE>
- ------------
(1) All American Bankers information has been adjusted to reflect a
two-for-one stock split which was effected in September 1997.
(2) Prior to the merger of HFS with and into CUC to form Cendant, CUC and HFS
had not declared or paid cash dividends on its common stock. However,
cash dividends were declared and paid by Ideon and PHH to their
shareholders prior to their respective mergers with Cendant. Cendant
expects to retain its earnings for the development and expansion of its
business and the repayment of indebtedness and does not anticipate paying
dividends on the Cendant Common Stock in the foreseeable future.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF AMERICAN BANKERS
The selected financial data of American Bankers for the years 1996, 1995
and 1994, presented below, with the exception of the balance sheet data for
1994, has been derived from the audited consolidated financial statements of
American Bankers incorporated by reference in this Proxy
Statement/Prospectus. The balance sheet data for 1994 and the selected
financial data presented below for 1993 and 1992 has been derived from
audited consolidated financial statements previously filed with the
Commission but not incorporated by reference in this Proxy
Statement/Prospectus. Selected financial data for the nine month periods
ended September 30, 1997 and 1996 have been derived from unaudited
consolidated financial statements filed with the Commission and incorporated
by reference in this Proxy Statement/Prospectus and, in the opinion of
American Banker's management, include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results
of operations and financial position for each of the interim periods
presented. Results for the nine months ended September 30, 1997 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole. The information shown below is qualified
in its entirety by, and should be read in conjunction with, the related
consolidated financial statements of American Bankers, including the related
notes thereto and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" for American Bankers incorporated by
reference in this Proxy Statement/Prospectus.
10
<PAGE>
AMERICAN BANKERS INSURANCE GROUP, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Net premiums earned.......... $ 733,000 $ 882,000 $1,094,300 $1,240,700 $1,378,500
Net investment income........ 67,500 70,400 74,400 99,400 121,200
Realized investment gains ... 2,800 5,400 2,700 700 7,800
Gain on insurance settlement 5,400
Other income ................ 8,800 10,100 15,400 20,100 21,500
------------ ------------ ------------ ------------ ------------
Total revenues................ 812,100 973,300 1,186,800 1,360,900 1,529,000
------------ ------------ ------------ ------------ ------------
Benefits and expenses
Benefits, claims, losses,
and settlement expenses ... 299,800 349,800 437,900 463,100 523,000
Commissions ................. 289,400 358,000 437,700 526,500 571,800
Operating expenses .......... 153,800 181,700 220,200 251,500 280,800
Interest expenses ........... 9,600 8,100 11,200 15,600 17,500
------------ ------------ ------------ ------------ ------------
Total benefits and expenses . 752,600 897,600 1,107,000 1,256,700 1,393,100
------------ ------------ ------------ ------------ ------------
Pre-tax income from
operations ................. 59,500 75,700 79,800 104,200 135,900
------------ ------------ ------------ ------------ ------------
Income tax (expense) benefit
Current ..................... (19,000) (24,400) (14,800) (25,200) (28,900)
Deferred .................... 1,800 2,000 (8,500) (6,700) (12,500)
------------ ------------ ------------ ------------ ------------
(17,200) (22,400) (23,300) (31,900) (41,400)
------------ ------------ ------------ ------------ ------------
Net income before cumulative
effect of change in
accounting................... 42,300 53,300 56,500 72,300 94,500
Cumulative effect of change
in accounting for income
taxes ....................... (1,000)
------------ ------------ ------------ ------------ ------------
Net income ................... $ 42,300 $ 52,300 $ 56,500 $ 72,300 $ 94,500
------------ ------------ ------------ ------------ ------------
Per common share data
Primary
Net income before cumulative
effect of change in
accounting.................. $ 1.29 $ 1.43 $ 1.37 $ 1.74 $ 2.20
Cumulative effect of change
in accounting for income
taxes ...................... (0.03)
Net income ................... $ 1.29 $ 1.40 $ 1.37 $ 1.74 $ 2.20
------------ ------------ ------------ ------------ ------------
Fully diluted
Net income before cumulative
effect of change in
accounting.................. $ 1.20 $ 1.39 $ 1.37 $ 1.74 $ 2.16
Cumulative effect of change
in accounting for income
taxes ....................... (0.03)
Net Income ................... $ 1.20 $ 1.36 $ 1.37 $ 1.74 $ 2.16
------------ ------------ ------------ ------------ ------------
Dividends per common share ... $ 0.30 $ 0.34 $ 0.36 $ 0.38 $ 0.40
============ ============ ============ ============ ============
Total Assets ................. $1,404,300 $2,160,500 $2,432,500 $2,987,700 $3,469,500
Notes Payable ................ $ 139,600 $ 158,900 $ 197,800 $ 236,000 $ 222,500
Stockholders' Equity.......... $ 268,400 $ 399,300 $ 405,900 $ 513,000 $ 710,200
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues
Net premiums earned.......... $1,052,400 $1,093,700
Net investment income........ 87,200 99,300
Realized investment gains ... 6,300 9,100
Gain on insurance settlement
Other income ................ 15,400 17,000
------------ ------------
Total revenues................ 1,161,300 1,219,100
------------ ------------
Benefits and expenses
Benefits, claims, losses,
and settlement expenses ... 412,700 409,300
Commissions ................. 433,500 454,000
Operating expenses .......... 204,300 224,600
Interest expenses ........... 13,000 12,100
------------ ------------
Total benefits and expenses . 1,063,500 1,100,000
------------ ------------
Pre-tax income from
operations ................. 97,800 119,100
------------ ------------
Income tax (expense) benefit
Current ..................... (17,600) (30,500)
Deferred .................... (11,900) (3,700)
------------ ------------
(29,500) (34,200)
------------ ------------
Net income before cumulative
effect of change in
accounting................... 68,300 84,900
Cumulative effect of change
in accounting for income
taxes .......................
------------ ------------
Net income ................... $ 68,300 $ 84,900
------------ ------------
Per common share data
Primary
Net income before cumulative
effect of change in
accounting.................. $ 1.62 $ 1.89
Cumulative effect of change
in accounting for income
taxes ......................
Net income ................... $ 1.62 $ 1.89
------------ ------------
Fully diluted
Net income before cumulative
effect of change in
accounting.................. $ 1.59 $ 1.81
Cumulative effect of change
in accounting for income
taxes .......................
Net Income ................... $ 1.59 $ 1.81
------------ ------------
Dividends per common share ... $ 0.30 $ 0.32
============ ============
Total Assets ................. $3,356,000 $3,679,000
Notes Payable ................ $ 245,100 $ 241,500
Stockholders' Equity.......... $ 678,300 $ 796,300
</TABLE>
- ------------
All per common share data has been retroactively adjusted to reflect the
two-for-one stock split which was effected in September 1997.
The amounts for 1993 and forward are reported in accordance with FASB
Statement 113.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF CENDANT
The selected consolidated financial data relating to Cendant and its
subsidiaries as of and for each of the years in the five year period ended
December 31, 1996 have been derived from audited financial statements. The
selected consolidated financial data relating to Cendant as of and for the
nine months ended September 30, 1997 have been derived from unaudited
financial statements. The pro forma amounts included in the table assume
completion of the Proposed Cendant Merger and are based on the purchase
method of accounting, a preliminary determination and allocation of the total
purchase price and the assumptions described in the Unaudited Pro Forma
Consolidated Financial Statements included herein. The pro forma amounts in
the table below are presented for information purposes and are not
necessarily indicative of what the financial position or the results of
operations would actually have been had the Proposed Cendant Merger been
consummated as of the dates or at the beginning of the relevant periods
presented. The pro forma amounts are also not necessarily indicative of the
future financial position or future results of operations of Cendant. The
financial data that follows is qualified in its entirety by reference to
Cendant's financial statements and notes thereto contained in Cendant's
Current Report on Form 8-K dated January 29, 1998, which is incorporated by
reference herein. The underlying financial data should also be read in
conjunction with the Unaudited Pro Forma Consolidated Financial Statements
and related notes thereto included herein.
CENDANT CORPORATION
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
PRO FORMA
PRIOR TO THE
HISTORICAL PROPOSED CENDANT
--------------------------------------------------------- MERGER
1992 1993 1994 1995 1996 1996(3)
-------------------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)(2)
Net revenues........................... $1,835.5 $2,136.4 $2,446.7 $2,992.1 $3,908.8 $4,475.3
Net income ............................ 153.2 209.2(5) 286.6(6) 302.8(7) 423.6(8) 473.4(8)
Net income per share (diluted)......... 0.25 0.31(5) 0.41(6) 0.42(7) 0.52(8) 0.56(8)
Cash dividends declared per share(10) -- -- -- -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
GIVING EFFECT TO THE
PROPOSED CENDANT
MERGER
1996(3)
--------------------
<S> <C>
INCOME STATEMENT DATA:(1)(2)
Net revenues........................... $6,004.3
Net income ............................ 454.2(8)
Net income per share (diluted)......... 0.52(8)
Cash dividends declared per share(10) --
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
PRO FORMA
GIVING EFFECT TO THE
HISTORICAL PROPOSED CENDANT
----------------------- MERGER
1996 1997(4) 1997
---------- ----------- --------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:(1)(2)
Net revenues.......................... $2,800.0 $3,890.0 $5,109.1
Net income............................ 265.5 400.7(9) 407.8(9)
Net income per share (diluted) ....... 0.34 0.47(9) 0.46(9)
Cash dividends declared per
share(10)............................ -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------
PRO FORMA
GIVING EFFECT TO THE
AT DECEMBER 31, HISTORICAL PROPOSED CENDANT
---------------------------------------------------------------------- MERGER
1992 1993 1994 1995 1996 1997(4) 1997
---------- ---------- ---------- ---------- ----------- ------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)(2)
Total assets.............. $6,027.2 $6,698.8 $7,437.0 $8,994.4 $13,588.4 $14,997.0 $19,810.8
Long-term debt............ 303.5 394.1 420.0 354.0 1,004.6 2,422.5 2,664.0(11)
Shareholders' equity ..... 1,054.1 1,319.3 1,629.8 2,148.8 4,322.7 4,608.9 5,905.6
Assets under management
and mortgage programs ... 3,805.7 4,058.8 4,115.4 4,955.6 5,729.2 5,602.2 5,602.2
Debt under management and
mortgage programs........ 3,273.1 3,629.7 3,791.6 4,427.9 5,089.9 4,952.1 4,952.1
</TABLE>
12
<PAGE>
- ------------
(1) Financial data reflects and has been restated to include the following
mergers and acquisitions accounted for under the pooling of interest
method of accounting: (i) the December 17, 1997 merger of HFS with and
into CUC to form Cendant (the "HFS/CUC Merger"); (ii) the April 30,
1997 merger with PHH Corporation ("PHH"); (iii) the July 1996 mergers
with Davidson and Associates Inc. ("Davidson") and Sierra On-Line, Inc.
("Sierra"); (iv) the August 1996 merger with Ideon Group Inc.
("Ideon"); (v) the 1995 acquisitions of Getko Group Inc., North
American Outdoor Group, Inc. and Advance Ross Corporation; and (vi)
other acquisitions.
(2) Financial data reflects the following acquisitions accounted for under
the purchase method of accounting, and accordingly the financial
results of such acquired companies are reflected since the respective
dates of acquisition: (i) Resort Condominiums International, Inc.
("RCI") in November 1996; (ii) Avis, Inc. ("Avis") in October 1996;
(iii) Coldwell Banker Corporation ("Coldwell Banker") in May 1996; (iv)
Century 21 Real Estate Corporation in August 1995; (v) the Super 8
Motel franchise system in April 1993; (vi) the Days Inn of America,
Inc. franchise system in January 1992; and (vii) other acquisitions.
(3) Pro forma income statement data include the following acquisitions and
related financing, as if they occurred on January 1, 1996: (i) Coldwell
Banker in May 1996; (ii) Avis in October 1996; (iii) RCI in November
1996; and (iv) other acquisitions completed during 1996.
(4) In the opinion of management, all adjustments necessary for a fair
presentation of the interim consolidated financial data are included.
These interim results are not necessarily indicative of results for a
full year.
(5) Includes extraordinary loss, net of tax of $12.8 million, related to
the early extinguishment of debt.
(6) Includes a net gain of $9.8 million ($6.2 million, after-tax) comprised
of the gain on the sale of The ImagiNation Network, Inc. offset by
costs related to Ideon products abandoned and restructuring.
(7) Includes provision for costs related to the abandonment of certain
Ideon development efforts and the restructuring of Cendant's SafeCard
division and corporate infrastructure. The charges aggregated $97.0
million ($62.1 million, after-tax).
(8) Includes provisions for costs incurred principally in connection with
the 1996 mergers with Davidson, Sierra and Ideon. The charges
aggregated $179.9 million ($118.7 million, after-tax). Such costs in
connection with Cendant's mergers with Davidson and Sierra are
non-recurring and are comprised primarily of transaction costs and
other professional fees. Such costs associated with Cendant's merger
with Ideon are non-recurring and include transaction costs as well as a
provision relating to certain litigation. In June 1997, Cendant entered
into an agreement which provided for the settlement of certain Ideon
litigation. Such agreement called for the payment of $70.5 million over
a six-year period which was provided for during the year ended December
31, 1996.
(9) Includes a one-time pre-tax merger related charge of $303 million ($227
million, after-tax) during the second quarter of 1997 in connection
with the merger with PHH. Such charge is comprised of merger-related
costs, including severance, facility and system consolidations and
terminations, costs associated with exiting certain activities and
professional fees.
(10) Prior to the HFS/CUC Merger, CUC and HFS had not declared or paid cash
dividends on its common stock. However, cash dividends were declared
and paid by Ideon and PHH to their shareholders prior to their
respective mergers with Cendant. Cendant expects to retain its earnings
for the development and expansion of its business and the repayment of
indebtedness and does not anticipate paying dividends on its common
stock in the foreseeable future.
(11) Includes Cendant long-term debt of $2,422.5 million and American
Bankers notes payable in the amount of $241.5 million.
- ------------
YEAR-END 1997 FINANCIAL RESULTS. On February 4, 1998, Cendant announced
its financial results for the year ended December 31, 1997. Cendant reported
diluted earnings per share of $1.00 for 1997, a 49% increase compared to $.67
earnings per share reported for 1996, excluding one-time charges recognized
in both 1997 and 1996. Cendant had revenues of $5.3 billion for 1997 compared
with $3.9 billion for 1996, an increase of 36%, and net income of $872.2
million for 1997, excluding one-time charges, compared with $542.3 million of
1996, excluding one-time charges, an increase of 61%. On a pro forma basis,
which assumes that the financial results include all of Cendant's 1996
acquisitions, accounted for under the purchase method, as if they had
occurred as of January 1, 1996, earnings per share for the year ended
December 31, 1997, excluding one-time charges, was $1.00 representing a 43%
increase over pro forma $.70 earnings per share for the year ended December
31, 1996.
When giving effect to one-time charges, Cendant reported $.06 diluted
earnings per share for the year ended December 31, 1997 and net income of
$55.4 million for 1997 compared to $423.6 million for 1996. In 1997, one-time
charges totaled $1.1 billion ($816.8 million after-tax, or $.94 per share)
for merger related costs and unusual charges coincident with the HFS/CUC
Merger, as well as the merger of HFS and PHH which was consummated in April
1997. In 1996, one-time charges totaled $179.9 million ($118.7 million
after-tax, or $.15 per share) principally related to three CUC mergers.
13
<PAGE>
CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth the unaudited consolidated ratio of
earnings to combined fixed charges and preferred stock dividends of Cendant
for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
PRO FORMA
---------------------------------------------
PRIOR TO THE GIVING EFFECT TO THE
PROPOSED CENDANT PROPOSED CENDANT
------------------------------------------ MERGER MERGER
1992 1993 1994 1995 1996 1996(2) 1996(2)(3)
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS(1) .......... 1.99X 2.68X 2.94X 2.70X 3.06X 3.15X 2.65X
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
PRO FORMA
--------------------
GIVING EFFECT TO THE
PROPOSED CENDANT
HISTORICAL MERGER
------------ 1997(2)
1997
----
<S> <C> <C>
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends(1)............................ 3.48x 3.01X
</TABLE>
- ------------
(1) The ratio of earnings to combined fixed charges and preferred stock
dividend is computed by dividing income before income taxes and
extraordinary items plus fixed charges, less capitalized interest by
combined fixed charges and preferred stock dividends. Fixed charges
consist of interest expense on all indebtedness (including amortization
of deferred financing costs) and the portion of operating lease rental
expense that is representative of the interest factor (deemed to be
one-third of operating lease rentals). Preferred stock dividends
represents dividends at the annual rate of 3.125% per share of Cendant
Series A Preferred Stock.
(2) Pro forma information includes the following acquisitions and related
financing, as if the occurred on January 1, 1996: (i) Coldwell Banker
in May 1996; (ii) Avis in October 1996; (iii) RCI in November 1996; and
(iv) other acquisitons completed during 1996.
(3) The pro forma information giving effect to the Proposed Cendant Merger
includes the effects of the issuance of the Cendant Series A Preferred
Stock and related dividend.
14
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETINGS
Assuming the American Bankers Board approves the Proposed Cendant Merger,
information about the American Bankers Meetings (including the date and time
of the American Bankers Meetings, the record dates therefor, voting by proxy
and certain other matters) would be set forth in a definitive Proxy
Statement/Prospectus.
THE PROPOSED CENDANT TRANSACTION
The following information relating to the Proposed Cendant Merger is
qualified in its entirety by reference to the other information contained
elsewhere in this Proxy Statement/Prospectus and the documents incorporated
herein by reference.
OVERVIEW OF THE PROPOSED CENDANT TRANSACTION
On January 28, 1998, Cendant, through Cendant Sub, commenced a tender
offer to purchase 23,501,260 American Bankers Common Shares, including the
associated Rights, at a price of $58.00 per share, net to seller in cash,
without interest thereon, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated January 27, 1998.
The purpose of the Cendant Offer and the Proposed Cendant Merger is to
enable Cendant to acquire control of, and ultimately the entire equity
interest in, American Bankers. The Cendant Offer, as the first step in the
acquisition of American Bankers, is intended to facilitate the acquisition of
a majority of the outstanding American Bankers Common Shares. Cendant is
seeking to negotiate with American Bankers a definitive merger agreement
pursuant to which American Bankers would, as soon as practicable following
consummation of the Cendant Offer, consummate a merger with and into a direct
wholly owned subsidiary of Cendant with such subsidiary continuing as the
surviving corporation. In the Proposed Cendant Merger, each share of American
Bankers Common Shares that remains outstanding (other than American Bankers
Common Shares owned by Cendant or any of its wholly owned subsidiaries,
American Bankers Common Shares held in the treasury of American Bankers, and
if shareholder appraisal rights are available with respect to American
Bankers Common Shares, American Bankers Common Shares held by shareholders
who perfect appraisal rights under the FBCA) would be converted into that
number of shares of Cendant Common Stock having a value equal to the Cendant
Offer Price (as determined as of the time of the Proposed Cendant Merger
which, consistent with the valuation methodology for the Proposed AIG Merger,
would be based on the average closing prices of the Cendant Common Stock on
the NYSE for the ten trading days ending on the third trading day prior to
the date that the Proposed Cendant Merger is consummated). In addition,
pursuant to the Proposed Cendant Merger, each of the then outstanding
American Bankers Preferred Shares would be converted into one share of
Cendant Series A Preferred Stock having substantially similar terms as the
American Bankers Preferred Shares, except that such shares would be
convertible into shares of Cendant Common Stock in accordance with the terms
of the American Bankers Preferred Shares.
If the approval of the Proposed Cendant Merger by holders of American
Bankers Preferred Shares is not obtained or Cendant reasonably determines
that such approval is not likely to be obtained, Cendant expects that the
Proposed Cendant Merger Agreement would provide for the change in structure
provided for in the AIG Merger Agreement such that a subsidiary of Cendant
would merge with and into American Bankers with American Bankers continuing
as the surviving corporation. Upon consummation of such revised Proposed
Cendant Merger, the American Bankers Preferred Shares would remain
outstanding pursuant to their existing terms (except that they would be
convertible into Cendant Common Stock).
The Cendant Offer is conditioned upon, among other things, (i) there being
validly tendered and not withdrawn prior to the expiration of the Cendant
Offer a number of American Bankers Common Shares which, together with
American Bankers Common Shares owned by Cendant and Cendant Sub, constitute
at least 51% of the American Bankers Common Shares outstanding on a fully
diluted basis, (ii) the affiliated transaction provisions of Florida law
being inapplicable to the Proposed Cendant Merger, (iii) the control share
acquisition provisions of Florida law continuing to be inapplicable to the
acquisition of
15
<PAGE>
Common Shares pursuant to the Cendant Offer, (iv) the purchase of American
Bankers Common Shares pursuant to the Cendant Offer having been approved for
purposes of rendering the supermajority vote requirement of the American
Bankers Articles inapplicable to Cendant and Cendant Sub, (v) the Rights
having been redeemed by the American Bankers Board or having been invalidated
or otherwise rendered inapplicable to the Cendant Offer and the Proposed
Cendant Merger, (vi) the AIG Lockup Option (as defined herein) having been
terminated or invalidated without any American Bankers Common Shares having
been issued thereunder, and (vii) Cendant and Cendant Sub having obtained all
insurance regulatory approvals necessary for their acquisition of control
over American Bankers insurance subsidiaries on terms and conditions
satisfactory to Cendant Sub, in its reasonable discretion.
As described in the Cendant Offer, the conditions described in clauses
(ii) and (iv) above would be satisfied upon approval by the American Bankers
Board of the Cendant Offer and the Proposed Cendant Merger. Under the
American Bankers Bylaws, the Florida control share acquisition statute is not
applicable to American Bankers. Accordingly, the condition described in
clause (iii) above will continue to be satisfied unless American Bankers
amends its Bylaws and elects to have the Florida control share acquisition
statute apply to control share acquisitions of American Bankers Shares.
Under the terms of the Rights Agreement, the American Bankers Board has
the ability to redeem the Rights at a price of $.01 per Right (the
"Redemption Price") or to otherwise make the Rights inapplicable to the
Cendant Offer and the Proposed Cendant Merger, thereby satisfying the
condition described in clause (v) above relating to the Rights (the "Rights
Condition"). However, American Bankers has agreed in the AIG Merger Agreement
not to facilitate any effort or attempt to make or implement an acquisition
proposal, which would include the Cendant Offer, including by means of an
amendment to the Rights Agreement. Notwithstanding the foregoing, American
Bankers has amended the Rights Agreement and resolved to provide that the
commencement of the Cendant Offer would not trigger the occurrence of a
Distribution Date (as defined in the Rights Agreement).
Cendant believes that under applicable law and under the circumstances of
the Cendant Offer, including the approval of the American Bankers Board of
the AIG Merger Agreement and the transactions contemplated thereby, American
Bankers' Board of Directors is obligated by its fiduciary responsibilities
not to redeem the Rights or render the Rights Agreement inapplicable to any
business transaction by AIG without, at the same time, taking the same action
as to Cendant, the Cendant Offer and the Proposed Cendant Merger, and that
American Bankers Board's failure to do so would be a violation of law.
Cendant has commenced litigation against American Bankers, substantially all
of the members of the American Bankers Board, AIG and AIG Sub in the United
States District Court for the Southern District of Florida, Miami Division
(the "Florida Litigation") seeking to enjoin American Bankers from treating
AIG and Cendant differently under the Rights Agreement. In addition, Cendant
is seeking to invalidate the AIG Lockup Option in the Florida Litigation. See
"Certain Litigation."
While Cendant believes its claims in the Florida Litigation are
meritorious, there can be no assurance that it will prevail in such
litigation. If Cendant were to prevail in the Florida Litigation and American
Bankers was compelled to redeem the Rights or otherwise render the Rights
inapplicable to the Cendant Offer and the Proposed Cendant Merger, the Rights
Condition would be satisfied. Immediately upon the action of the American
Bankers Board ordering a redemption of the Rights, the Rights would
terminate, and the only rights to which the holders of Rights would be
entitled would be the right to receive the Redemption Price.
If the Rights Condition is not satisfied and Cendant Sub elects, in its
sole discretion, to waive such condition and consummate the Cendant Offer,
and if there are outstanding Rights which have not been acquired by Cendant
Sub, Cendant Sub will evaluate its alternatives. Such alternatives could
include purchasing additional Rights in the open market, in privately
negotiated transactions, in another tender or exchange offer or otherwise.
Any such additional purchase of Rights could be for cash or other
consideration. Under such circumstances, the Proposed Cendant Merger might be
delayed or abandoned as impracticable.
There can be no assurance as to the timing of satisfaction of the
conditions to the Cendant Offer, as many of them are within the control of
the American Bankers Board which, as described below, is
16
<PAGE>
purportedly restricted in its ability to negotiate with Cendant or terminate
the AIG Merger Agreement. However, Cendant intends to vigorously pursue its
claims in the Florida Litigation as expeditiously as possible and to attempt
to ensure that further steps toward consummation of the Proposed AIG Merger
are not taken until the takeover defenses and other impediments approved or
adopted by the American Bankers Board or otherwise within the control of the
American Bankers Board--such as the Rights Agreement, the AIG Lockup Option,
the Fiduciary Sabbatical Provision (as defined below), the Termination Fee
(as defined below), the 180-Day No Termination Provision (as defined below),
the supermajority vote requirement of the American Bankers Articles and the
Florida affiliated transaction statute--are invalidated, enjoined or
otherwise rendered inapplicable to Cendant and the Cendant Offer. In
addition, Cendant intends to continue to seek to negotiate with American
Bankers with respect to the acquisition of American Bankers by Cendant.
American Bankers shareholders would receive in the Proposed Cendant Merger
shares of Cendant Common Stock with a value of $58.00 for each of their
American Bankers Common Shares -representing a premium of $11.00 (in excess
of 23%) over the value of the Proposed AIG Merger and a premium of $11.75 (in
excess of 25%) over the closing price of the American Bankers Common Shares
on January 26, 1998 (the last trading day before the announcement of the
Cendant Offer).
REASONS FOR THE PROPOSED CENDANT MERGER
Cendant believes that the Proposed Cendant Merger represents a unique and
compelling opportunity to enhance value for shareholders of both American
Bankers and Cendant. Cendant's vision for American Bankers is one of
exceptional growth and opportunity. Among the many advantages contributing to
achieving Cendant's vision for the combined company are the following:
o OPERATING AND EARNINGS SYNERGIES. Based on its knowledge of the direct
marketing industry and its review of public information on American
Bankers, Cendant's management believes that the combined company can
achieve more than $140 million of enhanced annual pre-tax earnings
resulting from operating synergies, a substantial portion of which should
be realized by the year 2000. Cendant's management estimates that these
enhanced earnings can be achieved by (i) utilizing Cendant's distribution
system and customer base to increase American Bankers' product penetration
in the United States and in international markets; (ii) cross selling
Cendant products and services to American Bankers' customer base; (iii)
increasing American Bankers' marketing penetration in existing accounts
through Cendant's direct marketing expertise; and (iv) to a lesser extent,
cost avoidance and efficiencies from increased volumes in direct mail,
telecommunications and other non-employee product related costs. See
"Cautionary Statement Regarding Forward-Looking Statements."
o AN ACCRETIVE TRANSACTION. Cendant believes that the Proposed Cendant
Merger will be accretive to earnings per share in the first full year of
operations of the combined company based upon the anticipated synergies
described above. See "Cautionary Statement Regarding Forward-Looking
Statements."
o MANAGEMENT TEAM WITH PROVEN TRACK RECORD. Cendant's management while at
HFS and CUC (the companies combined to form Cendant) has delivered year
over year growth in revenues and operating income from continuing
operations from 1992 through 1997. The compound annual growth rate of the
Cendant Common Stock and Cendant's diluted earnings per share (excluding
merger related costs and other unusual charges) have increased 45.4% and
32.0%, respectively, for the five year period ending December 31, 1997. (The
stock price return has been adjusted for HFS and CUC by converting historical
prices to Cendant equivalent prices using a conversion ratio of 2.4031 CUC
shares per HFS share in the merger creating Cendant.)
Cendant is confident that it will be able to obtain the regulatory
approvals required for the Proposed Cendant Merger on a timely basis and
without imposition of any condition that would have a material adverse effect
on the combined company. Accordingly, Cendant believes that the American
Bankers Board should find the Proposed Cendant Merger highly attractive.
However, as of the date of this Proxy Statement/Prospectus, the American
Bankers Board has purportedly been unable to enter into any
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negotiations concerning the Proposed Cendant Merger or any other business
combination between Cendant and American Bankers because of restrictions
contained in the AIG Merger Agreement.
BACKGROUND OF THE CENDANT OFFER
Over the past several years, representatives of Cendant (formerly known as
CUC), including John H. Fullmer, Cendant's Executive Vice President and Chief
Marketing Officer, and representatives of American Bankers, including Gerald
N. Gaston, American Bankers' Vice Chairman, President and Chief Executive
Officer, met on various occasions to discuss possible strategic marketing
alliances. At a meeting in May 1997, Mr. Fullmer and Mr. Gaston met and
discussed CUC's interest in acquiring American Bankers and the existence of
certain financial issues relating to a possible combination.
In the Summer of 1997, representatives of HFS separately identified
American Bankers as a possible acquisition candidate. HFS's interest in
American Bankers increased as a result of its decision to acquire Providian
Auto & Home Insurance Company and its property and casualty subsidiaries,
which predominately market personal automobile insurance through direct
marketing channels.
During the course of planning for the then-pending merger of CUC and HFS,
their mutual interest in American Bankers was identified and scheduled to be
pursued following completion of the merger.
