<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 2000
REGISTRATION NO. 333-30314
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CENDANT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-0918165
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
------------------------
9 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 413-1800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JAMES E. BUCKMAN, ESQ.
VICE CHAIRMAN AND
GENERAL COUNSEL
CENDANT CORPORATION
9 WEST 57(TH) STREET
NEW YORK, NEW YORK 10019
(212) 413-1800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
VINCENT J. PISANO, ESQ. ERIC J. BOCK, ESQ. ROBERT EVANS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & SENIOR VICE PRESIDENT, LEGAL SHEARMAN & STERLING
FLOM LLP CENDANT CORPORATION 599 LEXINGTON AVENUE
FOUR TIMES SQUARE 9 WEST 57(TH) STREET NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10019 (212) 848-4000
(212) 735-3000 (212) 413-1800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plan, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, 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(c)
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. / /
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, check the following box. / /
----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Move.com Common Stock, par value $.01 per share $150,000,000 $38,500 (2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933.
(2) Previously paid.
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION. DATED , 2000.
Shares
LOGO
CENDANT CORPORATION
Move.com Common Stock
------------------
This is an initial public offering of shares of a new series of common stock
of Cendant Corporation called Move.com stock. We intend these shares to reflect
the performance of Move.com Group, our online relocation, real estate and
home-related services business.
Prior to this offering, there has been no public market for the Move.com
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Cendant intends to list the
Move.com stock on the New York Stock Exchange under the symbol "MOV."
SEE RISK FACTORS ON PAGE 14 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE
BUYING SHARES OF MOVE.COM STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------------- ----------------------
<S> <C> <C>
Initial public offering price........................ $ $
Underwriting discount................................ $ $
Proceeds, before expenses, to Move.com Group of
Cendant............................................ $ $
</TABLE>
To the extent that the underwriters sell more than shares of Move.com
stock, the underwriters have the option to purchase up to an additional
shares from Cendant at the initial offering price less the underwriting
discount.
------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
----------------
Prospectus dated , 2000.
<PAGE>
[ARTWORK TO COME]
[GRAPHIC ILLUSTRATING WEB SITE FUNCTIONALITY]
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS KEY ASPECTS OF THE OFFERING OF MOVE.COM STOCK. THIS
SUMMARY IS NOT A SUBSTITUTE FOR THE MORE DETAILED INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. FOR A MORE COMPREHENSIVE
DESCRIPTION OF THE OFFERING OF MOVE.COM STOCK, YOU SHOULD READ THE ENTIRE
PROSPECTUS.
CENDANT CORPORATION
Cendant Corporation is one of the foremost providers of real estate, travel
and direct marketing-related consumer and business services in the world. From a
financial reporting standpoint, we have separated our businesses into two
groups: Move.com Group, our online relocation, real estate and home-related
products and services business, and Cendant Group, which includes the rest of
our businesses and a retained interest in Move.com Group. This prospectus only
relates to the offering of Move.com stock, which is intended to reflect the
performance of Move.com Group, and does not relate to CD stock, our other series
of common stock, which is intended to reflect the performance of Cendant Group.
CENDANT GROUP
Cendant Group includes:
- all of the businesses in our four principal divisions: real estate
services, travel services, direct marketing-related services and other
consumer and business services, except for the businesses that comprise
Move.com Group; and
- a retained interest in Move.com Group, which is currently 87%, but which
will decline to % following this offering and which will further decline
to reflect any future issuances of Move.com stock.
Cendant Group's real estate services division includes:
- franchise real estate brokerage businesses through CENTURY
21(-Registered Trademark-), COLDWELL BANKER(-Registered Trademark-), and
ERA(-Registered Trademark-), three of the five largest residential real
estate franchise systems in the world;
- mortgage products and services through Cendant Mortgage Corporation the
sixth-largest retail mortgage originator in the United States with
approximately $26 billion in mortgage originations in 1999; and
- employee relocation services through Cendant Mobility Corporation, the
largest provider of corporate relocation services in the world.
MOVE.COM GROUP
We are offering a class of common stock of Cendant intended to track the
performance of the Move.com Group, which consists of those businesses, assets
and liabilities of Cendant that are dedicated to providing online relocation,
real estate and home-related products and services. Move.com Group does not
represent a separately incorporated entity. The activities of the Move.com Group
commenced with Cendant's acquisition of Rent Net in February 1996, although
prior to that time and until July 31, 1999, Cendant operated portions of the
move.com network.
Move.com Group operates a popular network of Web sites, which offer a wide
selection of quality relocation, real estate and home-related products and
services. These Web sites include move.com, launched in January 2000, rent.net,
century21.com, coldwellbanker.com, era.com, seniorhousing.net,
corporatehousing.net, selfstorage.net and welcomewagon.com. Move.com Group seeks
to improve the often stressful and demanding moving experience by providing a
one-source, "friend-in-need" solution
3
<PAGE>
before, during and after the move. Move.com Group strives to establish strong,
long-term relationships with consumers by offering quality products and services
for each phase of the moving process from finding a home to improving an
existing home. Move.com Group also provides a broad-based distribution platform
for businesses with which it has a contractual relationship, who are trying to
reach a highly targeted and valued group of consumers at the most opportune
times. Move.com Group currently generates the following types of revenue from
these businesses: listing subscription fees, advertising and sponsorship fees,
e-commerce transaction fees and Web site management fees.
Move.com Group seeks to build long-term relationships with consumers by
providing them access to:
- relocation services, guides and planning tools;
- neighborhood information;
- up-to-date listings of homes for sale across the United States, Canada and
in 32 other countries from Cendant's CENTURY 21(-Registered Trademark-),
COLDWELL BANKER(-Registered Trademark-) and ERA(-Registered Trademark-)
brands;
- listings of apartments in over 3,000 cities in all 50 states and Canada
through rent.net, the most visited real estate rentals Web site as
measured by the number of unique visitors in December 1999, according to
Media Metrix;
- listings of self storage, temporary/corporate housing and senior housing
facilities across the United States and Canada;
- mortgages and refinancings financed by Cendant Mortgage;
- disconnection and connection services through National Home Connections;
- advertising and discounts from local merchants throughout the United
States and Canada through Cendant's Welcome Wagon; and
- home-related products and services in categories such as home improvement,
maintenance and furnishings from quality-oriented business partners.
Move.com Group develops relationships with quality-oriented businesses by
providing them access to a highly targeted and valued group of consumers across
multiple distribution/sales channels including:
- a network of high-traffic Web sites;
- CENTURY 21(-Registered Trademark-), COLDWELL
BANKER(-Registered Trademark-) and ERA(-Registered Trademark-) real estate
agents and brokers operating through offices across the United States and
Canada;
- over one million direct mail solicitations delivered annually by Welcome
Wagon; and
- toll-free customer service center of National Home Connections.
Move.com Group's assets include move.com and the businesses of Rent
Net, Inc. and National Home Connections, LLC. Agreements with Cendant give
Move.com Group access to home listings from the CENTURY
21(-Registered Trademark-), COLDWELL BANKER(-Registered Trademark-) and
ERA(-Registered Trademark-) real estate franchise systems, discount offers from
Welcome Wagon's local merchant customers, mortgage products and services of
Cendant Mortgage and a variety of relocation services and information from
Cendant Mobility. Although century21.com, coldwellbanker.com, era.com and
welcomewagon.com Web sites are part of the move.com network, they are not owned
by Move.com Group. Such Web sites are operated and maintained by Move.com Group
pursuant to agreements with Cendant Group, as owner of such Web sites.
4
<PAGE>
MOVE.COM GROUP'S STRATEGY
Move.com Group intends to achieve its objective of becoming the leading
provider of quality online relocation, real estate and home-related products and
services through the following strategic initiatives:
- develop brand awareness by aggressively advertising Move.com Group's
services online and offline, as well as through national and regional
promotions by Cendant Group's leading real estate franchise systems and
Welcome Wagon;
- increase product and service offerings;
- develop strong relationships with consumers by providing personalized,
targeted content and services;
- expand and enhance relationships with real estate professionals and
quality-oriented businesses; and
- pursue strategic alliances and acquisitions, including international
opportunities.
Move.com Group has a history of operating losses and expects to incur losses
for the next several years. An investment in Move.com Group constitutes an
investment in a class of common stock of Cendant and is subject therefore not
only to the risks involving Move.com Group, but also to those involving Cendant.
See Risk Factors commencing on page 14 for a fuller description of the risks of
this offering.
RECENT EVENTS
LIBERTY DIGITAL INVESTMENT. As provided in a purchase agreement dated
March 22, 2000, on March 31, 2000, Liberty Digital, Inc. purchased 1,598,030
shares of Move.com stock for $31.29 per share for consideration consisting of
$10 million in cash and 813,215 shares of Liberty Digital Class A Common Stock.
Liberty Digital and Cendant also agreed to use their good faith efforts to
negotiate and enter into mutually acceptable agreements relating to the
development of real estate-related programming for Liberty Digital's interactive
home channel based on Move.com Group's Web content.
NRT INVESTMENT. On March 28, 2000, NRT Incorporated and Cendant entered into
a purchase agreement in which NRT agreed to purchase 319,591 shares of Move.com
stock for $31.29 per share or approximately $10 million in cash. The sale is
subject to customary closing conditions, but is expected to close on or before
April 15, 2000. Cendant owns preferred stock of NRT which is convertible into up
to approximately 50% of NRT's common stock.
CHATHAM STREET HOLDINGS, LLC INVESTMENT. On March 31, 2000, Chatham Street
Holdings, LLC exercised a contractual right to purchase 1,561,000 shares of
Move.com stock for $16.02 per share or approximately $25 million in cash.
In March 2000, Cendant made a $25 million investment in WMC Finance Co., an
online provider of sub-prime mortgages, and an affiliate of Chatham. As part of
the investment, WMC agreed to enter into a sponsorship agreement in which
Move.com will coordinate technology with, and direct appropriate broker and
consumer inquiries to WMC's Internet Web sites. It is anticipated that Move.com
will offer a sub-prime mortgage product through WMC by the end of the second
quarter of 2000.
Move.com Group's principal executive offices are located at 795 Folsom
Street, San Francisco, California 94107. Move.com Group's telephone number is
(415) 796-0000. The content of the move.com network is not part of this
prospectus. Cendant's principal executive offices are located at 9 West 57th
Street, New York, New York 10019. Our telephone number is (212) 413-1800.
5
<PAGE>
MOVE.COM STOCK
BASIC INVESTMENT CHARACTERISTICS
Move.com stock is a type of stock sometimes referred to as a tracking stock,
which is a separate series of common stock that represents an ownership interest
in the corporation that issues it, but is designed to reflect, or track, the
performance of a specified group of the corporation's assets or businesses
instead of the overall economic performance of the corporation. Move.com stock
is intended to track the economic performance of Move.com Group by incorporating
liquidation rights, redemption, exchange and dividend terms, modeled after other
publicly traded tracking stocks, that attempt to provide economic rights in the
businesses they track that are similar to the rights that common stock would
have if the "tracked business" were a separate corporation. The business and
assets tracked are not, however, those of a separate corporation and no transfer
of title or assumption of liabilities is made.
Although we intend Move.com stock to reflect the performance of Move.com
Group, Move.com stock is common stock of Cendant and holders of Move.com stock
will be subject to all of the risks associated with an investment in Cendant and
all of its businesses, assets and liabilities.
VOTING RIGHTS
Each share of Move.com stock will entitle the holder to one vote. Holders of
CD stock and Move.com stock will vote together as a single class, except on any
amendment to the charter that would increase or decrease the par value of the
shares of either class or alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely. Following
this offering, the holders of the Move.com stock will have a % voting interest
in Cendant. Each share will continue to have one vote per share following a
stock split, stock dividend or similar reclassification.
DIVIDENDS ON MOVE.COM STOCK
We currently intend to retain all of Move.com Group's earnings to finance
its operations, repay indebtedness and fund future growth. We do not expect to
pay any dividends on Move.com stock for the foreseeable future. The terms of the
Move.com stock prohibit the payment of dividends on Move.com stock in excess of
the amounts which would ordinarily be available for dividends if Move.com Group
were a separate corporation. If Move.com Group were a separate corporation, it
would currently be unable to pay dividends.
YOUR RIGHTS IF WE SELL ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF MOVE.COM GROUP
If we dispose of all or substantially all of the assets of Move.com Group
and the disposition is not an exempt disposition (as defined below), we would be
required to choose one of the following three alternatives:
<TABLE>
<S> <C>
- pay a dividend to holders of Move.com stock in an
amount equal to the proportionate interest of the
holders of Move.com stock in the net proceeds of the
disposition;
- redeem from holders of Move.com stock all outstanding
shares of Move.com stock in an amount equal to the
proportionate interest of the holders of Move.com
stock in the net proceeds of such disposition; or
- in exchange for outstanding Move.com stock, issue CD
stock (or, if we create additional series of common
stock in the future designed to track any of our other
businesses, shares of any such series) at a 10%
premium to the market value of the Move.com stock
being exchanged. The fair market value of any stock
issued would be determined by the Board of Directors
of Cendant with the advice of its financial advisors.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
An exempt disposition means any of the following:
- a disposition in connection with the liquidation,
dissolution or winding-up of Cendant and the
distribution of assets to stockholders,
- a disposition to any person or entity controlled by
Cendant, as determined by the board of directors of
Cendant in its sole discretion,
- a disposition by either Move.com Group or Cendant
Group, for which Cendant receives consideration
primarily consisting of equity securities of an entity
which is primarily engaged or proposes to engage
primarily in one or more businesses similar or
complementary to businesses conducted by such Group
prior to the disposition, as determined by the board
of directors of Cendant in its sole discretion,
- a dividend, out of Move.com Group's assets, to holders
of Move.com stock and a transfer of a corresponding
amount of Move.com Group's assets to Cendant Group in
respect of its retained interest in Move.com Group,
- a dividend, out of Cendant Group's assets, to holders
of CD stock and
- any other disposition, if (1) at the time of the
disposition there is only one class of common stock
outstanding, or (2) before the 30th trading day
following the disposition we have mailed a notice
stating that we are exercising our right to exchange
all of the outstanding shares of CD stock or Move.com
stock for newly issued shares of the other series of
common stock as contemplated under "Exchange of CD
stock or Move.com stock at Cendant's option."
</TABLE>
At any time within one year after completing a special dividend or partial
redemption referred to above, we will have the right to issue CD stock in
exchange for the remaining outstanding Move.com stock at a 10% premium to the
value of the Move.com stock being exchanged (based upon average market values
over a specified 20 trading day period before the exchange). Under existing
federal law, any such exchange would not be a taxable event for holders of
Move.com stock.
EXCHANGE OF CD STOCK OR MOVE.COM STOCK AT CENDANT'S OPTION
On and after the 18-month anniversary of this offering of Move.com stock, we
will have the right to issue CD stock in exchange for outstanding Move.com stock
at a premium. The premium will initially be 20% and will decline ratably each
month over the following 18 months to 15%. From and after the third anniversary
of this offering of Move.com stock, we will have the right, if outstanding
Move.com stock exceeds 40% but does not exceed 60% of total market
capitalization of the two classes of Cendant common stock, to issue either
series of common stock in exchange for the other without a premium. In the event
that Move.com stock exceeds 60% of total market capitalization, we will lose the
right to effect an exchange without a premium during such period.
Despite the exchange provisions outlined above, if we receive an opinion of
tax counsel to the effect that as a result of changes in tax law it is more
likely than not that either (1) we, our subsidiaries or affiliates, successors
or stockholders are, or will be, subject to tax upon the issuance of either of
the CD stock or the Move.com stock or (2) either the CD stock or the Move.com
stock is not, or will not be, treated solely as our stock, we will have the
right to issue shares of CD stock in exchange for outstanding shares of Move.com
stock at a 10% premium, regardless of when such adverse tax law changes take
place.
For purposes of determining the exchange ratio, we will value CD stock and
Move.com stock based on their average market values over the 20 consecutive
trading day period ending on, and including, the fifth trading day immediately
preceding the date on which we mail the notice of exchange to holders of the
outstanding shares being exchanged.
7
<PAGE>
OUR RIGHT TO ISSUE SHARES OF COMMON STOCK OF A SUBSIDIARY OF CENDANT IN EXCHANGE
FOR SHARES
OF MOVE.COM STOCK
We will have the right, at any time, to issue shares of stock of a
subsidiary of Cendant in exchange for Move.com stock if all of the assets and
liabilities of Move.com Group are held by or transferred to that subsidiary. If
we exercise this right, holders of Move.com stock would have the legal rights of
owners of the subsidiary and would cease to be stockholders of Cendant.
LIQUIDATION
Upon liquidation of Cendant, holders of CD stock and Move.com stock will be
entitled to receive the net assets of Cendant, if any, remaining for
distribution to stockholders after payment or provision for all liabilities of
Cendant and payment of the liquidation preference payable to any holders of
preferred stock. Amounts due upon liquidation in respect of shares of CD stock
and Move.com stock will be distributed pro rata in accordance with the average
market values of CD stock and Move.com stock over a specified 20 trading day
period prior to the liquidation.
8
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Move.com stock offered shares
Cendant Group's retained interest in Move.com
stock after this offering and the
concurrent offering shares
Move.com stock to be outstanding after the
offering and the concurrent offering shares(1)
Use of proceeds The net proceeds from this offering and the
concurrent offering, assuming all shares
offered are purchased, will be approximately
$ million, all of which will be
allocated to Move.com Group. We will also
allocate to Move.com Group the net proceeds
from any exercise by the underwriters of
their over-allotment option. Move.com Group
intends to use the net proceeds to provide
working capital to increase marketing
expenditures, develop new products and expand
the move.com network, and for general
corporate purposes. In addition, Move.com
Group may use a portion of the net proceeds
to acquire or invest in complementary
businesses, technologies, services or
products to be contained in the Move.com
Group. See "Use of Proceeds."
Proposed New York Stock Exchange symbol "MOV"
</TABLE>
Unless otherwise indicated, all information in this prospectus assumes no
underwriters' exercise of their option. The net proceeds from any exercise of
the underwriters' option will be allocated to Move.com Group.
The shares of Move.com stock to be outstanding after the offering exclude
shares of Move.com stock that have been reserved for issuance under
Move.com Group's stock option plan and other outstanding options. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Move.com Group," "Move.com Group Management--Move.com Group Stock
Option Plan," "Description of Capital Stock" and "Underwriting."
- ------------------------
(1) Assumes that all shares being offered in the concurrent offering are
purchased.
CONCURRENT OFFERING
We are concurrently offering, by a separate prospectus and not through
underwriter, up to shares of Move.com stock to brokers and agents of
CENTURY 21(-Registered Trademark-), COLDWELL BANKER(-Registered Trademark-) and
ERA(-Registered Trademark-), other businesses who we have contracted with, and
to Move.com Group and Cendant Group employees. The purchase price for those
shares will be the initial public offering price indicated on the cover of this
prospectus. Shares sold to such persons will be subject to lockup agreements
which will expire 180 days from the date of sale.
9
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
OF CENDANT CORPORATION
The following table presents summary historical consolidated data for
Cendant Corporation as of and for the years ended December 31, 1999, 1998, 1997,
1996 and 1995. This information was derived from the consolidated financial
statements of Cendant Corporation and should be read in conjunction with the
consolidated financial statements and the notes to those statements for Cendant
Corporation which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net revenues $ 5,402 $ 5,284 $ 4,240 $ 3,238 $2,616
------- ------- ------- ------- ------
Operating expense 1,795 1,870 1,322 1,183 1,025
Marketing and reservation expense 1,017 1,158 1,032 911 744
General and administrative expense 671 666 636 341 283
Depreciation and amortization expense 371 323 238 146 100
Other charges 3,032(1) 838(2) 704(3) 109(4) 97(5)
Interest expense, net 199 114 51 14 17
Net gain on dispositions of businesses (1,109) -- -- -- --
Provision (benefit) for income taxes (406) 104 191 220 143
Minority interest, net of tax 61 51 -- -- --
------- ------- ------- ------- ------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (229) $ 160 $ 66 $ 314 $ 207
======= ======= ======= ======= ======
INCOME (LOSS) FROM CONTINUING OPERATIONS PER SHARE:
Basic $ (0.30) $ 0.19 $ 0.08 $ 0.41 $ 0.30
Diluted (0.30) 0.18 0.08 0.39 0.28
FINANCIAL POSITION
Total assets $15,149 $20,217 $14,073 $12,763 $8,520
Long-term debt 2,445 3,363 1,246 781 336
Assets under management and mortgage programs 2,726 7,512 6,444 5,729 4,956
Debt under management and mortgage programs 2,314 6,897 5,603 5,090 4,428
Mandatorily redeemable preferred securities issued
by subsidiary holding solely senior debentures
issued by the Company 1,478 1,472 -- -- --
Shareholders' equity 2,206 4,836 3,921 3,956 1,898
OTHER INFORMATION(6)
Cash flows provided by (used in):
Operating activities $ 3,032 $ 808 $ 1,213 $ 1,493 $1,144
Investing activities 1,860 (4,352) (2,329) (3,091) (1,789)
Financing activities (4,788) 4,690 901 1,781 661
</TABLE>
- ------------------------
(1) Represents charges of (i) $2,894 million ($1,839 million, after tax or $2.45
per diluted share) associated with the preliminary agreement to settle the
principal shareholder securities class action suit, (ii) $7 million
($4 million, after tax or $0.01 per diluted share) in connection with the
termination of the proposed acquisition of RAC Motoring Services,
(iii) $21 million ($13 million, after tax or $0.02 per diluted share) of
investigation-related costs, (iv) $87 million ($49 million, after tax or
$0.07 per diluted share) comprised principally of an $85 million
($48 million, after tax or $0.06 per diluted share) charge incurred in
conjunction with the Netmarket Group, Inc. transaction and (v) $23 million
($15 million, after tax or $0.02 per diluted share) of additional charges to
fund an irrevocable contribution to an independent technology trust
responsible for completing the transition of the Company's lodging
franchisees to a Company sponsored property management system.
(2) Represents charges of (i) $351 million ($228 million, after tax or $0.26 per
diluted share) associated with the agreement to settle the PRIDES securities
class action suit, (ii) $433 million ($282 million, after tax or $0.32 per
diluted share) for the costs of
10
<PAGE>
terminating the proposed acquisitions of American Bankers Insurance
Group, Inc. and Providian Auto and Home Insurance Company, and
(iii) $121 million ($79 million, after tax or $0.09 per diluted share) for
investigation-related costs, including incremental financing costs, and
executive terminations. Such charges are partially offset by a net credit of
$67 million ($44 million, after tax or $0.05 per diluted share) associated
with changes to the estimate of previously recorded merger-related costs and
other unusual charges.
(3) Represents merger-related costs and other unusual charges of $704 million
($505 million, after tax or $0.58 per diluted share) primarily associated
with the merger of HFS Incorporated and CUC International Inc. and the
merger with PHH Corporation ("PHH") in April 1997.
(4) Represents merger-related costs and other unusual charges of $109 million
($70 million, after tax or $0.09 per diluted share) substantially related to
the Company's August 1996 merger with Ideon Group, Inc. ("Ideon").
(5) Represents a provision of $97 million ($62 million after tax or $0.08 per
diluted share) for costs related to the abandonment of certain Ideon
development efforts and the restructuring of certain Ideon operations.
(6) There were no dividends declared during the periods presented above except
for PHH and Ideon, which declared and paid dividends to their shareholders
prior to their respective mergers with the Company.
11
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
FOR MOVE.COM GROUP
In order to prepare separate financial statements for Move.com Group,
Cendant Corporation has allocated all of its consolidated assets, liabilities,
revenue, expenses and cash flow between Cendant Group and Move.com Group. Thus,
the financial statements for Cendant will include separate financial data for
Move.com Group. Cendant will provide separate financial statements and
management's discussion and analysis for Move.com Group. The actual assets and
liabilities of Cendant will not be transferred and the interests of Cendant's
creditors will not be affected.
Cendant allocates a portion of the cost of various corporate, general and
administrative services and shared services to the Move.com Group generally
based on utilization. Where determination based on utilization is impracticable,
overhead typically is allocated on a percentage of revenue basis. A portion of
the income tax benefit and balance sheet accounts are based on allocations from
the Cendant Group and are computed as if the Move.com Group reported its income
taxes on a stand alone basis. For a more complete description of how we will
allocate cash between Cendant Group and Move.com Group, see "Cash Management and
Allocation Policies."
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<PAGE>
The following table presents summary historical combined data for Move.com
Group as of and for the years ended December 31, 1999, 1998 and 1997 and as of
and for the period from February 8, 1996 (the Rent Net acquisition date) through
December 31, 1996. This information was derived from the combined financial
statements of Move.com Group and should be read in conjunction with the
consolidated financial statements of Cendant which are included elsewhere in
this prospectus. After the issuance of Move.com stock, Cendant will report
earnings per share data using the two class method.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 8,
1996
(THE RENT NET
AS OF OR FOR THE ACQUISITION
YEAR ENDED DECEMBER 31,(1) DATE) THROUGH
------------------------------ DECEMBER 31,
1999 1998 1997 1996(1)
-------- -------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $ 17,647 $9,674 $5,670 $ 1,081
Cost of revenue 3,149 1,664 1,091 632
-------- ------ ------ -------
Gross profit 14,498 8,010 4,579 449
Operating expenses:
Product development 3,940 193 -- 14
Selling and marketing 16,020 5,484 3,906 2,335
General and administrative 16,751 1,922 1,227 604
Depreciation and amortization 2,217 1,826 934 604
-------- ------ ------ -------
Loss before income tax benefit (24,430) (1,415) (1,488) (3,108)
-------- ------ ------ -------
Income tax benefit 9,976 572 603 1,266
-------- ------ ------ -------
Net loss $(14,454) $ (843) $ (885) $(1,842)
======== ====== ====== =======
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,009 $ -- $ -- $ --
Total assets 22,000 8,614 7,417 3,559
Total liabilities 20,975 4,379 2,181 878
Group equity 1,025 4,235 5,236 2,681
OTHER DATA:
Net cash provided by (used in) operating activities $ (4,435) $1,279 $ 428 $(1,215)
Net cash used in investing activities (5,070) (1,121) (3,868) (242)
Net cash provided by (used in) financing activities 10,514 (158) 3,440 1,457
Capital expenditures (2,482) (881) (662) (242)
</TABLE>
- ------------------------------
(1) Earnings per share for the Move.com Group is not presented because it is not
a stand-alone entity, and as a result, the presentation of earnings per
share is not applicable. After the issuance of Move.com stock, Cendant
intends to present earnings per share using the two-class method. Under this
method, an earnings allocation formula is used to determine earnings per
share for each class of common stock according to the participation rights
in undistributed earnings. Earnings per share for the Move.com Group will be
computed by dividing (a) the product of the earnings of Move.com Group
multiplied by the outstanding Move.com stock "fraction," by (b) the weighted
average number of shares of outstanding Move.com stock and dilutive Move.com
Group stock equivalents during the applicable period. The outstanding
Move.com Group "fraction" is a fraction, the numerator of which is the
number of shares of Move.com stock outstanding and the denominator of which
is the number of shares that, if issued, would represent 100% of the equity
in earnings or losses of Move.com Group. Basic and diluted earnings per
share will be presented for each class of stock.
13
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISK FACTORS DESCRIBED BELOW, AND THE OTHER INFORMATION IN THIS PROSPECTUS
AND THE INFORMATION IN THE DOCUMENTS INCORPORATED BY REFERENCE, BEFORE DECIDING
TO INVEST IN MOVE.COM STOCK. MOVE.COM GROUP'S BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED BY ANY OF THESE
RISKS. THE TRADING PRICE OF MOVE.COM STOCK COULD DECLINE DUE TO ANY OF THESE
RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATING TO MOVE.COM STOCK
HOLDERS OF MOVE.COM STOCK WILL NOT HAVE ANY LEGAL RIGHTS RELATING TO SPECIFIC
ASSETS OF CENDANT.
We cannot assure you that the market value of Move.com stock will reflect
the performance of Move.com Group as we intend. Even though we have allocated,
for financial reporting purposes, all of our consolidated assets, liabilities,
revenue, expenses and cash flow between Move.com Group and Cendant Group in
order to prepare the financial statements of Move.com Group, that allocation
will not change the legal title to any assets or responsibility for any
liabilities and will not affect the rights of any of our creditors. Holders of
CD stock and Move.com stock will not have any legal rights related to specific
assets of either Group, and, in any liquidation, will receive a share of the net
assets of Cendant based on the relative trading prices of CD stock and Move.com
stock rather than on any assessment of the actual value of Cendant Group or
Move.com Group. Holders of CD stock and Move.com stock will be common
stockholders of Cendant and, as such, will be subject to all of the risks
associated with an investment in Cendant and all of its businesses, assets and
liabilities, including the pending class action litigation.
THE VALUE OF MOVE.COM STOCK COULD DECREASE DUE TO THE PERFORMANCE OF THE CENDANT
GROUP.
Financial results of Cendant Group's businesses will affect Cendant's
consolidated results of operations, financial position and borrowing costs. This
could affect the results of operations, financial position or borrowing costs of
Move.com Group or the market price of Move.com stock. Since the CD stock and
Move.com stock are series of common stock of Cendant, investors may attribute
negative results for Cendant Group's businesses to Move.com Group and the price
of the Move.com stock may decline if there are negative perceptions relating to
Cendant Group's businesses.
In addition, net losses of Cendant Group's businesses, and any dividends or
distributions on, or repurchases of, CD stock or any preferred stock, may reduce
the assets of Cendant available to pay dividends on Move.com stock. For these
reasons, you should read the financial information for Move.com Group included
elsewhere in this prospectus together with financial information for Cendant
incorporated by reference into this prospectus.
HAVING TWO SERIES OF COMMON STOCK IS LIKELY TO CREATE CONFLICTS AND COULD RESULT
IN THE BOARD OF DIRECTORS OF CENDANT MAKING DECISIONS THAT ADVERSELY AFFECT
HOLDERS OF MOVE.COM STOCK.
Having two series of common stock could give rise to occasions when the
interests of holders of one series might conflict with the interests of holders
of the other series. In addition, due to the extensive relationships between
Cendant Group and Move.com Group, there will likely be inherent conflicts of
interest between the two Groups. Businesses in the Cendant Group have entered
into various agreements with businesses in the Move.com Group which can lead to
conflicts between the Groups relating to the services and products rendered.
Officers and directors of Cendant owe fiduciary duties to both classes of
stockholders. However, the fiduciary duties owed by such officers and directors
are to
14
<PAGE>
Cendant as a whole, and decisions deemed to be in the best interest of Cendant
as a whole may not be in the best interest of Move.com Group when considered on
its own. Examples include:
- decisions as to whether to allocate the proceeds of issuances of Move.com
stock to Cendant Group in respect of its retained interest in Move.com
Group, which would reduce its ownership but result in no proceeds
allocated to the benefit of the other holders of Move.com stock, or to the
equity of Move.com Group--which decisions would affect the amount of funds
available to each Group to fund its operational and cash requirements and
the cost of such funds;
- decisions as to how to allocate consideration received in connection with
a merger involving Cendant between holders of CD stock and Move.com stock,
which will be based on the Board of Director's determination as to the
relative fair market values of each of the securities and which would not
necessarily be based solely on the public trading price if the Board did
not deem that price to represent fair market value--which decisions could
be favorable or unfavorable to stockholders of either class depending on
how such proceeds are allocated;
- decisions as to whether and when to issue CD stock in exchange for
Move.com stock or Move.com stock in exchange for CD stock--which decisions
could be favorable or unfavorable to stockholders of either class
depending on their investment strategy and whether or not such issuance
requires the payment of a premium;
- decisions as to whether and when to approve dispositions of assets of
either Group--which decisions could be favorable or unfavorable to the
stockholders of either class depending on the amount and type of the
consideration received in such disposition, the holder's investment
strategy and the board of directors' determination to either pay a
dividend or redeem his or her shares or to issue shares of the other class
in exchange therefor;
- decisions as to how to allocate available cash between Cendant Group and
Move.com Group and decisions as to whether and how to make transfers of
funds from one Group to another--which decisions would affect the amount
of funds available to each Group to fund its operational and cash
requirements and the cost of such funds;
- decisions as to whether to pay or omit the payment of dividends on CD
stock or Move.com stock; and
- decisions as to whether and to what extent the two Groups compete with
each other and how corporate opportunities are allocated between the two
Groups--which decisions could be favorable or unfavorable to the
stockholders of either class depending on the effect of such competition
on the relevant Group and how the corporate opportunities are allocated.
If Cendant directors own disproportionate interests (in percentage or value
terms) in CD stock and Move.com stock, that disparity could create or appear to
create potential conflicts of interest when they are faced with decisions that
could have different implications for the stockholders of either Group.
Immediately following this offering, the Cendant directors as a group will
beneficially own % of the outstanding CD stock and % of the outstanding
Move.com stock.
Except as set forth under "Description of Capital Stock--Determinations by
the Board of Directors "and "Cash Management and Allocation Policies," no formal
policies have been established to resolve conflicts of interest between the
Groups or to determine which issues are presented to the special committee
created to resolve conflicts between the Groups. The members of the board of
directors or of the special committee will make all determinations in good faith
and in the best interest of Cendant as a whole.
15
<PAGE>
PRINCIPLES OF DELAWARE LAW MAY PROTECT DECISIONS OF THE BOARD OF DIRECTORS THAT
HAVE A DISPARATE IMPACT UPON HOLDERS OF CD STOCK AND MOVE.COM STOCK.
Delaware law provides that a board of directors owes an equal duty to all
stockholders regardless of class or series and does not have separate or
additional duties to the holders of any particular class or series of stock.
Recent cases in Delaware involving tracking stocks have established that
decisions by directors or officers involving differing treatment of tracking
stocks may be judged under the "business judgment rule." Under these principles
of Delaware law and the "business judgment rule," you may not be able to
challenge board of directors' decisions that have a disparate impact upon
holders of Move.com stock if the board of directors is adequately informed with
respect to such decisions and acts in good faith and in the honest belief that
it is acting in the best interests of all of Cendant's stockholders and members
of the board of directors do not have any personal conflicts of interest. If,
for example, the board of directors were to make a decision that it in good
faith believed to be in the best interest of Cendant as a whole, and such
decision were to have a positive impact on CD stock and negative impact on
Move.com stock, holders of Move.com stock may not be able to challenge the board
of directors' decision.
AT TIMES, WE HAVE THE OPTION TO ISSUE CD STOCK IN EXCHANGE FOR MOVE.COM STOCK
AND THIS MAY BE DISADVANTAGEOUS TO HOLDERS OF MOVE.COM STOCK.
If we sell all or substantially all of the assets of Move.com Group or at
any time on or after the 18-month anniversary of this offering, we have the
right to issue CD stock in exchange for Move.com stock. Because some exchanges
would be at a premium to the market value of the shares being exchanged, and
since we could determine to effect an exchange at a time when either or both of
CD stock and Move.com stock may be considered to be overvalued or undervalued,
any such exchange may be disadvantageous to holders of Move.com stock. In
addition, such exchange would preclude holders of Move.com stock from retaining
their investment in a security that is intended to reflect separately the
performance of Move.com Group. The right of Cendant to issue CD stock in
exchange for Move.com stock could adversely affect the trading price of one or
both series of stock because it could reduce the attractiveness of the security
to investors following an exchange and could limit the premium potentially
available to investors without an exchange option being incorporated into the
terms of the security.
For example, if we issue Move.com stock in exchange for all of the
outstanding shares of CD stock, Cendant only would have one class of common
stock outstanding. If Cendant had the right to make this exchange during a
period when Cendant was required to pay the holders of CD stock a premium for
their stock, then the holders of CD stock would receive a greater number of
shares of Move.com stock and the proportionate ownership and voting rights of
the holders of the Move.com stock would be diluted. In addition, the Move.com
stock in those circumstances would no longer track only the online real estate
businesses of Cendant.
WE MAY DISPOSE OF ASSETS OF EITHER MOVE.COM GROUP OR CENDANT GROUP WITHOUT YOUR
APPROVAL.
Delaware law requires stockholder approval only for a sale or other
disposition of all or substantially all of the assets of Cendant. As long as the
assets attributed to a Group represent less than substantially all of Cendant's
assets, we may approve sales and other dispositions of any amount of the assets
of that Group without any stockholder approval. If we dispose of all or
substantially all of the assets allocated to
16
<PAGE>
Move.com Group, we would be required, if the disposition is not an exempt
disposition under the terms of our charter, to choose one of the following three
alternatives:
- declare and pay a dividend in an amount equal to the proportionate
interest of the holders of Move.com stock in the net proceeds of such
disposition;
- redeem Move.com stock for an amount equal to the proportionate interest of
holders of Move.com stock in the net proceeds of such disposition; or
- issue shares of CD stock or that of another subsidiary in exchange for
Move.com stock at a 10% premium.
Consequently, holders of Move.com stock may receive less value for their shares
than the value that a third-party buyer might pay for all or substantially all
of the assets of Move.com Group. In addition, we can not assure you that the net
proceeds per share of the Move.com stock will be equal to or more than the
market value per share of such common stock prior to or after announcement of a
disposition. The Cendant board of directors will decide, in its sole discretion,
how to proceed and is not required to select the option that would result in the
highest value to holders of Move.com stock, if such option would not be in the
best interests of Cendant's stockholders as a whole.
THE CENDANT BOARD OF DIRECTORS HAS SOLE DISCRETION TO CHANGE CASH MANAGEMENT AND
ALLOCATION POLICIES AND THIS MAKES IT RISKIER TO BE A HOLDER OF MOVE.COM STOCK
THAN A HOLDER OF ORDINARY COMMON STOCK.
The Cendant board of directors has adopted policies relating to cash
management and allocations between Cendant Group and Move.com Group. The board
of directors in its sole discretion may modify or rescind our policies with
respect to the allocation of corporate overhead, taxes, debt, interest and other
matters, or may adopt additional policies, in its sole discretion without
stockholder approval. The board of directors' discretion to change these
policies without stockholder approval makes it riskier to be a holder of
Move.com stock than a holder of ordinary common stock. A board of directors
decision to modify or rescind these policies, or adopt additional policies could
have different effects on holders of Move.com stock and CD stock or could result
in a benefit or detriment to one class of stockholders compared to the other
class. The board of directors of Cendant will make any such decision in
accordance with its good faith business judgment, so that the decision is in the
best interests of Cendant and all of its stockholders as a whole. There may be
certain circumstances in which a decision can be made only in a fashion that
will have a disproportionate impact on the holders of one class compared to the
holders of the other class. In such situations, the interests of Cendant's
stockholders as a whole will not be consistent and the board may turn to the
special committee or retain outside advisors with respect to the interests of
one or both of the classes. Although it is not possible to indicate all factors
or even specific factors that may influence the board's decision, the board will
consider all relevant factors under the circumstances including the fairness to
all stockholders taken as a whole. For a more comprehensive description of these
policies, see "Cash Management and Allocation Policies."
HOLDERS OF CD STOCK AND MOVE.COM STOCK WILL GENERALLY VOTE TOGETHER AS A SINGLE
CLASS AND FOLLOWING THIS OFFERING MOVE.COM STOCK WILL REPRESENT ONLY % OF THAT
CLASS.
Holders of CD stock and Move.com stock will vote together as a single class,
except if any amendment to the charter would increase or decrease the par value
of the shares of either class or alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely. When
holders of CD stock and Move.com stock vote together as a single class, holders
of the series of common stock having a majority of the votes will be in a
position to control the outcome of the vote even if the matter involves a
conflict of interest between holders of CD stock and holders of Move.com stock.
We expect that, for the foreseeable future, the holders of CD stock will have a
17
<PAGE>
substantial majority of the voting power of Cendant because following this
offering there will be outstanding shares of CD stock and shares of
Move.com stock.
AGREEMENTS BETWEEN MOVE.COM GROUP BUSINESSES AND CENDANT GROUP BUSINESSES WILL
NOT BE THE RESULT OF THIRD-PARTY NEGOTIATIONS AND MAY BE ALTERED AT ANY TIME.
Because Cendant Group and Move.com Group are both engaged in real estate
businesses, Move.com Group and Cendant Group will to some extent be competing
with each other when offering their products and services to potential
consumers.
Move.com Operations, Inc., a wholly-owned subsidiary of Cendant and part of
the Move.com Group, on behalf of Move.com Group, has entered into a number of
arrangements with Cendant Group entities. These agreements and any future
agreements between Move.com Group and Cendant Group entities did not result, or
will not result, from arm's-length negotiations. Consequently, such agreements
may be less favorable to Move.com Group than those that it could have obtained
from unaffiliated third parties. In some cases, these agreements do not provide
precise rules as to the allocations of costs and benefits. All of these
arrangements may be altered at any time, subject to the judgment of the Cendant
Board of Directors.
In addition, Move.com Group, as a part of Cendant, may from time to time be
precluded from engaging in certain activities that compete with other activities
of Cendant's businesses or due to commitments made by Cendant with respect to
exclusive relationships, such as its preferred alliance relationships and its
agreement with Homestore.com discussed elsewhere in this prospectus. All
agreements between Cendant Group and Move.com Group will be subject to
amendment. Since all the entities in both groups are controlled by Cendant,
Cendant's officers and directors will have broad discretion as to the amendment
of such agreements. To the extent that Move.com Group derives benefits from its
close relationship with Cendant, those benefits could be reduced or eliminated
in the future. Cendant is not obligated to engage in any future business
transactions or jointly pursue opportunities, except for those expressly
provided for in the intracompany agreements.
THE VALUE OF MOVE.COM STOCK MAY DECLINE DUE TO FUTURE ISSUANCES OF MOVE.COM
STOCK.
Our charter allows the board of directors, in its sole discretion, to issue
authorized but unissued shares of either class of common stock. This could
dilute the value of shares of Move.com stock. The board of directors of Cendant
may issue CD stock or Move.com stock to, among other things:
- raise capital;
- provide compensation or benefits to employees;
- pay stock dividends; or
- acquire companies or businesses.
Under Delaware general corporation law, the board of directors of Cendant
would not need your approval for these issuances. We do not intend to seek your
approval for any such issuances unless stock exchange regulations or other
applicable law require approval or the board of directors of Cendant deems it
advisable.
We cannot predict the effect, if any, that sales of Move.com stock, or the
availability of such shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of Move.com stock
in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices.
18
<PAGE>
WE ARE NOT REQUIRED TO PAY DIVIDENDS EQUALLY ON CD STOCK AND MOVE.COM STOCK.
Although we do not intend to pay cash dividends in the foreseeable future,
the Cendant board of directors could elect to pay dividends on CD stock or
Move.com stock, or both, in equal or unequal amounts. Such a decision would not
necessarily have to reflect:
- the financial performance of either Cendant Group or Move.com Group;
- the amount of assets available for dividends on either series; or
- the amount of prior dividends declared on either series.
STOCKHOLDERS WILL NOT VOTE ON HOW TO ALLOCATE THE TYPE OR AMOUNT OF
CONSIDERATION RECEIVED IN CONNECTION WITH A MERGER AMONG HOLDERS OF CD STOCK AND
HOLDERS OF MOVE.COM STOCK, WHICH WILL BE DETERMINED SOLELY BY THE CENDANT BOARD
OF DIRECTORS.
Our charter will not contain any provisions governing how consideration
received in connection with a merger or consolidation involving Cendant is to be
allocated between holders of CD stock and holders of Move.com stock. Neither
holders of CD stock nor holders of Move.com stock will have a separate class
vote in any merger or consolidation so long as we divide the type and amount of
consideration between holders of CD stock and holders of Move.com stock in a
manner which the board of directors determines, in good faith, to be fair. In
any such merger or consolidation, the different ways we may divide the
consideration may have materially different results. Merger consideration
received by Cendant's stockholders (which could include cash, stock or other
securities) may be divided between stockholders of CD stock and Move.com stock
in a manner that does not provide the same dollar amount or percentage premium
to each class of stockholders or in a manner that provides different forms of
consideration (cash, stock or other securities) to different classes of
stockholders. As a result, the consideration to be received by holders of
Move.com stock in any such merger or consolidation may be materially less
valuable than the consideration they would have received if that business had
been sold separately or if they had a separate class vote on such merger or
consolidation.
HAVING TWO SERIES OF COMMON STOCK MAY INHIBIT OR PREVENT ACQUISITION BIDS FOR
CENDANT, CENDANT GROUP OR MOVE.COM GROUP.
If Cendant Group and Move.com Group were separate companies, any person
interested in acquiring either Cendant Group or Move.com Group without
negotiating with management could seek control of that entity by obtaining
control of its outstanding voting stock by means of a tender offer or proxy
contest. Although we intend CD stock and Move.com stock to reflect the separate
performances of Cendant Group and Move.com Group, respectively, a person
interested in acquiring Move.com Group without negotiation with Cendant's
management could obtain control of Move.com Group only by obtaining control of
the outstanding voting stock of Cendant. In addition, since Cendant believes the
issuance of Move.com stock could lead to an increase in its market value, the
cost of obtaining control by a third party would be greater and the acquirer
would be required to deal with holders of two separate classes of stock who
might have entirely different investment objectives.
The existence of two series of common stock could present complexities to an
acquiring person which could prevent stockholders from profiting from an
increase in the market value of their shares as a result of a change in control
of Cendant by delaying or preventing such a change in control.
19
<PAGE>
CENDANT'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS COULD
INHIBIT CHANGES OF CONTROL OF CENDANT NOT APPROVED BY ITS BOARD OF DIRECTORS.
The following provisions of our amended and restated certificate of
incorporation, by-laws and Delaware law may inhibit changes of control not
approved by the board of directors:
- the board of directors may issue shares of preferred stock without further
stockholder approval;
- stockholders may not take action by written consent and special meetings
of stockholders may be called only by the Chairman of the board of
directors, the President or the board of directors pursuant to a
resolution;
- our by-laws require advance notice for stockholder nominations and
proposals of new business, and this provision of the by-laws may only be
amended by an affirmative vote of at least 80% of the stock entitled to
vote;
- our amended and restated certificate of incorporation includes a "fair
price provision", which require that a business combination transaction
between us and any 5% stockholder must be approved by holders of 80% of
our voting stock unless it is approved by a majority of disinterested
directors or stockholders receive a fair price and other procedural
requirements are met; and
- we are subject to the business combination provisions of Section 203 of
the Delaware general corporation law, which restrict the ability of an
interested stockholder from acquiring control of a corporation unless
approved by the board of directors.
For a more detailed explanation of these anti-takeover constraints, see
"Description of Capital Stock--Certain Other Provisions of the Amended and
Restated Certificate of Incorporation, By-laws and Delaware Law."
WE CANNOT ASSURE YOU THAT A MARKET WILL DEVELOP FOR MOVE.COM STOCK OR WHAT ITS
MARKET PRICE WILL BE.
There is currently no public trading market for Move.com stock, and we
cannot assure you that one will develop or be sustained after the offering. We
cannot predict the extent to which investor interest in Move.com Group will lead
to the development of a trading market in Move.com stock or how liquid that
market might become. We cannot predict the prices at which Move.com stock will
trade after the offering. The initial public offering price for Move.com stock
will be determined through negotiations with the underwriters and may not bear
any relationship to the market price at which Move.com stock will trade after
the offering or to any other established criteria for value.
The market prices of securities of technology companies, particularly
Internet-related companies, have experienced high volatility that often is
unrelated or disproportionate to the operating performance of those companies.
These broad market fluctuations could adversely affect the market price of the
Move.com stock, and investors may not be able to resell their shares at or above
the initial public offering price.
Some of the terms of CD stock and Move.com stock may adversely affect the
trading price of Move.com stock. These terms include, among others:
- the right of Cendant's board of directors to exchange shares of one series
of common stock for shares of the other series; and
- the discretion of Cendant's board of directors in making determinations
relating to a variety of cash management and allocation matters.
20
<PAGE>
The market price of the Move.com stock will be determined in the trading
markets. Many factors could affect the market price of the Move.com stock.
THE ADOPTION OF A RECENT CLINTON ADMINISTRATION TAX PROPOSAL COULD RESULT IN AN
OPTIONAL EXCHANGE OF MOVE.COM STOCK FOR CD STOCK.
We may exercise our right to issue CD stock in exchange for Move.com stock
at a premium of 10% if, as a result of the enactment of legislative changes or
administrative proposals or changes, we or our stockholders will, more likely
than not, be subject to tax upon issuance of the CD stock or Move.com stock or
such stock will not be treated for U.S. federal income tax purposes as stock of
Cendant. A recent proposal by the Clinton Administration could result in
treatment of the Move.com stock as other than our stock. As proposed by the
Clinton Administration, this provision would be effective upon the date of its
enactment by Congress. Although we expect the offering to be consummated prior
to the effective date of the proposed legislation, it is possible that further
issuances of the Move.com stock could be affected by the enactment of these
proposals. Under such circumstances, Cendant might decide to exercise its right
to redeem all of the outstanding shares of Move.com stock for CD stock at a
premium, in order to eliminate any tracking stock from its capital structure. We
cannot predict whether the proposal will be enacted by Congress and, if enacted,
whether it will be in the form proposed by the Clinton Administration. See
"Description of Capital Stock--Optional Exchange of One Series of Common Stock
for the Other Series".
RISKS RELATING TO MOVE.COM GROUP'S BUSINESS
MOVE.COM GROUP'S LIMITED OPERATING HISTORY MAKES EVALUATING ITS BUSINESS
DIFFICULT.
Rent Net began operating in March 1995 and was acquired by Cendant in 1996,
Move.com Group began to be operated as a business unit in July 1999 and Move.com
Group launched the move.com Web site in January 2000. Accordingly, Move.com
Group has only a limited operating history upon which you can evaluate its
business and prospects. An investor in Move.com stock must consider the risks,
expenses and difficulties frequently encountered by early stage businesses in
new and rapidly evolving markets, including Web-based relocation and real estate
information and services businesses. To address these risks and uncertainties,
Move.com Group must, among other things:
- form relationships with businesses and attract consumers to the Move.com
Group, which conducts an unproven online business and without which the
business will not grow;
- fund the significant marketing and personnel costs associated with an
early stage business, before they are covered by revenues, resulting in
continuing losses;
- create, maintain and enhance awareness and loyalty for the move.com brand,
at a time of proliferating online brand offerings, and expand the product
and service offerings of the move.com network;
- attract, integrate, retain and motivate qualified personnel, when such
personnel are becoming increasingly difficult to find and keep and to whom
greater levels of compensation must be paid; and
- adapt to meet changes in the competitive online real estate market, many
of which are not foreseeable.
Move.com Group may not be successful in accomplishing these objectives. In
addition, Move.com Group has never operated during a downturn in the real estate
market and we cannot assure you that Move.com Group will be successful in such a
market. For more information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Move.com Group."
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MOVE.COM GROUP HAS A HISTORY OF LOSSES AND WE ANTICIPATE LOSSES WILL CONTINUE.
As of December 31, 1999, Move.com Group had an accumulated deficit of
$18.0 million before funding from Cendant. Move.com Group incurred net losses of
approximately $14.5 million for the year ended December 31, 1999. Move.com Group
has not achieved profitability and expects to continue to incur net losses in
2000 and subsequent fiscal periods. Move.com Group expects to continue to incur
significant research and development, general, administrative and marketing
expenses. As a result, Move.com Group must generate significant revenue to
achieve profitability, which may not occur. Even if Move.com Group does achieve
profitability, Move.com Group may be unable to sustain or increase profitability
on a quarterly or annual basis in the future. For more information see "Selected
Historical Combined Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Move.com Group."
THE MARKET FOR WEB-BASED ADVERTISING PRODUCTS AND SERVICES RELATING TO
RELOCATION OR REAL ESTATE IS INTENSELY COMPETITIVE.
Move.com Group's main existing and potential competitors for consumers and
advertisers include:
- Web sites offering home or apartment listings together with other related
services, such as apartments.com, cyberhomes.com, homehunter.com,
homestore.com, homeseekers.com, homeadvisor.com, iown.com,
newhomenetwork.com and realestate.com;
- online services or Web sites targeting buyers and sellers of real estate
properties and financial services companies, offering real estate-related
products and services;
- general purpose consumer Web sites, search engine providers, and Web sites
maintained by Internet service providers that offer relocation, real
estate or home-related content;
- traditional forms of media such as radio, television, newspapers and
magazines; and
- offline relocation, real estate and home-related product and service
companies.
We believe Move.com Group's content and services compete favorably with
Move.com Group's competitors. However, many of Move.com Group's existing
competitors, as well as a number of potential new competitors, have longer
operating histories on the Internet market, greater name recognition, larger
consumer bases, greater user traffic and significantly greater financial,
technical and marketing resources. Move.com Group's competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies, make more attractive offers to potential employees, distribution
partners and content providers and respond more quickly to new or emerging
technologies and changes in Internet user requirements. Move.com Group's
competitors may develop content that is equal or superior to or that achieves
greater market acceptance than that of Move.com Group. The barriers to entry to
Web-based services and businesses are low, making it possible for new
competitors to emerge and rapidly acquire significant market share.
Move.com Group may not be able to compete successfully for consumers,
clients and advertisers and increased competition could result in price
reductions, reduced margins or loss of market share, any of which could
materially adversely affect Move.com Group's business, results of operations and
financial condition.
MOVE.COM GROUP'S BUSINESS IS AFFECTED BY CYCLICAL ECONOMIC CONDITIONS AND THESE
FACTORS ARE BEYOND MOVE.COM GROUP'S CONTROL.
The residential real estate industry traditionally has been subject to
cyclical economic swings which could materially adversely affect Move.com
Group's business. Move.com Group's business is dependent on the residential real
estate industry and related industries which supply goods or services to, or
invest in, the residential real estate industry. The success of Move.com Group's
operations depends, to a
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significant extent, upon a number of factors relating to discretionary consumer
and business spending, and the overall economy, as well as regional and local
economic conditions in markets where Move.com Group operates, including:
- perceived and actual economic conditions;
- interest rates;
- taxation policies;
- availability of credit;
- employment levels; and
- wage and salary levels.
In addition, because a consumer's purchase of real property and related
products and services is a significant investment and is relatively
discretionary, any reduction in disposable income in general may affect Move.com
Group more significantly than companies in other industries.
Move.com Group may experience seasonality in its business. The residential
real estate industry experiences a decrease in activity during the winter.
However, because of Move.com Group's limited operating history under its current
business model, we do not know if or when any seasonal pattern will develop or
the size or nature of any seasonal pattern in Move.com Group's business.
Move.com Group's limited operating history and rapid growth make it difficult
for us to assess the impact of seasonal factors on its business. Nevertheless,
we expect Move.com Group's revenue to be subject to seasonal fluctuations,
reflecting a combination of seasonality trends for the products and services
offered by Move.com Group and seasonality patterns affecting Internet use. For
example, home sales typically peak during the spring and fall seasons and
decline in the summer and winter. The rental market typically peaks during the
summer and declines in the winter. We further believe that advertising sales in
traditional media, such as television and radio, generally are lower in the
first and third calendar quarters of each year. Internet usage may also decline
during the summer months.
Operating results may also fluctuate due to a decline in residential home
buying that decreases the demand for purchase mortgage loans or an increase in
interest rates that decreases the demand for refinancing existing mortgage
loans. Similar seasonal or other patterns may develop and affect Move.com
Group's revenue. For more information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Move.com Group."
MOVE.COM GROUP'S BUSINESS HAS RISKS ASSOCIATED WITH CHANGING LEGISLATION IN THE
REAL ESTATE INDUSTRY.
Real estate is a heavily regulated industry in the United States, including
regulation under the Fair Housing Act, the Real Estate Settlement Procedures Act
and state advertising laws. In addition, states could enact legislation or
regulatory policies in the future which could require Move.com Group to expend
significant resources to comply. As the real estate industry evolves in the
Internet environment, legislators, regulators and industry participants may
advocate additional legislative or regulatory initiatives. Should existing laws
or regulations be amended or new laws or regulations be adopted, Move.com Group
may need to comply with additional legal requirements and incur resulting costs,
or it may be precluded from certain activities. To date, we have not spent
significant resources on lobbying or related government issues. Any need to
significantly increase our lobbying or related activities in connection with
Move.com Group's business could substantially increase Move.com Group's
operating costs.
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MOVE.COM GROUP'S COMPETITIVE POSITION DEPENDS ON ITS ABILITY TO ATTRACT AND
RETAIN KEY PERSONNEL AND TO INTEGRATE ITS NEWLY FORMED MANAGEMENT TEAM.
Move.com Group's failure to attract and retain qualified personnel could
diminish its competitive position. Move.com Group's performance is substantially
dependent on the continued services and performance of its senior executive
officers and the other key personnel identified in this prospectus under the
caption "Move.com Management."
In addition, Move.com Group recently hired its new chief executive officer,
chief financial officer and chief technology officer. These individuals will
have to be integrated into our management team successfully. Except for Phil
Marcus and Jed Katz, Move.com Group does not have long-term employment
agreements with any of its key personnel and maintains no "key person" life
insurance policies.
Move.com's future success also depends on its ability to identify, attract,
retain and motivate highly skilled technical, sales, marketing and managerial
personnel. We intend to hire a substantial number of such persons in the next
12 months. Competition for such persons is intense. We have no employment
agreements with such persons and, although we have non-compete agreements, not
all employees sign non-compete agreements and the extent to which courts will
enforce these agreements is undetermined. We cannot assure you that Move.com
Group will be able to attract or retain such personnel.
POTENTIAL FLUCTUATIONS IN MOVE.COM GROUP'S QUARTERLY FINANCIAL RESULTS MAKE
FINANCIAL FORECASTING DIFFICULT.
Move.com Group's quarterly operating results may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside
Move.com Group's control. We believe that quarter-to-quarter comparisons of
Move.com Group's operating results may not be a good indication of Move.com
Group's future performance, nor would Move.com Group's operating results for any
particular quarter be indicative of future operating results. Due to Move.com
Group's limited operating history and the emerging nature of the Internet real
estate market, we cannot firmly predict Move.com Group's future revenue or
results of operations. In some future quarters Move.com Group's operating
results may be below the expectations of public market analysts and investors.
In such an event, the price of Move.com stock may fall.
Important factors which could cause Move.com Group's results to fluctuate
materially include:
- overall usage levels of the Internet and of the move.com network in
particular;
- seasonal trends in Internet use and advertising;
- the amount of advertising sold and timing of payments for this
advertising;
- Move.com Group's ability to attract and retain users, advertisers and
sponsors;
- the amount and timing of Move.com Group's operating expenses and capital
expenditures;
- new Internet sites, services or products introduced by us or our
competitors;
- costs related to acquisitions of businesses and technologies;
- Move.com Group's ability to upgrade and develop its systems and
infrastructure and attract new personnel in a timely and effective manner;
- Move.com Group's ability to successfully integrate operations and
technologies from any acquisitions, joint ventures or other business
combinations or investments; and
- technical difficulties or system downtime affecting the operation of the
move.com network of sites.
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WE MAY BE UNABLE TO MANAGE OUR GROWTH, WHICH MAY HARM OUR BUSINESS.
Move.com Group's operations have experienced rapid growth, having increased
from net revenue of $1.1 million from the acquisition of Rent Net to
December 31, 1996 to $17.6 million for the year ended December 31, 1999, and
with the number of its employees increasing from 95 at January 1, 1999 to 270 at
March 31, 2000. Move.com intends to hire approximately 175 additional employees
during this fiscal year. Move.com Group's rapid growth has placed, and the
anticipated future growth for Move.com Group will continue to place, a
significant strain on Move.com Group's managerial, operational and financial
resources. To manage Move.com Group's growth, it must continue to implement and
improve its managerial controls and procedures and operational and financial
systems. We cannot assure you that Move.com Group has made adequate allowances
for the costs and risks associated with this expansion, that Move.com Group's
systems, procedures or controls will be adequate to support its operations, or
that its management will be able to successfully offer and expand Move.com
Group's services. If Move.com Group is unable to manage its growth effectively,
the quality of Move.com Group's services, results of operations and financial
condition could be materially adversely affected.
ANY CAPACITY CONSTRAINTS OR SYSTEM DISRUPTION COULD HAVE A MATERIAL ADVERSE
EFFECT ON MOVE.COM GROUP.
The performance and reliability of the move.com network infrastructure are
critical to its reputation and ability to attract and retain users, real estate
clients, advertisers, merchants and strategic partners. Any system error or
failure, or a sudden and significant increase in traffic, may result in the
unavailability of its Web sites and significantly delay response times.
Individual, sustained or repeated occurrences could result in a loss of
potential or existing users, real estate clients, advertisers or strategic
partners. In addition, because Move.com Group's advertising revenue is directly
related to the number of advertisements it delivers to users, system
interruptions or delays would reduce the number of impressions delivered and
thereby reduce its revenue. Since the beginning of this year, we have
experienced a total of eight unscheduled outages for rent.net and six for
move.com. These outages averaged less than 10 minutes, with the longest being 15
minutes for move.com.
Move.com Group's systems and operations are vulnerable to interruption or
malfunction due to certain events beyond its control, including natural
disasters, power loss, telecommunication failures, break-ins, sabotage, computer
viruses, intentional acts of vandalism and similar events. Move.com Group also
relies on Web browsers and online service providers to provide Internet access
to its sites. We cannot assure you that Move.com Group will be able to expand
its network infrastructure, either itself or through use of a third party
hosting systems or service providers, on a timely basis sufficient to meet
demand. Some of the Web sites in the move.com network presently have only a
limited amount of redundant facilities or systems, no formal disaster recovery
plan and no sufficient business interruption insurance to compensate for losses
that may occur. Such interruptions could result in financial losses, litigation
or other consumer claims and damage to the Move.com brand. Any interruption to
Move.com Group's systems or operations could have a material adverse effect on
Move.com Group's business and its ability to retain users, real estate clients,
advertisers and strategic partners.
MOVE.COM GROUP'S NETWORKS MAY BE VULNERABLE TO SECURITY RISKS WHICH COULD
DISRUPT THE PERFORMANCE OF THE MOVE.COM NETWORK, REDUCE MOVE.COM GROUP'S
ADVERTISING REVENUE, DECREASE ITS CLIENT AND CONSUMER BASE AND INCREASE ITS WEB
SECURITY EXPENDITURES.
Move.com Group's networks may be vulnerable to unauthorized access, computer
viruses; coordinated attacks by computer hackers and other security problems.
Persons who circumvent security measures could wrongfully use information of
Move.com Group or cause interruptions or malfunctions in Move.com Group's
operations. Concern about the transmission of confidential information over the
Internet has been a significant barrier to electronic commerce and
communications over the Web. Any well-publicized compromise of security could
deter more people from using the Web or from using it to
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conduct transactions that involve the transmission of confidential information,
such as purchasing goods or services. Because many of our advertisers seek to
advertise on the move.com network to encourage people to use the Web to purchase
goods or services, Move.com Group's business, results of operations and
financial condition could be materially adversely affected if Internet users
significantly reduce their use of the Web because of security concerns.
Move.com Group may be required to expend significant resources to protect
against the threat of security breaches or to alleviate problems caused by any
breaches. Although Move.com Group intends to continue to implement
industry-standard security measures, these measures may be inadequate.
MOVE.COM GROUP DEPENDS ON LICENSED TECHNOLOGY FROM THIRD PARTIES AND MOVE.COM
GROUP'S FAILURE TO MAINTAIN THESE ARRANGEMENTS WITH THIRD PARTIES COULD
ADVERSELY AFFECT ITS BUSINESS.
Move.com Group relies on certain technology licensed from third parties.
This technology includes the software for 360 DEG. virtual viewing of apartments
and houses licensed by IPIX, the computer systems of Cendant Mortgage, which
allow Move.com Group to satisfy offers for home mortgages, customer content and
advertisement targeting software licensed by Broadvision, Inc., database
technology licensed by Oracle Corporation and FileMaker, hardware licensed by
SUN Microsystems, Inc. and Dell Computer Corporation, and database and operating
system technology licensed by Microsoft Corporation. All of these licenses are
critical to Move.com Group's ability to satisfy its expectations for the quality
of its products and services. Move.com Group's ability to generate revenue from
Internet commerce may also depend on data encryption and authentication
technologies that it may be required to license from third parties. We cannot
assure you that such technology licenses will be available at all, that they
will be available on reasonable commercial terms or that they will operate as
intended.
In addition, the third-party software currently used in Move.com Group's
products and the delivery of Move.com Goup's services may become obsolete or
incompatible with the products and services Move.com Group offers in the future.
If Move.com Group has to replace third-party software for any of those reasons,
its business could suffer during the replacement period. Any interruption in
these third-party services, or a deterioration in their performance, could be
disruptive to Move.com Group's business. In the event Move.com Group's
arrangement with any of such third parties is terminated, we may not be able to
find an alternative source of systems support on a timely basis or on
commercially reasonable terms.
MOVE.COM GROUP DEPENDS ON ARRANGEMENTS WITH THIRD PARTIES FOR INTERNET TRAFFIC
TO THE MOVE.COM NETWORK AND MOVE.COM GROUP'S FAILURE TO MAINTAIN THESE
ARRANGEMENTS WITH THIRD PARTIES COULD ADVERSELY AFFECT ITS BUSINESS.
Move.com Group's ability to advertise on and maintain links from other
Internet sites is an important element to its success. Traffic originating from
links existing on other Internet sites, particularly search engines, directories
and other navigational tools managed by Internet service providers and Web
browser companies, is an important segment of the overall traffic on the
move.com network. Move.com Group has special linking arrangements to generate
additional traffic with major internet search engines and portals, which are
either short-term contracts and/or can be terminated with little notice. The
traffic generated from these arrangements amounted to 15,000 out of 85,000 user
sessions. Move.com Group intends to pursue additional distribution relationships
in the future and it may not succeed in these efforts. To secure these
distribution relationships, Move.com Group often pays significant fees. These
fees aggregated $4.95 million in the year ended December 31, 1999 and may
increase substantially in future years. Move.com Group may not, however,
experience sustained increases in user traffic from these distribution
relationships. There is intense competition for these types of linking
arrangements. We cannot assure you that these arrangements will be maintained or
that advertising or links will continue to be available on reasonable commercial
terms or at all. If any of these agreements is not renewed,
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Move.com Group would experience a decline in the number of its users and its
competitive position could be significantly weakened.
MOVE.COM GROUP RELIES ON INTELLECTUAL PROPERTY RIGHTS AND PROPRIETARY RIGHTS
WHICH MAY NOT BE ADEQUATELY PROTECTED UNDER CURRENT LAWS AND MAY BE SUBJECT TO
INTELLECTUAL PROPERTY CLAIMS.