On December 3, 1997, a significant shareholder of American Bankers
indicated to the Senior Vice President -- Acquisitions of HFS that it
believed American Bankers was considering a sale transaction. This
information was conveyed to Mr. Fullmer, who attempted on several occasions
to contact Mr. Gaston to inquire as to its validity.
Mr. Fullmer ultimately spoke with Mr. Gaston in mid-December 1997 and
described the merger of CUC and HFS which created Cendant and emphasized that
the resulting size and scale of Cendant had eliminated the financial issues
relating to an acquisition of American Bankers which they had previously
discussed. Mr. Fullmer inquired whether American Bankers was actively engaged
in discussions relating to an acquisition, and indicated that, if American
Bankers was so engaged, representatives of Cendant would like to meet
immediately with American Bankers' representatives to discuss Cendant's
strong interest in exploring such a transaction. In response to Mr. Gaston's
assurances that American Bankers was not actively engaged in acquisition
discussions, Mr. Fullmer agreed to forward to Mr. Gaston information
regarding Cendant and to contact Mr. Gaston to schedule a meeting in early
January to discuss a possible acquisition transaction.
On December 22, 1997, American Bankers and AIG announced that they had
entered into the AIG Merger Agreement pursuant to which American Bankers
would be sold to AIG through the Proposed AIG Merger, which would be
consummated following the receipt of required regulatory and shareholder
approvals and satisfaction of various other conditions.
Following a series of meetings among representatives of Cendant and
Cendant's outside financial advisors and legal counsel and a meeting of
Cendant's Executive Committee, on January 26, 1998, the Cendant Board met to
review its strategic options in light of the announcement of the Proposed AIG
Merger. Because the Cendant Board believed that a combination of Cendant and
American Bankers would offer compelling benefits to both companies, their
shareholders and their other constituencies, it determined that Cendant
should make a competing offer for American Bankers.
On January 27, 1998, Cendant submitted to the American Bankers Board a
written proposal for the acquisition of American Bankers by Cendant Sub
pursuant to the Cendant Offer and the Proposed Cendant Merger and announced
its intention to commence the Cendant Offer. In its proposal, Cendant
indicated that its strong preference would be to enter into a merger
agreement with American Bankers containing substantially the same terms and
conditions as the AIG Merger Agreement but at the significantly higher value
reflected in the Cendant Offer Price. However, certain provisions of the AIG
Merger Agreement purport to prohibit American Bankers from discussing
Cendant's proposal for 120 days from the date of the AIG Merger Agreement.
Also, on January 27, 1998, Cendant and Cendant Sub commenced the Florida
Litigation. See "Certain Litigation." On January 28, 1998, Cendant Sub
commenced the Cendant Offer.
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On February 2, 1998, Cendant and Cendant Sub filed certain motions with
the Florida Department of Insurance, among other things, requesting a hearing
on AIG's application to acquire control over American Bankers. See
"--Regulatory Approvals."
On February 5, 1998, AIG commenced litigation against Cendant and Cendant
Sub which has resulted in various subsequent filings by AIG, AIG Sub, Cendant
and Cendant Sub. See "Certain Litigation."
On February 11, 1998, Cendant and Cendant Sub filed certain motions with
the Arizona Department of Insurance, among other things, requesting that
Cendant's and Cendant Sub's insurance regulatory application to acquire
control over American Bankers be consolidated with AIG's application to
acquire control over American Bankers. On February 13, 1998, Cendant and
Cendant Sub filed certain motions with the South Carolina Department of
Insurance, among other things, requesting that Cendant's and Cendant Sub's
insurance regulatory application to acquire control over American Bankers be
consolidated with AIG's application to acquire control over American Bankers.
In addition, on February 17, 1998, Cendant and Cendant Sub filed certain
motions with the New York Department of Insurance, among other things,
requesting that Cendant's and Cendant Sub's insurance regulatory application
to acquire control over American Bankers be consolidated with AIG's
application to acquire control over American Bankers. See "--Regulatory
Approvals."
On February 19, 1998, the Florida Department of Insurance announced that it
had scheduled separate hearings to consider AIG's and Cendant's respective
applications to acquire control over American Bankers for March 17, 1998 and
March 19, 1998, respectively. The Florida Department of Insurance also
determined to permit Cendant and Cendant Sub to intervene in AIG's proceeding.
RECOMMENDATIONS OF THE AMERICAN BANKERS BOARD AND CENDANT BOARD
Assuming the American Bankers Board approves the Proposed Cendant Merger,
information about the recommendations made by the American Bankers Board and
the Cendant Board to their respective shareholders relating to the Proposed
Cendant Merger would be contained in a definitive Proxy Statement/Prospectus.
EFFECTS OF THE PROPOSED CENDANT MERGER
Assuming the Proposed Cendant Merger is consummated, it is presently
contemplated that American Bankers would merge with and into Cendant Sub.
Cendant Sub would be the surviving corporation in the Proposed Cendant
Merger. Upon consummation of the Proposed Cendant Merger, the separate
corporate existence of American Bankers would terminate. It is expected that
the certificate of incorporation and bylaws of Cendant Sub in effect
immediately prior to the consummation of the Proposed Cendant Merger would be
the certificate of incorporation and bylaws of the surviving corporation. If
the approval of the Proposed Cendant Merger by holders of American Bankers
Preferred Shares is not obtained or Cendant reasonably determines that such
approval is not likely to be obtained, in such circumstance Cendant would
expect that the Proposed Cendant Merger Agreement would provide for the
change in structure as provided for in the AIG Merger Agreement (i.e.,that a
subsidiary of Cendant would merge with and into American Bankers with
American Bankers continuing as the surviving corporation). Upon consummation
of such revised Proposed Cendant Merger, the American Bankers Preferred
Shares would remain outstanding pursuant to their existing terms (except that
they would be convertible into Cendant Common Stock).
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VOTES REQUIRED
The Proposed Cendant Merger would be conditioned on, among other things,
obtaining the approval of the American Bankers Board and the approvals of the
holders of American Bankers Common Shares and American Bankers Preferred
Shares.
Under the FBCA, the affirmative vote of the holders of at least a majority
of the total number of outstanding American Bankers Common Shares and
American Bankers Preferred Shares, voting separately as a class, at the
American Bankers Meetings would be required to approve and adopt the Proposed
Cendant Merger Agreement and consummate the Proposed Cendant Merger. As of
January 30, 1998, directors and executive officers of American Bankers and
their affiliates as a group (i) beneficially owned 4,177,200 American Bankers
Common Shares, or approximately 9.9% of the outstanding American Bankers
Common Shares, and (ii) did not beneficially own any American Bankers
Preferred Shares. Each of R. Kirk Landon, Chairman of American Bankers, and
Gerald Gaston, in the aggregate beneficially own 3,391,066 shares, or
approximately 8.0% American Bankers Common Shares. Pursuant to the AIG Voting
Agreement, Messrs. Landon and Gaston have contractually agreed with AIG to
vote in favor of the AIG Merger Agreement and the consummation of the
Proposed AIG Merger. In addition, Messrs. Landon and Gaston have agreed, if
requested by AIG, to execute irrevocable proxies in connection with the
voting power of their American Bankers Common Shares. If the AIG Voting
Agreement is still valid and binding at the time of the American Bankers
Meetings, it is anticipated that Messrs. Landon and Gaston would vote against
the Proposed Cendant Merger Agreement and the Proposed Cendant Merger.
If the approval of the Proposed Cendant Merger by holders of American
Bankers Preferred Shares is not obtained or Cendant reasonably determines
that such approval is not likely to be obtained, in such circumstance Cendant
would expect that the Proposed Cendant Merger Agreement would provide for the
change in structure provided for in the AIG Merger Agreement such that a
subsidiary of Cendant would merge with and into American Bankers with
American Bankers continuing as the surviving corporation. Upon consummation
of such revised Proposed Cendant Merger, the American Bankers Preferred
Shares would remain outstanding pursuant to their existing terms (except that
they would be convertible into Cendant Common Stock).
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
Prior to the consummation of the Proposed Cendant Merger, Cendant would
deposit with such bank or trust company as may be designated by Cendant (the
"Exchange Agent"), for the benefit of the holders of American Bankers Common
Shares and American Bankers Preferred Shares, for exchange in accordance with
the Proposed Cendant Merger Agreement, through the Exchange Agent,
certificates representing the shares of Cendant Common Stock and Cendant
Series A Preferred Stock issuable in exchange for outstanding shares of
American Bankers Common Shares and American Bankers Preferred Shares. As soon
as reasonably practicable after the consummation of the Proposed Cendant
Merger, the Exchange Agent would mail to each holder of record of a
certificate or certificates which represented outstanding shares of American
Bankers Common Shares or American Bankers Preferred Shares (the
"Certificates") whose shares would be converted into shares of Cendant Common
Stock or Cendant Series A Preferred Stock, a letter of transmittal and
instructions for surrendering the Certificates in exchange for shares of
Cendant Common Stock and Cendant Series A Preferred Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
would be entitled to receive in exchange therefor a certificate representing
that number of whole shares of Cendant Common Stock or Cendant Preferred
Series A Stock which such holder has the right to receive pursuant to the
provisions of the Proposed Cendant Merger Agreement and cash in lieu of any
fractional share of Cendant Common Stock as described below, and the
Certificate so surrendered will be cancelled.
No certificates or scrip representing fractional shares of Cendant Common
Stock would be issued upon the surrender for exchange of Certificates and
such fractional shares interests would not entitle the owner thereof to vote
or to exercise any rights of a stockholder of Cendant. If the Proposed
Cendant
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Merger is consummated, as soon as practicable thereafter, the Exchange Agent
would determine the excess of (A) the number of whole shares of Cendant Common
Stock delivered to the Exchange Agent by Cendant pursuant to the Proposed
Cendant Merger Agreement over (B) the aggregate number of whole shares of
Cendant Common Stock to be distributed to former holders of American Bankers
Common Shares pursuant to the Proposed Cendant Merger Agreement (such excess
being herein called the "Excess Shares"). If the Proposed Cendant Merger is
consummated, the Exchange Agent, on behalf of the former shareholders of
American Bankers, would sell the Excess Shares at then-prevailing prices on the
NYSE. In connection with any such sales, neither Cendant nor any of its
affiliates will purchase any such Excess Shares. The Exchange Agent would then
determine the portion of the net proceeds from the sale of such Excess Shares to
which each former holder of American Bankers Common Shares is entitled, if any,
by multiplying the amount of the aggregate net proceeds by a fraction, the
numerator of which is the amount of the fractional share interest to which such
former holder of American Bankers Common Shares is entitled (after taking into
account all shares of American Bankers Common Shares held upon the date of
consummation of the Proposed Cendant Merger by such holder) and the denominator
of which is the aggregate amount of fractional share interests to which all
former holders of American Bankers Common Shares are entitled. Notwithstanding
the foregoing, Cendant may elect at its option, exercised prior to the
consummation of the Proposed Cendant Merger, in lieu of the issuance and sale of
the Excess Shares and the making of the payments herein above contemplated, to
pay each former holder of American Bankers Common Shares an amount in cash equal
to the product obtained by multiplying (A) the fractional share interest to
which such former holder (after taking into account all shares of American
Bankers Common Shares held at the time of the consummation of the Proposed
Cendant Merger by such holder) would otherwise be entitled by (B) the average
closing prices of the Cendant Common Stock as reported on the NYSE for the ten
trading days ending on the third trading day prior to the date that the Proposed
Cendant Merger is consummated.
PROPOSED CENDANT MERGER AGREEMENT
If approved by the American Bankers Board, the terms and conditions of the
Proposed Cendant Merger would be contained in the Proposed Cendant Merger
Agreement and described in a definitive Proxy Statement/Prospectus. It is
expected that the Proposed Cendant Merger Agreement would contain
substantially similar terms and conditions as found in the AIG Merger
Agreement except that each American Bankers Common Share would be converted
in the Proposed Cendant Merger into that number of shares of Cendant Common
Stock having a value of $58.00 (as determined as of the time of the Proposed
Cendant Merger which, consistent with the valuation methodology for the
Proposed AIG Merger, would be based on the average closing prices of the
Cendant Common Stock on the NYSE for the ten trading days ending on the third
trading day prior to the date the Proposed Cendant Merger is consummated) and
except that, if the Cendant Offer is consummated prior to the execution of
the Proposed Cendant Merger Agreement, holders of American Bankers Common
Shares would not be able to elect to receive cash in lieu of shares of
Cendant Common Stock in the Proposed Cendant Merger as they would have had
the opportunity to receive cash for 51% of the outstanding American Bankers
Common Shares in the Cendant Offer. It is expected that the Proposed Cendant
Merger Agreement would include representations and warranties made by each of
Cendant and American Bankers to the other party, conditions to the
consummation of the Proposed Cendant Merger (including receipt of all
requisite regulatory approvals) as described below, covenants relating to the
conduct of American Bankers' business prior to the consummation of the
Proposed Cendant Merger, provisions for the possible termination of the
agreement, transaction-related fees and expenses, indemnification, the
alternative transaction structure and other provisions consistent with the
AIG Merger Agreement.
It is expected that, consistent with the terms of the AIG Merger
Agreement, the completion of the Proposed Cendant Merger would depend upon a
number of conditions being met, including the following: (a) the approval of
the Proposed Cendant Merger by the holders of a majority of the outstanding
American Bankers Common Shares and a majority of the outstanding American
Bankers Preferred Shares, each voting as a separate class; (b) no law having
been enacted or injunction having been entered which effectively prohibits
the Proposed Cendant Merger; (c) all necessary approvals of governmental
authorities and all material required consents of third parties having been
obtained; (d) the receipt of
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opinions from tax counsel for each company regarding certain federal income tax
consequences of the Proposed Cendant Merger; (e) Cendant's and American Bankers'
respective representations and warranties being true and correct in all material
respects and the parties have performed in all material respects their
respective obligations under the Cendant Merger Agreement; and (f) the shares of
Cendant Series A Preferred Stock to be issued to holders of American Bankers
Preferred Shares and the shares of Cendant Common Stock to be issued to holders
of American Bankers Common Shares having been authorized for listing on the NYSE
subject to official notice of issuance.
It is also expected that, consistent with terms of the AIG Merger
Agreement, each outstanding option to purchase American Bankers Common Shares
under the American Bankers stock plans, whether vested or unvested, shall be
deemed to constitute an option to acquire, on the same terms and conditions,
the same number of shares of Cendant Common Stock as the holder of such
option would have been entitled to receive pursuant to the Proposed Cendant
Merger had such holder exercised such option in full immediately prior to the
consummation of the Proposed Cendant Merger at a price per share (rounded up
to the nearest whole cent) equal to (y) the aggregate exercise price for the
American Bankers Common Shares otherwise purchasable pursuant to such option
divided by (z) the number of full shares of Cendant Common Stock deemed
purchasable pursuant to such option; provided that in the case of any option
to which Section 422 of the Code applies, the option price, the number of
shares purchasable pursuant to such option, and the terms and conditions of
the exercise of such option shall be subject to such adjustments as are
necessary in order to satisfy the requirements of Section 424(a) of the Code;
provided, further, that to the extent that shares of Cendant Common Stock
acquired upon exercise of such option would be subject to vesting or other
restrictions under the terms of the relevant American Bankers stock plan
under which such option was issued ("American Bankers Restricted Shares"),
the number of shares of Cendant Common Stock to be issued upon exercise of an
assumed option in accordance with the foregoing that bears the same ratio to
the total shares of Cendant Common Stock deemed purchasable pursuant to such
assumed option as the number of American Bankers Restricted Shares bears to
the total number of American Bankers Common Shares issuable under such option
shall be subject to the same vesting and other restrictions as would be
applicable to the American Bankers Restricted Shares.
Cendant intends to continue to seek to negotiate with American Bankers
with respect to the acquisition of American Bankers by Cendant. If Cendant
and American Bankers enter into a merger agreement, such agreement could
provide for an acquisition of American Bankers not involving a tender offer
pursuant to which Cendant would terminate the Cendant Offer and American
Bankers Common Shares would, upon consummation of the Proposed Cendant
Merger, be converted into cash, Cendant Common Stock and/or other securities
in such amount as are negotiated by Cendant and American Bankers.
CENDANT'S PLANS FOR AMERICAN BANKERS
In connection with the Cendant Offer and the Proposed Cendant Merger,
Cendant has reviewed, and will continue to review, on the basis of publicly
available information, various possible business strategies that it might
consider in the event that Cendant acquires control of American Bankers,
whether pursuant to the Proposed Cendant Merger or otherwise. In addition, if
and to the extent that Cendant acquires control of American Bankers or
otherwise obtains access to the books and records of American Bankers,
Cendant intends to conduct a detailed review of American Bankers and its
assets, corporate structure, dividend policy, capitalization, operations,
properties, policies, management and personnel and, subject to applicable
state insurance regulatory rules and regulations, to consider and determine
what, if any, changes would be desirable in light of the circumstances which
then exist. However, Cendant currently intends for American Bankers and its
subsidiaries to be operated substantially as currently operated and to be
managed by their present management.
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REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
prohibits Cendant and American Bankers from completing the Proposed Cendant
Merger until after certain information and materials have been furnished to
the Antitrust Division of the Department of Justice and the Federal Trade
Commission and a required waiting period has ended. On January 27, 1998
Cendant furnished that information and the waiting period expired on February
11, 1998. However, the Department of Justice and the Federal Trade Commission
will continue to have the authority to challenge the Proposed Cendant Merger
on antitrust grounds before or after the Proposed Cendant Merger is
completed.
Pursuant to the Competition Act of Canada, Cendant submitted to the
Director of Investigation and Research (the "Director") a notification in
respect of the Cendant Offer on February 4, 1998. The Director has confirmed
that the statutory waiting period expired on February 11, 1998. In addition,
the Director has notified Cendant of his view that there are not sufficient
grounds to initiate proceedings with respect to the Cendant Offer and the
Proposed Cendant Merger. Accordingly, Cendant is permitted to consummate the
Cendant Offer and the Proposed Cendant Merger at any time without any further
requirements under the Competition Act of Canada.
The acquisition of American Bankers Common Shares pursuant to the Cendant
Offer and the Proposed Cendant Merger will require filings with, and
approvals of, the state insurance regulatory authorities (the "Insurance
Commission") under the respective insurance codes (the "Insurance Codes") of
Arizona, Florida, Georgia, New York, South Carolina, Texas and Puerto Rico,
which are the United States jurisdictions in which the insurance companies
owned or otherwise controlled by American Bankers are domiciled. The
Insurance Codes each contain similar provisions (subject to certain
variations noted below) inapplicable to the acquisition of control of a
domestic insurer, including a presumption of control that arises from the
ownership of 10% or more of the voting securities of a domestic insurer or of
any person that controls a domestic insurer (under Florida law, 5% or more of
the outstanding voting securities unless the acquiror acquires less than 10%
of the outstanding voting securities and affirmatively disclaims control).
American Bankers' non-U.S. insurance subsidiaries are organized under the
laws of the United Kingdom, Turks & Caicos, Mexico, Argentina, the Dominican
Republic and the Cayman Islands, which laws generally require notice to
and/or prior approval from the insurance regulatory authority prior to the
acquisition of control. Cendant and Cendant Sub intend to give promptly the
required notices to and/or seek the required approvals from such foreign
insurance regulatory authorities.
Generally, a person seeking to acquire voting securities, such as the
American Bankers Common Shares, in an amount that would result in such person
controlling, directly or indirectly, a domestic insurer must, together with
any person ultimately controlling such person, file an Application for
Approval of Acquisition of Control of or Merger with a Domestic Insurer (Form
A) or comparable application (each a "Form A") with the relevant Insurance
Commission and send a copy of such Form A to the domestic insurer. Cendant
and Cendant Sub made Form A filings with the relevant Insurance Commission
and sent copies thereof to the relevant domestic insurers on the date of the
Cendant Offer.
In certain jurisdictions, the Form A filings trigger public hearing
requirements and/or statutory periods within which decisions must be rendered
approving or disapproving the acquisition of control. In other states, public
hearings are discretionary and/or there are no periods within which such
decisions must be rendered. The periods within which hearings must be
commenced or decisions rendered may not begin until the relevant Insurance
Commission has deemed the Form A filing complete, and the Insurance
Commission has discretion to request that Cendant and Cendant Sub furnish
additional information before it deems the Form A filing complete. The
Insurance Codes generally require the relevant Insurance Commissions to
approve the application for the acquisition of control unless the Insurance
Commission determines (in certain states, after a public hearing) that such
application should be disapproved on one or more prescribed regulatory
grounds. The Insurance Codes contain provisions providing generally for
judicial review of an Insurance Commission order.
On February 2, 1998, in connection with Cendant's and Cendant Sub's
application for approval of the acquisition of a controlling interest in
American Bankers Insurance Company of Florida, American
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Bankers Life Assurance Company of Florida and Voyager Service Warranties, Inc.
(the "Florida Domestic Insurers"), each a subsidiary of American Bankers (the
"Cendant Florida Form A Proceedings"), Cendant and Cendant Sub filed with the
Florida Department of Insurance (the "Florida Department") a motion to
consolidate the Cendant Florida Form A Proceedings with the application of AIG
and AIG Sub for approval of their proposed acquisition of a controlling interest
in the Florida Domestic Insurers (the "AIG Florida Form A Proceedings"). Also on
February 2, 1998, Cendant and Cendant Sub (1) petitioned to intervene in the AIG
Florida Form A Proceedings and to have those proceedings consolidated with the
Cendant Florida Form A Proceedings and (2) petitioned for a hearing on the AIG
Florida Form A Proceedings as provided for by Florida law. On February 9, 1998,
AIG and AIG Sub filed with the Florida Department its responses to such filings.
On February 11, 1998, in connection with Cendant's and Cendant Sub's
application for approval of the acquisition of a controlling interest in
Condeaux Life Insurance Company and American Reliable Insurance Company (the
"Arizona Domestic Insurers"), each a subsidiary of American Bankers (the
"Cendant Arizona Form A Proceedings"), and in connection with the application of
AIG and AIG Sub for approval of their proposed acquisition of a controlling
interest in the Arizona Domestic Insurers (the "AIG Arizona Form A
Proceedings"), Cendant and Cendant Sub filed with the Arizona Department of
Insurance (the "Arizona Department") a petition (i) to defer a hearing on the
AIG Arizona Form A Proceedings, which Cendant and Cendant Sub understand is
currently set for March 6, 1998, (ii) to intervene in those proceedings and
(iii) to consolidate those proceedings with the Cendant Arizona Form A
Proceedings. In this petition, Cendant and Cendant Sub asserted that the Arizona
Department should defer any hearing in the AIG Arizona Form A Proceedings until
such time as the results of the vote of American Bankers' shareholders on the
Proposed AIG Merger will be know to avoid the possibility of conducting an
unnecessary hearing should the Proposed AIG Merger be disapproved by the
American Bankers' shareholders and to avoid improper disadvantage to Cendant and
Cendant Sub. Cendant and Cendant Sub further asserted that they should be
permitted to intervene in the AIG Arizona Form A Proceedings because their
interests as a shareholder (in the case of Cendant) and competing acquiror of
American Bankers will be affected by the AIG Arizona Form A Proceedings. Cendant
and Cendant Sub also asseted that the AIG Arizona Form A Proceedings raise
substantial issues regarding whether AIG's proposed acquisition of a controlling
interest in the Arizona Domestic Insurers should be approved by the Arizona
Department, that these issues should receive a thorough and complete review by
the Arizona Department, that Cendant and Cendant Sub have a right to be heard on
these issues through participation in the AIG Arizona Form A Proceedings and
that the Arizona Department would be in error if it did not consolidate the
Cendant Arizona Form A Proceedings and the AIG Arizona Form A Proceedings and
hear and decide the two proceedings simultaneously.
On February 13, 1998, in connection with Cendant's and Cendant Sub's
application for approval of the acquisition of a controlling interest in
Voyager Property and Casualty Insurance Company (the "South Carolina Domestic
Insurer"), a subsidiary of American Bankers (the "Cendant South Carolina Form
A Proceedings") and in connection with the application of AIG and AIG Sub for
approval of their proposed acquisition of a controlling interest in the South
Carolina Domestic Insurer (the "AIG South Carolina Form A Proceedings"),
Cendant and Cendant Sub filed with the South Carolina Department of Insurance
(the "South Carolina Department") a petition and memorandum in support of
Cendant's and Cendant Sub's petition seeking: (1) to allow Cendant and
Cendant Sub to intervene in the AIG South Carolina Form A Proceedings; and
(2) to consolidate the Cendant South Carolina Form A Proceedings with the AIG
South Carolina Form A Proceedings (the "South Carolina Petition"). In these
filings, Cendant and Cendant Sub asserted that they should be permitted to
intervene in the AIG South Carolina Form A Proceedings because their
substantial interests as a shareholder (in the case of Cendant) and competing
acquiror of American Bankers will be affected by the AIG South Carolina Form
A Proceedings. Cendant and Cendant Sub also asserted that the AIG South
Carolina Form A Proceedings raise substantial issues regarding whether AIG's
proposed acquisition of a controlling interest in the South Carolina Domestic
Insurers should be approved by the South Carolina Department, that these
issues should receive a thorough and complete review by the South Carolina
Department, that Cendant and Cendant Sub have a right to be heard on these
issues through participation in the AIG South Carolina Form A Proceedings,
and that the South Carolina Department should therefore consolidate the
Cendant South Carolina Form A Proceedings with the AIG South Carolina Form A
Proceedings and hear and decide the two proceedings simultaneously.
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On February 17, 1998, in connection with Cendant's and Cendant Sub's
application for approval of the acquisition of a controlling interest in Bankers
American Life Assurance Company (the "New York Domestic Insurer"), a subsidiary
of American Bankers (the "Cendant New York Form A Proceedings") and in
connection with the application of AIG and AIG Sub for approval of their
proposed acquisition of a controlling interest in the New York Domestic Insurer
(the "AIG New York Form A Proceedings"), Cendant and Cendant Sub filed with the
New York Department of Insurance (the "New York Department") a petition and
memorandum in support of Cendant's and Cendant Sub's petition (the "New York
Petition") seeking: (1) to allow Cendant and Cendant Sub to intervene in the AIG
New York Form A Proceedings; (2) to consolidate the Cendant New York Form A
Proceedings with the AIG New York Form A Proceedings; and (3) to schedule a
hearing after the results of a vote of American Bankers' shareholders are known.
In these filings, Cendant and Cendant Sub asserted that they should be permitted
to intervene in the AIG New York Form A Proceedings because their substantial
interests as a shareholder (in the case of Cendant) and competing acquiror of
American Bankers will be affected by the AIG New York Form A Proceedings.
Cendant and Cendant Sub also asserted that the AIG New York Form A Proceedings
raise substantial issues regarding whether AIG's proposed acquisition of a
controlling interest in the New York Domestic Insurers should be approved by the
New York Department, that these issues should receive a thorough and complete
review by the New York Department, that Cendant and Cendant Sub have a right to
be heard on these issues, and that the New York Department should therefore
consolidate the Cendant New York Form A Proceedings with the AIG New York Form A
Proceedings and hear and decide the two proceedings simultaneously. Cendant and
Cendant Sub also asserted that the hearing should occur after American Bankers'
shareholders vote on the Proposed AIG Merger.
On February 19, 1998, the Florida Department announced that it had scheduled
separate hearings to consider the AIG Florida Form A Proceedings and the
Cendant Florida Form A Proceedings for March 17, 1998 and March 19, 1998,
respectively. The Florida Department also determined to permit Cendant and
Cendant Sub to intervene in AIG's proceeding.
OVERVIEW OF THE PROPOSED AIG MERGER
According to the Current Report on Form 8-K filed by American Bankers with
the SEC on January 13, 1998 (the "American Bankers January 13 Form 8-K"),
American Bankers entered into the AIG Merger Agreement with AIG and AIG Sub
on December 21, 1997 and subsequently amended and restated such agreement as
of January 7, 1998. The AIG Merger Agreement provides that, following the
satisfaction or waiver of certain conditions, American Bankers would
consummate the Proposed AIG Merger. Pursuant to the Proposed AIG Merger, each
outstanding American Bankers Common Share would be converted, based upon
elections made by the respective holders and subject to certain limitations,
into the right to receive (i) $47.00 in cash, without interest, (ii) a
portion of a share of the AIG Common Stock with a value equal to $47.00 (as
determined based on the average closing prices of the AIG Common Stock on the
New York Stock Exchange for the ten trading days ending on the third trading
day prior to the date that the Proposed AIG Merger is consummated) or (iii)
in certain circumstances, a combination of cash and shares of AIG Common
Stock with an aggregate value equal
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to $47.00. In addition, pursuant to the Proposed AIG Merger, each of the then
outstanding American Bankers Preferred Shares would be converted into one share
of AIG preferred stock having substantially similar terms, except that such
preferred stock would be convertible into shares of AIG Common Stock.
The obligations of AIG and American Bankers to effect the Proposed AIG
Merger are subject to various conditions, including the approval of the Proposed
AIG Merger by the holders of at least a majority of the outstanding American
Bankers Common shares voting separately as a class and by the holders of at
least a majority of the outstanding American Bankers Preferred Shares voting
separately as a class (the "Preferred Shareholder Approval") and the receipt of
all required regulatory consents, registrations, approvals, permits and
authorizations. In the event that the Preferred Shareholder Approval is not
obtained or AIG reasonably determines that such approval is not likely to be
obtained, the AIG Merger Agreement provides that the AIG Merger Agreement would
be amended to change the structure of the Proposed AIG Merger such that AIG Sub
would merge with and into American Bankers with American Bankers continuing as
the surviving corporation. Upon consummation of such revised Proposed AIG
Merger, the American Bankers Preferred Shares would remain outstanding pursuant
to their existing terms (except that they would be convertible into shares of
AIG Common Stock). Unlike the Proposed AIG Merger initially contemplated in the
AIG Merger Agreement, the revised Proposed AIG Merger would not require any
approval of holders of American Bankers Preferred Shares and would be a fully
taxable transaction, with the result that holders of American Bankers Common
Shares would pay federal income tax on all consideration, whether cash or shares
of AIG Common Stock, that they received in the revised Proposed AIG Merger to
the extent of any gain they may have on their American Bankers Common Shares.
In connection with the execution of the AIG Merger Agreement, American
Bankers and AIG entered into an option agreement (the "AIG Lockup Option
Agreement") pursuant to which American Bankers granted to AIG an option (the
"AIG Lockup Option"), exercisable in certain events, to purchase up to
approximately 8,265,626 American Bankers Common Shares (which represented
19.9% of the outstanding number of American Bankers Common Shares at the time
the AIG Lockup Option Agreement was entered into) at an exercise price of
$47.00 per American Bankers Common Share, subject to adjustment as set forth
therein. The AIG Lockup Option may not be exercised prior to AIG's receipt of
applicable regulatory approvals, including insurance regulatory approvals.
In the AIG Merger Agreement, American Bankers has agreed to a provision
(the "Fiduciary Sabbatical Provision") which provides that American Bankers
and its subsidiaries, officers, directors, employees, agents and
representatives will not, directly or indirectly, initiate, solicit,
encourage or otherwise facilitate any inquiries or the making of any proposal
or offer with respect to a merger, reorganization, share exchange,
consolidation or similar transaction involving, or any purchase of 15% or
more of the assets of any equity securities of, American Bankers or any of
its subsidiaries (an "Acquisition Proposal"), except that, after 120 days
have elapsed from the date of the AIG Merger Agreement and if the Proposed
AIG Merger shall not have been approved by the requisite vote of American
Bankers' shareholders by such date, American Bankers may, in certain limited
circumstances, engage in negotiations or discussions with any person who has
made an unsolicited bona fide superior Acquisition Proposal. In addition, in
the AIG Merger Agreement, American Bankers agreed to a provision (the
"180-Day No Termination Provision") that if a superior Acquisition Proposal
was made, American Bankers would not be able to terminate the AIG Merger
Agreement in order to accept such proposal prior to 180 days from the date of
execution of the AIG Merger Agreement.
In addition, the AIG Merger Agreement provides that under certain
circumstances in which the AIG Merger Agreement is terminated, American
Bankers will have an obligation to pay a cash fee of $66 million to AIG (the
"AIG Termination Fee"). However, pursuant to the terms of the AIG Lockup
Option Agreement, AIG's total profit under the AIG Lockup Option (including
the amount of the AIG Termination Fee) is limited to $66 million.
In connection with the execution of the AIG Merger Agreement, AIG has
entered into the AIG Voting Agreement with R. Kirk Landon, Chairman of the
Board of American Bankers, and Gerald N. Gaston, Vice Chairman, President and
Chief Executive Officer of American Bankers, pursuant to which
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Messrs. Landon and Gaston have agreed (i) to vote the approximately 8.0% of the
outstanding American Bankers Common Shares beneficially owned by them (A) in
favor of adopting the AIG Merger Agreement and approving the Proposed AIG Merger
and (B) against any action or proposal that would compete with or could serve to
materially interfere with, delay, discourage, adversely affect of inhibit the
timely consummation of the Proposed AIG Merger, and (ii) upon request, to grant
to AIG an irrevocable proxy with respect to such American Bankers Common Shares.
The foregoing description of the Proposed AIG Merger is qualified in its
entirety by reference to the full text of the AIG Merger Agreement, the AIG
Lockup Option Agreement and the AIG Voting Agreement, copies of which have
been filed with the SEC as exhibits to the American Bankers January 13 Form
8-K. For additional information concerning American Bankers, AIG and the
Proposed AIG Merger, including the material terms thereof and financial
information relating thereto, reference is made to the AIG Proxy
Statement/Prospectus mailed to American Bankers' shareholders in connection
with the Special Meetings.
Cendant stands ready to enter into immediate negotiations with American
Bankers concerning a superior alternative to the Proposed AIG Merger. The
Cendant Offer also constitutes an invitation to the American Bankers Board to
enter into merger negotiations with Cendant.
CENDANT ACTIONS RELATED TO THE PROPOSED AIG MERGER
Cendant is soliciting holders of American Bankers Preferred Shares and
American Bankers Common Shares to vote against the Proposed AIG Merger at the
American Bankers' shareholder meetings to be held on March 4, 1998 and March
6, 1998, respectively, pursuant to a definitive proxy statement filed by
Cendant with the Commission on February 12, 1998 (the "Opposition Proxy
Statement").
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material Federal income tax
consequences of the Cendant Offer and the Proposed Cendant Merger to holders
of American Bankers Common Shares and American Bankers Preferred Shares who
hold their American Bankers Shares as capital assets. This summary is based
upon laws, regulations, rulings and decisions in effect on the date hereof,
all of which are subject to change, retroactively or prospectively, and to
possibly differing interpretations. The discussion set forth below is for
general information only and may not apply to certain categories of holders
of American Bankers Shares subject to special treatment under the Code,
including, but not limited to, banks, tax-exempt organizations, insurance
companies, holders who are not United States persons (as defined in Section
7701(a)(30) of the Code) and holders who acquired such American Bankers
Shares pursuant to the exercise of employee stock options or otherwise as
compensation. In addition, the discussion does not address the state, local
or foreign tax consequences of the Cendant Offer and the Proposed Cendant
Merger.
This summary is based on current law and the advice of Skadden Arps,
special counsel to Cendant. Future legislative, judicial or administrative
changes or interpretations, which may be retroactive, could alter or modify
the statements set forth herein. The advice of Skadden Arps set forth in this
summary is based upon, among other things, assumptions relating to certain
facts and circumstances of, and the intentions of the parties to, the Cendant
Offer and the Proposed Cendant Merger, which assumptions have been made with
the consent of Cendant. Cendant would not expect to request any ruling from
the Internal Revenue Service as to the United States federal income tax
consequences of the Proposed Cendant Merger.
General Tax Consequences of the Proposed Cendant Merger. In its proposal
to American Bankers, Cendant has indicated that its strong preference would
be to enter into a merger agreement with American Bankers containing
substantially the same terms and conditions as the AIG Merger Agreement such
that American Bankers would merge with and into a direct subsidiary of
Cendant, with the subsidiary of Cendant continuing as the surviving
corporation. Under this structure, it is intended that the Proposed Merger
will be treated as a reorganization within the meaning of Section 368(a) of
Code, and
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that, accordingly, for federal income tax purposes no gain or loss will be
recognized by Cendant, American Bankers or Cendant Sub as a result of the
Proposed Cendant Merger. Assuming that the American Bankers Board approves the
Proposed Cendant Merger, Cendant expects that Skadden Arps, special counsel to
Cendant, and tax counsel to American Bankers, at the effective time of the
Proposed Cendant Merger, will deliver opinions substantially to the effect that
the Proposed Cendant Mergers will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code and that each of Cendant, American Bankers
and Cendant Sub will be a party to the reorganization within the meaning of
Section 368(b) of the Code. Assuming that the Proposed Cendant Merger will be
treated as a "reorganization" within the meaning of Section 368(a) of the Code,
and that the Cendant Offer and the Proposed Cendant Merger will be treated as a
single integrated transaction, the Federal income tax consequences of such
transactions to a shareholder of American Bankers are set forth below under the
heading "Tax Consequences if the Cendant Offer and the Proposed Cendant Merger
are Treated as a Single Integrated Transaction."
If the Cendant Offer and the Proposed Cendant Merger were not treated as a
single integrated transaction for Federal income tax purposes, the receipt of
cash pursuant to the Cendant Offer would be a fully taxable sale or exchange,
while the Proposed Cendant Merger should still qualify as a reorganization
pursuant to Section 368(a) of the Code. See "Tax Consequences if the Cendant
Offer and the Proposed Cendant Merger are Treated as Separate Transactions."
General Tax Consequences if the Proposed Cendant Merger is
Restructured. If the approval of the Proposed Cendant Merger by holders of
American Bankers Preferred Shares is not obtained or Cendant reasonably
determines that such approval is not likely to be obtained, in such
circumstances Cendant would expect that the Proposed Cendant Merger Agreement
would provide for the change in structure provided for in the AIG Merger
Agreement such that a direct subsidiary of Cendant would merge with and into
American Bankers with American Bankers continuing as the surviving
corporation. If structured in this manner, in contrast to the Proposed
Cendant Merger, the Cendant Offer and the revised Proposed Cendant Merger
would be a fully taxable transaction with the result that holders of American
Bankers Common Shares would pay Federal income tax on all consideration
(whether cash or stock) received in the Cendant Offer and the revised
Proposed Cendant Merger. Thus, a shareholder of American Bankers who,
pursuant to the Cendant Offer and the revised Proposed Cendant Merger,
exchanged all of the American Bankers Common Shares owned by such shareholder
for cash and shares of Cendant Common Stock would recognize capital gain or
loss equal to the difference between (a) the amount of cash received and the
fair market value (as of the date of the exchange) of the shares of Cendant
Common Stock received and (b) such shareholder's adjusted tax basis in the
American Bankers Common Shares surrendered therefor. Such gain or loss would
be long-term gain or loss if, as of the date of the exchange, the holder
thereof has held such American Bankers Common Shares for more than one year.
If the structure of the Proposed Cendant Merger is revised as described
above, the American Bankers Preferred Shares would remain outstanding
following the revised Proposed Cendant Merger. Accordingly, the revised
Proposed Cendant Merger would have no immediate Federal income tax
consequences to holders of American Bankers Preferred Shares. Prior to the
revised Proposed Cendant Merger, a conversion of American Bankers Preferred
Shares into American Bankers Common Shares pursuant to the terms of the
American Bankers Preferred Shares would not result in the recognition of gain
or loss for Federal income tax purposes. If the Proposed Cendant Merger is
not restructured, after the Proposed Cendant Merger, a conversion of Cendant
Series A Preferred Stock into Cendant Common Stock would also be tax free.
If, however, the Proposed Cendant Merger is restructured as described above,
a future conversion of American Bankers Preferred Shares into Cendant Common
Stock would be a taxable transaction for Federal income tax purposes.
TAX CONSEQUENCES IF THE CENDANT OFFER AND THE PROPOSED CENDANT MERGER
ARE TREATED AS A SINGLE INTEGRATED TRANSACTION
Assuming that the Proposed Cendant Merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Code, and that
the Cendant Offer and the Proposed Cendant Merger will be treated as a single
integrated transaction, the Federal income tax consequences of such
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transactions to a shareholder of American Bankers generally will depend on
whether the shareholder owns only American Bankers Common Shares or a
combination of both American Bankers Common Shares and American Bankers
Preferred Shares and will further depend on whether such shareholder
exchanges such American Bankers Shares for (a) cash pursuant to the Cendant
Offer, (b) Cendant Common Stock and/or Cendant Series A Preferred Stock
pursuant to the Proposed Cendant Merger or (c) a combination of both. In
addition, such federal income tax consequences to a shareholder of American
Bankers may also depend on whether (i) the shareholder is deemed to
constructively own American Bankers Shares and (ii) the shareholder actually
or constructively owns any shares of Cendant Common Stock. For this purpose,
shares are constructively owned under the rules set forth in Section 318 of
the Code which generally treat a person as owning stock owned by certain
family members or related entities or that is the subject of an option or
options owned or deemed owned by such person.
Consequences to Holders of American Bankers Preferred Shares
A shareholder of American Bankers who does not own any American Bankers
Common Shares that are exchanged for cash pursuant to the Cendant Offer and who,
pursuant to the Proposed Cendant Merger, exchanges all of the American Bankers
Preferred Shares actually owned by such shareholder solely for shares of Cendant
Series A Preferred Stock will not recognize any gain or loss upon such exchange.
The aggregate adjusted tax basis of the shares of Cendant Series A Preferred
Stock received in such exchange will be equal to the aggregate adjusted tax
basis of the American Bankers Preferred Shares surrendered therefor, and the
holding period of the shares of Cendant Series A Preferred Stock will include
the period during which the American Bankers Preferred Shares surrendered in
exchange therefor were held. If a holder has differing bases or holding periods
in respect of its American Bankers Preferred Shares, the holder should consult
its tax advisor prior to the exchange with regard to identifying the bases or
holding periods of the particular shares of Cendant Series A Preferred Stock
that it receives in the exchange.
Consequences to Holders of American Bankers Common Shares
Exchange of American Bankers Common Shares Solely for Cash Pursuant to the
Cendant Offer. In general, a shareholder of American Bankers who does not
actually own any American Bankers Preferred Shares and who, pursuant to the
Cendant Offer, exchanges all of the American Bankers Common Shares owned by
such shareholder solely for cash will recognize capital gain or loss equal to
the difference between the amount of cash received and such shareholder's
adjusted tax basis in the American Bankers Common Shares surrendered
therefor. The gain or loss will be long-term capital gain or loss if, as of
the date of the exchange, the holder thereof has held such American Bankers
Common Shares for more than one year. Gain or loss will be calculated
separately for each identifiable block of American Bankers Common Shares
surrendered pursuant to the Cendant Offer. If, however, any such holder of
American Bankers Common Shares constructively owns American Bankers Shares
that are exchanged for shares of Cendant Common Stock or Cendant Series A
Preferred Stock in the Proposed Cendant Merger or owns shares of Cendant
Common Stock actually or constructively after the Proposed Cendant Merger,
the consequences to such holder may be similar to the consequences described
below under the heading "Exchange of American Bankers Shares for Cash and
Cendant Common Stock and/or Cendant Series A Preferred Stock Pursuant to the
Cendant Offer and Proposed Cendant Merger," except that the amount of the
consideration, if any, treated as a dividend may not be limited to the amount
of such holder's gain.
Exchange of American Bankers Common Shares Solely for Cendant Common Stock
Pursuant to the Proposed Cendant Merger. A shareholder of American Bankers
who, pursuant to the Proposed Cendant Merger, exchanges all of the American
Bankers Common Shares actually owned by such shareholder solely for shares of
Cendant Common Stock will not recognize any gain or loss upon such exchange.
Such shareholder may recognize gain or loss, however, with respect to cash
received in lieu of a fractional share of Cendant Common Stock, as discussed
below. The aggregate adjusted tax basis of the shares of Cendant Common Stock
received (including fractional shares) in such exchange will be equal to the
aggregate adjusted tax basis of the American Bankers Common Shares
surrendered therefor, and the holding period of the shares of Cendant Common
Stock will include the period during which the American Bankers
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Common Shares surrendered in exchange therefor were held. If a holder has
differing bases or holding periods in respect of its American Bankers Common
Shares, the holder should consult its tax advisor prior to the exchange with
regard to identifying the bases or holding periods of the particular shares of
Cendant Common Stock that it receives in the exchange.
Exchange of American Bankers Shares for Cash and Cendant Common Stock
and/or Cendant Series A Preferred Stock Pursuant to the Cendant Offer and
Proposed Cendant Merger. A shareholder of American Bankers who, pursuant to
the Cendant Offer and the Proposed Cendant Merger, exchanges all of the
American Bankers Shares actually owned by such shareholder for a combination
of cash and shares of Cendant Common Stock (and, if such shareholder also is
a holder of American Bankers Preferred Shares, Cendant Series A Preferred
Stock) will not recognize any loss on such exchange. Such shareholder will
realize gain equal to the excess, if any, of the cash and the aggregate fair
market value of the shares of Cendant Common Stock (and if applicable,
Cendant Series A Preferred Stock) received pursuant to the Cendant Offer and
the Proposed Cendant Merger over such shareholder's adjusted tax basis in the
American Bankers Shares exchanged therefor, but will recognize (i.e., pay tax
on) any realized gain only to the extent of the cash received.
Any gain recognized by a shareholder of American Bankers who receives a
combination of cash and shares of Cendant Common Stock (and if applicable,
Cendant Series A Preferred Stock) pursuant to the Cendant Offer and the
Proposed Cendant Merger will be treated as capital gain unless the receipt of
the cash has the effect of the distribution of a dividend for Federal income
tax purposes, in which case, such recognized gain will be treated as ordinary
dividend income to the extent of such shareholder's ratable share of American
Bankers accumulated earnings and profits. See "--Possible Treatment of Cash
as a Dividend."
The aggregate tax basis of the shares of Cendant Common Stock (and if
applicable, Cendant Series A Preferred Stock) received by an American Bankers
shareholder who, pursuant to the Cendant Offer and the Proposed Cendant
Merger, exchanges such shareholder's American Bankers Shares for a
combination of cash and shares of Cendant Common Stock (and if applicable,
Cendant Series A Preferred Stock) will be the same as the aggregate tax basis
of the American Bankers Shares surrendered therefor, decreased by the cash
received and increased by the amount of any gain recognized (whether capital
gain or ordinary income). The holding period of shares of Cendant Common
Stock (and if applicable, Cendant Series A Preferred Stock) will include the
holding period of the American Bankers Shares surrendered therefor.
Possible Treatment of Cash as a Dividend. In general, the determination of
whether the gain recognized in the Cendant Offer and the Proposed Cendant
Merger will be treated as received pursuant to a sale or exchange (generating
capital gain) or a dividend distribution (generating ordinary dividend
income) will depend upon whether and to what extent the exchange reduces the
American Bankers shareholder's deemed percentage stock ownership interest in
Cendant. For purposes of this determination, a shareholder of American
Bankers will be treated as if such shareholder first exchanged all of such
shareholder's American Bankers Shares solely for shares of Cendant Common
Stock (and if applicable, Cendant Series A Preferred Stock) and then Cendant
immediately redeemed a portion of such shares of Cendant Common Stock (and if
applicable, Cendant Series A Preferred Stock) in exchange for the cash such
shareholder actually received. The gain recognized in the exchange followed
by a deemed redemption will be treated as capital gain if the deemed
redemption is (i) "substantially disproportionate" with respect to the
American Bankers shareholder or (ii) "not essentially equivalent to a
dividend."
The deemed redemption, generally, will be "substantially disproportionate"
with respect to an American Bankers shareholder if the percentage described
in (ii) below is less than 80% of the percentage described in (i) below.
Whether the deemed redemption is "not essentially equivalent to a dividend"
with respect to a shareholder will depend upon the shareholder's particular
circumstances. At a minimum, however, in order for the deemed redemption to
be "not essentially equivalent to a dividend," the deemed redemption must
result in a "meaningful reduction" in such American Bankers shareholder's
deemed percentage stock ownership of Cendant. In general, that determination
requires a comparison of (i) the percentage of the outstanding voting stock
of Cendant that such American Bankers shareholder is deemed actually and
constructively to have owned immediately before the deemed redemption by
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Cendant and (ii) the percentage of the outstanding voting stock of Cendant
actually and constructively owned by such shareholder immediately after the
deemed redemption by Cendant as a result of the Cendant Offer, the Cendant
Proposed Merger or otherwise. In applying the foregoing tests, a shareholder
is deemed to own stock owned, and, in some cases, constructively owned. As
the constructive ownership rules are complex, each shareholder that may be
subject to these rules should consult its tax advisor. The Internal Revenue
Service has ruled that a minority shareholder in a publicly held corporation
whose relative stock interest is minimal and who exercises no control with
respect to corporate affairs is considered to have a "meaningful reduction"
if such shareholder has a reduction in such shareholder's percentage stock
ownership. Accordingly, in most circumstances, gain recognized by a
shareholder of American Bankers who exchanges such shareholder's American
Bankers Shares for a combination of cash and shares of Cendant Common Stock
(and if applicable, Cendant Series A Preferred Stock) generally will be
capital gain, and will constitute long-term capital gain if the holding
period for American Bankers Shares was greater than one year as of the date
of the exchange.
Cash Received in Lieu of a Fractional Share of Cendant Common Stock. Cash
received in lieu of a fractional share of Cendant Common Stock will be treated
as received in redemption of such fractional share interest and generally gain
or loss will be recognized, measured by the difference between the amount of
cash received and the portion of the basis of the American Bankers Common Shares
allocable to such fractional interest. Such gain or loss generally will
constitute capital gain or loss, and will be long-term capital gain or loss if
the holding period for such fractional share interest for Federal income tax
purposes is greater than one year as of the date of the exchange.
TAX CONSEQUENCES IF THE CENDANT OFFER AND THE PROPOSED CENDANT MERGER
ARE TREATED AS SEPARATE TRANSACTIONS
Although counsel to Cendant believes that such result is unlikely, if the
Cendant Offer and the Proposed Cendant Merger were treated as separate
transactions for Federal income tax purpose, the receipt of cash pursuant to
the Cendant Offer would be a fully taxable transaction, while the Proposed
Cendant Merger should still qualify as a reorganization pursuant to Sections
368(a) of the Code. Accordingly, a shareholder of American Bankers who
received cash pursuant to the Cendant Offer would recognize gain or loss
equal to the difference between the amount of cash received and the
shareholder's adjusted tax basis in the American Bankers Common Shares
surrendered therefor. The gain or loss would be long-term capital gain or
loss if, as of the date of the exchange, such shareholder had held such stock
for more than one year.
In addition, a shareholder of American Bankers who, pursuant to the
Proposed Cendant Merger, exchanges (A) American Bankers Common Shares solely
for shares of Cendant Common Stock and/or (B) American Bankers Preferred
Shares solely for shares of Cendant Series A Preferred Stock, in each case,
will not recognize gain or loss upon such exchange (except with respect to
cash received in lieu of a fractional share of Cendant Common Stock, as
discussed above). The aggregate adjusted tax basis of the Cendant Common
Stock and/or Cendant Series A Preferred Stock received (including fractional
shares) in such exchange will be equal to the aggregate adjusted tax basis of
the American Bankers Shares surrendered therefor, and the holding period of
the Cendant Common Stock and/or Cendant Series A Preferred Stock will include
the period during which the American Bankers Shares surrendered in exchange
therefor were held. Additionally, if applicable, a shareholder of American
Bankers who received a combination of cash and shares of Cendant Common Stock
and/or Cendant Series A Preferred Stock pursuant to the Proposed Cendant
Merger would be subject to the Federal income tax rules concerning
reorganizations discussed above under "Tax Consequences if the Cendant Offer
and the Proposed Cendant Merger are Treated as a Single Integrated
Transaction --Consequences to Holders of American Bankers Common Shares --
Exchange of American Bankers Shares for Cash and Cendant Common Stock and/or
Cendant Series A Preferred Stock Pursuant to the Cendant Offer and Proposed
Cendant Merger."
EACH HOLDER OF AMERICAN BANKERS SHARES IS URGED TO CONSULT ITS TAX ADVISOR
WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
OFFER AND THE PROPOSED MERGER.
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ACCOUNTING TREATMENT
If the Proposed Cendant Merger is consummated, Cendant will account for
the acquisition of American Bankers using the "purchase" method of
accounting. Accordingly, the consideration to be paid in the Proposed Cendant
Merger would be allocated to assets acquired and liabilities assumed based on
their estimated fair values at the consummation date. Income (or loss) of
American Bankers prior to the consummation date will not be included in
income of Cendant. The excess of such purchase price over the amounts so
allocated will be treated as goodwill.
APPRAISAL RIGHTS
Under the FBCA, it is expected that holders of American Bankers Common
Shares and American Bankers Preferred Shares would have no right to an
appraisal of the value of their shares in connection with the Proposed
Cendant Merger Agreement or the consummation of the transactions contemplated
thereby.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED CENDANT MERGER
Depending on the terms and conditions of the Proposed Cendant Merger
Agreement and related documents, certain members of American Bankers'
management and the American Bankers Board could be deemed to have certain
interests in the Proposed Cendant Merger in addition to their interests as
stockholders of American Bankers, as the case may be, generally. Such
interests, if any, would be described in a definitive Proxy
Statement/Prospectus.
RESALE OF CENDANT SERIES A PREFERRED STOCK AND CENDANT COMMON STOCK
If the Proposed Cendant Merger is consummated, all shares of Cendant
Series A Preferred Stock received by holders of American Bankers Preferred
Shares and all shares of Cendant Common Stock received by holders of American
Bankers Common Shares in the Proposed Cendant Merger would be freely
transferable, except that shares of Cendant Series A Preferred Stock and
Cendant Common Stock received by persons who are deemed to be "affiliates"
(as such term is defined under the Securities Act) of American Bankers at the
time of the American Bankers Meetings may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Cendant) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of American Bankers or Cendant
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers
and directors of such party as well as principal shareholders of such party.
It is expected that, consistent with the AIG Merger Agreement, the Proposed
Cendant Merger Agreement would require American Bankers to use its reasonable
best efforts to cause each of its affiliates to execute a written agreement
to the effect that such person will not offer to sell, transfer, or otherwise
dispose of any of the shares of Cendant Series A Preferred Stock or Cendant
Common Stock issued to such person in or pursuant to the Proposed Cendant
Merger unless such sale, transfer or other disposition (a) has been
registered under the Securities Act, (b) is made in conformity with Rule 145
under the Securities Act or (c) is exempt from registration under the
Securities Act.
LACK OF ESTABLISHED MARKET FOR THE CENDANT SERIES A PREFERRED STOCK
There is currently no public market for the Cendant Series A Preferred
Stock. Although an application will be made prior to the consummation of the
Proposed Cendant Merger for the listing of the Cendant Series A Preferred
Stock on the NYSE, there can be no assurance that an active market for the
Cendant Series A Preferred Stock will develop or that, if the Cendant Series
A Preferred Stock is approved for such listing, such listing will continue
while the Cendant Series A Preferred Stock is outstanding. Future trading
prices for the Cendant Series A Preferred Stock will depend on many factors,
including, among others, Cendant's financial results, the market for similar
securities and the volume of trading activity in the Cendant Series A
Preferred Stock.
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CERTAIN LITIGATION
On January 27, 1998, Cendant and Cendant Sub filed a complaint in the
United States District Court for the Southern District of Florida (the
"Court") against American Bankers, substantially all of the directors of
American Bankers, AIG and AIG Sub. The complaint, as amended on February 2,
1998, alleges that the directors and American Bankers, in a civil conspiracy
with AIG and AIG Sub, have breached the fiduciary obligations owed to the
shareholders of American Bankers by, among other things, entering into the
AIG Merger Agreement and deterring the Cendant Offer through a number of
unlawful takeover defenses, including; the AIG Lockup Option Agreement; the
Fiduciary Sabbatical Provision; the AIG Termination Fee; and the Rights
Agreement. The amended complaint also alleges that AIG filed materially false
and misleading public disclosures on Schedule 13D regarding the AIG Voting
Agreement in violation of Section 13(d) of the Exchange Act. Specifically, it
is alleged that AIG failed to disclose that AIG's Chairman of the Board,
Maurice R. Greenberg, is a person controlling AIG.
In addition, the amended complaint alleges that AIG and American Bankers
have violated Sections 14(a) and 14(e) of the Exchange Act by making a number
of materially false and misleading statements in an AIG press release dated
January 27, 1998 and the AIG Proxy Statement/Prospectus, including
statements, among others, that (a) AIG has exercised the AIG Lockup Option
Agreement when, in fact, it cannot be exercised until such time as AIG
obtains the requisite regulatory approvals, which are not imminent; (b)
American Bankers and AIG expect the Proposed AIG Merger to close in March
1998 when, in fact, they know that the likelihood of receiving all required
regulatory approvals prior to the second quarter of 1998 is remote at best;
(c) AIG expects to achieve expense savings following consummation of the
Proposed AIG Merger without specifying how they will be achieved, when, in
fact, to accomplish such savings, it is likely that jobs will be eliminated
and employees of American Bankers will be terminated, including those based
in Florida, although AIG has previously stated that the employee base should
not be much affected; and (d) Salomon Smith Barney, American Bankers'
financial advisor, rendered its opinion as to the fairness of the
consideration to be paid to holders of American Bankers Common Shares in the
Proposed AIG Merger without disclosing the extent to which Salomon Smith
Barney relied on the revised projections prepared by American Bankers'
management that contained lower estimates of revenue and income, and whether
the fairness opinion could have been given had the unrevised, higher
projections been used.
In the amended complaint, Cendant and Cendant Sub ask the Court to enter
judgment against the defendant: (a) declaring the AIG Lockup Option
Agreement, Fiduciary Sabbatical Provision and AIG Termination Fee to be
unlawful and in breach of the fiduciary duties of American Bankers and the
American Bankers Board; (b) enjoining, temporarily, preliminarily, and
permanently, (i) any exercise or payment of the AIG Lockup Option Agreement,
(ii) enforcement of the Fiduciary Sabbatical Provision, (iii) payment of the
AIG Termination Fee, and (iv) any steps to implement the Rights Agreement or
to extend its terms; (c) declaring the AIG Merger Agreement to be unlawful
and in breach of the fiduciary duties of American Bankers and the American
Bankers Board, and enjoining, temporarily, preliminarily and permanently, any
steps to effectuate it unless and until the takeover defenses discussed above
are invalidated, enjoined or otherwise rendered inapplicable to Cendant and
Cendant Sub and any actions contemplated by Cendant and Cendant Sub including
the Cendant Offer and the Proposed Cendant Merger; (d) enjoining,
temporarily, preliminarily and permanently, AIG from acquiring any shares of
American Bankers, voting any shares of American Bankers or soliciting any
proxies with respect to the shares of American Bankers stock unless and until
AIG files a full and complete Schedule 13D with respect to American Bankers;
(e) requiring American Bankers and its directors to provide Cendant Sub with
a fair and equal opportunity to acquire American Bankers, including
furnishing to Cendant Sub the same information and access to information that
was provided to AIG; and (f) compelling corrective disclosures to cure the
materially false and misleading statements made in the AIG Proxy Statement/
Prospectus in connection with the solicitation of proxies for the shareholder
vote on the AIG Merger Agreement.