To establish and protect Move.com Group's trademarks, service marks and
other proprietary rights in its products and services, Move.com Group relies on
a combination of trademark, copyright, unfair competition, service mark and
trade secret laws, confidentiality agreements and other contractual arrangements
with its employees, affiliates, clients, strategic partners and others. The
protective steps we have taken may be inadequate to deter misappropriation of
Move.com Group's proprietary information, and certain tradenames, trademarks and
servicemarks used by Move.com Group, including the move.com name, may not be
protectable. In addition, there can be no assurance that other parties will not
assert claims of infringement of intellectual property against us or one of our
subsidiaries which is part of the Move.com Group. We may be unable to detect the
unauthorized use of, or take appropriate steps to enforce, our intellectual
property rights. Failure to adequately protect Move.com Group's intellectual
property could harm the Move.com brand, devalue Move.com Group's proprietary
content and affect its ability to compete effectively. Move.com Group entities
may be subject to claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. If such claims are successful,
those entities may be required to change their trademarks, alter their content
or pay financial damages. Further, defending Move.com Group's intellectual
property rights could result in the expenditure of significant financial and
managerial resources, which could materially adversely affect Move.com Group's
business, results of operations and financial condition. There can be no
assurance that any such claims or the defense of such claims will not adversely
affect Move.com Group's business.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and evolving, and we can give no assurance regarding the future
viability or value of any of Move.com Group's proprietary rights.
Move.com Group may be required to obtain licenses from others to refine,
develop, market and deliver new services. There can be no assurance that
Move.com Group will be able to obtain such licenses on commercially reasonable
terms or at all or that rights granted pursuant to any licenses will be valid
and enforceable.
MOVE.COM GROUP WILL NEED TO INTRODUCE NEW SERVICES AND PRODUCTS TO REMAIN
COMPETITIVE.
Move.com Group's future success depends in part on its ability to develop
and enhance its services and products. We anticipate that Move.com Group will
introduce additional and enhanced services in order to retain Move.com Group's
current clients and consumers and attract new clients and consumers. If Move.com
Group introduces a service that is not favorably received, Move.com Group's
current clients and consumers may choose a competitive service over Move.com
Group's. We may also experience difficulties that could delay or prevent
Move.com Group from introducing new services. Furthermore, the new services
Move.com Group may introduce could contain errors that are discovered after
these services are introduced. Move.com Group's business, results of operations
and financial condition could be materially adversely affected if Move.com Group
experiences difficulties in introducing new services or if these new services
are not accepted by Move.com Group's clients and consumers.
MOVE.COM GROUP'S BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO
SUCCEED AND WE CANNOT ASSURE YOU THAT MOVE.COM GROUP WILL CONTINUE TO DEVELOP
THE MOVE.COM BRAND.
We cannot assure you that efforts to build brand awareness will be
successful, and such failure would cause Move.com Group's financial performance
to suffer. We believe that brand identity is important to attracting and
expanding Move.com Group's user base, Internet traffic and advertising and
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commerce relationships. Move.com Group believes the significance of brand
recognition will intensify as the number of Web sites offering relocation
services, real estate listings and related services increases.
Move.com Group's brand-building efforts will involve significant expense and
we expect to spend approximately $70 million on such efforts during the next
12 months. If Move.com Group's brand enhancement strategy is unsuccessful, these
expenses may never be recovered and Move.com Group's future revenue may not
increase. In addition, even if brand-recognition increases, the number of new
users or the number of transactions on the move.com network may not increase.
Also, even if the number of new users increases, those users may not use the
move.com network on a regular basis.
There are thousands of Web site addresses, or "domain names" containing the
word "move," that have been registered to other users. To the extent consumers
confuse other Web sites with those of Move.com Group, Move.com Group's
reputation could be harmed and its business could suffer.
WE ARE CONTRACTUALLY RESTRICTED UNTIL SEPTEMBER 2002 FROM DISTRIBUTING LISTINGS
TO THIRD PARTIES OR AGGREGATING LISTINGS FROM THIRD PARTIES ON THE MOVE.COM
NETWORK AND THEREFORE MOVE.COM GROUP'S ABILITY TO EXPAND ITS LISTINGS IS
LIMITED.
Under the terms of an agreement with an affiliate of homestore.com that
expires in September 2002, we have agreed not to distribute or license
individual home listings other than those represented by Cendant's real estate
franchise systems on the move.com network. Under the same agreement, we may not
aggregate home listings other than those represented by Cendant's real estate
franchise systems. If possessing a larger number of home listings becomes an
essential aspect of competing in the online relocation and real estate
industries, Move.com Group's competitiveness may be reduced.
MOVE.COM GROUP MAY BE UNABLE TO SECURE MORTGAGE BROKER LICENSES IN ALL STATES.
Although Move.com Group's licenses are pending in all 50 states and the
District of Columbia, Move.com is not currently authorized to do business as a
mortgage broker. If Move.com fails to secure or maintain license approvals and
exemptions throughout the country, Move.com Group will be unable to serve as a
mortgage broker in some states, and consequently may not achieve expected
revenue goals.
RISKS RELATED TO MOVE.COM GROUP'S INDUSTRY
MOVE.COM GROUP DEPENDS ON INCREASED USE OF THE INTERNET TO EXPAND ITS RELOCATION
AND REAL ESTATE-RELATED ADVERTISING PRODUCTS AND SERVICES.
If the Internet fails to become a viable marketplace for relocation or real
estate content and information, Move.com Group's business will not grow. Broad
acceptance and adoption of the Internet by consumers and businesses when
searching for relocation, real estate and related products and services will
only occur if the Internet provides them with greater efficiencies and improved
access to information. Move.com Group depends on selling many types of
advertisements on the move.com network.
Move.com Group's business would be adversely affected if the market for
Internet advertising fails to develop or develops more slowly than expected.
Move.com Group's ability to generate advertising revenue from selling banner
advertising and sponsorships on the move.com network will depend on, among other
factors, the development of the Internet as an advertising medium, the amount of
traffic on the move.com network and its ability to achieve and demonstrate user
demographic characteristics that are attractive to advertisers. Most potential
advertisers and their advertising agencies have only limited experience with the
Internet as an advertising medium and have not devoted a significant portion of
their advertising expenditures to Internet-based advertising. No standards have
been widely accepted to measure the effectiveness of Web advertising. If these
standards develop, existing advertisers might
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reduce their current levels of Internet advertising or eliminate their spending
entirely. The widespread adoption of technologies that permit Internet users to
selectively block out unwanted graphics, including advertisements attached to
Web pages, also could adversely affect the growth of the Internet as an
advertising medium. In addition, advertisers in the real estate industry,
including real estate professionals, have traditionally relied upon other
advertising media, such as newsprint and magazines, and have invested
substantial resources in other advertising methods. These persons may be
reluctant to adopt a new strategy and advertise on the Internet.
INCREASED GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB
COULD INCREASE MOVE.COM GROUP'S COSTS OF TRANSMITTING DATA AND INCREASE MOVE.COM
GROUP'S LEGAL AND REGULATORY EXPENDITURES AND COULD DECREASE THE ATTRACTIVENESS
OF ONLINE BUSINESS TO OTHER BUSINESSES AND OUR CUSTOMERS.
Existing domestic and international laws or regulations specifically
regulate communications or commerce on the Internet. A number of legislative and
regulatory proposals under consideration by federal, state, local and foreign
governmental organizations may lead to laws or regulations concerning various
aspects of the Internet, including:
- online content;
- user privacy;
- taxation;
- access charges;
- liability for third-party activities; and
- jurisdiction.
Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
services providers in a manner similar to the regulation of long-distance
telephone carriers and to impose access fees on such companies. This regulation,
if imposed, could increase the cost of transmitting data over the Internet.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as intellectual property ownership and infringement and
personal privacy are applicable to the Internet. The Federal Trade Commission
and government agencies in certain states have been investigating certain
Internet companies regarding their use of personal information. We could incur
additional expenses if any new regulations regarding the use of personal
information are introduced or if these agencies choose to investigate our
privacy practices. Any new laws or regulations relating to the Internet, or
certain application or interpretation of existing laws, could decrease the
growth in the use of the Internet, decrease the demand for products and services
offered on the move.com network or otherwise materially adversely affect
Move.com Group's business.
AN INCREASE IN INTEREST RATES MAY REDUCE MORTGAGE TRANSACTIONS.
A high percentage of mortgage loan transactions involve the refinancing of
existing mortgages. Homeowners are motivated to refinance primarily when
interest rates fall below the rates of their existing mortgages. In the event
interest rates increase significantly, homeowners' incentive to refinance will
be greatly reduced and the number of loans that the industry originates could
decline significantly. Similarly, if there were a sustained increase in interest
rates, there would eventually be some impact on the market for purchase
mortgages as higher monthly payments would make housing less affordable.
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IF MOVE.COM GROUP IS UNABLE TO COMPLY WITH MORTGAGE BROKERAGE RULES AND
REGULATIONS, MOVE.COM GROUP'S ABILITY TO ACT AS A MORTGAGE BROKER MAY BE
RESTRICTED.
The mortgage brokering business is heavily regulated under federal and state
laws. These laws and related regulations impose numerous obligations and
restrictions on Move.com Group's activities. In particular, these rules limit
the broker fees Move.com Group may assess, require extensive disclosure to
consumers, regulate advertising practices, prohibit discrimination and impose on
Move.com Group's multiple qualification and licensing obligations. Move.com
Group may not always be in compliance with these requirements.
Move.com Group's failure to comply with these standards could lead to
revocation of required licenses or registrations, loss of approved status,
voiding of loan contracts, demands for loan repurchases from mortgage loan
purchasers, class action lawsuits and administrative enforcement actions. These
regulatory requirements are subject to change and may in the future become more
restrictive, making compliance more difficult or expensive or otherwise
restricting our ability to conduct our business. At the state level, we are
subject to licensing and regulation in most of the states where we act as a
mortgage broker.
Further, given our goals of creating a more integrated consumer experience
around the home-buying process, we will increasingly find ourselves in a
position where we market settlement services provided by vendors with whom we
have business relationships or provide additional services ourselves in a way
that may cause us to unintentionally be in violation of these rules.
Many federal laws and regulations that limit brokers' fees are unclear. In
the last three years there has been significant litigation concerning limits on
mortgage broker fees. The lack of clarity in this area of law is compounded when
applied to mortgage brokers and lenders operating in an Internet environment and
it is possible that plaintiffs' attorneys may attempt to assert similar
allegations against Internet lenders.
RISKS RELATED TO CENDANT
DISCOVERY OF ACCOUNTING IRREGULARITIES AND RELATED LITIGATION AND SEC
INVESTIGATION
Since the April 15, 1998 announcement of the discovery of accounting
irregularities in the former business units of CUC International, Inc., the
predecessor of Cendant, approximately 70 lawsuits claiming to be class action
lawsuits, two lawsuits claiming to be brought derivatively on Cendant's behalf
and several individual lawsuits and arbitration proceedings have been commenced
in various courts and other forums against Cendant and other defendants,
asserting various claims under the federal securities laws and certain state
statutory and common laws, including claims that Cendant's previously issued
financial statements allegedly were false and misleading and that Cendant
allegedly knew or should have known that they caused the price of Cendant's
securities to be artificially inflated. In addition, the staff of the SEC and
the United States Attorney for the District of New Jersey are conducting
investigations relating to the accounting issues. The SEC Staff has advised
Cendant that its inquiry should not be construed as an indication by the SEC or
its staff that any violations of law have occurred. For a full description of
such litigation and proceedings, see Cendant's Annual Report on Form 10-K for
the fiscal year ending December 31, 1999.
On December 7, 1999, we announced that Cendant reached a preliminary
agreement to settle the principal securities class action pending against it in
the U.S. District Court in Newark, New Jersey relating to the aforementioned
class action lawsuits. Under the agreement, Cendant would pay the class members
$2.83 billion in cash. The settlement remains subject to execution of a
definitive settlement agreement and approval by the U.S. District Court. If the
preliminary settlement is not approved by the U.S. District Court, Cendant can
make no assurances that the final outcome or settlement of such proceedings will
not be for an amount greater than that set forth in the preliminary agreement.
If the
30
<PAGE>
preliminary agreement is not approved and the final outcome is for an amount
greater than previously agreed, it could have an adverse impact on the price of
Move.com stock. For a description of the preliminary agreement to settle the
common stock class action litigation, see Cendant's Form 8-K, dated December 7,
1999.
31
<PAGE>
FORWARD LOOKING STATEMENTS; MARKET DATA
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Move.com Group" and "Business," and elsewhere in
this prospectus are "forward-looking statements." These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, expectations, intentions and assumptions and other statements that
are not historical facts. When used in this prospectus, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate," and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by these
forward-looking statements. We do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except to the extent required by law.
This prospectus contains market data related to the residential real estate
and Internet industries. This data has been included in the studies published by
the Internet market research firms of Media Metrix, Forrester Research and
International Data Corporation and the real estate information was obtained from
various industry sources, including Realty Times and the National Association of
Realtors. Although we believe that data from these companies is generally
reliable, we have not independently verified such data.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, prospectuses, proxy statements and other information with
the SEC. You may read and copy any reports, proxy statements or other
information we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The SEC filings of Cendant
Corporation are also available to the public from commercial document retrieval
services and at the Web site maintained by the SEC at "HTTP://WWW.SEC.GOV."
The SEC allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus or in any
subsequently filed document that is incorporated by reference in this
prospectus. This prospectus incorporates by reference the documents set forth
below that we have previously filed with the SEC. These documents contain
important information about Cendant and its finances.
CENDANT CORPORATION SEC FILINGS (FILE NO. 1-10308) PERIOD
<TABLE>
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Current Report on Form 8-K February 3, 2000
</TABLE>
We also incorporate by reference any future filings made with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to the termination of the offering.
We will provide you without charge upon written or oral request, a copy of
any or all of the documents that are incorporated by reference into this
prospectus. However, we will not send exhibits to such documents, unless the
exhibits are specifically incorporated by reference in such documents. Requests
should be directed to Cendant Corporation, 9 West 57th Street, New York, New
York 10019, Attention: Investor Relations, Telephone: (212) 413-1800.
32
<PAGE>
We intend to provide you with annual reports containing financial statements
relating to Move.com Group and Cendant audited by our independent public
accountants, with a discussion of such financial information and including a
summary of Move.com Group's business.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to give any information or make any representation
about us or this offering that is different from, or in addition to, that
contained in this prospectus or in the materials that we have incorporated into
this document. Therefore, if anyone does give you information of this sort, you
should not rely on it. If you are in a jurisdiction where offers to sell, or
solicitations of offers to buy, the securities offered by this document are
unlawful, or if you are a person to whom it is unlawful to direct these types of
activities, then the offer presented in this document does not extend to you.
The information contained in this document speaks only as of the date of this
document unless the information specifically indicates that another date
applies.
USE OF PROCEEDS
We estimate that the net proceeds to Move.com Group from the sale of the
shares of Move.com stock offered by this prospectus will be approximately
$ ($ if the underwriters' over-allotment option is exercised in full),
at an assumed initial public offering price of $ per share and, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us. We will allocate all of the net proceeds from
this offering to Move.com Group, including any net proceeds from the exercise of
the underwriters' over-allotment option. If the underwriters' over-allotment is
exercised in full and the concurrent offering is fully subscribed, the net
proceeds to Move.com Group will be approximately $ .
The principal purposes of this offering are to provide working capital to
increase marketing expenditures, develop new products and expand the move.com
network, to fund general corporate purposes, to create a public market for our
Move.com stock and to facilitate our future access to the public capital
markets. In addition, we may use a portion of the net proceeds to acquire or
invest in complementary businesses, technologies, services or products. However,
we currently have no commitments or agreements with respect to any such
transactions. Since we have no specific allocation of proceeds committed at the
present time, Move.com Group management will have broad discretion. Pending
final application of the proceeds, they will be invested in short-term
investment-grade instruments, certificates of deposit or direct or guaranteed
obligations of the U.S. government or may be loaned to Cendant Group as an
intercompany revolving credit balance. See "Cash Management and Allocation
Policies."
33
<PAGE>
DIVIDEND POLICY
We do not expect to pay any dividends for the foreseeable future on Move.com
stock. We will, however, be permitted to pay dividends on:
- CD stock out of the assets of Cendant legally available for the payment of
dividends under Delaware law, but the total amounts paid as dividends on
CD stock cannot exceed the available dividend amount for Cendant Group;
and
- Move.com stock out of the assets of Cendant legally available for the
payment of dividends under Delaware law (and transfer corresponding
amounts to Cendant Group in respect of its retained interest in Move.com
Group), but the total of the amounts paid as dividends on Move.com stock
and the corresponding amounts transferred to Cendant Group in respect of
its retained interest in Move.com Group cannot exceed the available
dividend amount for Move.com Group.
The "available dividend amount" for Cendant Group and Move.com Group, as the
case may be, is based on the amount that would be legally available for the
payment of dividends under Delaware law if either Cendant Group or Move.com
Group, as applicable, was a single, separate Delaware corporation. For more
information on the "available dividend amount" for Cendant Group and Move.com
Group, see "Description of Capital Stock--Dividends." We expect that
determinations to pay dividends on Move.com stock would be based primarily upon
the financial condition, results of operations, capital requirements, any
restrictions contained in financing or other agreements binding upon us and
other factors that the board of directors deems relevant.
34
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Cendant as of
December 31, 1999, as adjusted to give effect to:
- the re-classification of existing common stock of Cendant into CD stock
and the creation of Move.com stock,
- the offering at an assumed initial public offering price of $
per share, after deducting estimated underwriting discounts and estimated
expenses and assuming the underwriters do not exercise their option to
purchase additional shares, and
- the closing of the concurrent offering and the sales of shares to Liberty
Digital, Inc., Chatham Street Holdings LLC, and NRT Incorporated.
These tables should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Cendant
Corporation" and the consolidated financial statements and the notes to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents $ 1,164
=======
Long-term debt(1) $ 2,445
-------
Mandatorily redeemable preferred securities issued by
subsidiary trust holding solely senior debentures issued
by Cendant 1,478
-------
Shareholders' equity:
Preferred stock, $0.01 par value, 10 million shares
authorized; none issued and outstanding --
Move.com stock, $0.01 par value, 500 million shares
authorized; none issued and outstanding
CD stock, $0.01 par value, 2 billion shares authorized;
issued 870,399,635 9
Additional paid-in capital 4,102
Retained earnings 1,425
Accumulated other comprehensive loss (42)
Treasury stock, at cost, 163,818,148 shares (3,288)
-------
Total shareholders' equity 2,206
-------
Total capitalization $ 6,129
=======
Net book value per share $ 3.12
=======
Net tangible book value per share $ (2.44)
=======
</TABLE>
- ------------------------
(1) Long-term debt excludes an aggregate of $2.3 billion of indebtedness of PHH,
one of our subsidiaries, which is self sufficient in managing its funding
sources to ensure adequate liquidity to finance assets under management.
35
<PAGE>
SELECTED FINANCIAL DATA OF CENDANT CORPORATION
The following selected consolidated financial data is qualified by reference
to, and should be read in conjunction with, the consolidated financial
statements and the notes to those statements for Cendant Corporation and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Cendant Corporation" appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net revenues $ 5,402 $ 5,284 $ 4,240 $ 3,238 $2,616
------- ------- ------- ------- ------
Operating expense 1,795 1,870 1,322 1,183 1,025
Marketing and reservation expense 1,017 1,158 1,032 911 744
General and administrative expense 671 666 636 341 283
Depreciation and amortization expense 371 323 238 146 100
Other charges 3,032(1) 838(2) 704(3) 109(4) 97(5)
Interest expense, net 199 114 51 14 17
Net gain on dispositions of businesses (1,109) -- -- -- --
Provision (benefit) for income taxes (406) 104 191 220 143
Minority interest, net of tax 61 51 -- -- --
------- ------- ------- ------- ------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (229) $ 160 $ 66 $ 314 $ 207
======= ======= ======= ======= ======
INCOME (LOSS) FROM CONTINUING OPERATIONS PER SHARE:
Basic $ (0.30) $ 0.19 $ 0.08 $ 0.41 $ 0.30
Diluted (0.30) 0.18 0.08 0.39 0.28
FINANCIAL POSITION
Total assets $15,149 $20,217 $14,073 $12,763 $8,520
Long-term debt 2,445 3,363 1,246 781 336
Assets under management and mortgage programs 2,726 7,512 6,444 5,729 4,956
Debt under management and mortgage programs 2,314 6,897 5,603 5,090 4,428
Mandatorily redeemable preferred securities
issued by subsidiary holding solely senior
debentures issued by the Company 1,478 1,472 -- -- --
Shareholders' equity 2,206 4,836 3,921 3,956 1,898
OTHER INFORMATION(6)
Cash flows provided by (used in):
Operating activities $ 3,032 $ 808 $ 1,213 $ 1,493 $1,144
Investing activities 1,860 (4,352) (2,329) (3,091) (1,789)
Financing activities (4,788) 4,690 901 1,781 661
</TABLE>
- ------------------------------
(1) Represents charges of (i) $2,894 million ($1,839 million, after tax or
$2.45 per diluted share) associated with the preliminary agreement to settle
the principal shareholder securities class action suit, (ii) $7 million
($4 million, after tax or $0.01 per diluted share) in connection with the
termination of the proposed acquisition of RAC Motoring Services,
(iii) $21 million ($13 million, after tax or $0.02 per diluted share) of
investigation-related costs, (iv) $87 million ($49 million, after tax or
$0.07 per diluted share) comprised principally of an $85 million
($48 million, after tax or $0.06 per diluted share) charge incurred in
conjunction with the Netmarket Group, Inc. transaction and (v) $23 million
($15 million, after tax or $0.02 per diluted share) of additional charges to
fund an irrevocable contribution to an independent technology trust
responsible for completing the transition of the Company's lodging
franchisees to a Company sponsored property management system.
36
<PAGE>
(2) Represents charges of (i) $351 million ($228 million, after tax or $0.26
per diluted share) associated with the agreement to settle the PRIDES
securities class action suit, (ii) $433 million ($282 million, after tax or
$0.32 per diluted share) for the costs of terminating the proposed
acquisitions of American Bankers Insurance Group, Inc. and Providian Auto
and Home Insurance Company, and (iii) $121 million ($79 million, after tax
or $0.09 per diluted share) for investigation-related costs, including
incremental financing costs, and executive terminations. Such charges are
partially offset by a net credit of $67 million ($44 million, after tax or
$0.05 per diluted share) associated with changes to the estimate of
previously recorded merger-related costs and other unusual charges.
(3) Represents merger-related costs and other unusual charges of $704 million
($505 million, after tax or $0.58 per diluted share) primarily associated
with the merger of HFS Incorporated and CUC International Inc. and the
merger with PHH Corporation ("PHH") in April 1997.
(4) Represents merger-related costs and other unusual charges of $109 million
($70 million, after tax or $0.09 per diluted share) substantially related to
the Company's August 1996 merger with Ideon Group, Inc. ("Ideon").
(5) Represents a provision of $97 million ($62 million after tax or $0.08 per
diluted share) for costs related to the abandonment of certain Ideon
development efforts and the restructuring of certain Ideon operations.
(6) There were no dividends declared during the periods presented above except
for PHH and Ideon, which declared and paid dividends to their shareholders
prior to their respective mergers with the Company.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CENDANT CORPORATION
OVERVIEW
We are one of the foremost providers of real estate related, travel related
and direct marketing consumer and business services in the world. We were
created through the December 1997 merger (the "Cendant Merger") of HFS
Incorporated ("HFS") and CUC International Inc. ("CUC"). We provide business
services to our customers, many of which are consumer services companies, and
also provide fee-based services directly to consumers, generally without owning
the assets or sharing the risks associated with the underlying businesses of our
customers or collaborative partners.
We operate in four principal divisions--travel related services, real estate
related services, direct marketing services and diversified services. Our
businesses provide a wide range of complementary consumer and business services,
which together represent eight business segments. The travel related services
businesses facilitate vacation timeshare exchanges and franchise car rental and
hotel businesses; the real estate related services businesses franchise real
estate brokerage businesses, provide home buyers with mortgages, assist in
employee relocation and provide consumers with relocation, real estate and
home-related products and services through the move.com network of Web sites;
and the direct marketing services businesses, provide an array of value driven
products and services. Our diversified services include our tax preparation
services franchise, information technology services, car parking facility
services and other consumer-related services.
As a franchisor of hotels, real estate brokerage offices, car rental
operations and tax preparation services, we license the owners and operators of
independent businesses to use our brand names. We do not own or operate hotels,
real estate brokerage offices, car rental operations or tax preparation offices
(except for certain company-owned Jackson Hewitt Inc. offices, which we intend
to franchise). Instead, we provide our franchisee customers with services
designed to increase their revenue and profitability.
In connection with our previously announced program to focus on maximizing
the opportunities and growth potential of our existing businesses, we divested
several non-strategic businesses and assets and have completed or commenced
certain other strategic initiatives related to our Internet businesses. Pursuant
to such program, we completed the dispositions of North American Outdoor Group,
Global Refund Group, the fleet business segment, Central Credit, Inc., Spark
Services, Inc., Match.com, National Leisure Group, National Library of Poetry,
Essex Corporation, Cendant Software Corporation, Hebdo Mag International, Inc.,
the Green Flag Group and Entertainment Publications, Inc. As a result of the
divestitures program, we divested former CUC businesses representing
approximately 45% of CUC's revenues in 1997, the year in which CUC merged with
HFS (see "Liquidity and Capital Resources--Divestitures").
In addition to the above mentioned divestitures, we have recently initiated
certain Internet strategies outlined below.
On March 21, 2000, our stockholders approved a proposal authorizing a new
series of Cendant common stock to track the performance of the Move.com Group,
an operator of a popular network of Web sites, which offer a wide selection of
quality relocation, real estate and home-related products and services. The
Move.com Group will integrate and enhance the online efforts of our residential
real estate brands and those of our other real estate business units drawing on
the success of our RentNet, Inc. ("RentNet") online apartment guide model. The
Move.com Group commenced operations in the third quarter of 1999 with the
move.com Internet site, our flagship site, becoming functional during
January 2000. Prior to the formation of the Move.com Group, RentNet's historical
financial information was included in our individual membership segment.
38
<PAGE>
The Move.com Group currently generates the following types of revenue from
its business partners: listing subscription fees, advertising fees, e-commerce,
and Web site management fees. E-commerce revenue primarily includes mortgage
referral and marketing fees. In addition to the move.com site itself, the
Move.com Group assets include RentNet, our online apartment rental business
acquired in January 1996 and previously included in our individual membership
segment, National Home Connections, LLC, a facilitator of connecting and
disconnecting utilities, processor of address changes and facilitator of moving
related services and products, which was acquired in May 1999, and the assets of
MetroRent, an online provider of apartment rental listings for buildings with 25
or fewer units, which was acquired in December 1999.
On September 15, 1999, we donated Netmarket Group, Inc., ("NGI") outstanding
common stock to a charitable trust and NGI began operations as an independent
company that will pursue the development of certain interactive businesses
formerly within our direct marketing division. For a detailed discussion
regarding the NGI transaction, see "Merger-Related Costs and Other Unusual
Charges (Credits)--1999."
The following discussion should be read in conjunction with the information
contained in our Consolidated Financial Statements and accompanying Notes
thereto included elsewhere herein.
CONSOLIDATED OPERATIONS--1999 VS. 1998
REVENUES
Revenues increased $118 million (2%) in 1999 over 1998, which reflected
growth in substantially all of our reportable operating segments despite the
effects of dispositions of non-strategic businesses. Significant contributing
factors which gave rise to such revenue growth included an increase in the
amount of royalty fees received from our franchised brands within both our
travel and real estate franchise segments and an increase in loan servicing
revenues within our mortgage segment. In addition, we experienced growth and
efficiencies within our direct marketing businesses. Revenues in 1999 included
the full year operating results of our car park subsidiary, which was acquired
in April 1998, compared to the post acquisition period in 1998. A detailed
discussion of revenue trends from 1998 to 1999 is included in the section
entitled "Results of Reportable Operating Segments--1999 vs. 1998."
OTHER CHARGES
LITIGATION SETTLEMENTS. On December 7, 1999, we reached a preliminary
agreement to settle the principal securities class actions pending against us,
other than certain claims relating to FELINE PRIDES securities discussed below.
As a result of the settlement, we recorded a pre-tax charge of approximately
$2.89 billion, an increase from approximately $2.87 billion previously reported.
The increase is primarily the result of continued negotiation toward definitive
documents relating to additional costs to be paid to the plaintiff class. This
settlement is subject to final documentation and court approval (see "Liquidity
and Capital Resources--Litigation").
During 1998, we reached a final agreement to settle a class action lawsuit
that was brought on behalf of the holders of the FELINE PRIDES. As a result of
the settlement, we recorded a pre-tax charge of $351 million.
TERMINATION OF PROPOSED ACQUISITIONS. During 1999, we announced our
intention not to proceed with the acquisition of RAC Motoring Services and
recorded a $7 million charge in connection with the write-off of acquisition
costs. During 1998, we recorded a $433 million charge in connection with the
termination of the proposed acquisitions of American Bankers Insurance
Group, Inc. and Providian Auto and Home Insurance Company.
39
<PAGE>
INVESTIGATION-RELATED COSTS. During 1999 and 1998, we incurred
investigation-related costs of $21 million and $33 million, respectively, in
connection with our discovery and announcement of accounting irregularities on
April 15, 1998.
MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES (CREDITS). During 1999 and
1998, we recorded merger-related costs and other unusual charges (credits) of
$110 million and ($67) million, respectively (see "Merger-Related Costs and
Other Unusual Charges (Credits)").
OTHER CHARGES. During 1998, we incurred other charges of $53 million and
$35 million in connection with the termination of certain of our former
executives and investigation-related financing costs, respectively.
For a detailed discussion regarding Other Charges, see Note 5 to the
Consolidated Financial Statements.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $48 million (15%) in 1999
over 1998 as a result of incremental amortization of goodwill and other
intangible assets from 1998 acquisitions and capital spending primarily to
support growth and enhance marketing opportunities in our businesses, partially
offset by the impact of the disposal of non-strategic businesses.
INTEREST EXPENSE AND MINORITY INTEREST
Interest expense, net increased $85 million (75%) in 1999 over 1998
primarily as a result of an increase in the average debt balances outstanding
and a nominal increase in the cost of funds. In addition, the composition of
average debt balances during 1999 included longer term fixed rate debt carrying
higher interest rates as compared to 1998. The weighted average interest rate on
long-term debt increased to 6.4% in 1999 from 6.2% in 1998. Minority interest,
net of tax increased $10 million (20%). Minority interest, net of tax is
primarily related to distributions payable in cash on our FELINE PRIDES and the
trust preferred securities issued in February 1998.
NET GAIN ON DISPOSITIONS OF BUSINESSES
During 1999, we recorded a net gain of $1.1 billion in connection with the
disposition of certain non-strategic businesses. For a detailed discussion
regarding such dispositions, see "Liquidity and Capital Resources--Divestiture
Program."
PROVISION (BENEFIT) FOR INCOME TAXES
Our effective tax rate increased to a benefit of 70.7% in 1999 from an
expense of 33.2% in 1998 primarily due to the impact of the disposition of our
fleet businesses which was accounted for as a tax-free merger. Accordingly,
nominal income taxes were provided on the net gain realized upon such
disposition.
DISCONTINUED OPERATIONS
Pursuant to our program to divest non-strategic businesses and assets, we
disposed of our consumer software and classified advertising businesses in
January 1999 and December 1998, respectively. During 1998, we recorded a
$405 million gain, net of tax, on the disposal of discontinued operations, which
included our classified advertising and consumer software businesses. During
1999, we recorded an additional $174 million gain, net of tax, on the sale of
discontinued operations, related to
40
<PAGE>
the disposition of our consumer software business, coincident with the closing
of the transaction and in connection with certain post-closing adjustments. Loss
from discontinued operations, net of tax, was $25 million in 1998. For a
detailed discussion regarding discontinued operations, see Note 4 to the
Consolidated Financial Statements.
NET INCOME (LOSS)
Net income (loss) for 1999 decreased $595 million from 1998. Excluding the
impact of (i) other charges in 1999 and 1998 of $1.92 billion and $545 million,
respectively; (ii) net gain on dispositions of businesses in 1999 of
$879 million and (iii) results of discontinued operations in 1999 and 1998 of
$174 million and $380 million, respectively, net income increased $107 million
(15%). The increase in net income reflected growth in our continuing businesses,
see "Results of Reportable Operating Segments 1999 vs. 1998."
RESULTS OF REPORTABLE OPERATING SEGMENTS--1999 VS. 1998
The underlying discussions of each segment's operating results focuses on
Adjusted EBITDA, which is defined as earnings before non-operating interest,
income taxes, depreciation, amortization, and minority interest, adjusted to
exclude net gains on dispositions of businesses and certain other charges which
are of a non-recurring or unusual nature and are not included in assessing
segment performance or are not segment-specific. Our management believes such
discussion is the most informative representation of how management evaluates
performance. However, our presentation of Adjusted EBITDA may not be comparable
with similar measures used by other companies. For additional information,
including a description of the services provided in each of our reportable
operating segments, see Note 24 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
ADJUSTED
EBITDA
REVENUES ADJUSTED EBITDA MARGIN
------------------------------ ------------------------------ -------------------
(DOLLARS IN MILLIONS) 1999 1998 % CHANGE 1999(1) 1998(2) % CHANGE 1999 1998
- --------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Travel $1,148 $1,063 8% $ 586 $ 542 8% 51% 51%
Individual Membership 972 920 6% 127 (59) * 13% (6%)
Insurance/Wholesale 575 544 6% 180 138 30% 31% 25%
Real Estate Franchise 571 456 25% 424 349 21% 74% 77%
Relocation 415 444 (7%) 122 125 (2%) 29% 28%
Mortgage 397 353 12% 182 188 (3%) 46% 53%
Move.com Group 18 10 80% (22) 1 * * 10%
Diversified Services 1,099 1,107 (1%) 239 132 81% 22% 12%
Fleet 207 387 * 81 174 * 39% 45%
------ ------ ------ ------
Total $5,402 $5,284 2% $1,919 $1,590 21% 36% 30%
====== ====== ====== ======
</TABLE>
- ------------------------------
* Not meaningful.
(1) Excludes (i) a charge of $2.9 billion associated with the preliminary
agreement to settle the principal shareholder securities class action suit,
(ii) a charge of $7 million in connection with the termination of the
proposed acquisition of RAC Motoring Services, (iii) a charge of
$21 million of investigation-related costs, (iv) a charge of $87 million
primarily incurred in connection with the Netmarket Group, Inc. transaction,
(v) $23 million of additional charges to fund an irrevocable contribution to
an independent technology trust responsible for completing the transition of
the Company's lodging franchisees to a Company sponsored property management
system and (vi) a credit of $1.1 billion for the net gain on the
dispositions of businesses.
(2) Excludes (i) a charge of $351 million associated with the agreement to
settle the PRIDES securities class action suit, (ii) charges of
$433 million for the costs of terminating the proposed acquisitions of
American Bankers Insurance Group, Inc.
41
<PAGE>
and Providian Auto and Home Insurance Company, (iii) charges of
$121 million for investigation-related costs, including incremental
financing costs, and executive terminations and (iv) a net credit of
$67 million associated with changes to the estimate of previously recorded
merger-related costs and other unusual charges.
TRAVEL
Revenues and Adjusted EBITDA increased $85 million (8%) and $44 million
(8%), respectively, in 1999 compared to 1998. Franchise fees increased
$39 million (7%) in 1999, consisting of increases in lodging and car rental
franchise fees of $26 million (7%) and $13 million (8%), respectively. Our
franchise businesses experienced growth in 1999 compared to 1998 primarily due
to increases in the amount of weighted average available rooms (24,000
incremental rooms domestically) and car rental days. Timeshare subscriptions and
exchange revenues increased $18 million (5%), primarily as a result of increased
volume. Also contributing to the revenue and Adjusted EBITDA increases was an
$11 million bulk timeshare exchange transaction in 1999, largely offset by a
$7 million decrease in gains from the sale of portions of our equity investment
in Avis Rent A Car, Inc. ("ARAC"). The Adjusted EBITDA margin remained unchanged
at 51% in 1999. Total expenses increased $40 million (8%), primarily due to
increased volume; however, such increase included a $19 million increase in
marketing and reservation fund expenses associated with our lodging franchise
business unit that was offset by increased marketing and reservation revenues
received from franchisees.
INDIVIDUAL MEMBERSHIP
Revenues and Adjusted EBITDA increased $52 million (6%) and $186 million,
respectively, in 1999 compared to 1998. The Adjusted EBITDA margin improved to
positive 13% from negative 6% for the same periods. The revenue growth is
principally due to a greater number of members added year over year and
increases in the average price of a membership. The increase in the Adjusted
EBITDA margin is primarily due to the revenue increases, since many of the
infrastructure costs associated with providing services to members are not
dependent on revenue volume, and reduction in solicitation spending, as we
further refined the targeted audiences for our direct marketing efforts and
achieved greater efficiencies in reaching potential new members. Beginning
September 15, 1999, certain of individual membership's online businesses were no
longer consolidated into our operations as a result of the NGI transaction. In
October 1999, we completed the divestiture of our North American Outdoor Group
("NAOG") business unit. The operating results of our former online membership
businesses and NAOG were included through their respective disposition dates in
1999 versus being included for the full year in 1998. The divested businesses
accounted for a net increase in revenues and Adjusted EBITDA of $11 million and
$21 million, respectively in 1999 versus 1998. Excluding the operating results
of our former online businesses and NAOG, revenues and Adjusted EBITDA increased
$41 million and $165 million, respectively, in 1999 over 1998 and the Adjusted
EBITDA margin increased to positive 18% from negative 3%. Additionally, revenues
and Adjusted EBITDA in 1999 were incrementally benefited $13 million and
$5 million, respectively, by the April 1998 acquisition of a company that, among
other services, provides members with access to their personal credit
information.
INSURANCE/WHOLESALE
Revenues and Adjusted EBITDA increased $31 million (6%) and $42 million
(30%), respectively, in 1999 compared to 1998 primarily due to customer growth,
which resulted from increases in affiliations with financial institutions. The
increase in affiliations with financial institutions was attributable
principally to international expansion, while the Adjusted EBITDA increase was
due to improved profitability in international markets as well as a $25 million
expense decrease related to longer amortization periods for certain customer
acquisition costs as a result of a change in accounting estimate. International
revenues and Adjusted EBITDA increased $28 million (23%) and $15 million (164%),
respectively,
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<PAGE>
primarily due to a 37% increase in customers. The Adjusted EBITDA margin
increased to 31% in 1999 from 25% in 1998. The Adjusted EBITDA margin for
domestic operations was 37% in 1999, versus 31% in 1998. The Adjusted EBITDA
margin for international operations was 16% for 1999, versus 7% in 1998.
Domestic operations, which represented 74% of segment revenues in 1999,
generated higher Adjusted EBITDA margins than international operations as a
result of continued expansion costs incurred internationally to penetrate new
markets. International operations, however, have become increasingly profitable
as they have expanded over the last two years.
REAL ESTATE FRANCHISE
Revenues and Adjusted EBITDA increased $115 million (25%) and $75 million
(21%), respectively, in 1999 compared to 1998. Royalty fees for the CENTURY
21(-Registered Trademark-), COLDWELL BANKER(-Registered Trademark-) and
ERA(-Registered Trademark-) franchise brands collectively increased by
$67 million (17%) primarily as a result of a 5% increase in home sale
transactions by franchisees and an 8% increase in the average price of homes
sold. Home sales by franchisees benefited from strong existing domestic home
sales for the majority of 1999, as well as from expansion of our franchise
system. Existing domestic home sales are expected to decline compared to 1999 as
a result of increases in interest rates. Declining home sales will impact
royalty income since royalty income is based on gross commission income earned
by agents and brokers on the sale of homes. These declines are expected to be
partially offset by increases in other areas of our business, such as real
estate franchise sales and higher home resale prices. Beginning in the second
quarter of 1999, the financial results of the advertising funds for the COLDWELL
BANKER-Registered Trademark- and ERA-Registered Trademark- brands were
consolidated into the results of the real estate franchise segment, increasing
revenues by $31 million and expenses by a like amount, with no impact on
Adjusted EBITDA. Revenues in 1999 benefited from $20 million generated from the
sale of portions of our preferred stock investment in NRT Incorporated ("NRT"),
the independent company we helped form in 1997 to serve as a consolidator of
residential real estate brokerages. Since most costs associated with the real
estate franchise business do not vary significantly with revenues, the increases
in revenues, exclusive of the aforementioned consolidation of the advertising
funds, contributed to an improvement of the Adjusted EBITDA margin to 79% in
1999 from 77% in 1998.
RELOCATION
Revenues and Adjusted EBITDA decreased $29 million (7%) and $3 million (2%),
respectively, in 1999 compared with 1998 and the Adjusted EBITDA margin
increased to 29% in 1999 from 28% in 1998. Operating results in 1999 benefited
from a $13 million increase in referral fees and international relocation
service revenue, offset by a comparable decline in home sales revenue. Total
expenses decreased $26 million (8%), which included $15 million in cost savings
from regional operations, technology and telecommunications, and $11 million in
reduced expenses resulting from reduced government home sales and the sale of an
asset management company in the third quarter of 1998. The asset management
company contributed 1998 revenues and Adjusted EBITDA of $21 million and
$16 million, respectively. In 1999, revenues and Adjusted EBITDA benefited from
the sale of a minority interest in an insurance subsidiary, which resulted in
$7 million of additional revenue and Adjusted EBITDA. In 1998, revenues and
Adjusted EBITDA also benefited from an improvement in receivable collections,
which permitted an $8 million reduction in billing reserve requirements.
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<PAGE>
MORTGAGE
Revenues increased $44 million (12%) and Adjusted EBITDA decreased
$6 million (3%), respectively, in 1999 compared with 1998. The increase in
revenues resulted from a $32 million increase in loan servicing revenues and a
$12 million increase in loan closing revenues. The average servicing portfolio
increased $10 billion (29%), with the average servicing fee increasing
approximately seven basis points because of a reduction in the rate of
amortization on servicing assets. The reduced rate of amortization was caused by
higher mortgage interest rates in 1999. Total mortgage closing volume in 1999
was $25.6 billion, a decline of $400 million from 1998. However, purchase
mortgage volume (mortgages for home buyers) increased $3.7 billion (24%) to
$19.1 billion, offset by a $4.2 billion decline in mortgage refinancing volume.
Moreover, purchase mortgage volume from the teleservices business (Phone In--
Move In) and Internet business (Log In--Move In) increased $4.7 billion (63%),
primarily because of increased purchase volume from our real estate franchisees.
Industry origination volume is expected to be lower in 2000 compared to 1999 as
a result of recent increases in interest rates and reduced refinancing volume.
We expect to offset lower refinancing volume with increased purchase mortgage
volume in 2000. The Adjusted EBITDA margin decreased from 53% in 1998 to 46% in
1999. Adjusted EBITDA decreased in 1999 because of a $17 million increase in
expenses incurred within servicing operations for the larger of the increase in
the average servicing portfolio and other expense increases for technology,
infrastructure and teleservices to support capacity for volume anticipated in
future periods. We anticipate that increased costs to support future volume will
negatively impact Adjusted EBITDA through the first six months of 2000.
MOVE.COM GROUP
Move.com Group provides a broad range of quality relocation, real estate,
and home-related products and services through its flagship portal site,
move.com, and the move.com network. Revenues increased $8 million (80%) to
$18 million, while Adjusted EBITDA decreased $23 million to a loss of
$22 million in 1999 compared to 1998. These results reflect our increased
investment in marketing and development of the portal and retention bonuses paid
to Move.com Group employees.
DIVERSIFIED SERVICES
Revenues decreased $8 million (1%) and Adjusted EBITDA increased
$107 million (81%), in 1999 compared to 1998. The April 1998 acquisition of
National Car Park ("NCP") subsidiary, contributed incremental revenues and
Adjusted EBITDA of $103 million and $48 million, respectively, in 1999 over
1998. Also contributing to an increase in revenues and Adjusted EBITDA in 1999
was $39 million of incremental income from investments and $13 million of
revenues recognized in connection with a litigation settlement. The
aforementioned revenue increases were partially offset by the impact of disposed
operations, including Essex Corporation ("Essex") in January 1999, National
Leisure Group and National Library of Poetry ("NLP") in May 1999, Spark
Services, Inc. and Global Refund Group in August 1999, Central Credit, Inc. in
September 1999 and Entertainment Publications, Inc. ("EPub") and Green Flag
Group ("Green Flag") in November 1999. The operating results of disposed
businesses were included through their respective disposition dates in 1999
versus being included for the full year in 1998 (except for Green Flag which was
acquired in April 1998). Accordingly, revenues from divested businesses were
incrementally less in 1999 by $138 million while Adjusted EBITDA improved
$15 million. The increase in Adjusted EBITDA in 1999 over 1998 also reflects
offsetting reductions in preferred alliance revenues and corporate expenses.
FLEET
On June 30, 1999, we completed the disposition of our fleet business segment
(see "Liquidity and Capital Resources--Divestiture Program--Fleet). Revenues and
Adjusted EBITDA were $207 million
44
<PAGE>
and $81 million, respectively, in the first six months of 1999 and $387 million
and $174 million, respectively, for the full year in 1998.
CONSOLIDATED OPERATIONS--1998 VS. 1997
REVENUES
Revenues increased $1.0 billion (25%) in 1998 over 1997, which reflected
growth in substantially all of our reportable operating segments. Significant
contributing factors which gave rise to such increases included substantial
growth in the volume of mortgage services provided and an increase in the amount
of royalty fees received from our franchised brands, principally within the real
estate franchise segment.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $85 million (36%) in 1998
over 1997 as a result of incremental amortization of goodwill and other
intangible assets from 1998 acquisitions and increased capital spending
primarily to accommodate growth in our businesses.
OTHER CHARGES
We recorded a $351 million charge in connection with an agreement to settle
a class action lawsuit that was brought on behalf of the holders of our Income
and Growth FELINE PRIDES securities who purchased their securities on or prior
to April 15, 1998. In addition, we recorded a $433 million charge related to the
termination of proposed acquisitions, a $53 million charge related to the
termination of certain of our former executives, and charges of $33 million and
$35 million, respectively, of investigation-related costs and
investigation-related financing costs. In addition, we recorded merger-related
and other unusual charges (credits) of ($67) million and $704 million during
1998 and 1997, respectively. For a more detailed discussion of such charges
(credits) see "Merger-Related Costs and Other Unusual Charges (Credits)" and
Note 5 to the Consolidated Financial Statements.
INTEREST EXPENSE AND MINORITY INTEREST
Interest expense, net increased $63 million (124%) in 1998 over 1997
primarily as a result of incremental average borrowings during 1998 and a
nominal increase in the cost of funds. We primarily used debt to finance
$2.9 billion of acquisitions and investments during 1998, which resulted in an
increase in the average debt balance outstanding as compared to 1997. The
weighted average interest rate on long-term debt increased from 6.0% in 1997 to
6.2% in 1998. In addition to interest expense on long-term debt, we also
incurred $51 million of minority interest, net of tax, primarily related to the
preferred dividends payable in cash on our FELINE PRIDES and trust preferred
securities issued in March 1998.
PROVISION FOR INCOME TAXES
Our effective tax rate was reduced to 33.2% in 1998 from 74.3% in 1997 due
to the non-deductibility of a significant amount of unusual charges recorded
during 1997 and the favorable impact in 1998 of reduced rates in international
tax jurisdictions in which we commenced business operations during 1998. The
1997 effective income tax rate included a tax benefit on 1997 unusual charges,
which were deductible at an effective rate of only 29.1%. Excluding unusual
charges, the effective income tax rate on income from continuing operations in
1997 was 40.6%.
DISCONTINUED OPERATIONS
Pursuant to our program to divest non-strategic businesses and assets, we
committed to discontinue our consumer software and classified advertising
businesses in August 1998 and subsequently
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<PAGE>
sold such businesses in January 1999 and December 1998, respectively. We
recorded a $405 million gain, net of tax on the disposition of such businesses
in 1998. Loss from discontinued operations, net of tax was $25 million in 1998
compared to $26 million in 1997.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In August 1998, we changed our accounting policy with respect to revenue and
expense recognition for our membership businesses, effective January 1, 1997,
and recorded a non-cash after-tax charge of $283 million to account for the
cumulative effect of an accounting change.
NET INCOME (LOSS)
Net income (loss) for 1998 increased $757 million from 1997. Excluding the
impact of (i) other charges of in 1998 and 1997 of $545 million and
$505 million, respectively; (ii) results of discontinued operations in 1998 and
1997 of $380 million and ($26) million, respectively, and (iii) the cumulative
effect of accounting change of $283 million, net income increased $108 million
(18%). The increase in net income reflected growth in our continuing businesses,
see "Results of Reportable Operating Segments--1998 vs. 1997."
RESULTS OF REPORTABLE OPERATING SEGMENTS--1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
ADJUSTED
EBITDA
REVENUES ADJUSTED EBITDA MARGIN
------------------------------ ------------------------------ -------------------
1998 1997 % CHANGE 1998 (1) 1997 (2) % CHANGE 1998 1997
(DOLLARS IN MILLIONS) -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Travel $1,063 $ 971 9% $ 542 $ 467 16% 51% 48%
Individual Membership 920 773 19% (59) 6 * (6%) 1%
Insurance/Wholesale 544 483 13% 138 111 24% 25% 23%
Real Estate Franchise 456 335 36% 349 227 54% 77% 68%
Relocation 444 402 10% 125 93 34% 28% 23%
Mortgage 353 179 97% 188 75 151% 53% 42%
Move.com Group 10 6 67% 1 (1) 200% 10% (17%)
Diversified Services 1,107 767 44% 132 151 (13%) 12% 20%
Fleet 387 324 19% 174 121 44% 45% 37%
------ ------ ------ ------
Total $5,284 $4,240 25% $1,590 $1,250 27% 30% 29%
====== ====== ====== ======
</TABLE>
- ------------------------------
* Not meaningful.
(1) Excludes (i) a charge of $351 million associated with the agreement to
settle the PRIDES securities class action suit, (ii) charges of
$433 million for the costs of terminating the proposed acquisitions of
American Bankers Insurance Group, Inc. and Providian Auto and Home Insurance
Company, (iii) charges of $121 million for investigation-related costs,
including incremental financing costs, and executive terminations and
(iv) a net credit of $67 million associated with changes to the estimate of
previously recorded merger-related costs and other unusual charges.
(2) Excludes unusual charges of $704 million primarily associated with the
Cendant Merger and the PHH Merger.
46
<PAGE>
TRAVEL
Revenues and Adjusted EBITDA increased $92 million (9%) and $75 million
(16%), respectively, in 1998 over 1997. Contributing to the revenue and Adjusted
EBITDA increase was a $35 million (7%) increase in franchise fees, consisting of
increases of $23 million (6%) and $12 million (8%) in lodging and car rental
franchise fees, respectively. Our franchise businesses experienced increases
during 1998 in worldwide available rooms (29,800 incremental rooms,
domestically), revenue per available room, car rental days and average car
rental rates per day. Timeshare subscription and exchange revenue increased
$27 million (9%) as a result of a 7% increase in average membership volume and a
4% increase in the number of exchanges. Also contributing to the revenue and
Adjusted EBITDA increase was $16 million of incremental fees received from
preferred alliance partners seeking access to our franchisees and their
customers, $13 million of fees generated from the execution of international
master license agreements and an $18 million gain on our sale of one million
shares of ARAC common stock in 1998. The aforementioned drivers supporting
increases in revenues and Adjusted EBITDA were partially offset by a
$37 million reduction in the equity in earnings of our investment in the car
rental operations of ARAC as a result of reductions in our ownership percentage
in such investment during 1997 and 1998. A $17 million (7%) increase in
marketing and reservation costs resulted in the $17 million increase in total
expenses while other operating expenses were relatively flat due to leveraging
our corporate infrastructure among more businesses, which contributed to an
improvement in the Adjusted EBITDA margin from 48% in 1997 to 51% in 1998.
INDIVIDUAL MEMBERSHIP
Revenues increased $147 million (19%) in 1998 over 1997 while Adjusted
EBITDA and Adjusted EBITDA margin decreased $65 million and 7 percentage points,
respectively, for the same period. The revenue growth was primarily attributable
to an incremental $28 million associated with an increase in the average price
of a membership, $26 million of increased billings as a result of incremental
marketing arrangements, primarily with telephone and mortgage companies, and
$36 million from the acquisition of a company in April 1998 that, among other
services, provides members access to their personal credit information. Also
contributing to the revenue growth are increased product sales and service fees,
which are offered and provided to individual members. The reduction in Adjusted
EBITDA and the Adjusted EBITDA margin is a direct result of a $104 million (25%)
increase in membership solicitation costs. We increased our marketing efforts
during 1998 to solicit new members and as a result increased our gross average
annual membership base by approximately 3 million members (11%) at December 31,
1998, compared to the prior year. The growth in members during 1998 resulted in
increased servicing costs during 1998 of approximately $33 million (13%). While
the costs of soliciting and acquiring new members were expensed in 1998, the
revenue associated with these new members will not begin to be recognized until
1999, upon expiration of the membership period.
INSURANCE/WHOLESALE
Revenues and Adjusted EBITDA increased $61 million (13%) and $27 million
(24%), respectively, in 1998 over 1997, primarily due to customer growth. This
growth generally resulted from increases in affiliations with financial
institutions. Domestic operations, which comprised 77% of segment revenues in
1998, generated higher Adjusted EBITDA margins than the international businesses
as a result of continued expansion costs incurred internationally to penetrate
new markets.
Domestic revenues and Adjusted EBITDA increased $25 million (6%) and
$24 million (22%), respectively. Revenue growth, which resulted from an increase
in customers, also contributed to an improvement in the overall Adjusted EBITDA
margin from 23% in 1997 to 25% in 1998, as a result of the absorption of such
increased volume by the existing domestic infrastructure. International revenues
and Adjusted EBITDA increased $36 million (41%) and $3 million (54%),
respectively, due primarily to a 42% increase in customers while the Adjusted
EBITDA margin remained relatively flat at 7%.
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<PAGE>
REAL ESTATE FRANCHISE
Revenues and Adjusted EBITDA increased $121 million (36%) and $122 million
(54%), respectively, in 1998 over 1997. Royalty fees collectively increased for
our CENTURY 21, COLDWELL BANKER and ERA franchise brands by $102 million (35%)
as a result of a 20% increase in home sales by franchisees and a 13% increase in
the average price of homes sold. Home sales by franchisees benefited from
existing home sales in the United States reaching a record 5 million units in
1998, according to data from the National Association of Realtors, as well as
from expansion of our franchise systems. Because many costs associated with the
real estate franchise business, such as franchise support and information
technology, do not vary directly with home sales volumes or royalty revenues,
the increase in royalty revenues contributed to an improvement in the Adjusted
EBITDA margin from 68% to 77%.
RELOCATION
Revenues and Adjusted EBITDA increased $42 million (10%) and $32 million
(34%), respectively, in 1998 over 1997. The Adjusted EBITDA margin improved from
23% to 28%. The primary source of revenue growth was a $29 million increase in
revenues from the relocation of government employees. We also experienced growth
in the number of relocation-related services provided to client corporations and
in the number of household goods moves handled, partially offset by lower home
sale volumes. The divestiture of certain niche-market property management
operations accounted for other revenue of $8 million. Expenses associated with
government relocations increased in conjunction with the volume and revenue
growth, but economies of scale and a reduction in overhead and administrative
expenses permitted the reported improvement in the Adjusted EBITDA margin.
MORTGAGE
Revenues and Adjusted EBITDA increased $174 million (97%) and $113 million
(151%), respectively, in 1998 over 1997, primarily due to strong mortgage
origination growth and average fee improvement. The Adjusted EBITDA margin
improved from 42% to 53%. Mortgage origination grew across all lines of
business, including increased refinancing activity and a shift to more
profitable sale and processing channels and was responsible for substantially
all of the segment's revenue growth. Mortgage closings increased $14.3 billion
(122%) to $26.0 billion and average origination fees increased 12 basis points,
resulting in a $180 million increase in origination revenues. Although the
servicing portfolio grew $9.6 billion (36%), net servicing revenue was
negatively impacted by average servicing fees declining 7 basis points due to
the increased refinancing levels in the 1998 mortgage market, which shortened
the servicing asset life and increased amortization charges. Consequently, net
servicing revenues decreased $9 million, partially offset by a $6 million
increase in the sale of servicing rights. Operating expenses increased in all
areas, reflecting increased hiring and expansion of capacity in order to support
continued growth; however, revenue growth marginally exceeded such
infrastructure enhancements.
MOVE.COM GROUP
Revenues and Adjusted EBITDA increased $4 million (67%) and $2 million
(200%), respectively, in 1998 compared to 1997, primarily due to increases in
listings, prices and the addition of new sponsors on the RentNet site.
Offsetting the increase in revenue were increases in expenses primarily related
to selling and marketing, product development and personnel costs. The revenues
and expenses include only the operations of RentNet, which has been attributed
to the Move.com Group. RentNet was previously included in our individual
membership segment.
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<PAGE>
DIVERSIFIED SERVICES
Revenues increased $340 million (44%), while Adjusted EBITDA decreased
$19 million (13%). Revenues increased primarily from acquired NCP, Green Flag
and Jackson Hewitt Inc. operations, which contributed $410 million and
$54 million to 1998 revenues and Adjusted EBITDA, respectively. The revenue
increase attributable to 1998 acquisitions was partially offset by a
$140 million reduction in revenues associated with the operations of certain of
our ancillary businesses which were sold during 1997, including Interval
International, Inc. ("Interval"), which contributed $121 million to 1997
revenues.
The revenue increase did not translate into increases in Adjusted EBITDA
primarily due to asset write-offs, dispositions of certain ancillary business
operations and approximately $8 million of incre-mental operating costs
associated with establishing a consolidated worldwide data center. We wrote-off
$37 million of impaired goodwill associated with NLP, and $13 million of certain
of our equity investments in interactive membership businesses. Adjusted EBITDA
in 1997 associated with aforementioned disposed ancillary operations included
$27 million from Interval and $18 million related to services formerly provided
to the casino industry. Our NCP, Green Flag and Jackson Hewitt Inc. subsidiaries
contributed $93 million and $27 million to 1998 Adjusted EBITDA, respectively.
FLEET
On June 30, 1999, we completed the disposition of our fleet business segment
for aggregate consideration of $1.8 billion (see "Liquidity and Capital
Resources--Divestiture Program--Fleet"). Fleet business segment revenues and
Adjusted EBITDA increased $63 million (19%) and $53 million (44%), respectively,
in 1998 over 1997, contributing to an improvement in the Adjusted EBITDA margin
from 37% to 45%. We acquired The Harpur Group Ltd. ("Harpur"), a fuel card and
vehicle management company in the United Kingdom ("UK"), on January 20, 1998.
Harpur contributed incremental revenues and Adjusted EBITDA in 1998 of
$32 million and $21 million, respectively. The revenue increase is further
attributable to a 12% increase in fleet leasing fees and a 31% increase in
service fee revenue. The fleet leasing revenue increase is due to a 5% increase
in pricing and a 7% increase in the number of vehicles leased, while the service
fee revenue increase is the result of a 40% increase in number of fuel cards and
vehicle maintenance cards partially offset by a 7% decline in pricing. The
Adjusted EBITDA margin improvement reflects streamlining of costs at newly
acquired Harpur and a leveraging of our corporate infrastructure among more
businesses.
MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES (CREDITS)
1999. On September 15, 1999, Netmarket Group, Inc. began operations as an
independent company that pursues the development of certain interactive
businesses formerly within our direct marketing division. NGI owns, operates and
develops the online membership businesses, including Netmarket.com, Travelers
Advantage, Auto Vantage, Privacy Guard and Hagglezone.com, which collectively
have approximately 1.4 million online members. Prior to September 15, 1999, our
ownership of NGI was restructured into common stock and preferred stock
interests. On September 15, 1999 (the "donation date"), we donated NGI's
outstanding common stock to a charitable trust (the "Trust"), and NGI issued
additional shares of its common stock to certain of its marketing partners. The
structure allows NGI to use its equity to attract, retain and incent employees
and permits NGI to pursue strategic alliances and acquisitions and to make
operational and strategic decisions without the need to consider the impact of
those decisions on Cendant. In addition, the contribution establishes a
charitable foundation that may enhance our image in the marketplace. Although no
assurances can be given, we believe the donation of NGI to a separate autonomous
entity will increase the likelihood that NGI will be successful and increase in
value thereby increasing the value of our investment. Our shareholders should
benefit from the potential increased value of NGI. The beneficiaries of the
Trust include The Inner City Games Foundation, the Susan G. Komen Breast Cancer
Foundation, Inc. and Community Funds, Inc. The fair market value of NGI common
stock on the donation date was estimated to be
49
<PAGE>
approximately $20 million. We retained the opportunity to participate in NGI's
value through the ownership of convertible preferred stock of NGI, which is
ultimately convertible, at our option, beginning September 14, 2001, into
approximately 78% of NGI's diluted common shares. The convertible preferred
stock is accounted for using the cost method of accounting. The convertible
preferred stock has a $5 million annual preferred dividend, which will be
recorded in income if and when it becomes realizable. Accordingly, as a result
of the change in ownership of NGI's common stock from us to independent third
parties, prospective from the donation date, NGI's operating results are no
longer included in our Consolidated Financial Statements. Subsequent to our
contribution of NGI's common stock to the Trust, we provided a development
advance of $77 million to NGI, which is contingently repayable to us if certain
financial targets related to NGI are achieved. The purpose of the development
advance was to provide NGI with the funds necessary to develop Internet related
products and systems, that if successful, would significantly increase the value
of NGI. Without these funds, NGI would not have sufficient funds for development
activities contemplated in its business plans. Repayment of the advance is
therefore solely dependent on the success of the development efforts. We
recorded a charge, inclusive of transaction costs, of $85 million in connection
with the donation of NGI shares to the charitable trust and the subsequent
development advance.
Additionally in 1999, we incurred $23 million of additional charges to fund
an irrevocable contribution to an independent technology trust responsible for
completing the transition of our lodging franchisees to a Company sponsored
property management system and $2 million of costs (included as a component of
the table below) primarily resulting from further consolidation of European call
centers in Cork, Ireland.
1997. We incurred merger-related costs and other unusual charges ("Unusual
Charges") in 1997 related to continuing operations of $704 million primarily
associated with the Cendant Merger ("the Fourth Quarter 1997 Charge") and the
merger with PHH Corporation ("PHH") in April 1997 (the "PHH Merger" or the
"Second Quarter 1997 Charge").
<TABLE>
<CAPTION>
ACTIVITY
UNUSUAL ------------------------------ DECEMBER 31,
CHARGES 1997 1998 1999 1999
(IN MILLIONS) -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Fourth Quarter 1997 Charge $455 $(258) $(130) $ (6) $61
Second Quarter 1997 Charge 283 (207) (60) (5) 11
---- ----- ----- ---- ---
Total 738 (465) (190) (11) 72
Reclassification for discontinued operations (34) 34 -- -- --
---- ----- ----- ---- ---
Total Unusual Charges related to continuing
operations $704 $(431) $(190) $(11) $72
==== ===== ===== ==== ===
</TABLE>
FOURTH QUARTER 1997 CHARGE. We incurred Unusual Charges in the fourth
quarter of 1997 totaling $455 million substantially associated with the Cendant
Merger and our merger in October 1997 with Hebdo Mag International, Inc., a
classified advertising business. Reorganization plans were formulated prior to
and implemented as a result of the mergers. We determined to streamline our
corporate organization functions and eliminate several office locations in
overlapping markets. Our management's plan included the consolidation of
European call centers in Cork, Ireland and terminations of franchised hotel
properties.
Unusual charges included $93 million of professional fees, primarily
consisting of investment banking, legal, and accounting fees incurred in
connection with the mergers. Personnel related costs of $171 million included
$73 million of retirement and employee benefit plan costs, $24 million of
restricted stock compensation, $61 million of severance resulting from
consolidations of European call centers and certain corporate functions and
$13 million of other personnel related costs. We provided for 474
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employees to be terminated, the majority of which were severed. Business
termination costs of $78 million consisted of a $48 million impairment write
down of hotel franchise agreement assets associated with a quality upgrade
program and $30 million of costs incurred to terminate a contract which may have
restricted us from maximizing opportunities afforded by the Cendant Merger.
Facility related and other unusual charges of $113 million included $70 million
of irrevocable contributions to independent technology trusts for the direct
benefit of lodging and real estate franchisees, $16 million of building lease
termination costs and a $22 million reduction in intangible assets associated
with our wholesale annuity business for which impairment was determined in 1997.
During 1999 and 1998, we recorded a net adjustment of $2 million and ($27)
million, respectively, to Unusual Charges with a corresponding increase
(decrease) in liabilities primarily as a result of a change in the original
estimate of costs to be incurred. We made cash payments of $8 million,
$103 million and $152 million during 1999, 1998 and 1997, respectively, related
to the Fourth Quarter 1997 Charge. Liabilities of $61 million remained at
December 31, 1999, which were primarily attributable to future severance costs
and executive termination benefits, which we anticipate that such liabilities
will be settled upon resolution of related contingencies.
SECOND QUARTER 1997 CHARGE. We incurred $295 million of Unusual Charges in
the second quarter of 1997 primarily associated with the PHH Merger. During the
fourth quarter of 1997, as a result of changes in estimate, we adjusted certain
merger-related liabilities, which resulted in a $12 million credit to Unusual
Charges. Reorganization plans were formulated in connection with the PHH Merger
and were implemented upon consummation. The PHH Merger afforded us, at such
time, an opportunity to rationalize our combined corporate, real estate and
travel-related businesses, and enabled our corresponding support and service
functions to gain organizational efficiencies and maximize profits. We initiated
a plan just prior to the PHH Merger to close hotel reservation call centers,
combine travel agency operations and continue the downsizing of fleet operations
by reducing headcount and eliminating unprofitable products. In addition, we
initiated plans to integrate our relocation, real estate franchise and mortgage
origination businesses to capture additional revenues through the referral of
one business unit's customers to another. We also formalized a plan to
centralize the management and headquarters functions of our corporate relocation
business unit subsidiaries. Such initiatives resulted in write-offs of abandoned
systems and leasehold assets commencing in the second quarter of 1997. The
aforementioned reorganization plans included the elimination of PHH corporate
functions and facilities in Hunt Valley, Maryland.
Unusual charges included $30 million of professional fees, primarily
comprised of investment banking, accounting and legal fees incurred in
connection with the PHH Merger. Personnel related costs of $154 million were
associated with employee reductions necessitated by the planned and announced
consolidation of our corporate relocation service businesses worldwide as well
as the consolidation of corporate activities. Personnel related charges also
included termination benefits such as severance, medical and other benefits and
provided for retirement benefits pursuant to pre-existing contracts resulting
from a change in control. Business termination charges of $56 million, which
were comprised of $39 million of costs to exit certain activities primarily
within our fleet management business (including $36 million of asset write-offs
associated with exiting certain activities), a $7 million termination fee
associated with a joint venture that competed with the PHH Mortgage Services
business (presently Cendant Mortgage Corporation) and $10 million of costs to
terminate a marketing agreement with a third party in order to replace the
function with internal resources. Facility related and other charges totaling
$43 million included costs associated with contract and lease terminations,
asset disposals and other charges incurred in connection with the consolidation
and closure of excess office space. During the year ended December 31, 1998, we
recorded a net credit of $40 million to Unusual Charges with a corresponding
reduction to liabilities primarily as a result of a change in the original
estimate of costs to be incurred. We made cash payments of $5 million,
$28 million and $150 million during 1999, 1998 and 1997, respectively, related
to the Second Quarter 1997 Charge. Liabilities of $11 million remained at
December 31, 1999, which are attributable to future severance and lease
termination payments. We anticipate that severance will be paid in installments
through April 2003 and lease terminations will be paid in installments through
August 2002.