On January 29, 1998, the Court in the Florida Litigation entered an order
implementing an agreed upon expedited discovery schedule (the "Expedited
Discovery Order"). Pursuant to the Expedited
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Discovery Order, Cendant and Cendant Sub will take depositions of the
defendants between February 9 and February 19, 1998. The Expedited Discovery
Order also provides that additional discovery, including subpoenas on third
party witnesses, will proceed on an expedited basis.
On February 3, 1998, AIG moved to dismiss the claims against in the
Florida Litigation (the "AIG Motion to Dismiss"). The AIG Motion to Dismiss
argues that AIG made all required disclosures in its Schedule 13D, and
specifically that AIG need not disclose that Mr. Greenberg is a controlling
person of AIG. The AIG Motion to Dismiss also denies the allegations against
AIG added in the amended complaint, claiming that the statements in the
January 27, 1998 press release and the AIG Proxy Statement/Prospectus were
not misleading and that all required material disclosures were made. The AIG
Motion to Dismiss also claims that because the Federal securities allegations
against AIG should be dismissed, the Court should decline to exercise its
supplemental federal jurisdiction over the remaining state law claims against
AIG.
On February 5, 1998, AIG and AIG Sub filed a complaint in the United
States District Court for the Southern District of Florida, Miami Division
(the "AIG Complaint") in the action captioned American International Group,
Inc. and AIGF, Inc. v. Cendant Corp. and Season Acquisition Corp., C.A. No.
98-0247 (the "AIG Florida Litigation") against Cendant and Cendant Sub
alleging that Cendant and Cendant Sub purportedly made false and misleading
statements or omissions in Cendant's and Cendant Sub's: (i) pre-tender offer
conference call with analysts, (ii) Schedule 14D-1, and (iii) preliminary
Opposition Proxy Statement. The allegedly false and misleading statements
relate generally to Cendant's statements that the two competing acquisition
proposals are on equal regulatory footing; certain statements regarding
Cendant's expected cost savings that could be realized if it were to acquire
American Bankers; Cendant's allegedly false statement that the Cendant Offer
is not conditioned upon financing; and Cendant's alleged failure to disclose
a possible business downturn. The AIG Complaint alleges violations of
Sections 14(a) and 14(e) of the Exchange Act. In addition, the AIG Complaint
alleges that Cendant and Cendant Sub purportedly violated Section 14(a) of
the Exchange Act based upon a violation of Section 5 of the Securities Act.
AIG and AIG Sub ask the Court to enter judgement: (i) declaring that Cendant
and Cendant Sub have violated Sections 14(a) and 14(e) of the Exchange Act,
(ii) requiring Cendant and Cendant Sub to make corrective disclosures, (iii)
enjoining Cendant and Cendant Sub from further violating Sections 14(a) and
14(e) of the Exchange Act, (iv) declaring that Cendant and Cendant Sub have
violated Section 14(a) of the Exchange Act by violating Section 5 of the 1933
Act, and (v) enjoining Cendant and Cendant Sub from making any statements
regarding the Proposed AIG Merger, the Cendant Offer, or the Proposed Cendant
Merger until a registration statement has been filed and a prospectus has
been delivered to the American Bankers' shareholders. Cendant and Cendant Sub
believe that the AIG complaint is meritless, and intend to vigorously oppose
AIG's and AIG Sub's claims.
On February 9, 1998, American Bankers and the director defendants also
moved to dismiss the amended complaint of Cendant and Cendant Sub (the
"American Bankers Motion to Dismiss"). The American Bankers Motion to Dismiss
asserts that the breach of fiduciary duty claims against American Bankers and
the director defendants should have been brought derivatively, not directly
by Cendant and Cendant Sub, and that Cendant and Cendant Sub (i) failed to
make a required demand on American Bankers' Board of Directors to bring an
action before suing derivatively and (ii) cannot adequately represent the
interests of all American Bankers shareholders in a derivative action because
Cendant and Cendant Sub are self-interested as bidders for American Bankers.
Additionally, the American Bankers Motion to Dismiss asserts that Cendant and
Cendant Sub have no standing to bring the breach of fiduciary duly claims
because Cendant and Cendant Sub did not purchase American Bankers Shares
until after the American Bankers Board approved the AIG Merger Agreement.
American Bankers and the director defendants also joined in the arguments
made in the AIG Motion to Dismiss that the Federal securities claims pursuant
to Section 14(a) and 14(e) of the Exchange Act should be dismissed and that
the Court should decline to exercise its supplemental federal jurisdiction
over any state law claims.
Also on February 9, 1998, AIG and AIG Sub served a supplemental motion,
claiming that, for the reasons given in the American Bankers Motion to
Dismiss, the breach of fiduciary duty claims should be dismissed and,
therefore, the civil conspiracy to breach fiduciary duties claim should also
be dismissed.
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Cendant and Cendant Sub believe that the claims in the amended compliant
are meritorious, and will vigorously oppose the AIG Motion to Dismiss and
supplemental motion and the American Bankers Motion to Dismiss.
On February 13, 1998, Cendant and Cendant Sub moved to dismiss (the
"Cendant Motion to Dismiss") the AIG Complaint. The Cendant Motion to Dismiss
is based on several arguments, including that: the AIG Complaint should be
dismissed because the claims should have been filed as compulsory
counterclaims in the action filed on January 27, 1998 by Cendant and Cendant
Sub against American Bankers, substantially all of the directors of American
Bankers, AIG and AIG Sub; AIG's and AIG Sub's claims concerning Cendant's and
Cendant Sub's ability to obtain regulatory approval are moot because Cendant
and Cendant Sub have attached AIG's and AIG Sub's complaint as an exhibit to
their Schedule 14D-1 thereby disclosing the existence of AIG's views
regarding regulatory approval; AIG's and AIG Sub's complaint fails to state a
claim or plead fraud with particularity because the alleged false statements
or omissions were not misleading, and, moreover, all required disclosures
were made; and AIG's and AIG Sub's claim that Cendant and Cendant Sub
violated Section 5 of the Securities Act of 1933 should be dismissed because
AIG and AIG Sub lack standing to assert a claim based on Section 5. Cendant
and Cendant Sub believe that AIG's and AIG Sub's complaint is meritless, and
will continue to vigorously oppose AIG's and AIG Sub's claims.
On February 17, 1998, AIG and AIG Sub filed an amended complaint in the
AIG Florida Litigation (the "Amended AIG Complaint") against Cendant and
Cendant Sub. The Amended AIG Complaint continues to allege that Cendant's and
Cendant Sub purportedly made false and misleading statements or omissions in
Cendant and Cendant Sub's: (i) conference call with analysts prior to
commencement of the Cendant Offer; (ii) Schedule 14D-1; and (iii) Opposition
Proxy Statement. The Amended AIG Complaint essentially repeats the
allegations in the original AIG Complaint by alleging that Cendant
purportedly made false and misleading statements relating to the following
general categories: (i) the equal regulatory footing of the two competing
acquisition proposals; (ii) Cendant's expected cost savings that could be
realized if Cendant were to acquire American Bankers; (iii) the Cendant Offer
not being conditioned upon financing; and (iv) Cendant's alleged failure to
disclose a possible business downturn. The Amended AIG Complaint adds
allegations that Cendant purportedly failed to disclose a material fact by
not disclosing that it allegedly will violate state insurance laws by holding
proxies of American Bankers Common Shares exceeding ten percent of the
outstanding American Bankers Common Shares. The Amended AIG Complaint also
continues to allege violations of Sections 14(a) and 14(e) of the Exchange
Act in addition to alleging that Cendant and Cendant Sub purportedly violated
Section 14(a) of the Exchange Act based upon a violation of Section 5 of the
Securities Act.
AIG and AIG Sub reiterated their request that the Court enter judgment:
(i) declaring that Cendant and Cendant Sub have violated Sections 14(a) and
14(e) of the Exchange Act; (ii) requiring Cendant and Cendant Sub to make
corrective disclosures; (iii) enjoining Cendant and Cendant Sub from further
violating Sections 14(a) and 14(e) of the Exchange Act; (iv) declaring that
Cendant and Cendant Sub have violated Section 14(a) of the Exchange Act by
violating Section 5 of the Securities Act; and (v) enjoining Cendant and
Cendant Sub from making any statements regarding the Proposed AIG Merger or
the Cendant Offer until a registration statement has been filed under the
Securities Act and a prospectus has been delivered to American Bankers'
shareholders. In the Amended AIG Complaint, AIG and AIG Sub also ask the
court to enter judgment: (i) enjoining Cendant and Cendant Sub from holding
or voting any proxies from American Bankers' shareholders to the extent such
proxies exceed ten percent of the American Bankers Common Shares, without
first obtaining approval from the insurance departments of Arizona, Georgia,
New York, South Carolina, and Texas; (ii) requiring Cendant and Cendant Sub
to return any proxies they have received or receive from American Bankers'
shareholders prior to making any corrective disclosures required by the
Court; (iii) requiring Cendant and Cendant Sub to make corrective disclosure
about their ability to hold or vote proxies without obtaining regulatory
approval; and (iv) enjoining Cendant and Cendant Sub from soliciting any
proxies until a registration statement has been filed under the Securities
Act and a prospectus has been delivered to American Bankers' shareholders.
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On February 17, 1998, AIG and AIG Sub also filed: (i) a motion for
preliminary injunction; (ii) a memorandum of law in support of their motion
for preliminary injunction; (iii) an emergency motion requesting a hearing on
their motion for a preliminary injunction; (iv) a motion for expedited
discovery with a supporting memorandum of law; (v) a request for documents
from Cendant and Cendant Sub; and (vi) a notice to take the deposition of one
or more representatives of Cendant or Cendant Sub. In their motion for
preliminary injunction, AIG and AIG Sub ask the Court for an order: (i)
enjoining Cendant and Cendant Sub from holding or voting any proxies from
American Bankers' shareholders to the extent such proxies exceed ten percent
of the American Bankers Common Shares, without first obtaining approval from
the insurance departments of Arizona, Georgia, New York, South Carolina, and
Texas; (ii) requiring Cendant and Cendant Sub to return any proxies they have
received or receive from American Bankers' shareholders prior to making any
corrective disclosures required by the Court; (iii) requiring Cendant and
Cendant Sub to make corrective disclosures about their ability to hold or
vote proxies without obtaining regulatory approval; and (iv) enjoining
Cendant and Cendant Sub from making any statements regarding the Proposed AIG
Merger or the Cendant Offer, or from soliciting any proxies, until a
registration statement has been filed under the Securities Act and a
prospectus has been delivered to American Bankers' shareholders.
On February 18, 1998, Cendant and Cendant Sub filed a motion to dismiss
the Amended AIG Complaint.
Cendant and Cendant Sub believe that the Amended AIG Complaint and the
related motions are meritless, and they will continue to vigorously oppose
AIG and AIG Sub's claims.
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INFORMATION REGARDING CENDANT
GENERAL
Cendant is one of the foremost consumer and business services companies in
the world. Cendant was created through the merger of CUC and HFS in December
1997 and provides all of the services formerly provided by each of CUC and
HFS, including technology-driven, membership-based consumer services, travel
services and real estate services.
Cendant's membership-based consumer services provide more than 66.5
million members with access to a variety of goods and services worldwide.
These memberships include such components as shopping, travel, auto, dining,
home improvement, lifestyle, vacation exchange, credit card and checking
account enhancement packages, financial products and discount programs.
Cendant also administers insurance package programs which are generally
combined with discount shopping and travel for credit union members,
distributes welcoming packages which provide new homeowners with discounts
for local merchants, and provides travelers with value-added tax refunds.
Cendant believes that it is the leading provider of membership-based consumer
services of these types in the United States. Cendant's membership activities
are conducted principally through its Comp-U-Card division and certain of
Cendant's wholly-owned subsidiaries, FISI*Madison Financial Corporation,
Benefit Consultants, Inc., Entertainment Publications, Inc. and SafeCard
Services, Inc.
Cendant also provides services to consumers through intermediaries in the
travel and real estate industries. In the travel industry, Cendant, through
certain of its subsidiaries, franchises hotels primarily in the mid-priced
and economy markets. It is the world's largest hotel franchisor, operating
the Days Inn(Registered Trademark), Ramada(Registered Trademark) (in the
United States), Howard Johnson(Registered Trademark), Super 8(Registered
Trademark), Travelodge(Registered Trademark) (in North America), Villager
Lodge(Registered Trademark), Knights Inn(Registered Trademark) and Wingate
Inn(Registered Trademark) franchise systems. Additionally, Cendant owns the
Avis(Registered Trademark) worldwide vehicle rental system, which is operated
through its franchisees and is the second-largest car rental system in the
world (based on total revenues and volume of rental transactions). Cendant
currently owns approximately 27.5% of the capital stock of the world's
largest Avis franchisee, Avis Rent A Car, Inc. Cendant also owns Resort
Condominiums International, Inc., a leading timeshare exchange organization.
Cendant operates the second largest provider in North America of
comprehensive vehicle management services and is the market leader in the
United Kingdom among the four nationwide providers of fuel card services and
the six nationwide providers of vehicle management services.
Through its Benefits Consultants, Inc. subsidiary, Cendant provides third
party marketing and administration of a number of insurance products
including, accidental death and dismemberment programs, credit union
membership enhancement packages and accidental protection programs, including
auto, pedestrian and 24-hour accident insurance. In addition, Cendant
administers insurance package programs in connection with certain discount
shopping and travel programs.
In the residential real estate industry, Cendant, through certain of its
subsidiaries, franchises real estate brokerage offices under the Century
21(Registered Trademark), Coldwell Banker(Registered Trademark) and
Electronic Realty Associates(Registered Trademark) (ERA(Registered
Trademark)) real estate brokerage franchise systems and is the world's
largest real estate brokerage franchisor. Additionally, Cendant, through
Cendant Mobility Services Corporation, is the largest provider of corporate
relocation services in the United States, offering relocation clients a
variety of services in connection with the transfer of a client's employees.
Through Cendant Mortgage Services Corporation, Cendant originates, sells and
services residential mortgage loans in the United States, marketing such
services to consumers through relationships with corporations, affinity
groups, financial institutions, real estate brokerage firms and other
mortgage banks.
As a franchisor of hotels, residential real estate brokerage offices and
car rental operations, Cendant licenses the owners and operators of
independent businesses to use Cendant's brand names. Cendant does not own or
operate hotels or real estate brokerage offices. Instead, Cendant provides
its franchisee customers with services designed to increase their revenues
and profitability.
Cendant also offers consumer software in various multimedia forms. During
1996, Cendant acquired Davidson & Associates, Inc., Sierra On-Line, Inc. and
Knowledge Adventure, Inc. These companies develop, publish, manufacture and
distribute educational, entertainment and personal productivity interactive
multimedia products for home and school use.
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The principal executive offices of Cendant are located at 6 Sylvan Way,
Parsippany, New Jersey 07054.
RECENT DEVELOPMENTS
Harpur Acquisition. On January 20, 1998, Cendant completed the acquisition
of Harpur Group, Ltd., a leading fuel card and vehicle management company in
the United Kingdom, from H-G Holdings, Inc. for approximately $186 million in
cash plus future contingent payments of up to $20 million over the next two
years.
Jackson Hewitt Acquisition. On January 7, 1998, Cendant completed the
acquisition of Jackson Hewitt Inc. ("Jackson Hewitt"), for approximately $480
million in cash, or $68 per share of common stock of Jackson Hewitt. Jackson
Hewitt is the second largest tax preparation service system in the United
States with locations in 41 states. Jackson Hewitt franchises a system of
approximately 2,050 offices that specialize in computerized preparation of
federal and state individual income tax returns.
Interval Divestiture. On December 17, 1997, in connection with the merger
with HFS, Cendant completed the divestiture of its timeshare exchange
subsidiary, Interval International Inc., as contemplated by the consent
decree with the Federal Trade Commission.
Providian Acquisition. On December 10, 1997, Cendant announced that it had
entered into a definitive agreement to acquire Providian Auto and Home
Insurance Company, to be renamed Cendant Auto Insurance Company upon
consummation of such acquisition ("Cendant Auto"). Cendant Auto markets
automobile insurance to consumers through direct response marketing in 45
states and the District of Columbia. The acquisition will enable Cendant Auto
to expand its marketing to Cendant's distribution channels, while also
providing Cendant with a complimentary product to offer Cendant's partners.
The closing of this transaction is subject to customary conditions, including
regulatory approval and is anticipated to occur in the spring of 1998.
Hebdo Mag Acquisition. On October 3, 1997, Cendant completed the
acquisition of all of the outstanding capital stock of Hebdo Mag
International Inc. ("Hebdo Mag") in exchange for the issuance of shares of
preferred stock of Getting to Know You of Canada Ltd., an indirect
wholly-owned subsidiary of the Company, exchangeable for shares of Cendant
Common Stock (the "Hebdo Acquisition Shares") and the assumption of certain
options of Hebdo Mag exchanged for options to acquire shares of Cendant
Common Stock, such Hebdo Acquisition Shares or options having an aggregate
value of approximately $440 million. Based in Paris, France, Hebdo Mag is an
international publisher of over 150 titles and distributor of classified
advertising information with operations in twelve countries, including
Canada, France, Sweden, Hungary, the United States, Italy, Russia and
Holland. The Hebdo Mag Acquisition was accounted for in accordance with the
pooling-of-interests method of accounting.
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INFORMATION REGARDING AMERICAN BANKERS
American Bankers is a specialty insurer providing primarily credit-related
insurance products in the United States and Canada as well as in Latin
America, the Caribbean and the United Kingdom. The majority of American
Bankers' gross collected premiums are derived from credit-related insurance
products sold through financial institutions and other entities which provide
consumer financing as a regular part of their businesses.
American Bankers' credit-related insurance products consist primarily of
credit unemployment, accidental death and dismemberment ("AD&D"), disability,
property, and life insurance issued in connection with the financing of
consumer purchases. Credit-related insurance products generally offer a
consumer a convenient option to insure a credit card or loan balance so that
the amount of coverage purchased equals the amount of outstanding debt.
Coverage is generally available to all consumers with few of the underwriting
conditions that apply to ordinary term insurance, such as medical
examinations and medical history reports. American Bankers' life and AD&D
insurance products generally provide payment in full of the outstanding debt
balance in the event of the insured's death. The unemployment and disability
products satisfy the minimum monthly loan payment for a specified duration in
the event of unemployment or disability. American Bankers' property insurance
products pay the loan balance or the cost of repairing or replacing the
insured's merchandise in the event of a loss due to a covered event. American
Bankers avoids lines of insurance characterized by long loss payout periods,
such as workers' compensation and most general liability coverages.
American Bankers markets its products on a wholesale basis through a
network of clients that consist primarily of major financial institutions,
retailers and other entities which provide consumer financing as a regular
part of their businesses. American Bankers enters into contracts, typically
with terms of three to five years, with its corporate clients pursuant to
which such clients market American Bankers' insurance products to their
customers. In return, these clients receive expense reimbursements or
commissions and are thus able to recover costs associated with the marketing
of the insurance and generate incremental revenues. American Bankers' clients
typically share in the profitability of business written through them.
American Bankers also writes non credit-related insurance in markets where
it believes it has less competition from other insurers. For example,
American Bankers' extended service contracts products pay the cost of
repairing or replacing the insured's merchandise in the event of damages due
to a covered event. In addition, American Bankers acts as an administrator
for the National Flood Insurance Program, for which it earns a fee for
collecting premiums and processing claims. American Bankers does not assume
any underwriting risk with respect to this program.
American Bankers' business strategy is to continue developing distribution
channels which provide access to large numbers of potential insureds in
markets not traditionally served by other insurance companies. In addition,
American Bankers emphasizes long-term relationships and the development of
insurance programs designed to meet individual client needs. An essential
part of American Bankers' strategy is to invest in technology which enables
American Bankers to accommodate a large group of clients and their customers
while simultaneously offering customized insurance programs.
The principal executive offices of American Bankers are located at 11222
Quail Roost Drive, Miami, Florida 33157.
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DESCRIPTION OF CENDANT CAPITAL STOCK
The following description does not purport to be complete and is qualified
in its entirety by reference to the Cendant Certificate, the Cendant Bylaws
and the DCGL.
GENERAL
The authorized capital stock of Cendant consists of 2,000,000,000 shares
of Common Stock and 10,000,000 shares of Cendant Preferred Stock, par value
$.01 per share. As of February , 1998, there were shares of Cendant
Common Stock issued and outstanding, and no shares of Cendant Preferred Stock
outstanding.
CENDANT COMMON STOCK
Holders of shares of Cendant Common Stock have no preemptive, redemption
or conversion rights. The holders of Cendant Common Stock, subject to any
preferential rights of Cendant Preferred Stock, are entitled to receive
dividends when and as declared by the Cendant Board out of funds legally
available therefor and to share ratably in the assets of Cendant legally
available for distribution to its stockholders in the event of its
liquidation, dissolution or winding up.
Each holder of Cendant Common Stock is entitled to one vote per share of
Cendant Common Stock held of record by them and holders of Cendant Common
Stock may not cumulate votes in election of directors. Except as otherwise
required by law or except as provided with respect to any series of Cendant
Preferred Stock, the holders of Cendant Common Stock will possess all voting
power.
CENDANT PREFERRED STOCK
The Cendant Board is authorized at any time and from time to time to
provide for the issuance of all or any shares of Cendant Preferred Stock in
one or more series, and to fix the designation and the powers, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions of each such series. It is
anticipated that if the Proposed Cendant Merger is consummated, the Cendant
Board will issue a new series of Cendant Preferred Stock designated as $3.125
Cumulative Convertible Preferred Stock, Series A, having substantially
similar terms as the American Bankers Preferred Shares, except that such
shares would be convertible into shares of Cendant Common Stock. In addition,
so long as any Cendant Series A Preferred Stock is outstanding, Cendant will
not, without the affirmative vote or consent of holders of at least 66 2/3%
of all outstanding shares of Cendant Series A Preferred Stock and outstanding
Parity Dividend Stock (as defined below) (voting as a single class), issue
shares of Cendant Series A Preferred Stock to the extent that doing so would
cause the total number of shares of Cendant Series A Preferred Stock
outstanding after giving effect to such issuance to exceed 3,500,000.
CENDANT SERIES A PREFERRED STOCK
The description set forth below of the Cendant Series A Preferred Stock is
qualified in its entirety by reference to a Certificate of Designation for
the Cendant Series A Preferred Stock which would be filed pursuant to the
DGCL prior to the consummation of the Proposed Cendant Merger.
Dividends
Holders of shares of Cendant Series A Preferred Stock would be entitled to
receive, when, as and if declared by the Cendant Board out of funds legally
available therefor, cash dividends at an annual rate of $3.125 per share,
payable quarterly in arrears on February 1, May 1, August 1 and November 1 of
each year, commencing on the date designated for payment following the
quarterly period in which the Proposed Cendant Merger closes (such dividend
to accrue from the first day of such quarterly period), except that if any
such date is a Saturday, Sunday or legal holiday then such dividend will be
payable on the next day that is not a Saturday, Sunday or legal holiday.
Dividends would accrue and be cumulative from such date of initial issuance
and would be payable to holders of record as they appear on the stock
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<PAGE>
transfer books on such record dates as are fixed by the Cendant Board
(provided that no record date shall be later than (a) the sixth business day
prior to the date fixed for any redemption of the Cendant Series A Preferred
Stock, or (b) in the case of the dividend payment date occurring on August 1,
2000, the tenth business day prior to such date).
The Cendant Series A Preferred Stock would have priority as to dividends
over the Cendant Common Stock and any other series or class of Cendant's
stock hereafter authorized over which the Cendant Series A Preferred Stock
has preference or priority in the payment of dividends, when and if issued
(collectively, "Junior Dividend Stock"), and no dividend (other than
dividends payable solely in stock that is Junior Dividend Stock and that
ranks junior to the Cendant Preferred Stock as to distributions of assets
upon liquidation, dissolution or winding up of Cendant, whether voluntary or
involuntary (such stock that is junior as to liquidation rights, "Junior
Liquidation Stock") (the Cendant Common Stock and any other capital stock of
Cendant that is both Junior Dividend Stock and Junior Liquidation Stock,
"Junior Stock")) may be paid on any Junior Dividend Stock, and no payment may
be made on account of the purchase, redemption, retirement, or other
acquisition of Junior Dividend Stock or Junior Liquidation Stock (other than
in exchange solely for Junior Stock), unless all accrued and unpaid dividends
on the Cendant Series A Preferred Stock for the then current period and all
dividend payment periods ending on or before the date of payment of such
dividends on Junior Dividend Stock, or such payment for such Junior Dividend
Stock or Junior Liquidation Stock, as the case may be, have been paid or
declared and set apart for payment. Cendant may not pay dividends on the
Cendant Series A Preferred Stock unless it has paid or declared and set apart
for payment or contemporaneously pays or declares and sets apart for payment
all accrued and unpaid dividends for all dividend payment periods on any
class or series of stock having parity with the Cendant Series A Preferred
Stock as to dividends ("Parity Dividend Stock") ratably so that the amount of
dividends declared and paid per share on the Cendant Series A Preferred Stock
and such Parity Dividend Stock will bear to each other the same ratio that
the accrued and unpaid dividends to the date of payment on Cendant Series A
Preferred Stock and such Parity Dividend Stock bear to each other. No payment
may be made on account of the purchase, redemption, retirement or other
acquisition of shares of Parity Dividend Stock or other class or series of
Cendant's capital stock ranking on a parity with the Cendant Series A
Preferred Stock as to distributions of assets upon liquidation, dissolution
or winding up of Cendant, whether voluntary or involuntary (such stock that
has parity with the Cendant Series A Preferred Stock as to liquidation
rights, "Parity Liquidation Stock") (other than such acquisitions pursuant to
employee or director or incentive or benefit plans or arrangements, or in
exchange solely for Junior Stock) unless all accrued and unpaid dividends on
the Cendant Series A Preferred Stock for all dividend payment periods ending
on or before the date of payment on account of such acquisition of such
Parity Dividend Stock or Parity Liquidation Stock shall have been paid or
declared and set apart for payment.
The amount of dividends payable per share of Cendant Series A Preferred
Stock for each quarterly dividend period would be computed by dividing the
annual dividend amount by four. The amount of dividends payable for any
period shorter than a full quarterly dividend period would be computed on the
basis of a 360-day year of twelve 30-day months. No interest would be payable
in respect of any dividend payment on the Cendant Series A Preferred Stock
which may be in arrears.
Under Delaware law, dividends (as well as other distributions) may be paid
on the capital stock of Cendant only out of its capital surplus (that is, the
excess of Cendant's net assets over the aggregate par value of all shares of
capital stock issued by Cendant) or out of its net profits for the year in
which the dividend is declared and for the preceding year.
Liquidation Rights
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of Cendant, holders of shares of Cendant Series A Preferred Stock
would be entitled to receive the liquidation preference of $50 per share,
plus an amount equal to any accrued and unpaid dividends to the payment date,
before any payment or distribution is made to the holders of Cendant Common
Stock or any Junior Liquidation Stock, but the holders of the shares of the
Cendant Series A Preferred Stock would not be entitled to receive the
liquidation preference of such shares until the liquidation preference of any
other series or class of stock hereafter issued that ranks senior as to
liquidation rights to the Cendant Series A Preferred
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<PAGE>
Stock ("Senior Liquidation Stock") has been paid in full. The holders of
Cendant Series A Preferred Stock and all series or classes of stock hereafter
issued that rank on a parity as to distributions of assets upon such
liquidation, dissolution or winding up of Cendant with the Cendant Series A
Preferred Stock are entitled to share ratably, in accordance with the
respective preferential amounts payable on such stock, in any distribution
(after payment of the liquidation preference of the Senior Liquidation Stock)
which is not sufficient to pay in full the aggregate of the amounts payable
thereon. After payment in full of the liquidation preference on shares of
Cendant Series A Preferred Stock, the holders of such shares would not be
entitled to any further participation in any distribution of assets by
Cendant. Neither a consolidation nor merger of Cendant with another
corporation nor a sale or transfer of all or substantially all of Cendant's
property or assets will be considered a liquidation, dissolution or winding
up of Cendant.
Voting Rights
The holders of the Cendant Series A Preferred Stock would not have voting
rights except as described below or as required by law. In exercising any
such vote, each outstanding share of Cendant Series A Preferred Stock would
be entitled to one vote, excluding shares held by Cendant or any entity
controlled by Cendant, which shares shall have no voting rights.
Whenever dividends on the Cendant Series A Preferred Stock or any
outstanding shares of Parity Dividend Stock have not been paid in an
aggregate amount equal to at least six quarterly dividends on such shares
(whether or not consecutive), the number of members of the Cendant Board
would be increased by two, and the holders of the Cendant Series A Preferred
Stock, voting separately as a class with the holders of Parity Dividend Stock
on which like voting rights have been conferred and are exercisable, would be
entitled to elect such two additional directors who shall continue to serve
so long as such dividends remain in arrears. Such voting rights would
terminate when all such dividends accrued and unpaid have been declared and
paid or set apart for payment. The term of office of all directors so elected
would terminate immediately upon the termination of such voting rights and
the number of members of the Cendant Board would be reduced by two.
In addition, so long as any Cendant Series A Preferred Stock is
outstanding, Cendant will not, without the affirmative vote or consent of the
holders of at least 66 2/3% of all outstanding shares of Cendant Series A
Preferred Stock and outstanding Parity Dividend Stock (voting as a single
class), (i) amend, alter or repeal (by merger or otherwise) any provision of
the Cendant Certificate or the Cendant Bylaws so as to affect adversely the
relative rights, preferences, qualifications, limitations, or restrictions of
the Cendant Series A Preferred Stock, (ii) effect any reclassification of the
Cendant Series A Preferred Stock, or (iii) issue shares of Cendant Preferred
Stock to the extent that doing so would cause the total number of shares of
Cendant Preferred Stock outstanding after giving effect to such issuance to
exceed 3,500,000.
In addition to voting rights (if any) to which shares of Cendant Series A
Preferred Stock are entitled pursuant to the DGCL, the holders of the
outstanding shares of Cendant Series A Preferred Stock shall be entitled to
vote as a class if shareholder voting of the Cendant Series A Preferred Stock
would be required by the FBCA (assuming Cendant were then incorporated under
the FBCA) upon a proposed amendment to the Cendant Certificate (or upon a
plan of merger or share exchange if such plan contains any provision that
would, if contained in a proposed amendment to the Cendant Certificate,
entitle such holders to vote as a class as described in this paragraph), if
the amendment would: (a) increase or decrease the aggregate number of
authorized shares of Cendant Preferred Stock; (b) effect an exchange or
reclassification of all or part of the shares of Cendant Preferred Stock into
shares of another class; (c) effect an exchange or reclassification, or
create a right of exchange, of all or part of the shares of another class
into shares of Cendant Preferred Stock; (d) change the designation, rights,
preferences, or limitations of all or part of the shares of Cendant Preferred
Stock; (e) change the shares of all or part of the Cendant Preferred Stock
into a different number of shares of Cendant Preferred Stock; (f) create a
new class of shares having rights or preferences with respect to
distributions or to dissolution that are prior, superior, or substantially
equal to the shares of Cendant Preferred Stock; (g) increase the rights,
preferences, or number of authorized shares of any class that, after giving
effect to the amendment, have rights or preferences with respect to
distributions or to dissolution that are prior, superior, or substantially
equal to the shares of Cendant Preferred Stock; (h) limit or deny an existing
preemptive right of all or part of
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<PAGE>
the shares of Cendant Preferred Stock; (i) cancel or otherwise affect rights
to distributions or dividends that have accumulated but not yet been declared
on all or part of the shares of Cendant Preferred Stock.
If a proposed amendment to the Cendant Certificate would affect the shares
of Cendant Series A Preferred Stock in one or more of the ways described in
the preceding paragraph, the shares of Cendant Series A Preferred Stock shall
be entitled to vote as a separate class on the proposed amendment. If a
proposed amendment to the Cendant Certificate that would entitle the shares
of Cendant Series A Preferred Stock and one or more other series of Cendant
Series A Preferred Stock to vote as separate classes as described in the
preceding sentence or paragraph (assuming Cendant were then incorporated
under the FBCA) would affect shares of Cendant Preferred Stock and such one
or more other series of Cendant Series A Preferred Stock in the same or a
substantially similar way, the shares of Cendant Series A Preferred Stock and
the shares of such one or more other series of Cendant Series A Preferred
Stock so affected shall vote together as a single class on the proposed
amendment. The shares of Cendant Preferred Stock shall also be entitled to
any other voting rights afforded by Florida law (assuming Cendant were then
incorporated under the FBCA).
Redemption at Option of Cendant
The Cendant Series A Preferred Stock may not be redeemed prior to August
7, 2000. On or after such date, the Cendant Series A Preferred Stock may be
redeemed by Cendant, at its option, in whole or in part at any time, subject
to the limitations, if any, imposed by the FBCA (assuming Cendant were then
incorporated under the FBCA), at a cash redemption price of $51.88 per share,
plus accrued and unpaid dividends to, but excluding the redemption date, if
redeemed on or prior to August 6, 2001, and at the following redemption
prices per share, if redeemed during the 12-month period ending August 6:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
YEAR PER SHARE
- ------- ------------
<S> <C>
2002 ... $51.56
2003 ... 51.25
2004 ... 50.94
2005 ... 50.63
2006 ... 50.31
</TABLE>
and thereafter at $50 per share plus, in each case, accrued and unpaid
dividends to, but excluding the redemption date. If fewer than all the
outstanding shares of Cendant Series A Preferred Stock are to be redeemed,
Cendant would select those shares to be redeemed pro rata or by lot or in
such other manner as the Cendant Board may determine to be fair. There is no
mandatory redemption or sinking fund obligation with respect to the Cendant
Series A Preferred Stock. If at any time dividends on the Cendant Series A
Preferred Stock are in arrears, Cendant may not redeem less than all of the
then outstanding shares of the Cendant Series A Preferred Stock until all
accrued dividends for all past dividend periods have been paid in full.
Notice of redemption would be mailed at least 30 days but not more than 90
days before the date fixed for redemption to each holder of record of shares
of Cendant Series A Preferred Stock to be redeemed at the address shown on
the stock transfer books of Cendant. No fractional shares of Cendant Series A
Preferred Stock would be issued upon a redemption of less than all of the
Cendant Series A Preferred Stock, but in lieu thereof, an appropriate amount
would be paid in cash based on the value for the shares of Cendant Series A
Preferred Stock as determined in good faith by the Cendant Board. After the
date fixed for redemption, dividends would cease to accrue on the shares of
Cendant Series A Preferred Stock called for redemption and other rights of
the holders of such shares would terminate, except the right to receive the
redemption price without interest, and all conversion privileges would
terminate on the business day prior to the date fixed for redemption.
Conversion Rights
The holder of any shares of Cendant Series A Preferred Stock would have
the right, at the holder's option, to convert any or all shares into Cendant
Common Stock at any time at a conversion rate (subject
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<PAGE>
to adjustment as described below) equal to $50 divided by a conversion price
(the "conversion price") of $25.0325 (as adjusted following the Proposed
Cendant Merger in accordance with the conversion price adjustment mechanisms
of the American Bankers Preferred Shares described below) except that if the
Cendant Series A Preferred Stock is called for redemption, the conversion right
would terminate at 5:00 p.m. New York City time on the business day prior to
the date fixed for such redemption and if not exercised prior to such time, such
conversion right would be lost, unless Cendant defaults in making the payment
due upon redemption. Except as provided in the next paragraph, no payment or
adjustment would be made upon any conversion of any share of Cendant Series A
Preferred Stock or on account of any dividends on the Cendant Common Stock
issued upon conversion (except that if a converting holder of Cendant Series
A Preferred Stock would be eligible for a dividend on both the Cendant Series
A Preferred Stock and Cendant Common Stock issued upon conversion, the holder
would be entitled to the higher of such dividend amounts). Following
conversion, the holder would no longer have any right to payment of dividends
on the shares surrendered for conversion. No fractional shares of Cendant
Common Stock would be issued upon conversion but, in lieu thereof, an
appropriate amount would be paid in cash based on the reported last sale
price for the shares of Cendant Common Stock on the NYSE on the day of such
conversion.
If Cendant, by dividend or otherwise, declares or makes a distribution on
the Cendant Common Stock referred to in clause (iv) or (v) of the next
following paragraph, the holders of the Cendant Series A Preferred Stock,
upon the conversion thereof subsequent to the close of business on the date
fixed for the determination of shareholders entitled to receive such
distribution and prior to the effectiveness of the conversion price
adjustment in respect of such distribution, would be entitled to receive for
each share of Cendant Common Stock into which each such share of Cendant
Series A Preferred Stock would be converted the portion of the shares of
Cendant Common Stock, rights, warrants, evidences of indebtedness, shares of
capital stock, cash and assets so distributed applicable to one share of
Cendant Common Stock, provided, however, that Cendant may, with respect to
all holders so converting, in lieu of distributing any portion of such
distribution not consisting of cash or securities of Cendant, pay such holder
cash equal to the fair market value thereof as determined by the Cendant
Board.
The conversion price would be subject to adjustment in certain events
including, without duplication: (i) dividends (and other distributions)
payable in Cendant Common Stock on any class of capital stock of Cendant;
(ii) the issuance to all holders of Cendant Common Stock of rights or
warrants entitling holders of such rights or warrants to subscribe for or
purchase Cendant Common Stock at less than the then current market price (as
defined); (iii) subdivisions and combinations of Cendant Common Stock; (iv)
distributions to all holders of Cendant Common Stock of evidences of
indebtedness of Cendant, shares of capital stock, cash or assets (including
securities, but excluding those rights, warrants, dividends and distributions
referred to above and dividends and distributions paid exclusively in cash);
and (v) distributions consisting of cash, excluding (A) cash that is part of
a distribution referred to in (iv) above, and (B) any cash representing an
amount per share of Cendant Common Stock of any quarterly cash dividend to
the extent it does not exceeded the amount per share of Cendant Common Stock
of the next preceding quarterly cash dividend (as adjusted to reflect any of
the events referred to in clauses (i) through (v) of this sentence) or all of
such quarterly cash dividends if the amount thereof per share of Cendant
Common Stock multiplied by four does not exceed 15% of the current market
price (as defined of Cendant Common Stock on the trading day (as defined)
next preceding the date of declaration of such dividend. Following certain
adjustments to the conversion price, notice of such event would be mailed to
the holders of the Cendant Series A Preferred Stock.
In the event Cendant adopts a shareholder rights plan that affords holders
of Cendant Common Stock the right to purchase shares of Cendant Common Stock,
or shares of common stock of a corporation that enters into certain business
combinations or other transactions with Cendant, following the occurrence of
certain triggering events, the adoption of such plan and the distribution of
such rights shall not require any of the adjustments contemplated by the
preceding paragraph, provided that (a) if and so long as such rights are
attached to shares of Cendant Common Stock pursuant to the terms of such
rights plan, shares of Cendant Common Stock issued upon the conversion of
shares of Cendant Series A Preferred Stock shall have attached to them such
rights in the amount then attached to each outstanding
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<PAGE>
share of Cendant Common Stock, and (b) in the event that such rights separate
from the Cendant Common Stock and become exercisable pursuant to such rights
plan, there shall then be deemed to have occurred an issuance of rights for
which adjustment would be made as described in the preceding paragraph.
The foregoing adjustments to the conversion price are designed to
compensate the holders of the Cendant Series A Preferred Stock for the value
of the cash, securities or other assets that they would have otherwise
received had they converted their Cendant Series A Preferred Stock into
shares of Cendant Common Stock prior to such distribution. Such adjustment
would generally result in a reduced conversion price, which would entitle the
holders of Cendant Series A Preferred Stock to receive a greater number of
shares of Cendant Common Stock upon conversion of the Cendant Series A
Preferred Stock into Cendant Common Stock.
Cendant from time to time may reduce the conversion price by any amount
for any period of time of at least 20 days, in which case Cendant shall give
at least 15 days' notice of such reduction, if the Cendant Board has made a
determination that such reduction would be in the best interest of Cendant,
which determination shall be conclusive.
In the event that Cendant is a party to any transaction (including),
without limitation, a merger, consolidation, sale of all or substantially all
of Cendant's assets, recapitalization or reclassification of the Cendant
Common Stock (each of the foregoing being referred to as a "Cendant
Transaction") , in each case (except in the case of a Common Stock
Fundamental Change (as defined)) as a result of which shares of Cendant
Common Stock shall be converted into the right to receive securities, cash or
other property, each share of the Cendant Series A Preferred Stock shall
thereafter be convertible into the kind and amount of securities, cash and
other property receivable upon the consummation of such Cendant Transaction
by a holder of that number of shares of Cendant Common Stock into which one
share of the Cendant Series A Preferred Stock was convertible immediately
prior to such Cendant Transaction (or in the case of a Common Stock
Fundamental Change, common stock of the kind received by the holders of
Cendant Common Stock as a result of such Common Stock Fundamental Change)
(but after giving effect to any adjustment discussed in the next paragraph
relating to a Fundamental Change (as defined) if such Cendant Transaction
constitutes a Fundamental Change, and subject to funds being legally
available for such purpose under applicable law at the time of such
conversion).
Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Fundamental Change occurs, then the conversion price in
effect will be adjusted immediately after such Fundamental Change as
described below. In addition, in the event of a Common Stock Fundamental
Change, each share of the Cendant Series A Preferred Stock shall be
convertible solely into common stock of the kind received by holders of
Cendant Common Stock as the result of such Common Stock Fundamental Change.
For purposes of calculating any adjustment to be made pursuant to this
paragraph in the event of a Fundamental Change, immediately after such
Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined), the
conversion price of the Cendant Series A Preferred Stock will thereupon
become the lower of (A) the conversion price in effect immediately prior
to such Non-Stock Fundamental Change, but after giving effect to any other
prior adjustments, and (B) the result obtained by multiplying (x) the
greater of the Applicable Price or the then applicable Reference Market
Price by (y) a fraction of which the numerator will be $50 and the
denominator will be then current redemption price per share (or, for
periods prior to August 7, 2000, an amount per share determined in
accordance with the Cendant Certificate); and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Cendant Series A Preferred Stock in effect immediately prior
to such Common Stock Fundamental Change, but after giving effect to any
other prior adjustments, will thereupon be adjusted by multiplying such
conversion price by a fraction, of which the numerator will be the
Purchaser Stock Price and the denominator will be the Applicable Price;
provided, however, that in the event of a Common Stock Fundamental Change
in which (A) 100% of the value of the consideration received by a holder
of Cendant Common Stock is common stock of the successor, acquiror or
other third party (and cash, if any, is paid with respect to any
fractional interests in such common stock resulting form such
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<PAGE>
Common Stock Fundamental Change) and (B) all of the Cendant Common Stock
will have been exchanged for, converted into, or acquired for, common
stock (and cash with respect to fractional interests) of the successor,
acquiror or other third party, the conversion price of the Cendant Series
A Preferred Stock in effect immediately prior to such Common Stock
Fundamental Change will thereupon be adjusted by dividing such conversion
price by the number of shares of common stock of the successor, acquiror,
or other third party received by a holder of one share of Cendant Common
Stock as a result of such Common Stock Fundamental Change.
The foregoing conversion price adjustments in the event of a Non-Stock
Fundamental Change will apply in situations whereby all or substantially all
of the Cendant Common Stock is acquired in a transaction in which 50% or less
of the value received by holders of Cendant Common Stock consists of common
stock that has been admitted for listing on a national securities exchange or
quoted on the Nasdaq National Market. If the market price of the Cendant
Common Stock immediately prior to a Non-Stock Fundamental Change is lower
than the applicable conversion price of the Cendant Series A Preferred Stock
then in effect, the conversion price would be adjusted as described in (i)
above and the holders of the Cendant Series A Preferred Stock would be
entitled to receive the amount and kind of consideration that would have been
received if the Cendant Series A Preferred Stock had been converted into
Cendant Common Stock prior to the Non-Stock Fundamental Change after giving
effect to such adjustment.
The foregoing conversion price adjustments in the event of a Common Stock
Fundamental Change would apply in situations whereby more than 50% of the
value received by holders of Cendant Common Stock consists of common stock of
another company that has been admitted for listing on a national securities
exchange or quoted on the Nasdaq, in which case the Cendant Series A
Preferred Stock would become convertible into shares of common stock of the
other company. If consideration for the Cendant Common Stock consists partly
of common stock of another company and partly of other securities, cash or
property, each share of Cendant Series A Preferred Stock would be convertible
solely into a number of shares of such common stock determined so that the
initial value of such shares (measured as described in the definition of
Purchaser Stock Price below) equals the value of the shares of Cendant Common
Stock into which such share of Cendant Series A Preferred Stock Price was
convertible immediately before the transaction (measured as described in the
definition of Applicable Price below). If consideration for Cendant Common
Stock is solely common stock of another company, each share of Cendant Series
A Preferred Stock would be convertible into the same number of shares of such
common stock receivable by a holder of the number of shares of Cendant Common
Stock into which such share of Cendant Series A Preferred Stock was
convertible immediately before such transaction.
Depending upon whether the Fundamental Change is a Non-Stock Fundamental
Change or a Common Stock Fundamental Change, a holder may receive
significantly different consideration upon conversion. In the event of a
Non-Stock Fundamental Change, the holder has the right to convert each share
of the Cendant Series A Preferred Stock into the kind and amount of shares of
stock and other securities or property or assets receivable by a holder of
the number of shares of Cendant Common Stock issuable upon conversion of such
share of the Cendant Series A Preferred Stock immediately prior to such
Non-Stock Fundamental Change, but after giving effect to the adjustment
described above. However, in the event of a Common Stock Fundamental Change
in which less than 100% of the value of the consideration received by a
holder of Cendant Common Stock is common stock of the acquiror or other third
party, a holder of a share of the Cendant Series A Preferred Stock who
converts a share following the Common Stock Fundamental Change would receive
consideration in the form of such common stock only, whereas a holder who has
converted his share prior to the Common Stock Fundamental Change would
receive consideration in the form of common stock as well as any other
securities or assets (which may include cash) receivable thereupon by a
holder of the number of shares of Cendant Common Stock issuable upon
conversion of such share of Cendant Series A Preferred Stock immediately
prior to such Common Stock Fundamental Change.
The term "Applicable Price" means (i) in the event of a Non-Stock
Fundamental Change in which the holders of the Cendant Common Stock receive
only cash, the amount of cash received by the holder of one share of Cendant
Common Stock and (ii) in the event of any other Non-Stock Fundamental
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<PAGE>
Change or any Common Stock Fundamental Change, the average of the Closing
Prices (as defined) for the Cendant Common Stock during the ten trading days
prior to and including the record date for the determination of the holders
of Cendant Common Stock entitled to receive cash, securities, property or
other assets in connection with such Non-Stock Fundamental Change or Common
Stock Fundamental Change, or, if there is no such record date, the date upon
which the holders of the Cendant Common Stock shall have the right to receive
such cash, securities, property or other assets, in each case, as adjusted in
good faith by the Cendant Board to reflect appropriately any of the events
referred to in clauses (i) through (v) of the third paragraph of this
Conversion Rights subsection.
The term "Closing Price" of any common stock means on any day the last
reported sale price regular way on such day or in case no sale takes place on
such day, the average of the reported closing bid and asked prices regular
way in each case on the NYSE or, if the common stock is not listed or
admitted to trading on such Exchange, on the principal national securities
exchange or quotation system on which the common stock is listed or admitted
to trading or quoted, or, if not listed or admitted to trading or quoted on
any national securities exchange or quotation system, the average of the
closing bid and asked prices in the over-the-counter market on such day as
reported by the National Quotation Bureau Incorporated, or a similarly
generally accepted reporting service, or, if not so available in such manner,
as furnished by any NYSE Member firm selected by Cendant for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Cendant
Board) of the consideration received by holders of Cendant Common Stock
consists of common stock that for each of the ten consecutive trading days
referred to in the second preceding paragraph has been admitted for listing
or admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the Nasdaq National Market, provided,
however, that a Fundamental Change shall not be a Common Stock Fundamental
Change unless either (i) Cendant continues to exist after the occurrence of
such Fundamental Change and the outstanding shares of Cendant Series A
Preferred Stock continue to exist as outstanding Cendant Series A Preferred
Stock, or (ii) not later than the occurrence of such Fundamental Change, the
outstanding shares of Cendant Series A Preferred Stock are converted into or
exchanged for shares of convertible preferred stock of a corporation
succeeding to the business of Cendant, which convertible preferred stock has
powers, preferences and relative, participating, optional or other rights,
and qualifications, limitations and restrictions, substantially similar to
those of the Cendant Series A Preferred Stock.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with a plan pursuant to which all or substantially all of
the Cendant Common Stock shall be exchanged for, converted into, acquired for
or constitute solely the right to receive cash, securities, property or other
assets (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) provided, in the case of a plan involving more than one such
transaction or event, for purposes of adjustment of the conversion price,
such Fundamental Change shall be deemed to have occurred when substantially
all of Cendant Common Stock shall be exchanged for, converted into, or
acquired for or constitute solely the right to receive cash, securities,
property or other assets, but the adjustment shall be based upon the highest
weighted average per share consideration which a holder of Cendant Common
Stock could have received in such transactions or events as a result of which
more than 50% of the Cendant Common Stock shall have been exchanged for,
converted into, or acquired for or constitute solely the right to receive
cash, securities, property or other assets.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive
trading days prior to and including the record date for the determination of
the holders of Cendant Common Stock entitled to receive such common stock, or
if there is no such record date, the date upon which the holders of the
Cendant Common Stock shall have the right to receive
47
<PAGE>
such common stock, in each case, as adjusted in good faith by the Cendant
Board to appropriately reflect any of the events referred to in clauses (i)
through (v) of the third paragraph of this subsection; provided, however,
that if no such Closing Prices exist, the Purchaser Stock Price shall be set
at a price determined in good faith by the Cendant Board.
The term "Reference Market Price" shall mean $13.46 and in the event of
any adjustment to the conversion price other than as a result of a
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the conversion price after giving
effect to any such adjustment shall always be the same ratio of $13.46 to the
initial conversion price specified in the first sentence of this subsection.
Notwithstanding the foregoing provisions, the issuance of any shares of
Cendant Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of Cendant and the investment of
additional optional amounts in shares of Cendant Common Stock under any such
plan, and the issuance of any shares of Cendant Common Stock or options or
rights to purchase such shares pursuant to any employee benefit plan or
program of Cendant or pursuant to any option, warrant, right or exercisable,
exchangeable or convertible security outstanding as of the date the Cendant
Series A Preferred Stock was first designated (other than the occurrence of
certain events under a shareholder rights plan), and any issuance of rights
under a shareholder rights plan shall not be deemed to constitute an issuance
of Cendant Common Stock or exercisable, exchangeable or convertible
securities by Cendant to which any of the adjustment provisions described
above applies. There shall also be no adjustment of the conversion price in
case of the issuance of any stock (or securities convertible into or
exchangeable for stock) of Cendant, except as specifically described above.
If any action would require adjustment of the conversion price pursuant to
more than one of the provisions described above, only one adjustment shall be
made and such adjustment shall be the amount of adjustment which has the
highest absolute value to holders of the Cendant Series A Preferred Stock. No
adjustment in the conversion price will be required unless such adjustment
would require an increase or decrease of at least 1% of the conversion price,
but any adjustment that would otherwise be required to be made shall be
carried forward and taken into account in any subsequent adjustment.
Lack of Established Market for the Cendant Series A Preferred Stock
There is currently no public market for the Cendant Series A Preferred
Stock. Although an application will be made prior to the Effective Time for
the listing of the Cendant Series A Preferred Stock on the NYSE, there can be
no assurance that an active market for the Cendant Series A Preferred Stock
will develop or that, if the Cendant Series A Preferred Stock is approved for
such listing, such listing will continue while the Cendant Series A Preferred
Stock is outstanding. Future trading prices for the Cendant Series A
Preferred Stock will depend on many factors, including, among others,
Cendant's financial results, the market for similar securities and the volume
of trading activity in the Cendant Series A Preferred Stock.
COMPARATIVE RIGHTS OF COMMON SHAREHOLDERS
Cendant is incorporated under the laws of the State of Delaware. American
Bankers is incorporated under the laws of the State of Florida. The holders
of shares of American Bankers Common Stock whose rights as shareholders are
currently governed by Florida law, the American Bankers Articles, and the
American Bankers Bylaws, would upon the exchange of their shares pursuant to
the Proposed Cendant Merger, become holders of shares of Cendant Common
Stock, and their rights as such will be governed by the DGCL, the Cendant
Certificate and the Cendant Bylaws. The material differences between the
rights of holders of American Bankers Common Shares and the rights of holders
of shares of Cendant Common Stock, which result from differences in their
governing corporate documents and differences in Delaware and Florida
corporate law, are summarized below.
The following summary is not intended to be complete and is qualified in
its entirety by reference to the FBCA, the DGCL, the American Bankers
Articles, the American Bankers Bylaws, the Cendant Certificate and the
Cendant Bylaws, as appropriate. The identification of specific differences is
not meant to indicate that other equally or more significant differences do
not exist. Copies of the American Bankers
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Articles, the American Bankers Bylaws, the Cendant Certificate and the
Cendant Bylaws are incorporated by reference herein and will be sent to
holders of Common Stock upon request. See "Incorporation of Certain Documents
by Reference" and "Available Information."
AUTHORIZED CAPITAL
The American Bankers Articles provide for authorized stock consisting of
100,000,000 shares of Common Stock, par value $1.00 per share and 10,000,000
shares of Preferred Stock, no par value, of which (i) 350,000 have been
authorized as Series A Participating Preferred Stock and (ii) 2,300,000 have
been authorized as $3.125 Series B Cumulative Convertible Preferred Stock.
The Cendant Certificate provides for authorized stock consisting of
2,000,000,000 shares of Cendant Common Stock, $.01 par value, and 10,000,000
shares of Cendant Preferred Stock, $.01 per share par value, of which, it is
anticipated that 2,300,000 shares will be authorized as $3.125 Cumulative
Convertible Preferred Stock, Series A, if the Proposed Cendant Merger is
consummated.
ELECTION AND SIZE OF BOARD OF DIRECTORS
The FBCA requires that a board of directors consist of one or more natural
persons, or as set forth in a corporation's articles of incorporation or
bylaws. The FBCA permits staggered boards of directors of up to three
separate classes if authorized in the articles of incorporation and provides
that directors are elected by a plurality of votes cast by the shares
entitled to vote in the election of directors at a meeting at which a quorum
is present, unless the articles of incorporation provide otherwise. The
American Bankers Articles provide for a classified board of directors,
consisting of three classes of directors. The American Bankers Articles state
that the number of directors in each class shall be as nearly equal in number
as possible. Each class is elected in successive years for a term of three
years. The American Bankers Articles fix the number of directors at not less
than twelve nor more than eighteen. Currently, there are 15 directors. The
American Bankers Articles provide that the number of directors shall be
increased by two directors elected by the holders of the American Bankers
Preferred Shares if quarterly dividends are in arrears for six quarters or
more, whether consecutive or not. Nominations for the American Bankers Board
may be made by the American Bankers Board or by any shareholder entitled to
vote for the election of directors and who complies with certain notice
provisions in the American Bankers Articles.
Under the DGCL, directors, unless their terms are staggered, are elected
at each annual shareholder meeting. Vacancies on the board of directors may
be filled by the shareholders or directors, unless the certificate of
incorporation or a bylaw provides otherwise. The certificate of incorporation
may authorize the election of certain directors by one or more classes or
series of shares, and the certificate of incorporation, an initial bylaw or a
bylaw adopted by a vote of the shareholders may provide for staggered terms
for the directors. The certificate of incorporation or the bylaws also may
allow the shareholders or the board of directors to fix or change the number
of directors, but a corporation must have at least one director. Under
Delaware law, shareholders do not have cumulative voting rights unless the
certificate of incorporation so provides. The DGCL provides that directors
are elected by a plurality of votes at annual meetings and hold office until
the annual meeting of shareholders next succeeding their election until
successors are elected and qualified or until their earlier resignation or
removal.
The Cendant Certificate provides that the number of directors shall be
fixed in the manner provided in the Cendant Bylaws. The Cendant Bylaws fix
the number of directors at not less than three and provide for a classified
board of directors consisting of three classes of directors, as nearly equal
in number as possible. Currently there are 28 directors. Nominations for the
election of Cendant directors may be made by the board of directors or a
committee appointed by the board of directors or by any shareholder entitled
to vote in the election of directors generally. However, any shareholder
entitled to vote in the election of directors generally may nominate one or
more persons for election as directors at a meeting only if the shareholder
complies with certain provisions of the Cendant Certificate.
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REMOVAL OF DIRECTORS
The FBCA entitles shareholders to remove directors either for cause or
without cause, unless the articles of incorporation provide that removal may
be for cause only. Directors elected by a particular voting group may only be
removed by the shareholders of that voting group. The American Bankers
Articles provide that any director may be removed, but only for cause and at
a regular shareholders meeting or a shareholders meeting called for that
express purpose, by a vote of the holders of 75% or more of the outstanding
shares of the capital stock of American Bankers then entitled to vote at an
election of directors. No decrease in the number of directors shall shorten
the term of any incumbent director.
Under the DGCL, a director of a corporation may be removed, with or
without cause, with the approval of a majority of the outstanding shares
entitled to vote. The Cendant Certificate and the Cendant Bylaws provide that
any director may be removed, without cause, only by the affirmative vote of
the holders of 80% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of directors
voting together as a single class.
VACANCIES ON THE BOARD OF DIRECTORS
The FBCA provides that, unless the articles provide otherwise, vacancies
arising on the board of directors may be filled by a majority of the
remaining directors, even if no quorum remains, or by the shareholders. When
directors are divided into classes, vacancies may be filled by the
shareholders or, if at least one director remains in the class, by the
remaining directors of that class. Where a vacancy will be known to occur at
some point in the future, it may be filled in advance, although the new
director will not take office until the vacancy actually occurs. The American
Bankers Articles provide that any vacancies on the American Bankers Board
occurring for any reason or from the creation of new directorships shall be
filled by the affirmative vote of a majority of the remaining directors in
the class in which the vacancy occurs, or, if none so remain, by a majority
vote of the directors of the other two classes. Directors so appointed hold
office until the next regularly scheduled election of directors for that
class.
Under the DGCL, the board of directors of a corporation may fill any
vacancy on the board, including vacancies resulting from an increase in the
number of directors. The Cendant Certificate provides that any vacancy
resulting from death, resignation, disqualification, removal or other cause
and newly created directorships resulting from any increase in the authorized
number of directors may be filled solely by the affirmative vote of a
majority of directors then in office, although less than a quorum, or by the
sole remaining director.
ACTION BY WRITTEN CONSENT
The FBCA allows shareholders or all of the directors to take action
without a meeting through the use of a written consent if the action is taken
by the holders of outstanding stock of each voting group entitled to vote
thereon having not less than the minimum number of votes with respect to each
voting group that would be necessary to authorize or take such action at a
meeting at which all voting groups and shares entitled to vote thereon were
present and voted, unless provided otherwise in the articles of
incorporation. The American Bankers Articles provide that action of
shareholders may only be taken at properly called annual or special meetings
of shareholders and that shareholders may not act by written consent.