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LIQUIDITY AND CAPITAL RESOURCES
STRATEGIC ALLIANCE
On December 15, 1999, we entered into a strategic alliance with Liberty
Media Corporation ("Liberty Media") to develop Internet and related
opportunities associated with our travel, mortgage, real estate and direct
marketing businesses. Such efforts may include the creation of joint ventures
with Liberty Media and others as well as additional equity investments in each
others businesses.
We also agreed to assist Liberty Media in creating a new venture that will
seek to provide broadband video, voice and data content to our hotels and their
guests on a worldwide basis, in consideration for which we expect to receive an
equity participation in such venture, subject to negotiation of mutually
agreeable terms. We also agreed to pursue opportunities within the cable
industry with Liberty Media to leverage our direct marketing resources and
capabilities subject to negotiation of mutually agreeable terms.
On February 7, 2000, Liberty Media invested $400 million in cash to purchase
18 million shares of our common stock and a two-year warrant to purchase
approximately 29 million shares of our common stock at an exercise price of
$23.00 per share. The common stock, together with the common stock underlying
the warrant, represents approximately 6.3% of our outstanding shares after
giving effect to the aforementioned transaction. Liberty Media's Chairman, John
C. Malone, Ph.D., will join our Board of Directors and has also committed to
purchase one million shares of our common stock for approximately $17 million in
cash.
MOVE.COM TRACKING STOCK
On March 21, 2000, our stockholders approved a proposal to authorize the
issuance of a new series of our common stock ("tracking stock"). The tracking
stock is intended to track the performance of the Move.com Group. There is
currently no common stock outstanding related to the Move.com Group. Although
the Move.com Group stock is intended to track the performance of the Move.com
Group, holders, if any, will be subject to all of the risks associated with an
investment in the Company and all of its businesses, assets and liabilities. The
tracking stock offering will enable us to sell all or part of the Move.com Group
stock in one or more private or public financings and perhaps create a public
trading market for the Move.com Group stock. The use of proceeds from the
current offering will be allocated to Move.com Group. In the third quarter of
1999, the Company began reporting the results of the Move.com Group as a
separate business segment. See Note 24--Segment Information--Move.com Group for
a description of the services provided.
OTHER
In connection with the recapitalization of NRT Incorporated ("NRT") in
September 1999, we entered into an agreement with Chatham Street Holdings, LLC
("Chatham") as consideration for certain amendments made with respect to the NRT
franchise agreements. Pursuant to the agreement, Chatham was granted the right,
until September 30, 2001, to purchase up to 1.6 million shares of Move.com Group
stock for approximately $16.02 per share. In addition, for every two shares of
Move.com Group stock purchased by Chatham pursuant to the agreement, Chatham
will be entitled to receive a warrant to purchase one share of Move.com Group
stock at a price equal to $64.08 per share and a warrant to purchase one share
of Move.com Group stock at a price equal to $128.16 per share. In March 2000, we
made a $25 million investment in WMC Finance Co. ("WMC"), an online provider of
sub-prime mortgages and an affiliate of Chatham. Chatham also granted us an
option to purchase additional equity in WMC.
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DIVESTITURE PROGRAM
In 1999, we completed our program to divest non-strategic businesses and
assets, which began in the third quarter of 1998. Proceeds have been primarily
used to repurchase our common stock and reduce our indebtedness. As a result of
the divestiture program, we divested former CUC businesses representing 45% of
CUC's revenues in 1997, the year in which CUC merged with HFS.
ENTERTAINMENT PUBLICATIONS, INC. On November 30, 1999, we completed the sale
of approximately 85% of our EPub unit for $281 million in cash. We retained
approximately 15% of EPub's common equity in connection with the transaction. In
addition, we will have a designee on EPub's Board of Directors. We account for
our investment in EPub using the equity method. We realized a net gain of
approximately $156 million ($78 million, after tax).
GREEN FLAG. On November 26, 1999, we completed the sale of our Green Flag
business unit for approximately $401 million in cash, including dividends of
$37 million. We realized a net gain of approximately $27 million ($8 million,
after tax).
FLEET. On June 30, 1999, we completed the disposition of our fleet business
segment ("fleet segment" or "fleet businesses") to ARAC. Pursuant to the
agreement, ARAC acquired the net assets of the fleet businesses through the
assumption and subsequent repayment of $1.44 billion of intercompany debt and
the issuance to us of $360 million of convertible preferred stock of Avis Fleet
Leasing and Management Corporation ("Avis Fleet"), a wholly-owned subsidiary of
ARAC. Coincident to the closing of the transaction, ARAC refinanced the assumed
debt under management programs which was payable to us. Accordingly, we received
additional consideration from ARAC comprised of $3.0 billion of cash proceeds
and a $30 million receivable. We realized a net gain on the disposition of the
fleet business segment of $881 million ($866 million, after tax) of which
$715 million ($702 million, after tax) was recognized at the time of closing and
$166 million ($164 million, after tax) was deferred at the date of disposition.
The fleet segment disposition was structured as a tax-free reorganization and,
accordingly, no tax provision has been recorded on a majority of the gain.
However, pursuant to a recent interpretive ruling, the Internal Revenue Service
("IRS") has taken the position that similarly structured transactions do not
qualify as tax-free reorganizations under Internal Revenue Code
Section 368(a)(1)(A). If the transaction is not considered a tax-free
reorganization, the resultant incremental liability could range between
$10 million and $170 million depending upon certain factors including
utilization of tax attributes and contractual indemnification provisions.
Notwithstanding the IRS interpretive ruling, we believe that, based upon
analysis of current tax law, our position would prevail, if challenged.
OTHER BUSINESSES. During 1999, we completed the dispositions of certain
businesses, including NAOG, Central Credit, Inc., Global Refund Group, Spark
Services, Inc., Match.com, National Leisure Group and NLP. Aggregate
consideration received on the dispositions of such businesses was comprised of
approximately $407 million in cash, including dividends of $21 million and
$43 million in marketable securities. The Company realized a net gain of
$202 million ($81 million, after tax) on the dispositions of these businesses.
FINANCING (EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAM FINANCING)
We have sufficient liquidity and access to liquidity through various
sources, including our ability to access public equity and debt markets and
financial institutions. We currently have a $750 million term loan facility with
a syndicate of financial institutions. In addition, we also have committed
back-up facilities totaling $1.8 billion, which are currently undrawn and
available, with the exception of $5 million of letters of credit. Furthermore,
we also had $2.55 billion of availability under existing shelf registration
statements at December 31, 1999 which was subsequently reduced by $400 million
in connection with the Liberty Media transaction. Our long-term debt, including
current portion, was $2.8 billion at December 31, 1999 and consisted of
(i) approximately $2.1 billion of publicly issued fixed rate debt comprised of
$400 million of 7 1/2% senior notes, $1,148 million of 7 3/4% senior notes and
$547 million of 3%
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convertible subordinated notes and (ii) $750 million of borrowings under a term
loan facility. On January 21, 2000, we redeemed all outstanding 7 1/2% senior
notes at a redemption price of 100.695% of par, plus accrued interest, using
available cash. Our credit facilities contain certain restrictive covenants,
including restrictions on indebtedness of material subsidiaries, mergers,
limitations on liens, liquidations and sale and leaseback transactions, and
require the maintenance of certain financial ratios.
FINANCING RELATED TO MANAGEMENT AND MORTGAGE PROGRAMS
Our PHH subsidiary operates our mortgage and relocation services businesses
as a separate public reporting entity and supports the origination of mortgages
and advances under relocation contracts primarily by issuing commercial paper
and medium term notes and maintaining secured obligations. Such financing is not
classified based on contractual maturities, but rather is included in
liabilities under management and mortgage programs rather than long-term debt
since such debt corresponds directly with high quality related assets. PHH
continues to pursue opportunities to reduce its borrowing requirements by
securitizing increasing amounts of its high quality assets. Additionally, we
entered into a revolving sales agreement, under which an unaffiliated buyer (the
"Buyer"), Bishops Gate Residential Mortgage Trust, a special purpose entity,
committed to purchase, at our option, mortgage loans originated by us on a daily
basis, up to the Buyer's asset limit of $2.1 billion. Under the terms of this
sale agreement, we retain the servicing rights on the mortgage loans sold to the
Buyer and arrange for the sale or securitization of the mortgage loans into the
secondary market. The Buyer retains the right to select alternative sale or
securitization arrangements. At December 31, 1999 and 1998, we were servicing
approximately $813 million and $2.0 billion, respectively, of mortgage loans
owned by the Buyer.
PHH debt is issued without recourse to the parent company. Our PHH
subsidiary expects to continue to maximize its access to global capital markets
by maintaining the quality of its assets under management. This is achieved by
establishing credit standards to minimize credit risk and the potential for
losses. PHH minimizes its exposure to interest rate and liquidity risk by
effectively matching floating and fixed interest rate and maturity
characteristics of funding to related assets, varying short and long-term
domestic and international funding sources, and securing available credit under
committed banking facilities. Depending upon asset growth and financial market
conditions, our PHH subsidiary utilizes the United States commercial paper
markets, public and private debt markets, as well as other cost-effective
short-term instruments. Augmenting these sources, our PHH subsidiary will
continue to manage outstanding debt with the potential sale or transfer of
managed assets to third parties while retaining fee-related servicing
responsibility. At December 31, 1999, aggregate borrowings were comprised of
commercial paper, medium-term notes, secured obligations and other borrowings of
$0.6 billion, $1.3 billion, $0.3 billion, and $0.1 billion, respectively.
PHH filed a shelf registration statement with the SEC, effective March 2,
1998, for the aggregate issuance of up to $3.0 billion of medium-term note debt
securities. These securities may be offered from time to time, together or
separately, based on terms to be determined at the time of sale. As of
December 31, 1999, PHH had approximately $375 million of availability remaining
under this shelf registration statement. Proceeds from future offerings will
continue to be used to finance assets PHH manages for its clients and for
general corporate purposes.
SECURED OBLIGATIONS. In December 1999, our PHH subsidiary renewed its
364 day financing agreement to sell mortgage loans under an agreement to
repurchase such mortgages. The agreement is collateralized by the underlying
mortgage loans held in safekeeping by the custodian to the agreement. The total
commitment under this agreement is $500 million and is renewable on an annual
basis at the discretion of the lender in accordance with the securitization
agreement. Mortgage loans financed under this agreement at December 31, 1999 and
1998 totaled $345 million and $378 million, respectively.
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We are currently in the process of creating a new securitization facility to
purchase interests in the rights to payment related to our relocation
receivables. Although no assurances can be given, we expect that such facility
will be in place by the end of the first quarter of 2000.
OTHER. To provide additional financial flexibility, PHH's current policy is
to ensure that minimum committed facilities aggregate 100 percent of the average
amount of outstanding commercial paper. As of December 31, 1999, PHH maintained
$2.5 billion of unsecured committed credit facilities, which were provided by
domestic and foreign banks. On February 28, 2000, PHH reduced these facilities
to $1.5 billion to reflect reduced borrowing needs of PHH after the disposition
of its fleet businesses. The facilities consist of a $750 million revolving
credit maturing in February 2001 and a $750 million revolving credit maturing in
February 2005. Our management closely evaluates not only the credit of the banks
but also the terms of the various agreements to ensure ongoing availability. The
full amount of PHH's committed facilities at December 31, 1999 was undrawn and
available. Our management believes that our current policy provides adequate
protection should volatility in the financial markets limit PHH's access to
commercial paper or medium-term notes funding. PHH continuously seeks additional
sources of liquidity to accommodate PHH asset growth and to provide further
protection from volatility in the financial markets.
In the event that the public debt market is unable to meet PHH's funding
needs, we believe that PHH has appropriate alternative sources to provide
adequate liquidity, including current and potential future securitized
obligations and its revolving credit facilities.
On July 10, 1998, PHH entered into a Supplemental Indenture No. 1 (the
"Supplemental Indenture") with a bank, as trustee, under the Senior Indenture
dated as of June 5, 1997, which formalizes PHH's policy of limiting the payment
of dividends and the outstanding principal balance of loans to us to 40% of
consolidated net income (as defined in the Supplemental Indenture) for each
fiscal year. The Supplemental Indenture prohibits PHH from paying dividends or
making loans to us if upon giving effect to such dividends and/or loan, PHH's
debt to equity ratio exceeds 8 to 1, at the time of the dividend or loan, as the
case may be.
LITIGATION
Since the April 15, 1998 announcement of the discovery of accounting
irregularities in the former business units of CUC, approximately 70 lawsuits
claiming to be class actions, two lawsuits claiming to be brought derivatively
on our behalf and several individual lawsuits and arbitration proceedings have
been commenced in various courts and other forums against us and other
defendants by or on behalf of persons claiming to have purchased or otherwise
acquired securities or options issued by CUC or us between May 1995 and
August 1998. The Court has ordered consolidation of many of the actions.
In addition, in October 1998, an action claiming to be a class action was
filed against us and four of our former officers and directors by persons
claiming to have purchased American Bankers' stock between January and
October 1998. The complaint claimed that we made false and misleading public
announcements and filings with the SEC in connection with our proposed
acquisition of American Bankers allegedly in violation of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and that the plaintiff
and the alleged class members purchased American Bankers' securities in reliance
on these public announcements and filings at inflated prices. On April 30, 1999,
the United States District Court for New Jersey found that the class action
failed to state a claim upon which relief could be granted and, accordingly,
dismissed the complaint. The plaintiff has appealed the District Court's
findings to the U.S. Court of Appeals for the Third Circuit as such appeal is
pending.
The SEC and the United States Attorney for the District of New Jersey are
conducting investigations relating to the matters referenced above. The SEC
advised us that its inquiry should not be construed as an indication by the SEC
or its staff that any violations of law have occurred. As a result of the
findings from our internal investigations, we made all adjustments considered
necessary which are reflected in
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our previously filed restated financial statements for the years ended 1997,
1996 and 1995 and for the six months ended June 30, 1998. Although we can
provide no assurances that additional adjustments will not be necessary as a
result of these government investigations, we do not expect that additional
adjustments will be necessary.
As previously disclosed, we reached a final agreement with plaintiffs'
counsel representing the class of holders of our PRIDES securities who purchased
their securities on or prior to April 15, 1998 to settle their class action
lawsuit against us through the issuance of a new "Right" for each PRIDES
security held. See Notes 5 and 13 to the Consolidated Financial Statements for a
more detailed description of the settlement.
On December 7, 1999, we announced that we reached a preliminary agreement to
settle the principal securities class action pending against us in the U.S.
District Court in Newark, New Jersey relating to the common stock class action
lawsuits. Under the agreement, we would pay the class members approximately
$2.85 billion in cash, an increase from approximately $2.83 billion previously
reported. The increase is a result of continued negotiation toward definitive
documents relating to additional costs to be paid to the plaintiff class. The
settlement remains subject to execution of a definitive settlement agreement and
approval by the U.S. District Court. If the preliminary settlement is not
approved by the U.S. District Court, we can make no assurances that the final
outcome or settlement of such proceedings will not be for an amount greater than
that set forth in the preliminary agreement.
The proposed settlements do not encompass all litigation asserting claims
associated with the accounting irregularities. We do not believe that it is
feasible to predict or determine the final outcome or resolution of these
unresolved proceedings. An adverse outcome from such unresolved proceedings
could be material with respect to earnings in any given reporting period.
However, we do not believe that the impact of such unresolved proceedings should
result in a material liability to our consolidated financial position or
liquidity.
Our plan to finance the settlement reflects the existence of a range of
financing alternatives which we have considered to be potentially available. At
a minimum, these alternatives entail using various combinations of
(i) available cash, (ii) debt securities and/or (iii) equity securities. The
choice among alternatives will depend on numerous factors, including the timing
of the actual settlement payment, the relative costs of various securities, our
cash balance, our projected post-settlement cash flows and market conditions.
CREDIT RATINGS
Our long-term debt credit ratings are BBB with Standard & Poor's
Corporations ("Standard & Poor's"), Baa1 with Moody's Investors Service Inc.
("Moody's"), and BBB+ with Duff & Phelps Credit Rating Co. ("Duff & Phelps").
Our short-term debt ratings are P2 with Moody's, and D2 with Duff & Phelps.
Following the execution of our agreement to dispose of our fleet segment,
Fitch IBCA lowered PHH's long-term debt rating from A+ to A and affirmed PHH's
short-term debt rating at F1, and Standard & Poor's affirmed PHH's long-term and
short-term debt ratings at A-/A2. Also, in connection with the closing of the
transaction, Duff & Phelps lowered PHH's long-term debt rating from A+ to A and
PHH's short-term debt rating was reaffirmed at D1. Moody's lowered PHH's
long-term debt rating from A3 to Baa1 and affirmed PHH's short-term debt rating
at P2. (A security rating is not a recommendation to buy, sell or hold
securities and is subject to revision or withdrawal at any time).
COMMON SHARE REPURCHASES
During 1999, our Board of Directors authorized an additional $1.8 billion of
our common stock to be repurchased under our common share repurchase program,
increasing the total authorized amount that
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can be repurchased under the program to $2.8 billion. As of December 31, 1999,
we repurchased a total of $2.0 billion (104 million shares) of our common stock
under the program.
Subsequent to December 31, 1999, we repurchased an additional $132 million
(6 million shares) of our common stock under the repurchase program as of
February 24, 2000.
In July 1999, pursuant to a Dutch Auction self-tender offer to our
shareholders, we purchased 50 million shares of our common stock at a price of
$22.25 per share.
CASH FLOWS (1999 VS. 1998)
We generated $3.0 billion of cash flows from operations in 1999 representing
a $2.2 billion increase from 1998. The increase in cash flows from operations
was primarily due to a $1.2 billion increase in net income as adjusted for
discontinued operations activity, net gain on dispositions of businesses and
non-cash charges. Additionally, the increase in cash flows from operations was
due to a $2.1 billion net reduction in mortgage loans held for sale, which
reflects larger loan sales to the secondary markets in proportion to loan
originations.
We generated $1.9 billion in cash flows from investing activities in 1999
representing a $6.2 billion increase from 1998. The incremental cash flows in
1999 from investing activities was primarily attributable to a $3.2 billion
increase in net proceeds from the sale of subsidiaries, primarily related to the
fleet businesses, and a $2.6 billion decrease in cash used in
acquisition-related activity (acquisitions in 1998 included NCP, Green Flag and
Jackson Hewitt). Additionally, we invested $227 million less cash in management
and mortgage programs primarily due to the disposition of the fleet businesses.
We used net cash of $4.8 billion in financing activities in 1999 compared to
providing net cash of $4.7 billion from such activities in 1998. The increase of
$9.5 billion of cash flows used in financing activities during 1999 included
$2.6 billion incremental repurchases of common stock in 1999 and a $3.1 billion
decrease in proceeds from borrowings in 1999 over 1998. Additionally, we issued
the FELINES PRIDES in 1998 for proceeds of approximately $1.5 billion. Net cash
used in the financing of management and mortgage programs increased
$2.7 billion primarily due to repayments of borrowings.
CAPITAL EXPENDITURES
In 1999, $277 million was invested in property and equipment to support
operational growth and enhance marketing opportunities. In addition,
technological improvements were made to improve operating efficiencies. Capital
spending in 1999 included the development of integrated business systems and
other investments in information systems within several of our segments as well
as additions to car park properties for NCP.
OTHER INITIATIVES
We continue to explore ways to increase efficiencies and productivity and to
reduce the cost structures of our respective businesses. Such actions could
include downsizing, consolidating, restructuring or other related efforts, which
we anticipate would be funded through current operations. No assurances may be
given that any plan of action will be undertaken or completed.
YEAR 2000
The following disclosure is a Year 2000 readiness disclosure statement
pursuant to the Year 2000 Readiness and Disclosure Act:
In order to minimize or eliminate the effect of the Year 2000 risk on our
business systems and applications, we identified, evaluated, implemented and
tested changes to our computer systems, applications and software necessary to
achieve Year 2000 compliance. Our computer systems and
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equipment successfully transitioned to the Year 2000 with no significant issues.
We continue to keep our Year 2000 project management in place to monitor latent
problems that could surface at key dates or events in the future. We do not
anticipate any significant problems related to these events. The total cost of
our Year 2000 compliance plan was approximately $54 million. We expensed and
capitalized the costs to complete the compliance plan in accordance with
appropriate accounting policies.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137 "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities", issued in
June 1998, to fiscal years commencing after June 15, 2000. SFAS No. 133 requires
that all derivatives be recorded in the Consolidated Balance Sheets as assets or
liabilities and measured at fair value. If the derivative does not qualify as a
hedging instrument, changes in fair value are to be recognized in net income. If
the derivative does qualify as a hedging instrument, changes in fair value are
to be recognized either in net income or other comprehensive income consistent
with the asset or liability being hedged. We have developed an implementation
plan to adopt SFAS No. 133. Completion of the implementation plan and
determination of the impact of adopting SFAS No. 133 is expected to be completed
by the fourth quarter of 2000. We will adopt SFAS No. 133 on January 1, 2001, as
required.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements." SAB No. 101 draws upon the existing accounting rules and explains
those rules, by analogy, to other transactions that the existing rules do not
specifically address. In accordance with SAB No. 101, we will revise certain
revenue recognition policies regarding the recognition of non-refundable
one-time fees and the recognition of pro rata refundable subscription revenues.
We currently recognize non-refundable one-time fees at the time of contract
execution and cash receipt. This policy will be changed to the recognition of
non-refundable one-time fees ratably over the life of the underlying contract.
We currently recognize pro rata refundable subscription revenue, net of related
procurement costs, over the subscription period. This policy will be changed to
straight line recognition of the pro rata refundable subscription revenue over
the subscription period. The percentage of annual revenues earned from
non-refundable one-time fees and from pro rata refundable subscription revenues
is not material to consolidated net revenues. We will adopt SAB No. 101 on
January 1, 2000, and will record a non-cash charge of approximately $89 million
($56 million, after tax) to account for the cumulative effect of the accounting
change.
FORWARD LOOKING STATEMENTS
We make statements about our future results in this Annual Report that may
constitute "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on our
current expectations and the current economic environment. We caution you that
these statements are not guarantees of future performance. They involve a number
of risks and uncertainties that are difficult to predict. Our actual results
could differ materially from those expressed our implied in the forward-looking
statements. Important assumptions and other important factors that could cause
our actual results to differ materially from those in the forward-looking
statements, include, but are not limited to:
- the resolution or outcome of the pending litigation and government
investigations relating to the previously announced accounting
irregularities;
- uncertainty as to our future profitability and our ability to integrate
and operate successfully acquired businesses and the risks associated with
such businesses;
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- our ability to successfully implement our plan to create a tracking stock
for our new real estate portal;
- our ability to develop and implement operational and financial systems to
manage rapidly growing operations;
- competition in our existing and potential future lines of business;
- our ability to obtain financing on acceptable terms to finance our growth
strategy and for us to operate within the limitations imposed by financing
arrangements; and
- the effect of changes in current interest rates.
We derived the forward-looking statements in this Annual Report from the
foregoing factors and from other factors and assumptions, and the failure of
such assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. We assume no obligation to
publicly correct or update these forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting such
forward-looking statements or if we later become aware that they are not likely
to be achieved.
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SELECTED FINANCIAL DATA OF MOVE.COM GROUP
The following selected combined financial data is qualified by reference to,
and should be read in conjunction with, the combined financial statements and
the notes to those statements for Move.com Group and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Move.com Group"
appearing elsewhere in this prospectus. The selected combined statement of
operations data presented below for the period from February 8, 1996 (the Rent
Net acquisition date) through December 31, 1999 are derived from Move.com
Group's combined financial statements. The combined financial data of Move.com
Group should be read in conjunction with the consolidated financial statements
of Cendant appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 8,
1996
(THE RENT NET
AS OF OR FOR THE ACQUISITION DATE)
YEAR ENDED DECEMBER 31, THROUGH
--------------------------------------------- DECEMBER 31,
1999(1) 1998(1) 1997(1) 1996(1)
------------- ------------- ------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $ 17,647 $ 9,674 $ 5,670 $ 1,081
Cost of revenue 3,149 1,664 1,091 632
-------- ------- ------- -------
Gross profit 14,498 8,010 4,579 449
-------- ------- ------- -------
Operating expenses:
Product development 3,940 193 -- 14
Selling and marketing 16,020 5,484 3,906 2,335
General and administrative 16,751 1,922 1,227 604
Depreciation and amortization 2,217 1,826 934 604
-------- ------- ------- -------
Total operating expenses 38,928 9,425 6,067 3,557
-------- ------- ------- -------
Loss before income tax benefit (24,430) (1,415) (1,488) (3,108)
-------- ------- ------- -------
Income tax benefit 9,976 572 603 1,266
-------- ------- ------- -------
Net loss $(14,454) $ (843) $ (885) $(1,842)
======== ======= ======= =======
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,009 $ -- $ -- $ --
Working capital deficit (9,296) (1,497) (785) (287)
Total assets 22,000 8,614 7,417 3,559
Total liabilities 20,975 4,379 2,181 878
Group equity 1,025 4,235 5,236 2,681
</TABLE>
- ------------------------
(1) Earnings per share for the Move.com Group is not presented because it is not
a stand-alone entity, and as a result, the presentation of earnings per
share is not applicable. After the issuance of Move.com stock, Cendant
intends to present earnings per share using the two-class method. Under this
method, an earnings allocation formula is used to determine earnings per
share for each class of common stock according to the participation rights
in undistributed earnings. Earnings per share for the Move.com Group will be
computed by dividing (a) the product of the earnings of Move.com Group
multiplied by the outstanding Move.com stock "fraction," by (b) the weighted
average number of shares of outstanding Move.com stock and dilutive Move.com
Group stock equivalents during the applicable period. The outstanding
Move.com Group "fraction" is a fraction, the numerator of which is the
number of shares of Move.com stock outstanding and the denominator of which
is the number of shares that, if issued, would represent 100% of the equity
in earnings or losses of Move.com Group. Basic and diluted earnings per
share will be presented for each class of stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MOVE.COM GROUP
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MOVE.COM GROUP SHOULD BE READ IN CONJUNCTION WITH THE COMBINED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS AND
THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES OF CENDANT APPEARING
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Move.com Group provides a broad range of quality relocation, real estate and
home-related products and services through its flagship portal site, move.com,
and the move.com network. The move.com Web site was launched on January 27,
2000. Move.com Group's operations include the move.com network and the
businesses of:
- Rent Net (an operator of online rental guides acquired in February 1996);
- Metro-Rent, Inc. (an online provider of fee-based apartment vacancy
reports, acquired in December 1999);
- National Home Connections, LLC (a facilitator of connecting and
disconnecting utilities, processor of address changes and provider of
moving-related products and services, acquired in May 1999); and
- Move.com Mortgage, Inc. (a mortgage marketing company).
The non-internet related businesses of Cendant as well as individual Web
sites of each of Cendant's real estate franchise systems are part of Cendant
Group, which includes all of the businesses operated by Cendant other than the
businesses that are part of Move.com Group. However, the franchise systems' Web
sites are considered part of the move.com network as a result of Intracompany
Agreements that permit Move.com Group to manage and sell advertisements on these
sites and display home listings from the CENTURY 21(-Registered Trademark-),
COLDWELL BANKER(-Registered Trademark-) and ERA(-Registered Trademark-) real
estate franchise systems. Through an additional Intracompany Agreement, Move.com
Group provides online local merchant discount offers for customers of Welcome
Wagon, a distributor of welcoming packages to new homeowners and consumers
throughout the United States and Canada. Move.com Group allows users to apply
for and obtain mortgage products and services through arrangements with Cendant
Mortgage Corporation, for which Move.com Group is compensated under a marketing
agreement with Cendant Mortgage, provides users with relocation services and
information derived from Cendant Mobility's expertise, and provides users with
access to third-party providers of relocation, real estate and home-related
content and services.
Move.com Group is accounted for as a single business segment, although net
revenue is derived from four primary sources: subscriptions, sponsorships,
e-commerce and other revenue. Subscription revenue includes listing fees paid by
various apartment, senior housing, corporate housing and self storage managers.
Sponsorship revenue includes advertising and lead-generation fees paid by
business partners. E-commerce revenue includes revenue from Welcome Wagon and
transaction-based fees from consumers and businesses, related to mortgage
referrals, MetroRent and National Home Connections. Other revenue includes fees
for Web site management and marketing fees from an online home listing
agreement.
Move.com Group has not achieved profitability on a quarterly or annual basis
to date, and anticipates that it will incur higher net losses in the future. The
extent of these losses will depend, in part, on the amount and rates of growth
in Move.com Group's net revenue from subscriptions, sponsorships and e-commerce.
Move.com Group expects its operating expenses to increase significantly,
especially in the areas of sales and marketing. As a result, Move.com Group will
need to increase its net revenue to
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achieve profitability. Move.com Group believes that pro forma period-to-period
comparisons of its operating results are not meaningful and that you should not
rely upon the results for any period as an indication of future performance.
Move.com Group's business, results of operations and financial condition will be
materially and adversely affected if:
- net revenue does not grow at anticipated rates;
- increases in operating expenses are not offset by commensurate increases
in net revenue; and
- it is unable to adjust operating expense levels in response lower than
expected net revenue.
Move.com Group intends to continue making acquisitions to increase online
reach and traffic and to seek additional strategic alliances with content and
distribution partners.
Move.com Group cannot guarantee that it will be able to successfully
integrate any businesses, products, technologies or personnel that might be
acquired in the future. A failure to integrate acquired entities or assets
successfully could seriously harm Move.com Group's business, results of
operations and financial condition. In addition, Move.com Group cannot guarantee
that it will be successful in identifying and closing transactions with
potential acquisition candidates.
We intend to continue to furnish financial statements of Move.com Group
prepared in accordance with generally accepted accounting principles in reports
filed by Cendant with the Securities and Exchange Commission as long as Move.com
stock is outstanding.
RECENT EVENTS
LIBERTY DIGITAL INVESTMENT
As provided in a purchase agreement dated March 22, 2000, on March 31, 2000,
Liberty Digital, Inc. ("Liberty Digital") purchased 1,588,030 shares of Move.com
stock for $31.29 per share for consideration consisting of $10 million in cash
and 813,215 shares of Liberty Digital Class A Common Stock. Liberty Digital and
Cendant also agreed to use their good faith efforts to negotiate and enter into
mutually acceptable agreements relating to the development of real estate
related programming for Liberty Digital's interactive home channel based on
Move.com Group's web content.
NRT INVESTMENT
On March 28, 2000, NRT Incorporated ("NRT") and Cendant entered into a
purchase agreement in which NRT agreed to purchase 318,581 shares of Move.com
stock for $31.29 per share or approximately $10 million. The sale is subject to
customary closing conditions, but is expected to close on or before April 15,
2000. Cendant owns preferred stock in NRT which is convertible into up to
approximately 50% of NRT's common stock.
ALTAVISTA ALLIANCE
On January 27, 2000, Move.com Group announced a strategic alliance with
AltaVista Company, a new-media and commerce network, to create a co-branded real
estate channel on the AltaVista Web site. Under the terms of the agreement,
Move.com Group will pay AltaVista up to $40 million in cash over three years to
be an exclusive real estate content provider of the new AltaVista Real Estate
Channel. In addition, the move.com network will be exclusively featured through
banners and links on keyword searches for most real estate and moving-related
terms. The agreement has a three year term.
WELCOME WAGON AGREEMENT
On January 1, 2000, Move.com Operations, Inc., a wholly owned subsidiary of
Cendant and a member of the Move.com Group, entered into an Internet Cooperation
Agreement with Getko
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Group, Inc., also a wholly owned subsidiary of Cendant, but a member of the
Cendant Group, which owns the right to the Welcome Wagon brand name. Under the
terms of the 3-year agreement, Move.com Group will develop, host and maintain
the Welcome Wagon area of move.com in return for an escalating non-discretionary
percentage of Getko's revenue and expenses. The revenue and expense percentage
attributions to Move.com Group will increase from 25% to 75% and from 30% to
75%, respectively, during the three year agreement. Getko has historically been
profitable.
METRORENT ACQUISITION
On December 17, 1999, Rent Net, Inc., a wholly owned subsidiary of Cendant
and a member of Move.com Group, purchased substantially all of the assets and
assumed substantially all of the liabilities of MetroRent, an online provider of
apartment rental listings for buildings with twenty-five or fewer units, for a
total consideration of up to $3 million in cash and up to $6 million of Move.com
stock to be paid over the next three years, subject to meeting certain
performance targets. The stock portion of the consideration consists of a new
class of nonvoting common stock of Move.com, Inc., which is mandatorily
redeemable for Move.com stock upon a public offering of Move.com stock. The
Move.com, Inc. nonvoting common stock is redeemable for up to 293,000 shares of
Move.com stock valued at $20.51 per share. In the event that a public offering
has not occurred by December 31, 2005, Move.com, Inc. must redeem each
outstanding share of Move.com, Inc. common stock for cash and may do so at any
time at its option.
CHATHAM STREET HOLDINGS, LLC AGREEMENT
In September 1999, Cendant entered into an agreement with Chatham Street
Holdings, LLC ("Chatham") pursuant to which Chatham was granted the right, until
September 30, 2001, to purchase up to 1,561,000 shares of Move.com stock for
approximately $16.02 per share. That right was exercised on March 31, 2000. In
addition, for every two shares of Move.com stock purchased by Chatham pursuant
to the agreement, Chatham will receive a warrant to purchase one share of
Move.com stock at a price equal to $64.08 per share and a warrant to purchase
one share of Move.com stock at a price equal to $128.16 per share.
RESULTS OF OPERATIONS
(Dollars in thousands)
RESULTS OF OPERATIONS--1999 VS 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 % CHANGE
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue $ 17,647 $ 9,674 82%
Cost of revenue 3,149 1,664 89%
-------- -------
Gross profit 14,498 8,010 81%
Gross margin 82% 83%
Operating expenses 38,928 9,425 313%
-------- -------
Loss before income tax benefit (24,430) (1,415) *
Income tax benefit 9,976 572 *
-------- -------
Net loss $(14,454) $ (843) *
======== =======
</TABLE>
* Not meaningful
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<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net revenue increased $7,973 or 82% in 1999 over 1998. Subscription revenue
increased $4,319 or 51% to $12,785 in 1999 (73% of 1999 revenues) due primarily
to an increase in apartment listing revenue of $3,094. The listing revenue
increased primarily due to a 26% increase in apartment listing prices and a 19%
increase in the number of apartments communities listed. The remaining increase
in subscription revenue was due to increased listings in the categories of
senior housing, corporate housing and self storage listing products. Sponsorship
revenue increased $1,828 or 151% to $3,036 in 1999 (17% of 1999 revenues) due
primarily to an increase in the number and size of new sponsorship arrangements
with customers advertising on the rent.net Web site. This increase resulted from
the creation of a new business development department focused on pursuing
sponsorship opportunities. E-commerce revenue (a new category in 1999), of $362
(2% of 1999 revenue) consisted primarily of a $360 marketing fee from Cendant
Mortgage. National Home Connections and MetroRent revenue were insignificant in
1999 due to the timing of the acquisitions of such entities. Other revenue of
$1,464 in 1999 (8% of 1999 revenues) primarily included $811 for marketing fees
pertaining to an online home listings agreement that Cendant allocated to the
Move.com Group at its creation and approximately $429 for fees received for
managing the Web sites of Cendant's real estate franchise systems.
Cost of revenue increased $1,485 or 89% to $3,149 in 1999 over 1998. Cost of
revenue consists primarily of cost associated with maintenance and support of
the move.com network including compensation, consulting fees, equipment lease
costs, bandwidth and related indirect costs. The overall increase is primarily
due to costs associated with the direct management of the Web sites for
Cendant's real estate franchise systems of approximately $417, plus additional
compensation costs incurred to support growth in the business.
Operating expenses increased $29,503 or 313% in 1999 over 1998. Product
development expenses increased $3,747 or 1,941% to $3,940, in 1999 due to the
hiring of staff and approximately $2,000 for external consultants retained to
build the move.com network. Product development expenses includes internal and
external personnel costs and certain software licenses used to develop the
move.com network including the look and feel of the Web pages and the underlying
functionality of the Web sites. In 1998, development costs were minimal.
Selling and marketing expenses increased $10,536 or 192% in 1999 over 1998
due to increased advertising and the hiring of additional staff. Advertising
expenses increased $8,324 during 1999 due to the launch of the first television
and radio commercials for Rent Net during the third quarter of 1999 and a
further expansion of online distribution. Online advertising in 1999 included
new distribution on two of the top Web sites, as measured by number of unique
visitors in 1999, and expanded distribution on a number of the top 10 Web sites,
including the two largest. Compensation expense increased $1,660 or 62% during
1999 due to the creation of an online advertising department, a business
development department and the expansion of Move.com Group's national field
sales force for its subscription products.
General and administrative expenses increased $14,829 or 772% in 1999 over
1998 due primarily to compensation-related matters. During 1999, expenses of
$9,625 were incurred as part of a one-time, broad-based bonus retention program
initiated by Cendant. Payroll and related expenses increased $1,174 or 172% due
to the hiring of additional members of the executive management team and other
additional staff. Recruiting expenses associated with these hirings were $1,038
in 1999.
Depreciation expense increased $103 or 55% in 1999 due primarily to the
purchase of computers for additional staff hired and depreciation of computer
equipment purchased for National Home Connections. Amortization expense
increased $288 or 18% due primarily to an increase in amortization of
intangibles resulting from the National Home Connections acquisition.
Move.com Group's effective tax rate increased to 40.8% in 1999, from 40.4%
in 1998.
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<PAGE>
RESULTS OF OPERATIONS--1998 VS 1997
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 % CHANGE
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue $9,674 $5,670 71%
Cost of revenue 1,664 1,091 53%
------ ------
Gross profit 8,010 4,579 75%
Gross margin 83% 81%
Operating expenses 9,425 6,067 55%
------ ------
Loss before income tax benefit (1,415) (1,488) (5%)
Income tax benefit 572 603 (5%)
------ ------
Net loss $ (843) $ (885) (5%)
====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net revenue increased $4,004 or 71% in 1998 over 1997. Subscription revenue
increased $3,347 or 65% to $8,466 in 1998 primarily due to an increase in
apartment listing revenue of $2,789. The listing revenue increased due to a 40%
increase in prices and a 31% increase in the number of communities listed.
Sponsorship revenue increased $657 or 119% to $1,208 due to the addition of new
sponsors on Rent Net.
Cost of revenue increased $573 or 53% in 1998 over 1997. The overall
increase in costs was primarily related to Web server rental cost increases of
$216 and higher personnel expenses.
Total operating expenses increased $3,358 or 55% in 1998 over 1997. Product
development expenses of $193 in 1998 were incurred to refine Rent Net. There
were no product development expenses in 1997. Selling and marketing expenses
increased $1,578 or 40% due primarily to increased online distribution costs of
$834 or 76% and an increase in compensation expenses of $701 or 36% due to the
continued expansion of Move.com Group's sales staff. General and administrative
expenses increased $695 or 57% including compensation increases of $186 or 37%
and $234 or 365% in higher rent associated with relocation.
Depreciation and amortization expenses increased $892 or 96% as a result of
incremental goodwill amortization related to additional payments during 1997 to
the sellers of Rent Net.
Move.com Group's effective tax rate was 40.4% and 40.5% during 1998 and
1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity and capital resources available to Move.com Group are directly
associated with the liquidity and capital resources of Cendant as well as the
ability to raise capital through additional offerings of Move.com stock.
Accordingly, potential investors should read the liquidity and capital resource
disclosure of Cendant included elsewhere in this prospectus in order to evaluate
Move.com Group's ability to borrow from Cendant. The following discussion
details the policies in place to address cash flow management and allocation of
resources between Move.com Group and Cendant Group.
Cendant manages treasury activities on a centralized, consolidated basis.
These activities include the investment of surplus cash, the issuance, repayment
and repurchase of short-term and long-term debt and the issuance and repurchase
of common stock and preferred stock. Move.com Group generally remits its cash
receipts to Cendant, and Cendant generally funds Move.com Group's cash
disbursements on a daily basis.
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<PAGE>
In the historical financial statements of Cendant and Move.com Group:
all external debt and equity transactions (and the proceeds thereof) were
attributed to Cendant Group;
whenever Move.com Group held cash, that cash was transferred to Cendant
Group and accounted for as a return of capital (i.e., as a reduction in Move.com
Group's Group equity and Cendant Group's retained interest); and
whenever Move.com Group had a cash need, that cash need was funded by
Cendant Group and accounted for as a capital contribution (i.e., as an increase
in Move.com Group equity and Cendant Group's retained interest). Cendant does
not intend to continue these practices after this offering. Accordingly, no
interest expense has been or will be reflected in Move.com Group's Combined
Financial Statements for any period prior to this offering.
After the date of this offering:
Whenever Move.com Group holds cash, it will normally transfer that cash to
Cendant Group. Conversely, whenever Move.com Group has a cash requirement,
Cendant Group will normally fund that cash requirement. However, the board of
directors of Cendant will determine, in its sole discretion, whether to provide
any particular funds to Move.com Group or Cendant Group and will not be
obligated to do so.
Cendant will account for all cash transfers from one Group to or for the
account of the other (other than transfers in return for assets or services
rendered or transfers in respect of Cendant Group's retained interest that
correspond to dividends paid on Move.com stock), as inter-Group revolving credit
advances unless:
- the board of directors of Cendant determines that a given transfer (or
type of transfer) should be accounted for as a long-term loan,
- the board of directors of Cendant determines that a given transfer (or
type of transfer) should be accounted for as a capital contribution
increasing Cendant Group's retained interest in Move.com Group, or
- the board of directors of Cendant determines that a given transfer (or
type of transfer) should be accounted for as a return of capital reducing
Cendant Group's retained interest in Move.com Group.
There are no specific criteria to determine when Cendant will account for a
cash transfer as a long-term loan, a capital contribution or a return of capital
rather than an inter-Group revolving credit advance. The board of directors of
Cendant would make such a determination in the exercise of its business judgment
at the time of such transfer, or the first of such type of transfer, based upon
all relevant circumstances. Factors the board of directors would expect to
consider include:
- the current and projected capital structure of Move.com Group and Cendant
Group,
- the relative levels of internally generated funds of Move.com Group and
Cendant Group,
- the financing needs and objectives of Move.com Group and Cendant Group,
- the investment objectives of the transferring Group,
- the availability of, and cost and time required for, alternate financing
sources,
- prevailing interest rates and general economic conditions, and
- the nature of the assets or operations to be financed.
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<PAGE>
The board of directors of Cendant will retain ultimate authority over
whether and how to provide funds to Move.com Group. This decision will be made
in the best interests of Cendant and all of its stockholders as a whole.
Any cash transfer accounted for as an inter-Group revolving credit advance
may bear interest. Although we currently do not intend to charge interest on
inter-Group revolving credit advances, if the board determines to charge
interest, the combined financial statements of Move.com Group will not be
comparable for periods prior to and after charging interest on such credit
advances. Any cash transfer accounted for as a long-term loan will have interest
rate, amortization, maturity, redemption and other terms that generally reflect
the then prevailing terms on which the board of directors, in its sole
discretion, determines Cendant could borrow such funds.
Any cash transfer from Cendant Group, or for Move.com Group's account,
accounted for as a capital contribution will correspondingly increase Move.com
Group equity and Cendant Group's retained interest in Move.com Group. As a
result, the number of shares of Move.com stock that Cendant may issue for the
account of Cendant Group with respect to its retained interest in Move.com Group
which we call the "number of shares issuable with respect to Cendant Group's
retained interest in Move.com Group" will increase by the amount of such capital
contribution divided by the market value of Move.com stock on the date of
transfer.
Any cash transfer from Move.com Group to Cendant Group, or for Cendant
Group's account, accounted for as a return of capital, will correspondingly
reduce Move.com Group equity and Cendant Group's retained interest in Move.com
Group. As a result, the number of shares issuable with respect to Cendant
Group's retained interest in Move.com Group will decrease by the amount of such
returned capital divided by the market value of Move.com stock on the date of
transfer.
As a result of the cash management policies in place between Cendant Group
and Move.com Group, Move.com Group is dependent on Cendant Group for continued
funding. Accordingly, Move.com Group's liquidity could be adversely affected by
the liquidity needs of Cendant Group.
In September 1999, Cendant entered into an agreement with Chatham Street
Holdings, LLC pursuant to which Chatham was granted the right, until
September 30, 2001, to purchase up to 1,561,000 shares of Move.com stock for
approximately $25 million or $16.02 per share. In addition, for every two shares
of Move.com stock purchased by Chatham pursuant to the agreement, Chatham will
be entitled to receive a warrant to purchase one share of Move.com stock at a
price equal to $64.08 per share and a warrant to purchase one share of Move.com
stock at a price equal to $128.16 per share. If Chatham exercises its right to
purchase shares, Move.com Group will receive the proceeds from the exercise.
In addition, pursuant to certain employment agreements, Cendant is required
to grant approximately 312,500 options to purchase Move.com stock at fair market
value upon the issuance of Move.com stock to the public.
CASH FLOWS (1999 VS 1998)
Cash flows used in operations were $4,435 in 1999 compared to cash flows
provided by operations of $1,279 in 1998. The decrease in cash flows was
primarily due to the increase in the loss from 1998 to 1999 offset by changes in
working capital, specifically increases in marketing accruals.
Cash flows used in investing activities increased $3,949, due primarily to
cash payments of $2,588 made in connection with the MetroRent and National Home
Connections acquisitions. Additionally, investing activities included capital
expenditures and construction costs associated with the relocation to a new
headquarter.
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Net funding from Cendant increased $10,672 due to the funding received from
Cendant to finance the current loss.
The cash flows of Move.com Group could differ from those that would have
resulted had Move.com Group operated autonomously or as an entity independent of
Cendant.
From time to time, Cendant may issue additional shares of Move.com stock in
one or more private or public financings. Cendant has no current plans for any
further public offerings in the near future. The specific terms of the
financing, including whether they are private or public, the amount of Move.com
stock issued, and the timing of the financing, will depend upon factors such as
stock market conditions and performance of the Move.com Group.
Move.com Group believes that the net proceeds from this offering, together
with its current cash, cash equivalents and cash generated from operations will
be sufficient to meet its anticipate cash needs for working capital and capital
expenditures through at least the end of 2000.
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BUSINESS
Move.com stock is a tracking stock, which is a type of common stock that is
intended to reflect or track the performance of a particular business or group
of businesses. Move.com Group operates a popular network of Web sites, which
offer a wide selection of quality relocation, real estate and home-related
products and services. Move.com Group seeks to improve the often stressful and
demanding moving experience by providing a one-source, "friend-in-need" solution
before, during and after the move. Move.com Group strives to establish strong,
long-term relationships with consumers by offering quality products and services
for each phase of the moving process from finding a home to improving an
existing home. Move.com Group also provides a broad-based distribution platform
for businesses who are trying to reach a highly targeted and valued group of
consumers at the most opportune times.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET
The Internet is revolutionizing the way in which businesses and consumers
interact, share information and consummate transactions. According to
International Data Corporation, or IDC, the number of Internet users worldwide
will grow to approximately 502 million by the end of 2003 from approximately
196 million in 1999. The Internet places at consumers' fingertips an
unprecedented amount of information and offers a convenient way for them to
select and order products and services. The rapid growth in users combined with
the Internet's unique ability to connect a broad range of consumers and
businesses is driving growth in electronic commerce. IDC estimates that the
total value of Internet commerce will increase to $1.3 trillion in 2003 from
$111 billion in 1999.
THE RELOCATION MARKETPLACE
According to the most recent data from the U.S. Census Bureau, more than
40 million Americans, or approximately 15% of the U.S. population, relocate
annually. On average, Americans move once every five to six years. When
consumers buy, sell or rent a home, they typically need assistance with various
relocation services, such as storage, moving supplies and truck rentals or van
lines. Relocation is often a catalyst for significant expenditures related to
the home and becoming established in a new community. Move.com Group estimates
that the average homeowner spends approximately $9,400 while the average renter
spends approximately $3,700 during the 90-day period surrounding a move.
Homeowners who move spend more for home-related purchases in the three months
around their move than established residents spend in five years. Consumers
spent approximately $130 billion in 1999 for home and apartment moves, including
moving services and related product purchases such as household appliances,
furnishings and floor coverings.
THE RESIDENTIAL REAL ESTATE INDUSTRY
BUYING AND SELLING. Recent years have been among the strongest ever for
home sales in the United States. The 1993-1999 period includes seven of the
eight strongest years on record for existing single-family home sales. The
National Association of Realtors, or NAR, estimates that approximately
5.2 million homes were sold in 1999, representing a three-year annual compound
growth rate of 7.3% since 1996, the fourth consecutive annual record. NAR
currently expects home sales to remain strong and total a robust 4.9 million
homes in 2000. Based on average sale prices, the value of home sales for 1999
totaled approximately $875 billion and represented a three-year compound annual
growth rate of 14%. Consumers paid approximately $49 billion in transaction
fees, such as mortgage origination fees, insurance premiums and property report
fees, related to home purchases in 1999. Moreover, homeowners spent
approximately $95 billion on remodeling in 1999.
Real estate brokers and agents are involved in the vast majority of home
sale transactions. Although the real estate brokerage industry is highly
fragmented, franchise systems such as CENTURY 21-Registered Trademark-,
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COLDWELL BANKER-Registered Trademark- and ERA-Registered Trademark- have
steadily increased their market share over the last decade. Both consumers and
real estate professionals are increasingly relying on the Internet for real
estate-related needs and information. According to a January 2000 Realty Times
survey conducted on the Internet, approximately 37% of consumers said they would
begin a search for a home on the Internet. In addition, according to a recent
California survey, 72% of real estate firms reported obtaining a portion of
their business through the Internet.
RENTING. Although there are fewer renters than homeowners in the United
States, renters move far more frequently than homeowners. According to the U.S.
Census Bureau, although only approximately 34% of households live in rental
units, they are responsible for 71% of moves. Based on most recently available
data, there are over 37 million rental units in the United States of which over
3 million are vacant. Property managers and owners need to advertise frequently
to fill vacancies. Move.com Group believes that most managers of the largest
apartment properties with more than 100 units advertise on a continuous monthly
basis, thus creating a constant demand for listing services. Apartment property
managers generally use online rental guide services as an additional,
non-exclusive medium for advertising. Apartment guide publications that display
local listings typically are distributed free to consumers and published on a
monthly or semi-monthly basis, whereas Internet listing guides generally are
updated far more frequently. In 1998, apartment property managers spent
approximately $1.8 billion on advertising.
Managers of senior housing and self storage facilities also advertise
vacancies on a continuous basis and use similar advertising channels as
apartment managers. As of the end of 1999, there were approximately 50,000
senior housing properties containing approximately 3.5 million units in the
United States. Move.com Group estimates that there are 30,000 self storage
facilities in the United States and Canada.
FINANCING. According to Inside Mortgage Finance, residential mortgage
originations totaled $1.4 trillion and $1.3 trillion in 1998 and 1999,
respectively. Large-scale mortgage providers, such as Cendant Mortgage, have
garnered an increasing market share. The top 25 lenders accounted for 57% of
mortgage originations in 1999, up from 33% in 1994.
Mortgage origination is well suited to an Internet-based distribution model.
Online mortgage lending can be faster and more convenient than offline mortgage
origination. Forrester Research estimates online mortgage originations will
increase from approximately $19 billion in 1999 (approximately 1.5% of total
mortgage originations) to more than $91 billion in 2003 (approximately 10% of
total mortgage originations), resulting in a 48% compound annual growth rate
over the time period.
ONLINE ADVERTISING
The growth of the Internet has created an important new advertising channel
for a wide variety of product and service providers. In particular, the
emergence of industry-focused sites has allowed advertisers to target specific
groups of consumers with an affinity for and interest in particular products and
services. Tools not available in traditional advertising media, such as
real-time measurement of response rates to advertising banners, further increase
the attractiveness of Internet advertising by giving advertisers instant
feedback on campaigns. Consequently, advertisers are able to deliver targeted
messages in a more cost-effective manner. Forrester Research projects that the
value of online advertising will increase from approximately $2.8 billion in
1999 to approximately $22.2 billion in 2004. Less than 2% of the approximately
$5.0 billion of real estate and home-related advertising spending is currently
online.
THE MOVE.COM GROUP OPPORTUNITY
The marketplace for relocation, real estate and home-related products and
services is highly fragmented. For most consumers, the traditional home-finding
and relocation process involves locating, selecting and coordinating multiple
product and service providers. Consequently, the process of moving
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and settling into a new home is often one of the most stressful events in a
person's life. Moving often leads to significant lifestyle changes, including
new schools, banks, grocers, cleaners, utility providers and other retail and
service relationships. Move.com Group estimates that the average U.S. homeowner
moves every seven to eleven years, while the average renter moves every 20 to
24 months. A company that can provide a comprehensive array of dependable,
quality content and services that meets consumers' relocation, real estate and
home-related needs has an opportunity to develop long-lasting relationships with
both consumers and business providers and generate significant repeat business.
THE MOVE.COM GROUP SOLUTION
BENEFITS TO CONSUMERS. Move.com Group provides valuable "friend-in-need"
services to assist consumers during all stages of the relocation process and
serves as a single source for quality content and services. Move.com Group also
provides products and services to enhance the attractiveness and enjoyment of
consumers' homes. The following chart outlines Move.com Group's principal
relocation, real estate and home-related content and services.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CONTENT PLANNING RENTING BUYING SELLING MOVING LIVING
AND -------------- ----------- ------------- -------------- -------------- --------------
SERVICES
NEIGHBORHOOD APARTMENT HOME BROKERS/ MOVING HOME
INFORMATION LISTINGS LISTINGS AGENTS ADVICE MAINTENANCE
BUDGETING TEMPORARY/ FINANCE DIRECTORY MOVING CHECKLIST
TOOLS CORPORATE GUIDE SELLING SUPPLIES HOME
MOVING HOUSING MORTGAGE GUIDE VAN LINES FURNISHINGS
PLANNER FACILITIES RATES SHOW AND SELL TRUCK AND
RENT VS. BUY SENIOR MONITOR CHECKLIST RENTALS DECORATION
ANALYSIS HOUSING MORTGAGE SELF STORAGE HARDWARE
MORTGAGE FACILITIES PRE- FACILITIES HOME
CALCULATOR SELF QUALIFICATION, CONNECTION/ IMPROVEMENT
JOB LISTINGS STORAGE APPLICATION DISCONNECTION INSURANCE
FACILITIES AND SERVICES FOR BOOKS
VACATION PRE-APPROVAL UTILITIES, AUTO CENTER
RENTALS TELEPHONE AND CHILD CARE
RENTAL NEWSPAPERS GUIDE AND
GUIDE CHANGE OF SEARCH
ADDRESS
VEHICLE AND
VOTER
REGISTRATION
</TABLE>
Move.com Group's content and services reflected in the chart above include
content and services that is both proprietary and derived from or supplied by
third parties, services provided directly by Move.com Group, such as
connection/disconnection services provided through third parties, such as
mortgage pre-approvals, and direct hyperlinks to third parties' Web sites, such
as improvenet.com and furniture.com. As we expand and supplement our products
and services the relative mix continues to change.
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BENEFITS TO REAL ESTATE BROKERS AND AGENTS. Real estate brokers and agents
play a critical role in the residential real estate marketplace by facilitating
transactions between home buyers and sellers. By providing consumers planning,
budgeting and listings information, Move.com Group expects to increase the
productivity and effectiveness of real estate professionals. Consumers who visit
the move.com network and consult the available tools and property data become
better informed and prepared for the home buying/selling process. As a result,
real estate professionals enjoy efficiency benefits by interacting with
consumers who are more focused and knowledgeable about their options and
opportunities. Real estate professionals are able to avoid showing prospective
buyers unsuitable homes and can spend less time sharing neighborhood
information. In addition, Move.com Group expects to serve as an attractive
marketing channel and a significant source of customers for real estate
professionals who are trying to reach and service qualified homebuyers and
motivated sellers.
BENEFITS TO RENTAL PROPERTY MANAGERS AND OWNERS. The move.com network
serves as a powerful lead generator and enhances the cost-effectiveness of the
marketing efforts of rental property managers and owners. Move.com Group
delivers these benefits by virtue of its appeal to a highly targeted audience
and national reach to out-of-town movers that local guides do not provide. In
1999, Move.com Group generated over 2.1 million leads to apartment managers and
owners at a significantly lower cost-per-lease, or CPL, compared to traditional
print advertising. Move.com Group estimates that during 1999, clients who
advertised their properties on Rent Net had an average CPL of approximately $90
versus the national average CPL of approximately $300 for alternative
advertising sources such as apartment guide publications.
BENEFITS TO BUSINESSES. Because the move.com network attracts consumers
when they are focused on making relocation and home-related purchases and
decisions, Move.com Group's contractual business partners, which sell relocation
and home-related products and services, are able to efficiently reach
prospective customers. In addition, these providers can take advantage of
interactive marketing technology used by Move.com Group to more effectively
target their message to this audience. Move.com Group develops relationships
with quality-oriented businesses by providing them access to a highly targeted
and valued group of consumers across multiple access paths, including,
CENTURY21-Registered Trademark-, COLDWELL BANKER-Registered Trademark- and
ERA-Registered Trademark- real estate agents and brokers operating through
offices across the United States and Canada, Welcome Wagon's direct mail
solicitations and National Home Connections' toll-free customer service center.
MOVE.COM GROUP'S STRATEGY
Move.com Group intends to achieve its objective of becoming the leading
provider of quality online relocation, real estate and home-related products and
services through the following strategic initiatives:
DEVELOP BRAND AWARENESS
Move.com Group will aggressively market the move.com network through
significant online and offline advertising campaigns, as well as promotions by
Cendant Group's leading real estate franchise systems and Welcome Wagon.
Move.com Group expects its offline media advertising campaign to include print
media, radio spots, television commercials, direct marketing, affiliate
programs, co-branding partnerships, grass roots programs, as well as aggressive
public relations efforts. Move.com Group believes that increased brand awareness
will help attract additional traffic, business relationships and talented
employees.
On the Internet, Move.com Group currently has distribution relationships
with a number of entities, including, among others, AltaVista, America Online,
Yahoo!, Excite, Lycos, GO Network and Ask Jeeves, and expects to add others over
time. Move.com Group also will promote move.com on all of the Web sites in the
move.com network. This promotion will include co-branded interfaces with
move.com links from each of Cendant Group's real estate franchise systems' Web
sites and welcomewagon.com through common navigation tabs.
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Move.com Group will also participate in the advertising efforts of Cendant
Group's CENTURY 21-Registered Trademark-, COLDWELL BANKER-Registered Trademark-
and ERA-Registered Trademark- real estate franchise systems to build and promote
move.com as a destination Web site for relocation, real estate and home-related
products and services. The move.com network will be promoted in the national
advertising campaigns and by real estate professionals of these franchise
systems. In 1999, the CENTURY 21-Registered Trademark-, COLDWELL
BANKER-Registered Trademark- and ERA-Registered Trademark- real estate franchise
systems had nearly 12,000 offices, employing over 200,000 sales associates
across the United States and Canada and spent more than $80 million for national
advertising.
INCREASE PRODUCT AND SERVICE OFFERINGS TO GROW USER BASE AND IMPROVE THE
CONSUMER EXPERIENCE
Move.com Group intends to increase traffic to the move.com network by
continually adding to its quality content and services and establish itself as a
single source for satisfying consumers' relocation, real estate and home-related
product and service needs. Move.com Group expects to develop and maintain
long-term relationships with consumers by expanding its content and services and
delivering an increasingly integrated and satisfying consumer experience.
Move.com Group also will strive to improve the quality of the consumer
experience by establishing quality thresholds, conducting ongoing research and
obtaining users' feedback on the content and services and the performance of the
move.com network.
DEVELOP STRONG RELATIONSHIPS WITH CONSUMERS BY PROVIDING PERSONALIZED, TARGETED
CONTENT AND SERVICES
Move.com Group will tailor content and services offered on the move.com
network to the needs and interests of individual users by personalizing each
visit on a real-time basis through the use of technology supplied by
BroadVision, Inc. BroadVision's technology allows Move.com Group to organize
dynamic profiles of potential and existing customers from volunteered data,
feedback and observed behavior, deliver highly specialized content and services
based on these profiles and securely execute transactions. By using this
technology, Move.com Group expects to maximize customer satisfaction and
retention and streamline and enhance the interaction between its users and
business partners.
EXPAND AND ENHANCE RELATIONSHIPS WITH REAL ESTATE PROFESSIONALS AND
QUALITY-ORIENTED BUSINESSES
REAL ESTATE BROKERS AND AGENTS. Move.com Group believes that real estate
brokers and agents serve a critical role in consummating real estate
transactions by facilitating transactions between buyers and sellers. As a
result, Move.com Group intends to develop various programs to increase the
productivity of brokers and agents.
For example, inquiries from consumers about specific home listings will be
automatically transferred to a fax or e-mail and delivered from Move.com Group
to the appropriate real estate broker or agent within about 60 seconds. A
well-trained client relations team is responsible for providing ongoing
education to brokers and agents including guidance on how best to follow up on
leads and properly maintain and update listings. Because the Internet represents
a new marketing medium for the real estate industry, creating and sharing
knowledge about how to optimize its use should be highly valued by brokers and
agents. Move.com Group also will provide brokers and agents with tools to
strengthen their Internet marketing, including enhancements to their listings.
By providing all of these services, Move.com Group expects to receive favorable
word-of-mouth and referrals to the move.com network.
RENTAL PROPERTY MANAGERS AND OWNERS. Move.com Group has numerous programs
to help onsite property managers increase their productivity. For example,
inquiries from the move.com network are delivered to rental property managers
via branded e-mails, faxes or toll-free calls that identify each lead as
originating from the move.com network. In addition, a highly-trained customer
service field force provides frequent educational seminars and one-on-one
sessions for property managers on topics such as the best ways to follow up on
leads and maintain accurate listing information.
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BUSINESS RELATIONSHIPS. Move.com Group intends to increase and strengthen
its relationships with quality-oriented businesses by aggressively marketing the
benefits of affiliation with the move.com network. In addition to providing
businesses access to a highly targeted group of consumers, Move.com Group will
implement sophisticated lead-delivery and tracking mechanisms to maximize the
marketing efforts of those businesses. Move.com Group believes strongly in
establishing mutually beneficial relationships with dependable businesses that
will generate traffic and revenue for both parties. Move.com Group is currently
negotiating a number of potential relationships to expand its service and
product offerings to continue to assist movers, homeowners and renters before,
during and long after their move. In addition, Move.com Group expects to
generate significant advertising client leads by leveraging Cendant's extensive
business-to-business marketing relationships with over 100 major vendor
corporations. Cendant's preferred alliance group, which manages these
relationships, will work closely with Move.com Group to market the advertising
opportunities on the move.com network.
PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS, INCLUDING INTERNATIONAL
OPPORTUNITIES
Move.com Group will continue to form strategic alliances with key Internet
sites to increase brand awareness, traffic and revenue. In addition, Move.com
Group will pursue acquisitions and partnerships both in the United States and
selected international markets, including Canada, the United Kingdom and
continental Europe, that can provide complementary capabilities, additional
content and services, technical personnel, established consumer relationships
and online traffic.
MOVE.COM GROUP'S COMPETITIVE ADVANTAGES
Move.com Group has considerable advantages that distinguish it from its
online competitors by virtue of having all of the following:
- substantial existing online traffic bases of rent.net, the most visited
Web site for real estate rentals, and Cendant Group's real estate
franchise systems' Web sites;
- the expertise of Rent Net, a pioneer of online real estate services, in
building and driving consumer traffic through distribution partnerships;
- an agreement with AltaVista Company, an operator of new-media and
commerce network on the Internet, for Move.com Group to be an exclusive
real estate content provider of the new AltaVista Real Estate Channel;
- affiliation and intercompany relationships with Cendant Group's leading
real estate franchise systems, brands and businesses, which provide
Move.com Group with:
- content at no cost, including up-to-date listings of homes for sale
under 40-year agreements with the CENTURY 21-Registered Trademark-,
COLDWELL BANKER-Registered Trademark- and ERA-Registered Trademark-
real estate franchise systems;
- industry-leading expertise in relocation, home buying/selling,
mortgage financing/refinancing and local advertising from the
managements of Cendant Mobility, the CENTURY
21-Registered Trademark-, COLDWELL BANKER-Registered Trademark- and
ERA-Registered Trademark- real estate franchise systems, Cendant
Mortgage and Welcome Wagon, respectively;
- brand exposure through Cendant Group's real estate franchise systems'
multi-million-dollar national advertising campaigns and direct
promotions by their brokers and agents; and
- access to and resources associated with Cendant Group's
well-established business-to-business marketing relationships with
over 110 vendor corporations; and
- state-of-the-art technology platform delivering customized consumer
experiences by interactively capturing consumers' interests and tailoring
content to their needs.
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MOVE.COM NETWORK
The move.com network is comprised of the following Web sites that offer
quality relocation, real estate and home-related content and services.
MOVE.COM. Move.com is Move.com Group's Internet portal and flagship site.
Move.com is dedicated to providing consumers a one-stop solution for their
relocation, real estate and home-related needs before, during and after a move.
Move.com combines home and rental housing listings, mortgage services, such as
mortgage calculators and guides, listings of mortgage rates and types,
information regarding pre-qualification programs, and an online mortgage
application process, and numerous moving and home-related services to help make
moves easier, less stressful, more efficient and enjoyable. Move.com offers
content and services through planning, renting, buying, selling, moving and
living site tabs.
RENT.NET. Rent Net is a leading online rental and relocation guide and
advertising source for the apartment industry, representing properties and
relocation services in more than 3,000 cities across North America. Rent Net's
paying advertising clients include managers and owners of over 13,000 apartment
communities representing over 3 million apartment units in all 50 states and
Canada. Rent Net provides rental listings containing detailed property
descriptions, photographs, floor plans, 360 virtual tours, and direct
communication links to rental property managers. According to Media Metrix, Rent
Net was the most visited Web site for real estate rental listings, based on
unique visitors, during 1999, including December 1999, the most recently
measured period.
SENIORHOUSING.NET. Senior Housing Net provides the move.com network with a
directory of over 750 retirement communities, assisted living facilities and
nursing homes containing detailed property descriptions, photographs, floor
plans, 360 virtual tours and direct communication links to onsite managers.
CORPORATEHOUSING.NET. Corporate Housing Net is the leading online directory
and advertising source for the temporary/corporate housing industry, with over
400 local and national listing providers across the United States and Canada.
Through Corporate Housing Net, users are able to access detailed property
information, including photos, floor plans and available amenities, and may
contact leasing agents via e-mail, fax or phone.
SELFSTORAGE.NET. Self Storage Net is the leading online directory and
advertising source for the self storage industry, with listings for over 3,000
storage facilities across the United States and Canada. Through Self Storage
Net, users are able to access descriptions of facilities photos and maps, as
well as direct communication links to facility owners or managers.
CENTURY21.COM. Century21.com is the official Web site for the
CENTURY21-Registered Trademark- real estate franchise system, which is part of
the Cendant Group. The CENTURY21-Registered Trademark- franchise system is
comprised of over 6,300 independently owned and operated offices with
approximately 110,000 brokers and agents worldwide, in more than 25 countries
and territories. The CENTURY21-Registered Trademark- franchise system provides
the move.com network with home listings and brand exposure. Move.com Group
manages the Web site's maintenance and technical support and acts as an
advertising placement agent.
COLDWELLBANKER.COM. Coldwellbanker.com is the official Web site for the
COLDWELL BANKER-Registered Trademark- real estate franchise system, which is
part of the Cendant Group. The COLDWELL BANKER-Registered Trademark- franchise
system has nearly 3,000 independently owned and operated real estate offices
with more than 70,000 sales associates throughout the United States, Canada,
Mexico, Central America, the Caribbean, Israel and Singapore. The COLDWELL
BANKER-Registered Trademark- franchise system provides the move.com network with
listings of residential and vacation properties and brand exposure. Move.com
Group manages the Web site's maintenance and technical support and acts as an
advertising placement agent.
ERA.COM. Era.com is the official Web site for the ERA-Registered Trademark-
real estate franchise system, which is part of the Cendant Group. The
ERA-Registered Trademark- franchise system is comprised of more than 2,600
independently owned
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and operated offices with approximately 29,000 sales associates worldwide. The
ERA-Registered Trademark- franchise system provides the move.com network with
residential property listings and brand exposure. Move.com Group manages the Web
site's maintenance and technical support and acts as an advertising placement
agent.
WELCOMEWAGON.COM. Welcomewagon.com is the official Web site of Welcome
Wagon/Getko, which is part of the Cendant Group. Welcomewagon.com provides the
move.com network with local community information, including a directory of more
than 40,000 local merchants and service providers nationwide.
CONSUMER SERVICES
PLANNING. The move.com network provides a broad range of content and tools
to assist consumers in the complex decisions and tasks involved in the moving
process. Planning tools available on the move.com network include a moving
planner that describes the numerous tasks that a consumer should complete before
he or she moves. In addition, consumers can use budgeting and analysis tools to
help determine what they are able to afford and whether they should buy or rent.
Consumers also can get neighborhood information, including data on schools,
crime, climate, cost of living and other demographic information covering all 50
states and 95% of all zip codes in the United States.
RENTING. Users of the move.com network have access to a comprehensive
rental guide to apartments, senior housing, temporary/corporate housing, self
storage facilities and vacation rentals. Move.com Group offers consumers a
significantly better way to find a rental property that combines a fast and easy
searching experience with content, tools and personalization features to make
finding a property less onerous and more manageable. Move.com Group publishes
rental housing listings from all 50 states, Canada and 40 other countries. These
listings are frequently updated and can be searched and sorted based on users'
criteria. For example, a user looking for an apartment can choose a city and
state, then narrow the search by number of bedrooms and monthly rent and then
sort the results according to various criteria. A user can then get detailed
information about the apartment including square footage, amenities offered and
whether pets are allowed. Many of the apartment, temporary/ corporate and senior
housing listings include a location map, a floor plan, and pictures and/or a
"360 virtual tour" provided through Internet Pictures Corporation, or IPIX. The
"virtual tours" give the potential renter the opportunity to view an entire
room, from floor to ceiling and all the way around on his or her computer
screen.
In addition to detailed listings, Move.com Group offers potential renters
information on tenant rights and gives advice on how to improve relationships
with a landlord or neighbor.
BUYING. The move.com network serves as a one-stop destination for valuable
services and tools to assist consumers in the home-buying and financing process.
Consumers can begin by consulting a checklist that breaks down this complicated
process into discrete stages or directly access relevant content and other
tools, including listings and financing services.
Through 40-year agreements with Cendant, Move.com Group provides a national
directory of listings of homes for sale from CENTURY21-Registered Trademark-,
COLDWELL BANKER-Registered Trademark- and ERA-Registered Trademark-, three of
the five largest residential real estate franchise systems in the world. Users
can search and sort these listings based on specified criteria. Users also may
subscribe to an e-mail service that provides weekly updates of new listings.
Home listings on move.com are updated daily after a broker or agent updates his
or her listings. Move.com also offers users access to a national directory of
brokers and agents and information to help consumers identify quality real
estate professionals through either a targeted search, or a link to a particular
broker's or agent's home page.
Move.com Group offers mortgage origination, refinancing and mortgage-related
tools and content through Cendant Mortgage, the sixth-largest retail mortgage
originator in the United States with approximately $26 billion in mortgage
originations in 1999, for which the Move.com Group receives a marketing
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fee. When Move.com Group completes the process of obtaining mortgage broker
licenses in all 50 states, expected in 2001, it will serve as a mortgage broker
for Cendant Mortgage and others, and will expect to receive compensation for
each mortgage originated for which it served as broker. Although not yet
finalized, it is currently expected that this compensation from Cendant
Corporation will be approximately 50 basis points (i.e., one half of one
percent) of the principal amount of each closed mortgage. Visitors to the
move.com Web site can research, apply for, monitor, receive and service mortgage
loans online. After submitting an application, users can track their loan status
online at anytime. Prospective borrowers also can interact with customer service
representatives either by e-mail or telephone to check the status of their loans
or lock-in interest rates. In addition to getting a new mortgage, Move.com Group
offers consumers analytical tools to help them decide whether they can benefit
from refinancing their existing mortgage. Move.com Group provides information
and analysis of the goals, advantages and costs of refinancing. Furthermore,
users can sign up for a service that sends automatic e-mail updates of loan
rates, allowing them to conveniently monitor interest rate movements.
SELLING. Move.com Group provides various tools and information to help home
sellers. For example, consumers can consult a selling guide that answers many
frequently asked questions and provides useful data on neighborhoods and home
values, as well as tips on how to increase a home's resale value. Consumers also
can connect with a real estate professional to assist them in maximizing the
return on their home investment.
MOVING. Move.com Group consults with and utilizes the expertise of Cendant
Mobility, a member of the Cendant Group and the largest provider of corporate
employee relocation services in the world, in developing for consumers valuable
information and tools to help successfully navigate the moving process. For
example, Move.com Group's moving day countdown calendar allows users to plan and
track each step of the moving process from packing to settling into the new
home. In addition, Move.com Group's business relationships provide Move.com
Group's customers access to packing, shipping, storage, trucking, insurance and
other moving-related products and services. Users also have access to critical
disconnection and connection services through National Home Connections, which
permit them to conveniently change, at no cost, their utilities and cable
providers, newspaper subscriptions, mailing address and vehicle and voter
registration.
LIVING. Move.com Group offers a variety of valuable resources to meet
consumers' furnishing, decorating, parenting, home improvement and other
home-related needs. Through various quality-oriented businesses, Move.com Group
offers consumers the opportunity to connect with providers of furniture,
childcare, home improvement and other home-related products and services. In
addition, Move.com Group assists consumers in their integration into a new
community by providing links to Welcome Wagon's discount offers from local
merchants across the United States and Canada.
BUSINESS SERVICES
Move.com Group provides a variety of value-added products and services for
businesses, who are trying to reach Move.com Group's highly targeted and valued
user base.
BROKERS AND AGENTS. Move.com Group will offer various products and services
to help increase productivity and effectiveness to the real estate professionals
of the CENTURY 21-Registered Trademark-, COLDWELL BANKER-Registered Trademark-
and ERA-Registered Trademark- franchise systems. These products and services
include listing enhancements and helpful advice on ways to most effectively
follow up on e-leads.
Move.com Group expects to offer brokers and agents several fee-based listing
enhancement options, which can provide an economical method for brokers and
agents to attract qualified homebuyers and motivated sellers. While a recent
survey shows that most top-producing real estate brokers and agents spend
between $300 and $900 on marketing per transaction, Move.com Group intends to
reduce this cost significantly for professionals who utilize enhanced listings.
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RENTAL PROPERTY MANAGERS AND OWNERS. Move.com Group offers services to
managers and owners of apartments, self storage, senior housing and
temporary/corporate housing facilities in all 50 states and Canada. These
fee-based services include a variety of listing enhancements such as prominent
placement, unlimited text descriptions, color photos and virtual tours. In its
largest category of apartments, Move.com Group historically has targeted the
estimated 25,000 large apartment communities that have ongoing listing needs and
spend money on advertising. Through its recent acquisition of MetroRent,
Move.com Group has begun to target apartment buildings with 25 or fewer units.
Move.com Group also targets managers and owners of 50,000 senior housing
facilities, 1,000 temporary/corporate housing properties and 30,000 self storage
facilities.
Move.com Group places a substantial emphasis on maintaining its existing
base of rental property clients and services each of them on a regular basis.
Most rental property clients are assigned a field representative who is
responsible for helping them take full advantage of the marketing power of the
Internet and is capable of answering their questions and updating their listings
on a timely basis. Each year since 1995, Move.com Group has retained over 90% of
its rental property client base. Move.com Group believes that this high
retention rate is a good indicator of the value of the services it provides
rental property managers and owners and the satisfaction and results it
delivers.
Currently, Move.com Group's rental property paying clients include managers
and owners of over 13,000 apartment communities representing over 3 million
apartment units in all 50 states and Canada, over 750 senior housing facilities
in all 50 states, over 400 temporary/corporate housing companies worldwide and
over 3,000 self storage facilities in 47 states and Canada.
ADVERTISING CLIENTS AND SPONSORS. Move.com Group offers businesses the
ability to reach users through traditional banner advertisements and/or through
sponsorship arrangements. Advertising clients and sponsors can purchase
placements with direct links to their sites on various content areas of move.com
or across the entire move.com network. In addition, companies can enter into
sponsorship arrangements with Move.com Group to allow users of the move.com
network to link directly to the sponsors' sites by featuring "fixed buttons" or
other prominent placements. Move.com Group sells advertisements and sponsorships
typically for a fixed fee either paid up-front or monthly and/or fees based on
e-commerce transactions generated through leads provided by the move.com
network.
Move.com Group's principal advertisers and sponsors as of March 31, 2000 are
listed below:
MOVE.COM GROUP
ADVERTISING CLIENTS AND SPONSORS
<TABLE>
<S> <C>
- hardware.com - CarsDirect.com, Inc.
- Carefinder.com, Inc. - Ryder TRS Inc.
- ImproveNet, Inc. - Allstate Corporation
- Furniture.com, Inc. - CORT Furniture Rental
- Internet Pictures Corporation (IPIX) - barnesandnoble.com llc
</TABLE>
Revenue from those of the above clients and sponsors were parties to agreements
in 1999, constituted approximately 17% of Move.com Group's revenue for the year
ended December 31, 1999, although not all of those agreements were in effect for
the full year.
WELCOME WAGON CLIENTS. Move.com Group will provide online marketing
services for a fee to Welcome Wagon, a premier direct marketer for over 40,000
local merchants. Registered users of move.com, who visit the Welcome Wagon
section of move.com, will be able to view and download discount offers from
local merchants.
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PERSONALIZED RELATIONSHIP MANAGEMENT. Move.com Group utilizes the
BroadVision One-to-One Enterprise software, which permits customizing the site's
content to the expressed needs and interests of individual users during each
visit on a real-time basis. By interactively capturing users' profiles and
organizing and targeting content to each user, move.com maximizes utility for
both consumers and Move.com Group's business partners. Consumers are directed to
desired products or services, while business partners who provide the particular
products or services are able to access the most likely buyers of their products
and services. Move.com Group's privacy policy prohibits the distribution of a
consumer's personal information without his or her consent.
SALES AND MARKETING
Move.com Group's sales and marketing efforts are directed toward building
brand awareness, increasing online traffic and expanding the number of business
partners.
PURSUE AGGRESSIVE CONSUMER MARKETING STRATEGY. Move.com Group will focus on
aggressively increasing its user base by building its brand into a widely
recognized and accepted consumer name. Move.com Group draws upon Rent Net's
pioneering experience, that goes back to 1995, in building Rent Net, through
online distribution partnerships, into the most visited Web site for real estate
rental listings. Move.com Group will increase brand awareness by expanding
existing and formulating new marketing efforts through both online promotions
and traditional media such as television, radio and printed publications
nationwide.
On the Internet, Move.com Group already has relationships with many leading
online distribution partners. Move.com Group has an agreement with AltaVista to
serve as an exclusive real estate content provider to the new AltaVista Real
Estate Channel. As part of the agreement, AltaVista will also promote this
co-branded channel and the move.com network throughout its high traffic network
of sites including AltaVista Search, altavistashopping.com and AltaVista Live!
LEVERAGE CENDANT'S REAL ESTATE BRANDS' ADVERTISING CAMPAIGNS AND ONLINE
TRAFFIC. Move.com Group expects to establish a strong, mutually beneficial
relationship with Cendant Group's leading real estate franchise systems. The
multi-million dollar national and local television, radio and print advertising
campaigns for the CENTURY 21-Registered Trademark-, COLDWELL
BANKER-Registered Trademark- and ERA-Registered Trademark- real estate franchise
systems will continuously promote the move.com network. Move.com Group will, in
turn, promote these franchise systems in its national marketing campaigns. The
franchise systems' brokers and agents also will promote the move.com network
through word-of-mouth. Common navigation buttons, along with the move.com logo,
will be placed toward the top of each page of the franchise brands' sites and
will allow users to click-through to move.com's home page and other areas of
move.com, such as the mortgage center or moving planner. Moreover, Move.com
Group has implemented common ad server tools in order to effectively sell
advertisements on each of the franchise brands' sites.
CONTINUE TO BUILD AND STRENGTHEN RELATIONSHIPS WITH BUSINESS
PARTNERS. Move.com Group has a dedicated group of 60 trained sales
professionals, throughout the United States, marketing to and servicing real
estate professionals and third-party product and service providers. Move.com
Group has developed effective methods of capturing and retaining business
partners through time-tested processes and superior customer relations. Move.com
Group expects to continue to add significantly to its sales resources over time.
LEVERAGE CENDANT'S WELCOME WAGON AND PREFERRED ALLIANCE MARKETING
EFFORTS. Move.com Group expects to leverage Cendant's extensive sales resources
associated with Welcome Wagon and the preferred alliance group. Cendant
currently has over 300 Welcome Wagon sales agents nationwide marketing to local
merchants and an established preferred alliance sales team marketing to major
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corporations. These sales agents will offer their customers online exposure on
the move.com network and should serve as a significant source of leads and
business partners to Move.com Group.
INFRASTRUCTURE AND TECHNOLOGY
Move.com Group's infrastructure incorporates leading-edge technologies to
deliver a secure, robust and scalable multi-tier architecture. This architecture
includes redundancy and application and database server tiers, ensuring high
availability and scalability.
Move.com Group's application logic is based on platform-independent,
component-based solutions, allowing component systems to scale to enterprise
levels while being distributed over multiple servers for redundancy. This
high-performance architecture will enable Move.com Group to deliver a
high-quality, secure user experience 24 hours a day, seven days a week. Move.com
Group's current systems are capable of handling over 2 million sessions a day
and planned upgrades in the third quarter of 2000 are expected to increase site
capacity to over 4 million sessions a day. Current overall site session
utilization is approximately 65%, with spikes to approximately 75%.
Move.com network's sites are primarily hosted in Cendant's Data Center
located in Garden City, New York. The Data Center is a state-of-the-art facility
providing maximum security, production system monitoring, redundant power,
multi-zoned air conditioning, fire suppression, and redundant, high-bandwidth
telecommunications capability. Back-ups are done on a daily basis and tapes are
stored at an offsite location.
COMPETITION
The market for online relocation and real estate-related services is
relatively new, intensely competitive and rapidly changing. Move.com Group's
success will depend on its ability to continue to provide comprehensive, timely
and useful information to attract and maintain both consumers and business
partners.
Move.com Group believes that the primary competitive factors in attracting
consumers to the move.com network are:
- brand recognition;
- quality, depth, breadth and presentation of content and services;
- functionality;
- ease-of-use; and
- quality and reliability of service.
Move.com Group believes that the principal competitive factors in attracting
advertisers and content providers to the move.com network are:
- amount of traffic and user demographics;
- quality of service;
- ability to provide targeted audience and quality leads that become
customers;
- cost-effectiveness of advertising on the move.com network; and
- ability to integrate content and purchase opportunities.
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Move.com Group's main existing and potential competitors for consumers and
advertisers include:
- Web sites offering home or apartment listings together with other related
services, such as apartments.com, cyberhomes.com, homehunter.com,
homestore.com, homeseekers.com, homeadvisor.com, iown.com,
newhomenetwork.com and realestate.com;
- online services or Web sites targeting buyers and sellers of real estate
properties and financial services companies, offering real estate-related
products and services;
- general purpose consumer Web sites, search engine providers, and Web sites
maintained by Internet service providers that offer relocation, real
estate or home-related content;
- traditional forms of media such as radio, television, newspapers and
magazines; and
- offline relocation, real estate and home-related product and service
companies.
Move.com Group believes its various competitive advantages, including its
affiliation with Cendant's real estate franchise systems and its proprietary
database and content will permit it to compete favorably with its competitors.
However, many of Move.com Group's existing competitors, as well as a number of
potential new competitors, have greater name recognition, larger existing
consumer bases and significantly greater financial, technical and marketing
resources. Move.com Group may not be able to compete successfully for consumers,
clients and staff and increased competition could result in price reductions,
reduced margins or loss of market share, any of which could materially adversely
affect its business, results of operations and financial condition.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
Move.com Group regards substantial elements of the move.com network and
underlying technology as proprietary and attempts to protect them by relying on
trademark, service mark, copyright and trade secret laws and restrictions on
disclosure. Despite Move.com Group's precautions, it may be possible for a third
party to copy or otherwise obtain and use Move.com Group's proprietary
information without authorization or to develop similar technology
independently.
Move.com Group intends to apply to register the move.com logo as a federal
trademark. Rent Net is a registered trademark. Other trademarks and service
marks in this prospectus are the property of their holders. Move.com Group has
registered the Internet domain names "Move.com," "Rent.Net" and other domain
names Move.com Group uses. This gives Move.com Group the exclusive rights to use
these names as the addresses for its Web sites in the United States. The
regulation of domain names is subject to change. Some proposed changes include
the creation of additional top-level domains in addition to the current
top-level domains, such as ".com," ".net" and ".org." It is also possible that
the requirements for holding a domain name could change. Therefore, Move.com
Group may not be able to obtain or maintain relevant domain names for all of the
areas of its business. It may also be difficult for Move.com Group to prevent
third parties from acquiring domain names that are similar to move.com network's
domain names, that infringe Move.com Group's trademarks or that otherwise
decrease the value of Move.com Group's intellectual property.
Move.com Group may not be able to register "Move.com" and certain of its
trade names as federal trademarks because those names may be generic or too
descriptive to qualify for federal trademark protection. Accordingly, Move.com
Group may not be able to prevent other people from using those names in their
businesses or in such a way as to damage its reputation, which could ultimately
affect its revenue.
Move.com Group currently licenses from third parties technologies and
information incorporated into the move.com network. As Move.com Group continues
to introduce new services that incorporate new technologies and information,
Move.com Group may be required to license additional technology and information
from others.
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Legal standards relating to the validity, enforceability and scope of
protection of proprietary rights are uncertain and are still evolving,
especially as they relate to Internet-related rights. In addition, the laws of
some foreign counties may not protect Move.com Group's rights to the same degree
as those of the United States. For these reasons, Move.com Group cannot be sure
that the steps it takes will adequately protect its proprietary rights. Move.com
Group also may be required to litigate to enforce its intellectual property
rights or to determine the validity and scope of proprietary rights of others.
This could create substantial costs and diversion of management's attention. See
"Risk Factors--Move.com Group relies on intellectual property rights which may
not be adequately protected under current laws."
PRIVACY POLICY
Move.com's privacy policy seeks to give its consumers as much control as
possible over their personal information. Move.com gathers two types of
information about consumers: data that consumers provide through optional,
voluntary registration on the move.com network and data Move.com Group gathers
through aggregated tracking, mainly by tallying page views. This information
enables Move.com Group to tailor its content to consumers' needs and helps
Move.com Group's advertisers understand the demographics of its audience.
Move.com Group does not disclose visitor personal information to third parties
without the visitor's consent.
REGULATION
RESPA requires certain disclosures, including a good faith estimate of
closing costs and fees, as well as mortgage servicing transfer practices. RESPA
also prohibits the payment or receipt of kickbacks or referral fees, fee shares
or splits, or unearned fees in connection with the provision of real estate
settlement services. It is a common practice for online mortgage and real
estate-related companies to enter into advertising, marketing and distribution
arrangements with other Internet companies and Web sites whereby the mortgage
and real estate-related companies pay fees for advertising, marketing and
distribution services and other goods and facilities based on the number of
click-throughs, completed mortgage loan applications or closed mortgage loans
derived from such arrangements. The applicability of RESPA's referral fee
prohibitions to the compensation provisions of these arrangements is unclear and
the Department of Housing and Urban Development has provided no guidance to date
on the subject. Although Move.com Group believes that it has structured its
relationships with Internet advertisers to ensure compliance with RESPA, some
level of risk is inherent absent amendments to the law or regulations, or
clarification from regulators.
Although Move.com Group's operations on the Internet are not currently
regulated by any government agency in the United States beyond regulations
discussed above and applicable to businesses generally, it is likely that a
number of laws and regulations may be adopted governing the Internet. In
addition, existing laws may be interpreted to apply to the Internet in ways not
currently applied. Regulatory and legal requirements are subject to change and
may become more restrictive, making Move.com Group's compliance more difficult
or expensive or otherwise restricting its ability to conduct its business as it
is now conducted. Such changes could hurt its business. See "Risk Factors--
Increased government regulation and legal uncertainties relating to the Web
could increase Move.com Group's costs of transmitting data and increase legal
and regulatory expenditures and could decrease client and consumer base."
LEGAL PROCEEDINGS
As of the date of this prospectus, none of the entities in Move.com Group is
a party to any litigation or other legal proceeding that, in Move.com Group's
opinion, could have a material adverse effect on its business, operating results
or financial condition.
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For a description of legal proceedings relating to Cendant, see "Risks
Related to Cendant Corporation--Discovery of Accounting Irregularities and
Related Litigation and SEC Investigation."
MOVE.COM GROUP EMPLOYEES
As of March 31, 2000, Move.com Group had 270 full-time employees. Move.com
Group has never had a work stoppage and no personnel is represented under
collective bargaining agreements. Move.com Group believes that its future
success will depend in part on Move.com Group's ability to attract, integrate,
retain and motivate highly qualified personnel, and upon the continued service
of Move.com Group's senior management and key technical personnel. Competition
for qualified personnel in Move.com Group's industries and geographical
locations is intense. Move.com Group cannot assure you that it will be
successful in attracting, integrating, retaining and motivating a sufficient
number of qualified employees to conduct its business in the future. Move.com
Group considers its relationship with its employees to be satisfactory.
MOVE.COM GROUP FACILITIES
Move.com Group's principal executive and corporate offices and network
operations center are located in San Francisco, California, in approximately
96,000 square feet of office space under a lease that expires in 2006. Move.com
Group also maintains operations in New York, New York and Knoxville, Tennessee.
Move.com Group believes that its facilities are adequate for its current
operations and that additional space will be available for future expansion if
necessary.
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MOVE.COM GROUP MANAGEMENT
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following sets forth information regarding the executive officers and
key employees of Move.com Group:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Sarah Nolan 49 Chief Executive Officer and President
Phil Marcus 29 Chief Strategic Officer/Co-Founder
Jed Katz 29 Chief Strategic Officer/Co-Founder
Barry Allen 47 Chief Financial Officer
Bernie Hamilton 60 Chief Quality Officer
Marc West 40 Chief Technology Officer
Nicole Vogel 31 Vice President of Business Development
Michael Tchao 36 Vice President of User Experience
Scott Deaver 48 Vice President of Marketing
Andrew Straus 28 Vice President of Directory Services
</TABLE>
SARAH NOLAN has been Chief Executive Officer and President of Move.com Group
since September 1999. Prior to joining Move.com Group, Ms. Nolan was Chairman of
the Board and Chief Executive Officer of Narrowline, an Internet advertising
exchange and research company. From May 1997 to November 1997, Ms. Nolan worked
at Hambrecht & Quist LLP, for whom she served as President and Chief Executive
Officer of OptionsLink. From 1986 to 1992, Ms. Nolan worked at American Express
as Executive Vice President of its Travel Related Services division and also
served as President of the AMEX Life Assurance Company. Ms. Nolan has also held
positions at Booz Allen & Hamilton, Irving Trust Company and McGraw-Hill. Ms.
Nolan has an M.B.A. from New York University and a B.A. from Rhodes College.
PHIL MARCUS is a Co-Chief Strategic Officer and a Co-Founder of Move.com
Group. As Chief Strategic Officer, Mr. Marcus, along with Mr. Katz, concentrates
on the high growth opportunities for Move.com Group including new business
initiatives, international expansion and mergers & acquisitions. Prior to
starting Move.com Group, Mr. Marcus was the President and Co-Founder of Rent
Net. In this role, Mr. Marcus oversaw consumer marketing, software and product
development, new business development, accounting/finance as well as general
corporate strategy. Prior to founding Rent Net, Mr. Marcus was an associate at
the law firm of O'Melveny and Myers and was a tax accountant at Ernst & Young in
Los Angeles. Mr. Marcus holds a Juris Doctorate degree from Hastings College of
the Law and a B.A. in Business-Economics from UCLA.
JED KATZ is a Co-Chief Strategic Officer and a Co-Founder of Move.com Group.
As Chief Strategic Officer, Mr. Katz, along with Mr. Marcus, concentrates on the
high growth opportunities for Move.com Group including new business initiatives,
international expansion and mergers & acquisitions. Prior to starting Move.com
Group, Mr. Katz was the COO and Co-Founder of Rent Net. In this role, Mr. Katz
managed client sales and marketing, operations and corporate strategy, growing
the company from 2 to 160 people. Prior to founding Rent Net in late 1994, Mr.
Katz worked in Los Angeles as an investment manager for Southwest Housing
Investments. Prior to that, Mr. Katz was an apartment manager in Los Angeles. A
frequent speaker on the benefits of online marketing for the real estate
industry, Mr. Katz has also published articles in many of the industry trade
magazines. Mr. Katz has an M.B.A. from The University of California at Berkeley
and a B.A. in Business-Economics from UCLA.
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BARRY ALLEN has been Chief Financial Officer of Move.com Group since
December 1999. Prior to joining Move.com Group, Mr. Allen was Chief Financial
Officer of Marketwave Corporation, a provider of enterprise-class e-business
software from June 1998 to September 1999. From 1996 to June 1998, Mr. Allen
worked at Cascade Design Automation Corp. as Chief Financial Officer. From 1990
to 1996, Mr. Allen worked at Celerex Corp. as Chief Financial and Administrative
Officer. Mr. Allen also served as President and Chief Operating Officer of Air
Data Express. Mr. Allen has also worked at First Columbia Management Corp. and
Coopers & Lybrand. Mr. Allen has a B.A. in business administration from the
University of Washington.
BERNIE HAMILTON has been Chief Quality Officer of Move.com Group since
December 1999. Prior to joining Move.com Group, Mr. Hamilton was Senior Vice
President and General Auditor of the American Express Company from 1992-1998.
Throughout his 25 year career with American Express, Mr. Hamilton held various
positions, primarily in American Express's Travel Related Services subsidiary.
He served as Executive Vice President and Chief of Staff from 1991-1992,
Executive Vice President--Strategic Business Systems from 1989-1990,
President--Latin America and Caribbean Division from 1979-1989, Vice President
and Chief Financial Officer from 1975-1979, and Director Management Science and
Planning from 1973-1974. Mr. Hamilton also worked as a consultant for
Mathematica, Inc. and was a Captain in the U.S. Army. Mr. Hamilton has a Ph.D.
in Business Administration from UCLA, an M.B.A. from UCLA and a B.S. in
Mechanical Engineering Industrial Option from Notre Dame.
MARC WEST has been Chief Technology Officer of Move.com Group since February
2000. Prior to joining Move.com Group, Mr. West was Chief Information Officer of
BlueStone Capital Partners, L.P. and TRADE.com from 1999 to 2000 where he was
responsible for all aspects of technology and e-business development. Mr. West
also served as Vice President, Information Technology Services for The Quick &
Reily Group, Inc. from 1998 to 1999 and Senior Practice Director for Oracle
Corporation from 1995 to 1998. Mr. West has also held positions with Sequent
Computer Systems, Inc. and Mobile Corporation. Mr. West has an M.S. in Human
Resources Management from Golden Gate University and a B.S. in Computer Sciences
from the University of Maryland.
NICOLE VOGEL has been Vice President of Business Development since July
1999. Prior to joining Move.com Group, Ms. Vogel was Vice President of Business
Development for Turner Interactive Sales, responsible for new business on the
CNN family of Web sites, which include, CNN.com, CNNfn.com (Financial Network)
and CNNSI.com (Sports Illustrated), as well as other Turner Broadcasting Web
sites, such as Cartoon Network.com and WCW.com. As one of the original five
members of the Turner Interactive Sales team, she oversaw the growth of that
division from five to over 50. Prior to her Internet-related duties, Nicole
oversaw Corporate Strategic Planning for Turner's cable sales divisions. Ms.
Vogel has a B.A. from American University.
MICHAEL TCHAO has been Vice President of User Experience since August 1999.
Prior to joining Move.com Group, Mr. Tchao ran a technology marketing strategy
consulting practice helping companies develop, launch and market new technology
products and services. His clients included Fortune 500 companies as well as a
number of smaller Internet-related startups. Prior to consulting, Mr. Tchao
spent 10 years in various product development and product marketing positions at
Apple Computer developing and launching over 250 hardware and software products.
Mr. Tchao has a B.S. in Engineering Product Design from Stanford University.
SCOTT DEAVER joined Move.com Group as Vice President of Marketing in
September 1999. Prior to joining Move.com Group, Mr. Deaver worked at Cendant
for nine years and held various positions in brand management, including Vice
President Marketing for Ramada and Howard Johnson hotels. Since 1997 to
September 1999, Mr. Deaver served as Senior Vice President Corporate Marketing
where he concentrated on cross-marketing initiatives for Cendant's business
units. Prior to joining Cendant, Mr. Deaver was Director of Consumer Marketing
for Holiday Inns, and was responsible for the initial marketing launch of
Embassy Suites Hotels.
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ANDREW STRAUS joined Move.com Group as Vice President of Directory Services
in May 1999. From January 1996 until May 1999, Mr. Straus had been a Director of
Rent Net. Mr. Straus hired, trained and managed Rent Net's initial sales force
and has overseen the growth and development of its apartment product since its
early stages. Today, he oversees both the residential apartment listings product
as well as the other directories such as Senior Housing Net, Self Storage Net
and Rent Net's Corporate Housing Guide. Mr. Straus is an Advisory Council member
of the National Multihousing Council, an organization for owners, developers and
operators of apartment communities. Prior to joining Rent Net, Mr. Straus was an
investment manager for City National Bank of Beverly Hills. He earned a B.A.
degree in Economics from UCLA in 1993.
MOVE.COM GROUP STOCK OPTION PLAN
The following is a brief description of the material features of the
Move.com Group Option Plan. Such description is qualified in its entirety by
reference to the full text of the Option Plan, which we have filed as an exhibit
to the registration statement of which this prospectus is a part.
The Option Plan provides for grants of options to eligible employees of
Move.com Group and Cendant Group, at the sole discretion of Cendant's
Compensation Committee. A majority of the employees of Move.com Group will be
granted options under the Option Plan. Subject to adjustment as provided in the
Option Plan, the total number of shares of Move.com stock reserved and available
for delivery to optionees is six million (6,000,000). No optionee may be granted
options under the Option Plan covering more than 50% of the total number of
shares of Move.com stock authorized for issuance under the Option Plan over any
consecutive two (2) year period. Shares subject to an option may be authorized
and unissued shares or may be treasury shares. If any option terminates without
being exercised, the shares of Move.com stock subject to such option will again
be available for option grants under the Option Plan.
The Option Plan will be administered by the Compensation Committee of the
board of directors of Cendant or by such other committee as the board of
directors of Cendant may designate or by the board of directors of Cendant. The
Compensation Committee is authorized, among other things, to select the
employees of Move.com Group and Cendant Group to whom options will be granted,
the number of shares and per share exercise price applicable thereto, as well as
to determine the terms and conditions of such options. Such selections will be
made to advance the goals set forth above, including to align the interests of
the employees of Move.com Group and Cendant Group employees who support the
Move.com Group operations, with the interests of the stockholders of the
Move.com stock. Subject to the terms and conditions of the Option Plan, the
Compensation Committee is authorized to interpret the Option Plan and adopt
administrative rules, guidelines, policies and practices applicable to the
Option Plan, as well as to make all determinations under the Option Plan.
Options to purchase shares of Move.com stock are the only awards authorized
to be granted under the Option Plan. No option granted under the Option Plan may
qualify as an Incentive Stock Option as defined in Section 422 of the Internal
Revenue Code. The exercise price per share applicable to any option is
determined by the Compensation Committee, but may not be less than the fair
market value (as defined in the Option Plan) of a share of Move.com stock as of
the date of grant.
Stock options may be exercisable subject to the terms of the option
agreement, or by such other manner determined by the Compensation Committee. The
Compensation Committee may permit optionees to defer the receipt of shares
issuable in connection with the exercise of any option. Except as set forth in
the Option Plan, options may not be transferred or otherwise assigned, pledged
or encumbered in any way.
All options granted under the Option Plan will be subject to a vesting
schedule established by the Compensation Committee.
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The Option Plan provides for the termination of options in the event that
any optionee's employment is terminated for cause (as defined in the Option
Plan). The Option Plan also has provisions for treatment of outstanding options
in the event an optionee terminates employment with Move.com Group for any other
reason.
The Option Plan provides that in the event of a change-of-control
transaction (as defined in the Option Plan), certain options granted thereunder
will become immediately exercisable with respect to 25% of the unvested portion
thereof on a pro rata basis according to the scheduled vesting dates.
The Option Plan will terminate by its terms on October 29, 2009, but may be
earlier terminated or amended at any time by the board of directors of Cendant
at its sole discretion, except that no such termination or amendment may impair
the rights of any optionee with respect to any then outstanding options.
Grants of options under the Option Plan are subject to the discretion of the
Compensation Committee and therefore indeterminable. However, as of the date
hereof, 1.2 million options have been granted to employees of Cendant Group and
2.5 million options have been granted to employees of Move.com Group under the
Option Plan.
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CERTAIN TRANSACTIONS
After the offering, the relationship between Cendant Corporation and
Move.com Group will be governed by Intracompany Agreements.
Certain wholly-owned subsidiaries of Cendant that are part of Move.com Group
are parties to various long-term agreements with subsidiaries of Cendant that
are part of Cendant Group. Since all the parties are wholly-owned subsidiaries
of Cendant, they may be amended at any time if Cendant so chooses, subject to
the requirement that Cendant exercise its fiduciary responsibilities to its
stockholders.
RELATIONSHIPS WITH REAL ESTATE FRANCHISORS. On October 1, 1999, Move.com
Operations, Inc., on behalf of Move.com Group, and each of Century 21 Real
Estate Corporation, Coldwell Banker Real Estate Corporation and ERA Franchise
Systems, Inc. entered into three separate 40-year Internet Cooperation
Agreements.
Each franchisor has agreed to provide its residential real estate listings
for display on move.com. In addition, each franchisor has agreed to use
commercially reasonable efforts to promote move.com to its brokers and agents
and to provide content for move.com (e.g. information, articles and promotional
material) from its Web site as mutually agreed by the parties based on a number
of factors, including the franchisor cost. Further, each franchisor has agreed
to place move.com identifying marks in a prominent location on its Web site and,
where appropriate, reference move.com in its television, radio and other offline
advertising.
In return, Move.com Group has agreed to display each franchisor's listings,
at no cost, on move.com to provide each franchisor with access to content
developed by Move.com Group, to provide each of
CENTURY 21-Registered Trademark- and COLDWELL BANKER-Registered Trademark- with
50,000, and ERA-Registered Trademark- with 25,000, banner advertisement
impressions per month on move.com, and to provide both broker profile screens
and Internet traffic reports to each franchisor's brokers and agents and to
offer such brokers and agents various ancillary services developed by Move.com
Group.
Move.com Group has been assigned, and has agreed to undertake management of,
the agreements with Web site hosting companies regarding the maintenance and
support of century21.com, coldwellbanker.com and era.com. In addition, Move.com
Group has agreed to serve as a nonexclusive business development representative
for each franchisor, with respect to third party advertising on century21.com,
coldwellbanker.com and era.com. In connection with this appointment, Move.com
Group has the right to place all but 6% of the advertising on century21.com,
coldwellbanker.com and era.com. Move.com Group is also serving as a nonexclusive
advertising placement consultant for each franchisor, with respect to the
placement of each franchisor's advertising on third party Web sites. Each
franchisor has agreed that prior to appointing any party as agency of record for
this service, it will meet with Move.com Group regarding Move.com Group's
potential appointment as an agency of record.
Move.com Group has also agreed to (1) pay each franchisor 10% of the revenue
received by Move.com Group from the sale of ancillary services on move.com where
the leads are attributable to the brokers or agents of such franchisor and (2)
pay each franchisor 10% of the advertising revenue received by Move.com Group in
connection with advertising placed on each franchisor's Web site. Each
franchisor has agreed to pay to Move.com Group up to 6% of the value of the Web
site management/ hosting services rendered by third parties to such franchisor;
however, this amount is only payable out of any savings realized by such
franchisor as a result of Move.com Group's assumption and management of the
third party hosting agreements for such franchisor's Web site.
Upon the expiration of pre-existing agreements that expire in June 2002, the
real estate franchise systems will provide its residential real estate listings
to Move.com Group on an exclusive basis.
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RELATIONSHIPS WITH CENDANT MORTGAGE. Move.com Operations, Inc., on behalf
of Move.com Group, is currently negotiating various agreements with Cendant
Mortgage Corporation, a wholly owned subsidiary of Cendant, under which Move.com
Group's licensed affiliate, a member of the Move.com Group, will serve as an
online mortgage broker for residential mortgage products offered by and through
Cendant Mortgage. Move.com Group will therefore be the contact person for online
customers, counseling them on mortgage options and procedures, guiding them
through the mortgage process, taking applications and providing other standard
services. Completed applications will be forwarded to Cendant Mortgage or
another lender for underwriting and closing. The terms, including the financial
terms, have yet to be finalized. Pursuant to a Software Development, Licensing
and Computerized Loan Origination System Agreement, which is still being
discussed, Cendant Mortgage will license a customized version of its Web-based
loan origination platform to Move.com Mortgage. This software will enable
Move.com Group to accept customer information to complete applications online.
Also, pursuant to an Internet Cooperation Agreement still being discussed, the
parties intend to provide various marketing services, including providing
advertising space and links on the move.com Web site to various Cendant Mortgage
mortgage programs and products.
SERVICES ARRANGEMENTS. Move.com Operations, Inc., on behalf of Move.com
Group, and Cendant Corporation are currently negotiating an Agreement pursuant
to which Cendant Corporation will provide corporate services to Move.com Group
similar to most of the services provided by Cendant to its other subsidiaries.
The services to be provided will include support for finance functions such as
treasury, accounts payable, payroll and external reporting, human
resources-related services such as benefits administration and recruiting and
employee relations assistance, legal support, and assistance with significant
transactions such as acquisitions. Move.com Group will pay Cendant for such
services with fees to be based on (1) actual costs incurred by Cendant in
providing such services and (2) cost allocation methodologies employed by
Cendant for its other subsidiaries which typically involves an allocation based
on a percentage of revenue. The allocation percentage has historically been
approximately 2% of revenues. The term of the Agreement will be indefinite,
subject to termination upon breach of the agreement or a divestiture of Move.com
Group by Cendant. The agreement can be amended at any time.
RELATIONSHIP WITH GETKO GROUP, INC./WELCOME WAGON. Move.com Operations,
Inc., on behalf of Move.com Group, has entered into an Internet Cooperation
Agreement with Getko Group, Inc., a wholly owned subsidiary of Cendant which
owns the rights to the Welcome Wagon brand name. Under the agreement, Move.com
Operations, Inc. has agreed to develop, host and maintain the Welcome Wagon area
of the move.com Web site for the purpose of promoting merchant discount
offerings and allowing visitors to obtain coupons to be redeemed with local
merchants. Getko has agreed to promote the Welcome Wagon area of move.com and
the services offered on move.com to its local merchant clients and to maintain
agreements with such clients. Getko will pay Move.com Group commissions based on
Getko's net revenue on a quarterly basis. Getko will pay Move.com Group 25%, 40%
and 75% of its net revenue in 2000, 2001 and 2002, respectively. Move.com Group
has agreed to reimburse Getko for a percentage of its total expenses in
promoting move.com. Move.com Group will pay 30%, 50% and 75% of these expenses
in 2000, 2001 and 2002, respectively. The term of the Internet Cooperation
Agreement commenced January 1, 2000 and ends on December 31, 2002 with an option
to renew for one year at Move.com Group's option subject to termination in the
event of a material breach of the agreement or if Move.com Operations, Inc. is
not wholly owned by Cendant.
DEVELOPMENT AND MARKETING AGREEMENT. Move.com Operations, Inc., on behalf
of Move.com Group, and Cendant Group are currently negotiating a Marketing and
Business Development Cooperation Agreement pursuant to which Cendant and
Move.com Group will jointly develop marketing arrangements with third parties
for the promotion of the third parties' products and services to Cendant's home
buying customers and Move.com Group's consumers. Move.com Group and Cendant will
each be obligated to appoint appropriate marketing and relationship management
and business personnel, to coordinate and develop the marketing of third party
contracts and to promote and implement the various services into their
respective businesses. Move.com Group will share certain fees and payments as
well as ongoing commissions, as determined by the parties with respect to each
marketing arrangement.
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DESCRIPTION OF CAPITAL STOCK
The following description is not complete and should be read with our
certificate of incorporation, as amended and restated which we have filed as an
exhibit to the registration statement of which this prospectus is a part. See
"Illustration of Terms," for further discussion of terms described in this
prospectus.
GENERAL
Our certificate of incorporation, as amended and restated, authorizes us to
issue 2,510,000,000 shares, consisting of 2,000,000,000 shares of CD stock, par
value $.01 per share, 500,000,000 shares of Move.com stock, par value $.01 per
share and 10,000,000 shares of preferred stock, par value $.01 per share. As of
March 31, 2000, Cendant had approximately outstanding shares of common
stock, which were automatically converted into CD Stock, and no shares of
preferred stock outstanding.
We have allocated, for financial accounting purposes, all of our
consolidated assets, liabilities, revenue, expenses and cash flow between
Cendant Group and Move.com Group. In the future, we will publish financial
statements of Move.com Group together with consolidated financial statements of
Cendant.
The board of directors of Cendant designated the number of shares of
Move.com stock to represent Cendant's initial retained interest in Move.com
Group, which is 22,500,000 shares immediately prior to this offering and the
offerings being made concurrently. The board of directors of Cendant also
designated the initial number of shares of Move.com stock to be sold to the
public. See "--Cendant Group's Retained Interest in Move.com Group," "--Number
of Shares Issuable with Respect to Cendant Group's Retained Interest in Move.com
Group" and "Illustration of Terms" for additional information about Cendant
Group's retained interest in Move.com Group and the number of shares issuable
with respect to Cendant Group's retained interest in Move.com Group. No shares
are actually issuable to Cendant with respect to its retained interest since
Move.com stock is a series of common stock of Cendant and any shares owned by
Cendant would be treasury shares and not deemed to be outstanding.
The board of directors of Cendant will have the authority to increase or
decrease from time to time the total number of authorized shares comprising
either series of common stock. However, the board of directors of Cendant may
not increase the number of authorized shares of a series above a number which,
when added to all of the authorized shares of the other series of common stock,
would exceed the total authorized number of shares of common stock. Likewise,
the board of directors of Cendant may not decrease the number of authorized
shares of a series below the number of shares of such series then outstanding.
The board of directors of Cendant will have the authority in its sole
discretion to issue authorized but unissued shares of common stock from time to
time for any proper corporate purpose. The board of directors of Cendant will
have the authority to do so without your approval, except as provided by
Delaware law or the rules and regulations of any securities exchange on which
any series of outstanding common stock may then be listed.
DIVIDENDS
Move.com Group currently intends to retain all of its earnings to finance
the operation and expansion of its business.
Cendant does not expect to pay any cash dividends on CD stock or Move.com
stock in the foreseeable future. Although we do not expect to pay dividends on
CD stock or Move.com stock for the foreseeable future, we will be permitted to
pay dividends on:
- CD stock out of the lesser of the assets of Cendant legally available for
the payment of dividends under Delaware law and the available dividend
amount for Cendant Group; and
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- Move.com stock (and corresponding amounts to Cendant Group with respect to
its retained interest in Move.com Group) out of the lesser of the assets
of Cendant legally available for the payment of dividends under Delaware
law and the available dividend amount for Move.com Group.
The available dividend amount for Cendant Group at any time is the amount
that would then be legally available for the payment of dividends on Cendant
Group's common stock under Delaware law if (1) Cendant Group and Move.com Group
were each a separate Delaware corporation, (2) Cendant Group had outstanding (a)
a number of shares of common stock equal to the number of shares of CD stock
that are then outstanding and (b) a number of shares of preferred stock equal to
the number of shares of preferred stock of Cendant that have been attributed to
Cendant Group and are then outstanding, (3) the assumptions about Move.com Group
set forth in the next sentence were true and (4) Cendant Group owned a number of
shares of Move.com stock equal to the number of shares issuable with respect to
Cendant Group's retained interest in Move.com Group. Similarly, the available
dividend amount for Move.com Group at any time is the amount that would then be
legally available for the payment of dividends on Move.com stock under Delaware
law if Move.com Group were a separate Delaware corporation having outstanding
(1) a number of shares of common stock equal to the number of shares of Move.com
stock that are then outstanding plus the number of shares issuable with respect
to Cendant Group's retained interest in Move.com Group and (2) a number of
shares of preferred stock equal to the number of shares of preferred stock of
Cendant that have been attributed to Move.com Group and are then outstanding.
The amount legally available for the payment of dividends on common stock of
a corporation under Delaware law is generally limited to the total assets of the
corporation less its total liabilities less the aggregate par or stated value of
the outstanding shares of its common and preferred stock. However, if that
amount is not greater than zero, the corporation may also pay dividends out of
the net profits for the corporation for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. As mentioned above, these
restrictions will form the basis for calculating the available dividend amounts
for Cendant Group and Move.com Group. These restrictions will also form the
basis for calculating the aggregate amount of dividends that Cendant as a whole
can pay on its common stock, regardless of series. Thus, net losses of either
business, and any dividends and distributions on, or repurchases of, either
series of common stock, may reduce the assets legally available for dividends on
both series of common stock.
Subject to the foregoing limitations and to any other limitations set forth
in any future series of preferred stock or in any agreements binding on Cendant
from time to time, we have the right to pay dividends on both, one or neither
series of common stock in equal or unequal amounts, notwithstanding the
performance of either Group, the amount of assets available for dividends on
either series, the amount of prior dividends paid on either series, the
respective voting rights of each series or any other factor.
At the time of any dividend on the outstanding shares of Move.com stock
(including any dividend required as a result of a disposition of all or
substantially all of the assets of Move.com Group, but excluding any dividend
payable in shares of Move.com stock) we will credit to Cendant Group, and charge
against Move.com Group, a corresponding amount in respect of Cendant Group's
retained interest in Move.com Group. Specifically, the corresponding amount will
equal the aggregate amount of such dividend times a fraction, the numerator of
which is the number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group and the denominator of which is the number of shares
of Move.com stock then outstanding. For further examples and illustrations, see
"Illustrations of Terms."
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MANDATORY DIVIDEND, REDEMPTION OR EXCHANGE ON DISPOSITION OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF A GROUP
If we dispose of all or substantially all of the assets of a Group to one or
more persons or entities, in one transaction or a series of related
transactions, and the disposition is not an exempt disposition as defined below,
we would be required, by the 85th trading day after the consummation of such
disposition, to choose one of the following three alternatives:
- declare and pay a dividend to holders of the series of common stock that
relates to that Group in cash or any other property in an amount having a
fair value equal to their proportionate interest in the net proceeds of
such disposition;
- redeem from holders of the series of common stock that relates to that
Group, for cash or any other property in an amount having a fair value
equal to their proportionate interest in the net proceeds of such
disposition, all of the outstanding shares of the relevant series of
common stock or, if such Group continues after such disposition to own any
material assets other than the proceeds of such disposition, a number of
shares of such series of common stock having an aggregate average market
value, during the 20 consecutive trading day period beginning on the 16th
trading day immediately following the date on which the disposition is
consummated, equal to such fair value; or
- issue shares of the series of common stock that does not relate to that
Group in exchange for all of the outstanding shares of the series of
common stock that relates to that Group at a 10% premium, based on the
average market value of the relevant series of common stock as compared to
the average market value of the other series of common stock during the 20
consecutive trading day period beginning on the 16th trading day
immediately following the date on which the disposition is consummated.
There could be substantial benefits or detriments to the holders of the CD
stock or Move.com stock depending upon the alternative selected by the board of
directors for distributing the proceeds of such a sale, and also depending upon,
among other factors:
the amount and type of consideration that Cendant receives in any such
disposition;
Cendant's tax basis in the assets disposed of;
the tax basis of the holders in their shares of stock; and
the market price of the CD stock or Move.com stock, as applicable.
For example, if all or substantially all of the assets of the Move.com Group
are sold and Cendant's tax basis in those assets is relatively low, the payment
of a dividend with respect to, or the redemption of, Move.com stock will result
in the holders of Move.com stock bearing all of the corporate-level taxes on
that sale, while the issuance of shares of CD stock in exchange for Move.com
stock may result in that tax cost being shared by all of the holders of
Cendant's common stock. Depending on the market price of the Move.com stock at
the time of such a disposition, the board of directors' determination to pay a
dividend on, or redeem shares of, Move.com stock, as compared to issuing shares
of CD stock in exchange, will result in more or less value to the holders of
such shares. To the extent that the holders of Move.com stock receive greater
value as a result of such a disposition, the holders of CD stock will own a
relatively less valuable corporation. In addition, depending on the tax basis of
a holder in his or her CD stock or Move.com stock, among other factors, the tax
consequences of an exchange of Move.com stock or CD stock, respectively, for
stock of the other Group, which generally would be tax-free, might be more
favorable than the tax consequences of a dividend on, or redemption of, the
Move.com stock or CD stock, respectively, which generally would be taxable.
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In connection with any special dividend on, or redemption of Move.com stock
as described above, we will credit to Cendant Group, and charge against Move.com
Group a corresponding amount in respect of Cendant Group's retained interest in
Move.com Group. Specifically, the corresponding amount will equal the aggregate
fair value of such dividend or redemption times a fraction, the numerator of
which is the number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group and the denominator of which is the number of shares
of Move.com stock then outstanding. In addition, in connection with any partial
redemption of Move.com stock as described above, we will decrease the number of
shares issuable with respect to Cendant Group's retained interest in Move.com
Group by the same proportion as the proportionate decrease in outstanding shares
of Move.com stock caused by such redemption.
At any time within one year after completing any dividend or partial
redemption of the sort referred to above, we will have the right to issue shares
of the series of common stock that does not relate to the Group in question in
exchange for outstanding shares of the series of common stock that relates to
that Group at a 10% premium (based on the average market value of the relevant
series of common stock as compared to the average market value of the other
series of common stock during the 20 consecutive trading day period ending on
the 5th trading day immediately preceding the date on which Cendant mails the
notice of exchange to holders of the relevant series). In determining whether to
effect any such exchange following such a dividend or partial redemption, we
would, in addition to other matters, consider whether the remaining assets of
such Group continue to constitute a viable business, the number of shares of
such common stock remaining issued and outstanding, the per share market price
of such common stock and the ongoing cost of continuing to have a separate
series of such common stock outstanding.
The following terms used in this document have the meanings specified in our
certificate of incorporation, as amended and restated and are set forth below:
All or substantially all of the assets of either Group means a portion of
such assets that represents at least 80% of the then-current fair value of the
assets of such Group, which for the Cendant Group includes the value of its
retained interest in Move.com Group.
Cendant Group means (1) all of the businesses, assets and liabilities of
Cendant and its subsidiaries, other than the businesses, assets and liabilities
that are part of the Move.com Group, (2) the rights and obligations of Cendant
Group under any inter-Group debt deemed to be owed to or by Cendant (as such
rights and obligations are defined in accordance with policies established from
time to time by the board of directors) and (3) a proportionate interest in
Move.com Group (after giving effect to any options, preferred stock, other
securities or debt issued or incurred by Cendant and attributed to Move.com
Group) equal to the retained interest percentage; provided that:
(a) Cendant may reallocate assets from one Group to the other Group in
return for other assets or services rendered by that other Group in the
ordinary course of business or in accordance with policies established by
the board of directors or a committee thereof from time to time; and
(b) if Cendant transfers cash, other assets or securities to holders of
shares of Move.com stock as a dividend or other distribution on shares of
Move.com stock (other than a dividend or distribution payable in shares of
Move.com stock), or as payment in a redemption of shares of Move.com stock
effected as a result of a Move.com stock disposition, then the board of
directors shall re-allocate from Move.com Group to Cendant Group cash or
other assets having a fair value equal to the aggregate fair value of the
cash, other assets or securities so transferred times a fraction, the
numerator of which shall equal the number of shares issuable with respect to
Cendant Group's retained interest in Move.com Group on the record date for
such dividend or distribution, or on the date of such redemption, and the
denominator of which shall equal the number of shares of Move.com stock
outstanding on such date.
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Move.com Group means (1) the Internet relocation, real estate and
home-related services portal called move.com, including all of the businesses,
assets and liabilities of Cendant and its subsidiaries that the board of
directors has, as of the date on which the amended and restated certificate of
incorporation becomes effective under Delaware law, allocated to Move.com Group,
(2) any assets or liabilities acquired or incurred by Cendant or any of its
subsidiaries after the effective date in the ordinary course of business and
attributable to Move.com Group, (3) any businesses, assets or liabilities
acquired or incurred by Cendant or any of its subsidiaries after the effective
date that the board of directors has specifically allocated to Move.com Group or
that Cendant otherwise allocates to Move.com Group in accordance with policies
established from time to time by the board of directors, and (4) the rights and
obligations of Move.com Group under any inter-Group debt deemed to be owed to or
by Move.com Group (as such rights and obligations are defined in accordance with
policies established from time to time by the board of directors); provided
that:
(a) Cendant may reallocate assets from one Group to the other Group in
return for other assets or services rendered by that other Group in the
ordinary course of business or in accordance with policies established by
the board of directors from time to time; and
(b) if Cendant transfers cash, other assets or securities to holders of
shares of Move.com stock as a dividend or other distribution on shares of
Move.com stock (other than a dividend or distribution payable in shares of
Move.com stock), or as payment in a redemption of shares of Move.com stock
effected as a result of a Move.com stock disposition, then the board of
directors shall re-allocate from Move.com Group to Cendant Group cash or
other assets having a fair value equal to the aggregate fair value of the
cash, other assets or securities so transferred times a fraction, the
numerator of which shall equal the number of shares issuable with respect to
Cendant Group's retained interest in Move.com Group on the record date for
such dividend or distribution, or on the date of such redemption, and the
denominator of which shall equal the number of shares of Move.com stock
outstanding on such date.
An exempt disposition means any of the following:
- a disposition in connection with the liquidation, dissolution or
winding-up of Cendant and the distribution of assets to stockholders;
- a disposition to any person or entity controlled by Cendant (as determined
by the board of directors in its sole discretion);
- a disposition by either Group for which Cendant receives consideration
primarily consisting of equity securities (including, without limitation,
capital stock of any kind, interests in a general or limited partnership,
interests in a limited liability company or debt securities convertible
into or exchangeable for, or options or warrants to acquire, any of the
foregoing, in each case without regard to the voting power or other
management or governance rights associated therewith) of an entity which
is primarily engaged or proposes to engage primarily in one or more
businesses similar or complementary to businesses conducted by such Group
prior to the disposition, as determined by the board of directors in its
sole discretion;
- a dividend, out of Move.com Group's assets, to holders of Move.com stock
and a transfer of a corresponding amount of Move.com Group's assets to
Cendant Group in respect of its retained interest in Move.com Group;
- a dividend, out of Cendant Group's assets, to holders of CD stock; and
- any other disposition, if (1) at the time of the disposition there are no
shares of CD stock outstanding, (2) at the time of the disposition there
are no shares of Move.com stock outstanding, or (3) before the 30th
trading day following the disposition we have mailed a notice stating that
we are exercising our right to exchange all of the outstanding shares of
CD stock or Move.com stock
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for newly issued shares of the other series of common stock as
contemplated under "--Optional Exchange of One Series of Common Stock for
the Other Series" below.
The proportionate interest of holders of Move.com stock in the net proceeds
of a Move.com Group disposition (or in the outstanding shares of common stock of
any subsidiaries holding Move.com Group's assets and liabilities) means the
amount of such net proceeds (or the number of such shares) times the number of
shares of Move.com stock outstanding divided by the total number of notional
Move.com shares deemed outstanding. The proportionate interest of holders of CD
stock in the net proceeds of a Cendant Group disposition (or in the outstanding
shares of common stock of any subsidiaries holding Cendant Group's assets and
liabilities) means the amount of such net proceeds (or the number of such
shares) times the number of shares of Move.com shares issuable with respect to
Cendant Group's retained interest in Move.com Group divided by the total number
of notional Move.com shares deemed outstanding. For an example and illustration,
see "Illustration of Terms."
The total number of notional Move.com shares deemed outstanding at any time
means the number of shares of Move.com stock then outstanding plus the number of
shares then issuable with respect to Cendant Group's retained interest in
Move.com Group.
OPTIONAL EXCHANGE OF ONE SERIES OF COMMON STOCK FOR THE OTHER SERIES
Prior to the third anniversary of this offering, we will not have the right
to cause the issuance of Move.com stock in exchange for CD stock.
From and after the third anniversary of this offering, we will have the
right, at any time after outstanding Move.com stock exceeds 40% of our total
market capitalization, but does not exceed 60% of our total market
capitalization, to issue shares of either series of common stock in exchange for
outstanding shares of the other series of common stock without a premium. In the
event that Move.com stock exceeds 60% of our total market capitalization, we
will lose the right to effect an exchange without a premium during such period.
The exchange ratio that will result in an exchange without a premium will be
based on the average market value of the series of the common stock being
exchanged as compared to the average market value of the other series of common
stock during the 20 consecutive trading day period ending on, and including, the
5th trading day immediately preceding the date on which we mail the notice of
exchange to holders of the outstanding shares being exchanged.
On or after the 18-month anniversary of this offering, we will have the
right to issue shares of CD stock in exchange for outstanding shares of Move.com
stock at a premium. The premium will initially be 20% (for exchanges occurring
prior to the nineteenth month following the initial issuance of Move.com stock)
and will decline ratably each month over an 18-month period to 15%.
In addition, we will have the right, on or after the third anniversary of
this offering, when outstanding Move.com stock exceeds 60% of our total market
capitalization, to issue shares of Move.com stock in exchange for outstanding
shares of CD stock at a 15% premium. In the event that Move.com stock equals or
falls below 60% of our total market capitalization, we will lose the right to
effect such an exchange during such period.
Cendant believes that providing a 15-20% premium in connection with the
issuance of Move.com stock in exchange for CD stock at a time when a 15-20%
premium would be payable upon the issuance of CD stock in exchange for Move.com
stock would present the board of directors of Cendant with an insurmountable
conflict. Because both of these exchanges produce the same economic, legal and
tax result if the premium is not considered, the board of directors of Cendant
would be faced with a
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tremendous conflict of interest in deciding which exchange to effectuate given
that the class of stockholders receiving the premium would benefit at the
expense of the other class of stockholders. Accordingly, the exchange provisions
were designed to avoid this conflict and to provide a premium to the smaller
class of stockholders.
The exchange rights incorporated into the Move.com stock and CD stock were
designed to strike an appropriate balance between providing Cendant with
sufficient future financial flexibility and providing investors in Move.com
stock with some degree of certainty that their stock will not be CD stock in the
near future without a premium. The terms that have been adopted are similar to
the terms of other recent issuances of tracking stock and were selected by the
board of directors of Cendant in consultation with its financial and legal
advisors.
Notwithstanding the preceding paragraphs, upon the occurrence of a tax
event, we will have the right to issue shares of CD stock in exchange for
outstanding shares of Move.com stock at a 10% premium regardless of when such
adverse tax law changes take place.
A "tax event" means the receipt by Cendant of an opinion of tax counsel of
Cendant's choice, experienced in such matters, who cannot be an officer or
employee of Cendant or any of its affiliates, to the effect that, as a result of
any amendment to, or change in the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein (including any proposed change in such regulations announced by an
administrative agency), or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, it is more likely than not that for United States federal income
tax purposes (1) Cendant, its subsidiaries or affiliates, or any of its
successors or its stockholders is, or at any time in the future will be, subject
to tax upon the issuance of shares of either CD stock or Move.com stock or (2)
either CD stock or Move.com stock is not, or at any time in the future will not
be, treated solely as stock of Cendant. For purposes of rendering such opinion,
the tax counsel shall assume that any administrative proposals will be adopted
as proposed. However, in the event a change in law is proposed, the tax counsel
shall render an opinion only in the event of enactment.
The exchange ratio that will result in the specified premium will be
calculated based on the average market value of CD stock as compared to the
average market value of Move.com stock during the 20 consecutive trading day
period ending on, and including the fifth trading day immediately preceding the
date on which we mail the notice of exchange to holders of the outstanding
shares being exchanged.
Move.com stock will exceed 40% of the total market capitalization of Cendant
or 60% of the total market capitalization of Cendant, as the case may be, if the
market capitalization of the outstanding Move.com stock exceeds 40% or 60%, as
the case may be, of the total market capitalization of all classes of common
stock of Cendant for 30 trading days during any 60 consecutive trading day
period. Thereafter, Move.com stock will fall below 60% of the total market
capitalization of Cendant if, after exceeding 40% of total market
capitalization, the market capitalization of the outstanding Move.com stock
falls below 60% of the total market capitalization of both series of common
stock for 30 trading days during any 60 consecutive trading day period.
OPTIONAL EXCHANGE FOR STOCK OF A SUBSIDIARY
At any time at which all of the assets and liabilities of a Group (and no
other assets or liabilities of Cendant or any subsidiary thereof) are held
directly or indirectly by one or more wholly owned subsidiaries of Cendant (the
"group subsidiaries"), we will have the right to issue to holders of the
relevant series of common stock their proportionate interest in all of the
outstanding shares of the common stock of the group subsidiaries in exchange for
all of the outstanding shares of such series of common stock.
- If the series of common stock being exchanged is CD stock and the number
of shares issuable with respect to Cendant Group's retained interest in
Move.com Group is greater than zero, we will
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also issue a number of shares of Move.com stock equal to the then current
number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group and issue those shares to the holders of CD
stock or to one of the group subsidiaries, at our option.
- If the series of common stock being exchanged is Move.com stock and the
number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group is greater than zero (so that less than all of
the shares of common stock of the Group subsidiaries are being issued to
the holders of Move.com stock), we may retain the remaining shares of
common stock of the Group subsidiaries or distribute those shares as a
dividend on CD stock.
GENERAL DIVIDEND, EXCHANGE AND REDEMPTION PROVISIONS
If we complete a disposition of all or substantially all of the assets of a
Group (other than an exempt disposition), we would be required, not later than
the 10 trading days after the consummation of such disposition, to issue a press
release specifying (1) the net proceeds of such disposition, (2) the number of
shares of the series of common stock related to such Group then outstanding, (3)
the number of shares of such series of common stock issuable upon conversion,
exchange or exercise of any convertible or exchangeable securities, options or
warrants and the conversion, exchange or exercise prices thereof and (4) if the
Group is Move.com Group, the number of shares issuable with respect to Cendant
Group's retained interest in Move.com Group. Not later than 30 trading days
after such consummation, we would be required to announce by press release which
of the actions specified in the first paragraph under "--Mandatory Dividend,
Redemption or Exchange on Disposition of All or Substantially All of the Assets
of a Group" we have determined to take, and upon making that announcement, that
determination would become irrevocable. In addition, we would be required, not
later than 30 trading days after such consummation and not earlier than 10
trading days before the applicable payment date, redemption date or exchange
date, to send a notice by first-class mail, postage prepaid, to holders of the
relevant series of common stock at their addresses as they appear on our
transfer books.
- If we determine to pay a special dividend, we would be required to specify
in the notice (1) the record date for such dividend, (2) the payment date
of such dividend (which can not be more than 85 trading days after such
consummation) and (3) the aggregate amount and type of property to be paid
in such dividend (and the approximate per share amount thereof).
- If we determine to undertake a redemption, we would be required to specify
in the notice (1) the date of redemption (which can not be more than 85
trading days after such consummation), (2) the aggregate amount and type
of property to be paid as a redemption price (and the approximate per
share amount thereof), (3) if less than all shares of the relevant series
of common stock are to be redeemed, the number of shares to be redeemed
and (4) the place or places where certificates for shares of such series
of common stock, properly endorsed or assigned for transfer (unless we
waive such requirement), should be surrendered in return for delivery of
the cash, securities or other property to be paid by Cendant in such
redemption.
- If we determine to undertake an exchange, we would be required to specify
in the notice (1) the date of exchange (which can not be more than 85
trading days after such consummation), (2) the number of shares of the
other series of common stock to be issued in exchange for each outstanding
share of such series of common stock and (3) the place or places where
certificates for shares of such series of common stock, properly endorsed
or assigned for transfer (unless we waive such requirement), should be
surrendered in return for delivery of the other series of common stock to
be issued by Cendant in such exchange.
If we determine to complete any exchange described under "--Optional
Exchange of One Series of Common Stock for the Other Series" or "--Optional
Exchange for Stock of a Subsidiary," we would be required, between 10 to 30
trading days before the exchange date, to send a notice by first-class mail,
postage prepaid, to holders of the relevant series of common stock at their
addresses as they appear on
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our transfer books, specifying (1) the exchange date and the other terms of the
exchange, and (2) the place or places where certificates for shares of such
series of common stock, properly endorsed or assigned for transfer (unless we
waive such requirement), should be surrendered for delivery of the stock to be
issued or delivered by Cendant in such exchange.
Neither the failure to mail any required notice to any particular holder nor
any defect therein would affect the sufficiency thereof with respect to any
other holder or the validity of any dividend, redemption or exchange.
If we are redeeming less than all of the outstanding shares of a series of
common stock as described above, we would redeem such shares pro rata or by lot
or by such other method as the board of directors determines to be equitable.