The DGCL provides that, unless limited by the certificate of
incorporation, any action that could be taken by shareholders at a meeting
may be taken without a meeting if a consent (or consents) in writing, setting
forth the action so taken, is signed by the holders of record of outstanding
stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Cendant Certificate and
the Cendant Bylaws provide that any action required or permitted to be taken
by the stockholders of Cendant must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders.
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AMENDMENTS TO CHARTER
Any amendment, alteration, change or repeal of the articles dealing with
the composition of the American Bankers Board (Article V), the approval of
certain business combinations (Article VIII), meetings of shareholders
(Article IX) and the amendment procedure (Article X), requires the approval
of at least 85% of the outstanding shares of capital stock of American
Bankers entitled to vote generally in the election of directors (the "Voting
Shares"), including at least 50% of the Voting Shares other than those held
by a 30% Shareholder (as defined below), except where such change has been
recommended to the shareholders by at least a majority of the American
Bankers Board and by at least two-thirds of the continuing directors.
Amendments to any other sections of the American Bankers Articles are
governed by the FBCA, which generally requires approval by a majority of the
shareholders entitled to vote thereon.
The DGCL provides that, unless a higher vote is required in the
certificate of incorporation, an amendment to the certificate of
incorporation of a corporation may be approved by a majority of the
outstanding shares entitled to vote upon the proposed amendment. The Cendant
Certificate may be amended by the majority of the outstanding shares entitled
to vote upon the proposed amendment, except that Article 9 (Board of
Directors) and Article 10 (Vote Required for Certain Business Combinations)
of the Cendant Certificate provide that the affirmative vote of the holders
of at least 80% of the voting power of all shares of Cendant entitled to vote
generally in the election of directors, voting together as a single class,
shall be required to alter, amend, adopt any provision inconsistent with
those Articles.
AMENDMENTS TO BYLAWS
Under the FBCA, bylaws may be amended by the directors or the shareholders
unless the articles of incorporation expressly provide that only shareholders
may do so. Bylaws adopted by the shareholders may provide that they may not
be amended or repealed by the directors. The American Bankers Bylaws may be
repealed or amended and new bylaws may be adopted by either the majority vote
of the full American Bankers Board or by the holders of a majority of the
outstanding stock entitled to vote thereon. The American Bankers Board may
not amend or repeal any bylaw adopted by the shareholders if the shareholders
specifically provide that it is not subject to amendment or repeal by the
American Bankers Board.
The DGCL provides that a corporation's bylaws may be amended by that
corporation's shareholders, or, if so provided in the corporation's
certificate of incorporation, the power to amend the corporation's bylaws may
also be conferred on the corporation's directors. The Cendant Certificate
gives Cendant's directors the power to make, alter, amend, change, add to or
repeal the Cendant Bylaws. The Cendant Bylaws may be altered, amended or
repealed at any regular meeting of the stockholders (or at any special
meeting thereof duly called for that purpose) by the vote of a majority of
the shares outstanding and entitled to vote at such meeting; provided that
the notice of such special meeting notice of such purpose shall be given.
Subject to the DGCL, the provisions of the Cendant Certificate and the
provisions of the Cendant Bylaws (including, without limitation, the greater
vote requirement set forth in Sections 1, 2 and 3 of Article II
(Stockholders), Sections 1, 2, 3 and 7 of Article III (Directors), Sections 1
and 3 of Article IV (Officers) and Sections 1 and 4 of Article V (Committees
of the Board of Directors)), the Cendant Board may by majority vote of those
present at any meeting at which a quorum is present amend the Cendant Bylaws,
or enact such other bylaws as in their judgment may be advisable for the
regulation of the conduct of the affairs of Cendant.
SPECIAL MEETINGS OF SHAREHOLDERS
Under the FBCA, a special meeting of shareholders may be called by a
corporation's board of directors or any other person authorized to do so in
the articles of incorporation or bylaws. Special meetings may also be called
on demand of at least 10% of all shares eligible to vote on the matter to be
considered, although this percentage may be increased in the articles of
incorporation to a maximum of 50%. Only business within the purpose of the
special meeting notice may be conducted at such meeting. The American Bankers
Articles provide that special meetings may be called by the holders of at
least 75%
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of the Voting Shares or as otherwise provided in the bylaws. The American
Bankers Bylaws provide that special meetings of shareholders may be held at
any place within or without the State of Florida, and may be called by the
American Bankers Board, the Executive Committee, the Chief Executive Officer
or when requested in writing by the holders of 75% of the Voting Shares.
The DGCL provides that special meetings of the shareholders of a
corporation may be called by the corporation's board of directors or by such
other persons as may be authorized in the corporation's certificate of
incorporation or bylaws. The Cendant Certificate and the Cendant Bylaws
provide that special meetings of stockholders may be held at any place within
or without the State of Delaware, and may be called only by the Chairman, the
President or the Cendant Board pursuant to a resolution approved by a
majority of the entire Cendant Board.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Under the FBCA, and subject to certain exceptions (including those
described in "--Business Combination Restrictions"), the approval of a
merger, plan of liquidation or sale of all or substantially all of a
corporation's assets other than in the regular course of business requires
the recommendation of the corporation's board of directors and an affirmative
vote of at least 50% of the shareholders eligible to vote thereon. The
American Bankers Articles require, in addition to the approvals mandated by
law, the approval by the holders of at least 85% of the outstanding shares of
capital stock eligible to vote, which shall include the affirmative vote of
at least 50% of the Voting Shares held by shareholders other than any 30%
Shareholder, to approve any of the following transactions:
-- Any merger or consolidation of American Bankers or a subsidiary
thereof with a 30% Shareholder or any corporation that would be an
affiliate of a 30% Shareholder;
-- Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with any 30% Shareholder of any assets with a value
of $5,000,000 or more;
-- The issuance or transfer by American Bankers or a subsidiary thereof
of any stock or securities to any 30% Shareholder with a value in
$5,000,000 or more;
-- The adoption of any proposal or plan of liquidation or dissolution; or
-- Any reclassification of securities, recapitalization, reorganization,
merger or other consolidation or any similar transaction which has the
effect of increasing the proportionate shares owned directly or
indirectly by any 30% Shareholder.
A "30% Shareholder" shall mean any person (other than American Bankers)
who, as of the record date for the determination of shareholders entitled to
notice of and to vote on a business combination or immediately prior to the
consummation of a business combination (a) is the beneficial owner, directly
or indirectly, of not less than 30% of the Voting Shares; or (b) is an
affiliate of American Bankers and at any time within 2 years prior thereto
was the beneficial owner of 30% of the then outstanding Voting Shares; or (c)
is an assignee of or has otherwise succeeded to any shares of capital stock
of American Bankers which were at any time within 2 years prior thereto
beneficially owned by any 30% Shareholder.
The American Bankers Articles eliminate this shareholder approval
requirement where the American Bankers Board has, by at least a 75% vote of
the members then in office, approved the 30% Shareholders' acquisition of 30%
or more of the outstanding shares of American Bankers Common Shares or has
approved the business combination prior to the 30% Shareholder having become
a 30% Shareholder. Alternatively, the shareholder approval described above is
not required when certain "fair price" provisions are met. If the American
Bankers Board approves the Proposed Cendant Merger prior to the consummation
of the Cendant Offer, this provision will be inapplicable to the Proposed
Cendant Merger.
In addition to the provisions of the DGCL described herein, under the
Cendant Certificate, an agreement of merger, sale lease or exchange of all or
substantially all of Cendant's assets must be approved by the Cendant Board
and adopted by the holders of a majority of the outstanding shares of stock
entitled to vote thereon. However, the Cendant Certificate also includes what
generally is referred
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to as a "fair price provision," which requires the affirmative vote of the
holders of at least 80% of the outstanding shares of capital stock entitled
to vote generally in the election of Cendant's directors, voting together as
a single class, to approve certain business combination transactions
(including certain mergers, recapitalization and the issuance or transfer of
securities of Cendant or a subsidiary having an aggregate fair market value
of $10 million or more) involving Cendant or a subsidiary and an owner or any
affiliate of an owner of 5% or more of the outstanding shares of capital
stock entitled to vote, unless either (i) such business combination is
approved by a majority of disinterested directors, or (ii) the shareholders
receive a "fair price" for their Cendant securities and certain other
procedural requirements are met. This provision may not be repealed or
amended in any respect except by the affirmative vote of the holders of not
less than 80% of the outstanding shares of capital stock entitled to vote
generally in the election of Cendant directors.
INSPECTION OF DOCUMENTS
Under the FBCA, a shareholder is entitled to inspect and copy the articles
of incorporation, bylaws, certain board and shareholder resolutions, certain
written communications to shareholders, a list of the names and business
addresses of the corporation's directors and officers, and the corporation's
most recent annual report, during regular business hours if the shareholder
gives at least five business days' prior written notice to the corporation.
In addition, a shareholder of a Florida corporation is entitled to inspect
and copy other books and records of the corporation during regular business
hours if the shareholder gives at least five business days' prior written
notice to the corporation and (1) the shareholder's demand is made in good
faith and for a proper purpose, (2) the demand describes with particularity
its purpose and the records to be inspected or copied and (3) the requested
records are directly connected with such purpose. The FBCA also provides that
a corporation may deny any demand for inspection if the demand was made for
an improper purpose or if the demanding shareholder has, within two years
preceding such demand, sold or offered for sale any list of shareholders of
the corporation or any other corporation, has aided or abetted any person in
procuring a list of shareholders for such purpose or has improperly used any
information secured through any prior examination of the records of the
corporation or any other corporation.
The DGCL allows any shareholder, upon written demand under oath stating
the purpose thereof, the right during the usual hours for business to inspect
for any proper purpose the corporation's stock ledger, a list of its
shareholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose means a purpose reasonably related to such
person's interest as a shareholder.
DIVIDENDS
The FBCA permits a corporation's board of directors to make distributions
to its shareholders so long as the corporation is not left unable to pay its
debts as they become due in the ordinary course of business, or the
corporation is not left with total assets that are less than the sum of the
corporation's total liabilities plus its obligations upon dissolution to
satisfy preferred shareholders whose preferential rights are superior to
those receiving the distribution. Under the FBCA, a corporation's redemption
of its own capital stock is deemed to be a distribution.
The American Bankers Articles provide that the American Bankers Preferred
Shares are entitled to receive, when, as and if declared by the American
Bankers Board, dividends at the rate of $3.125 per annum per share, which are
fully cumulative. No dividends or other distributions, other than stock
dividends, may be paid on shares of Common Shares, unless and until all
accrued and unpaid dividends for the American Bankers Preferred Shares for
all dividend periods are paid or set aside and declared for payment.
Subject to any restrictions contained in a corporation's certificate of
incorporation, Delaware law generally provides that a corporation may declare
and pay dividends out of "surplus" (defined as the excess, if any, of net
assets (total assets less total liabilities) over capital) or, when no
surplus exists, out of net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year, except that dividends may not
be paid out of net profits if the capital of the corporation is less than the
amount
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of capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. In accordance with the
DGCL, "capital" is determined by the board of directors and shall not be less
than the aggregate par value of the outstanding capital stock of the
corporation having par value.
The Cendant Bylaws provide that the Cendant Board may, out of funds
legally available, declare dividends upon the capital stock of Cendant as and
when it deems expedient subject to the rights, if any, of the Cendant
Preferred Stock.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
The FBCA provides that unless a corporation's articles of incorporation
provide otherwise, which American Bankers' Articles do not, a shareholder
does not have dissenters' rights with respect to a plan of merger, share
exchange or proposed sale or exchange of property if the shares held by the
shareholder are either registered on a national securities exchange or
designated as a national market systems security on an interdealer quotation
system designated by the National Association of Securities Dealers (the
"NASD") or held of record by 2,000 or more shareholders. Consequently,
appraisal rights are not available to holders of American Bankers Common
Shares or American Bankers Preferred Shares in connection with the Proposed
Cendant Merger.
Under Delaware law, in certain circumstances a shareholder of a Delaware
corporation is generally entitled to demand appraisal and obtain payment of
the judicially determined fair value of his or her shares in the event of any
plan of merger or consolidation to which the corporation, the shares of which
he or she holds, is a party, provided such shareholder continuously holds
such shares through the effective date of the merger, otherwise complies with
the requirement of Delaware law for the perfection of appraisal rights and
does not vote in favor of the merger. However, this right to demand appraisal
does not apply to shareholders if: (1) they are shareholders of a surviving
corporation and if a vote of the shareholders of such corporation is not
necessary to authorize the merger or consolidation; and (2) the shares held
by the shareholders are of a class or series listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the NASD or are held of record by more than 2,000
shareholders on the date set to determine the shareholders entitled to vote
on the merger or consolidation. Notwithstanding the above, appraisal rights
are available for the shares of any class or series of stock of a Delaware
corporation if the holders thereof are required by the terms of an agreement
of merger or consolidation to accept for their stock anything except: (i)
shares of stock of the corporation surviving or resulting from the merger or
consolidation; (ii) shares of stock of any other corporation which at the
effective date of the merger or consolidation will be listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the NASD or held of record by more than 2,000
shareholders; (iii) cash in lieu of fractional shares of the corporations
described in (i) and (ii); or (iv) any combination of the shares of stock and
cash in lieu of fractional shares described in (i), (ii) and (iii).
A Delaware corporation may provide in its certificate of incorporation
that appraisal rights shall be available for the shares of any class or
series of its stock as the result of an amendment to its certificate of
incorporation, any merger or consolidation to which the corporation is a
party or a sale of all or substantially all of the assets of the corporation.
The Cendant Certificate does not contain any provision regarding appraisal
rights.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The FBCA permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and with respect to any criminal action, which they had no reasonable cause
to believe was unlawful. The FBCA provides that a corporation may advance
reasonable expenses of defense (upon receipt of an undertaking to reimburse
the corporation if indemnification is ultimately determined not to be
appropriate) and must reimburse a successful defendant for expenses,
including attorneys' fees, actually and reasonably incurred. The FBCA also
permits a corporation to purchase liability insurance for
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its directors, officers, employees and agents. The FBCA provides that
indemnification may not be made for any claim, issue or matter as to which a
person has been adjudged by a court of competent jurisdiction to be liable to
the corporation, unless and only to the extent a court determines that the
person is entitled to indemnity for such expenses as the court deems proper.
The American Bankers Articles provide for indemnification for any present or
former director or officer to the fullest extent permitted by the FBCA.
Under Delaware law, a corporation may indemnify any person made a party or
threatened to be made a party to any type of proceeding (other than an action
by or in the right of the corporation) because he is or was an officer,
director, employee or agent of the corporation or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation or entity, against expenses, judgments, costs and amounts paid in
settlement actually and reasonably incurred in connection with such
proceeding: (1) if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation; or
(2) in the case of a criminal proceeding, he had no reasonable cause to
believe that his conduct was unlawful. A corporation may indemnify any person
made a party or threatened to be made a party to any threatened, pending or
completed action or suit brought by or in the right of the corporation
because he was an officer, director, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other entity, against expenses
actually and reasonably incurred in connection with such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that there may be no
such indemnification if the person is found liable to the corporation unless,
in such a case, the court determines the person is entitled thereto. A
corporation must indemnify a director, officer, employee or agent against
expenses actually and reasonably incurred by him who successfully defends
himself in a proceeding to which he was a party because he was a director,
officer, employee or agent of the corporation. Expenses incurred by an
officer or director (or other employees or agents as deemed appropriate by
the board of directors) in defending a civil or criminal proceeding may be
paid by the corporation in advance of the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation. The Delaware law
indemnification and expense advancement provisions are not exclusive of any
other rights which may be granted by the bylaws, a vote of shareholders or
disinterested directors, agreement or otherwise. The Cendant Bylaws provide
for the indemnification to the fullest extent permitted by law of any person
made, or threatened to be made, a party to an action, suit or proceeding
(whether, civil, criminal, administrative or investigative) by reason of the
fact that he or his testator or intestate is or was a director, officer or
employee of Cendant or serves or served any other enterprise at the request
of Cendant.
LIMITATION OF LIABILITY
The FBCA provides that a director is not personally liable for monetary
damages to the corporation or any other person for any statement, vote,
decision, or failure to act, regarding corporate management or policy unless
the director breached or failed to perform his statutory duties as a director
and such breach or failure (1) constitutes a violation of criminal law,
unless the director had reasonable cause to believe his conduct was lawful or
had no reasonable cause to believe his conduct was unlawful, (2) constitutes
a transaction from which the director derived an improper personal benefit,
(3) results in an unlawful distribution, (4) in a derivative action or an
action by a shareholder, constitutes conscious disregard for the best
interests of the corporation or willful misconduct or (5) in a proceeding
other than a derivative action or an action by a shareholder, constitutes
recklessness or an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful disregard of
human rights, safety or property.
Delaware law permits a corporation to adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director
to the corporation or its shareholders for monetary damages for beach of
fiduciary duty as a director, except that such provision shall not limit the
liability of a director for (i) any breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) liability under Section 174 of the DGCL for unlawful payment of
dividends or stock purchases or
55
<PAGE>
redemptions, or (iv) any transaction from which the director derived an
improper personal benefit. The Cendant Certificate provides that no director
of Cendant shall be liable to it or its shareholders for monetary damages for
breach of fiduciary duly as a director, except to the extent such an
exemption from liability or limitation thereof is not permitted under the
DGCL.
PREEMPTIVE RIGHTS
Under the FBCA, shareholders of a corporation have no preemptive rights
unless provided for in the articles of incorporation. The American Bankers
Articles contain no provision for preemptive rights.
Delaware law does not provide (except in limited instances) for preemptive
rights to acquire a corporation's unissued stock. However, such right may be
expressly granted to the shareholders in a corporation's certificate or
articles of incorporation. The Cendant Certificate provides that holders of
Cendant Common Stock and Cendant Preferred Stock are not entitled to
preemptive rights.
SPECIAL REDEMPTION PROVISIONS
The FBCA permits a corporation to acquire its own shares. Shares of
American Bankers Preferred Shares are subject to optional redemption by
American Bankers at any time after August 7, 2000.
Under the DGCL, a corporation may purchase or redeem shares of any class
of its capital stock, but subject generally to the availability of sufficient
lawful funds therefor and provided that at all times, at the time of any such
redemption, the corporation shall have outstanding shares of one or more
classes or series of capital stock which have full voting rights that are not
subject to redemption. The Cendant Certificate contains no provision for
special redemptions of shares of its capital stock.
PREFERRED STOCK PURCHASE RIGHTS
The American Bankers Board has adopted the Rights Agreement, pursuant to
which one Right was issued with respect to each share of American Bankers
Common Shares. As a result of the two-for-one split of American Bankers
Common Shares paid on September 12, 1997, one-half of a Right is associated
with each share of American Bankers Common Shares. Each right entitles the
registered holder thereof to purchase 1/100th of a share of Series A
Participating Preferred Stock at a price of $33.00 per share, subject to
adjustment (the "Purchase Price"). The Rights are represented by the American
Bankers Common Share certificates and are not exercisable until a
Distribution Date and will expire at the close of business on March 10, 1998.
A Distribution Date is defined as the close of business on the day (or such
later date as may be determined by action of the American Bankers Board, upon
approval by a majority of the Continuing Directors (as defined in the Rights
Agreement)) which is the earlier of (i) ten (10) days following the date of
public announcement by American Bankers or an Acquiring Person (as defined
below) that an Acquiring Person has become such or (ii) ten (10) business
days after the date that a tender or exchange offer by any person is first
published or given within the meaning of Rule 14d-2(a) of the General Rules
and Regulation under the Exchange Act, if upon consummation thereof such
person would be the beneficial owner of 15% or more of the shares of American
Bankers Common Shares then outstanding. An Acquiring Person is any person who
or which, together with all Affiliates and Associates of such person (as
defined in the Rights Agreement), is the beneficial owner of 15% or more of
the shares of American Bankers Common Shares then outstanding. The Rights
will first become exercisable on a Distribution Date, unless earlier redeemed
or exchanged, and may then begin trading separately. On February 5, 1998, the
American Bankers Board amended the Rights Agreement and resolved to provide
that the commencement of the Cendant Offer would not trigger the occurrence
of a Distribution Date.
Each holder of a Right (other than those owned by the Acquiring Person,
which shall be void) will have the right to receive upon exercise that number
of shares of Common Stock (or, if applicable, common stock of the entity
surviving any business combination with American Bankers or which acquires
American Bankers) having a market value of two times the then current
Purchase Price of one Right in the event of certain mergers, acquisitions and
other transactions as specified in the Rights Agreement.
56
<PAGE>
SHAREHOLDER SUITS
Under the FBCA, a person may not bring a derivative action unless the
person was a shareholder of the corporation at the time of the challenged
transaction or unless the person acquired his shares by operation of law from
a person who was a shareholder at such time.
Under Delaware law, a shareholder may institute a lawsuit against one or
more directors, either on his own behalf, or derivatively on behalf of the
corporation. An individual shareholder may also commence a lawsuit on behalf
of himself and other similarly situated shareholders when the requirements
for maintaining a class action under Delaware law have been met.
BUSINESS COMBINATION RESTRICTIONS
Section 607.0901 of the FBCA provides that the approval of the holder of
two-thirds of the voting shares of a company, other than the shares
beneficially owned by an Interested Shareholder (as defined below), would be
required to effectuate certain transactions, including without limitation a
merger, consolidation, certain sales of assets, certain sales of shares,
liquidation or dissolution of the corporation, and reclassification of
securities involving a corporation and an Interested Shareholder (an
"Affiliated Transaction"). An "Interested Shareholder" is defined under the
FBCA as the beneficial owner of more than 10% of the voting shares
outstanding. The foregoing special voting requirement is in addition to the
vote required by any other provision of the FBCA or the provision in American
Bankers Articles described above.
The special voting requirement does not apply in any of the following
circumstances: (i) the Affiliated Transaction is approved by a majority of
the corporation's disinterested directors; (ii) the Interested Shareholder
has owned at least 80% of the corporation's voting stock for five years;
(iii) the Interested Shareholder owns more than 90% of the corporation's
voting shares; (iv) the corporation has not had more than 300 shareholders of
record at any time during the three years preceding the announcement of the
event; (v) the corporation is an investment company registered under the
Investment Company Act of 1940; (vi) all of the following conditions are met:
(a) the cash and fair value of other consideration to be paid per share to
all holders of voting shares equals the highest per share price paid by the
Interested Shareholder; (b) the consideration to be paid in the Affiliated
Transaction is in the same form as previously paid by the Interested
Shareholder (or certain alternative benchmarks if higher); (c) during the
portion of the three years proceeding the announcement date that the
Interested Shareholder has been an Interested Shareholder, except as approved
by a majority of the disinterested directors, there shall have been no
default in payment of any full periodic dividends, no decrease in common
stock dividends, no increase in the voting shares owned by the Interested
Shareholder, (d) during such three year period no benefit to the Interested
Shareholder in the form of loans, guaranties or other financial assistance or
tax advantages provided by the corporation, and (e) unless approved by a
majority of the disinterested directors, a proxy shall have been mailed to
holders of voting shares at least 25 days prior to the consummation of the
Affiliated Transaction.
The Control Share Statute provides, in general, that shares of an "issuing
public corporation," such as American Bankers, acquired in a "control share
acquisition" will not have voting rights unless that issuing public
corporation's board of directors approves the acquisition of such shares or
voting rights for such shares are authorized at an annual or special meeting
of the shareholders of the issuing public corporation by each class of series
entitled to vote separately on the proposal by a majority of all the votes
entitled to be cast by the class or series, excluding all "interested shares"
(generally, those shares held by the acquiring person).
However, Section 5 of the Control Share Statue permits a corporation's
bylaws to provide that the Control Share Statute does not apply to control
share acquisitions of the shares of such corporation. Section 4 of Article V
of the American Bankers Bylaws provides that the Control Share Statute, and
any amendments thereto, does not apply to control share acquisitions of
shares of stock of American Bankers occurring on or after November 14, 1990.
As used in the Control Share Statute, a "control share acquisition" means,
in general, the acquisition (other than pursuant to a merger agreement to
which the issuing public corporation is a party or pursuant
57
<PAGE>
to an acquisition approved by the board of directors of such issuing public
corporation), directly or indirectly, of beneficial ownership of shares of an
issuing public corporation, and all acquisitions of such shares within 90
days before or after the date of the acquisition of beneficial ownership of
shares that results in a control share acquisition, which (but for the
provisions of the statute) would have voting rights and which, when added to
all other shares of such issuing public corporation beneficially owned by
such person, would entitle such person, upon acquisition of such shares, to
vote or direct the voting of shares of such issuing public corporation having
voting power in the election of directors within any of the following ranges
of such voting power; (i) one-fifth or more but less than one-third of all
voting power; (ii) one-third or more but less than a majority of all voting
power; or (iii) a majority or more of all voting power.
In general, Section 203 of the DGCL prevents an "Interested Shareholder"
(defined generally in the DGCL as a person with 15% or more of a
corporation's outstanding voting stock, with the exception of any person who
owned and has continued to own shares in excess of the 15% limitation since
December 23, 1987) from engaging in a Business Combination with a Delaware
corporation for three years following the date such person became an
Interested Shareholder. The term "Business Combination" includes mergers or
consolidations with an Interested Shareholder and certain other transactions
with an Interested Shareholder, including, without limitation: (i) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition (except
proportionately as a shareholder of such corporation) to or with the
Interested Shareholder of assets (except proportionately as a shareholder of
the corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all assets of the corporation or of certain
subsidiaries thereof determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation; (ii) any
transaction which results in the issuance or transfer by the corporation or
by certain subsidiaries thereof of stock of the corporation or such
subsidiary to the Interested Shareholder, except pursuant to certain
transfers in a conversion or exchange or pro rata distribution to all
shareholders of the corporation or certain other transactions, none of which
increase the Interested Shareholder's proportionate ownership of any class or
series of the corporation's or such subsidiary's stock; (iii) any transaction
involving the corporation or certain subsidiaries thereof which has the
effect, directly or indirectly, of increasing the proportionate share of the
stock of any class or series, or securities convertible into stock of the
corporation or any subsidiary which is owned by the Interested Shareholder
(except as a result of immaterial changes due to fractional share adjustments
or as a result of any purchase or redemption of any shares of stock not
caused directly or indirectly by the Interested Shareholder); or (iv) any
receipt by the Interested Shareholder of the benefit (except proportionately
as a shareholder of such corporation) of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the corporation
or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person became
an Interested Shareholder, the board of directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Shareholder became an Interested Shareholder, or (ii) upon consummation of
the transaction which resulted in the shareholder becoming an Interested
shareholder, the shareholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
shares held by directors who are also officers of the corporation and by
employee stock ownership plans that do not provide employees with the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (iii) on or following the date on
which such person became an Interested Shareholder, the Business Combination
is approved by the board of directors of the corporation and authorized at an
annual or special meeting of shareholders (not by written consent) by the
affirmative vote of the shareholders of at least 66 2/3% of the outstanding
voting stock of the corporation not owned by the Interested Shareholder.
The Business Combination restrictions described above do not apply if,
among other things: (i) the corporation's original certificate of
incorporation contains a provision expressly electing not to be governed by
the statute; (ii) the corporation by action by the holders of a majority of
the voting stock of the corporation approves an amendment to its certificate
of incorporation or bylaws expressly electing not to be governed by the
statute (effective twelve (12) months after the amendment's adoption), which
amendment shall not be applicable to any business combination with a person
who was an Interested
58
<PAGE>
Shareholder at or prior to the time of the amendment; or (iii) the
corporation does not have a class of voting stock that is (a) listed on a
national securities exchange, (b) authorized for quotation on Nasdaq or a
similar quotation system; or (c) held of record by more than 2,000
shareholders. The statute also does not apply to certain Business
Combinations with an Interested Shareholder when such combination is proposed
after the public announcement of, and before the consummation or abandonment
of, a merger or consolidation, a sale of 50% or more of the aggregate market
value of the assets of the corporation on a consolidated basis or the
aggregate market value of all outstanding shares of the corporation, or a
tender offer for 50% or more of the outstanding voting shares of the
corporation, if the triggering transaction is with or by a person who either
was not an Interested Shareholder during the previous three years or who
became an Interested Shareholder with Board of Director approval, and if the
transaction is approved or not opposed by a majority of the current directors
who were also directors prior to any person becoming an Interested
Shareholder during the previous three years. Cendant is subject to the
Business Combination restrictions described above. The Cendant Certificate
does not contain a provision electing not to be governed by the Business
Combination restrictions.
LEGAL MATTERS
The validity of the shares of Cendant Common Stock and Cendant Series A
Preferred Stock to be issued in connection with the Proposed Cendant Merger
would be passed upon for Cendant by Skadden, Arps, Slate, Meagher & Flom LLP,
counsel to Cendant.