No holder of shares of a series of common stock being exchanged or redeemed
will be entitled to receive any cash, securities or other property to be
distributed in such exchange or redemption until such holder surrenders
certificates for such shares, properly endorsed or assigned for transfer, at
such place as we specify (unless we waive such requirement). As soon as
practicable after our receipt of certificates for such shares, we would deliver
to the person for whose account such shares were so surrendered, or to the
nominee or nominees of such person, the cash, securities or other property to
which such person is entitled, together with any fractional payment referred to
below, in each case without interest. If less than all of the shares of common
stock represented by any one certificate were to be exchanged or redeemed, we
would also issue and deliver a new certificate for the shares of such common
stock not exchanged or redeemed.
We would not be required to issue or deliver fractional shares of any
capital stock or any other fractional securities to any holder of common stock
upon any exchange, redemption, dividend or other distribution described above.
If more than one share of common stock were held at the same time by the same
holder, we may aggregate the number of shares of any capital stock that would be
issuable or any other securities that would be distributable to such holder upon
any such exchange, redemption, dividend or other distribution. If there are
fractional shares of any capital stock or any other fractional securities
remaining to be issued or distributed to any holder, we would, if such
fractional shares or securities were not issued or distributed to such holder,
pay cash in respect of such fractional shares or securities in an amount equal
to the fair value thereof without interest.
From and after the date set for any exchange or redemption, all rights of a
holder of shares of common stock that were exchanged or redeemed would cease
except for the right, upon surrender of the certificates representing such
shares, to receive the cash, securities or other property for which such shares
were exchanged or redeemed, together with any fractional payment as provided
above, in each case without interest (and, if such holder was a holder of record
as of the close of business on the record date for a dividend not yet paid, the
right to receive such dividend). A holder of shares of common stock being
exchanged would not be entitled to receive any dividend or other distribution
with respect to shares of the other series of common stock until after the
shares being exchanged are surrendered as contemplated above. Upon such
surrender, we would pay to the holder the amount of any dividends or other
distributions (without interest) which theretofore became payable with respect
to a record date occurring after the exchange, but which were not paid by reason
of the foregoing, with respect to the number of whole shares of the other series
of common stock represented by the certificate or certificates issued upon such
surrender. From and after the date set for any exchange, we would, however, be
entitled to treat the certificates for shares of common stock being exchanged
that were not yet surrendered for exchange as evidencing the ownership of the
number of whole shares of the other series of common stock for which the shares
of such common stock should have been exchanged, notwithstanding the failure to
surrender such certificates.
We would pay any and all documentary, stamp or similar issue or transfer
taxes that might be payable in respect of the issue or delivery of any shares of
capital stock and/or other securities on any
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exchange or redemption described herein. We would not, however, be required to
pay any tax that might be payable in respect of any transfer involved in the
issue or delivery of any shares of capital stock and/or other securities in a
name other than that in which the shares so exchanged or redeemed were
registered, and no such issue or delivery will be made unless and until the
person requesting such issue pays to Cendant the amount of any such tax or
establishes to our satisfaction that such tax has been paid.
We may, subject to applicable law, establish such other rules, requirements
and procedures to facilitate any dividend, redemption or exchange contemplated
as described above as the board of directors may determine to be appropriate
under the circumstances.
VOTING RIGHTS
Currently, holders of existing common stock have one vote per share on all
matters submitted to a vote of stockholders. Holders of CD stock and Move.com
stock will vote together as one class on all matters as to which common
stockholders generally are entitled to vote, unless a separate class vote is
required by applicable law. On all such matters for which no separate vote is
required, each outstanding share of CD stock is entitled to one vote and each
outstanding share of Move.com stock is entitled to one vote. Each share of CD
stock and Move.com stock will continue to have one vote following a stock split,
stock dividend or similar reclassification.
When holders of CD stock and Move.com stock vote together as a single class,
the holders of the series of common stock having a majority of the votes will be
in a position to control the outcome of the vote even if the matter involves a
conflict of interest between the holders of CD stock and holders of Move.com
stock.
The Delaware General Corporation Law requires a separate vote of holders of
shares of common stock of any series on any amendment to the certificate of
incorporation if the amendment would increase or decrease the par value of the
shares of such series or alter or change the powers, preferences or special
rights of the shares of such series so as to affect them adversely.
We will set forth the number of outstanding shares of CD stock and Move.com
stock in our annual and quarterly reports filed pursuant to the Securities
Exchange Act of 1934, and disclose in any proxy statement for a stockholder
meeting the number of outstanding shares of CD stock and Move.com stock.
LIQUIDATION
Upon voluntary or involuntary liquidation, dissolution or winding-up of
Cendant, the net assets of Cendant, if any, remaining for distribution to
stockholders (after payment of or provision for all liabilities, including
contingent liabilities, of Cendant and payment of the liquidation preference
payable to any holders of our preferred stock), will be distributed to the
holders of CD stock and Move.com stock pro rata in accordance with the average
market value of a share of CD stock divided by the average market value of a
share of Move.com stock during the 20 consecutive trading day period ending on
(and including) the 5(th) trading day before the date of the first public
announcement of (1) a voluntary liquidation, dissolution or winding-up by
Cendant or (2) the institution of any proceeding for the involuntary
liquidation, dissolution or winding-up of Cendant.
Neither the merger nor consolidation of Cendant into or with any other
entity, nor a sale, transfer or lease of all or any part of the assets of
Cendant would alone be deemed a liquidation, dissolution or winding-up for these
purposes.
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No holder of Move.com stock will have any special right to receive specific
assets of Move.com Group and no holder of CD stock will have any special right
to receive specific assets of Cendant Group upon our dissolution, liquidation or
winding up.
Like other tracking stocks, the liquidation provisions for the CD stock and
Move.com stock do not provide stockholders with proceeds based directly on the
value of the underlying assets and liabilities of each Group. However, because
the market value of each class of stock may represent the best indirect proxy
for the value of each Group, the value realized by each class of stockholders
upon a liquidation of Cendant may approximate the value such holders would
realize if liquidation were based on the market value of the underlying assets.
These liquidation provisions were adopted for a variety of reasons including (1)
providing consistency with other tracking stock transactions, (2) easing the
administrative burden of allocating proceeds upon liquidation and (3) helping to
ensure classes of stock are treated as Cendant stock for tax purposes.
CENDANT GROUP'S RETAINED INTEREST IN MOVE.COM GROUP
The number of shares of Move.com stock that Cendant may issue for the
account of Cendant Group in respect of its retained interest in Move.com Group
is referred to as the number of shares issuable with respect to Cendant Group's
retained interest in Move.com Group. The board of directors has designated
as the number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group just prior to this offering. This number was
determined by first arriving at an estimate of the total fair value of Move.com
Group, then determining the percentage of Move.com Group to be offered to the
public and the approximate price of the offering, dividing that price into the
total value and then splitting the existing Move.com shares as necessary to
arrive at that number.
In this document, we call the percentage interest in Move.com Group intended
to be represented at any time by the outstanding shares of Move.com stock the
outstanding interest percentage, and we call the remaining percentage interest
in Move.com Group intended to be represented at any time by Cendant Group's
retained interest in Move.com Group the retained interest percentage. At any
time, the outstanding interest percentage equals the number of shares of
Move.com stock outstanding divided by the total number of notional Move.com
shares deemed outstanding (expressed as a percentage) and the retained interest
percentage equals the number of shares issuable with respect to Cendant Group's
retained interest in Move.com Group divided by the total number of notional
Move.com shares deemed outstanding (expressed as a percentage). The sum of the
outstanding interest percentage and the retained interest percentage always
equals 100%.
At the time that we file the amended and restated certificate of
incorporation, the retained interest percentage will be 100% and the outstanding
interest percentage will be 0%.
NUMBER OF SHARES ISSUABLE WITH RESPECT TO CENDANT GROUP'S RETAINED INTEREST IN
MOVE.COM GROUP
We currently intend to designate as the number of shares issuable with
respect to Cendant Group's retained interest in Move.com Group immediately prior
to this offering. We currently plan to reserve 11,000,000 shares of Move.com
stock for option grants under the stock option plans to Move.com Group and
Cendant Group employees. We intend to attribute the net proceeds of the exercise
of such options to the equity of Move.com Group. The issuance of shares of
Move.com stock upon the exercise of those options will have no effect on the
number of shares issuable with respect to Cendant Group's retained interest in
Move.com Group. Thus, after giving effect to the grant of those options,
- there would be no shares of Move.com stock outstanding, but there would be
11,000,000 shares of Move.com stock reserved for issuance upon the
exercise of outstanding options,
- the number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group would remain 22,500,000,
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- the total number of notional Move.com shares deemed outstanding would be
22,500,000 but would increase to 33,500,000 if all such options were
granted and exercised,
- the outstanding interest percentage would be approximately % if all such
options were granted and exercised, and
- the retained interest percentage would be approximately 87% if all such
options were granted and exercised.
The outstanding interest percentage will increase as the retained interest
percentage will decrease upon the issuance of Move.com stock.
ATTRIBUTION OF ISSUANCES OF MOVE.COM STOCK
Whenever we decide to issue shares of Move.com stock, or options therefor,
we will determine, in our sole discretion, whether to attribute that issuance
(and the proceeds thereof) to Cendant Group in respect of its retained interest
in Move.com Group (in a manner analogous to a secondary offering of common stock
of a subsidiary owned by a corporate parent) or to Move.com Group (in a manner
analogous to a primary offering of common stock). If we issue any shares of
Move.com stock and attribute that issuance (and the proceeds thereof) to Cendant
Group in respect of its retained interest in Move.com Group, the number of
shares issuable with respect to Cendant Group's retained interest in Move.com
Group would be reduced by the number of shares so issued, the number of
outstanding shares of Move.com stock would be increased by the same amount, the
total number of notional Move.com shares deemed outstanding would remain
unchanged, the retained interest percentage would be reduced and the outstanding
interest percentage would be correspondingly increased. If we instead attribute
that issuance (and the proceeds thereof) to Move.com Group, the number of shares
issuable with respect to Cendant Group's retained interest in Move.com Group
would remain unchanged, the number of outstanding shares of Move.com stock and
the total number of notional Move.com shares deemed outstanding would be
increased by the number of shares so issued, the retained interest percentage
would be reduced and the outstanding interest percentage would be
correspondingly increased.
ISSUANCES OF MOVE.COM STOCK AS DISTRIBUTIONS ON CD STOCK
We reserve the right to issue shares of Move.com stock as a distribution on
CD stock, although we do not currently intend to do so. If we did so, we would
attribute that distribution to Cendant Group in respect of its retained interest
in Move.com Group. As a result, the number of shares issuable with respect to
Cendant Group's retained interest in Move.com Group would be reduced by the
number of shares so distributed, the number of outstanding shares of Move.com
stock would be increased by the same amount, the total number of notional
Move.com shares deemed outstanding would remain unchanged, the retained interest
percentage would be reduced and the outstanding interest percentage would be
correspondingly increased. If instead we issued shares of Move.com stock as a
distribution on Move.com stock, we would attribute that distribution to Move.com
Group, in which case we would proportionately increase the number of shares
issuable with respect to Cendant Group's retained interest in Move.com Group. As
a result, the number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group and the total number of notional Move.com shares
deemed outstanding would each be increased by the same percentage as the number
of outstanding shares of Move.com stock is increased and the retained interest
percentage and outstanding interest percentage would remain unchanged.
DIVIDENDS ON MOVE.COM STOCK
At the time of any dividend on the outstanding shares of Move.com stock
(including any dividend required as a result of a disposition of all or
substantially all of the assets of Move.com Group, but excluding any dividend
payable in Move.com stock), we will credit to Cendant Group, and charge
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against Move.com Group a corresponding amount in respect of Cendant Group's
retained interest in Move.com Group. Specifically, the corresponding amount will
equal (1) the aggregate amount of such dividend times (2) a fraction, the
numerator of which is the number of shares issuable with respect to Cendant
Group's retained interest in Move.com Group and the denominator of which is the
number of shares of Move.com stock then outstanding.
REPURCHASES OF MOVE.COM STOCK
If we decide to repurchase shares of Move.com stock, we would determine, in
our sole discretion, whether to attribute that repurchase (and the cost thereof)
to Cendant Group (in a manner analogous to a purchase of common stock of a
subsidiary by a corporate parent) or to Move.com Group (in a manner analogous to
an issuer repurchase). If we repurchase shares of Move.com stock and attribute
that repurchase (and the cost thereof) to Cendant Group, the number of shares
issuable with respect to Cendant Group's retained interest in Move.com Group
would be increased by the number of shares so purchased, the number of
outstanding shares of Move.com stock would be decreased by the same amount, the
total number of notional Move.com shares deemed outstanding would remain
unchanged, the retained interest percentage would be increased and the
outstanding interest percentage would be correspondingly decreased. If we
instead attribute that repurchase (and the cost thereof) to Move.com Group, the
number of shares issuable with respect to Cendant Group's retained interest in
Move.com Group would remain unchanged, the number of outstanding shares of
Move.com stock and the total number of notional Move.com shares deemed
outstanding would be decreased by the number of shares so repurchased, the
retained interest percentage would be increased and the outstanding interest
percentage would be correspondingly reduced.
TRANSFERS OF CASH OR OTHER PROPERTY BETWEEN CENDANT GROUP AND MOVE.COM GROUP
We may, in our sole discretion, determine to transfer cash or other property
of Move.com Group to Cendant Group in return for a decrease in Cendant Group's
retained interest in Move.com Group (in a manner analogous to a return of
capital) or to transfer cash or other property of Cendant Group to Move.com
Group in return for an increase in Cendant Group's retained interest in Move.com
Group (in a manner analogous to a capital contribution). If we determine to
transfer cash or other property of Move.com Group to Cendant Group in return for
a decrease in Cendant Group's retained interest in Move.com Group, the number of
shares issuable with respect to Cendant Group's retained interest in Move.com
Group and the total number of notional Move.com shares deemed outstanding would
each be decreased by an amount equal to the fair value of such cash or other
property divided by the market value of a share of Move.com stock on the day of
transfer, the number of outstanding shares of Move.com stock would remain
unchanged, the retained interest percentage would be decreased and the
outstanding interest percentage would be correspondingly increased. If we
instead determine to transfer cash or other property of Cendant Group to
Move.com Group in return for an increase in Cendant Group's retained interest in
Move.com Group, the number of shares issuable with respect to Cendant Group's
retained interest in Move.com Group and the total number of notional Move.com
shares deemed outstanding would each be increased by an amount equal to the fair
value of such cash or other property divided by the market value of a share of
Move.com stock on the day of transfer, the number of outstanding shares of
Move.com stock would remain unchanged, the retained interest percentage would be
increased and the outstanding interest percentage would be correspondingly
decreased.
We may not attribute issuances of Move.com stock to Cendant Group, transfer
cash or other property of Move.com Group to Cendant Group in return for a
decrease in its retained interest in Move.com Group or take any other action to
the extent that doing so would cause the number of shares issuable with respect
to Cendant Group's retained interest in Move.com Group to decrease below zero.
Cendant Group's retained interest will decrease with each issuance of Move.com
stock whether the
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proceeds of such issuance are allocated to the Cendant Group (similar to a
secondary offering of securities) or to the Move.com Group (similar to a primary
offering).
For illustrations showing how to calculate the retained interest percentage,
the outstanding interest percentage, the number of shares issuable with respect
to Cendant Group's retained interest in Move.com Group and the total number of
notional Move.com shares deemed outstanding after giving effect to hypothetical
dividends, issuances, repurchases and transfers, see "--Illustration of Terms."
EFFECTIVENESS OF CERTAIN TERMS
The terms described under "--Dividends," "--Mandatory Dividend, Redemption
or Exchange on Disposition of All or Substantially All of the Assets of a
Group," "--Optional Exchange of One Series of Common Stock for the Other
Series," "--Optional Exchange for Stock of a Subsidiary," "--Voting Rights" and
"--Liquidation" above apply only when there are shares of both series of common
stock outstanding.
DETERMINATIONS BY THE BOARD OF DIRECTORS
The amended and restated certificate of incorporation would provide that,
subject to applicable law, any determinations made by the board of directors in
good faith under the amended and restated certificate of incorporation or in any
certificate of designation filed pursuant thereto would be final and binding on
all stockholders of Cendant.
The board of directors has established a special committee comprised of
directors of Cendant who are not employed by or otherwise affiliated with either
Group. The special committee will address and resolve, at the request of
Cendant's board of directors, any business issues concerning the relationship
between Cendant Group and Move.com Group.
PREEMPTIVE RIGHTS
Holders of CD stock and Move.com stock will not have any preemptive rights
to subscribe for any additional shares of capital stock or securities that we
may issue in the future.
LIMITATIONS ON POTENTIAL UNSOLICITED ACQUISITIONS; ANTI-TAKEOVER CONSIDERATIONS
If Cendant Group and Move.com Group were separate independent companies, any
person interested in acquiring either Group without negotiating with management
could seek control of that entity by obtaining control of its outstanding voting
stock by means of a tender offer or proxy contest. Although we intend CD stock
and Move.com stock to reflect the separate performance of Cendant Group and
Move.com Group, a person interested in acquiring only one Group without
negotiation with Cendant's management could obtain control of that Group only by
obtaining control of the outstanding voting stock of Cendant, which includes
both CD stock and Move.com stock.
The existence of two series of common stock could prevent stockholders from
profiting from an increase in the market value of their shares as a result of a
change in control of Cendant by delaying or preventing such a change in control.
There is an additional 500,000,000 shares of common stock available for
future issuance without further stockholder approval. One of the effects of the
existence of authorized and unissued common stock and preferred stock could be
to enable the board of directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of Cendant by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of our management. Such additional
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of Cendant.
For additional anti-takeover considerations, see "--Certain Other Provisions
of the Amended and Restated Certificate of Incorporation, By-laws and Delaware
Law."
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CERTAIN OTHER PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, BY-LAWS AND DELAWARE LAW
PREFERRED STOCK
The amended and restated certificate of incorporation provides that the
board of directors of Cendant may issue shares of preferred stock in one or more
series from time to time and that the board of directors of Cendant, without
further approval of stockholders, has the authority to fix by resolution or
resolutions the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions thereof, of the shares of each
series of preferred stock, including without limitation the dividend rights and
terms, conversion rights, voting rights, liquidation preference, sinking funds
and any other rights, preferences, privileges and restrictions. There are no
outstanding shares of preferred stock and no designated series of preferred
stock.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The number of members of the board of directors of Cendant will be fixed
from time to time pursuant to our by-laws but shall not be less than three.
Directors may be removed with or without cause by the affirmative vote of a
majority vote of the stockholders at any annual or special meeting of the
stockholders. Newly created directorship and vacancies (whether arising through
death, resignation, disqualification, removal or other) may only be filled by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the board of directors of Cendant.
A director elected to fill a vacancy shall serve for the remainder of his
term.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Any action required or permitted to be taken by the stockholders of Cendant
must be duly effected at a duly called annual or special meeting of such holders
and may not be taken by any consent in writing by such holders. Special meetings
of stockholders of Cendant may be called only by the Chairman of the board of
directors of Cendant, the President or the board of directors of Cendant
pursuant to a resolution stating the purpose or purposes of the special meeting.
No business other than that stated in the notice shall be transacted at any
special meeting. These provisions have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special meeting is
called by the Chairman, President or the board of directors of Cendant for
consideration of such proposal.
ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS AND PROPOSALS OF NEW BUSINESS
Our by-laws establish an advance notice procedure. This procedure requires
stockholders to deliver to Cendant notice of any proposal to be presented or of
a candidate to be nominated for election as a director of Cendant not less than
60 nor more than 90 days prior to the date of the meeting. However, if the date
of the meeting is first publicly announced or disclosed (in a public filing or
otherwise) less than 70 days prior to the date of the meeting, such advance
notice shall be given not later than 10 days after such date is first so
announced or disclosed. Accordingly, failure by a stockholder to act in
compliance with the notice provisions will mean that the stockholder will not be
able to nominate directors or propose new business.
AMENDMENTS
The affirmative vote of a majority of the outstanding shares entitled to
vote generally in the election of directors, voting together as a single class,
or a majority of the board of directors of Cendant is required to amend
provisions of our by-laws relating to the advance notice provisions, stockholder
action without a meeting, the calling of special meetings, the number (or manner
of determining the number) of Cendant's directors, the election and term of
Cendant's directors, the filling of vacancies and the removal of directors.
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FAIR PRICE PROVISIONS
Under the Delaware General Corporation Law and the amended and restated
certificate of incorporation, an agreement of merger, sale, lease or exchange of
all or substantially all of Cendant's assets must be approved by the board of
directors of Cendant and adopted by the holders of a majority of the outstanding
shares of stock entitled to vote thereon. However, the amended and restated
certificate of incorporation includes what generally is referred to as a "fair
price provision", which requires the affirmative vote of the holders of at least
80% of the outstanding shares of capital stock entitled to vote generally in the
election of Cendant directors, voting together as a single class, to approve
business combination transactions (including 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 (1) such
business combination is approved by a majority of disinterested directors, or
(2) the stockholders receive a "fair price" for their Cendant securities and
other procedural requirements are met. The amended and restated certificate of
incorporation provides that this provision may not be repealed or amended in any
respect except by the affirmative vote of the holders of not less than 80% of
the outstanding shares of capital stock entitled to vote generally in the
election of Cendant's directors.
CERTAIN PROVISIONS OF DELAWARE LAW WHICH MAY INHIBIT CHANGES OF CONTROL
Cendant is subject to the business combination provisions of Section 203 of
the Delaware General Corporation Law. In general, such provisions prohibit a
publicly-held Delaware corporation from engaging in various business combination
transactions with any interested stockholder for a period of three years after
the date of the transaction in which the person became an interested stockholder
unless: (1) the business combination transaction, or the transaction in which
the interested stockholder became an interested stockholder, is approved by the
board of directors of Cendant prior to the date the interested stockholder
obtained such status, (2) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by (a) persons who are directors and
also officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or (3) on or subsequent to
such date the business combination is approved by the board of directors of
Cendant and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder. A "business combination" is defined to
include mergers, asset sales and other transactions resulting in financial
benefit to a stockholder. In general, an "interested stockholder" is a person
who, together with affiliates and associates, owns (or, within three years, did
own) 15% or more of a corporation's voting stock. The statute could prohibit or
delay mergers or other takeover or change in control attempts with respect to
Cendant and, accordingly, may discourage attempts to acquire Cendant.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the Delaware General Corporation Law authorizes a Delaware
corporation to include a provision in its certificate of incorporation limiting
or eliminating the personal liability of its directors to the corporation or its
stockholders for monetary damages for breach of the directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations authorized by
such provision, directors are accountable to corporations or their stockholders
for monetary damages for conduct constituting gross negligence in the exercise
of their duty of care. Although Section 102 of the Delaware General Corporation
Law does not change a director's duty of
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care, it enables corporations to limit available relief to equitable remedies
such as injunction or rescission. Cendant's amended and restated certificate of
incorporation and by-laws include provisions which limit or eliminate the
personal liability of Cendant's directors to the fullest extent permitted by
Section 102 of the Delaware General Corporation Law. Consequently, a director
will not be personally liable to Cendant or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for any breach of the
directors' duty of loyalty to Cendant or its stockholders, acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions and any transaction from which the director derived an
improper personal benefit.
Cendant's by-laws provide that Cendant will indemnify to the full extent
permitted by law any person made or threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer or employee of
Cendant or serves or served at the request of Cendant any other enterprise as a
director, officer or employee. Cendant's by-laws provide that expenses,
including attorneys' fees, incurred by any such person in defending any such
action, suit or proceeding will be paid or reimbursed by Cendant promptly upon
receipt by it of an undertaking of such person to repay such expenses if it
shall ultimately be determined that such person is not entitled to be
indemnified by Cendant. The inclusion of these indemnification provisions in
Cendant's by-laws is intended to enable Cendant to attract qualified persons to
serve as directors and officers who might otherwise be reluctant to do so.
The directors and officers of Cendant are insured under policies of
insurance maintained by Cendant, subject to the limits of such policies, against
losses arising from any claim made against them by reason of being or having
been such officers or directors.
In addition, the limited liability provisions in Cendant's amended and
restated certificate of incorporation and the indemnification provisions in
Cendant's by-laws may discourage stockholders from bringing a lawsuit against
directors for breach of their fiduciary duty (including breaches resulting from
grossly negligent conduct) and may have the effect of reducing the likelihood of
derivative litigation against directors and officers, even though such an
action, if successful, might otherwise have benefitted Cendant and its
stockholders. Furthermore, a stockholder's investment in Cendant may be
adversely affected to the extent Cendant pays the costs of settlement and damage
awards against directors and officers of Cendant pursuant to the indemnification
provisions in Cendant's by-laws. The limited liability provisions in our amended
and restated certificate of incorporation will not limit the liability of
directors under federal securities laws.
Section 203 of the Delaware General Corporation Law, and the provisions of
Cendant's amended and restated certificate of incorporation and by-laws
described above, may make it more difficult for a third party to acquire or
discourage bids for Cendant. Section 203 and these provisions could have the
effect of inhibiting attempts to change the membership of the board of directors
of Cendant.
LISTING
We will apply to have Move.com stock listed on the New York Stock Exchange
under the symbol "MOV."
STOCK TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. is the registrar and transfer agent
for the CD stock and Move.com stock.
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CASH MANAGEMENT AND ALLOCATION POLICIES
In order to prepare separate financial statements for Move.com Group,
Cendant has allocated all of its consolidated assets, liabilities, revenue,
expenses and cash flow between Cendant Group and Move.com Group. Thus, the
financial statements for Cendant will include separate financial data for each
Group.
The financial statements of Move.com Group reflect the application of cash
management and allocation policies adopted by the board of directors. These
policies are summarized below.
The board of directors may, in its sole discretion, modify, rescind or add
to any of these policies, although it has no present intention to do so. The
decision of the board of directors to modify, rescind or add to any of these
policies would, however, be subject to the board of directors general fiduciary
duties.
Even though Cendant has allocated all of its consolidated assets,
liabilities, revenue, expenses and cash flow between Cendant Group and Move.com
Group, holders of Move.com stock will continue to be common stockholders of
Cendant and, as such, will be subject to all risks associated with an investment
in Cendant and all of its businesses, assets and liabilities. See "Risk
Factors--Risks Relating to Move.com Stock--Holders of Move.com stock will be
common stockholders of Cendant and will not have any legal rights relating to
specific assets of Cendant."
TREASURY ACTIVITIES
Cendant manages most treasury activities on a centralized, consolidated
basis. These activities include the investment of surplus cash, the issuance,
repayment and repurchase of short-term and long-term debt and the issuance and
repurchase of common stock and preferred stock. Each Group generally remits its
cash receipts (other than receipts of foreign operations or operations that are
not wholly owned) to Cendant, and Cendant generally funds each Group's cash
disbursements (other than disbursements of foreign operations or operations that
are not wholly owned) on a daily basis.
In the historical financial statements of Cendant and Move.com Group, (1)
all external debt and equity transactions (and the proceeds thereof) were
attributed to Cendant Group, (2) whenever Move.com Group held cash, that cash
was transferred to Cendant Group and accounted for as a return of capital (i.e.,
as a reduction in Move.com Group's division equity and Cendant Group's retained
interest in Move.com Group) and (3) whenever Move.com Group had a cash need,
that cash need was funded by Cendant Group and accounted for as a capital
contribution (i.e., as an increase in Move.com Group's division equity and
Cendant Group's retained interest in Move.com Group). Cendant intends to
continue these practices until Move.com stock is first issued. To date, the
operations of Move.com Group have been funded from available cash, and we have
not incurred any indebtedness to finance the operations of Move.com Group.
Accordingly, no interest expense has been or will be reflected in the financial
statements of Move.com Group for any period prior to the date on which Move.com
stock is first issued.
After the date on which Move.com stock is first issued:
(1) Cendant will attribute each future incurrence or issuance of
external debt or preferred stock (and the proceeds thereof) to Cendant
Group, unless the board of directors determines otherwise. The board of
directors may, but is not required to attribute an incurrence or issuance of
debt or preferred stock (and the proceeds thereof) to Move.com Group to the
extent that Cendant incurs or issues the debt or preferred stock for the
benefit of Move.com Group. If Cendant incurs debt to finance Move.com Group
and the debt is allocated to Cendant Group, then Cendant Group would be
treated as increasing its retained interest in Move.com Group.
(2) Cendant will attribute each future issuance of CD stock (and the
proceeds thereof) to Cendant Group. Cendant may attribute any future
issuance of Move.com stock (and the proceeds
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thereof) to Cendant Group in respect of its retained interest in Move.com
Group (in a manner analogous to a secondary offering of common stock of a
subsidiary owned by a corporate parent) or to Move.com Group (in a manner
analogous to a primary offering of common stock). Cendant may assist any
future repurchases Move.com stock to Cendant Group in respect of its
retained interest in Move.com Group. Dividends on CD stock will be charged
against Cendant Group, and dividends on Move.com stock will be charged
against Move.com Group. In addition, at the time of any dividend on Move.com
stock, Cendant will credit to Cendant Group, and charge against Move.com
Group a corresponding amount per share in respect of Cendant Group's
retained interest in Move.com Group.
(3) Whenever Move.com Group holds cash, Move.com Group will normally
transfer that cash to Cendant Group. Conversely, whenever Move.com Group has
a cash need, Cendant Group will normally fund that cash need. However, the
board of directors will determine, in its sole discretion, whether to
provide any particular funds to either Group and will not be obligated to do
so.
(4) Cendant will account for all cash transfers from one Group to or for
the account of the other Group (other than transfers in return for assets or
services rendered or transfers in respect of Cendant Group's retained
interest that correspond to dividends paid on Move.com stock), as inter-
Group revolving credit advances unless:
- the board of directors determines that a given transfer (or type of
transfer) should be accounted for as a long-term loan;
- the board of directors determines that a given transfer (or type of
transfer) should be accounted for as a capital contribution increasing
Cendant Group's retained interest in Move.com Group; or
- the board of directors determines that a given transfer (or type of
transfer) should be accounted for as a return of capital reducing
Cendant Group's retained interest in Move.com Group.
There are no specific criteria to determine when Cendant will account for a
cash transfer as a long-term loan, a capital contribution or a return of capital
rather than an inter-Group revolving credit advance.
The board of directors would make such a determination in the exercise of
its business judgment at the time of such transfer, or the first of such type of
transfer, based upon all relevant circumstances. Factors the board of directors
would expect to consider include:
- the current and projected capital structure of each Group;
- the relative levels of internally generated funds of each Group;
- the financing needs and objectives of the recipient Group;
- the investment objectives of the transferring Group;
- the availability, cost and time associated with alternative financing
sources;
- prevailing interest rates and general economic conditions; and
- the nature of the assets or operations to be financed.
After this offering, we expect cash transfers used to fund the day-to-day
operations of Move.com Group will be accounted for as inter-Group revolving
credit advances. If, however, Move.com Group were to acquire substantial assets,
including as a result of significant business acquisitions expected to provide
long-term benefits, the board of directors would likely account for the required
cash funding as a combination of inter-Group revolving credit advance, long-term
loan and/or capital contribution in a manner similar to which Move.com Group
would fund such assets if it were an independent company
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with financing costs similar to those of Cendant. Furthermore, the board of
directors currently intends to account for cash transfers in the aggregate such
that the short-term liabilities, long-term liabilities and equity of Move.com
Group were generally proportionate to the short-term liabilities, long-term
liabilities and equity of comparable businesses with financing costs similar to
those of Cendant.
(5) Any cash transfer accounted for as an inter-Group revolving credit
advance may bear interest at the rate at which the board of directors, in
its sole discretion, determines Cendant could borrow such funds on a
revolving credit basis. Although we currently do not intend to charge
interest on inter-Group revolving credit advances, if the board of directors
determines to charge interest, the financial statements of Move.com Group
will not be comparable for periods prior to and after charging interest on
such credit advances. If interest is charged on inter-Group revolving credit
advances, it will be at a rate which Cendant is required to pay to borrow
funds at that time. Any cash transfer accounted for as a long-term loan will
have interest rate, amortization, maturity, redemption and other terms that
generally reflect the then prevailing terms on which the board of directors,
in its sole discretion, determines Cendant could borrow such funds.
(6) Any cash transfer from Cendant Group to Move.com Group, or for
Move.com Group's account, accounted for as a capital contribution, will
correspondingly increase Move.com Group's division equity and Cendant
Group's retained interest in Move.com Group. As a result, the number of
shares of Move.com stock that Cendant may issue for the account of Cendant
Group in respect of its retained interest in Move.com Group which we call
the number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group, will increase by the amount of such capital
contribution divided by the market value of Move.com Group on the date of
transfer.
(7) Any cash transfer from Move.com Group to Cendant Group, or for
Cendant Group's account, accounted for as a return of capital, will
correspondingly reduce Move.com Group's division equity and Cendant Group's
retained interest in Move.com Group. As a result, the number of shares
issuable with respect to Cendant Group's retained interest in Move.com Group
will decrease by the amount of such return of capital divided by the market
value of Move.com stock on the date of transfer.
We will prepare financial statements in accordance with generally accepted
accounting principles, consistently applied, for Move.com Group. The financial
statements of Move.com Group will reflect the financial condition, results of
operations and cash flows of the businesses included therein.
Move.com Group financial statements will also include allocated portions of
our debt, interest, corporate overhead and costs of administrative shared
services and taxes. Such allocations are based upon utilization where possible
with any remaining overhead allocated based on a percentage of revenue. We will
make these allocations for the purpose of preparing the financial statements for
Move.com Group; however, holders of CD stock and Move.com stock will continue to
be subject to all of the risks associated with an investment in Cendant and all
of its businesses, assets and liabilities. See "Risk Factors--The value of
Move.com stock may suffer for reasons having nothing to do with the prospects
for Move.com."
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
Cendant allocates the cost of corporate general and administrative services
and shared services to the Groups generally based on utilization. Where
utilization is not warranted, overhead is typically allocated on a percentage of
revenue basis. These shared services include legal, accounting (tax and
financial), information services, telecommunications, purchasing, marketing,
intellectual property, public relations, corporate office and travel expenses.
Where determinations based on utilization alone are impracticable, Cendant uses
other methods and criteria that management believes to be equitable and to
provide a reasonable estimate of the cost attributable to each Group.
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TAXES
Income tax expense, which is determined on a consolidated basis, is
allocated to Cendant Group and Move.com Group, and reflected in the Move.com
Group financial statements in accordance with Cendant's tax allocation policy.
The tax allocation policy provides that the financial statement expense or
benefit, as the case may be, will be allocated to Move.com Group in an amount
equal to the difference between (x) the consolidated income tax expense or
benefit of Cendant for financial statement purposes, and (y) the consolidated
income tax expense or benefit of Cendant for financial statement purposes
computed without including the Move.com Group financial statement pretax income
and any other relevant amounts properly allocable to Move.com Group. If the
above computation results in a positive amount, such amount will be allocated to
Move.com Group as a tax expense. If the above computation results in a negative
amount, such amount will be allocated to Move.com Group as a tax benefit.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States ("U.S.")
federal income tax consequences of the purchase, ownership and disposition of
Move.com stock. The following discussion is based on the Internal Revenue Code
of 1986, as amended, Treasury regulations, judicial decisions and published
positions of the IRS, all as in effect on the date hereof, and all of which are
subject to change, possibly with retroactive effect. This discussion does not
address all aspects of U.S. federal income taxation that may be relevant to a
particular shareholder based on such shareholder's particular circumstances. For
example, the following discussion does not address the U.S. federal income tax
consequences of the purchase, ownership and disposition of Move.com stock to
shareholders who are broker-dealers, insurance companies, tax-exempt
organizations, financial institutions, persons that will hold Move.com stock as
a part of an integrated investment (including a "straddle") comprised of
Move.com stock and one or more other positions or taxpayers whose functional
currency is not the U.S. dollar. The following discussion also does not address
any aspect of state, local or non-U.S. tax laws. Further, this summary generally
applies to you only if you hold your share of Move.com stock as capital assets
(generally, assets held for investment) and does not consider the tax treatment
to you if you hold Move.com stock through a partnership or other pass-through
entity.
WE URGE YOU TO CONSULT YOUR TAX ADVISOR WITH REGARD TO THE APPLICATION OF
THE U.S. FEDERAL INCOME TAX LAWS TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF
MOVE.COM STOCK TO YOUR PARTICULAR SITUATION, AS WELL AS TO THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS TO WHICH YOU MAY BE SUBJECT.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
You are a "U.S. holder" for U.S. federal income tax purposes if you are a
beneficial owner of Move.com stock and are:
- a citizen or resident of the U.S.,
- a corporation, or another entity taxable as a corporation, formed or
organized under the laws of the U.S. or any state,
- an estate, the income of which is subject to U.S. federal income tax
without regard to its source; or
- a trust, if a court within the U.S. is able to exercise primary
supervision over its administration and one or more U.S. persons have the
authority to control all of its substantial decisions.
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, our counsel, for
U.S. federal income tax purposes Move.com stock will be considered to be common
stock of Cendant. Accordingly, for U.S. federal income tax purposes neither we
nor any U.S. holder will recognize any income, gain or loss as a result of the
issuance of Move.com stock. Additionally, the purchase, ownership and
disposition of Move.com stock will be treated in the same manner as the
purchase, ownership and disposition of CD stock as to all U.S. holders.
However, no ruling will be sought from the IRS regarding the issuance of
Move.com stock. In addition, the IRS has announced that it will not issue
advance rulings on the classification of an instrument that has certain voting
and liquidation rights in an issuing corporation but whose dividend rights are
determined by reference to the earnings of a segregated portion of the issuing
corporation's assets, including assets held by a subsidiary. Also, there are no
court decisions or other authorities bearing directly on the classification of
instruments with characteristics similar to those of Move.com stock. It is
possible, therefore, that the IRS could assert that the issuance of Move.com
stock could result in taxation to us or could be characterized as stocks other
than common stock of Cendant. Skadden, Arps, Slate, Meagher & Flom LLP is of the
opinion that the IRS would not prevail in such an assertion.
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The current Presidential administration's budget proposals released on
February 7, 2000, would, if enacted, require the recognition of gain by
shareholders upon the receipt of tracking stock in a distribution with respect
to stock or in an exchange, and give the Treasury Department the authority to
treat tracking stock as nonstock or as stock of another entity, as appropriate.
The Treasury Department's explanation expresses the view that the use of
tracking stock "is outside the contemplation of" the Internal Revenue Code and
that "no inference regarding the tax treatment of [such stock] under current law
is intended by [the] proposal." Because the proposal, if enacted, would be
effective only for tracking stock issued on or after the date of enactment, the
proposal will likely not affect the re-classification of existing common stock
into CD stock or the issuance of the Move.com stock in this offering. If,
however, the proposal were to become law, it could affect future issuances of
Move.com stock. Under such circumstances, Cendant might decide to exercise its
right to redeem all of the outstanding shares of Move.com stock for CD stock at
a premium, in order to eliminate any tracking stock from its capital structure.
See "Description of Capital Stock--Optional Exchange of One Series of Common
Stock for the Other Series". We cannot predict whether the proposal will be
enacted by Congress and, if enacted, whether it will be in the form proposed by
the Clinton Administration.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion summarizes the material U.S. federal income tax
consequences of the purchase, ownership and disposition of Move.com stock by
"non-U.S. holders." You are a "non-U.S. holder" for U.S. federal income tax
purposes if you are not a U.S. holder.
DIVIDENDS
Currently, we do not intend to pay dividends for the foreseeable future.
However, if we do pay dividends, and you are a non-U.S. holder of Move.com
stock, dividends paid to you generally will be subject to withholding of U.S.
federal income tax at a 30% rate or at a lower rate if so specified in an
applicable income tax treaty. If, however, any such dividends are effectively
connected with your conduct of a trade or business within the U.S. (or to the
extent required by an applicable income tax treaty they are attributable to a
permanent establishment that you maintain in the U.S.), then the dividends
generally will not be subject to withholding tax. Instead, these dividends will
be taxed on a net income basis at rates applicable to U.S. holders, and in
addition, if these dividends are received by a non-U.S. holder that is a
corporation may, under certain circumstances, also be subject to an additional
"branch profits tax" at a 30% rate or at a lower rate if so specified in an
applicable income tax treaty.
Under U.S. Treasury regulations currently in effect, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country, unless the payor has knowledge to the contrary, for purposes of the 30%
withholding tax discussed above. Under current interpretations of U.S. Treasury
regulations, this presumption (that is, that dividends paid to an address in a
foreign country are paid to a resident of that country unless the payor has
knowledge to the contrary) also applies for purposes of determining whether a
lower tax treaty rate applies.
Under U.S. Treasury regulations that generally will apply to dividends paid
after December 31, 2000, if you claim the benefit of a lower treaty rate, you
will be required to satisfy certain certification requirements.
GAIN ON DISPOSITION OF MOVE.COM STOCK
If you are a non-U.S. holder, you generally will not be subject to U.S.
federal income tax on gain recognized on a disposition of Move.com stock unless:
- the gain is effectively connected to your conduct of a trade or business
in the U.S. (or to the extent required by an applicable income tax treaty
the gain is attributable to a permanent establishment that you maintain in
the U.S.);
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- you are an individual, you are present in the U.S. for 183 or more days in
the taxable year of the sale, and you satisfy certain other conditions; or
- Cendant is or has been a "United States real property holding corporation"
for federal income tax purposes during the five-year period ending on the
date of disposition, and you held, directly or indirectly, at any time
during this period, more than 5% of the common stock of Cendant (and you
are not eligible for any treaty exemption). Cendant has not been, is not,
and does not currently anticipate becoming a "United States real property
holding corporation" for U.S. federal income tax purposes.
Effectively connected gains recognized by a corporate non-U.S. holder may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or at a lower rate if so specified in an applicable income
tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, U.S. backup withholding-tax at a rate of 31% will apply to
dividends paid to you unless you provide a certificate of foreign status or
otherwise establish your status as an "exempt recipient."
U.S. information reporting and backup withholding requirements generally
will not apply to a payment of the proceeds of a sale of Move.com stock made
outside the U.S. through an office outside the U.S. of a non-U.S. broker.
However, U.S. information reporting, but not backup withholding, will apply to a
payment made outside the U.S. of the proceeds of a sale of Move.com stock
through an office outside the U.S. of a broker under certain circumstances.
Payment of the proceeds of a sale of Move.com stock to or through a U.S. office
of a broker will be subject to both U.S. backup withholding and information
reporting unless the non-U.S. holder certifies its non-U.S. status under penalty
of perjury or otherwise establishes an exemption.
A non-U.S. holder generally may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing a refund claim with the
IRS.
LEGAL MATTERS
The validity of the shares of Move.com stock offered hereby will be passed
upon for us by James E. Buckman, Esq., Vice Chairman and General Counsel of
Cendant, and by Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Buckman owns
18,100 shares of CD stock as well as options to purchase 3,949,829 shares of CD
stock and options to purchase 43,750 shares of Move.com stock. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of Cendant Corporation and
subsidiaries included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein and
elsewhere in the registration statement (which expresses an unqualified opinion
and includes an explanatory paragraph relating to the change in the method of
recognizing revenue and membership solicitation costs as described in Note 1),
and has been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The combined financial statements of Move.com Group (wholly owned by
Cendant) included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report (which expresses an unqualified
opinion and includes an explanatory paragraph relating to the relationship of
Move.com Group to Cendant) appearing herein, and are included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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UNDERWRITING
Cendant Corporation and the underwriters named below have entered into an
underwriting agreement with respect to the shares of Move.com stock being
offered. Subject to various conditions, each underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman, Sachs &
Co. and _____________ are the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Goldman, Sachs & Co.
Total
</TABLE>
------------------------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional ______
shares from Cendant Corporation. The underwriters may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
The following table shows the per share and total underwriting discounts to
be paid to the underwriters by Cendant Corporation. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase ______ additional shares.
PAID BY CENDANT
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share $ $
Total $ $
</TABLE>
Shares sold by the underwriters to the public are being offered at the
initial public offering price set forth on the cover page of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all of the shares are not sold at the
initial offering price, the representatives may change the offering price and
the other selling terms.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares of Move.com stock for Move.com
employees and management, friends, family, and certain officers, directors,
employees and management of Cendant. The number of shares available for sale to
the general public in the offering will be reduced to the extent such persons
purchase shares. These shares will also be subject to the lock up period
described in the next paragraph. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
Cendant Corporation, its directors, executive officers and our other
significant stockholders have agreed with the underwriters not to dispose of or
hedge any of their common stock or securities convertible into or exchangeable
for shares of Move.com stock, subject to certain exceptions, during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent of Goldman, Sachs
& Co. which shall not be unreasonably withheld.
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A prospectus in electronic format will be made available on the web sites
maintained by one or more of the lead managers of this offering and may also be
made available on web sites maintained by other underwriters. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the lead managers to underwriters that may make Internet distributions on the
same basis as other allocations.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Cendant Corporation and
the representatives. The principal factors to be considered in determining the
initial public offering price of the shares, in addition to prevailing market
conditions, will be Move.com Group's historical performance, estimates of the
business potential and earnings prospects of Move.com Group, an assessment of
Move.com Group's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
Cendant Corporation has applied to have the Move.com stock listed on the
NYSE under the symbol "MOV." In order to meet one of the requirements for
listing the Move.com stock on the NYSE, the underwriters have undertaken to sell
lots of 100 or more shares to a minimum of 2,000 beneficial holders.
In connection with the offering, the underwriters may purchase and sell
shares of Move.com stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may impose a penalty bid. This occurs when a particular
underwriter pays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Move.com stock. As a result, the price of the
shares may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares offered.
Cendant Corporation estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $______.
Cendant Corporation has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act.
CONCURRENT OFFERING
We are concurrently offering, by separate prospectus and not through the
underwriters, up to shares of Move.com stock to brokers and agents of
CENTURY 21-Registered Trademark-, COLDWELL BANKER-Registered Trademark- and
ERA-Registered Trademark-, other businesses who we have contracted with, and to
Move.com Group and Cendant Group employees, at the public offering price
indicated on the cover of this Prospectus. Any shares not purchased by those
persons will not be issued. Shares purchased by such persons will be subject to
the lock-up described in "Underwriting" for 180 days from the purchase date,
while the shares purchased by employees will not.
U-2
<PAGE>
ILLUSTRATION OF TERMS
THE FOLLOWING ILLUSTRATIONS SHOW HOW TO CALCULATE THE RETAINED INTEREST
PERCENTAGE, THE OUTSTANDING INTEREST PERCENTAGE, THE NUMBER OF SHARES ISSUABLE
WITH RESPECT TO CENDANT GROUP'S RETAINED INTEREST IN MOVE.COM GROUP AND THE
TOTAL NUMBER OF NOTIONAL MOVE.COM SHARES DEEMED OUTSTANDING AFTER GIVING EFFECT
TO CERTAIN HYPOTHETICAL DIVIDENDS, ISSUANCES, REPURCHASES AND TRANSFERS, IN EACH
CASE BASED ON THE ASSUMPTIONS SET FORTH HEREIN. IN THESE ILLUSTRATIONS, THE
NUMBER OF SHARES ISSUABLE WITH RESPECT TO CENDANT GROUP'S RETAINED INTEREST IN
MOVE.COM GROUP IS INITIALLY ASSUMED TO BE 100. UNLESS OTHERWISE SPECIFIED, EACH
ILLUSTRATION BELOW SHOULD BE READ INDEPENDENTLY AS IF NONE OF THE OTHER
TRANSACTIONS REFERRED TO BELOW HAD OCCURRED. THESE ILLUSTRATIONS ARE NOT
INTENDED TO BE COMPLETE EXPLANATIONS OF THE MATTERS COVERED AND ARE QUALIFIED IN
THEIR ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THE
PROSPECTUS. THESE ILLUSTRATIONS ARE PURELY HYPOTHETICAL AND THE NUMBERS USED
(INCLUDING ASSUMPTIONS OF MARKET VALUE) WERE CHOSEN TO SIMPLIFY THE CALCULATIONS
AND ARE NOT INTENDED TO REPRESENT ESTIMATES OF ACTUAL NUMBERS OR VALUES. ANY
CAPITALIZED TERMS WHICH ARE NOT DEFINED IN ANNEX I HAVE THE MEANING ASCRIBED TO
THEM IN THE PROSPECTUS.
"Total Number of Notional Move.com Shares Deemed Outstanding" means the
number of shares of Move.com stock outstanding plus the Number of Shares
Issuable with Respect to Cendant Group's Retained Interest in Move.com Group.
At any given time, the percentage interest in Move.com Group intended to be
represented by the outstanding shares of Move.com stock (i.e., the Outstanding
Interest Percentage) is equal to:
Number of outstanding shares of Move.com stock
Total Number of Notional Move.com Shares Deemed Outstanding
and the remaining percentage interest in Move.com Group intended to be
represented by Cendant Group's Retained Interest in Move.com Group (i.e., the
Retained Interest Percentage) is equal to:
Number of Shares Issuable with Respect to Cendant Group's Retained Interest in
Move.com Group
Total Number of Notional Move.com Shares Deemed Outstanding
The sum of the Outstanding Interest Percentage and the Retained Interest
Percentage would always equal 100%. In the examples below, before the first
issuance of shares of Move.com stock the Number of Shares Issuable with Respect
to Cendant Group's Retained Interest in Move.com Group and the Total Number of
Notional Move.com Shares Deemed Outstanding are each equal to 100, the Retained
Interest Percentage is 100% and the Outstanding Interest Percentage is 0%.
ISSUANCE OF MOVE.COM STOCK
The following illustrations reflect an assumed issuance by Cendant
Corporation of 15 shares of Move.com stock under the Move.com Group Stock Option
Plan or in an offering.
ISSUANCE FOR ACCOUNT OF CENDANT GROUP
Assume the issuance is attributed to Cendant Group in respect of its
Retained Interest in Move.com Group (as currently planned), with the net
proceeds credited solely to Cendant Group.
<TABLE>
<S> <C>
Shares previously issued and outstanding 0
Newly issued shares for account of Cendant Group 15
--
Total issued and outstanding after the offering 15
==
</TABLE>
I-1
<PAGE>
- The Number of Shares Issuable with Respect to Cendant Group's Retained
Interest in Move.com Group would decrease by the number of shares of
Move.com stock sold for the account of Cendant Group.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group prior to the Offering 100
Shares issued in the Offering 15
---
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group after the Offering 85
===
</TABLE>
- As a result, the issued and outstanding shares (15) would represent an
Outstanding Interest Percentage of 15%, calculated as follows:
__15__
15 + 85
The Retained Interest Percentage would accordingly be 85%.
- In this case, in the event of any dividend or other distribution paid on
the outstanding shares of Move.com stock (other than a dividend or other
distribution payable in shares of Move.com stock), Cendant Group would be
credited, and Move.com Group would be charged, with an amount equal to
567% (representing the ratio of the Number of Shares Issuable with Respect
to Cendant Group's Retained Interest in Move.com Group (85) to the total
number of shares of Move.com stock issued and outstanding following the
Offering (15)) of the aggregate amount of such dividend or distribution.
If, for example, a dividend of $1.00 per share were declared and paid on
the 15 shares of Move.com stock outstanding (an aggregate of $15), Cendant
Group would be credited with $85, and Move.com Group would be charged with
that amount in addition to the $15 dividend paid to the holders of
Move.com stock (a total of $100).
ISSUANCE FOR ACCOUNT OF MOVE.COM GROUP
Assume the issuance is attributed to Move.com Group as an increase in its
equity, with the net proceeds credited solely to Move.com Group.
<TABLE>
<S> <C>
Shares previously issued and outstanding 0
Newly issued shares for account of Move.com Group 15
--
Total issued and outstanding after the Offering 15
==
</TABLE>
- The Number of Shares Issuable with Respect to Cendant Group's Retained
Interest in Move.com Group (100) would remain unchanged.
- As a result, the issued and outstanding shares (15) would represent an
Outstanding Interest Percentage of about 13%, calculated as follows:
__15__
15 + 100
The Retained Interest Percentage would accordingly be about 87%.
- In this case, in the event of any dividend or other distribution paid on
the outstanding shares of Move.com stock (other than a dividend or other
distribution payable in shares of Move.com stock), Cendant Group would be
credited, and Move.com Group would be charged, with an
I-2
<PAGE>
amount equal to 667% (representing the ratio of the Number of Shares
Issuable with Respect to Cendant Group's Retained Interest in Move.com
Group (100) to the total number of shares of Move.com stock issued and
outstanding following the Offering (15)) of the aggregate amount of such
dividend or distribution.
ADDITIONAL ISSUANCES OF MOVE.COM STOCK
The following illustrations reflect an assumed issuance of an additional 15
shares of Move.com stock after the assumed initial issuance of 15 shares for the
account of Cendant Group.
ADDITIONAL ISSUANCES FOR ACCOUNT OF CENDANT GROUP
Assume the issuance is attributed to Cendant Group in respect of its
Retained Interest in Move.com Group, with the net proceeds credited solely to
Cendant Group.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Newly issued shares for account of Cendant Group 15
--
Total issued and outstanding after additional offering 30
==
</TABLE>
- The Number of Shares Issuable with Respect to Cendant Group's Retained
Interest in Move.com Group would decrease by the number of shares of
Move.com stock issued for the account of Cendant Group
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group prior to the
additional offering 85
Newly issued shares for account of Cendant Group 15
--
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group after the additional
offering 70
==
</TABLE>
- As a result, the total issued and outstanding shares (30) would in the
aggregate represent an Outstanding Interest Percentage of 30%, calculated
as follows:
__30__
30 + 70
The Retained Interest Percentage would accordingly be reduced to 70%.
- In this case, in the event of any dividend or other distribution paid on
Move.com stock (other than a dividend or other distribution payable in
shares of Move.com stock), Cendant Group would be credited, and Move.com
Group would be charged, with an amount equal to 233% (representing the
ratio of the Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group (70) to the total number of shares of
Move.com stock issued and outstanding following the additional offering
(30)) of the aggregate amount of such dividend or distribution.
I-3
<PAGE>
ADDITIONAL ISSUANCES FOR ACCOUNT OF MOVE.COM GROUP
Assume the issuance is attributed to Move.com Group as an increase in its
equity, with the net proceeds credited solely to Move.com Group.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Newly issued shares for account of Move.com Group 15
--
Total issued and outstanding after the additional
offering 30
==
</TABLE>
- The Number of Shares Issuable with Respect to Cendant Group's Retained
Interest in Move.com Group (85) would remain unchanged.
- As a result, the total issued and outstanding shares (30) would in the
aggregate represent an Outstanding Interest Percentage of about 26%,
calculated as follows:
__30__
30 + 85
The Retained Interest Percentage would accordingly be reduced to about 74%.
- In this case, in the event of any dividend or other distribution paid on
Move.com stock (other than a dividend or other distribution payable in
shares of Move.com stock), Cendant Group would be credited, and Move.com
Group would be charged, with an amount equal to 283% (representing the
ratio of the Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group (85) to the total number of shares of
Move.com stock issued and outstanding following the additional offering
(30)) of the aggregate amount of such dividend or distribution.
ISSUANCES OF CONVERTIBLE SECURITIES
If we were to issue any securities convertible into or exercisable for
shares of Move.com stock, the Outstanding Interest Percentage and the Retained
Interest Percentage would be unchanged at the time of such issuance. If any
shares of Move.com stock were issued upon conversion or exercise of such
securities, however, then the Outstanding Interest Percentage and the Retained
Interest Percentage would be affected as shown above under "Additional Issuances
for Account of Cendant Group", if such securities were attributed to Cendant
Group, or under "Additional Issuances for Account of Move.com Group", if such
securities were attributed to Move.com Group.
REPURCHASES OF MOVE.COM STOCK
The following illustrations reflect an assumed repurchase by Cendant
Corporation of 5 shares of Move.com stock after the assumed initial issuance of
15 shares of Move.com stock for the account of Cendant Group.
REPURCHASE FOR THE ACCOUNT OF CENDANT GROUP
Assume the repurchase is attributed to Cendant Group as an increase in its
Retained Interest in Move.com Group, with the cost charged solely against
Cendant Group.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Shares repurchased for account of Cendant Group 5
--
Total issued and outstanding after repurchase 10
==
</TABLE>
I-4
<PAGE>
- The Number of Shares Issuable with Respect to Cendant Group's Retained
Interest in Move.com Group would be increased by the number of any shares
of Move.com stock repurchased for the account of Cendant Group.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group prior to repurchase 85
Number of shares repurchased for the account of Cendant
Group 5
--
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group after repurchase 90
==
</TABLE>
- As a result, the total issued and outstanding shares (10) would in the
aggregate represent an Outstanding Interest Percentage of 10%, calculated
as follows:
__10__
10 + 90
The Retained Interest Percentage would accordingly be increased to 90%.
REPURCHASE FOR ACCOUNT OF MOVE.COM GROUP WITHOUT PARTICIPATION BY CENDANT GROUP
Assume the repurchase is attributed to Move.com Group, with the cost being
charged solely against Move.com Group. Further assume that the board of
directors does not determine to transfer assets from Move.com Group to Cendant
Group to hold constant the Outstanding Interest Percentage and Retained Interest
Percentage.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Shares repurchased for account of Move.com Group 5
--
Total issued and outstanding after repurchase 10
==
</TABLE>
- The Number of Shares Issuable with Respect to Cendant Group's Retained
Interest in Move.com Group (85) would remain unchanged.
- As a result, the total issued and outstanding shares (10) would in the
aggregate represent an Outstanding Interest Percentage of about 11%,
calculated as follows:
__10__
10 + 85
The Retained Interest Percentage would accordingly be increased to about 89%.
REPURCHASE FOR ACCOUNT OF MOVE.COM GROUP WITH PARTICIPATION BY CENDANT GROUP
Assume the repurchase is attributed to Move.com Group, with the cost being
charged solely against Move.com Group. Further assume that the repurchase is
made in connection with a tender offer for 5, or 33%, of the then outstanding
shares at a price of $20 per share, and that the board of directors
I-5
<PAGE>
determines to transfer cash or other assets from Move.com Group to Cendant Group
to hold constant the Outstanding Interest Percentage and Retained Interest
Percentage.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Shares repurchased for account of Move.com Group 5
--
Total issued and outstanding after repurchase 10
==
</TABLE>
- In order to hold constant the Outstanding Interest Percentage and Retained
Interest Percentage, the board of directors could determine that the
Market Value of a share of Move.com stock in this context is $20 and
transfer from Move.com Group to Cendant Group an amount of cash or other
assets equal to 567% (representing the ratio of the Number of Shares
Issuable with Respect to Cendant Group's Retained Interest in Move.com
Group (85) to the total number of shares of Move.com stock issued and
outstanding (15), in each case immediately prior to the repurchase) of the
aggregate amount of the cash paid in the tender offer to holders of
outstanding shares of Move.com stock ($100), or a total of $567.
- In that case, the Number of Shares Issuable with Respect to Cendant
Group's Retained Interest in Move.com Group (85) would decrease by the
amount of cash so transferred ($567) divided by the Market Value per share
of Move.com stock ($20).
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group prior to transfer 85
Adjustment in respect of Cendant Group's Retained Interest
in Move.com Group to reflect transfer to Cendant Group of
funds theretofore allocated to Move.com Group 28
--
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group after transfer 57
==
</TABLE>
- As a result, the total issued and outstanding shares (10) would in the
aggregate continue to represent an Outstanding Interest Percentage of 15%,
calculated as follows:
__10__
10 + 57
The Retained Interest Percentage would accordingly continue to be 85%.
- Assuming that the board of directors transferred only half of the $567
amount, or $283.50, from Move.com Group to Cendant Group, the Number of
Shares Issuable with Respect to Cendant Group's Retained Interest in
Move.com Group (85) would decrease by the amount of cash so transferred
($283.50) divided by the Market Value per share of Move.com stock ($20).
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group prior to transfer 85
Adjustment in respect of Cendant Group's Retained Interest
in Move.com Group to reflect transfer to Cendant Group of
cash theretofore allocated to Move.com Group 14
--
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group after transfer 71
==
</TABLE>
I-6
<PAGE>
- In that case, as a result, the total issued and outstanding shares (10)
would in the aggregate represent an Outstanding Interest Percentage of
about 12%, calculated as follows:
__10__
10 + 71
The Retained Interest Percentage would accordingly be increased to about 88%.
DIVIDENDS ON MOVE.COM STOCK
The following illustrations reflect assumed dividends of Move.com stock on
outstanding shares of CD stock and outstanding shares of Move.com stock,
respectively, after the assumed initial issuance of 15 shares of Move.com stock
for the account of Cendant Group.
STOCK DIVIDEND OF MOVE.COM STOCK ON CD STOCK
Assume 1,000 shares of CD stock are outstanding and Cendant Corporation
declares a dividend of 1/20 of a share of Move.com stock on each outstanding
share of CD stock.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Newly issued shares for account of Cendant Group 50
--
Total issued and outstanding after dividend 65
==
</TABLE>
- Any dividend of shares of Move.com stock to the holders of shares of CD
stock would be treated as a reduction in the Number of Shares Issuable
with Respect to Cendant Group's Retained Interest in Move.com Group.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group prior to dividend 85
Number of shares distributed on outstanding shares of
Cendant Corporation stock for account of Cendant Group 50
--
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group after dividend 35
==
</TABLE>
- As a result, the total issued and outstanding shares (65) would in the
aggregate represent an Outstanding Interest Percentage of 65%, calculated
as follows:
__65__
65 + 35
The Retained Interest Percentage would accordingly be reduced to 35%. Note,
however, that after the dividend, the holders of CD stock would also hold 50
shares of Move.com stock, which would be intended to represent a 50% interest in
the value attributable to Move.com Group.
I-7
<PAGE>
STOCK DIVIDEND OF MOVE.COM STOCK ON MOVE.COM STOCK
Assume Cendant Corporation declares a dividend of 1/5 of a share of Move.com
stock on each outstanding share of Move.com stock.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Newly issued shares for account of Move.com Group 3
--
Total issued and outstanding after dividend 18
==
</TABLE>
- The number of shares issuable with respect to Cendant Group's retained
interest in Move.com Group would be increased proportionately to reflect
the stock dividend payable in shares of Move.com stock to holders of
shares of Move.com stock. That is, the Number of Shares Issuable with
Respect to Cendant Group's Retained Interest in Move.com Group would be
increased by a number equal to 567% (representing the ratio of the Number
of Shares Issuable with Respect to Cendant Group's Retained Interest in
Move.com Group (85) to the number of shares of Move.com stock issued and
outstanding (15), in each case immediately prior to such dividend) of the
aggregate number of shares issued in connection with such dividend (3), or
17.
<TABLE>
<S> <C>
Number of shares issuable with respect to Cendant Group's
retained interest in Move.com Group prior to dividend 85
Adjustment in respect of Cendant Group's retained interest
to reflect shares distributed on outstanding shares of
Move.com stock 17
---
Number of shares issuable with respect to Cendant Group's
retained interest in Move.com Group after dividend 102
===
</TABLE>
- As a result, the total issued and outstanding shares (18) would in the
aggregate continue to represent an outstanding interest percentage of 15%,
calculated as follows:
__18__
18 + 102
The Retained Interest Percentage would accordingly continue to be 85%.
CAPITAL TRANSFERS OF CASH OR OTHER ASSETS BETWEEN CENDANT GROUP AND MOVE.COM
GROUP
CAPITAL CONTRIBUTION OF CASH OR OTHER ASSETS FROM CENDANT GROUP TO MOVE.COM
GROUP
The following illustration reflects the assumed contribution by Cendant
Group to Move.com Group, after the assumed initial issuance of 15 shares of
Move.com stock for the account of Cendant Group, of $40 of assets allocated to
Cendant Group at a time when the market value of the Move.com stock is $20 per
share.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Newly issued shares 0
--
Total issued and outstanding after contribution 15
==
</TABLE>
- The Number of Shares Issuable with Respect to Cendant Group's Retained
Interest in Move.com Group would be increased to reflect the contribution
to Move.com Group of assets theretofore
I-8
<PAGE>
allocated to Cendant Group by a number equal to the value of the assets
contributed ($40) divided by the Market Value of Move.com stock at that
time ($20), or 2 shares.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group prior to contribution 85
Increase to reflect contribution to Move.com Group of assets
allocated to Cendant Group 2
--
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group after contribution 87
==
</TABLE>
- As a result, the total issued and outstanding shares (15) would in the
aggregate represent an Outstanding Interest Percentage of a little less
than 15%, calculated as follows:
__15__
15 + 87
The Retained Interest Percentage would accordingly be increased to a little more
than 85%.
RETURN OF CAPITAL TRANSFER OF CASH OR OTHER ASSETS FROM MOVE.COM GROUP TO
CENDANT GROUP
The following illustration reflects the assumed transfer by Move.com Group
to Cendant Group, after the assumed initial issuance of 15 shares of Move.com
stock for the account of Cendant Group, of $40 of assets allocated to Move.com
Group on a date on which the Market Value of Move.com stock is $20 per share.
<TABLE>
<S> <C>
Shares previously issued and outstanding 15
Newly issued shares 0
--
Total issued and outstanding after contribution 15
==
</TABLE>
- The Number of Shares Issuable with Respect to Cendant Group's Retained
Interest in Move.com Group would be decreased to reflect the transfer to
Cendant Group of assets theretofore allocated to Move.com Group by a
number equal to the value of the assets transferred ($40) divided by the
Market Value of Move.com stock at that time ($20), or 2 shares.
<TABLE>
<S> <C>
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group prior to contribution 85
Decrease to reflect transfer to Cendant Group of assets
allocated to Move.com Group 2
--
Number of Shares Issuable with Respect to Cendant Group's
Retained Interest in Move.com Group after contribution 83
==
</TABLE>
- As a result, the total issued and outstanding shares (15) would in the
aggregate represent an Outstanding Interest Percentage of a little more
than 15%, calculated as follows:
__15__
15 + 83
The Retained Interest Percentage would accordingly be decreased to a little less
than 85%.
I-9
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF CENDANT CORPORATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report F-2
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cendant Corporation
We have audited the accompanying consolidated balance sheets of Cendant
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998
and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1997, the Company changed its method of recognizing revenue and
membership solicitation costs for its individual membership business.
/s/ Deloitte & Touche LLP
New York, New York
February 28, 2000
F-2
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Membership and service fees, net $5,183 $5,081 $4,083
Fleet leasing (net of depreciation and interest costs of
$670, $1,279 and $1,205) 30 89 60
Other 189 114 97
------ ------ ------
Net revenues 5,402 5,284 4,240
------ ------ ------
EXPENSES
Operating 1,795 1,870 1,322
Marketing and reservation 1,017 1,158 1,032
General and administrative 671 666 636
Depreciation and amortization 371 323 238
Other charges:
Litigation settlement and related costs 2,894 351 --
Termination of proposed acquisitions 7 433 --
Executive terminations -- 53 --
Investigation-related costs 21 33 --
Merger-related costs and other unusual charges (credits) 110 (67) 704
Investigation-related financing costs -- 35 --
Interest, net 199 114 51
------ ------ ------
Total expenses 7,085 4,969 3,983
------ ------ ------
Net gain on dispositions of businesses 1,109 -- --
------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST (574) 315 257
Provision (benefit) for income taxes (406) 104 191
Minority interest, net of tax 61 51 --
------ ------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS (229) 160 66
Discontinued operations:
Loss from discontinued operations, net of tax -- (25) (26)
Gain on sale of discontinued operations, net of tax 174 405 --
------ ------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (55) 540 40
Extraordinary gain, net of tax -- -- 26
------ ------ ------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (55) 540 66
Cumulative effect of accounting change, net of tax -- -- (283)
------ ------ ------
NET INCOME (LOSS) $ (55) $ 540 $ (217)
====== ====== ======
INCOME (LOSS) PER SHARE
BASIC
Income (loss) from continuing operations $(0.30) $ 0.19 $ 0.08
Loss from discontinued operations -- (0.03) (0.03)
Gain on sale of discontinued operations 0.23 0.48 --
Extraordinary gain -- -- 0.03
Cumulative effect of accounting change -- -- (0.35)
------ ------ ------
NET INCOME (LOSS) $(0.07) $ 0.64 $(0.27)
====== ====== ======
DILUTED
Income (loss) from continuing operations $(0.30) $ 0.18 $ 0.08
Loss from discontinued operations -- (0.03) (0.03)
Gain on sale of discontinued operations 0.23 0.46 --
Extraordinary gain -- -- 0.03
Cumulative effect of accounting change -- -- (0.35)
------ ------ ------
NET INCOME (LOSS) $(0.07) $ 0.61 $(0.27)
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,164 $ 1,009
Receivables (net of allowance for doubtful accounts of $68
and $123) 1,026 1,535
Deferred income taxes 1,427 467
Deferred membership commission costs 193 253
Other current assets 782 909
Net assets of discontinued operations -- 374
------- -------
Total current assets 4,592 4,547
------- -------
Property and equipment (net of accumulated depreciation of
$390 and $491) 1,347 1,433
Franchise agreements (net of accumulated amortization of
$216 and $169) 1,410 1,363
Goodwill (net of accumulated amortization of $297 and $248) 3,271 3,923
Other intangibles (net of accumulated amortization of $143
and $117) 662 757
Other assets 1,141 682
------- -------
Total assets exclusive of assets under programs 12,423 12,705
------- -------
Assets under management and mortgage programs
Relocation receivables 530 659
Mortgage loans held for sale 1,112 2,416
Mortgage servicing rights 1,084 636
Net investment in leases and leased vehicles -- 3,801
------- -------
2,726 7,512
------- -------
TOTAL ASSETS $15,149 $20,217
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and other current liabilities $ 1,279 $ 1,518
Current portion of debt 400 --
Shareholder litigation settlement and related costs 2,892 --
Deferred income 1,039 1,354
------- -------
Total current liabilities 5,610 2,872
------- -------
Deferred income 413 234
Long-term debt 2,445 3,363
Other noncurrent liabilities 373 202
------- -------
Total liabilities exclusive of liabilities under programs 8,841 6,671
------- -------
Liabilities under management and mortgage programs
Debt 2,314 6,897
Deferred income taxes 310 341
------- -------
2,624 7,238
------- -------
Mandatorily redeemable preferred securities issued by
subsidiary holding solely senior debentures issued by the
Company 1,478 1,472
------- -------
Commitments and contingencies (Note 17)
Shareholders' equity
Preferred stock, $.01 par value -authorized 10 million
shares; none issued and outstanding -- --
Common stock, $.01 par value -authorized 2 billion shares;
issued 870,399,635 and 860,551,783 shares 9 9
Additional paid-in capital 4,102 3,863
Retained earnings 1,425 1,480
Accumulated other comprehensive loss (42) (49)
Treasury stock, at cost, 163,818,148 and 27,270,708 shares (3,288) (467)
------- -------
Total shareholders' equity 2,206 4,836
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,149 $20,217
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (55) $ 540 $ (217)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities from continuing
operations:
Loss from discontinued operations, net of tax -- 25 26
Gain on sale of discontinued operations, net of tax (174) (405) --
Extraordinary gain on sale of subsidiary, net of tax -- -- (26)
Cumulative effect of accounting change, net of tax -- -- 283
Asset impairments and termination benefits -- 63 --
Net gain on dispositions of businesses (1,109) -- --
Litigation settlement and related costs 2,894 351 --
Merger-related costs and other unusual charges (credits) 110 (67) 704
Payments of merger-related costs and other unusual charges (135) (158) (318)
Depreciation and amortization 371 323 238
Proceeds from sales of trading securities 180 136 --
Purchases of trading securities (146) (182) --
Deferred income taxes 252 (111) (24)
Net change in assets and liabilities from continuing
operations:
Receivables (193) (126) (96)
Deferred membership commission costs 60 (87) --
Income taxes receivable (133) (98) (84)
Accounts payable and other current liabilities (500) 96 (87)
Deferred income (88) 82 135
Other, net (303) (54) (55)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING
OPERATIONS EXCLUSIVE OF MANAGEMENT AND MORTGAGE PROGRAMS 1,031 328 479
-------- -------- --------
MANAGEMENT AND MORTGAGE PROGRAMS:
Depreciation and amortization 698 1,260 1,122
Origination of mortgage loans (25,025) (26,572) (12,217)
Proceeds on sale and payments from mortgage loans held for
sale 26,328 25,792 11,829
-------- -------- --------
2,001 480 734
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING
OPERATIONS 3,032 808 1,213
-------- -------- --------
INVESTING ACTIVITIES
Property and equipment additions (277) (355) (155)
Proceeds from sales of marketable securities 741 -- 506
Purchases of marketable securities (672) -- (458)
Investments (18) (24) (273)
Net assets acquired (net of cash acquired) and
acquisition-related payments (205) (2,852) (567)
Net proceeds from dispositions of businesses 3,509 314 224
Other, net 47 107 (109)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FROM
CONTINUING OPERATIONS EXCLUSIVE OF MANAGEMENT AND MORTGAGE
PROGRAMS 3,125 (2,810) (832)
-------- -------- --------
</TABLE>
F-5
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
MANAGEMENT AND MORTGAGE PROGRAMS:
Investment in leases and leased vehicles $ (2,378) $ (2,447) $ (2,069)
Payments received on investment in leases and leased
vehicles 1,529 987 589
Proceeds from sales and transfers of leases and leased
vehicles to third parties 75 183 186
Equity advances on homes under management (7,608) (6,484) (6,845)
Repayment on advances on homes under management 7,688 6,624 6,863
Additions to mortgage servicing rights (727) (524) (270)
Proceeds from sales of mortgage servicing rights 156 119 49
-------- -------- --------
(1,265) (1,542) (1,497)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FROM
CONTINUING OPERATIONS 1,860 (4,352) (2,329)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from borrowings 1,719 4,809 67
Principal payments on borrowings (2,213) (2,596) (174)
Issuance of convertible debt -- -- 544
Issuance of common stock 127 171 132
Repurchases of common stock (2,863) (258) (171)
Proceeds from mandatorily redeemable preferred securities
issued by subsidiary holding solely senior debentures
issued by the Company -- 1,447 --
Other, net -- -- (7)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES FROM
CONTINUING OPERATIONS EXCLUSIVE OF MANAGEMENT AND MORTGAGE
PROGRAMS (3,230) 3,573 391
-------- -------- --------
MANAGEMENT AND MORTGAGE PROGRAMS:
Proceeds received for debt repayment in connection with
disposal of fleet segment 3,017 -- --
Proceeds from debt issuance or borrowings 5,263 4,300 2,816
Principal payments on borrowings (7,838) (3,090) (1,693)
Net change in short-term borrowings (2,000) (93) (613)
-------- -------- --------
(1,558) 1,117 510
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES FROM
CONTINUING OPERATIONS (4,788) 4,690 901
-------- -------- --------
Effect of changes in exchange rates on cash and cash
equivalents 51 (16) 15
-------- -------- --------
Net cash used in discontinued operations -- (188) (181)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 155 942 (381)
Cash and cash equivalents, beginning of period 1,009 67 448
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,164 $ 1,009 $ 67
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments $ 451 $ 543 $ 375
======== ======== ========
Income tax payments (refunds), net $ (46) $ (23) $ 265
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME/(LOSS) STOCK EQUITY
-------- -------- ---------- --------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 808 $ 8 $2,843 $1,186 $ (6) $ (75) $ 3,956
COMPREHENSIVE LOSS:
Net loss -- -- -- (217) -- --
Currency translation adjustment -- -- -- -- (28) --
Unrealized loss on marketable
securities, net of tax of $2 -- -- -- -- (4) --
TOTAL COMPREHENSIVE LOSS (249)
Issuance of common stock 6 -- 46 -- -- -- 46
Exercise of stock options 11 -- 133 -- -- (18) 115
Tax benefit from exercise of stock
options -- -- 94 -- -- -- 94
Amortization of restricted stock -- -- 28 -- -- -- 28
Cash dividends declared -- -- -- (7) -- -- (7)
Adjustment to reflect change in
fiscal year from Cendant Merger -- -- -- (22) -- -- (22)
Conversion of convertible notes 20 -- 151 -- -- -- 151
Repurchase of common stock -- -- -- -- -- (171) (171)
Retirement of treasury stock (7) -- (190) -- -- 190 --
Other -- -- (20) -- -- -- (20)
---- --- ------ ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1997 838 8 3,085 940 (38) (74) 3,921
COMPREHENSIVE INCOME:
Net income -- -- -- 540 -- --
Currency translation adjustment -- -- -- -- (11) --
TOTAL COMPREHENSIVE INCOME 529
Exercise of stock options 17 1 168 -- -- -- 169
Tax benefit from exercise of stock
options -- -- 147 -- -- -- 147
Conversion of convertible notes 6 -- 114 -- -- -- 114
Repurchase of common stock -- -- -- -- -- (258) (258)
Mandatorily redeemable preferred
securities issued by subsidiary
holding solely senior debentures
issued by the Company -- -- (66) -- -- -- (66)
Common stock received as
consideration in sale of
discontinued operations -- -- -- -- -- (135) (135)
Rights issuable -- -- 350 -- -- -- 350
Other -- -- 65 -- -- -- 65
---- --- ------ ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1998 861 9 3,863 1,480 (49) (467) 4,836
COMPREHENSIVE LOSS:
Net loss -- -- -- (55) -- --
Currency translation adjustment -- -- -- -- (69) --
Unrealized gain on marketable
securities, net of tax of $22 -- -- -- -- 37 --
Reclassification adjustments, net
of tax of $13 -- -- -- -- 39 --
TOTAL COMPREHENSIVE LOSS (48)
Exercise of stock options 9 -- 81 -- -- 42 123
Tax benefit from exercise of stock
options -- -- 52 -- -- -- 52
Repurchase of common stock -- -- -- -- -- (2,863) (2,863)
Modifications of stock option plans
due to dispositions of businesses -- -- 83 -- -- -- 83
Rights issuable -- -- 22 -- -- -- 22
Other -- -- 1 -- -- -- 1
---- --- ------ ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1999 870 $ 9 $4,102 $1,425 $(42) $(3,288) $ 2,206
==== === ====== ====== ==== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Cendant Corporation is a global provider of a wide range of complementary
consumer and business services. The Consolidated Financial Statements include
the accounts of Cendant Corporation and its wholly-owned subsidiaries
(collectively, "the Company" or "Cendant"). In presenting the Consolidated
Financial Statements, management makes estimates and assumptions that affect
reported amounts and related disclosures. Estimates, by their nature, are based
on judgement and available information. As such, actual results could differ
from those estimates. Certain reclassifications have been made to prior year
amounts to conform to the current year presentation. Unless otherwise noted, all
dollar amounts presented are in millions, except per share amounts.
INVESTMENTS IN AFFILIATES
Investments in affiliates over which the Company has significant influence
but not a controlling interest are carried on the equity basis of accounting.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION
Property and equipment is depreciated based upon a straight-line method over
the estimated useful lives of the related assets. Amortization of leasehold
improvements is computed utilizing the straight-line method over the estimated
useful lives of the related assets or the lease term, if shorter.
Franchise agreements for hotel, real estate brokerage, car rental and tax
return preparation services are amortized on a straight-line basis over the
estimated periods to be benefited, ranging from 12 to 40 years.
GOODWILL
Goodwill, which represents the excess of cost over fair value of net assets
acquired, is amortized on a straight-line basis over the estimated periods to be
benefited, substantially ranging from 25 to 40 years.
Other intangibles are amortized on a straight-line method over the estimated
periods to be benefited.
ASSET IMPAIRMENT
The Company periodically evaluates the recoverability of its investments,
intangible assets and long-lived assets, comparing the respective carrying
values to the current and expected future cash flows, on an undiscounted basis,
to be generated from such assets. Property and equipment is evaluated separately
within each business. The recoverability of goodwill and franchise agreements is
evaluated on a separate basis for each acquisition and franchise brand,
respectively. Any enterprise goodwill and franchise agreements are also
evaluated using the undiscounted cash flow method.
Based on an evaluation of its intangible assets and in connection with the
Company's regular forecasting processes during 1998, the Company determined that
$37 million of goodwill associated
F-8
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with a Company subsidiary, National Library of Poetry, was permanently impaired.
In addition, the Company had equity investments in various businesses, which
were generating negative cash flows and were unable to access sufficient
liquidity through equity or debt offerings. As a result, the Company wrote off
$13 million of such investments in 1998. The aforementioned impairments impacted
the Company's diversified services segment and are classified as operating
expenses in the Consolidated Statements of Operations.
REVENUE RECOGNITION AND BUSINESS OPERATIONS
FRANCHISING. Franchise revenue principally consists of royalties, as well as
marketing and reservation fees, which are based on a percentage of franchisee
revenue. Royalty, marketing, and reservation fees are accrued as the underlying
franchisee revenue is earned. Annual rebates given to certain franchisees on
royalty fees are recorded as a reduction to revenues and are accrued in direct
proportion to the recognition of the underlying gross franchise revenue.
Franchise revenue also includes initial franchise fees, which are recognized as
revenue when all material services or conditions relating to the sale have been
substantially performed, which is generally when a franchised unit is opened.
TIMESHARE. Timeshare revenue principally consists of exchange fees and
subscription revenue. Exchange fees are recognized as revenue when the exchange
request has been confirmed to the subscribing members. Subscription revenue
represents the fees from subscribing members. There is no separate fee charged
for the participation in the timeshare exchange network. Subscription revenue,
net of related procurement costs, is deferred upon receipt and recognized as
revenue over the subscription period during which delivery of publications and
other services are provided to the subscribing members. Subscriptions are
cancelable and refundable on a prorata basis. Subscription procurement costs are
expensed as incurred. Such costs were $31 million for each of the years ended
December 31, 1999 and 1998 and $27 million for the year ended December 31, 1997.
INDIVIDUAL MEMBERSHIP. Membership revenue is generally recognized upon the
expiration of the membership period. Memberships are generally cancelable for a
full refund of the membership fee during the entire membership period, generally
one year. Certain memberships are subject to a pro rata refund. Revenues for
such memberships are recognized ratably over the membership period.
INSURANCE/WHOLESALE. Commissions received from the sale of third party
accidental death and dismemberment insurance are recognized over the underlying
policy period. The Company also receives a share of the excess of premiums paid
to insurance carriers less claims experience to date, claims incurred but not
reported and carrier management expenses. Such profit commissions are accrued
based on claims experience to date, including an estimate of claims incurred but
not reported.
During 1999, the Company changed the amortization period for customer
acquisition costs related to accidental death and dismemberment insurance
products, which resulted in a reduction in expenses of $16 million
($10 million, after tax or $0.01 per diluted share). The change was based upon
new information becoming available to determine customer retention rates.
RELOCATION. Relocation services provided by the Company include facilitating
the purchase and resale of the transferee's residence, providing equity advances
on the transferee's residence and home management services. The home is
purchased under a contract of sale and the Company obtains a deed to the
property; however, it does not generally record the deed or transfer title.
Transferring employees are provided equity advances on the home based on their
ownership equity of the appraised
F-9
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
home value. The mortgage is generally retired concurrently with the advance of
the equity and the purchase of the home. Based on its client agreements, the
Company is given parameters under which it negotiates for the ultimate sale of
the home. The gain or loss on resale is generally borne by the client
corporation. In certain transactions, the Company will assume the risk of loss
on the sale of homes; however, in such transactions, the Company will control
all facets of the resale process, thereby, limiting its exposure.
While homes are held for resale, the amount funded for such homes carry an
interest charge computed at a floating rate. Direct costs of managing the home
during the period the home is held for resale, including property taxes and
repairs and maintenance, are generally borne by the client corporation. The
client corporation generally advances funds to cover a portion of such carrying
costs.
Revenues and related costs associated with the purchase and resale of a
transferee's residence are recognized as services are provided. Relocation
services revenue is generally recorded net of costs reimbursed by client
corporations and interest expense incurred to fund the purchase of a
transferee's residence. Revenue for other fee-based programs, such as home
marketing assistance, household goods moves, and destination services are
recognized over the periods in which the services are provided and the related
expenses are incurred.
MORTGAGE. Loan origination fees, commitment fees paid in connection with the
sale of loans, and certain direct loan origination costs associated with loans
are deferred until such loans are sold. Mortgage loans are recorded at the lower
of cost or market value on an aggregate basis. Sales of mortgage loans are
generally recorded on the date a loan is delivered to an investor. Gains or
losses on sales of mortgage loans are recognized based upon the difference
between the selling price and the carrying value of the related mortgage loans
sold. See Note 9--Mortgage Loans Held For Sale.
Fees received for servicing loans owned by investors are credited to income
when earned. Costs associated with loan servicing are charged to expense as
incurred.
Mortgage servicing rights ("MSRs") are amortized over the estimated life of
the related loan portfolio in proportion to projected net servicing revenues.
Such amortization is recorded as a reduction of net servicing revenue in the
Consolidated Statements of Operations. The Company estimates future prepayment
rates based on current interest rate levels, other economic conditions and
market forecasts, as well as relevant characteristics of the servicing
portfolio, such as loan types, interest rate stratification, and recent
prepayment experience. Gains or losses on the sale of MSRs are recognized when
title and all risks and rewards have irrevocably passed to the buyer and there
are no significant unresolved contingencies. See Note 10--Mortgage Servicing
Rights.
FLEET. The Company primarily leased its vehicles under three standard
arrangements: open-end operating leases, closed-end operating leases or open-end
finance leases (direct financing leases). Each lease was either classified as an
operating lease or a direct financing lease, as defined. Lease revenues were
recognized based on rentals. Revenues from fleet management services other than
leasing were recognized over the period in which services were provided and the
related expenses were incurred. See Note 3--Dispositions and Acquisitions of
Businesses.
F-10
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSES
Advertising costs, including direct response advertising related to
membership programs, are generally expensed in the period incurred. Advertising
expenses for the years ended December 31, 1999, 1998 and 1997 were
$589 million, $685 million and $574 million, respectively.
CHANGE IN ACCOUNTING POLICY
In August 1998, the Company changed its accounting policy with respect to
revenue and expense recognition for its membership businesses, effective
January 1, 1997. Prior to such adoption, the Company recorded deferred
membership income, net of estimated cancellations, at the time members were
billed (upon expiration of the free trial period), which was recognized as
revenue ratably over the membership term and modified periodically based on
actual cancellation experience. In addition, membership acquisition and renewal
costs, which related primarily to membership solicitations, were capitalized as
direct response advertising costs due to the Company's ability to demonstrate
that the direct response advertising resulted in future economic benefits. Such
costs were amortized on a straight-line basis as revenues were recognized (over
the average membership period).
The Company concluded that when membership fees are fully refundable during
the entire membership period, membership revenue should be recognized at the end
of the membership period upon the expiration of the refund offer. The Company
further concluded that non-refundable solicitation costs should be expensed as
incurred since such costs are not recoverable if membership fees are refunded.
The Company adopted such accounting policy effective January 1, 1997 and
accordingly, recorded a non-cash charge of $450 million ($283 million, after
tax) on such date to account for the cumulative effect of the accounting change.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137 "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities", issued in
June 1998, to fiscal years commencing after June 15, 2000. SFAS No. 133 requires
that all derivatives be recorded in the Consolidated Balance Sheets as assets or
liabilities and measured at fair value. If the derivative does not qualify as a
hedging instrument, changes in fair value are to be recognized in net income. If
the derivative does qualify as a hedging instrument, changes in fair value are
to be recognized either in net income or other comprehensive income consistent
with the asset or liability being hedged. The Company has developed an
implementation plan to adopt SFAS No. 133. Completion of the implementation plan
and determination of the impact of adopting SFAS No. 133 is expected to be
completed by the fourth quarter of 2000. The Company will adopt SFAS No. 133 on
January 1, 2001, as required.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements." SAB No. 101 draws upon the existing accounting rules and explains
those rules, by analogy, to other transactions that the existing rules do not
specifically address. In accordance with SAB No. 101, the Company will revise
certain revenue recognition policies regarding the recognition of non-refundable
one-time fees and recognition of pro rata refundable subscription revenue. The
Company currently recognizes non-refundable
F-11
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
one-time fees at the time of contract execution and cash receipt. This policy
will be changed to the recognition of non-refundable one-time fees ratably over
the life of the underlying contract. The Company currently recognizes pro rata
refundable subscription revenue, net of related procurement costs, over the
subscription period. This policy will be changed to straight line recognition of
the pro rata refundable subscription revenue over the subscription period. The
percentage of annual revenues earned from non-refundable one-time fees and from
pro rata refundable subscription revenues is not material to consolidated net
revenues. The Company will adopt SAB No. 101 on January 1, 2000, and will record
a non-cash charge of approximately $89 million ($56 million, after tax) to
account for the cumulative effect of the accounting change.
2. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed based solely on the weighted
average number of common shares outstanding during the period. Diluted EPS
further reflects all potential dilution of common stock, including the assumed
exercise of stock options and warrants using the treasury method, and
convertible debt. At December 31, 1999, 183 million stock options (with a
weighted average exercise price of $15.24 per option) and 2 million stock
warrants (with a weighted average exercise price of $16.77 per warrant) were
outstanding and antidilutive. At December 31, 1998 and 1997, 38 million stock
options (with a weighted average exercise price of $29.58 per option) and
54 million stock options (with a weighted average exercise price of $31.16 per
option), respectively, were outstanding and antidilutive. Therefore, such
options and warrants were excluded from the computation of diluted EPS. In
addition, the Company's 3% convertible subordinated notes convertible into
18 million shares of Company common stock were antidultive; therefore, such
notes were excluded from the computation of diluted EPS at December 31, 1999,
1998 and 1997. Diluted weighted average shares were calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
(IN MILLIONS) -------- -------- --------
<S> <C> <C> <C>
Weighted average shares for basic EPS 751 848 811
Stock options -- 32 41
--- --- ---
Weighted average shares for diluted EPS 751 880 852
=== === ===
</TABLE>
3. DISPOSITIONS AND ACQUISITIONS OF BUSINESSES
DISPOSITIONS
ENTERTAINMENT PUBLICATIONS, INC. On November 30, 1999, the Company completed
the sale of approximately 85% of its Entertainment Publications, Inc. ("EPub")
business unit for $281 million in cash. The Company retained approximately 15%
of EPub's common equity in connection with the transaction. In addition, the
Company has a designee on EPub's Board of Directors. The Company accounts for
its investment in EPub using the equity method. The Company realized a net gain
of approximately $156 million ($78 million, after tax). EPub is a marketer and
publisher of coupon books and discount programs which provides customers with
unique products and services that are designed to enhance a customer's
purchasing power.
F-12
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISPOSITIONS AND ACQUISITIONS OF BUSINESSES (CONTINUED)
GREEN FLAG. On November 26, 1999, the Company completed the sale of its
Green Flag business unit for approximately $401 million in cash, including
dividends of $37 million. The Company realized a net gain of approximately
$27 million ($8 million, after tax). Green Flag is a roadside assistance
organization based in the UK, which provides a wide range of emergency support
and rescue services.
FLEET. On June 30, 1999, the Company completed the disposition of the fleet
business segment ("fleet segment" or "fleet businesses") pursuant to an
agreement between PHH Corporation ("PHH"), a wholly-owned subsidiary of the
Company, and Avis Rent A Car, Inc. ("ARAC"). Pursuant to the agreement, ARAC
acquired the net assets of the fleet businesses through the assumption and
subsequent repayment of $1.44 billion of intercompany debt and the issuance of
$360 million of convertible preferred stock of Avis Fleet Leasing and Management
Corporation ("Avis Fleet"), a wholly-owned subsidiary of ARAC. Coincident with
the closing of the transaction, ARAC refinanced the assumed debt under
management programs which was payable to the Company. Accordingly, the Company
received additional consideration from ARAC comprised of $3.0 billion of cash
proceeds and a $30 million receivable.
The convertible preferred stock of Avis Fleet is convertible into common
stock of ARAC at the Company's option upon the satisfaction of certain
conditions, including the per share price of ARAC Class A common stock equaling
or exceeding $50 per share and the fleet segment attaining certain EBITDA
(earnings before interest, income taxes, depreciation and amortization)
thresholds, as defined. There are additional circumstances upon which the shares
of Avis Fleet convertible preferred stock are automatically or mandatorily
convertible into ARAC common stock.
The Company realized a net gain on the disposition of the fleet business
segment of $881 million ($866 million, after tax) of which $715 million
($702 million, after tax) was recognized at the time of closing and
$166 million ($164 million, after tax) was deferred at the date of disposition.
The realized gain is net of approximately $90 million of transaction costs. The
Company deferred the portion of the realized net gain, which was equivalent to
its common equity ownership percentage in ARAC at the time of closing. The
deferred gain is being recognized into income over forty years, which is
consistent with the period ARAC is amortizing the goodwill generated from the
transaction and is included within other revenue in the Consolidated Statements
of Operations ($2 million in 1999). During 1999, the Company recognized
$9 million of the deferred portion of the realized net gain due to the sale of a
portion of the Company's ownership of ARAC. The deferred net gain is included in
deferred income as presented in the Consolidated Balance Sheet at December 31,
1999. The fleet segment disposition was structured as a tax-free reorganization
and, accordingly, no tax provision has been recorded on a majority of the gain.
However, pursuant to a recent interpretive ruling, the Internal Revenue Service
("IRS") has taken the position that similarly structured transactions do not
qualify as tax-free reorganizations under the Internal Revenue Code
Section 368(a)(1)(A). If the transaction is not considered a tax-free
reorganization, the resultant incremental liability could range between
$10 million and $170 million depending upon certain factors including
utilization of tax attributes and contractual indemnification provisions.
Notwithstanding the IRS interpretive ruling, the Company believes that, based
upon analysis of current tax law, its position would prevail, if challenged.
OTHER 1999 DISPOSITIONS. The Company completed the dispositions of certain
businesses, including North American Outdoor Group, Central Credit, Inc., Global
Refund Group, Spark Services, Inc., Match.com, National Leisure Group and
National Library of Poetry. Aggregate consideration received on
F-13
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISPOSITIONS AND ACQUISITIONS OF BUSINESSES (CONTINUED)
such dispositions was comprised of approximately $407 million in cash, including
dividends of $21 million, and $43 million in marketable securities. The Company
realized a net gain of $202 million ($81 million, after tax) on the dispositions
of these businesses.
INTERVAL INTERNATIONAL INC. On December 17, 1997, as directed by the Federal
Trade Commission in connection with a merger, the Company sold all of the
outstanding shares of its timeshare exchange businesses, Interval
International Inc. ("Interval"), for net proceeds of $240 million less
transaction related costs amortized as services were provided. The Company
recognized a gain on the sale of Interval of $77 million ($26 million, after
tax), which was reflected as an extraordinary gain in the Consolidated
Statements of Operations.
ACQUISITIONS
During 1998, the Company completed the acquisitions of National Parking
Corporation Limited ("NPC"), The Harpur Group Ltd. ("Harpur"), Jackson
Hewitt Inc. ("Jackson Hewitt") and certain other entities, which were accounted
for using the purchase method of accounting. Accordingly, assets acquired and
liabilities assumed were recorded at their fair values. The excess of purchase
price over the fair value of the underlying net assets acquired was allocated to
goodwill. During 1999 and 1998, the Company recorded additional goodwill of
$50 million and $100 million, respectively, in satisfaction of a contingent
purchase liability to the seller of Resort Condominiums International, Inc., a
company acquired in 1996. The operating results of such acquired entities are
included in the Company's Consolidated Statements of Operations since the
respective dates of acquisition. The following table presents information about
the acquisitions.
<TABLE>
<CAPTION>
JACKSON
NPC HARPUR HEWITT OTHER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid $1,638 $206 $476 $ 564
Fair value of identifiable net assets acquired (1) 590 51 99 218
------ ---- ---- --------
Goodwill $1,048 $155 $377 $ 346
====== ==== ==== ========
Goodwill benefit period (years) 40 40 40 25 to 40
====== ==== ==== ========
</TABLE>
- ------------------------------
(1) Cash acquired in connection with these acquisitions was $58 million.
4. DISCONTINUED OPERATIONS
On January 12, 1999, the Company completed the sale of Cendant Software
Corporation ("CDS"), a developer, publisher and distributor of educational and
entertainment software, for net cash proceeds of $770 million. The Company
realized a net gain of $323 million ($372 million, after tax) on the disposition
of CDS, of which $299 million ($174 million, after tax) was recognized during
1999 and $24 million ($198 million, after tax) was recognized during 1998,
substantially in the form of a tax benefit and corresponding deferred tax asset.
On December 15, 1998, the Company completed the sale of Hebdo Mag
International, Inc. ("Hebdo Mag"), a publisher and distributor of classified
advertising information. The Company received $315 million in cash and
7 million shares of Company common stock valued at $135 million (approximately
$19
F-14
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DISCONTINUED OPERATIONS (CONTINUED)
per share market value) on the date of sale. The Company recognized a net gain
of $155 million ($207 million, after tax) on the sale of Hebdo Mag partially in
the form of a tax benefit.
Summarized financial data of discontinued operations for the years ended
December 31, consisted of:
<TABLE>
<CAPTION>
CDS HEBDO MAG
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $346 $434 $202 $209
==== ==== ==== ====
Income (loss) before income taxes $(57) $ (6) $ 17 $ (4)
Provision (benefit) for income taxes (23) 2 8 (1)
Extraordinary loss from early extinguishment of debt, net of
$5 million tax benefit -- -- -- (15)
---- ---- ---- ----
Net income (loss) $(34) $ (8) $ 9 $(18)
==== ==== ==== ====
</TABLE>
The Company allocated $20 million of interest expense to discontinued
operations for the year ended December 31, 1998. Such interest expense
represents the cost of funds associated with businesses acquired by the
discontinued business segments at an interest rate consistent with the Company's
consolidated effective borrowing rate.
Net assets of CDS at December 31, 1998 were comprised of current assets of
$285 million, goodwill of $106 million, other assets of $88 million and total
liabilities of $105 million.
5. OTHER CHARGES
LITIGATION SETTLEMENTS
COMMON STOCK LITIGATION SETTLEMENT. On December 7, 1999, the Company reached
a preliminary agreement to settle the principal securities class action pending
against the Company, other than certain claims relating to FELINE PRIDES
securities discussed below. This settlement is subject to final documentation
and court approval. See Note 17--Commitments and Contingencies.
FELINE PRIDES LITIGATION SETTLEMENT. On March 17, 1999, the Company reached
a final agreement (the "FELINE PRIDES settlement") to settle the class action
lawsuit that was brought on behalf of the holders of Income or Growth FELINE
PRIDES ("PRIDES") securities who purchased their securities on or prior to
April 15, 1998. See Note 13--Mandatorily Redeemable Trust Preferred Securities
Issued by Subsidiary Holding Solely Senior Debentures Issued by the Company.
TERMINATION OF PROPOSED ACQUISITIONS
On February 4, 1999, the Company announced its intention not to proceed with
the acquisition of RAC Motoring Services ("RACMS") due to certain conditions
imposed by the UK Secretary of State of Trade and Industry that the Company
determined not to be commercially feasible and therefore unacceptable. In
connection with such termination, the Company wrote off $7 million of deferred
acquisition costs.
F-15
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER CHARGES (CONTINUED)
On October 13, 1998, the Company and American Bankers Insurance Group, Inc.
("American Bankers") terminated an agreement which provided for the Company's
acquisition of American Bankers. In connection with this agreement, the Company
made a $400 million cash payment to American Bankers and wrote-off $32 million
of costs, primarily professional fees, resulting in a total charge of
$432 million.
On October 5, 1998, the Company announced the termination of an agreement to
acquire Providian Auto and Home Insurance Company. In connection with the
termination of this agreement, the Company wrote off $1 million of costs.
EXECUTIVE TERMINATIONS
The Company incurred $53 million of costs on July 28, 1998 related to the
termination of certain former executives, principally Walter A. Forbes, who
resigned as Chairman and as a member of the Board of Directors. Aggregate
benefits given to Mr. Forbes resulted in a charge of $51 million, comprised of
$38 million in cash payments and approximately one million Company stock
options, with a fair value of $13 million, as calculated by the Black-Scholes
model. Such options were immediately vested and expire on July 28, 2008. The
main benefit to the Company from Mr. Forbes' termination was the resolution of
the division of governance issues that existed at the time between the members
of the Board of Directors formerly associated with CUC International, Inc.
("CUC") and the members of the Board of Directors formerly associated with HFS
Incorporated ("HFS").
INVESTIGATION-RELATED COSTS
The Company incurred professional fees, public relations costs and other
miscellaneous expenses of $21 million and $33 million during 1999 and 1998,
respectively, in connection with accounting irregularities and resulting
investigations into such matters.
INVESTIGATION-RELATED FINANCING COSTS
In connection with the Company's discovery and announcement of accounting
irregularities on April 15, 1998 and the corresponding lack of audited financial
statements, the Company was temporarily prohibited from accessing public debt
markets. As a result, the Company paid $28 million in fees associated with
waivers and various financing arrangements. Additionally, during 1998, the
Company exercised its option to redeem its 4 3/4% Convertible Senior Notes (the
"4 3/4% Notes"). At such time, the Company anticipated that all holders of the
4 3/4% Notes would elect to convert the 4 3/4% Notes to Company common stock.
However, at the time of redemption, holders of the 4 3/4% Notes elected not to
convert the 4 3/4% Notes to Company common stock resulting in the Company
redeeming such notes at a premium. Accordingly, the Company recorded a
$7 million loss on such redemption.
1999 MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES
On September 15, 1999, Netmarket Group, Inc. ("NGI") began operations as an
independent company that pursues the development of certain interactive
businesses formerly within the Company's direct marketing division. NGI owns,
operates and develops the online membership businesses, which
F-16
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER CHARGES (CONTINUED)
collectively have approximately 1.4 million online members. Prior to
September 15, 1999, the Company's ownership of NGI was restructured into common
stock and preferred stock interests. On September 15, 1999 (the "donation
date"), the Company donated NGI's outstanding common stock to a charitable
trust, and NGI issued additional shares of its common stock to certain of its
marketing partners. The fair market value of the NGI common stock on the
donation date was approximately $20 million. Accordingly, as a result of the
change in ownership of NGI's common stock from the Company to independent third
parties, prospective from the donation date, NGI's operating results are no
longer included in the Company's Consolidated Financial Statements. The Company
retained an ownership interest in a convertible preferred stock of NGI, which is
ultimately convertible, at the Company's option, beginning September 14, 2001,
into approximately 78% of NGI's diluted common shares. The convertible preferred
stock is accounted for using the cost method of accounting. The convertible
preferred stock has a $5 million annual preferred dividend, which will be
recorded in income if and when it becomes realizable. Subsequent to the
Company's contribution of NGI's common stock to the charitable trust, the
Company provided a development advance of $77 million to NGI, which is
contingently repayable to the Company if certain financial targets related to
NGI are achieved. The purpose of the development advance was to provide NGI with
the funds necessary to develop Internet related products and systems, that if
successful, would significantly increase the value of NGI. Without these funds,
NGI would not have sufficient funds for development activities contemplated in
its business plans. Repayment of the advance is therefore solely dependent on
the success of the development efforts. The Company recorded a charge, inclusive
of transaction costs, of $85 million in connection with the donation of NGI
shares to the charitable trust and the subsequent development advance.
During 1999, the Company incurred $23 million of additional charges to fund
an irrevocable contribution to the independent technology trust responsible for
completing the transition of the Company's lodging franchisees to a Company
sponsored property management system and $2 million of costs primarily resulting
from further consolidation of European call centers in Cork, Ireland which are
included below as a component of the 1999 adjustment activity for the Fourth
Quarter 1997 Charge.
1997 MERGER-RELATED COSTS AND OTHER UNUSUAL CHARGES (CREDITS)
FOURTH QUARTER 1997 CHARGE. The Company incurred unusual charges ("Unusual
Charges") in the fourth quarter of 1997 totaling $455 million substantially
associated with the merger of HFS and CUC (the "Cendant Merger") and the merger
in October 1997 with Hebdo Mag. Reorganization plans were formulated prior to
and implemented as a result of the mergers. The Company determined to streamline
its corporate organization functions and eliminate several office locations in
overlapping markets. Management's plan included the consolidation of European
call centers in Cork, Ireland and terminations of franchised hotel properties.
Liabilities associated with Unusual Charges are classified as a
F-17
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER CHARGES (CONTINUED)
component of accounts payable and other current liabilities. The reduction of
such liabilities from inception is summarized by category of expenditure as
follows:
- ------------------------
<TABLE>
<CAPTION>
1999 ACTIVITY
1997 BALANCE AT ---------------------- BALANCE AT
UNUSUAL 1997 1998 1998 DECEMBER 31, CASH DECEMBER 31,
CHARGES REDUCTIONS REDUCTIONS ADJUSTMENTS 1998 PAYMENTS ADJUSTMENTS 1999
-------- ---------- ---------- ----------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Professional fees $ 93 $ (43) $ (38) $(10) $ 2 $(1) $ -- $ 1
Personnel related 171 (45) (61) (4) 61 (5) 3 59
Business terminations 78 (78) 1 (1) -- -- -- --
Facility related and
other 113 (92) (5) (12) 4 (2) (1) 1
---- ----- ----- ---- --- --- --------- ---
Total Unusual Charges 455 (258) (103) (27) 67 (8) 2 61
Reclassification for
discontinued
operations (18) 18 -- -- -- -- -- --
---- ----- ----- ---- --- --- --------- ---
Total Unusual Charges
related to
continuing
operations $437 $(240) $(103) $(27) $67 $(8) $ 2 $61
==== ===== ===== ==== === === ========= ===
</TABLE>
Professional fees primarily consisted of investment banking, legal and
accounting fees incurred in connection with the mergers. Personnel related costs
included $73 million of retirement and employee benefit plan costs, $24 million
of restricted stock compensation, $61 million of severance resulting from
consolidations of European call centers and certain corporate functions and
$13 million of other personnel related costs. The Company provided for 474
employees to be terminated, substantially all of which have been severed.
Business termination costs consisted of a $48 million impairment write-down of
hotel franchise agreement assets associated with a quality upgrade program and
$30 million of costs incurred to terminate a contract which may have restricted
the Company from maximizing opportunities afforded by the Cendant Merger.
Facility related and other unusual charges included $70 million of irrevocable
contributions to independent technology trusts for the direct benefit of lodging
and real estate franchisees, $16 million of building lease termination costs,
and a $22 million reduction in intangible assets associated with the Company's
wholesale annuity business for which impairment was determined in 1997. During
1999 and 1998, the Company recorded a net adjustment of $2 million and ($27)
million, respectively, to Unusual Charges with a corresponding increase
(decrease) to liabilities primarily as a result of a change in the original
estimate of costs to be incurred. Such adjustments to original estimates were
recorded in the periods in which events occurred or information became available
requiring accounting recognition. Liabilities of $61 million remained at
December 31, 1999, which were primarily attributable to future severance costs
and executive termination benefits, which the Company anticipates that such
liabilities will be settled upon resolution of related contingencies.
SECOND QUARTER 1997 CHARGE. The Company incurred $295 million of Unusual
Charges in the second quarter of 1997 primarily associated with the merger of
HFS with PHH in April 1997 (the "PHH Merger"). During the fourth quarter of
1997, as a result of changes in estimates, the Company adjusted
F-18
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER CHARGES (CONTINUED)
certain merger-related liabilities, which resulted in a $12 million credit to
Unusual Charges. Reorganization plans were formulated in connection with the PHH
Merger and were implemented upon consummation. The PHH Merger afforded the
combined company, at such time, an opportunity to rationalize its combined
corporate, real estate and travel related businesses, and enabled the
corresponding support and service functions to gain organizational efficiencies
and maximize profits. Management initiated a plan just prior to the PHH Merger
to close hotel reservation call centers, combine travel agency operations and
continue the downsizing of fleet operations by reducing headcount and
eliminating unprofitable products. In addition, management initiated plans to
integrate its relocation, real estate franchise and mortgage origination
businesses to capture additional revenue through the referral of one business
unit's customers to another. Management also formalized a plan to centralize the
management and headquarter functions of the world's largest, second largest and
other company-owned corporate relocation business unit subsidiaries. Such
initiatives resulted in write-offs of abandoned systems and leasehold assets
commencing in the second quarter 1997. The aforementioned reorganization plans
provided for 560 job reductions, which included the elimination of PHH corporate
functions and facilities in Hunt Valley, Maryland. The reduction of liabilities
from inception is summarized by category of expenditure as follows:
<TABLE>
<CAPTION>
1999 ACTIVITY
1997 BALANCE AT ------------- BALANCE AT
UNUSUAL 1997 1998 1998 DECEMBER 31, CASH DECEMBER 31,
CHARGES REDUCTIONS REDUCTIONS ADJUSTMENTS 1998 PAYMENTS 1999
-------- ---------- ---------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fees $ 30 $ (29) $ -- $ (1) $ -- $ -- $ --
Personnel related 154 (112) (13) (19) 10 (2) 8
Business terminations 56 (52) 3 (6) 1 (1) --
Facility related and
other 43 (14) (10) (14) 5 (2) 3
---- ----- ---- ---- --------- --------- ---------
Total Unusual Charges 283 (207) (20) (40) 16 (5) 11
Reclassification for
discontinued
operations (16) 16 -- -- -- -- --
---- ----- ---- ---- --------- --------- ---------
Total Unusual Charges
related to continuing
operations $267 $(191) $(20) $(40) $ 16 $ (5) $ 11
==== ===== ==== ==== ========= ========= =========
</TABLE>
Professional fees were primarily comprised of investment banking,
accounting, and legal fees incurred in connection with the PHH Merger. Personnel
related costs were associated with employee reductions necessitated by the
planned and announced consolidation of the Company's corporate relocation
service businesses worldwide as well as the consolidation of corporate
activities. Personnel related charges also included termination benefits such as
severance, medical and other benefits and provided for retirement benefits
pursuant to pre-existing contracts resulting from a change in control. Business
terminations were comprised of $39 million of costs to exit certain activities
primarily within the Company's fleet management business (including $36 million
of asset write-offs associated with exiting certain activities), a $7 million
termination fee associated with a joint venture that competed with the PHH
Mortgage Services business (now Cendant Mortgage Corporation) and $10 million of
costs to terminate a marketing agreement with a third party in order to replace
the function with internal resources. Facility related and other charges
included costs associated with contract and lease terminations, asset disposals
and other charges incurred in connection with the consolidation and closure of
excess office space.
F-19
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company had substantially completed the aforementioned second quarter
1997 restructuring activities at December 31, 1998. During the year ended
December 31, 1998, the Company recorded a net adjustment of $40 million to
Unusual Charges with a corresponding reduction to liabilities primarily as a
result of a change in the original estimate of costs to be incurred. Such
adjustments to original estimates were recorded in the periods in which events
occurred or information became available requiring accounting recognition.
Liabilities of $11 million remained at December 31, 1999, which were
attributable to future severance and lease termination payments. The Company
anticipates that severance will be paid in installments through April 2003 and
the lease terminations will be paid in installments through August 2002.
6. PROPERTY AND EQUIPMENT--NET
Property and equipment--net consisted of:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------------
IN YEARS 1999 1998
------------ -------- --------
<S> <C> <C> <C>
Land -- $ 145 $ 153
Building and leasehold improvements 5-50 703 752
Furniture, fixtures and equipment 3-10 889 1,019
------ ------
1,737 1,924
Less accumulated depreciation and amortization 390 491
------ ------
$1,347 $1,433
====== ======
</TABLE>
7. OTHER INTANGIBLES--NET
Other intangibles--net consisted of:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
BENEFIT PERIODS ----------------------
IN YEARS 1999 1998
--------------- -------- --------
<S> <C> <C> <C>
Avis trademark 40 $402 $402
Other trademarks 40 161 171
Customer lists 3-10 154 163
Other 3-25 88 138
---- ----
805 874
Less accumulated amortization 143 117
---- ----
$662 $757
==== ====
</TABLE>
8. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Accounts payable $ 320 $ 456
Merger and acquisition obligations 127 153
Accrued payroll and related 263 208
Advances from relocation clients 80 60
Other 489 641
------ ------
$1,279 $1,518
====== ======
</TABLE>
F-20
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale represent mortgage loans originated by the
Company and held pending sale to permanent investors. The Company sells loans
insured or guaranteed by various government sponsored entities and private
insurance agencies. The insurance or guaranty is provided primarily on a
non-recourse basis to the Company, except where limited by the Federal Housing
Administration and Veterans Administration and their respective loan programs.
At December 31, 1999 and 1998, mortgage loans sold with recourse amounted to
approximately $52 million and $58 million, respectively. The Company believes
adequate allowances are maintained to cover any potential losses.
The Company has a revolving sales agreement, under which an unaffiliated
buyer, Bishops Gate Residential Mortgage Trust, a special purpose entity (the
"Buyer"), committed to purchase, at the Company's option, mortgage loans
originated by the Company on a daily basis, up to the Buyer's asset limit of
$2.1 billion. Under the terms of this sale agreement, the Company retains the
servicing rights on the mortgage loans sold to the Buyer and arranges for the
sale or securitization of the mortgage loans into the secondary market. The
Buyer retains the right to select alternative sale or securitization
arrangements. At December 31, 1999 and 1998, the Company was servicing
approximately $813 million and $2.0 billion, respectively, of mortgage loans
owned by the Buyer.
10. MORTGAGE SERVICING RIGHTS
Capitalized MSRs consisted of:
<TABLE>
<CAPTION>
MSRS ALLOWANCE TOTAL
-------- --------- --------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 290 $(1) $ 289
Additions to MSRs 252 -- 252
Amortization (96) -- (96)
Write-down/provision -- (4) (4)
Sales (33) -- (33)
Deferred hedge, net 19 -- 19
Reclassification of mortgage-related securities (54) -- (54)
------ --- ------
BALANCE, DECEMBER 31, 1997 378 (5) 373
Additions to MSRs 475 -- 475
Additions to hedge 49 -- 49
Amortization (82) -- (82)
Write-down/recovery -- 5 5
Sales (99) -- (99)
Deferred hedge, net (85) -- (85)
------ --- ------
BALANCE, DECEMBER 31, 1998 636 -- 636
Additions to MSRs 698 (5) 693
Additions to hedge 23 -- 23
Amortization (118) -- (118)
Write-down/recovery -- 5 5
Sales (161) -- (161)
Deferred hedge, net 6 -- 6
------ --- ------
BALANCE, DECEMBER 31, 1999 $1,084 $-- $1,084
====== === ======
</TABLE>
F-21
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. MORTGAGE SERVICING RIGHTS (CONTINUED)
The value of the Company's MSRs is sensitive to changes in interest rates.
The Company uses a hedge program to manage the associated financial risks of
loan prepayments. The Company uses certain derivative financial instruments,
primarily interest rate floors, interest rate swaps, principal only swaps,
futures and options on futures to administer its hedge program. Premiums
paid/received on the acquired derivative instruments are capitalized and
amortized over the life of the contracts. Gains and losses associated with the
hedge instruments are deferred and recorded as adjustments to the basis of the
MSRs. In the event the performance of the hedge instruments do not meet the
requirements of the hedge program, changes in the fair value of the hedge
instruments will be reflected in the Consolidated Statement of Operations in the
current period. Deferrals under the hedge programs are allocated to each
applicable stratum of MSRs based upon its original designation and included in
the impairment measurement.
For purposes of performing its impairment evaluation, the Company stratifies
its portfolio on the basis of interest rates of the underlying mortgage loans.
The Company measures impairment for each stratum by comparing estimated fair
value to the recorded book value. The Company records amortization expense in
proportion to and over the period of the projected net servicing revenue.
Temporary impairment is recorded through a valuation allowance in the period of
occurrence.
11. LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Term Loan Facilities $ 750 $1,250
7 1/2% Senior Notes 400 400
7 3/4% Senior Notes 1,148 1,148
3% Convertible Subordinated Notes 547 545
Other -- 20
------ ------
2,845 3,363
Less current portion 400 --
------ ------
$2,445 $3,363
====== ======
</TABLE>
TERM LOAN FACILITIES
On May 29, 1998, the Company entered into a 364 day term loan agreement with
a syndicate of financial institutions which provided for borrowings of
$3.25 billion (the "Term Loan Facility"). The Term Loan Facility incurred
interest based on the London Interbank Offered Rate ("LIBOR") plus a margin of
approximately 87.5 basis points. At December 31, 1998, borrowings under the Term
Loan Facility of $1.25 billion were classified as long-term based on the
Company's intent and ability to refinance such borrowings on a long-term basis.
On February 9, 1999, the Company replaced the Term Loan Facility with a two
year term loan facility (the "New Facility") which provided for borrowings of
$1.25 billion with a syndicate of financial institutions. The Company used
$1.25 billion of the proceeds from the New Facility to refinance the outstanding
borrowings under the Term Loan Facility. At December 31, 1999, outstanding
borrowings under the
F-22
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LONG-TERM DEBT (CONTINUED)
New Facility were $750 million. The New Facility bears interest at a rate of
LIBOR plus a margin of 100 basis points and is payable in five consecutive
quarterly installments beginning on the first anniversary of the closing date.
The New Facility contains certain restrictive covenants, which are substantially
similar to and consistent with the covenants in effect for the Company's
existing revolving credit agreements discussed below. The weighted average
interest rate on the New Facility was 6.2% at December 31, 1999.
7 1/2% AND 7 3/4% SENIOR NOTES
In November 1998, the Company issued $1.55 billion of Senior Notes (the
"Notes") in two tranches consisting of $400 million principal amount of 7 1/2%
Senior Notes due December 1, 2000 (see Note 27--Subsequent Events--Debt
Redemption) and $1.15 billion principal amount of 7 3/4% Senior Notes due
December 1, 2003. The Notes may be redeemed, in whole or in part, at any time at
the option of the Company at a redemption price plus accrued interest to the
date of redemption. The redemption price is equal to the greater of (i) the face
value of the Notes or (ii) the sum of the present values of the remaining
scheduled payments discounted at the treasury rate plus a spread as defined in
the indenture.
3% CONVERTIBLE SUBORDINATED NOTES
During 1997, the Company completed a public offering of $550 million
principal amount of 3% Convertible Subordinated Notes (the "3% Notes") due 2002.
Each $1,000 principal amount of 3% Notes is convertible into 32.65 shares of
Company common stock subject to adjustment in certain events. The 3% Notes may
be redeemed at the option of the Company at any time on or after February 15,
2000, in whole or in part, at the appropriate redemption prices (as defined in
the indenture governing the 3% Notes) plus accrued interest to the redemption
date. The 3% Notes will be subordinated in right of payment to all existing and
future Senior Debt (as defined in the indenture governing the 3% Notes) of the
Company.
CREDIT FACILITIES
The Company's credit facilities consist of (i) a $750 million, five year
revolving credit facility (the "Five Year Revolving Credit Facility") and
(ii) a $1.0 billion, 364 day revolving credit facility (the "364 Day Revolving
Credit Facility") (collectively the "Revolving Credit Facilities"). The 364 Day
Revolving Credit Facility will mature on October 17, 2000, but may be renewed on
an annual basis for an additional 364 days upon receiving lender approval. The
Five Year Revolving Credit Facility will mature on October 1, 2001. Borrowings
under the Revolving Credit Facilities, at the option of the Company, bear
interest based on competitive bids of lenders participating in the facilities,
at prime rates or at LIBOR, plus a margin of approximately 75 basis points. The
Company is required to pay a per annum facility fee of .175% and .15% of the
average daily unused commitments under the Five Year Revolving Credit Facility
and 364 Day Revolving Credit Facility, respectively. The interest rates and
facility fees are subject to change based upon credit ratings on the Company's
senior unsecured long-term debt by nationally recognized debt rating agencies.
Letters of credit of $5 million were outstanding under the Five Year Revolving
Credit Facility at December 31, 1999. The Revolving Credit Facilities contain
certain restrictive covenants including restrictions on indebtedness of material
subsidiaries, mergers, limitations on liens, liquidations and sale and leaseback
transactions, and require the maintenance of certain financial ratios. There
were no outstanding borrowings related to the above-mentioned credit facilities
at December 31, 1999 and 1998.
F-23
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LONG-TERM DEBT (CONTINUED)
DEBT MATURITIES
The aggregate maturities of debt are as follows: 2000, $400 million; 2001,
$750 million; 2002, $547 million; and 2003, $1,148 million.
12. LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS
Borrowings to fund assets under management and mortgage programs, which are
not classified based on contractual maturities since such debt corresponds
directly with assets under management and mortgage programs, consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Commercial paper $ 619 $2,484
Medium-term notes 1,248 2,338
Secured obligations 345 1,902
Other 102 173
------ ------
$2,314 $6,897
====== ======
</TABLE>
COMMERCIAL PAPER
Commercial paper, which matures within 180 days, is supported by committed
revolving credit agreements described below and short-term lines of credit. The
weighted average interest rates on the Company's outstanding commercial paper
were 6.7% and 6.1% at December 31, 1999 and 1998, respectively.
MEDIUM-TERM NOTES
Medium-term notes primarily represent unsecured loans, which mature through
2002. The weighted average interest rates on such medium-term notes were 6.4%
and 5.6% at December 31, 1999 and 1998, respectively.
SECURED OBLIGATIONS
The Company maintains separate financing facilities, the outstanding
borrowings under which are secured by corresponding assets under management and
mortgage programs. The collective weighted average interest rates on such
facilities were 7.0% and 5.8% at December 31, 1999 and 1998, respectively. Such
secured obligations are described below.
MORTGAGE FACILITY. In December 1999, the Company renewed its 364 day
financing agreement to sell mortgage loans under an agreement to repurchase such
mortgages. This agreement is collateralized by the underlying mortgage loans
held in safekeeping by the custodian to the agreement. The total commitment
under this agreement is $500 million and is renewable on an annual basis at the
discretion of the lender. Mortgage loans financed under this agreement at
December 31, 1999 and 1998 totaled $345 million and $378 million, respectively,
and are included in mortgage loans held for sale in the Consolidated Balance
Sheets.
RELOCATION FACILITIES. The Company entered into a 364 day asset
securitization agreement effective December 1998 under which an unaffiliated
buyer committed to purchase an interest in the right to
F-24
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS (CONTINUED)
payments related to certain Company relocation receivables. The revolving
purchase commitment provided for funding up to a limit of $325 million and was
renewable on an annual basis at the discretion of the lender in accordance with
the securitization agreement. Under the terms of this agreement, the Company
retained the servicing rights related to the relocation receivables. This
facility matured and $248 million was repaid on December 22, 1999. At
December 31, 1998, the Company was servicing $248 million of assets, which were
funded under this agreement.
The Company also maintained an asset securitization agreement with a
separate unaffiliated buyer, which had a purchase commitment up to a limit of
$350 million. The terms of this agreement were similar to the aforementioned
facility with the Company retaining the servicing rights on the right of
payment. This facility matured and $85 million was repaid on October 5, 1999. At
December 31, 1998, the Company was servicing $171 million of assets eligible for
purchase under this agreement.
FLEET FACILITIES. In December 1998, the Company entered into two secured
financing transactions each expiring five years from the effective agreement
date. Loans were funded by commercial paper conduits in the amounts of
$500 million and $604 million and were secured by leased assets (specified
beneficial interests in a trust which owned the leased vehicles and the leases)
totaling $600 million and $725 million. In connection with the disposition of
the fleet segment, all secured financing arrangements were repaid.
OTHER
Other liabilities under management and mortgage programs are principally
comprised of unsecured borrowings under uncommitted short-term lines of credit
and other bank facilities, all of which mature in 2000. The weighted average
interest rates on such debt were 6.8% and 5.5% at December 31, 1999 and 1998,
respectively.
Interest incurred on borrowings used to finance fleet leasing activities was
$89 million for the year ended December 31, 1999 and $177 million for each of
the years ended December 31, 1998 and 1997 and is included net within fleet
leasing revenues in the Consolidated Statements of Operations. Interest related
to equity advances on homes was $24 million, $27 million and $32 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Interest related to
origination and mortgage servicing activities was $109 million, $139 million and
$78 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Interest expense incurred on borrowings used to finance both equity advances on
homes and mortgage servicing activities are recorded net within membership and
service fee revenues in the Consolidated Statements of Operations.
As of December 31, 1999, the Company, through its PHH subsidiary, maintained
$2.5 billion in committed and unsecured credit facilities, which were backed by
domestic and foreign banks. The facilities were comprised of $1.25 billion of
syndicated lines of credit maturing in March 2000 and $1.25 billion of
syndicated lines of credit maturing in 2002. Under such credit facilities, the
Company paid annual commitment fees of $4 million for the year ended
December 31, 1999 and $2 million for each of the years ended December 31, 1998
and 1997. The full amount of the Company's committed facility was undrawn and
available at December 31, 1999 and 1998.
F-25
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES ISSUED BY SUBSIDIARY
HOLDING SOLELY SENIOR DEBENTURES ISSUED BY THE COMPANY
On March 2, 1998, Cendant Capital I (the "Trust"), a wholly-owned
consolidated subsidiary of the Company, issued 30 million FELINE PRIDES and
2 million trust preferred securities and received approximately $1.5 billion in
gross proceeds in connection with such issuance. The Trust then invested the
proceeds in 6.45% Senior Debentures due 2003 (the "Debentures") issued by the
Company, which represents the sole asset of the Trust. The obligations of the
Trust related to the FELINE PRIDES and trust preferred securities are
unconditionally guaranteed by the Company to the extent the Company makes
payments pursuant to the Debentures. Upon the issuance of the FELINE PRIDES and
trust preferred securities, the Company recorded a liability of $43 million with
a corresponding reduction to shareholders' equity equal to the present value of
the total future contract adjustment payments to be made under the FELINE
PRIDES. The FELINE PRIDES, upon issuance, consisted of 28 million Income PRIDES
and 2 million Growth PRIDES (Income PRIDES and Growth PRIDES hereinafter
referred to as "PRIDES"), each with a face amount of $50 per PRIDES. The Income
PRIDES consist of trust preferred securities and forward purchase contracts
under which the holders are required to purchase common stock from the Company
in February 2001. The Growth PRIDES consist of zero coupon U.S. Treasury
securities and forward purchase contracts under which the holders are required
to purchase common stock from the Company in February 2001. The stand alone
trust preferred securities and the trust preferred securities forming a part of
the Income PRIDES, each with a face amount of $50, bear interest, in the form of
preferred stock dividends, at the annual rate of 6.45% payable in cash. Such
preferred stock dividends of $96 million ($60 million, after tax) and
$80 million ($49 million, after tax) for the years ended December 31, 1999 and
1998, respectively, are presented as minority interest, net of tax in the
Consolidated Statements of Operations. Payments under the forward purchase
contract forming a part of the Income PRIDES will be made by the Company in the
form of a contract adjustment payment at an annual rate of 1.05%. Payments under
the forward purchase contract forming a part of the Growth PRIDES will be made
by the Company in the form of a contract adjustment payment at an annual rate of
1.30%. The forward purchase contracts require the holder to purchase a minimum
of 1.04 shares and a maximum of 1.35 shares of Company common stock per PRIDES
security depending upon the average of the closing price per share of the
Company's common stock for a 20 consecutive day period ending in mid-February of
2001. The Company has the right to defer the contract adjustment payments and
the payment of interest on the Debentures to the Trust. Such election will
subject the Company to certain restrictions, including restrictions on making
dividend payments on its common stock until all such payments in arrears are
settled.
Under the terms of the FELINE PRIDES settlement discussed in Note 5, only
holders who owned PRIDES at the close of business on April 15, 1998 will be
eligible to receive a new additional "Right" for each PRIDES security held.
Right holders may (i) sell them or (ii) exercise them by delivering to the
Company three Rights together with two PRIDES in exchange for two new PRIDES
(the "New PRIDES"), for a period beginning upon distribution of the Rights and
concluding upon expiration of the Rights (February 2001). The terms of the New
PRIDES will be the same as the original PRIDES except that the conversion rate
will be revised so that, at the time the Rights are distributed, each New PRIDES
will have a value equal to $17.57 more than each original PRIDES, or, in the
aggregate, approximately $351 million. Accordingly, the Company recorded a
non-cash charge of $351 million in the fourth quarter of 1998 with an increase
in additional paid-in capital and accrued liabilities of $350 million and
$1 million, respectively, based on the prospective issuance of the Rights.
F-26
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES ISSUED BY SUBSIDIARY
HOLDING SOLELY SENIOR DEBENTURES ISSUED BY THE COMPANY (CONTINUED)
The FELINE PRIDES settlement also requires the Company to offer to sell
4 million additional PRIDES (having identical terms to currently outstanding
PRIDES) to holders of Rights for cash, at a value which will be based on the
valuation model that was utilized to set the conversion rate of the New PRIDES.
The offering of additional PRIDES will be made only pursuant to a prospectus
filed with the SEC. The arrangement to offer additional PRIDES is designed to
enhance the trading value of the Rights by removing up to 6 million Rights from
circulation via exchanges associated with the offering and to enhance the open
market liquidity of New PRIDES by creating 4 million New PRIDES via exchanges
associated with the offering. If holders of Rights do not acquire all such
PRIDES, they will be offered to the public. Under the settlement agreement, the
Company also agreed to file a shelf registration statement for an additional
15 million special PRIDES, which could be issued by the Company at any time for
cash. However, during the last 30 days prior to the expiration of the Rights in
February 2001, the Company will be required to make these additional PRIDES
available to holders of Rights at a price in cash equal to 105% of their
theoretical value. The special PRIDES, if issued, would have the same terms as
the currently outstanding PRIDES and could be used to exercise Rights. Based on
an average market price of $17.78 per share of Company common stock (calculated
based on the average closing price per share of Company common stock for the
consecutive five-day period ended February 18, 2000), the effect of the issuance
of the New PRIDES will be to distribute approximately 18 million more shares of
Company common stock when the mandatory purchase of Company common stock
associated with the PRIDES occurs in February 2001.
14. SHAREHOLDERS' EQUITY
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The after-tax components of accumulated other comprehensive income (loss)
are as follows:
<TABLE>
<CAPTION>
UNREALIZED ACCUMULATED
CURRENCY GAINS/(LOSSES) OTHER
TRANSLATION ON MARKETABLE COMPREHENSIVE
ADJUSTMENT SECURITIES INCOME/(LOSS)
----------- -------------- -------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $(10) $ 4 $ (6)
Current-period change (28) (4) (32)
---- --- ----
BALANCE, DECEMBER 31, 1997 (38) -- (38)
Current-period change (11) -- (11)
---- --- ----
BALANCE, DECEMBER 31, 1998 (49) -- (49)
Current-period change (9) 16 7
---- --- ----
BALANCE, DECEMBER 31, 1999 $(58) $16 $(42)
==== === ====
</TABLE>
The currency translation adjustments are not currently adjusted for income
taxes since they relate to indefinite investments in foreign subsidiaries.
SHARE REPURCHASES
During 1999, the Company's Board of Directors authorized an additional
$1.8 billion of Company common stock to be repurchased under a common share
repurchase program, increasing the total
F-27
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SHAREHOLDERS' EQUITY (CONTINUED)
authorized amount to be repurchased under the program to $2.8 billion. The
Company executed this program through open market purchases or privately
negotiated transactions, subject to bank credit facility covenants and certain
rating agency constraints. As of December 31, 1999, the Company repurchased
approximately $2.0 billion (104 million shares) of Company common stock under
the program.
In July 1999, pursuant to a Dutch Auction self-tender offer to the Company's
shareholders, the Company purchased 50 million shares of its common stock at a
price of $22.25 per share.
1998 EMPLOYEE STOCK PURCHASE PLAN
On December 1, 1998, the Company's Board of Directors amended and restated
the 1998 Employee Stock Purchase Plan (the "Plan"), which enables eligible
employees to purchase shares of common stock from the Company at 85% of the fair
market value on the first business day of each calendar quarter. The Company
reserved 2.5 million shares of Company common stock in connection with the Plan.
PENDING ISSUANCE OF TRACKING STOCK
The shareholders of Cendant are scheduled to vote on March 31, 2000 for a
proposal (the "Tracking Stock Proposal") to authorize the issuance of a new
series of Cendant common stock ("tracking stock"). The tracking stock is
intended to reflect the performance of the Move.com Group, a group of businesses
owned by the Company offering a wide selection of quality relocation, real
estate and home-related products and services through a network of Web sites.
Before the tracking stock is first issued, the Company's existing common stock
will be re-designated as CD Stock and that stock will be intended to reflect the
performance of the Company's other businesses (the "Cendant Group"). The
Tracking Stock Proposal will allow the Company to amend and restate its charter
to increase the number of authorized shares of common stock from 2.0 billion to
2.5 billion initially comprised of 2.0 billion shares of CD Stock and
500 million shares of the Move.com Group stock. In connection with the
announcement of the Tracking Stock Proposal, the Move.com Group results are
reported as a separate business segment. See Note 24--Segment Information for a
description of the services provided by the Move.com Group. Although the
issuance of the Move.com Group stock is intended to track the performance of the
Move.com Group, holders, if any, will still be subject to all the risks
associated with an investment in the Company and all of its businesses, assets
and liabilities.
The Company expects to issue shares of Move.com Group stock in one or more
private or public financings. The specific terms of the financing, including
whether they are private or public, the amount of the Move.com Group stock
issued, and the timing of the financings, will depend upon the number of shares
of the Move.com stock sold and whether the Company elects to contribute the net
proceeds of such financings to the equity of the Move.com Group or the Company.
OTHER
In connection with the recapitalization of NRT Incorporated ("NRT") in
September 1999, the Company entered into an agreement with Chatham Street
Holdings, LLC ("Chatham") as consideration for certain amendments made with
respect to the NRT franchise agreements. Pursuant to the agreement, Chatham was
granted the right, until September 30, 2001, to purchase up to 1.6 million
shares of Move.com Group stock for approximately $16.02 per share. In addition,
for every two shares of
F-28
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SHAREHOLDERS' EQUITY (CONTINUED)
Move.com Group stock purchased by Chatham pursuant to the agreement, Chatham
will be entitled to receive a warrant to purchase one share of Move.com Group
stock at a price equal to $64.08 per share and a warrant to purchase one share
of Move.com Group stock at a price equal to $128.16 per share. The shareholders
of Chatham are also shareholders of NRT. See Note 21--Related Party Transactions
for a detailed discussion of NRT.
15. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments as part of its overall
strategy to manage its exposure to market risks associated with fluctuations in
interest rates, foreign currency exchange rates, prices of mortgage loans held
for sale, anticipated mortgage loan closings arising from commitments issued and
changes in value of MSRs. The Company performs analyses on an on-going basis to
determine that a high correlation exists between the characteristics of
derivative instruments and the assets or transactions being hedged. As a matter
of policy, the Company does not engage in derivative activities for trading or
speculative purposes. The Company is exposed to credit-related losses in the
event of non-performance by counterparties to certain derivative financial
instruments. The Company manages such risk by periodically evaluating the
financial position of counterparties and spreading its positions among multiple
counterparties. The Company presently does not anticipate non-performance by any
of the counterparties and no material loss would be expected from such
non-performance.
INTEREST RATE SWAPS
The Company enters into interest rate swap agreements to modify the
contractual costs of debt financing. The swap agreements correlate the terms of
the assets to the maturity and rollover of the debt by effectively matching a
fixed or floating interest rate with the stipulated revenue stream generated
from the portfolio of assets being funded. Amounts to be paid or received under
interest rate swap agreements are accrued as interest rates change and are
recognized as an adjustment to interest expense in the Consolidated Statements
of Operations. The Company's hedging activities had an immaterial effect on
interest expense and the Company's weighted average borrowing rate for the year
ended December 31, 1999. For the years ended December 31, 1998 and 1997, the
Company's hedging activities increased interest expense by $2 million and
$4 million, respectively, but had an immaterial effect on its weighted average
borrowing rate. The following table summarizes the maturity and weighted average
rates of the Company's interest rate swaps relating to liabilities under
management and mortgage programs at December 31:
<TABLE>
<CAPTION>
NOTIONAL WEIGHTED AVERAGE WEIGHTED AVERAGE SWAP
AMOUNT RECEIVE RATE PAY RATE MATURITIES(1)
-------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
1999
Medium-term notes $ 610 5.57% 6.29% 2000
======
1998
Commercial paper $ 355 4.92% 5.84% 1999-2006
Medium-term notes 931 5.27% 5.04% 1999-2000
Canada commercial paper 90 5.52% 5.27% 1999-2002
Sterling liabilities 662 6.26% 6.62% 1999-2002
Deutsche mark liabilities 32 3.24% 4.28% 1999-2001
------
$2,070
======
</TABLE>
- ------------------------------
(1) Interest rate swaps held during 1998, with maturities ranging from 1999
through 2006, were assumed by ARAC in 1999 in connection with the
disposition of the Company's fleet segment.
F-29
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
FOREIGN EXCHANGE CONTRACTS
In order to manage its exposure to fluctuations in foreign currency exchange
rates, the Company enters into foreign exchange contracts on a selective basis.
Such contracts are primarily utilized to hedge intercompany loans to foreign
subsidiaries and certain monetary assets and liabilities denominated in
currencies other than the U.S. dollar. The Company also hedges certain
anticipated transactions denominated in foreign currencies. The principal
currency hedged by the Company is the British pound sterling. Gains and losses
on foreign currency hedges related to intercompany loans are deferred and
recognized upon maturity of the underlying loan in the Consolidated Statements
of Operations. Gains and losses on foreign currency hedges of anticipated
transactions are recognized in the Consolidated Statements of Operations, on a
mark-to-market basis, as exchange rates change.
OTHER FINANCIAL INSTRUMENTS
With respect to both mortgage loans held for sale and anticipated mortgage
loan closings arising from commitments issued, the Company is exposed to the
risk of adverse price fluctuations primarily due to changes in interest rates.
The Company uses forward delivery contracts and option contracts to reduce such
risk. Market value gains and losses on such positions used as hedges are
deferred and considered in the valuation of cost or market value of mortgage
loans held for sale.
With respect to the mortgage servicing portfolio, the Company acquired
certain derivative financial instruments, primarily interest rate floors,
interest rate swaps, principal only swaps, futures and options on futures to
manage the associated financial impact of interest rate movements.
F-30
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS AND SERVICING RIGHTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for material financial instruments. The fair values
of the financial instruments presented may not be indicative of their future
values.
MARKETABLE SECURITIES
Fair value at December 31, 1999 and 1998 was $286 million and $267 million,
respectively, and is based upon quoted market prices or investment advisor
estimates and approximates carrying value. Realized gains or losses on
marketable securities are calculated on a specific identification basis. The
Company reported realized gains in other revenues in the Consolidated Statements
of Operations of $65 million, $27 million and $18 million for the years ended
December 31, 1999, 1998 and 1997, respectively (which included the change in net
unrealized holding gains on trading securities of $8 million and $16 million in
1999 and 1998, respectively).
RELOCATION RECEIVABLES
Fair value approximates carrying value due to the short-term nature of the
relocation receivables.
PREFERRED STOCK INVESTMENTS
Fair value approximates carrying value of the preferred stock investments.
MORTGAGE LOANS HELD FOR SALE
Fair value is estimated using the quoted market prices for securities backed
by similar types of loans and current dealer commitments to purchase loans net
of mortgage-related positions. The value of embedded MSRs has been considered in
determining fair value.
MORTGAGE SERVICING RIGHTS
Fair value is estimated by discounting future net servicing cash flows
associated with the underlying securities using discount rates that approximate
current market rates and externally published prepayment rates, adjusted, if
appropriate, for individual portfolio characteristics.
DEBT
Fair value of the Company's Senior Notes, Convertible Subordinated Notes and
medium-term notes are estimated based on quoted market prices or market
comparables.
MANDATORILY REDEEMABLE PREFERRED SECURITIES ISSUED BY SUBSIDIARY HOLDING SOLELY
SENIOR DEBENTURES ISSUED BY THE COMPANY
Fair value is estimated based on quoted market prices and incorporates the
settlement of the FELINE PRIDES litigation and the resulting modification of
terms (see Note 5--Other Charges).
INTEREST RATE SWAPS, FOREIGN EXCHANGE CONTRACTS, AND OTHER FINANCIAL INSTRUMENTS
Fair value is estimated, using dealer quotes, as the amount that the Company
would receive or pay to execute a new agreement with terms identical to those
remaining on the current agreement, considering interest rates at the reporting
date.
F-31
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS AND SERVICING RIGHTS (CONTINUED)
The carrying amounts and fair values of material financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- --------------------------------
NOTIONAL/ ESTIMATED NOTIONAL/ ESTIMATED
CONTRACT CARRYING FAIR CONTRACT CARRYING FAIR
AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
--------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS UNDER MANAGEMENT AND MORTGAGE PROGRAMS
Mortgage loans held for sale -- 1,112 1,124 -- 2,416 2,463
Mortgage servicing rights -- 1,084 1,202 -- 636 788
----- ----- ----- ----- ----- -----
DEBT
Current portion of debt -- 400 402 -- -- --
Long-term debt -- 2,445 2,443 -- 3,363 3,351
----- ----- ----- ----- ----- -----
OFF BALANCE SHEET DERIVATIVES RELATING TO LONG-TERM
DEBT
Foreign exchange forwards -- -- -- 1 -- --
OTHER OFF BALANCE SHEET DERIVATIVES
Foreign exchange forwards 173 -- (1) 48 -- --
----- ----- ----- ----- ----- -----
LIABILITIES UNDER MANAGEMENT AND MORTGAGE PROGRAMS
Debt -- 2,314 2,314 -- 6,897 6,895
----- ----- ----- ----- ----- -----
MANDATORILY REDEEMABLE PREFERRED SECURITIES ISSUED BY
SUBSIDIARY HOLDING SOLELY SENIOR DEBENTURES ISSUED
BY THE COMPANY -- 1,478 1,113 -- 1,472 1,333
----- ----- ----- ----- ----- -----
OFF BALANCE SHEET DERIVATIVES RELATING TO LIABILITIES
UNDER MANAGEMENT AND MORTGAGE PROGRAMS
Interest rate swaps
in a gain position 161 -- -- 696 -- 8
in a loss position 449 -- 1 1,374 -- (12)
Foreign exchange forwards 21 -- -- 349 -- --
----- ----- ----- ----- ----- -----
MORTGAGE-RELATED POSITIONS
Forward delivery commitments(1) 2,434 6 20 5,057 3 (4)
Option contracts to sell(1) 440 2 3 701 9 4
Option contracts to buy(1) 418 1 -- 948 5 1
Commitments to fund mortgages 1,283 -- 1 3,155 -- 35
Commitments to complete securitizations(1) 813 -- (2) 2,031 -- 14
Constant maturity treasury floors(2) 4,420 57 13 3,670 44 84
Interest rate swaps(2)
in a gain position 100 -- -- 575 -- 35
in a loss position 250 -- (26) 200 -- (1)
Treasury futures(2) 152 -- (5) 151 -- (1)
Principal only swaps(2) 324 -- (15) 66 -- 3
</TABLE>
- ------------------------------
(1) Carrying amounts and gains (losses) on these mortgage-related positions are
already included in the determination of respective carrying amounts and
fair values of mortgage loans held for sale. Forward delivery commitments
are used to manage price risk on sale of all mortgage loans to end
investors, including commitments to complete securitizations on loans held
by an unaffiliated buyer as described in Note 9--Mortgage Loans Held for
Sale.
(2) Carrying amounts and gains (losses) on these mortgage-related positions are
capitalized and recorded as a component of MSRs. Gains (losses) on such
positions are included in the determination of the respective carrying
amounts and fair value of MSRs.
F-32
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has noncancelable operating leases covering various facilities
and equipment, which primarily expire through the year 2005. Rental expense for
the years ended December 31, 1999, 1998 and 1997 was $200 million, $178 million
and $91 million, respectively. The Company incurred contingent rental expenses
in 1999 and 1998 of $49 million and $44 million, respectively, which is included
in total rental expense, principally based on rental volume or profitability at
certain parking facilities. The Company has been granted rent abatements for
varying periods on certain facilities. Deferred rent relating to those
abatements is amortized on a straight-line basis over the applicable lease
terms. Commitments under capital leases are not significant.
In 1998, the Company entered into an agreement with an independent third
party to sell and leaseback vehicles subject to operating leases. Pursuant to
the agreement, the net carrying value of the vehicles sold was $101 million.
Since the net carrying value of these vehicles was equal to their sales price,
no gain or loss was recognized on the sale. The lease agreement was for a
minimum lease term of 12 months with three one-year renewal options. For the
years ended December 31, 1999 and 1998, the total rental expense incurred by the
Company under this lease was $13 million and $18 million, respectively. In
connection with the disposition of the fleet businesses, the Company elected not
to execute its renewal option thereby terminating the lease agreement.
Future minimum lease payments required under noncancelable operating leases
as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
2000 $103
2001 89
2002 74
2003 62
2004 56
Thereafter 112
----
$496
====
</TABLE>
LITIGATION
CLASS ACTION LITIGATION AND GOVERNMENT INVESTIGATIONS. Since the April 15,
1998 announcement of the discovery of accounting irregularities in former CUC
International Inc., approximately 70 lawsuits claiming to be class actions, two
lawsuits claiming to be brought derivatively on the Company's behalf and several
individual lawsuits and arbitration proceedings have been commenced in various
courts and other forums against the Company and other defendants by or on behalf
of persons claiming to have purchased or otherwise acquired securities or
options issued by CUC or the Company between May 1995 and August 1998. The Court
has ordered consolidation of many of the actions.
The SEC and the United States Attorney for the District of New Jersey are
also conducting investigations relating to the matters referenced above. The SEC
advised the Company that its inquiry should not be construed as an indication by
the SEC or its staff that any violations of law have occurred. As a result of
the findings from the Company's internal investigations, the Company made all
adjustments considered necessary by the Company which are reflected in its
previously filed restated financial statements for the years ended 1995, 1996
and 1997 and for the six months ended June 30, 1998. Although the Company can
provide no assurances that additional adjustments will not be necessary as a
result of
F-33
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
these government investigations, the Company does not expect that additional
adjustments will be necessary.
As previously disclosed, the Company reached a final agreement with
plaintiff's counsel representing the class of holders of its PRIDES securities
who purchased their securities on or prior to April 15, 1998 to settle their
class action lawsuit against the Company through the issuance of a new "Right"
for each PRIDES security held. (See Notes 5 and 13 for a more detailed
description of the settlement).
On December 7, 1999, the Company announced that it reached a preliminary
agreement to settle the principal securities class action pending against the
Company in the U.S. District Court in Newark, New Jersey relating to the common
stock class action lawsuits. Under the agreement, the Company would pay the
class members approximately $2.85 billion in cash, an increase from
approximately $2.83 billion previously reported. The increase is a result of
continued negotiation toward definitive documents relating to additional costs
to be paid to the plaintiff class. The settlement remains subject to execution
of a definitive settlement agreement and approval by the U.S. District Court. If
the preliminary settlement is not approved by the U.S. District Court, the
Company can make no assurances that the final outcome or settlement of such
proceedings will not be for an amount greater than that set forth in the
preliminary agreement.
The proposed settlements do not encompass all litigation asserting claims
associated with the accounting irregularities. The Company does not believe that
it is feasible to predict or determine the final outcome or resolution of these
unresolved proceedings. An adverse outcome from such unresolved proceedings
could be material with respect to earnings in any given reporting period.
However, the Company does not believe that the impact of such unresolved
proceedings should result in a material liability to the Company in relation to
its consolidated financial position or liquidity.
OTHER PENDING LITIGATION. The Company and its subsidiaries are involved in
pending litigation in the usual course of business. In the opinion of
management, such other litigation will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
18. INCOME TAXES
The income tax provision (benefit) consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current
Federal $ 306 $(159) $155
State 9 1 24
Foreign 44 56 29
----- ----- ----
359 (102) 208
----- ----- ----
Deferred
Federal (748) 176 (17)
State (24) 29 (3)
Foreign 7 1 3
----- ----- ----
(765) 206 (17)
----- ----- ----
Provision (benefit) for income taxes $(406) $ 104 $191
===== ===== ====
</TABLE>
F-34
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. INCOME TAXES (CONTINUED)
Pre-tax income (loss) for domestic and foreign operations consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic $(793) $ 78 $184
Foreign 219 237 73
----- ---- ----
Pre-tax income (loss) $(574) $315 $257
===== ==== ====
</TABLE>
Deferred income tax assets and liabilities are comprised of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CURRENT DEFERRED INCOME TAX ASSETS
Merger and acquisition-related liabilities $ 17 $ 53
Accrued liabilities and deferred income 348 323
Excess tax basis on assets held for sale -- 190
Provision for doubtful accounts 23 14
Deferred membership acquisition costs -- 3
Shareholder litigation settlement and related costs 1,058 --
Net operating loss carryforward 75 --
------ ----
Current deferred income tax assets 1,521 583
------ ----
CURRENT DEFERRED INCOME TAX LIABILITIES
Insurance retention refund 18 21
Franchise acquisition costs 10 7
Other 66 88
------ ----
Current deferred income tax liabilities 94 116
------ ----
CURRENT NET DEFERRED INCOME TAX ASSET $1,427 $467
====== ====
</TABLE>
F-35
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
NONCURRENT DEFERRED INCOME TAX ASSETS
Deductible goodwill--taxable poolings $ -- $ 49
Merger and acquisition-related liabilities 29 26
Accrued liabilities and deferred income 29 64
Net operating loss carryforward 84 84
State net operating loss carryforward 151 44
Foreign tax credit carryforward 10 --
Other 28 --
Valuation allowance (161) (44)
----- ----
Noncurrent deferred income tax assets 170 223
----- ----
NONCURRENT DEFERRED INCOME TAX LIABILITIES
Depreciation and amortization 476 297
Other -- 3
----- ----
Noncurrent deferred income tax liabilities 476 300
----- ----
NONCURRENT NET DEFERRED INCOME TAX LIABILITY $ 306 $ 77
===== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
MANAGEMENT AND MORTGAGE PROGRAM DEFERRED INCOME TAX ASSETS
Depreciation $ 7 $ --
Accrued liabilities 11 26
Alternative minimum tax carryforwards -- 2
Management and mortgage program deferred income tax assets 18 28
MANAGEMENT AND MORTGAGE PROGRAM DEFERRED INCOME TAX
LIABILITIES
Depreciation -- 121
Unamortized mortgage servicing rights 328 248
---- ----
Management and mortgage program deferred income tax
liabilities 328 369
---- ----
Net deferred income tax liability under management and
mortgage programs $310 $341
==== ====
</TABLE>
Net operating loss carryforwards at December 31, 1999 expire as follows:
2001, $8 million; 2002, $90 million; 2005, $7 million; 2009, $18 million; 2010,
$116 million; and 2018, $215 million. The Company also has alternative minimum
tax credit carryforwards of $28 million.
The valuation allowance at December 31, 1999 relates to deferred tax assets
for state net operating loss carryforwards of $151 million and foreign tax
credit carryforwards of $10 million. The valuation allowance will be reduced
when and if the Company determines that the deferred income tax assets are
likely to be realized.
F-36
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. INCOME TAXES
No provision has been made for U.S. federal deferred income taxes on
approximately $225 million of accumulated and undistributed earnings of foreign
subsidiaries at December 31, 1999 since it is the present intention of
management to reinvest the undistributed earnings indefinitely in foreign
operations. In addition, the determination of the amount of unrecognized U.S.
federal deferred income tax liability for unremitted earnings is not
practicable.
The Company's effective income tax rate for continuing operations differs
from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate (35.0%) 35.0% 35.0%
State and local income taxes, net of federal tax benefits (1.8) 6.2 5.3
Non-deductible merger-related costs -- -- 29.1
Amortization of non-deductible goodwill 2.9 5.9 4.3
Taxes on foreign operations at rates different than
statutory U.S. federal rate (5.3) (8.0) 0.3
Nontaxable gain on disposal (31.0) -- --
Recognition of excess tax basis on assets held for sale -- (2.7) --
Other (0.5) (3.2) 0.3
----- ---- ----
(70.7%) 33.2% 74.3%
===== ==== ====
</TABLE>
19. STOCK PLANS
CENDANT PLANS
The 1999 Broad-Based Employee Stock Option Plan (the "Broad-Based Plan"), as
amended, authorizes the granting of up to 60 million shares of Company common
stock through awards of nonqualified stock options (stock options which do not
qualify as incentive stock options as defined under the Internal Revenue Service
Code). Employees (other than executive officers) and independent contractors of
the Company and its affiliates are eligible to receive awards under the
Broad-Based Plan. Options granted under the plan generally have a ten year term
and have vesting periods ranging from 20% to 33% per year.
The 1997 Stock Incentive Plan (the "Incentive Plan") authorizes the granting
of up to 25 million shares of Company common stock through awards of stock
options (which may include incentive stock options and/or nonqualified stock
options), stock appreciation rights and shares of restricted Company common
stock. All directors, officers and employees of the Company and its affiliates
are eligible to receive awards under the Incentive Plan. Options granted under
the Incentive Plan generally have a ten year term and are exercisable at 20% per
year commencing one year from the date of grant or are immediately vested. The
Company also maintains two other stock plans adopted in 1997: the 1997 Employee
Stock Plan (the "1997 Employee Plan") and the 1997 Stock Option Plan (the "1997
SOP"). The 1997 Employee Plan authorizes the granting of up to 25 million shares
of Company common stock through awards of nonqualified stock options, stock
appreciation rights and shares of restricted Company common stock to employees
of the Company and its affiliates. The 1997 SOP provides for the granting of up
to 10 million shares of Company common stock to key employees (including
employees
F-37
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. STOCK PLANS (CONTINUED)
who are directors and officers) of the Company and its subsidiaries through
awards of incentive and/or nonqualified stock options. Options granted under the
1997 Employee Plan and the 1997 SOP generally have ten-year terms and have
vesting periods ranging from 20% to 33% per year.
The Company also grants options to employees pursuant to two additional
stock option plans under which the Company may grant options to purchase in the
aggregate up to 80 million shares of Company common stock. Annual vesting
periods under these plans are 20% commencing one year from the respective grant
dates.
At December 31, 1999 there were 56 million shares available for grant under
the Company's stock option plans discussed above.
On September 23, 1998, the Compensation Committee of the Board of Directors
approved a program to effectively reprice certain Company stock options granted
to middle management during December 1997 and the first quarter of 1998. Such
options, with exercise prices ranging from $31.38 to $37.50, were effectively
repriced on October 14, 1998 at $9.81 per share (the "New Price"), which was the
fair market value (as defined in the option plans) on the date of such
repricing. The Compensation Committee also modified the terms of certain options
held by certain of our executive officers and senior managers subject to certain
conditions including a revocation of 13 million existing options. Additionally,
a management equity ownership program was adopted requiring these executive
officers and senior managers to acquire Company common stock at various levels
commensurate with their respective compensation levels. The option modifications
were accomplished by canceling existing options, with exercise prices ranging
from $16.78 to $34.31, and issuing a lesser amount of options at the New Price
and, with respect to certain options of executive officers and senior managers,
at prices above the New Price, specifically $12.27 and $20.00. Additionally,
certain options replacing options that were fully vested provide for vesting
ratably over four years beginning January 1, 1999.
MOVE.COM GROUP PLAN
On October 29, 1999, the Board of Directors of Move.com, Inc. (a company
included within the Move.com Group) adopted the Move.com, Inc. 1999 Stock Option
Plan (the "Move.com Plan"), as amended January 13, 2000, which authorizes the
granting of up to 6 million shares of Move.com, Inc. common stock. All active
employees of Move.com Group and its affiliates are eligible to be granted
options under the Move.com Plan. Options under the Move.com Plan generally have
a 10 year term and are exercisable at 33% per year commencing one year from the
grant date. On October 29, 1999, approximately 2.5 million options to purchase
shares of common stock of Move.com, Inc. were granted to employees of
Move.com, Inc. under the Move.com Plan (the "Existing Grants") at a weighted
average exercise price of $11.56. Such options were all outstanding and not
vested at December 31, 1999. Subject to the approval of the stockholders of the
Company (i) the Move.com Plan and Existing Grants will be ratified and assumed
by the Company, (ii) all Existing Grants will be equitably adjusted to become
options of Move.com Group stock (see Note 14--Shareholders' Equity--Pending
Issuance of Tracking Stock for a description of the Move.com Group stock
proposal) and (iii) the remaining shares available to be issued in connection
with the grant of options under the Move.com Plan will be equitably adjusted to
become shares of Move.com Group stock.
F-38
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. STOCK PLANS (CONTINUED)
The annual activity of Cendant's stock option plans consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVG. EXERCISE AVG. EXERCISE AVG. EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
(SHARES IN MILLIONS)
Balance at beginning of year 178 $14.64 172 $18.66 118 $11.68
Granted
Equal to fair market value 30 18.09 84 19.16 78 27.94
Greater than fair market value 1 16.04 21 17.13 -- --
Canceled (13) 19.91 (82) 29.36 (6) 27.29
Exercised (13) 9.30 (17) 10.01 (14) 7.20
PHH Conversion(1) -- -- -- -- (4) --
--- --- ---
Balance at end of year 183 15.24 178 14.64 172 18.66
=== === ===
</TABLE>
- ------------------------
(1) In connection with the PHH Merger, all unexercised PHH stock options were
canceled and converted into 2 million shares of Company common stock.
The Company utilizes the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" and applies Accounting Principles
Board ("APB") Opinion No. 25 and related interpretations in accounting for its
stock option plans to employees. Under APB No. 25, compensation expense is
recognized when the exercise prices of the Company's employee stock options are
less than the market prices of the underlying Company stock on the date of
grant. Although the Company generally grant's employee stock options at fair
value, certain options were granted below fair value during 1999. As such,
compensation expense is being recognized over the applicable vesting period.
Had the Company elected to recognize and measure compensation expense for
its stock option plans to employees based on the calculated fair value at the
grant dates for awards under such plans, consistent with the method prescribed
by SFAS No.123, net income (loss) and per share data would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (55) $(213) $540 $393 $(217)(1) $(664)(1)
Basic income (loss) per share (0.07) (0.28) 0.64 0.46 (0.27) (0.82)
Diluted income (loss) per share (0.07) (0.28) 0.61 0.46 (0.27) (0.82)
</TABLE>
- ------------------------
(1) Includes incremental compensation expense of $335 million ($205 million,
after tax) or $.25 per basic and diluted share as a result of the immediate
vesting of HFS options upon consummation of the Cendant Merger.
F-39
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. STOCK PLANS (CONTINUED)
The fair values of the stock options are estimated on the dates of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for options granted in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
CENDANT MOVE.COM GROUP
------------------------------------ --------------
1999 1998 1997 1999
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Dividend yield -- -- -- --
Expected volatility 60.0% 55.0% 32.5% 60.0%
Risk-free interest rate 6.4% 4.9% 5.6% 6.4%
Expected holding period 6.2 years 6.3 years 7.8 years 6.2 years
</TABLE>
The weighted average grant date fair value of Company and Move.com stock
options granted during the year ended December 31, 1999 were $11.36 and $7.28,
respectively. The weighted average grant date fair value of Company stock
options granted during the year ended December 31, 1998, which were repriced
with exercise prices equal to and higher than the underlying stock price at the
date of repricing, were $19.69 and $18.10, respectively. The weighted average
grant date fair value of the stock options granted during the year ended
December 31, 1998 which were not repriced was $10.16. The weighted average grant
date fair value of Company stock options granted during the year ended
December 31, 1997 was $13.71.
The table below summarizes information regarding Company stock options
outstanding and exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- -------------------
WEIGHTED AVG. WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
(SHARES IN MILLIONS) CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
- ------------------------ -------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ .01 to $10.00 79 5.9 $7.36 53 $6.20
$10.01 to $20.00 60 8.0 16.83 21 15.89
$20.01 to $30.00 23 7.2 22.93 19 23.14
$30.01 to $40.00 21 7.8 32.00 16 31.88
--- ---
183 7.0 15.24 109 14.77
=== ===
</TABLE>
20. EMPLOYEE BENEFIT PLANS
The Company sponsors several defined contribution pension plans that provide
certain eligible employees of the Company an opportunity to accumulate funds for
their retirement. The Company matches the contributions of participating
employees on the basis specified in the plans. The Company's cost for
contributions to these plans was $31 million, $24 million and $16 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
The Company's PHH subsidiary maintains a domestic non-contributory defined
benefit pension plan covering eligible employees of PHH and its subsidiaries
employed prior to July 1, 1997. Additionally, the Company sponsors contributory
defined benefit pension plans in certain United Kingdom subsidiaries with
participation in the plans at the employees' option. Under both the domestic and
F-40
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. EMPLOYEE BENEFIT PLANS (CONTINUED)
foreign plans, benefits are based on an employee's years of credited service and
a percentage of final average compensation.
The Company's policy for all plans is to contribute amounts sufficient to
meet the minimum requirements plus other amounts as deemed appropriate. The
projected benefit obligations of the plans were $145 million and $196 million
and plan assets, at fair value, were $147 million and $162 million at
December 31, 1999 and 1998, respectively. The net pension cost and recorded
liability were not material to the accompanying Consolidated Financial
Statements.
During 1999, the Company recognized a net curtailment gain of $10 million as
a result of the disposition of its fleet business segment and the freezing of
pension benefits related to the Company's PHH subsidiary defined benefit pension
plan.
21. RELATED PARTY TRANSACTIONS
NRT INCORPORATED
The Company maintains a relationship with NRT, a corporation created to
acquire residential real estate brokerage firms. On February 9, 1999, the
Company executed new agreements with NRT, which among other things, increased
the term of each of the three franchise agreements under which NRT operates from
40 years to 50 years. NRT is party to other agreements and arrangements with the
Company and its subsidiaries. Under these agreements, the Company acquired
$182 million of NRT preferred stock (and may be required to acquire up to an
additional $81 million of NRT preferred stock). Certain officers of the Company
serve on the Board of Directors of NRT. The Company recognized preferred
dividend income of $16 million, $15 million and $5 million during the years
ended December 31, 1999, 1998 and 1997, respectively, which are included in
other revenue in the Consolidated Statements of Operations. During 1999,
approximately $8 million of the preferred dividend income increased the basis of
the underlying preferred stock investment. Additionally, the Company sold
preferred shares and recognized a gain of $20 million during 1999, which is also
included in other revenue in the Consolidated Statements of Operations. During
1999, 1998 and 1997, total franchise royalties earned by the Company from NRT
and its predecessors were $172 million, $122 million and $61 million,
respectively.
The Company, at its election, will participate in NRT's acquisitions by
acquiring up to an aggregate $946 million (plus an additional $500 million if
certain conditions are met) of intangible assets, and in some cases mortgage
operations of real estate brokerage firms acquired by NRT. As of December 31,
1999, the Company acquired $537 million of such mortgage operations and
intangible assets, primarily franchise agreements associated with real estate
brokerage companies acquired by NRT, which brokerage companies will become
subject to the NRT 50-year franchise agreements. In February 1999, NRT and the
Company entered into an agreement whereby the Company made an upfront payment of
$30 million to NRT for services to be provided by NRT to the Company related to
the identification of potential acquisition candidates, the negotiation of
agreements and other services in connection with future brokerage acquisitions
by NRT. Such fee is refundable in the event the services are not provided.
F-41
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AVIS RENT A CAR, INC.
The Company continues to maintain an equity interest in ARAC. During 1999
and 1998, the Company sold approximately two million and one million shares,
respectively, of Avis Rent A Car, Inc. common stock and recognized a pre-tax
gain of approximately $11 million and $18 million, respectively, which is
included in other revenue in the Consolidated Statements of Operations. The
Company accounts for its investment in ARAC common stock using the equity
method. The Company recorded its equity in the earnings of ARAC, which amounted
to $18 million, $14 million and $51 million for the years ended December 31,
1999, 1998 and 1997, respectively, as a component of other revenue in the
Consolidated Statements of Operations. On June 30, 1999, in connection with the
Company's disposition of its fleet segment, the Company received, as part of the
total consideration, $360 million of non-voting preferred stock in a subsidiary
of ARAC and additional consideration of a $30 million receivable (see
Note 3--Dispositions and Acquisitions of Businesses). The Company accounts for
its preferred stock investment using the cost method. The Company received
dividends of $9 million, which increased the basis of the underlying preferred
stock investment. Such amount is included as a component of other revenue in the
Consolidated Statements of Operations. At December 31, 1999, the Company's
interest in ARAC was approximately 18%.
The Company licenses the Avis trademark to ARAC pursuant to a 50-year master
license agreement and receives royalty fees based upon 4% of ARAC revenue,
escalating to 4.5% of ARAC revenue over a 5-year period. During 1999, 1998 and
1997, total franchise royalties earned by the Company from ARAC were
$102 million, $92 million and $82 million, respectively. In addition, the
Company operates the telecommunications and computer processing system, which
services ARAC for reservations, rental agreement processing, accounting and
fleet control for which the Company charges ARAC at cost. As of December 31,
1999 and 1998, the Company had accounts receivable of $34 million and
$26 million, respectively, due from ARAC. Certain officers of the Company serve
on the Board of Directors of ARAC.
22. FRANCHISING AND MARKETING/RESERVATION ACTIVITIES
Revenues from franchising activities include royalty revenues and initial
franchise fees charged to lodging properties, car rental locations, tax
preparation offices and real estate brokerage offices upon execution of a
franchise contract.
Franchised outlet revenues are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Royalty revenues $839 $703 $574
Initial franchise fees 37 45 26
</TABLE>
The Company receives marketing and reservation fees from several of its
lodging and real estate franchisees. Marketing and reservation fees related to
the Company's lodging brands' franchisees are calculated based on a specified
percentage of gross room revenues. Marketing fees received from the Company's
real estate brands' franchisees are based on a specified percentage of gross
closed commissions earned on the sale of real estate. As provided in the
franchise agreements, at the Company's discretion, all of these fees are to be
expended for marketing purposes and the operation of a centralized
brand-specific reservation system for the respective franchisees and are
controlled by the
F-42
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. FRANCHISING AND MARKETING/RESERVATION ACTIVITIES (CONTINUED)
Company until disbursement. Membership and service fees revenues included
marketing and reservation fees of $280 million, $228 million and $215 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
Additionally, rebates are given to franchisees that meet certain levels of
annual gross revenue as defined by the respective franchise agreements.
Membership and service fee revenues are net of annual rebates of $43 million,
$35 million, and $26 million for the years ended December 31, 1999, 1998, and
1997, respectively.
Franchised outlet information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998(1) 1997
-------- -------- --------
<S> <C> <C> <C>
Franchised units in operation 22,719 22,471 18,876
Backlog (franchised units sold but not yet opened) 1,478 2,063 1,547
</TABLE>
- ------------------------
(1) Approximately 2,000 franchised units were acquired in connection with the
acquisition of Jackson Hewitt Inc.
23. NET INVESTMENT IN LEASES AND LEASED VEHICLES
Net investment in leases and leased vehicles were disposed of during 1999 in
connection with the disposition of the Company's fleet business segment (see
Note 3--Dispositions and Acquisitions of Businesses). In 1998, vehicles were
leased primarily to corporate fleet users for initial periods of twelve months
or more under either operating or direct financing lease agreements. Vehicles
under operating leases were amortized using the straight-line method over the
expected lease term. The Company's experience indicated that the full term of
the leases varied considerably due to extensions beyond the minimum lease term.
The Company had two types of operating leases. Under one type, open-end
operating leases, resale of the vehicles upon termination of the lease was
generally for the account of the lessee except for a minimum residual value
which the Company had guaranteed. The Company's experience had been that
vehicles under this type of lease agreement were sold for amounts exceeding the
residual value guarantees. Maintenance and repairs of vehicles under these
agreements were the responsibility of the lessee. The original cost and
accumulated depreciation of vehicles under this type of operating lease was
$5.3 billion and $2.6 billion, respectively, at December 31, 1998.
Under the second type of operating lease, closed-end operating leases,
resale of the vehicles on termination of the lease was for the account of the
Company. The lessee generally paid for or provided maintenance, vehicle licenses
and servicing. The original cost and accumulated depreciation of vehicles under
these agreements were $1.0 billion and $191 million, respectively, at
December 31, 1998. The Company, based on historical experience and an assessment
of the used vehicle market, established an allowance in the amount of
$14 million for potential losses on residual values on vehicles under these
leases at December 31, 1998.
Under the direct financing lease agreements, the minimum lease term was
12 months with a month-to-month renewal option thereafter. In addition, resale
of the vehicles upon termination of the lease was for the account of the lessee.
Maintenance and repairs of these vehicles were the responsibility of the lessee.
F-43
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. NET INVESTMENT IN LEASES AND LEASED VEHICLES (CONTINUED)
Open-end operating leases and direct financing leases generally had a
minimum lease term of 12 months with monthly renewal options thereafter.
Closed-end operating leases typically had a longer term, usually 24 months or
more, but were cancelable under certain conditions.
Gross leasing revenues, which were included in fleet leasing revenues in the
Consolidated Statements of Operations, consisted of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating leases $683 $1,330 $1,223
Direct financing leases, primarily interest 17 38 42
---- ------ ------
$700 $1,368 $1,265
==== ====== ======
</TABLE>
Net investment in leases and leased vehicles consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
<S> <C>
Vehicles under open-end operating leases $2,726
Vehicles under closed-end operating leases 822
Direct financing leases 252
Accrued interest on leases 1
------
$3,801
======
</TABLE>
24. SEGMENT INFORMATION
Management evaluates each segment's performance on a stand-alone basis based
on a modification of earnings before interest, income taxes, depreciation,
amortization, and minority interest. For this purpose, Adjusted EBITDA is
defined as earnings before non-operating interest, income taxes, depreciation,
amortization and minority interest, adjusted to exclude net gains on
dispositions of businesses and certain other charges which are of a
non-recurring or unusual nature and not measured in assessing segment
performance or are not segment specific. The Company determined its operating
segments based primarily on the types of services it provides, the consumer base
to which marketing efforts are directed and the methods used to sell services.
The Company disposed of its fleet segment on June 30, 1999, and the Company
added Move.com Group as a reportable operating segment, thereby maintaining the
eight reportable operating segments which collectively comprise the Company's
continuing operations. Included in the Move.com Group are RentNet, Inc.,
("RentNet"), acquired during January 1996, National Home Connections, LLC,
acquired in May 1999, and the assets of MetroRent, acquired in December 1999.
Prior to the formation of the Move.com Group, RentNet's historical financial
information was included in the Company's individual membership segment. The
Company reclassified the financial results of RentNet for the years ended
December 31, 1998 and 1997. Inter-segment net
F-44
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. SEGMENT INFORMATION (CONTINUED)
revenues were not significant to the net revenues of any one segment. A
description of the services provided within each of the Company's reportable
operating segments is as follows:
TRAVEL
Travel services include the franchising of lodging properties and car rental
locations, as well as vacation/timeshare exchange services. As a franchiser of
guest lodging facilities and car rental agency locations, the Company licenses
the independent owners and operators of hotels and car rental agencies to use
its brand names. Operation and administrative services are provided to
franchisees, which include access to a national reservation system, national
advertising and promotional campaigns, co-marketing programs and volume
purchasing discounts. As a provider of vacation and timeshare exchange services,
the Company enters into affiliation agreements with resort property
owners/developers (the developers) to allow owners of weekly timeshare intervals
(the subscribers) to trade their owned weeks with other subscribers. In
addition, the Company provides publications and other travel-related services to
both developers and subscribers.
INDIVIDUAL MEMBERSHIP
Individual membership provides customers with access to a variety of
services and discounted products in such areas as retail shopping, travel, auto,
dining, home improvement, and credit information. The Company affiliates with
business partners, such as leading financial institutions and retailers, to
offer membership as an enhancement to their credit card customers. Individual
memberships are marketed primarily using direct marketing techniques.
INSURANCE/WHOLESALE
Insurance/Wholesale markets and administers competitively priced insurance
products, primarily accidental death and dismemberment insurance and term life
insurance. The Company also provides services such as checking account
enhancement packages, various financial products and discount programs to
financial institutions, which in turn provide these services to their customers.
The Company affiliates with financial institutions, including credit unions and
banks, to offer their respective customer bases such products and services.
REAL ESTATE FRANCHISE
The Company licenses the owners and operators of independent real estate
brokerage businesses to use its brand names. Operational and administrative
services are provided to franchisees, which are designed to increase franchisee
revenue and profitability. Such services include advertising and promotions,
referrals, training and volume purchasing discounts.
RELOCATION
Relocation services are provided to client corporations for the transfer of
their employees. Such services include appraisal, inspection and selling of
transferees' homes, providing equity advances to transferees (generally
guaranteed by the corporate customer), purchase of a transferee's home which is
sold within a specified time period for a price which is at least equivalent to
the appraised value, certain
F-45
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. SEGMENT INFORMATION (CONTINUED)
home management services, assistance in locating a new home at the transferee's
destination, consulting services and other related services.
MORTGAGE
Mortgage services primarily include the origination, sale and servicing of
residential mortgage loans. Revenues are earned from the sale of mortgage loans
to investors as well as from fees earned on the servicing of loans for
investors. The Company markets a variety of mortgage products to consumers
through relationships with corporations, affinity groups, financial
institutions, real estate brokerage firms and other mortgage banks.
Mortgage services customarily sells all mortgages it originates to investors
(which include a variety of institutional investors) either as individual loans,
as mortgage-backed securities or as participation certificates issued or
guaranteed by Fannie Mae, the Federal Home Loan Mortgage Corporation or the
Government National Mortgage Association while generally retaining mortgage
servicing rights. Mortgage servicing consists of collecting loan payments,
remitting principal and interest payments to investors, holding escrow funds for
payment of mortgage-related expenses such as taxes and insurance, and otherwise
administering the Company's mortgage loan servicing portfolio.
MOVE.COM GROUP
Move.com Group provides a broad range of quality relocation, real estate,
and home-related products and services through its flagship portal site,
move.com, and the move.com network. The Move.com Group integrates and enhances
the online efforts of the Company's residential real estate brand names and
those of the Company's other real estate business units.
DIVERSIFIED SERVICES
In addition to the previously described business segments, the Company also
derives revenues from providing a variety of other consumer and business
products and services which include the Company's tax preparation services
franchise, information technology services, car park facility services,
welcoming packages to new homeowners, and other consumer-related services.
FLEET
The fleet segment provided fleet and fuel card related products and services
to corporate clients and government agencies. These services included management
and leasing of vehicles, fuel card payment and reporting and other fee-based
services for clients' vehicle fleets. The Company leased vehicles primarily to
corporate fleet users under operating and direct financing lease arrangements.
F-46
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. SEGMENT INFORMATION (CONTINUED)
SEGMENT INFORMATION
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INDIVIDUAL INSURANCE/ REAL ESTATE
TOTAL TRAVEL(1) MEMBERSHIP WHOLESALE FRANCHISE
-------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues $5,402 $1,148 $972 $575 $ 571
Adjusted EBITDA 1,919 586 127 180 424
Depreciation and amortization 371 97 26 19 59
Segment assets 15,149 3,186 662 393 2,102
Capital expenditures 277 53 25 19 --
</TABLE>
<TABLE>
<CAPTION>
MOVE.COM DIVERSIFIED
RELOCATION MORTGAGE GROUP SERVICES(2) FLEET
---------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 415 $ 397 $18 $1,099 $207
Adjusted EBITDA 122 182 (22) 239 81
Depreciation and amortization 17 19 2 117 15
Segment assets 1,033 2,817 22 4,934 --
Capital expenditures 21 48 2 86 23
</TABLE>
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL INSURANCE/ REAL ESTATE
TOTAL TRAVEL(1) MEMBERSHIP WHOLESALE FRANCHISE
-------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues $5,284 $1,063 $920 $544 $ 456
Adjusted EBITDA 1,590 542 (59) 138 349
Depreciation and amortization 323 88 22 14 53
Segment assets 19,843 2,762 830 372 2,014
Capital expenditures 355 78 27 17 6
</TABLE>
<TABLE>
<CAPTION>
MOVE.COM DIVERSIFIED
RELOCATION MORTGAGE GROUP SERVICES FLEET
---------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 444 $ 353 $10 $1,107 $ 387
Adjusted EBITDA 125 188 1 132 174
Depreciation and amortization 17 9 2 96 22
Segment assets 1,130 3,504 9 4,525 4,697
Capital expenditures 70 36 1 62 58
</TABLE>
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL INSURANCE/ REAL ESTATE
TOTAL TRAVEL(1) MEMBERSHIP WHOLESALE FRANCHISE
-------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues $4,240 $ 971 $773 $483 $ 335
Adjusted EBITDA 1,250 467 6 111 227
Depreciation and amortization 238 82 17 11 44
Segment assets 13,800 2,602 833 357 1,827
Capital expenditures 155 37 11 6 13
</TABLE>
<TABLE>
<CAPTION>
MOVE.COM DIVERSIFIED
RELOCATION MORTGAGE GROUP SERVICES FLEET
---------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 402 $ 179 $6 $767 $ 324
Adjusted EBITDA 93 75 (1) 151 121
Depreciation and amortization 8 5 1 54 16
Segment assets 1,009 2,233 7 806 4,126
Capital expenditures 23 16 1 24 24
</TABLE>
- ------------------------------
(1) Net revenues and Adjusted EBITDA include the equity in earnings from the
Company's investment in ARAC of $18 million, $14 million and $51 million in
1999, 1998 and 1997, respectively. Net revenues and Adjusted EBITDA for 1999
and 1998 include a pre-tax gain of $11 million and $18 million,
respectively, as a result of the 1999 and 1998 sale of a portion of the
F-47
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. SEGMENT INFORMATION (CONTINUED)
Company's equity interest. Segment assets include such equity method
investment in the amount of $118 million, $139 million and $124 million at
December 31, 1999, 1998 and 1997, respectively.
(2) Net revenues include a $23 million gain on the sales of car park
facilities. Segment assets include the Company's equity investment of
$17 million in EPub.
Provided below is a reconciliation of Adjusted EBITDA and total assets for
reportable segments to the consolidated amounts.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Adjusted EBITDA for reportable segments $ 1,919 $ 1,590 $ 1,250
Other charges:
Litigation settlement and related costs 2,894 351 --
Termination of proposed acquisitions 7 433 --
Executive terminations -- 53 --
Investigation-related costs 21 33 --
Merger-related costs and other unusual charges (credits) 110 (67) 704
Investigation-related financing costs -- 35 --
Depreciation and amortization 371 323 238
Interest, net 199 114 51
Net gain on dispositions of businesses 1,109 -- --
------- ------- -------
Consolidated income (loss) before income taxes and minority
interest $ (574) $ 315 $ 257
======= ======= =======
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Total assets for reportable segments $15,149 $19,843 $13,800
Net assets of discontinued operations -- 374 273
------- ------- -------
Consolidated total assets $15,149 $20,217 $14,073
======= ======= =======
</TABLE>
GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
UNITED UNITED ALL OTHER
TOTAL STATES KINGDOM COUNTRIES
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
1999
Net revenues $ 5,402 $ 4,363 $ 748 $ 291
Assets 15,149 11,722 3,215 212
Long-lived assets 1,347 590 723 34
1998
Net revenues $ 5,284 $ 4,277 $ 696 $ 311
Assets 20,217 16,251 3,707 259
Long-lived assets 1,433 646 768(1) 19
1997
Net revenues $ 4,240 $ 3,669 $ 232 $ 339
Assets 14,073 12,749 1,015 309
Long-lived assets 545 478 49 18
</TABLE>
- ------------------------------
(1) Includes $691 million of property and equipment acquired in connection with
the NPC acquisition.
Geographic segment information is classified based on the geographic
location of the subsidiary. Long-lived assets are comprised of property and
equipment.
F-48
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. SELECTED QUARTERLY FINANCIAL DATA--(UNAUDITED)
Provided below is the selected unaudited quarterly financial data for 1999
and 1998. The underlying per share information is calculated from the weighted
average shares outstanding during each quarter, which may fluctuate based on
quarterly income levels, market prices, and share repurchases. Therefore, the
sum of the quarters per share information may not equal the total year amounts.
<TABLE>
<CAPTION>
1999
--------------------------------------------
FIRST(2) SECOND(3) THIRD(4) FOURTH(5)
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Net revenues $1,318 $1,391 $1,410 $ 1,283
------ ------ ------ -------
Income (loss) from continuing operations(1) $ 169 $ 874 $ 209 $(1,481)
Gain (loss) on sale of discontinued operations, net of
tax(6) 193 (12) (7) --
------ ------ ------ -------
Net income (loss) $ 362 $ 862 $ 202 $(1,481)
====== ====== ====== =======
Per share information:
Basic
Income (loss) from continuing operations $ 0.21 $ 1.14 $ 0.29 $ (2.08)
Net income (loss) $ 0.45 $ 1.12 $ 0.28 $ (2.08)
Weighted average shares (in millions) 800 770 726 711
Diluted
Income (loss) from continuing operations $ 0.20 $ 1.06 $ 0.27 $ (2.08)
Net income (loss) $ 0.43 $ 1.05 $ 0.26 $ (2.08)
Weighted average shares (in millions) 854 824 780 711
Common Stock Market Prices:
High 2$2 7/16 $20 3/4 $22 5/8 $26 9/16
Low 1$5 5/16 $15 1/2 $ 17 $14 9/16
<CAPTION>
1998
---------------------------------------------
FIRST(7) SECOND(8) THIRD(9) FOURTH(10)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net revenues $1,129 $1,278 $1,458 $ 1,419
------ ------ ------ -------
Income (loss) from continuing operations $ 184 $ 155 $ 123 $ (302)
Loss from discontinued operations, net of tax (11) (2) (12) --
Gain on sale of discontinued operations, net of tax(6) -- -- -- 405
------ ------ ------ -------
Net income $ 173 $ 153 $ 111 $ 103
====== ====== ====== =======
Per share information:
Basic
Income (loss) from continuing operations $ 0.22 $ 0.18 $ 0.14 $ (0.36)
Net income $ 0.21 $ 0.18 $ 0.13 $ 0.12
Weighted average shares (in millions) 839 851 851 850
Diluted
Income (loss) from continuing operations $ 0.21 $ 0.18 $ 0.14 $ (0.36)
Net income $ 0.20 $ 0.18 $ 0.13 $ 0.12
Weighted average shares (in millions) 909 901 877 850
Common Stock Market Prices:
High $ 41 $41 3/8 2$2 7/16 $20 5/8
Low 3$2 7/16 1$8 9/16 1$0 7/16 $ 7 1/2
</TABLE>
F-49
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. SELECTED QUARTERLY FINANCIAL DATA--(UNAUDITED) (CONTINUED)
- ------------------------------
(1) Includes net gains associated with the dispositions of businesses of
$750 million, $75 million and $284 million for the second, third, and fourth
quarters, respectively (see Note 3--Dispositions and Acquisitions of
Businesses).
(2) Includes charges of $7 million ($4 million, after tax or $0.01 per diluted
share) in connection with the termination of the proposed acquisition of
RACMS and $2 million ($1 million, after tax) for investigation-related
costs.
(3) Includes charges of $23 million ($15 million, after tax or $0.02 per
diluted share) of additional charges to fund an irrevocable contribution to
an independent technology trust responsible for completing the transition of
the Company's lodging
franchisees to a Company sponsored property management system and
$6 million ($4 million, after tax) for investigation-related costs.
(4) Includes charges of $87 million ($49 million, after tax or $0.07 per
diluted share) incurred primarily in conjunction with the NGI transaction
and $5 million ($3 million, after tax) for investigation-related costs.
(5) Includes charges of $2,894 million ($1,839 million, after tax or $2.59 per
diluted share) associated with the preliminary agreement to settle the
principal shareholder securities class action suit and $8 million
($5 million, after tax or $0.01 per diluted share) of investigation-related
costs. Such charges were partially offset by a $2 million ($1 million, after
tax) credit associated with changes to the estimate of previously recorded
merger-related costs and other unusual charges.
(6) Represents gains associated with the sales of Hebdo Mag and CDS (see
Note 4--Discontinued Operations).
(7) Includes a charge of $3 million ($2 million, after tax) for
investigation-related costs, including incremental financing costs, and
executive terminations.
(8) Includes a charge of $32 million ($20 million, after tax or $0.02 per
diluted share) for investigation-related costs, including incremental
financing costs, and executive terminations. Such charge was partially
offset by a credit of $27 million ($19 million, after tax or $0.02 per
diluted share) associated with changes to the estimate of previously
recorded merger-related costs and other unusual charges.
(9) Includes a charge of $76 million ($49 million, after tax or $0.06 per
share) for investigation-related costs, including incremental financing
costs, and executive terminations.
(10) Includes charges of (i) $433 million ($282 million, after tax or $0.33 per
diluted share) for the costs of terminating the proposed acquisitions of
American Bankers and Providian, (ii) $351 million ($228 million, after tax
or $0.27 per diluted share) associated with the agreement to settle the
PRIDES securities class action suit and (iii) $13 million ($10 million,
after tax or $0.01 per diluted share) for investigation-related costs,
including incremental financing costs, and executive terminations. Such
charges were partially offset by a credit of $43 million ($27 million, after
tax or $0.03 per diluted share) associated with changes to the estimate of
previously recorded merger-related costs and other unusual charges.
F-50
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. CONDENSED CONSOLIDATING INFORMATION
In connection with the pending issuance of tracking stock described in
Note 14--Shareholders' Equity, the Company intends to disclose separately, for
financial reporting purposes, the Cendant Group and the Move.com Group. The
condensed consolidating financial information, which includes certain
allocations, of the Cendant Group and the Move.com Group is presented below.
The allocations are comprised as follows: (a) revenues from the Cendant
Group to the Move.com Group for providing advertising space and links of Cendant
Group businesses on the Move.com Group's Web sites, (b) revenues from the
Cendant Group to the Move.com Group for Web site management for the Cendant
Group's real estate franchise systems, (c) expenses from the Cendant Group to
the Move.com Group for overhead charges and (d) expenses associated with an
Internet engineering services agreement based upon usage volume and shared
employee benefit services. Additionally, a portion of the income tax benefit and
balance sheet accounts for Move.com Group are based on allocations from the
Cendant Group and are computed as if the Move.com Group reported its income
taxes on a stand alone basis.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------
CENDANT MOVE.COM CENDANT
GROUP GROUP CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
Net Revenues
External revenues $5,385 $ 17 $5,402
Inter-group agreements (1) 1 --
------ ---- ------
Net revenues 5,384 18 5,402
------ ---- ------
Expenses:
Operating:
External expenses 1,760 35 1,795
Inter-group allocated expenses (3) 3 --
Marketing and reservation 1,017 -- 1,017
General and administrative 670 1 671
Depreciation and amortization 368 3 371
Other charges 3,032 -- 3,032
Interest, net 199 -- 199
------ ---- ------
Total expenses 7,043 42 7,085
------ ---- ------
Net gain on dispositions of businesses 1,109 -- 1,109
------ ---- ------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (550) (24) (574)
Benefit for income taxes (396) (10) (406)
Minority interest, net of tax 61 -- 61
------ ---- ------
LOSS FROM CONTINUING OPERATIONS (215) (14) (229)
Income from discontinued operations, net of tax 174 -- 174
------ ---- ------
NET LOSS $ (41) $(14) $ (55)
====== ==== ======
</TABLE>
F-51
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------
CENDANT MOVE.COM CENDANT
GROUP GROUP CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
Net revenues $5,274 $ 10 $5,284
------ ---- ------
Expenses:
Operating:
External expenses 1,869 1 1,870
Inter-group allocated expenses -- -- --
Marketing and reservation 1,155 3 1,158
General and administrative 661 5 666
Depreciation and amortization 321 2 323
Other charges 838 -- 838
Interest, net 114 -- 114
------ ---- ------
Total expenses 4,958 11 4,969
------ ---- ------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 316 (1) 315
Provision for income taxes 104 -- 104
Minority interest, net of tax 51 -- 51
------ ---- ------
INCOME (LOSS) FROM CONTINUING OPERATIONS 161 (1) 160
Income from discontinued operations, net of tax 380 -- 380
------ ---- ------
NET INCOME (LOSS) $ 541 $ (1) $ 540
====== ==== ======
</TABLE>
F-52
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------
CENDANT MOVE.COM CENDANT
GROUP GROUP CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
Net revenues $4,234 $ 6 $4,240
------ ---- ------
Expenses:
Operating:
External expenses 1,321 1 1,322
Inter-group allocated expenses -- -- --
Marketing and reservation 1,030 2 1,032
General and administrative 632 4 636
Depreciation and amortization 237 1 238
Other charges 704 -- 704
Interest, net 51 -- 51
------ ---- ------
Total expenses 3,975 8 3,983
------ ---- ------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 259 (2) 257
Provision (benefit) for income taxes 192 (1) 191
------ ---- ------
INCOME (LOSS) FROM CONTINUING OPERATIONS 67 (1) 66
Loss from discontinued operations, net of tax (26) -- (26)
------ ---- ------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN AND CUMMULATIVE
EFFECT OF ACCOUNTING CHANGE 41 (1) 40
Extraordinary gain, net of tax 26 -- 26
------ ---- ------
INCOME (LOSS) BEFORE CUMMULATIVE EFFECT OF ACCOUNTING CHANGE 67 (1) 66
Cumulative effect of accounting change, net of tax (283) -- (283)
------ ---- ------
NET LOSS $ (216) $ (1) $ (217)
====== ==== ======
</TABLE>
F-53
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
CENDANT MOVE.COM CENDANT
GROUP GROUP CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,163 $ 1 $ 1,164
Receivables 1,018 8 1,026
Deferred income taxes 1,427 -- 1,427
Other current assets 972 3 975
Property and equipment 1,344 3 1,347
Goodwill 3,266 5 3,271
Other noncurrent assets 3,211 2 3,213
Assets under management and mortgage programs 2,726 -- 2,726
------- --- -------
TOTAL ASSETS $15,127 $22 $15,149
======= === =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 5,589 $21 $ 5,610
Noncurrent liabilities 3,231 -- 3,231
Liabilities under management and mortgage programs 2,624 -- 2,624
Mandatorily redeemable preferred securities issued by
subsidary holding senior debentures issued by the Company 1,478 -- 1,478
Shareholders' equity 2,205 1 2,206
------- --- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,127 $22 $15,149
======= === =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
CENDANT MOVE.COM CENDANT
GROUP GROUP CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,009 $-- $ 1,009
Receivables 1,532 3 1,535
Deferred income taxes 467 -- 467
Other current assets 1,536 -- 1,536
Property and equipment 1,431 2 1,433
Goodwill 3,920 3 3,923
Other noncurrent assets 2,801 1 2,802
Assets under management and mortgage programs 7,512 -- 7,512
------- --- -------
TOTAL ASSETS $20,208 $ 9 $20,217
======= === =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 2,867 $ 5 $ 2,872
Noncurrent liabilities 3,799 -- 3,799
Liabilities under management and mortgage programs 7,238 -- 7,238
Mandatorily redeemable preferred securities issued by
subsidary holding senior debentures issued by the Company 1,472 -- 1,472
Shareholders' equity 4,832 4 4,836
------- --- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $20,208 $ 9 $20,217
======= === =======
</TABLE>
F-54
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------
CENDANT MOVE.COM CENDANT
GROUP GROUP CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (41) $(14) $ (55)
Gain on sale of discontinued operations, net of tax (174) -- (174)
Depreciation and amortization 369 2 371
Other charges 2,869 -- 2,869
Net gain on dispositions of businesses (1,109) -- (1,109)
Management and mortgage programs 2,001 -- 2,001
Other, net (879) 8 (871)
------- ---- -------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,036 (4) 3,032
------- ---- -------
INVESTING ACTIVITIES:
Net proceeds from dispositions of businesses 3,509 -- 3,509
Net assets acquired (net of cash acquired) and acquisition
related payments (202) (3) (205)
Management and mortgage programs (1,265) -- (1,265)
Other, net (177) (2) (179)
------- ---- -------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,865 (5) 1,860
------- ---- -------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,719 -- 1,719
Principal payments on borrowings (2,213) -- (2,213)
Repurchases of common stock (2,863) -- (2,863)
Management and mortgage programs (1,558) -- (1,558)
Other, net 127 -- 127
Inter-group funding (10) 10 --
------- ---- -------
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,798) 10 (4,788)
------- ---- -------
Effect of changes in exchange rates on cash and cash
equivalents 51 -- 51
------- ---- -------
Net increase in cash and cash equivalents 154 1 155
Cash and cash equivalents, beginning of period 1,009 -- 1,009
------- ---- -------
Cash and cash equivalents, end of period $ 1,163 $ 1 $ 1,164
======= ==== =======
</TABLE>
F-55
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------
CENDANT MOVE.COM CENDANT
GROUP GROUP CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 541 $ (1) $ 540
Loss from discontinued operations, net of tax 25 -- 25
Gain on sale of discontinued operations, net of tax (405) -- (405)
Depreciation and amortization 321 2 323
Other charges 189 -- 189
Management and mortgage programs 480 -- 480
Other, net (344) -- (344)
------- ---- -------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING
OPERATIONS 807 1 808
------- ---- -------
INVESTING ACTIVITIES:
Net proceeds from dispositions of businesses 314 -- 314
Net assets acquired (net of cash acquired) and acquisition
related payments (2,852) -- (2,852)
Management and mortgage programs (1,542) -- (1,542)
Other, net (271) (1) (272)
------- ---- -------
CASH FLOWS USED IN INVESTING ACTIVITIES FROM CONTINUING
OPERATIONS (4,351) (1) (4,352)
------- ---- -------
FINANCING ACTIVITIES:
Proceeds from borrowings 4,809 -- 4,809
Principal payments on borrowings (2,596) -- (2,596)
Repurchases of common stock (258) -- (258)
Management and mortgage programs 1,117 -- 1,117
Proceeds from mandatorily redeemable preferred securities
issued by subsidiary holding solely senior debentures
issued by the Company 1,447 -- 1,447
Other, net 171 -- 171
------- ---- -------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES FROM CONTINUING
OPERATIONS 4,690 -- 4,690
------- ---- -------
Effect of changes in exchange rates on cash and cash
equivalents (16) -- (16)
Net cash used in discontinued operations (188) -- (188)
------- ---- -------
Net increase in cash and cash equivalents 942 -- 942
Cash and cash equivalents, beginning of period 67 -- 67
------- ---- -------
Cash and cash equivalents, end of period $ 1,009 $ -- $ 1,009
======= ==== =======
</TABLE>
F-56
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------
CENDANT MOVE.COM CENDANT
GROUP GROUP CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (216) $ (1) $ (217)
Loss from discontinued operations, net of tax 26 -- 26
Extraordinary gain on sale of subsidiary, net of tax (26) -- (26)
Cumulative effect of accounting change, net of tax 283 -- 283
Depreciation and amortization 237 1 238
Other charges 386 -- 386
Management and mortgage programs 734 -- 734
Other, net (212) 1 (211)
------ ---- ------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING
OPERATIONS 1,212 1 1,213
------ ---- ------
INVESTING ACTIVITIES:
Net proceeds from dispositions of businesses 224 -- 224
Net assets acquired (net of cash acquired) and acquisition
related payments (564) (3) (567)
Management and mortgage programs (1,497) -- (1,497)
Other, net (488) (1) (489)
------ ---- ------
CASH FLOWS USED IN INVESTING ACTIVITIES FROM CONTINUING
OPERATIONS (2,325) (4) (2,329)
------ ---- ------
FINANCING ACTIVITIES:
Proceeds from borrowings 67 -- 67
Principal payments on borrowings (174) -- (174)
Issuance of convertible debt 544 -- 544
Repurchases of common stock (171) -- (171)
Management and mortgage programs 510 -- 510
Other, net 125 -- 125
Inter-group funding (3) 3 --
------ ---- ------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES FROM CONTINUING
OPERATIONS 898 3 901
------ ---- ------
Effect of changes in exchange rates on cash and cash
equivalents 15 -- 15
Net cash used in discontinued operations (181) -- (181)
------ ---- ------
Net decrease in cash and cash equivalents (381) -- (381)
Cash and cash equivalents, beginning of period 448 -- 448
------ ---- ------
Cash and cash equivalents, end of period $ 67 $ -- $ 67
====== ==== ======
</TABLE>
F-57
<PAGE>
CENDANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. SUBSEQUENT EVENTS
PHH CREDIT FACILITIES
On February 28, 2000, PHH reduced the availability of its unsecured
committed credit facilities from $2.5 billion to $1.5 billion to reflect the
reduced borrowing needs of PHH as a result of the disposition of its fleet
businesses.
DEBT REDEMPTION
On January 21, 2000, the Company redeemed all outstanding 7 1/2% Senior
Notes at a redemption price of 100.695% of par plus accrued interest.
SHARE REPURCHASES
Subsequent to December 31, 1999, the Company repurchased an additional
$132 million (6 million shares) of its common stock under its repurchase program
as of February 24, 2000.
STRATEGIC ALLIANCE
On December 15, 1999, the Company entered into a strategic alliance with
Liberty Media Corporation ("Liberty Media") to develop Internet and related
opportunities associated with the Company's travel, mortgage, real estate and
direct marketing businesses. Such efforts may include the creation of joint
ventures with Liberty Media and others as well as additional equity investments
in each others businesses.
The Company agreed to assist Liberty Media in creating, and will receive an
equity participation in, a new venture that will seek to provide broadband
video, voice and data content to the Company's hotels and their guests on a
worldwide basis, in consideration for which the Company expects to receive an
equity participation in such venture, subject to negotiation of mutually
agreeable terms. The Company also agreed to pursue opportunities within the
cable industry with Liberty Media to leverage the Company's direct marketing
resources and capabilities subject to negotiation of mutually agreeable terms.
On February 7, 2000, Liberty Media invested $400 million in cash to purchase
18 million shares of Company common stock and a two-year warrant to purchase
approximately 29 million shares of Company common stock at an exercise price of
$23.00 per share. The common stock, together with the common stock underlying
the warrant, represents approximately 6.3% of our outstanding shares after
giving effect to the aforementioned transaction. Liberty Media's Chairman, John
C. Malone, Ph.D., will join the Company's Board of Directors and has also
committed to purchase one million shares of the Company's common stock for
approximately $17 million in cash.
F-58
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS OF MOVE.COM GROUP
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report G-2
Combined Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 G-3
Combined Balance Sheets as of December 31, 1999 and 1998 G-4
Combined Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 G-5
Combined Statements of Group Equity for the Years Ended
December 31, 1999, 1998 and 1997 G-6
Notes to Combined Financial Statements G-7
</TABLE>
The accompanying Combined Financial Statements are presented in order to
provide additional disclosure regarding the Move.com Group. The presentation of
separate Combined Financial Statements does not constitute a change in the legal
title of any assets or responsibility for any liabilities and does not affect
the rights of any of the creditors of Cendant Corporation. Holders of Move.com
stock are holders of stock of Cendant and do not have any claims on the assets
of the Move.com Group. The financial information should be read in conjunction
with Cendant's audited Consolidated Financial Statements as of December 31,
1999, included herein.
G-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Cendant Corporation:
We have audited the accompanying combined balance sheets of Move.com Group
(wholly owned by Cendant Corporation, "Cendant"), as of December 31, 1999 and
1998 and the related combined statements of operations, group equity and cash
flows for the years ended December 31, 1999, 1998 and 1997. These combined
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of Move.com Group at December
31, 1999 and 1998 and the results of its operations and its cash flows for the
years ended December 31, 1999, 1998 and 1997 in conformity with generally
accepted accounting principles.
Move.com Group is an integrated business unit of Cendant; consequently, as
indicated in Note 1, these combined financial statements reflect allocations of
certain assets, liabilities, revenue, expenses and cash flows to the Move.com
Group. The financial position, results of operations and cash flows of the
Move.com Group could differ from those that would have resulted had the Move.com
Group operated autonomously or as an entity independent of Cendant.
/s/ Deloitte & Touche LLP
San Francisco, California
February 1, 2000
G-2
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net revenue $ 17,647 $ 9,674 $ 5,670
Cost of revenue 3,149 1,664 1,091
-------- ------- -------
Gross profit 14,498 8,010 4,579
-------- ------- -------
Operating expenses:
Product development 3,940 193 --
Selling and marketing 16,020 5,484 3,906
General and administrative 16,751 1,922 1,227
Depreciation 291 188 69
Amortization 1,926 1,638 865
-------- ------- -------
Total operating expenses 38,928 9,425 6,067
-------- ------- -------
LOSS BEFORE INCOME TAX BENEFIT (24,430) (1,415) (1,488)
-------- ------- -------
Income tax benefit 9,976 572 603
-------- ------- -------
NET LOSS $(14,454) $ (843) $ (885)
======== ======= =======
</TABLE>
See Notes to Combined Financial Statements.