EXPERTS
The consolidated financial statements of Cendant and its consolidated
subsidiaries, except PHH, as of December 31, 1996 and January 31, 1996 and
for the years ended December 31, 1996, January 31, 1996 and 1995 and CUC as
of January 31, 1997 and 1996 and for each of the three years in the period
ended January 31, 1997 incorporated in this Proxy Statement/Prospectus by
reference from Cendant's Form 8-K dated January 29, 1998, have been audited
by Deloitte & Touche LLP, as stated in their report which is incorporated
herein by reference. The financial statements of PHH (consolidated with those
of Cendant) have been audited by KPMG Peat Marwick LLP, independent auditors
of PHH, as stated in their report incorporated herein by reference. Their
report contains an explanatory paragraph that states that PHH adopted the
provisions of Statement of Financial Standards No. 122 "Accounting for
Mortgage Servicing Rights" in the year ended January 31, 1996. The
consolidated financial statements of CUC (consolidated with those of Cendant)
have been audited by Ernst & Young LLP, as set forth in their report included
in the Current Report on Form 8-K, dated January 29, 1998, incorporated herein
by reference, which, as to the years ended January 31, 1996 and 1995, is
based in part on the reports of Deloitte & Touche LLP, independent auditors
of Sierra, KPMG Peat Marwick LLP, independent auditors of Davidson, and Price
Waterhouse LLP, independent accountants of Ideon. Such consolidated financial
statements of Cendant and its consolidated subsidiaries are incorporated by
reference herein in reliance upon the respective reports of such firms given
upon their authority as experts in accounting and auditing. All of the
foregoing firms are independent auditors.
The consolidated financial statements of Avis incorporated in this Proxy
Statement/Prospectus by reference from the Current Report on Form 8-K, dated
February 6, 1998, filed by Cendant have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
59
<PAGE>
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Section A: Unaudited pro forma consolidated financial statements of Cendant giving F-2
effect to the proposed acquisition of American Bankers Insurance Group, Inc.
as of September 30, 1997 and for the year ended December 31, 1996 and the
nine months ended September 30, 1997.........................................
Section B: Unaudited pro forma consolidated statement of income of Cendant prior to the F-10
proposed acquisition of American Bankers Insurance Group, Inc. for the year
ended December 31, 1996......................................................
</TABLE>
F-1
<PAGE>
SECTION A
CENDANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PROPOSED ACQUISITION OF AMERICAN BANKERS INSURANCE GROUP, INC.
The accompanying unaudited pro forma consolidated financial statements
give effect to the proposed acquisition of American Bankers by Cendant. The
historical financial information of American Bankers contained herein has
been taken from, or based upon, publicly available documents on file with the
Commission. Cendant does not take any responsibility for the accuracy or
completeness of such information or for any failure by American Bankers to
disclose events that may have occurred and may affect the significance or
accuracy of any such information. To date, Cendant has not had access to the
books and records of American Bankers. The Proposed Cendant Merger will be
accounted for under the purchase method of accounting and accordingly, assets
acquired and liabilities assumed will be recorded at their estimated fair
values, which for purposes of the unaudited pro forma consolidated financial
statements, have been estimated at the historical values included in publicly
available information of American Bankers. The purchase price allocation is
subject to further refinement, based upon due diligence procedures to be
performed on American Bankers financial information, appraisals and other
analyses, with appropriate recognition given to the effect of current
interest rates and income taxes. The unaudited pro forma consolidated balance
sheet as of September 30, 1997 is presented as if the Proposed Cendant Merger
had occurred on September 30, 1997. The unaudited pro forma consolidated
statements of income for the year ended December 31, 1996 and for the nine
months ended September 30, 1997 are presented as if the Proposed Cendant
Merger occurred on January 1, 1996.
The unaudited pro forma consolidated financial statements do not purport
to present the financial position or results of operations of Cendant (i) had
the Proposed Cendant Merger occurred on the dates specified or; (ii) had the
business combinations described in Section B occurred on the dates specified,
nor are they necessarily indicative of the operating results that may be
achieved in the future. In addition, the unaudited pro forma consolidated
statements of income do not reflect certain revenue enhancements that
management believes may be realized following the Proposed Cendant Merger,
although no assurances can be made as to the amount of revenue enhancements,
if any, that will actually be realized.
The unaudited pro forma consolidated financial statements of Cendant are
based on certain assumptions and adjustments described in the Notes to
Unaudited Pro Forma Consolidated Financial Statements, as set forth herein,
and should be read in conjunction therewith and with the consolidated
financial statements and related notes thereto of Cendant, as included in the
Current Report on Form 8-K of Cendant, dated January 29, 1998, incorporated
by reference in this Proxy Statement/Prospectus.
OVERVIEW OF THE PROPOSED CENDANT MERGER
Cendant proposed to acquire American Bankers for an aggregate purchase
price approximating $2.7 billion plus transaction fees and expenses. On
January 28, 1998, Cendant commenced a tender offer to purchase 23,501,260
American Bankers Common Shares at a price of $58 per share in cash, which
together with shares owned by Cendant on the announcement date constitute
approximately 51% of the fully diluted American Bankers Common Shares.
Cendant proposed to exchange, on a tax free basis, shares of Cendant Common
Stock with a fixed value of $58 per share for the balance of American Bankers
Common Shares. The Cendant Offer is subject to certain customary conditions
and there can be no assurance that Cendant will be successful in its proposal
to acquire American Bankers. Cendant has received a commitment from a bank to
provide funds necessary to finance the Cendant Offer.
F-2
<PAGE>
SECTION A
CENDANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
PRO FORMA
CENDANT AMERICAN BANKERS ADJUSTMENTS(A) PRO FORMA
------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .............. $ 902,777 $ $ (902,777) $ --
Marketable securities .................. 308,947 308,947
Receivables--net ....................... 1,538,415 1,538,415
Other current assets ................... 630,657 7,500 638,157
------------- ---------------- -------------- ------------
Total current assets .................... 3,380,796 -- (895,277) 2,485,519
Deferred membership
acquisition costs .................. 389,870 389,870
Franchise agreements--net ............... 942,780 942,780
Goodwill--net ........................... 1,913,478 1,913,478
Other intangibles--net .................. 1,438,537 1,438,537
Other assets ............................ 1,329,370 1,329,370
------------- ---------------- -------------- ------------
Total assets exclusive of management and
mortgage programs and insurance.......... 9,394,831 -- (895,277) 8,499,554
------------- ---------------- -------------- ------------
Management and mortgage programs
Net investment in leases and leased
vehicles .............................. 3,547,217 3,547,217
Relocation receivables ................. 587,310 587,310
Mortgage loans held for sale ........... 1,162,220 1,162,220
Mortgage servicing rights and fees .... 305,428 305,428
------------- ---------------- -------------- ------------
Total management and mortgage program
assets ................................. 5,602,175 -- -- 5,602,175
------------- ---------------- -------------- ------------
Insurance
Investments
Held-to-maturity securities, at
amortized cost ....................... 847,248 847,248
Available-for-sale securities, at
approximate market value ............. 907,549 907,549
Equity securities, at approximate
market value ......................... 127,905 127,905
Other investments ..................... 244,445 244,445
------------- ---------------- -------------- ------------
-- 2,127,147 -- 2,127,147
------------- ---------------- -------------- ------------
Cash and cash equivalents .............. 10,124 10,124
Reinsurance receivable ................. 255,067 255,067
Other receivables ...................... 137,026 137,026
Accrued investment income .............. 26,435 26,435
Deferred policy acquisition costs ..... 538,680 538,680
Prepaid reinsurance premiums ........... 442,154 442,154
Goodwill and other ..................... 2,030,150 2,030,150
Other assets ........................... 142,328 142,328
------------- ---------------- -------------- ------------
Total insurance assets .................. -- 3,678,961 2,030,150 5,709,111
------------- ---------------- -------------- ------------
Total Assets ............................ $14,997,006 $3,678,961 $1,134,873 $19,810,840
============= ================ ============== ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
F-3
<PAGE>
SECTION A
CENDANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1997
(in thousands, except share amounts)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
PRO FORMA
CENDANT AMERICAN BANKERS ADJUSTMENTS(A) PRO FORMA
------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, accrued expenses
and other current liabilities............ $ 1,358,767 $ $ 90,000 $ 1,993,171
544,404
------------- ---------------- -------------- ------------
Deferred income............................ 1,091,649 1,091,649
Long-term debt ............................ 2,422,524 2,422,524
Other non-current liabilities.............. 262,407 262,407
------------- ---------------- -------------- ------------
Total liabilities exclusive of management
and mortgage programs and insurance ..... 5,135,347 -- 634,404 5,769,751
------------- ---------------- -------------- ------------
Management and mortgage programs
Debt...................................... 4,952,083 4,952,083
Deferred income taxes..................... 300,683 300,683
------------- ---------------- -------------- ------------
Total management and mortgage program
liabilities............................... 5,252,766 -- -- 5,252,766
------------- ---------------- -------------- ------------
Insurance
Policy liabilities........................ 302,971 302,971
Unearned premiums......................... 1,383,432 1,383,432
Claim liabilities......................... 538,602 538,602
------------- ---------------- -------------- ------------
-- 2,225,005 -- 2,225,005
Other policyholders' funds................ 8,096 8,096
Notes payable............................. 241,479 241,479
Accrued commissions and other accrued
expenses................................. 146,003 146,003
Other liabilities......................... 262,093 262,093
------------- ---------------- -------------- ------------
Total insurance liabilities................ -- 2,882,676 -- 2,882,676
------------- ---------------- -------------- ------------
Commitments and contingencies
Shareholders' Equity
Preferred stock; authorized 10 million
shares $3.125 Series A Cumulative
Convertible Preferred Stock (stated at
liquidation preference of $50 per
share); issued and outstanding 2,300,000
shares (2,200,100 pro forma) ............ 115,000 (4,995) 110,005
Additional paid-in capital .............. 144,875 144,875
Common stock; $.01 par value; authorized
2 billion shares; issued 860,194,246
shares .................................. 8,245 41,656 (41,370) 8,531
Additional paid-in capital .............. 3,017,461 208,838 832,750 4,059,049
Retained earnings......................... 1,890,452 425,776 (425,776) 1,890,452
Net unrealized gain....................... 15,384 (15,384) --
Currency translation adjustment........... (27,024) (27,024)
Restricted stock, deferred compensation .. (28,664) (6,287) 6,287 (28,664)
Treasury stock............................ (251,577) (1,426) 1,426 (251,577)
Other..................................... (2,656) 2,656 --
------------- ---------------- -------------- ------------
Total Shareholders' Equity................. 4,608,893 796,285 500,469 5,905,647
------------- ---------------- -------------- ------------
Total Liabilities and Shareholders'
Equity.................................... $14,997,006 $3,678,961 $1,134,873 $19,810,840
============= ================ ============== ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
F-4
<PAGE>
SECTION A
CENDANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA AMERICAN BANKERS PRO FORMA
CENDANT (1)(2) ADJUSTMENTS PRO FORMA
------------ ------------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net..... $4,009,382 $ $ $4,009,382
Fleet leasing (net of depreciation
and interest costs of $1,132,408) .. 56,660 56,660
Insurance--net premiums earned and
other ............................. 1,529,035 1,529,035
Other................................ 409,220 409,220
------------ ------------------- ------------- ------------
Net Revenues........................... 4,475,262 1,529,035 -- 6,004,297
------------ ------------------- ------------- ------------
EXPENSES
Operating............................ 1,652,466 1,652,466
Marketing and reservation............ 1,218,089 1,218,089
General and administrative........... 345,241 345,241
Insurance............................
Benefits, claims and losses......... 523,024 523,024
Insurance commissions and operating
expenses .......................... 843,386 843,386
Merger related costs and other
unusual charges .................... 179,945 179,945
Depreciation and amortization........ 234,308 9,150 58,004 (B) 301,462
Interest, net........................ 48,210 17,530 90,779 (C) 156,519
------------ ------------------- ------------- ------------
Total Expenses......................... 3,678,259 1,393,090 148,783 5,220,132
------------ ------------------- ------------- ------------
Income before income taxes............. 797,003 135,945 (148,783) 784,165
Provision for income taxes............. 323,574 41,442 (35,010)(D) 330,006
------------ ------------------- ------------- ------------
Net income............................. $ 473,429 $ 94,503 $(113,773) $ 454,159
============ =================== ============= ============
PER SHARE INFORMATION
Net income per share
Basic ................................ $ .60 $ .55
Diluted .............................. $ .56 $ .52
Primary .............................. $ 2.20
Fully diluted......................... $ 2.16
Weighted average shares outstanding
Basic ................................ 784,868 28,643 (E) 813,511
Diluted .............................. 849,095 28,643 (E) 877,738
Primary............................... 41,628
Fully diluted......................... 43,930
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical results of
American Bankers to conform to a combined company presentation.
(2) Per share information has been adjusted to reflect a two-for-one stock
split which was effected in the form of a stock dividend in September
1997.
See notes to unaudited pro forma consolidated financial statements.
F-5
<PAGE>
SECTION A
CENDANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
AMERICAN BANKERS PRO FORMA
CENDANT (1) ADJUSTMENTS PRO FORMA
------------ ------------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Membership and service fees, net................ $3,502,423 $3,502,423
Fleet leasing (net of depreciation and interest
costs of $892,186)............................. 42,905 42,905
Insurance--net premiums earned and other ....... $1,219,083 1,219,083
Other........................................... 344,687 344,687
------------ ------------------ ------------- ------------
Net Revenues..................................... 3,890,015 1,219,083 -- 5,109,098
------------ ------------------ ------------- ------------
EXPENSES
Operating....................................... 1,317,841 1,317,841
Marketing and reservation....................... 963,349 963,349
General and administrative...................... 324,076 324,076
Insurance
Benefits, claims and losses.................... 409,282 409,282
Insurance commissions and operating
expenses...................................... 668,199 668,199
Merger related costs............................ 303,000 303,000
Depreciation and amortization................... 190,599 10,391 43,503 (B) 244,493
Interest, net................................... 43,920 12,091 64,172 (C) 120,183
------------ ------------------ ------------- ------------
Total Expenses................................... 3,142,785 1,099,963 107,675 4,350,423
------------ ------------------ ------------- ------------
Income before income taxes....................... 747,230 119,120 (107,675) 758,675
Provision for income taxes....................... 346,536 34,244 (29,924)(D) 350,856
------------ ------------------ ------------- ------------
Net income....................................... $ 400,694 $ 84,876 $ (77,751) $ 407,819
============ ================== ============= ============
PER SHARE INFORMATION
Net income per share
Basic........................................... $ .50 $ .48
Diluted ........................................ $ .47 $ .46
Primary ........................................ $ 1.89
Fully diluted .................................. $ 1.81
Weighted average shares outstanding
Basic........................................... 804,340 28,643 (E) 832,983
Diluted ........................................ 877,133 28,643 (E) 905,776
Primary ........................................ 41,968
Fully diluted .................................. 46,886
</TABLE>
- ------------
(1) Certain reclassifications have been made to the historical results of
American Bankers to conform to a combined company presentation.
See notes to unaudited pro forma consolidated financial statements.
F-6
<PAGE>
SECTION A
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
(A) ACQUISITION OF AMERICAN BANKERS
Cendant plans to acquire American Bankers for the following consideration
($000's):
<TABLE>
<CAPTION>
<S> <C>
Cash consideration (i)............................................... $1,447,181
Issuance of approximately 28.6 million shares of Cendant Common
Stock and 2.2 million Cendant Series A Preferred Stock.............. 1,296,754
------------
TOTAL PRO FORMA ACQUISITION COST..................................... 2,743,935
------------
Fair value of net assets acquired:
Historical net book value of American Bankers....................... 796,285
Fair value adjustments to net assets acquired:
Deferred financing costs (ii)....................................... 7,500
Accrued acquisition obligations (iii)............................... (90,000)
------------
FAIR VALUE OF IDENTIFIABLE NET ASSETS ACQUIRED....................... 713,785
------------
Goodwill and other--American Bankers (iv) .......................... $2,030,150
============
</TABLE>
- ------------
(i) Cash consideration of $1.4 billion will be financed from Cendant's
current cash, available lines of credit, and a new $1.5 billion 364-day
revolving credit facility (the "New Credit Facility"). The pro forma
adjustment reflects financing from cash on hand ($0.9 billion) and debt
($0.5 billion).
(ii) Reflects deferred financing costs related to the New Credit Facility,
which are being amortized over its 364-day maturity.
(iii) Accrued acquisition obligations primarily consist of professional fees,
investment banker fees and filing fees.
(iv) Cendant has not performed a complete valuation of American Bankers' net
assets value and therefore, the excess of the cost over the book value
of net assets acquired was allocated to and presented as "goodwill and
other" in the unaudited pro forma consolidated balance sheet.
The pro forma equity adjustments include the elimination of American
Bankers shareholders' equity and the issuance of approximately 28.6 million
shares of Cendant Common Stock and 2.2 million shares of Cendant Series A
Preferred Stock in exchange for all of the outstanding American Bankers Common
Shares and American Bankers Preferred Shares, respectively, pursuant to the
Proposed Cendant Merger. The 28.6 million shares of Cendant Common Stock
deemed issued pursuant to the Proposed Cendant Merger was calculated based
upon an assumed conversion ratio of 1.5945 shares of Cendant Common Stock for
each American Bankers Common Share (calculated by dividing the Cendant Offer
Price of $58.00 by an assumed Cendant stock price of $36 3/8 (the closing
price of the Cendant Common Stock on February 10, 1998)). The 2.2 million
shares of Cendant Series A Preferred Stock are convertible into 7.0 million
shares of Cendant Common Stock based upon an assumed conversion ratio of 3.185
shares of Cendant Series A Preferred Stock for each share of Cendant Common
Stock following the Proposed Cendant Merger and an assumed a value for
American Bankers Common Shares underlying the American Bankers Preferred
Shares equal to $58.00 per share. If any or all of the holders of American
Bankers Preferred Shares were to convert such shares prior to consummation
of the Proposed Cendant Merger, total pro forma shareholders' equity would
be unchanged and the impact on pro forma diluted earnings per share would be
less than $.01 per share.
F-7
<PAGE>
SECTION A
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS--(Continued)
(A) ACQUISITION OF AMERICAN BANKERS (Continued)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
------------------------------------------------
($000'S)
------------------------------------------------
ELIMINATION OF
ISSUANCE OF AMERICAN BANKERS ADJUSTMENT TO
CENDANT SHAREHOLDERS' SHAREHOLDERS'
COMMON STK. EQUITY EQUITY
------------- ---------------- ---------------
<S> <C> <C> <C>
Preferred stock......................... $ 254,880 $(115,000) $ 139,880
Common stock............................ 286 (41,656) (41,370)
Additional paid-in capital.............. 1,041,588 (208,838) 832,750
Retained earnings....................... (425,776) (425,776)
Net unrealized gain..................... (15,384) (15,384)
Restricted stock, deferred
compensation........................... 6,287 6,287
Treasury stock.......................... 1,426 1,426
Other................................... -- 2,656 2,656
------------- ---------------- ---------------
$1,296,754 $(796,285) $ 500,469
============= ================ ===============
</TABLE>
(B) DEPRECIATION AND AMORTIZATION
The pro forma adjustment reflects the amortization of goodwill and other,
which is being amortized on a straight-line basis over an estimated average
benefit period of thirty-five years. Cendant believes that once a complete
valuation is performed the cost in excess of American Bankers' net book value
will be principally allocated to goodwill having a benefit period of 40 years
although fair value adjustments will also be made to depreciable assets with
benefit periods of less than 40 years. The benefit period related to goodwill
is based on American Bankers' strong position in the specialty insurance
industry and its history of earnings growth.
(C) INTEREST EXPENSE
The pro forma adjustment reflects (i) amortization of deferred financing
costs of $7.5 million for the year ended December 31, 1996 and (ii) interest
expense on $1,447 million of borrowings under Cendant's New Credit Facility
at the historical monthly variable rates in effect for Cendant's existing
credit facilities. The ranges for such rates were 5.54% to 5.85% for the year
ended December 31, 1996, and 5.66% to 5.91% for the nine months ended
September 30, 1997. Borrowings represent the amount used as consideration in
the American Bankers acquisition.
The effect on pro forma net income assuming a 1/8% variance in the average
monthly variable interest rates used to calculate interest expense is as
follows ($000's):
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31, 1996......... $2,201
Nine months ended September 30,
1997................................ 1,652
</TABLE>
F-8
<PAGE>
SECTION A
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS--(Continued)
(D) INCOME TAXES
The pro forma adjustment to income taxes is comprised of ($000's):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------ -------------------------
<S> <C> <C>
Reversal of historical provision of:
Pro Forma Cendant .................. $(323,574) $(346,536)
American Bankers ................... (41,442) (34,244)
Pro forma provision ................. 330,006 350,856
------------------ -------------------------
Total ............................. $ (35,010) $ (29,924)
================== =========================
</TABLE>
The pro forma provisions for taxes were computed using pro forma pre-tax
amounts and the provisions of Statement of Financial Accounting Standards No.
109.
(E) WEIGHTED AVERAGE SHARES OUTSTANDING
The pro forma adjustment reflects the issuance of 28.6 million shares of
Cendant Common Stock pursuant to the Proposed Cendant Merger. The conversion of
Cendant Series A Preferred Stock is anti-dilutive and, accordingly, has not
been assumed.
SUBSEQUENT EVENT
HFS/CUC MERGER--On December 17, 1997, the merger of HFS with and into CUC
to form Cendant was completed. In connection with the merger, Cendant
incurred merger related costs and other unusual charges of $844.9 million
($589.8 million, after-tax). Accordingly, the after-tax amount of such
charges will be included as a reduction to retained earnings coincident with
the merger.
F-9
<PAGE>
SECTION B
CENDANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
OF CENDANT CORPORATION PRIOR TO THE PROPOSED ACQUISITION OF AMERICAN BANKERS
INSURANCE GROUP, INC. FOR THE YEAR ENDED DECEMBER 31, 1996
The unaudited pro forma consolidated statement of income of Cendant for the
year ended Unaudited December 31, 1996 is presented as if the following
transactions had occurred on January 1, 1996: (i) the acquisition of Avis, Inc.
("Avis") and the November 1996 issuance of Cendant Common Stock (the "Avis
Offering") as partial consideration for Avis; (ii) the September 1997 initial
public offering of a majority interest in the corporation which owns all
company-owned Avis car rental locations ("ARAC"); (iii) the acquisition of
Resort Condominiums International, Inc. and its affiliates ("RCI") and the
issuance of Cendant Common Stock as partial consideration for RCI; (iv) the
May, 1996 acquisition of the common stock of Coldwell Banker Corporation
("Coldwell Banker") and the related contribution of Coldwell Banker's owned
real estate brokerage offices (the "Owned Brokerage Business") to a newly
created independent trust (the "Trust"); (v) the receipt of proceeds from an
offering of Cendant Common Stock (the "Second Quarter 1996 Offering") to the
extent necessary to fund (a) the acquisition of Coldwell Banker and the
related repayment of indebtedness and acquisition expenses and (b) the cash
consideration portion in the Avis acquisition; (vi) the acquisitions of: the
six Century 21 non-owned regions ("Century 21 NORS") during the second
quarter of 1996, Travelodge in January, 1996 and Electronic Realty Associates
("ERA") in February, 1996 (collectively, the "Other 1996 Acquisitions"); and
(vii) the February, 1996 issuance of $240 million of 4 3/4% Convertible
Senior Notes Due 2003 to the extent such proceeds were used to finance the
Other 1996 Acquisitions.
All of Cendant's aforementioned acquisitions have been accounted for using
the purchase method of accounting. Accordingly, assets acquired and
liabilities assumed have been recorded at their estimated fair values, with
appropriate recognition given to the effect of current interest rates and
income taxes. Management believes that the accounting used to reflect the
above transactions provides a reasonable basis on which to present the
unaudited pro forma statement of income of Cendant for the year ended
December 31, 1996. Cendant has entered into certain immaterial transactions
which are not reflected in the unaudited pro forma consolidated statement of
income.
The unaudited pro forma consolidated statement of income does not purport
to present the results of operations of Cendant had the transactions and events
assumed therein occurred on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future.
The unaudited pro forma statement of income does not reflect cost savings and
revenue enhancements that management believes have been and may continue to be
realized following the acquisitions. No assurances can be made as to the
amount of cost savings or revenue enhancements, if any, that were actually
realized or will be realized.
The unaudited pro forma consolidated statement of income is based on certain
assumptions and adjustments described in the Notes to Unaudited Pro Forma
Consolidated Statement of Income and should be read in conjunction therewith
and with the consolidated financial statements and related notes thereto of
Cendant, as included in the Current Report on Form 8-K of Cendant Corporation
dated January 29, 1998, incorporated by reference in this Proxy
Statement/Prospectus and the financial statements and related notes of the
acquired companies previously filed with the Securities and Exchange
Commission pursuant to Regulation S-X Rule 3-05, "Financial Statements of
Businesses Acquired or to be Acquired."
F-10
<PAGE>
SECTION B
CENDANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
ACQUIRED PRO FORMA
CENDANT COMPANIES ADJUSTMENTS PRO FORMA
------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
NET REVENUES
Membership and service fees--net ..... $3,433,917 $623,159 $ 11,835 (A) $4,009,382
(235,625)(B)
176,096 (D)
Fleet leasing (net of depreciation
and interest costs of $1,132,408) ... 56,660 56,660
Other................................. 418,203 9,434 (18,417)(D) 409,220
------------ ----------- -------------- ------------
Net revenues........................... 3,908,780 632,593 (66,111) 4,475,262
------------ ----------- -------------- ------------
EXPENSES
Operating............................. 1,392,788 482,791 79,886 (D) 1,652,466
(75,636)(E)
(227,363)(F)
Marketing and reservation............. 1,089,482 128,607 1,218,089
General and administrative............ 339,543 6,114 (416)(I) 345,241
Merger related costs and other
unusual charges...................... 179,945 -- -- 179,945
Depreciation and amortization......... 167,907 40,884 25,517 (G) 234,308
Interest, net......................... 25,445 (17,728) 11,718 (H) 48,210
6,000 (D)
22,775 (C)
------------ ----------- -------------- ------------
Total expenses......................... 3,195,110 640,668 (157,519) 3,678,259
------------ ----------- -------------- ------------
Income (loss) before income taxes ..... 713,670 (8,075) 91,408 797,003
Provision (benefit) for income taxes .. 290,059 (6,689) 40,204 (J) 323,574
------------ ----------- -------------- ------------
Net income (loss)...................... $ 423,611 $ (1,386) $ 51,204 $ 473,429
============ =========== ============== ============
PER SHARE INFORMATION (BASIC)
Net income............................ $ .56 $ .60
============ ============
Weighted average shares outstanding .. 754,363 30,505 (K) 784,868
============ ============== ============
PER SHARE INFORMATION (DILUTED)
Net income............................ $ .52 $ .56
============ ============
Weighted average shares outstanding .. 818,590 30,505 (K) 849,095
============ =========== ============== ============
</TABLE>
See notes to unaudited pro forma consolidated statement of income.
F-11
<PAGE>
SECTION B
CENDANT CORPORATION
UNAUDITED HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF ACQUIRED COMPANIES
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL (1)
-----------------------------------------------------
AVIS, (2) COLDWELL OTHER 1996 TOTAL
AS ADJUSTED RCI BANKER ACQUISITIONS HISTORICAL
------------- ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES
Service fees........................ $32,335 $284,996 $295,478 $10,350 $623,159
Other............................... 7,783 1,651 9,434
------------- ---------- ----------- -------------- ------------
Net revenues....................... 32,335 284,996 303,261 12,001 632,593
------------- ---------- ----------- -------------- ------------
EXPENSES
Operating........................... 25,379 130,113 316,064 11,235 482,791
Marketing and reservation........... 128,607 128,607
Depreciation and amortization ...... 15,345 16,097 9,021 421 40,884
Interest, net....................... (22,376) 3,155 1,493 (17,728)
Other............................... 4,838 512 764 6,114
------------- ---------- ----------- -------------- ------------
Total expenses..................... 40,724 257,279 328,752 13,913 640,668
------------- ---------- ----------- -------------- ------------
Income (loss) before income taxes ... (8,389) 27,717 (25,491) (1,912) (8,075)
Provision (benefit) for income
taxes................................ 99 3,644 (10,432) (6,689)
------------- ---------- ----------- -------------- ------------
Net income (loss).................... $(8,488) $ 24,073 $(15,059) $(1,912) $ (1,386)
============= ========== =========== ============== ============
</TABLE>
- ------------
(1) Reflects results of operations for the period from January 1, 1996
to the respective dates of acquisition.
(2) The historical consolidated statement of operations of Avis, as
adjusted, has been adjusted to present only the historical operating
results of the portion of Avis intended to be retained by Cendant.
Note: Certain reclassifications have been made to the historical results
of acquired companies to conform to Cendant's pro forma
classification.
F-12
<PAGE>
SECTION B
CENDANT CORPORATION
UNAUDITED HISTORICAL CONSOLIDATING STATEMENT OF OPERATIONS
OF OTHER 1996 ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL (1)
--------------------------------------
CENTURY 21 TOTAL
NORS TRAVELODGE ERA HISTORICAL
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
NET REVENUES
Service fees..................... $6,668 $688 $ 2,994 $10,350
Other............................ 449 1,202 1,651
------------ ------------ ---------- ------------
Net revenues.................... 7,117 688 4,196 12,001
------------ ------------ ---------- ------------
EXPENSES
Operating........................ 7,566 552 3,117 11,235
Depreciation and amortization ... 285 136 421
Interest, net.................... 2 1,491 1,493
Other............................ 764 764
------------ ------------ ---------- ------------
Total expenses.................. 7,853 552 5,508 13,913
------------ ------------ ---------- ------------
Income (loss) before income
taxes............................. (736) 136 (1,312) (1,912)
Provision for income taxes ......
------------ ------------ ---------- ------------
Net income (loss)................. $ (736) $136 $(1,312) $(1,912)
============ ============ ========== ============
</TABLE>
- ------------
(1) Reflects results of operations for the period from January 1, 1996
to the respective dates of acquisition.
Note: Certain reclassifications have been made to the historical results
of acquired companies to conform to Cendant's pro forma
classification.