G-3
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,009 $ --
Accounts receivable (net of allowance for doubtful
accounts of $811 and $427) 7,730 2,651
Other current assets 2,610 58
Deferred income taxes 330 173
-------- -------
Total current assets 11,679 2,882
Deferred income taxes 1,268 727
Property and equipment, net 3,354 1,512
Goodwill, net 5,111 3,493
Other intangibles, net 543 --
Other assets 45 --
-------- -------
TOTAL ASSETS $ 22,000 $ 8,614
======== =======
LIABILITIES AND GROUP EQUITY
Liabilities
Accounts payable $ 119 $ 555
Accrued expenses 11,816 575
Deferred revenue 9,040 3,249
-------- -------
Total current liabilities 20,975 4,379
Commitments and contingencies (Note 8)
Group equity
Capital 730 --
Accumulated deficit (18,024) (3,570)
Funding from Cendant 18,319 7,805
-------- -------
Total Group equity 1,025 4,235
-------- -------
TOTAL LIABILITIES AND GROUP EQUITY $ 22,000 $ 8,614
======== =======
</TABLE>
See Notes to Combined Financial Statements.
G-4
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(14,454) $ (843) $ (885)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 322 219 80
Amortization 1,926 1,638 865
Provision for doubtful accounts 8 382 181
Non-cash stock option compensation 264 -- --
Loss on disposal of assets 282 -- 4
Deferred income taxes (698) (519) (186)
Net change in assets and liabilities (net of effects of
acquisitions):
Accounts receivable (5,463) (1,828) (931)
Other current assets (2,548) 32 (3)
Accounts payable (436) 129 132
Accrued expenses 10,866 114 376
Deferred revenue 5,541 1,955 795
Other assets (45) -- --
-------- ------- -------
Net cash (used in) provided by operating activities (4,435) 1,279 428
-------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment (2,482) (881) (662)
Net assets acquired and acquisition related payments (2,588) (240) (3,206)
-------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (5,070) (1,121) (3,868)
-------- ------- -------
FINANCING ACTIVITIES:
Net funding from (contribution to) Cendant 10,514 (158) 3,440
-------- ------- -------
Net change in cash 1,009 -- --
Cash and equivalents, beginning of period -- -- --
-------- ------- -------
Cash and equivalents, end of period $ 1,009 $ -- $ --
======== ======= =======
SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:
Common stock issued in conjunction with purchase business
combination $ 730 $ -- $ --
======== ======= =======
</TABLE>
See Notes to Combined Financial Statements.
G-5
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
COMBINED STATEMENTS OF GROUP EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED FUNDING GROUP
CAPITAL DEFICIT FROM CENDANT EQUITY
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ -- $ (1,842) $ 4,523 $ 2,681
Net loss -- (885) -- (885)
Net funding from Cendant -- -- 3,440 3,440
---- -------- ------- -------
BALANCE, DECEMBER 31, 1997 -- (2,727) 7,963 5,236
Net loss -- (843) -- (843)
Net funding from Cendant -- -- (158) (158)
---- -------- ------- -------
BALANCE, DECEMBER 31, 1998 -- (3,570) 7,805 4,235
Net loss -- (14,454) -- (14,454)
Net funding from Cendant -- -- 10,514 10,514
Move.com, Inc. common stock issued in
conjunction with Metro-Rent, Inc.
acquisition (Note 9) 730 -- -- 730
---- -------- ------- -------
BALANCE, DECEMBER 31, 1999 $730 $(18,024) $18,319 $ 1,025
==== ======== ======= =======
</TABLE>
See Notes to Combined Financial Statements.
G-6
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. ORGANIZATION
BACKGROUND
Move.com Group, wholly owned by Cendant Corporation ("Cendant"), provides a
broad range of quality relocation, real estate and home-related products and
services through its flagship portal site, move.com and the move.com network.
The move.com Web site was launched on January 27, 2000. Move.com Group's
operations include the move.com network and the businesses of (1) Rent Net (an
operator of online rental guides, acquired in February 1996); (2) Metro-Rent,
Inc. ("MetroRent") (an online provider of fee-based apartment vacancy reports,
acquired in December 1999); (3) National Home Connections, LLC (a facilitator of
connecting and disconnecting utilities, processor of address changes and
provider of moving-related products and services, acquired in May 1999); and (4)
Move.com Mortgage, Inc. (a mortgage marketing company).
The offline resources of Cendant as well as individual Web sites of each of
Cendant's real estate franchise systems are part of Cendant Group, which
includes all of the businesses operated by Cendant other than the businesses
that are part of Move.com Group. However, the franchise systems' Web sites are
considered part of the move.com network as a result of Intercompany Agreements
that permit Move.com Group to manage and sell advertisements on these sites and
display home listings from the CENTURY 21-Registered Trademark-, COLDWELL
BANKER-Registered Trademark- and ERA-Registered Trademark- real estate franchise
systems. Through an additional Intercompany Agreement, Move.com Group provides
online local merchant discount offers for customers of Welcome Wagon, a
distributor of welcoming packages to new homeowners and consumers throughout the
United States and Canada. Move.com Group allows users to apply for and obtain
mortgage products and services through arrangements with Cendant Mortgage
Corporation, provides users with relocation services and information leveraging
Cendant Mobility's expertise, and provides users with access to third-party
providers of relocation, real estate and home-related products and services.
The operating results of attributed and acquired companies are included in
Move.com Group's Combined Financial Statements since the respective dates of
acquisition by Cendant or Move.com Group. Accordingly, the historical financial
information contained herein represents that of Rent Net only at and for the
years ended December 31, 1998 and 1997.
Cendant acquired Rent Net from the General Partners of Rent Net (the
"Sellers") under an asset purchase agreement (the "Agreement") which was
attributed to the Move.com Group. Under the terms of the Agreement, the Sellers
received $3,000 in cash and Cendant stock on the acquisition date. The Sellers
received additional payments of $3,446 based on the earnout provisions of the
Agreement, bringing the total purchase price to $6,446. The excess of the
purchase price over the fair value of net assets acquired was $6,570. The
acquisition was accounted for using the purchase method of accounting, and
accordingly, the operating results are included in the combined statements of
operations since the acquisition date.
TRACKING STOCK PROPOSAL
The shareholders of Cendant are scheduled to vote on a proposal (the
"Tracking Stock Proposal") to authorize the issuance of a new series of common
stock, to be designated as Move.com stock, intended to reflect the performance
of Move.com Group. The Tracking Stock Proposal will allow Cendant to amend and
restate its charter to (1) create a new series of Cendant common stock called
Move.com
G-7
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
1. ORGANIZATION (CONTINUED)
stock that could be issued from time to time by the board of directors of
Cendant, (2) re-classify each outstanding share of existing common stock into a
share of CD Stock, and (3) increase the number of authorized shares of common
stock from 2,000,000,000 to 2,500,000,000 initially comprised of 2,000,000,000
shares of CD Stock and 500,000,000 shares of Move.com stock. Although the
issuance of Move.com stock is intended to track the performance of Move.com
Group, shareholders of Move.com stock, if any, will still be subject to all the
risks associated with an investment in Cendant and all of its businesses, assets
and liabilities.
Cendant expects to issue shares of Move.com stock in one or more private or
public financings. The specific terms of the financing, including whether they
are private or public, the amount of Move.com stock issued, and the timing of
the financing, will depend upon factors such as stock market conditions and
performance of the Move.com Group.
BASIS OF PRESENTATION
The accompanying Combined Financial Statements include the accounts of the
Move.com Group. All intercompany accounts and transactions are eliminated in
combination. In order to prepare the separate combined financial statements of
the Move.com Group, Cendant has allocated, for financial reporting purposes,
certain assets, liabilities, revenue, expenses and cash flows to the Move.com
Group. Cendant's allocation of assets, liabilities, revenues and expenses will
not change the legal title to any assets or responsibility for any liabilities
and will not affect the rights of Cendant's creditors. The financial position,
results of operations and cash flows of the Move.com Group could differ from
those that would have resulted had the Move.com Group operated autonomously or
as an entity independent of Cendant. The Move.com Group's Combined Financial
Statements reflect the application of certain cash management and allocation
policies adopted by the board of directors of Cendant. Management believes that
the allocation methods used are reasonable. The Combined Financial Statements
should be read in conjunction with the consolidated financial statements of
Cendant.
Allocation and related party transaction policies adopted by the board of
directors of Cendant can be rescinded or amended at the sole discretion of the
board of directors without approval by the stockholders, although no such
changes are currently contemplated. Any such changes adopted by the board of
directors would be made in its good faith business judgement of Cendant's best
interests, taking into consideration the interest of all Cendant shareholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts and related disclosures. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Move.com Group considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject
the Move.com Group to concentrations of credit risk consist of accounts
receivable. Management periodically performs credit evaluations of its
customers' financial condition and generally does not require collateral on
accounts
G-8
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
receivable. During the years ended December 31, 1999, 1998 and 1997, no
customers accounted for more than 10% of net revenue or net accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Move.com Group's financial instruments,
including cash and cash equivalents, accounts receivable and accounts payable
are carried at cost, which approximates their fair value because of the
short-term maturity and the relatively stable interest rate environment.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line method
over the estimated useful lives of five and seven years. Amortization of lease
improvements is computed by the straight-line method over the estimated useful
lives of the assets or the lease term, if shorter.
GOODWILL--Goodwill, which represents the excess of cost over fair value of
net assets acquired, is amortized on a straight-line basis over an estimated
useful life of five years.
OTHER INTANGIBLES--Other intangibles, which represents a covenant not to
compete (see Note 9 "Acquisitions--National Home Connections, LLC") is amortized
on a straight-line basis over a useful life of seven years.
ASSET IMPAIRMENTS--The Move.com Group periodically evaluates the
recoverability of its goodwill and long-lived assets, on an undiscounted basis,
comparing the respective carrying values to the current and expected future cash
flows to be generated from such assets.
REVENUE RECOGNITION--The Move.com Group's primary sources of revenue are
from listing subscription fees (paid by various apartment, senior housing,
corporate housing and self storage managers) and sponsorship advertising.
Revenue from the listing subscription fees is recognized ratably over the
contract period. Revenue from sponsorship advertising both from third parties
and from Cendant Group entities is recognized as earned pursuant to the
contractual relationship. Deferred revenue represents the unearned portion of
listing and advertising fees received in advance.
PRODUCT DEVELOPMENT EXPENSES--Operating expenses include costs incurred by
the Move.com Group to develop and enhance the move.com network. Product
development expenses are expensed when incurred.
ADVERTISING EXPENSES--Advertising expenses are expensed in the period
incurred. For the years ended December 31, 1999, 1998 and 1997, advertising
expenses were $10,247, $1,926, and $1,120, respectively.
INCOME TAXES--The Move.com Group is included in the consolidated federal
income tax return of Cendant. In addition, the Move.com Group files unitary and
combined state income tax returns with Cendant in jurisdictions where required.
The income tax benefit and balance sheet accounts are based on allocations from
Cendant and are computed as if the Move.com Group filed its federal and state
income tax returns on a stand-alone basis.
EARNINGS PER SHARE--Earnings per share for the Move.com Group is not
presented because it is not a stand-alone entity, and as a result, the
presentation of earnings per share is not applicable. After the issuance of the
Move.com stock, Cendant intends to present earnings per share using the
two-class
G-9
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
method. Under the two-class method, an earnings allocation formula is used to
determine earnings per share for each class of common stock according to the
participation rights in the undistributed earnings. Earnings per share for the
Move.com Group will be computed by dividing (1) the product of the earnings of
the Move.com Group multiplied by the outstanding Move.com Group "fraction" by
(2) the weighted average number of shares of outstanding Move.com stock and
dilutive Move.com stock equivalents during the applicable period. The
outstanding Move.com Group "fraction" is a fraction, the numerator of which is
such number of shares of Move.com stock outstanding and the denominator of which
is the number of shares, that if issued, would represent 100 percent of the
equity in earnings or losses of the Move.com Group. Basic and diluted earnings
per share will be presented for each class of stock.
COMPREHENSIVE INCOME--Effective January 1, 1998, Move.com Group adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources. To date, Move.com
Group has not had any transactions that are required to be reported in
comprehensive income.
RECENT ACCOUNTING PRONOUNCEMENTS--In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") No. 98-1,
"Software for Internal Use", which provides guidance on accounting for the cost
of computer software developed or obtained for internal use. The adoption of SOP
98-1 in the first quarter of 1999 did not have a significant impact on the
Move.com Group's financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The statement
requires the recognition of all derivatives as either assets or liabilities in
the balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. Since Move.com Group does
not currently hold any derivative instruments and does not engage in hedging
activities, the impact of adoption of SFAS No. 133 is not currently expected to
have a material impact on financial position, results of operations or cash
flows. Move.com Group will be required to implement SFAS No. 133 in the first
quarter of fiscal 2001.
3. CERTAIN CASH MANAGEMENT AND ALLOCATION POLICIES
TREASURY ACTIVITIES
Cendant has provided all necessary funding for the operations and
investments of the Move.com Group since inception and such funding has been
accounted for as capital contributions from Cendant. Accordingly, no interest
charges from Cendant have been reflected in the accompanying combined financial
statements. Surplus cash, transferred from the Move.com Group from time to time,
has been accounted for as a return of capital.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
Cendant allocates the cost of its general and administrative ("G&A")
services to the Move.com Group generally based on utilization. Where
determinations based on utilization are impracticable,
G-10
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
3. CERTAIN CASH MANAGEMENT AND ALLOCATION POLICIES (CONTINUED)
Cendant uses other methods and criteria that management believes to be equitable
and provide a reasonable estimate of costs attributable to the Move.com Group.
Corporate G&A allocation included in the accompanying Combined Statements of
Operations include charges for legal, accounting (tax and financial),
information and telecommunications services, marketing, intellectual property,
public relations, corporate offices and travel.
INCOME TAXES
The income tax benefit and balance sheet accounts are based on allocations
from Cendant and are computed as if the Move.com Group filed its federal and
state income tax returns on a stand-alone basis.
4. PROPERTY AND EQUIPMENT--NET
Property and equipment, net as of December 31 consisted of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Computer and telephone equipment $2,302 $ 944
Office furniture 307 372
Leasehold improvements 1,473 529
------ ------
4,082 1,845
Less accumulated depreciation and amortization (728) (333)
------ ------
$3,354 $1,512
====== ======
</TABLE>
5. INCOME TAXES
The Move.com Group is included in the consolidated federal income tax return
of Cendant. In addition, the Move.com Group files unitary and combined state
income tax returns with Cendant in jurisdictions where required. The income tax
benefit and balance sheet accounts are based on allocations from Cendant and are
computed as if the Move.com Group filed its federal and state income tax returns
on a stand-alone basis.
G-11
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
5. INCOME TAXES (CONTINUED)
The income tax benefit (provision) for the years ended December 31 consisted
of:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $7,246 $ (3) $309
State 2,032 56 108
------ ---- ----
9,278 53 417
------ ---- ----
Deferred:
Federal 546 449 161
State 152 70 25
------ ---- ----
698 519 186
------ ---- ----
$9,976 $572 $603
====== ==== ====
</TABLE>
Net deferred income tax assets and liabilities and the related temporary
differences as of December 31 consisted of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CURRENT DEFERRED TAX ASSET:
Provision for doubtful accounts $ 330 $173
NONCURRENT DEFERRED TAX ASSET:
Depreciation and amortization 1,268 727
------ ----
$1,598 $900
====== ====
</TABLE>
For the years ended December 31, the Move.com Group's effective income tax
rate differs from the statutory federal rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit 5.7 5.8 5.8
Other, net 0.1 (0.4) (0.3)
---- ---- -----
40.8% 40.4% 40.5%
==== ==== =====
</TABLE>
6. GROUP EQUITY
Group equity represents the net amount of all funding received by the
Move.com Group from Cendant and the accumulated net losses of the Move.com
Group.
G-12
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
7. RELATED PARTY TRANSACTIONS
Cendant and its subsidiaries provide various services to and receive various
services from the Move.com Group. There are no significant intercompany sales or
purchases between Cendant Group and the Move.com Group, with the exception of a
sponsorship agreement between the Move.com Group and Cendant Mortgage
Corporation and an Internet Cooperation Agreement with each of Cendant's three
real estate franchise systems. The significant related party transactions are as
follows:
CENDANT--CORPORATE
Cendant allocated an overhead charge for corporate general and
administrative services of $335, $290 and $170 during 1999, 1998 and 1997,
respectively.
The Move.com Group has an Internet engineering services agreement with
Cendant. Services are charged based upon usage volume. The charges were $1,773,
$795 and $240 during 1999, 1998 and 1997, respectively.
Effective January 1, 1999, Cendant entered into a four year agreement with a
telecommunications service provider (the "Provider"), which was attributed to
the Move.com Group, whereby the use of the voice telecommunication services
available to Cendant pursuant to a Cendant agreement is shared with Move.com
Group. The Move.com Group receives bills directly from the Provider and is
obligated under the service agreement to meet its affiliate guarantee of $300 of
annual billings. Any shortfalls in meeting that guarantee will be reimbursed to
Cendant by the Move.com Group. No such shortfall existed in 1999.
Move.com Group employees participate in Cendant sponsored medical and
defined contribution benefit plans. The cost of such plans is allocated to the
Move.com Group based on a percentage of total payroll dollars. These allocations
were $653, $346 and $291 during 1999, 1998 and 1997, respectively.
CENDANT MORTGAGE CORPORATION
Effective February 15, 1999, the Move.com Group and Cendant Mortgage
Corporation entered into a one year advertising agreement whereby the Move.com
Group provides advertising space and links to various Cendant Mortgage
Corporation mortgage programs and products on its Web site. The agreement is
renewable every six months commencing after the first year until cancelled by
either party. The Move.com Group's 1999 revenue from this agreement was $360.
REAL ESTATE FRANCHISE SYSTEMS
On October 1, 1999, Move.com Group entered into 40-year Internet Cooperation
Agreements with each of Cendant's three real estate franchise systems. Under
terms of these agreements, Move.com Group receives fees for Web site management.
Such fees were $429 during 1999.
8. COMMITMENTS AND CONTINGENCIES
LEASES--Move.com Group leases its principal office facilities under
operating leases. During the fourth quarter of 1999, Move.com Group entered into
a lease for a larger facility that was occupied during
G-13
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
January 2000. Rental expense was $1,057, $368 and $73 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Future minimum rental payments required under non-cancelable operating
leases as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 3,760
2001 3,855
2002 3,892
2003 3,987
2004 4,081
Thereafter 8,448
-------
$28,023
=======
</TABLE>
LITIGATION--On April 15, 1998, Cendant announced that it discovered
accounting irregularities in the former business units of CUC International Inc.
Such discovery prompted investigations into such matters by Cendant and the
Audit Committee of the board of directors of Cendant. Since the April 15, 1998
announcement, more than 70 lawsuits claiming to be class actions, two lawsuits
claiming to be brought derivatively on Cendant's behalf and several individual
lawsuits have been filed in various courts against Cendant and other defendants.
The court has ordered consolidation of many of the actions.
The Securities and Exchange Commission ("SEC") and the United States
Attorney for the District of New Jersey are conducting investigations relating
to the matters referenced above. The SEC advised Cendant that its inquiry should
not be construed as an indication by the SEC or its staff that any violations of
law have occurred. While Cendant made all adjustments considered necessary as a
result of the findings from the investigations in restating its financial
statements, Cendant can provide no assurance that additional adjustments will
not be necessary as a result of these government investigations.
On December 7, 1999, Cendant announced that it reached a preliminary
agreement to settle the principal securities class action pending against
Cendant in the U.S. District Court in Newark, New Jersey relating to the common
stock class action lawsuits. Under the agreement, Cendant would pay the class
members $2.83 billion in cash. The settlement remains subject to execution of a
definitive settlement agreement and approval by the U.S. District Court. If the
preliminary settlement is not approved by the U.S. District Court, Cendant can
make no assurances that the final outcome or settlement of such proceedings will
not be for an amount greater than that set forth in the preliminary agreement.
See Cendant's Form 8-K, dated December 7, 1999, for a description of the
preliminary agreement to settle the common stock class action litigation.
EMPLOYEE RETENTION BONUS--In connection with Cendant's announcement during
May 1999 to create a real estate Internet portal, later named move.com, Cendant
made commitments to pay one-time, broad-based retention bonuses to the Move.com
Group employees aggregating approximately $10,400. The costs associated with the
entire bonuses were attributed to the Move.com Group. Bonus payments during 1999
were approximately $5,240. An additional $2,145 was paid during January 2000
G-14
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
with the remaining payments to be made by March 31, 2000. In 1999, $9,625 of the
aggregate bonus amount was expensed with the remaining $725 being expensed
through March 31, 2000, the date upon which the applicable employee must still
be employed to receive the payment.
9. ACQUISITIONS
METRORENT ACQUISITION
On December 17, 1999, Move.com Group purchased substantially all of the
assets and assumed substantially all of the liabilities of MetroRent, for a
total consideration of up to $3 million in cash and up to $6 million of stock to
be paid over several years subject to meeting certain performance targets. The
stock portion of the consideration consists of a new class of non-voting common
stock of Move.com, Inc. (a part of the Move.com Group) mandatorily redeemable
for Move.com stock upon a public offering. Initial consideration included $2.0
million in cash plus 48,756 shares of the non-voting common stock valued at $730
based upon the fair value of Move.com Group upon closing. The issuance of the
non-voting stock is reflected as a component of capital in the Combined Balance
Sheets. In the event that a public offering has not occurred by December 31,
2005, or earlier at Move.com, Inc.'s option, Move.com, Inc. must redeem each
outstanding share of Move.com common stock at $20.51 per share. In conjunction
with this acquisition, the Move.com Group committed to provide additional
capital of up to $1,900 to fund future MetroRent related acquisitions. The
acquisition was accounted for under the purchase method of accounting and
accordingly, the combined financial statements include the results of the
MetroRent business from the date of acquisition.
The purchase price of $3,076 plus the fair value of net liabilities acquired
of $246 resulted in goodwill of $3,322 that is being amortized on a
straight-line basis over 5 years.
PRO FORMA INFORMATION
The following table reflects the unaudited operating results of the Move.com
Group for the years ended December 31, 1999 and 1998 on a pro forma basis, which
gives effect to the acquisition of MetroRent. The pro forma results are not
necessarily indicative of the operating results that would have occurred had the
MetroRent acquisition been consummated on January 1, 1998, nor are they intended
to be indicative of results that may occur in the future. The underlying pro
forma information includes the amortization expense associated with the assets
acquired, the Move.com Group's financial arrangements, certain purchase
accounting adjustments and related income tax effects.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Net revenue $ 18,955 $ 10,801
Cost of revenue 3,602 2,155
Gross profit 15,353 8,646
Loss before income tax benefit (25,038) (2,030)
Net loss (14,814) (1,209)
</TABLE>
G-15
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
9. ACQUISITIONS (CONTINUED)
NATIONAL HOME CONNECTIONS, LLC
In May 1999, Cendant, through its newly organized subsidiary National Home
Connections, LLC, purchased substantially all of the assets and assumed all of
the current liabilities of Utility Connections, Inc. ("UCI"), which was
attributed to the Move.com Group for a total consideration of $600 in cash plus
earnout payments equal to 9.5% of the earnings before interest, taxes,
depreciation and amortization calculated over the next seven years. The purchase
agreement stipulates a "covenant not to compete," whereby the sellers of UCI
agrees not to participate in any competing businesses for a period up to seven
years. Accordingly, the initial purchase price was allocated to other intangible
assets and is amortized on a straight-line basis over seven years, the estimated
period to be benefitted. Earnout payments will be allocated to goodwill and
amortized over the remaining life of the "covenant not to compete." The
acquisition is not significant and therefore, pro forma operating results are
not included.
10. CHATHAM STREET HOLDINGS, LLC AGREEMENT
In September 1999, Cendant entered into an agreement with Chatham Street
Holdings, LLC ("Chatham") pursuant to which Chatham was granted the right, until
September 30, 2001, to purchase up to 1,561,000 shares of Move.com stock for
approximately $16.02 per share. In addition, for every two shares of Move.com
stock purchased by Chatham pursuant to the agreement, Chatham will be entitled
to receive a warrant to purchase one share of Move.com stock at a price equal to
$64.08 per share and a warrant to purchase one share of Move.com stock at a
price equal to $128.16 per share.
11. MOVE.COM GROUP STOCK OPTION PLAN
On October 29, 1999, the Board of Directors of Move.com, Inc. adopted the
Move.com, Inc. 1999 Stock Option Plan as amended January 13, 2000 (the "Option
Plan") which authorizes the granting of up to six million shares of Move.com,
Inc. common stock. All active employees of the Move.com Group and its affiliates
are eligible to be granted options under the Option Plan. Options under the plan
generally have a 10 year term and are exercisable at 33% per year commencing one
year from the grant date. On October 29, 1999, 2,501,000 options to purchase
shares of common stock of Move.com, Inc. were granted to employees of Move.com
Group at a weighted average exercise price of $11.56. Subject to the approval of
the stockholders of Cendant: (1) the Option Plan and existing grants will be
ratified and assumed by Cendant; (2) all existing grants will be equitably
adjusted to become options of Move.com stock; and (3) the remaining shares
available to be issued in connection with the grant of options under the Option
Plan will be equitably adjusted to become shares of Move.com stock. At December
31, 1999, all issued options remained outstanding but were not yet exercisable.
Move.com Group utilizes the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" and applies Accounting Principles
Board ("APB") Opinion No. 25 and related interpretations in accounting for the
Option Plan. Under APB No. 25, compensation expense is recognized when the
exercise prices of Move.com Group's employee stock options are less than the
estimated fair value of the underlying Move.com stock on the date of grant.
Although the Company generally grants employee stock options at fair value,
certain options were granted below fair value during 1999. As such, compensation
expense is being recognized over the applicable vesting period.
G-16
<PAGE>
MOVE.COM GROUP
(WHOLLY OWNED BY CENDANT CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. MOVE.COM GROUP STOCK OPTION PLAN (CONTINUED)
Had Move.com Group elected to recognize and measure compensation expense for
the Option Plan based on the calculated fair value at the grant dates for awards
under such plans, consistent with the method prescribed by SFAS No. 123, pro
forma net loss in 1999 would have been $15,199.
The fair values of the stock options are estimated on the dates of grant
using the Black-Scholes option-pricing model with the weighted average
assumptions for options granted. The weighted average assumptions in 1999 for
dividend yield, expected volatility, risk-free interest rate and expected
holding period were zero, 60%, 6.4% and 6.2 years, respectively. Forfeitures are
recognized as they occur.
The weighted average grant date fair value of Move.com Group stock options
granted during the year ended December 31, 1999 was $7.28.
12. SUBSEQUENT EVENT
On January 1, 2000, Move.com Group entered into an Internet Cooperation
Agreement with Getko Group, Inc., a wholly owned subsidiary of Cendant, which
owns the right to the Welcome Wagon brand name. Under the terms of the
agreement, Move.com Group will develop, host and maintain the Welcome Wagon area
of move.com in return for an escalating percentage of Getko's revenue and
expenses.
On January 27, 2000, Move.com Group announced a strategic alliance with
AltaVista, a new-media and commerce network, to create a co-branded real estate
channel on the AltaVista Web site. Under the terms of the agreement, Move.com
Group will pay AltaVista up to $40 million to be an exclusive real estate
content provider of the new AltaVista Real Estate Channel. In addition, the
move.com network will be exclusively featured through banners and links on
keyword searches for most real estate and moving related terms. The agreement
has a three year term.
G-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO
SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 14
Forward Looking Statements; Market
Data................................ 32
Where You Can Find More Information... 32
Use of Proceeds....................... 33
Dividend Policy....................... 34
Capitalization........................ 35
Selected Financial Data of Cendant
Corporation......................... 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Cendant
Corporation......................... 38
Selected Financial Data of Move.com
Group............................... 60
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Move.com Group..... 61
Business.............................. 69
Legal Proceedings..................... 82
Move.com Group Employees.............. 83
Move.com Group Facilities............. 83
Move.com Group Management............. 84
Certain Transactions.................. 88
Description of Capital Stock.......... 90
Cash Management and Allocation
Policies............................ 107
Material United States Federal Income
Tax Considerations.................. 111
Legal Matters......................... 113
Experts............................... 113
Underwriting.......................... U-1
Concurrent Offering................... U-2
Illustration of Terms................. I-1
Index to Consolidated Financial
Statements of Cendant Corporation... F-1
Index to Combined Financial Statements
of Move.com Group................... G-1
</TABLE>
SHARES
CENDANT CORPORATION
MOVE.COM COMMON STOCK
------------------
[MOVE.COM LOGO]
----------------
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the costs and expenses, other than
underwriting discounts and commissions, to be incurred in connection with the
offering described in this Registration Statement, all of which will be paid by
Cendant Corporation. All amounts are estimates, other than the SEC registration
fee, the NASD fee, and the NYSE listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ *
NASD fee.................................................... *
NYSE listing fee............................................ *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Director and officer insurance expenses..................... *
Printing and engraving expenses............................. *
Transfer agent's fees and expenses.......................... *
Blue sky fees and expenses.................................. *
Miscellaneous expenses...................................... *
----------------------
Total................................................... $
======================
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
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 the 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 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 the defense
of any action, suit or proceeding referred to above or in defense of any claim,
issue or matter therein, the corporation must indemnify such person against the
expenses (including attorneys' fees) which he or she actually and reasonably
incurred in connection therewith.
II-1
<PAGE>
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to such
actions to be entered in the books containing the minutes of the meetings of the
board of directors at the time such action occurred or immediately after such
absent director receives notice of the unlawful acts.
The Registrant's By-Laws 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 Registrant's Amended and
Restated Certificate of Incorporation 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 Corporation 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 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to Cendant
Corporation's Form 10-K/A for the fiscal year ended
December 31, 1999)
*3.2 Amended and Restated By-Laws of the Registrant (incorporated
by reference to Exhibit 3.2 to Cendant Corporation's
Form 10-K/A for the year ended December 31, 1999)
*4.1 Form of Move.com Common Stock Certificate
*5.1 Opinion of James E. Buckman, Vice Chairman and General
Counsel of Cendant Corporation
*8.1 Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 Internet Cooperation Agreement between CompleteHome
Operations, Inc. (now Move.com Operations, Inc.) and Century
21 Real Estate Corporation dated October 1, 1999
(Incorporated by reference to Exhibit 10.39 to Cendant
Corporation's Form 10-K/A for the fiscal year ended December
31, 1998).
10.2 Internet Cooperation Agreement between CompleteHome
Operations, Inc. (now Move.com Operations, Inc.) and
Coldwell Banker Real Estate Corporation dated October 1,
1999 (Incorporated by reference to Exhibit 10.40 to Cendant
Corporation's Form 10-K/ A for the fiscal year ended
December 31, 1998).
10.3 Internet Cooperation Agreement between CompleteHome
Operations, Inc. (now Move.com Operations, Inc.) and ERA
Franchise Systems, Inc. dated October 1, 1999 (Incorporated
by reference to Exhibit 10.40 to Cendant Corporation's Form
10-K/A for the fiscal year ended December 31, 1998).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
10.4 Internet Cooperation Agreement between Move.com Operations,
Inc. and Getko Group, Inc. dated January 1, 2000.
10.5 Marketing Agreement, dated as of March 15, 2000 between
Cendant Mortgage Corporation and Move.com Operations, Inc.
10.6 Marketing Agreement, dated as of January 1, 2000 between
Cendant Mortgage Corporation and Move.com Operations, Inc.
10.7 Purchase Agreement, dated as of March 28, 2000, by and
between Cendant Corporation and Liberty Digital, Inc.
10.8 Registration Rights Agreement, dated as of March 28, 2000,
by and between Cendant Corporation and Liberty Digital, Inc.
10.9 Purchase Agreement, dated as of March 28, 2000, by and
between Cendant Corporation and NRT Incorporated.
10.10 Registration Rights Agreement, dated as of March 28, 2000,
by and between Cendant Corporation and NRT Incorporated.
10.11 Asset Purchase Agreement, dated October 29, 1999, by and
among Cendant Corporation, Completehome.com, Inc., Rent Net,
Inc., John P. McWeeny, Joseph A. Preis, and Metro-Rent,
Inc.
10.12 Subscription Agreement, dated as of March 29, 2000 between
Cendant Corporation and Chatham Street Holdings, LLC.
10.13 Registration Rights Agreement, dated as of March 29, 2000,
among Cendant Corporation and Chatham Street Holdings, LLC.
23.1 Consent of Deloitte & Touche LLP (New York, New York)
23.2 Consent of Deloitte & Touche LLP (San Francisco, California)
23.4 Consent of James E. Buckman, Vice President and General
Counsel of Cendant Corporation (included in Exhibit 5.1)
*23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)
24.1 Power of Attorney (contained on the signature pages of this
Registration Statement)
</TABLE>
- ------------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
None.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing certificates in such denominations and registered in such names
as required by the Underwriters to permit prompt delivery to each purchaser.
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 provisions described in Item 15, or otherwise, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is
II-3
<PAGE>
therefore unenforceable. In the event that a claim for indemnification by the
registrant against such liabilities (other than the payment by the registrant of
expenses incurred or paid 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 the
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 pubic policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act, and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act, 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Cendant
Corporation has duly caused this amendment to its registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 7th day of April, 2000.
<TABLE>
<S> <C> <C>
CENDANT CORPORATION
By: /s/ JAMES E. BUCKMAN
-----------------------------------------
Name: James E. Buckman
TITLE: VICE CHAIRMAN AND GENERAL COUNSEL
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HENRY R. SILVERMAN* Chairman of the Board,
------------------------------------------- President, Chief Executive April 7, 2000
(Henry R. Silverman) Officer and Director
/s/ JAMES E. BUCKMAN* Vice Chairman, General Counsel
------------------------------------------- and Director April 7, 2000
(James E. Buckman)
/s/ STEPHEN P. HOLMES* Vice Chairman and Director
------------------------------------------- April 7, 2000
(Stephen P. Holmes)
/s/ DAVID M. JOHNSON* Senior Executive Vice President
------------------------------------------- and Chief Financial Officer April 7, 2000
(David M. Johnson) (Principal Financial Officer)
Executive Vice President and
/s/ JON F. DANSKI* Chief Accounting Officer
------------------------------------------- (Principal Accounting April 7, 2000
(Jon F. Danski) Officer)
Director
------------------------------------------- April 7, 2000
(Myra J. Biblowit)
/s/ LEONARD S. COLEMAN* Director
------------------------------------------- April 7, 2000
(Leonard S. Coleman)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director
------------------------------------------- April 7, 2000
(Martin L. Edelman)
* Director
------------------------------------------- April 7, 2000
(Dr. Carole G. Hankin)
Director
------------------------------------------- April 7, 2000
(Dr. John C. Malone)
* Director
------------------------------------------- April 7, 2000
(Michael P. Monaco)
Director
------------------------------------------- April 7, 2000
(The Rt. Hon. Brian Mulroney, P.C., LL.D)
* Director
------------------------------------------- April 7, 2000
(Robert E. Nederlander)
Director
------------------------------------------- April 7, 2000
(Robert W. Pittman)
Director
------------------------------------------- April 7, 2000
(Sheli Z. Rosenberg)
* Director
------------------------------------------- April 7, 2000
(Leonard Schutzman)
* Director
------------------------------------------- April 7, 2000
(Robert F. Smith)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ERIC J. BOCK
--------------------------------------
Attorney-in-fact
</TABLE>
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<PAGE>
Exhibit 10.4
INTERNET COOPERATION AGREEMENT
THIS INTERNET COOPERATION AGREEMENT (the "Agreement") is entered into
this 1st day of January 2000 by and between MOVE.COM OPERATIONS, INC.
("Company"), a Delaware corporation with an office located at 795 Folsom Avenue,
6th Floor, San Francisco, California 94107 and GETKO GROUP, INC. ("Getko"), a
Delaware corporation with an office located at 115 South Service Street,
Westbury, New York 11590.
W I T N E S S E T H:
WHEREAS, Getko, through its Welcome Wagon division, provides merchants
(E.G. local, national and non-profit)(collectively, the "Merchants") with a
direct mail directory through which Merchants advertise their products and
services and provide discount gift certificates to homeowners and, through its
Getko Direct Response division, provides list management services; and
WHEREAS, Company is a provider of, among other things, a residential
real estate services portal (the "Internet Portal") which provides information
and resources for consumers before, during and after a relocation through
internet Web Sites maintained by Company and its Affiliates; and
WHEREAS, Company and Getko wish to engage in a cooperative marketing
effort with each other in accordance with the terms and conditions of this
Agreement.
NOW THEREFORE, in consideration of the promises and covenants contained
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) "Affiliate" shall mean an entity controlled by, controlling or
under common control with Company and/or Getko, as applicable.
(b) "Coupon" shall mean a document containing the Merchant Offering
that may be downloaded by a Visitor from the Online Area. Unless otherwise
agreed to by the parties, Coupons will provide identical discounts as the
Merchant Offering contained in the Offline Product. The appearance of the Coupon
shall be identical in form and substance to the discount gift certificates
distributed through the Offline Product.
(c) "Link" shall mean the electronic functionality located on a Web
Site that may take the form of a colored item of text (such as a URL
description), logo or image, and which allows a Visitor to automatically move to
or between World Wide Web ("WWW") pages, WWW sites or within a WWW document.
<PAGE>
(d) "Merchant Offering" shall mean the discounts off the retail price
of a Merchant's product(s) and/or service(s) that are provided through the
Offline Product and/or the Online Product.
(e) "Offline Product" shall mean the advertising of Merchant Offerings
through direct mail or other non-Internet based means.
(f) "Online Area" shall mean the specific areas within the Internet
Portal which shall be developed, managed and marketed by Company for Getko
pursuant to this Agreement on which the Merchant Offerings and promotional
information shall be displayed and from which Coupons for the Merchant Offerings
can be downloaded. The Online Area shall permit a Visitor to access Merchants
based on postal zip codes or specific geographic locations and to download
Coupons. The Online Area shall also be known as the "Welcome Wagon" area of the
Internet Portal.
(g) "Online Product" shall mean the advertising of the Merchant
Offerings on or through the Online Area.
(h) "Registration Information" shall mean information provided by a
Visitor who wishes to obtain Coupon(s), including, without limitation, the
Visitor's full name and e-mail address and such other information as may be
reasonably requested by Company.
(i) "Visitor" shall mean any potential customer who has interactively
arrived at a web page by entering the URL or hyperlinking.
(j) "Web Site" shall mean a party's multi-media, interactive computer
program designed to run on the WWW section of the Internet (including all the
information displayed thereby and thereon).
Section 2. TERM. The term of this Agreement (the "Term") shall commence
on January 1, 2000 and shall terminate on December 31, 2002, unless earlier
terminated in accordance with the terms herein set forth. At the end of the
Term, Company may elect to renew this Agreement for an additional three (3) year
term subject to mutually acceptable terms, provided, however, such terms shall
be no less favorable than the terms in effect as of the termination date. The
parties agree to cooperate in good faith to negotiate the terms of the renewal
agreement. The Company shall provide to Getko written notice of its intention to
renew this Agreement not later than thirty (30) days prior to the expiration of
the Term.
Section 3. COMPANY OBLIGATIONS. (a) During the Term, Company shall
develop, host and maintain the Online Area, at Company's sole cost, for the
purpose of promoting the Merchant Offerings, for Merchants with whom Getko
maintains an agreement for such advertising, and which will permit Visitors to
obtain Coupons to be redeemed by the Visitor at a Merchant's place of business,
unless otherwise specified on the Coupon. Company shall provide Visitors access
to the Online Area through Links from Web Sites operated by Company and its
Affiliates through the Internet Portal, as designated by Company in its sole
discretion. In the event Company is no longer controlled by, controlling or
under common control with Cendant Corporation, Company shall be required to
obtain the prior written approval of Getko (such
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<PAGE>
approval not to be unreasonably withheld) prior to providing access to the
Online Area through Links from Web Sites operated by any third party,
specifically excluding Links (i) from Web Sites operated by Company or the
Affiliates of Company or (ii) established through any arrangement by and between
the Company (including Company's Affiliates) and a third party as of the
effective date of such change of control. The parties may mutually agree to
provide access to the Online Area through Links from unaffiliated third parties'
Web Sites. In no event shall access to the Online Area from a third party Web
Site be permitted unless such third party Web Sites are being generated from
Company servers. Company shall provide Internet traffic access to the Online
Area at no cost to the Visitors. Display of the information, data and content,
including without limitation, any presentation or placement criteria, shall be
subject to the mutual agreement of the parties, with such parties acting
reasonably and in good faith. For monitoring purposes only, Company shall
provide Getko with unrestricted access to view the Online Area at no cost.
(b) Company shall develop and implement, at its sole cost, a
registration system that will require each Visitor to the Online Area who wishes
to download a Coupon to register through Company's server by providing
Registration Information. Company shall use commercially reasonable efforts to
include a tracking mechanism as part of the registration system that will
prohibit a Visitor from downloading more than one (1) Coupon per Merchant by
permitting not more than one (1) download from the same Visitor accessed
computer. Each Coupon shall include the Visitor's name, a tracking number and
the terms and conditions for use of the Coupon. Company makes no guarantee that
a Visitor will not replicate or obtain more than one (1) Coupon for a particular
Merchant and Company shall not be responsible for any multiple use of a Coupon
by a Visitor.
(c) Company, in cooperation with Getko, shall use commercially
reasonable efforts to promote the Online Area to potential Visitors. Any and all
marketing activities performed by Company to promote the Online Area shall be at
Company's cost and expense. Subject to Section 12 below, Company shall place the
trademarks, logos or other identifying marks of Getko (the "Getko Marks"), as
may be approved by Getko, on the Online Area. Placement and identification of
the Getko Marks shall be at least as prominent as the placement and
identification of any other similar company in the Web Site pages of the
Internet Portal or other locations on the Internet Portal where such companies
are collectively displayed. In no event shall Company (i) state or imply a
preference for a particular company over Getko, or (ii) place any other merchant
offerings and/or coupons or similar type of program or product on the Online
Area utilized to display Getko's Merchant Offerings and/or Coupons; provided,
however, that with respect to item (ii) of this Section 3(c), nothing shall
prohibit or limit Company from placing any other merchant offerings and/or
coupons or similar type of program or product on designated areas of the
Internet Portal (other than the Online Area) and further provided that nothing
shall prohibit or limit Company from displaying any and all banner
advertisements on the Online Area or any other area of the Internet Portal.
(d) Company will implement and maintain during the Term a system to
track and record Internet traffic to the Online Area on a "per postal zipcode"
and "per Merchant" basis. For each calendar month during the Term, Company shall
furnish a detailed report to Getko, via electronic means, in a format and
containing such
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<PAGE>
information as may be mutually agreed to by the parties, including, but not
limited to the total number of Visitors who accessed the Online Area, the total
number of Visitors who viewed a particular Merchant, the total number of Coupons
downloaded and a breakdown of the total number of each Merchant Coupon
downloaded.
(e) On or about the date of execution of this Agreement, Company shall
appoint a designated project representative who will serve as the primary point
of contact with Getko for the purpose of carrying out the day-to-day activities
under this Agreement. The project representative shall be qualified and shall
have the appropriate authority to approve requests made by Getko in performing
Company's obligations under this Agreement, including without limitation the
ability to make any necessary modifications to the Online Area, Merchant
Offerings and/or Coupons within two (2) business days after Getko's request for
such modification. Communication between Getko and Company with respect to any
modifications shall be made or confirmed via confirmed electronic means.
(f) Company agrees to provide any necessary training and information to
Getko sales personnel to market the Online Product, including but not limited to
training seminars, marketing packets and telephone support. The parties agree to
cooperate in good faith to create and implement quality standards and
procedures.
(g) Company agrees to be solely responsible for the cost of converting
Getko's administrative programs. The estimated cost for the administrative
program conversion is $150,000.00. Company and Getko agree that the cost of
converting Getko's Merchant database shall be shared equally between the
parties. The estimated cost for the Merchant database conversion is $250,000.00.
Getko and Company shall cooperate with the other to complete such conversions.
Section 4. GETKO OBLIGATIONS. (a) Getko shall be responsible for
marketing and promoting the Online Product to the Merchants through marketing
programs and sales plans to be mutually agreed to by the parties. Getko shall be
responsible for maintaining agreements with the Merchants for the purchase of
the Online Product and the Offline Product and for collecting and processing
payments for the Online Product and Offline Product. The fees charged to the
Merchants for the Online Product (individually or as a package with the Offline
Product) shall be determined by the mutual agreement of the parties.
Notwithstanding any provision contained herein, Getko shall not enter into or
maintain an agreement with a Merchant for the Online Product (or other form of
marketing agreement) which, in the judgment of Company, would be considered a
violation of any marketing agreement (or similar arrangement) entered into by
Company, Company's Affiliate or Cendant Corporation, including without
limitation, a violation of any exclusivity commitment contained therein. If, in
the judgment of Company such agreement by Getko (or a Getko Affiliate) does or
would cause such a violation, then the Company may, upon written notice to
Getko, cause Getko to discontinue such agreement and to take any additional
reasonable steps required by Company to ensure that Getko (or Getko's Affiliate)
is not in violation of such agreement.
(b) During the Term, Getko shall provide Company information to be used
in developing the display and content of the Online Area including the name of
each participating Merchant, complete postal address, telephone number,
information
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<PAGE>
relating to the Merchant Offering, Coupon layout and design and any other
information as may be reasonably requested by Company to fulfill its obligations
under this Agreement (the "Merchant Information"). Getko shall cause all
Visitors accessing the Welcome Wagon domain to link directly into the Online
Area.
(c) On or about the execution of this Agreement, Getko shall appoint a
designated project representative who will serve as the primary point of contact
with Company for the purpose of carrying out the day-to-day activities under
this Agreement. The project representative shall be qualified and shall have the
appropriate authority to approve requests made by Company in performing Getko's
obligations under this Agreement.
(d) Getko acknowledges and agrees that Getko shall not be permitted to
sell, transfer or otherwise disclose Visitor information or lists, including
without limitation, the name, address, e-mail address or telephone number of any
Visitor, to any third party. Getko shall only use such information to perform
its obligations under this Agreement and for no other purpose.
Section 5. COMMISSIONS/PROGRAM EXPENSES. (a) COMMISSIONS. For each
calendar quarter during the Term, Getko shall pay to Company a commission equal
to a percentage of Getko's Net Revenues (excluding any unusual or non-recurring
gains on the disposition of assets) during such quarter ("Net Revenues"). Net
Revenues shall be defined in accordance with GAAP. Getko shall pay commissions
Revenues to Company as follows:
<TABLE>
<CAPTION>
NET REVENUES
<S> <C>
Year 2000 25%
Year 2001 40%
Year 2002 75%
</TABLE>
(b) PROGRAM EXPENSES. For each calendar quarter during the Term,
Company shall reimburse Getko for a percentage of the total expenses incurred by
Getko (excluding depreciation, income taxes, amortization of intangibles and any
restructuring or unusual/non-recurring expenses) ("Expenses") as follows:
<TABLE>
<CAPTION>
EXPENSES
<S> <C>
Year 2000 30%
Year 2001 50%
Year 2002 75%
</TABLE>
(c) At the end of each calendar quarter, Getko shall submit to Company
a report detailing (i) the total Net Revenue and commission payable to Company
thereon, and (ii) the total Expenses and reimbursement payable to Getko thereon.
The parties shall reconcile the Net Revenues payable to Company and the Expenses
payable to Getko. Any amounts payable to a party shall be paid by the other
party not more than twenty-five (25) days after the end of such quarter.
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<PAGE>
Section 6. NEW PRODUCTS. In the event Getko develops a new product to
be offered to its Merchants, Getko shall notify Company of the nature of the new
product and the terms and conditions of the proposed offering, including pricing
elements. The parties shall mutually determine, in good faith, whether including
the new product on the Internet Portal is appropriate. If the parties determine
not to offer the new product through the Internet Portal, Getko shall have the
right to offer the new product through an agreement with a third party provider
of internet services.
Section 7. INDEMNITY/LIMITATION OF LIABILITY. (a) Company shall
indemnify and hold harmless Getko and its Affiliates (including Cendant),
officers, directors, employees, agents, successors and assigns from any claims,
damages, liabilities, losses, government procedures and costs, including
reasonable attorneys' fees and costs of suit, arising from any third party
claims for (i) Company's or its employees' or agents' failure to comply with
applicable laws and regulations, negligence or willful misconduct, or
misrepresentation, or breach of any warranty, obligation or covenant of this
Agreement and (ii) libel, slander or defamation or violation (or
misappropriation) of intellectual property rights, privacy rights, publicity
rights or similar rights arising from any content or advertising placed or
displayed on the Internet Portal or other approved Web Site only to the extent
that such content or advertising is furnished by Company. In no event shall the
indemnity obligation set forth in this subsection (a) apply to any information
(including content) furnished to Company by Getko, provided Company has been
authorized to use such information and has used such information in accordance
with Getko's approval.
(b) Getko shall indemnify and hold harmless Company and its Affiliates
(including Cendant), officers, directors, employees, agents, successors and
assigns from any claims, damages, liabilities, losses, government procedures and
costs, including reasonable attorneys' fees and costs of suit, arising from
third party claims for (i) Getko's or its employees' or agents' failure to
comply with applicable laws and regulations, negligence or willful misconduct,
misrepresentation or breach of any warranty, obligation or covenant of this
Agreement and (ii) libel, slander or defamation or violation (or
misappropriation) of intellectual property rights, privacy rights, publicity
rights or similar rights arising from any content or advertising placed or
displayed on the Internet Portal or other approved Web Site only to the extent
that such content or advertising is furnished by Getko. In no event shall the
indemnity obligation set forth in this subsection (b) apply to or include the
acts or omissions of any Merchant or apply to any information (including
content) furnished to Getko by Company, provided Getko has been authorized to
use such information and has used such information in accordance with Company's
approval.
(c) In the event that the indemnified party is required to respond to
any claim, action, demand or proceeding, the indemnifying party will, upon
reasonable notification, respond and defend the indemnified party against such
claims and demands in any such actions or proceedings pursuant to its indemnity
obligations under this Section 7. In the event that the indemnifying party fails
to defend the indemnified party, the indemnifying party will reimburse the
indemnified party for all reasonable costs and expenses, including reasonable
attorneys' fees, incurred by the indemnified party.
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<PAGE>
(d) Neither party shall be responsible to the other for any indirect,
special or consequential damages (including lost profits or interruption of
business) regardless of whether a party has been advised of the possibility of
or could have foreseen such damages. Notwithstanding the foregoing, the
limitation of liability provided under this subsection (d) shall not apply with
respect to (i) third party claims and/or (ii) the willful misconduct or gross
negligence of a party.
(e) This Section and the rights, remedies, obligations and limitations
of the parties under this Section shall survive termination or expiration of
this Agreement.
Section 8. BOOKS AND RECORDS; AUDIT. Getko shall use commercially
reasonable efforts to keep accurate and complete records of the revenues
generated by Getko in connection with this Agreement. All such records shall be
available for inspection and audit by Company or its representatives on
reasonable notice to Getko during normal business hours throughout the Term of
this Agreement and for one (1) year thereafter. Notwithstanding the foregoing,
Getko shall only be required to retain records for such period of time as
required by law or as retained in standard accounting practices, but not less
than three (3) years. Getko shall reasonably cooperate with Company in such
inspection and audit. In the event any such inspection or audit establishes an
underpayment of commissions, Getko shall, within five (5) business days of
notification of such deficiency, (i) pay the amount of the deficit, or (ii)
provide Company with written notification disputing the results of the audit. In
the event such audit identifies an overpayment of commissions, such overpayment
shall be a credit against future commissions to become due from Getko to
Company, or if it is determined that future commissions will not become due,
Company will remit payment in the amount of the overage within fifteen (15) days
from such determination. In the event of a dispute over the result of any such
audit, the amount so disputed shall be deposited by the party to be charged with
an escrow agent acceptable to both parties and pursuant to an escrow agreement
acceptable to both parties and such escrow agent shall retain the disputed
amount until such time as the dispute is resolved. The parties agree any such
dispute between the parties shall be the subject of a meeting between management
representatives authorized to negotiate in good faith a mutually acceptable
resolution of such dispute. In the event the parties are unable to resolve such
dispute, each party shall be left to its remedies at law or in equity.
Section 9. ACKNOWLEDGMENTS. (a) Company acknowledges that the Merchant
Offerings and Coupons are being offered by Merchants and not Getko, and that
Getko shall not be responsible for the performance or failure to perform or the
quality or level of performance of the Merchants with respect to the Merchant
Offerings and Coupons.
(b) Company acknowledges and agrees that although Getko will promote
and recommend the Online Product to the Merchants, the Merchants will be making
an independent buying decision which may or may not be affected by Getko's
promotion of the Online Product. Getko cannot compel or guarantee any level of
participation by the Merchants.
(c) Company acknowledges and agrees that the Merchants may enter into
and maintain agreements or arrangements with third parties which may include
marketing agreements. In no event shall any such agreements or arrangements
entered into by
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<PAGE>
the Merchants be construed to be a violation of the terms of this Agreement,
including any obligations or limitations of Getko hereunder.
Section 10. TERMINATION/FORCE MAJEURE. (a) When fully executed, this
Agreement will constitute a binding obligation of both parties which may not be
terminated by either party except that either party may terminate this Agreement
(in whole or in part) in the event of a material breach of the terms of this
Agreement by the other party which is not cured during the period described
below. In the event of a material breach as set forth above, the breaching party
shall be given written notice of such breach and the opportunity to cure such
breach within thirty (30) days of the date of such notice. In the event the
breaching party fails to cure such breach within the applicable period stated
above, the other party shall have the right to immediately terminate this
Agreement upon written notice to the breaching party.
(b) In no event shall either party be liable to the other party for any
delay or failure to perform hereunder, which delay or failure to perform is due
to causes beyond the reasonable control of said party, including, but not
limited to, acts of God; acts of the public enemy; acts of the United States, or
any state, territory or political division of the United States of America, or
of the District of Columbia; acts of a judiciary or legislative body; fires;
floods; epidemics; quarantine restrictions; strikes or any other labor disputes;
and freight embargoes; provided, however, that the delay or failure to perform
by a party shall not be caused by the negligent acts of the such party and that
the non-performing party shall act with due diligence to mitigate any such
delays in its failure to perform.
Section 11. REPRESENTATIONS. (a) Each party has full power and
authority and has been duly authorized, to enter into and perform its
obligations under this Agreement, all necessary approvals of any Board of
Directors, shareholders, partners, co-tenants and lenders having been obtained.
The execution, delivery and performance of this Agreement by each party will not
violate, create a default under or breach of any charter, bylaws, agreement or
other contract, license, permit, indebtedness, certificate, order, decree or
security instrument to which such party or any of its principals is a party or
is subject. Neither party is the subject of any current or pending dissolution,
receivership, bankruptcy, reorganization, insolvency, or similar proceeding on
the date this Agreement is executed by such party and was not within the three
(3) years proceeding such date. The persons signing this Agreement on behalf of
each party are authorized to execute this Agreement for and on behalf of such
party and have full authority to so bind such party.
(b) Company and Getko will comply with all applicable local, state and
federal laws and regulations in connection with the performance of their
respective obligations under this Agreement.
Section 12. TRADEMARKS/ARTWORK. (a) Except as specifically provided in
this Agreement, Company specifically acknowledges that this Agreement does not
confer upon Company any interest in or right to use any trademark, service mark
or other intellectual property right of Getko, the Merchants or their Affiliates
(the "Getko Intellectual Property Rights") in connection with this Agreement
unless Company receives the prior written consent of Getko. Company further
agrees that upon termination or expiration of this Agreement, Company shall
immediately cease and
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<PAGE>
discontinue all use of the Getko Intellectual Property Rights. Further, if
Company wishes to utilize the Getko Intellectual Property Rights in advertising
or promotional materials, it must submit such materials to Getko for final
approval before utilizing them. In no event may Company or any affiliated or
associated person or entity utilize the Getko Intellectual Property Rights for
any purpose other than in connection with this Agreement. Company agrees to
comply with all requests of Getko with respect to the appearance and use of the
Getko Intellectual Property Rights, including without limitation, any requests
to change the form or style of the Getko Intellectual Property Rights and shall
at all times consistently use the Getko Intellectual Property Rights so as to
ensure that Getko's rights are adequately preserved. Getko reserves the right
from time to time to require changes to the Getko Intellectual Property Rights
upon thirty (30) days prior written notice to Company.
(b) Except as specifically provided in this Agreement, Getko
specifically acknowledges that this Agreement does not confer upon Getko any
interest in or right to use any trademark, service mark or other intellectual
property right of Company or its Affiliates (the "Company Intellectual Property
Rights") in connection with this Agreement unless Getko receives the prior
written consent of Company. Getko further agrees that upon termination or
expiration of this Agreement, Getko shall immediately cease and discontinue all
use of the Company Intellectual Property Rights. Further, if Getko wishes to
utilize the Company Intellectual Property Rights in advertising or promotional
materials, it must submit such materials to Company for final approval before
utilizing them. In no event may Getko or any affiliated or associated person or
entity utilize the Company Intellectual Property Rights for any purpose other
than in connection this Agreement. Getko agrees to comply with all requests of
Company with respect to the appearance and use of the Company Intellectual
Property Rights, including without limitation, any request to change the form or
style of the Company Intellectual Property Rights and shall at all times
consistently use the Company Intellectual property Rights so as to ensure that
Company's rights are adequately preserved. Company reserves the right from time
to time to require changes to the Company Intellectual Property Rights upon
thirty (30) days prior written notice to Getko.
Section 13. RELATIONSHIP OF PARTIES. The relationship between Company
and Getko is one of an independent contractor. Neither party is the legal
representative or agent of, or has the power to obligate (or has the right to
direct or supervise the daily affairs of) the other or any other party for any
purpose whatsoever. Company and Getko expressly acknowledge that the
relationship intended by them is a business relationship based entirely on and
circumscribed by the express provisions of this Agreement and that no
partnership, joint venture, agency, fiduciary or employment relationship is
intended or created by reason of this Agreement.
Section 14. ASSIGNMENTS. This Agreement may not be assigned by either
party without the prior written consent of the non-assigning party, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing,
either party may assign this Agreement without the consent of the other party to
an Affiliate or in connection with a merger, consolidation or a sale of
substantially all of its assets. This Agreement and the covenants and agreements
herein contained shall, subject to the provisions of this Section, inure to the
benefit of and be binding on the parties hereto and their respective permitted
successors and assigns.
-9-
<PAGE>
Section 15. CONFIDENTIALITY. (a) Company acknowledges that any
information conveyed to or obtained by Company regarding the Merchants, Getko
and its business, plans and operations in connection with this Agreement is
confidential and proprietary to Getko (the "Getko Confidential Information").
Company agrees that in no event shall Company disclose, transfer, copy,
duplicate, or publish any Getko Confidential Information to any third party
without the prior written consent of Company, which consent may be withheld in
Getko's sole discretion. Company further agrees that it shall not utilize any
Getko Confidential Information for any purpose whatsoever other than for the
purpose of performing its obligations under this Agreement. Company shall only
make available the Getko Confidential Information to its employees on a
need-to-know basis and shall advise such employees of the restriction set forth
with respect to the use of such Getko Confidential Information. Company shall be
responsible for the unauthorized disclosure of any Getko Confidential
Information by its employees.
(b) Getko acknowledges that any information conveyed to or obtained by
Getko regarding Company, its business, plans and operations in connection with
this Agreement is confidential and proprietary to Company (the "Company
Confidential Information"). Getko agrees that in no event shall Getko disclose,
transfer, copy, duplicate, or publish any Company Confidential Information to
any third party without the prior written consent of Company, which consent may
be withheld in Company's sole discretion. Getko further agrees that it shall not
utilize any Company Confidential Information for any purpose whatsoever other
than for the purpose of performing its obligations under this Agreement. Getko
shall only make available the Company Confidential Information to its employees
on a need-to-know basis and shall advise such employees of the restriction set
forth with respect to the use of such Company Confidential Information. Getko
shall be responsible for the unauthorized disclosure of any Company Confidential
Information by its employees.
(c) The non-disclosure restrictions set forth in this Section 15 shall
not apply to information which (i) is or becomes generally available to the
public other than as a result of a disclosure by the receiving party; (ii) was
within the receiving party's possession prior to its being furnished by the
originating party, provided that the source of such information was not known by
the receiving party to be bound by a confidentiality agreement or non-disclosure
restrictions with respect to such information; or (iii) becomes available to the
receiving party on a nonconfidential basis from a source other than the
originating party, provided that the source of such information was not known by
the receiving party to be bound by a confidentiality agreement or non-disclosure
restrictions with respect to such information. With respect to disclosures of
the Getko Confidential Information or Company Confidential Information as may be
required by law or court order, such disclosures shall be permitted without the
consent of the originating party provided that the disclosing party furnishes
the originating party prior written notification (as soon as practicably
possible after the request for disclosure is made). Upon the termination of this
Agreement or upon the earlier written request by the originating party, the
receiving party shall return the Getko Confidential Information and Company
Confidential Information (as the case may be) to the originating party including
any copies relating thereto on whatever media (or alternatively destroy such
information if so instructed by the originating party).
-10-
<PAGE>
(d) The parties acknowledge that Getko Confidential Information and
Company Confidential Information, respectively, is a valuable asset of the
originating party, the disclosure of which would cause the originating party
irreparable harm for which there is no adequate remedy at law. Accordingly, in
the event of a breach or alleged breach of this Section 15, the originating
party or parties shall be allowed injunctive relief and any other equitable
remedies in addition to remedies afforded by law. The obligations of each party
pursuant to this Section 15 shall survive the termination or expiration of this
Agreement.
Section 16. PARTIAL INVALIDITY. Should any part of this Agreement, for
any reason, be declared invalid, such decision shall not affect the validity of
any remaining portion of this Agreement.
Section 17. NO WAIVER. No failure or delay in requiring strict
compliance with any obligation of this Agreement (or in the exercise of any
right or remedy provided herein) and no custom or practice at variance with the
requirements hereof shall constitute a waiver or modification of any such
obligation, requirement, right or remedy or preclude exercise of any such right
or remedy or the right to require strict compliance with any obligation set
forth herein. No waiver of any particular default or any right or remedy with
respect to such default shall preclude, affect or impair enforcement of any
right or remedy provided herein with respect to any subsequent default. No
approval or consent of either party shall be effective unless in writing and
signed by an authorized representative of such party, and such party's consent
or approval may be withheld for so long as the other party is in default of any
of its obligations under this Agreement.
Section 18. NOTICES. Notices will be effective hereunder when and only
when they are reduced to writing and delivered, by next day delivery service,
with proof of delivery, or mailed by certified or registered mail, return
receipt requested, or via confirmed facsimile or electronic mail, to the
appropriate party at its address stated below or to such person and at such
address as may be designated by notice hereunder. Notices shall be deemed given
on the date delivered or date of attempted delivery, if service is refused.
<TABLE>
<CAPTION>
<S> <C>
COMPANY: GETKO:
Move.com Operations, Inc. Getko Group, Inc.
795 Folsom Avenue, 6th Floor 115 South Service Street
San Francisco, California 94107 Westbury, NY 11590
Attn: President Attn: President
</TABLE>
Section 19. PUBLICITY. Each party shall (a) submit to the other party
all advertising, written sales promotions, press releases, and other publicity
matters relating to this Agreement in which the other party's name or mark is
mentioned or which contains language from which a relationship with the other
party may be inferred or implied and (b) not publish or use such advertising,
sales promotions, press releases or publicity matters without the other party's
consent.
Section 20. MISCELLANEOUS. The remedies provided in this Agreement are
not exclusive. This Agreement will be construed in accordance with the laws of
the State
-11-
<PAGE>
of New York, except for New York's conflict of laws principles. The parties
consent to District Court for the Southern District of New York and further
waive objection to venue in any such court. This Agreement is exclusively for
the benefit of the parties hereto and may not give rise to liability to a third
party. No agreement between Company or Getko and anyone else is for the benefit
of the other party hereto. Neither party will interfere with contractual
relations of the other. The section headings in this Agreement are for
convenience of reference only and will not affect its interpretation.
This Agreement, together with all instruments, exhibits, attachments
and schedules hereto, constitutes the entire agreement (superseding all prior
agreements and understanding, oral or written, including without limitation, a
certain Internet Cooperation Agreement dated September 1, 1999 by and between
CompleteHome.com, Inc. and Getko Group, Inc.) of the parties hereto with respect
to the subject matter hereof and shall not be modified or amended in any respect
unless in writing executed by all such parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first stated above.
MOVE.COM OPERATIONS, INC GETKO GROUP, INC.
By: /s/ Jed Katz By: /s/ Douglas L. Patterson
---------------------------- ----------------------------
Name: Jed Katz Name: Douglas L. Patterson
-------------------------- --------------------------
Title: Chief Strategic Officer Title: President and CEO
------------------------- -------------------------
-12-
<PAGE>
Exhibit 10.5
MARKETING AGREEMENT
BY AND BETWEEN
MOVE.COM OPERATIONS, INC.
AND
CENDANT MORTGAGE CORPORATION
<PAGE>
MARKETING AGREEMENT
This Marketing Agreement ("Agreement") is entered into as of the 15th
day of March, 2000 by and between Cendant Mortgage Corporation ("Cendant
Mortgage"), a New Jersey corporation having an office at 6000 Atrium Way, Mt.
Laurel, New Jersey 08054 and Move.com Operations, Inc. ("Move.com"), a Delaware
corporation having an office at 795 Folsom Street, 6th Floor, San Francisco,
California 94107 (collectively, the "Parties").
WHEREAS, Cendant Mortgage is engaged in providing mortgage services
that include counseling, efficient processing, origination, and servicing of
mortgage loans on homes located in the United States; and
WHEREAS, Move.com is an entity which provides marketing and access
services to mortgage lenders via the Internet; and
WHEREAS, Cendant Mortgage and Move.com wish to develop a marketing and
access program ("Program") the purpose of which will be to market Cendant
Mortgage services on the Internet.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Parties hereby agree as follows:
1. THE PROGRAM.
(a) Move.com shall provide access to Cendant Mortgage and market
Cendant Mortgage and its various mortgage programs and
products on the Internet at various web sites. The web sites
shall include promotional information about Cendant Mortgage
and educational materials to customers regarding the mortgage
process. Move.com shall be responsible for developing and
maintaining these sites which shall serve as a destination for
customers interested home listings, mortgage-related services,
and other real estate-related information online.
(b) The Parties contemporaneously have agreed upon additional
details concerning their respective obligations under the
Program, including but not limited to, as applicable, the
frequency, size, number and general content of the web sites
to be advertised. Move.com shall review and make suggestions
to Cendant Mortgage regarding Cendant Mortgage advertisements
and the most effective manner in which to promote its programs
and products on the Internet. Both parties shall cooperate
with each other, in good faith, to agree in selecting the
marketing materials that are ultimately placed on the web
site.
(c) As part of the Program, Move.com shall provide monthly reports
to Cendant Mortgage (Move.com Reports), in form and format
reasonably acceptable to the
<PAGE>
Parties, that describe, among other things, the extent to
which Move.com has met its obligations under the Program.
(d) In addition, Cendant Mortgage shall provide to Move.com its
standard monthly reporting on registrations, cancellations,
closings and pipeline so that Move.com may monitor the
effectiveness and quality of the mortgage services provided by
Cendant Mortgage.
2. COMPENSATION. For the Term (as defined below), Cendant Mortgage shall
pay a fee to Move.com ("