F-13
<PAGE>
SECTION B
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
A. SERVICE FEE REVENUE:
The pro forma adjustment reflects the elimination of franchise revenue
paid by the Century 21 NORS to Century 21 under sub-franchise agreements
(offset against operating expense--see Note E) and the addition of franchise
fees to be received under franchise contracts with owned brokerage offices
upon contribution of the Owned Brokerage Business to the Trust. Pro forma
adjustments to service fee revenue consist of the following ($000's):
<TABLE>
<CAPTION>
<S> <C>
Eliminate:
Century 21 revenue included as Century 21 NORS
operating expense..................................... $(1,003)
Add:
Franchise fees from Owned Brokerage Business .......... 12,838
----------
Total.................................................. $11,835
==========
</TABLE>
The franchise fees from the Owned Brokerage Business, which are based on
the franchise contracts with the Trust, are calculated at approximately 5.7%
of gross commissions earned by the Owned Brokerage Business on sales of real
estate properties.
B. OWNED BROKERAGE BUSINESS REVENUE:
The pro forma adjustment reflects the elimination of revenue generated
from Coldwell Banker's 318 formerly owned brokerage offices. Cendant
contributed the net assets of the Owned Brokerage Business to the Trust upon
consummation of the Coldwell Banker acquisition.
C. OTHER REVENUE:
The pro forma adjustment reflects the elimination of revenue associated
with investment income generated from RCI cash and marketable securities
which were distributed in the form of a dividend to the former shareholder of
RCI prior to consummation of the RCI acquisition.
D. CAR RENTAL OPERATING COMPANY OPERATIONS:
At the time Cendant acquired Avis, it had developed and announced a plan
(the "Plan") to do the following:
1. Retain certain assets acquired including; the reservation system,
franchise agreements, trademarks, tradenames and certain liabilities.
2. Segregate the assets used in the car rental operations of ARAC and
dispose of approximately 75% of ARAC within one year through an
initial public offering ("IPO") thereby diluting Cendant's interest to
approximately 25%. All of the proceeds from the IPO would be retained
by ARAC.
3. Enter into a license agreement with ARAC licensing its use of the
trademarks and tradename under which Cendant is to provide other
franchise services.
In September 1997, Cendant completed the IPO of ARAC which diluted
Cendant's equity interest in ARAC to approximately 27.5%. The actual results
of the IPO and its related impact on the unaudited pro forma consolidated
statement of income for the year ended December 31, 1996 does not differ
materially from the pro forma effects of the assumptions and estimates used
in the preparation of such financial statement.
F-14
<PAGE>
SECTION B
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME--(CONTINUED)
The pro forma adjustments are comprised of the following ($000's):
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 1996 OCTOBER 17, 1996
THROUGH THROUGH
OCTOBER 16, 1996 DECEMBER 31, 1996 TOTAL
----------------------- ----------------------- ------------
<S> <C> <C> <C> <C> <C>
Historical income before taxes from ARAC
car rental operations...................... $ 69,799
ADJUSTMENTS TO ARAC:
ELIMINATION OF HISTORICAL EXPENSE
ASSOCIATED WITH:
Reservation and information technology
services (Cendant Expense)(i)............. $ 63,594 $ 16,292 $ 79,886
============
Depreciation and amortization.............. 27,425
ADDITION OF PRO FORMA EXPENSES
ASSOCIATED WITH:
Depreciation and amortization (ii) ........ (14,504)
Increased financing costs (iii)............ (803) 75,712 $ 16,292
---------- ----------- ---------- -----------
CENDANT SERVICE FEE ADJUSTMENTS:
Reservation and information technology
services (i)............................. (63,594) (16,292)
Service fees from franchised
locations (iv)........................... (15,562) (4,289)
Royalty payment from Avis Inc. to
Cendant (v).............................. (61,505) (140,661) (14,854) (35,435) $(176,096)
---------- ----------- ---------- ----------- ============
Adjusted income (loss) before taxes from
ARAC....................................... 4,850 (19,143)
Provision for income taxes................. 1,945
----------- ---------- -----------
Adjusted net income (loss) from ARAC ....... 2,905 (19,143)
Cendant's ownership percentage.............. 25% 100%
----------- ---------- -----------
Cendant's equity in earnings (loss) of Avis
Inc.'s car rental operations............... $ 726 $(19,143) $ (18,417)
=========== =========== ============
OTHER REVENUE ADJUSTMENT:
Elimination of historical interest income
related to cash consideration portion of
Avis acquisition (vi)..................... $ 6,000 $ -- $ 6,000
=========== =========== ============
</TABLE>
- ------------
(i) Subsequent to the IPO, Cendant retained and operates the
telecommunications and computer processing system which services ARAC
for reservations, rental agreement processing, accounting and fleet
control. The pro forma adjustment reflects a planned contractual
agreement with ARAC, under which Cendant charges ARAC at cost for
reservation and information technology services provided.
(ii) The estimated fair value of Avis property and equipment intended to
be retained by ARAC is $101.0 million, comprised primarily of
furniture, fixtures, and leasehold improvements, which is amortized
on a straight-line basis over the estimated useful lives, which
average seven years. Goodwill acquired by ARAC is valued at $154.0
million and is amortized on a straight line basis over a benefit
period of 40 years.
F-15
<PAGE>
SECTION B
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME--(CONTINUED)
(iii) In connection with the acquisition of Avis, approximately $1 billion
of tax-advantaged debt was repaid and replaced by a similar amount of
non tax-advantaged debt. This resulted in an increase in interest
rates, due to the loss of tax benefits from the Employee Stock
Ownership Plan ("ESOP") financing which were passed through from
various lenders to Avis ($000's):
<TABLE>
<CAPTION>
<S> <C>
Eliminate former
facilities................. $(127,018)
Add current facilities ..... 127,821
------------
Increased financing cost ... $ 803
============
</TABLE>
(iv) Reflects historical franchise fee revenue from third parties.
(v) In connection with the IPO of ARAC, Cendant entered into a 50-year
master license agreement with ARAC for ARAC's use of the Avis
trademarks and tradename and receives royalty fees based upon 4% of
ARAC revenue, escalating to 4.5% of ARAC revenue over a 5-year
period. The pro forma adjustment reflects the royalty payment to be
made to Cendant from ARAC which is calculated at 4.0% of the revenues
generated by ARAC. Such payments are calculated as follows ($000's):
<TABLE>
<CAPTION>
<S> <C>
Revenues generated by
ARAC...................... $1,908,985
Royalty percentage......... 4.0%
------------
Royalty payment to
Cendant................... $ 76,359
============
</TABLE>
(vi) The pro forma adjustment eliminates historical interest income on the
portion of cash generated from the Second Quarter 1996 Offering which
was used to finance the Avis acquisition.
E. OPERATING EXPENSE:
The pro forma adjustment reflects the elimination of: (i) royalty payments
made by the Century 21 NORS to Century 21 under subfranchise agreements
(offset against service fee revenue--see Note A); (ii) the payment of
Coldwell Banker stock options as a result of change in control provisions in
connection with the acquisition of Coldwell Banker by Cendant and; (iii) a
one-time bonus payment paid to RCI employees by the former shareholder of RCI
pursuant to the stock purchase agreement in connection with the acquisition
of RCI by Cendant ($000's).
<TABLE>
<CAPTION>
<S> <C>
Franchise fees....... $ 1,003
Stock option
expense............. 40,801
Bonus payment........ 33,832
--------
Total................ $75,636
========
</TABLE>
F. OPERATING EXPENSE:
The pro forma adjustment reflects the elimination of expenses associated
with Coldwell Banker's formerly owned brokerage offices (see Note B). The
majority of Owned Brokerage Business expenses are directly attributable to
such business. Based on Cendant's due diligence of Coldwell Banker, Cendant
determined that common expenses were allocated to the Owned Brokerage
Business based on a reasonable allocation method. Such allocations were based
on the ratio of number of employees, the amount of space occupied and revenue
generated by the Owned Brokerage Business relative to Coldwell Banker in the
aggregate and multiplied by corresponding common costs as appropriate to
determine allocable expenses.
F-16
<PAGE>
SECTION B
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME--(CONTINUED)
G. DEPRECIATION AND AMORTIZATION:
The pro forma adjustment for depreciation and amortization is comprised of
($000's):
<TABLE>
<CAPTION>
COLDWELL OTHER 1996
RCI AVIS BANKER ACQUISITIONS TOTAL
----------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Elimination of historical expense .... $(16,097) $(15,345) $(9,021) $ (421) $(40,884)
Property, equipment and furniture and
fixtures............................. 6,686 4,924 482 -- 12,092
Intangible assets..................... 20,114 24,658 8,495 1,042 54,309
----------- ----------- ---------- -------------- -----------
Total................................. $ 10,703 $ 14,237 $ (44) $ 621 $ 25,517
=========== =========== ========== ============== ===========
</TABLE>
RCI
The fair value of RCI's property and equipment is estimated at
approximately $55.7 million and is amortized on a straight-line basis over
the estimated useful lives, ranging from 7 to 30 years.
RCI's intangible assets consist of customer lists and goodwill. The fair
value of RCI's customer lists are approximately $100 million and are
amortized on a straight-line basis over the period to be benefited which is
10 years. The fair value ascribed to customer lists is determined based on
the historical renewal rates of RCI members. Goodwill is valued at
approximately $477.7 million and is determined to have a benefit period of 40
years, which is based on RCI being a leading provider of services to the
timeshare industry, which includes being the world's largest provider of
timeshare exchange programs.
Avis
The estimated fair value of Avis's property and equipment retained by
Cendant is $96.0 million, comprised primarily of reservation equipment and
related assets and to the Avis Headquarters office. Such property and
equipment is amortized on a straight-line basis over the estimated benefit
periods ranging from 5 to 30 years. Avis's intangible assets recorded by
Cendant (not applicable to ARAC) are comprised of the Avis trademark, a
reservation system and customer data base, and goodwill. The fair value of
the Avis trademark is approximately $400 million and is amortized on a
straight-line basis over a benefit period of 40 years. The reservation system
and customer data base are valued at approximately $95.0 million and $14.0
million, respectively, and are amortized on a straight line basis over the
periods to be benefited which are 10 years and 6.5 years, respectively.
Goodwill applicable to the allocated portion of the business to be
retained by Cendant is valued at approximately $334.0 million and is
determined to have a benefit period of 40 years. This benefit period is based
on Avis' position as the second largest car rental system in the world, the
recognition of its brand name in the car rental industry and the longevity of
the car rental business.
Coldwell Banker
The fair value of Coldwell Banker's property and equipment (excluding
land) of $15.7 million, is amortized on a straight-line basis over the
estimated benefit periods ranging from 5 to 25 years. Coldwell Banker's
intangible assets are comprised of franchise agreements and goodwill. The
franchise agreements with the brokerage offices comprising the Trust are
valued independently of all other franchise agreements with Coldwell Banker
affiliates. Franchise agreements within the Trust and independent of the
Trust are valued at $218.5 million and $218.7 million, respectively, and are
amortized on a straight line basis over the respective benefit periods of 40
years and 35 years, respectively. The benefit period associated with Trust
franchise agreements was based upon a long history of gross commission
sustained by the Trust. The benefit period associated with the Coldwell
Banker affiliates' franchise agreements was based upon the historical
profitability of such agreements and historical renewal rates. Goodwill is
valued
F-17
<PAGE>
SECTION B
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME--(CONTINUED)
at approximately $351.8 million and is determined to have a benefit period
of 40 years. This benefit period is based on Coldwell Banker's position as
the largest gross revenue producing real estate company in North America, the
recognition of its brand name in the real estate brokerage industry and the
longevity of the real estate brokerage business.
Other 1996 Acquisitions
The fair values of Other 1996 Acquisitions franchise agreements aggregate
$61.0 million and are being amortized on a straight-line basis over the
periods to be benefited, which range from 12 to 30 years. The estimated fair
values of Other Acquisitions goodwill aggregate $187.4 million and are each
being amortized on a straight-line basis over the periods to be benefited,
which are 40 years.
H. INTEREST EXPENSE:
<TABLE>
<CAPTION>
<S> <C>
Elimination of historical interest expense of
($000's):
Coldwell Banker....................................... (3,155)
RCI................................................... (399)
Other 1996 Acquisitions............................... $(1,493)
RCI.................................................... 15,495
4 3/4% Notes to finance Other 1996 Acquisitions ....... 1,270
----------
Total................................................ $11,718
==========
</TABLE>
RCI
The pro forma adjustment reflects the recording of interest expense on
$285 million of borrowings under Cendant's revolving credit facilities at an
interest rate of 6.3% which is the variable rate in effect on the date of
borrowing. Borrowings represent the amount used as partial consideration in
the RCI acquisition.
4 3/4% Notes
The pro forma adjustment reflects interest expense and amortization of
deferred financing costs related to the February 1996 issuance of the 4 3/4%
Notes (5.0% effective interest rate) to the extent that such proceeds were
used to finance the acquisitions of ERA ($36.8 million), Travelodge ($39.3
million), and the Century 21 NORS ($95.0 million).
Effect of a 1/8% variance in variable interest rates
As mentioned above, interest expense was incurred on borrowings under the
Cendant's revolving credit facility which partially funded the acquisition of
RCI. Cendant recorded interest expense using the variable interest rate in
effect on the respective borrowing dates. The effect on pro forma net income
assuming a 1/8% variance in the variable interest rate used to calculate
interest expense is immaterial.
I. OTHER EXPENSES:
The pro forma adjustment eliminates charitable contributions made by the
former stockholder of RCI.
F-18
<PAGE>
SECTION B
CENDANT CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME--(CONTINUED)
J. INCOME TAXES:
The pro forma adjustment to income taxes is comprised of ($000's):
Reversal of historical (provision) benefit of:
<TABLE>
<CAPTION>
<S> <C>
Cendant............ $(290,059)
RCI................ (3,644)
Avis............... (99)
Coldwell Banker ... 10,432
Pro forma
provision.......... 323,574
------------
Total............. $ 40,204
============
</TABLE>
The pro forma provisions for taxes were computed using pro forma pre-tax
amounts and the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
K. WEIGHTED AVERAGE SHARES OUTSTANDING:
The pro forma adjustment to weighted average shares outstanding consist of
the following (000's):
<TABLE>
<CAPTION>
ISSUANCE WEIGHTED
PRICE PER AVERAGE ACQUISITION
SHARE SHARES DATE
----------- ---------- -----------------
<S> <C> <C> <C>
Avis Offering................................. $30.82 8,701 October 17, 1996
RCI........................................... $31.21 2,074 November 12, 1996
Second Quarter 1996 Offering--Coldwell Banker $24.96 12,857 May 31, 1996
Second Quarter 1996 Offering--Avis............ $24.96 6,128 October 17, 1996
Century 21 NORS............................... $20.74 745 April 3, 1996
----------
Total....................................... 30,505
==========
</TABLE>
The unaudited Pro Forma Statement of Income of Cendant for the year ended
December 31, 1996 is presented as if the acquisitions took place at the
beginning of the period thus, the stock issuances referred to above are
considered outstanding as of the beginning of the period for purposes of per
share calcuations.
SUBSEQUENT EVENT
HFS/CUC MERGER--On December 17, 1997, the merger of HFS with and into CUC
to form Cendant was completed. In connection with the merger, Cendant
incurred merger related costs and other unusual charges of $844.9 million
($589.8 million, after-tax). Accordingly, the after-tax amount of such
charges will be included as a reduction to retained earnings coincident with
the merger.
F-19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of a corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. A Delaware
corporation may indemnify directors, officers, employees and other agents of
such corporation in an action by or in the right of a corporation under the
same conditions, except that no indemnification is permitted without judicial
approval if the person to be indemnified is permitted without judicial
approval if the person to be indemnified has been adjudged to be liable to
the corporation. Where a director, officer, employee or agent of the
corporation is successful on the merits or otherwise in defense of any claim,
issue or matter therein, the corporation must indemnify such person against
the expense (including attorneys' fees) which he or she actually and
reasonably incurred in connection therewith.
The Cendant Bylaws contain provisions that provide for indemnification of
officers and directors and their heirs and distributees to the full extent
permitted by, and in the manner permissible under, the DGCL.
As permitted by Section 102(b)(7) of the DGCL, the Cendant Certificate
contains a provision eliminating the personal liability of a director to the
registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, subject to certain exceptions.
Cendant maintains, at its expense, a policy of insurance which insures its
directors and officers, subject to certain exclusions and deductions as are
usual in such insurance policies, against certain liabilities which may be
incurred in those capacities.
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULE
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------------
<S> <C>
4.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant's Post-Effective Amendment No. 2 on Form S-8 to the Registration Statement on Form S-4, No.
333-34517-2, dated December 17, 1997).
4.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 4.2 to the Registrant's
Post-Effective Amendment No. 2 on Form S-8 to the Registration Statement on Form S-4, No. 33-34517-2, dated
December 17, 1997).
4.3 Form of Certificate of $3.125 Cumulative Convertible Preferred Stock, Series A, of the Registrant to be in
effect as of the effective time of the Proposed Cendant Merger.*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the shares being issued
(including consent).*
8.1 Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP.*
8.2 Tax opinion of American Bankers' counsel.*
II-1
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------------
12.1 Statement Re: Computation of Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends.
23.1 Consent of Deloitte & Touche LLP related to the financial statements of Cendant Corporation.
23.2 Consent of Ernst & Young LLP relating to the financial statements of CUC International Inc.
23.3 Consent of KPMG Peat Marwick LLP relating to the financial statements of PHH Corporation.
23.4 Consent of Deloitte & Touche LLP relating to the financial statements of Sierra On-Line, Inc.
23.5 Consent of Deloitte & Touche LLP related to the financial statements of Avis Rent A Car, Inc.
23.6 Consent of KPMG Peat Marwick LLP relating to the financial statements of Davidson
& Associates, Inc.
23.7 Consent of Price Waterhouse LLP relating to the financial statements of Ideon Group, Inc.
23.8 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1 and
Exhibit 8.1).*
23.9 Consent of American Bankers' counsel (included in Exhibit 8.2).*
24 Powers of Attorney (included as part of the signature page of this Registration Statement).
</TABLE>
- ------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purpose of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned Registrant hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Parsippany, State of New Jersey on February 20, 1998.
CENDANT CORPORATION
By: /s/ James E. Buckman
-------------------------------
Name: James E. Buckman
Title: Senior Executive Vice
President and
General Counsel
POWER OF ATTORNEY
Know all those by these presents, that each person whose signature appears
below constitutes and appoints each of Stephen P. Holmes, James E. Buckman
and Eric J. Bock or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, in connection with the Registrant's registration statement on
Form S-4 under the Securities Act of 1933, as amended, including, without
limiting the generality of the foregoing, to sign the registration statement
in the name and on behalf of the registrant or on behalf of the undersigned
as a director or officer of the Registrant, and any and all amendments or
supplements to the Registration Statement, including any all stickers and
post-effective amendments to the Registration Statement, and to sign any and
all additional registration statements relating to the same offering of
securities as the Registration Statement that are filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents, or their
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and February 20, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------- ------------------------------------------------------------
<S> <C>
/s/ Walter A. Forbes Chairman of the Board and Director
-------------------------------
Walter A. Forbes
/s/ Henry R. Silverman President, Chief Executive Officer and Director
-------------------------------
Henry R. Silverman
/s/ Michael P. Monaco Vice Chairman, Chief Financial Officer and Director
-------------------------------
Michael P. Monaco
/s/ Scott E. Forbes Senior Vice President--Finance (Chief Accounting Officer)
-------------------------------
Scott E. Forbes
/s/ Robert D. Kunisch Vice Chairman and Director
-------------------------------
Robert D. Kunisch
/s/ Christopher K. McLeod Vice Chairman and Director
-------------------------------
Christopher K. McLeod
/s/ E. Kirk Shelton Vice Chairman and Director
-------------------------------
E. Kirk Shelton
/s/ Robert T. Tucker Vice Chairman, Secretary and Director
-------------------------------
Robert T. Tucker
/s/ Stephen P. Holmes Vice Chairman and Director
-------------------------------
Stephen P. Holmes
II-4
<PAGE>
SIGNATURE TITLE
- ------------------------------- -------------------------------------------------------------
/s/ James E. Buckman Senior Executive Vice President, General Counsel and Director
-------------------------------
James E. Buckman
/s/ Bartlett Burnap Director
-------------------------------
Bartlett Burnap
Director
-------------------------------
Leonard S. Coleman
Director
-------------------------------
T. Barnes Donnelley
/s/ Martin L. Edelman Director
-------------------------------
Martin L. Edelman
/s/ Frederick D. Green Director
-------------------------------
Frederick D. Green
Director
-------------------------------
Stephen A. Greyser
/s/ Dr. Carole G. Hankin Director
-------------------------------
Dr. Carole G. Hankin
/s/ Rt. Hon. Brian Mulroney Director
-------------------------------
Rt. Hon. Brian Mulroney
/s/ Robert E. Nederlander Director
-------------------------------
Robert E. Nederlander
Director
-------------------------------
Burton C. Perfit
Director
-------------------------------
Anthony G. Petrello
Director
-------------------------------
Robert W. Pittman
/s/ Robert P. Rittereiser Director
-------------------------------
Robert P. Rittereiser
/s/ E. John Rosenwald, Jr. Director
-------------------------------
E. John Rosenwald, Jr.
/s/ Stanley M. Rumbough, Jr. Director
-------------------------------
Stanley M. Rumbough, Jr.
/s/ Leonard Schutzman Director
-------------------------------
Leonard Schutzman
Director
-------------------------------
Robert F. Smith
/s/ John D. Snodgrass Director
-------------------------------
John D. Snodgrass
Director
-------------------------------
Craig R. Stapleton
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------
<S> <C>
4.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 4.1 to the Registrant's Post-Effective Amendment No. 2 on Form S-8 to the
Registration Statement on Form S-4, No. 333-34517-2, dated December 17, 1997).
4.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 4.2
to the Registrant's Post-Effective Amendment No. 2 on Form S-8 to the Registration
Statement on Form S-4, No. 333-34517-2, dated December 17, 1997).
4.3 Form of Certificate of $3.125 Cumulative Convertible Preferred Stock, Series A, of the
Registrant to be in effect as of the effective time of the Proposed Cendant Merger.*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the shares
being issued (including consent).*
8.1 Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP.*
8.2 Tax opinion of American Bankers' counsel.*
12.1 Statement Re: Computation of Consolidated Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends.
23.1 Consent of Deloitte & Touche LLP related to the financial statements of Cendant
Corporation.
23.2 Consent of Ernst & Young LLP relating to the financial statements of CUC International
Inc.
23.3 Consent of KPMG Peat Marwick LLP relating to the financial statements of PHH Corporation.
23.4 Consent of Deloitte & Touche LLP relating to the financial statements of Sierra On-Line,
Inc.
23.5 Consent of Deloitte & Touche LLP related to the financial statements of Avis Rent A Car,
Inc.
23.6 Consent of KPMG Peat Marwick LLP relating to the financial statements of Davidson &
Associates, Inc.
23.7 Consent of Price Waterhouse LLP relating to the financial statements of Ideon Group, Inc.
23.8 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1 and Exhibit
8.1).*
23.9 Consent of American Bankers' counsel (included in Exhibit 8.2).*
24 Powers of Attorney (included as part of the signature page of this Registration
Statement).
</TABLE>
- ------------
* To be filed by amendment.
<PAGE>
Exhibit 12.1
CENDANT CORPORATION
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividend
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL --------------------------
------------------------------------------------------- PRIOR TO THE GIVING EFFECT
FOR THE YEAR ENDED PROPOSED TO THE
------------------------------------------------------- CENDANT MERGER CENDANT MERGER
1992 1993 1994 1995 1996 1996 1996
---------- --------- --------- ---------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes,
and extraordinary loss......... $236,949 $365,930 $464,332 $503,332 $ 713,670 $ 797,003 $ 784,165
Plus: Fixed charges............. 239,343 217,431 238,610 295,214 345,421 370,515 471,225
Less: Capitalized interest...... -- (440) (246) -- (560) (560) (560)
Less: Preferred stock dividend.. -- -- -- -- -- -- (6,875)
---------- --------- ------- -------- ------------ ------------ ------------
Earnings available to cover
fixed charges and preferred
stock dividends................ $ 476,292 $582,921 $702,696 $798,546 $1,058,531 $1,166,958 $1,247,955
========== ========= ======== ========= ============ ============ ===============
Fixed charges (1):
Interest including amortization
of deferred loan costs......... $225,590 $198,847 $219,815 $273,174 $ 317,127 339,892 $ 430,671
Capitalized interest............ -- 440 246 -- 560 560 560
Interest portion of rental
payment........................ 13,753 18,144 18,549 22,040 27,734 30,063 33,119
Preferred stock dividend........ -- -- -- -- -- -- 6,875
---------- ---------- -------- -------- ------------ ------------ ---------------
Total combined fixed
charges and preferred
stock dividend............ $239,343 $217,431 $238,610 $295,214 $ 345,421 $ 370,515 $ 471,225
========== ========= ======== ========= ============ ========== ===============
Ratio of earnings to combined
fixed charges and preferred
stock dividend (1)............. 1.99x 2.68x 2.94x 2.70x 3.06x 3.15x 2.65x
========== ========= ========= ======== ============ ========== ===============
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------ --------------
GIVING EFFECT
TO THE
CENDANT MERGER
--------------
NINE MONTHS ENDED
SEPTEMBER 30, 1997
----------------------------
<S> <C> <C>
Income before income taxes,
and extraordinary loss......... $ 747,230 $ 758,675
Plus: Fixed charges............. 300,697 374,063
Less: Capitalized interest...... -- --
Less: Preferred stock dividend.. -- (5,156)
------------ ------------
Earnings available to cover
fixed charges and preferred
stock dividends................ $1,047,927 $1,127,582
============= ============
Fixed charges (1):
Interest including amortization
of deferred loan costs......... $ 277,184 $ 341,356
Capitalized interest............ -- --
Interest portion of rental
payment........................ 23,513 27,551
Preferred stock dividend........ -- 5,156
------------ ------------
Total combined fixed
charges and preferred
stock dividend............ $ 300,697 $ 374,063
============= ============
Ratio of earnings to combined
fixed charges and preferred
stock dividend (1)............. 3.48x 3.01x
============= ============
</TABLE>
(1) The ratio of earnings to combined fixed charges and preferred stock
dividend is computed by dividing income before income taxes and
extraordinary items plus fixed charges, less capitalized interest by
combined fixed charges and preferred stock dividends. Fixed charges consist
of interest expense on all indebtedness (including amortization of deferred
financing costs) and the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one-third of operating
lease rentals). Preferred stock dividends represents dividends at the
annual rate of 3.125% per share of Cendant Series A Preferred Stock.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Cendant Corporation on Form S-4 of our report dated December 17, 1997,
appearing in the Current Report on Form 8-K of Cendant Corporation filed on
January 29, 1998, and to the reference to us under the heading "Experts" in
the Prospectus, which is a part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 19, 1998
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 10, 1997 (with respect to the consolidated
financial statements of CUC International Inc.), included in the Current
Report on Form 8-K, dated January 29, 1998, and incorporated by reference
in the Proxy Statement filed by Cendant Corporation (formerly "CUC
International Inc."), in connection with its offer to purchase 23,501,260
shares of common stock of American Bankers Insurance Group, Inc., that is
made a part of Cendant's Registration Statement (Form S-4).
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Stamford, Connecticut
February 17, 1998
<PAGE>
EXHIBIT 23.3
The Board of Directors
PHH Corporation:
We consent to the incorporation by reference in the Registration Statement of
Cendant Corporation on Form S-4 of our report dated April 30, 1997, with
respect to the consolidated balance sheets of PHH Corporation and subsidiaries
(the "Company") at December 31, 1996 and January 31, 1996 and the related
consolidated statements of income, stockholders' equity, and cash flows for
the year ended December 31, 1996 and each of the years in the two year period
ended January 31, 1996, which report appears in the Form 8-K of Cendant
Corporation dated January 29, 1998, incorporated by reference in the
Registration Statement. We also consent to the reference to our firm under
the heading "Experts" in the Registration Statement.
Our report contains an explanatory paragraph that states that the Company
adopted the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights," in the year ended January 31, 1996.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Baltimore, Maryland
February 18, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Cendant Corporation on Form S-4 of our report dated June 24, 1996,
appearing in the Current Report on Form 8-K of Cendant Corporation filed on
January 29, 1998, and to the reference to us under the heading "Experts" in
the Prospectus, which is a part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
February 17, 1998
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Cendant Corporation on Form S-4 of our report dated May 12, 1997,
(August 20, 1997 as to Note 15), appearing in the Current Report on
Form 8-K of Cendant Corporation filed on February 6, 1998, and to the
reference to us under the heading "Experts" in the Prospectus, which is
a part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
February 19, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Cendant Corporation:
We consent to the use of our report incorporated by reference in the
Registration Statement of Cendant Corporation on Form S-4 relating to the
proposed merger of American Bankers Insurance Group, Inc. with and into
a direct wholly owned subsidiary of Cendant Corporation, with respect to
the consolidated balance sheet of Davidson & Associates, Inc. and
subsidiaries as of December 31, 1995 and the related consolidated
statements of earnings, shareholders' equity, and cash flows and related
schedule for each of the years in the two-year period ended December 31,
1995, and to the reference to our firm under the heading "Experts" in the
prospectus. Our report appears in the Current Report on Form 8-K of
Cendant Corporation dated January 29, 1998.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Long Beach, California
February 17, 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Cendant
Corporation of our report dated February 2, 1996, relating to the
consolidated financial statements of Ideon Group, Inc., which appears in
the Current Report on Form 8-K of Cendant Corporation dated January 29, 1998.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
February 16, 1998
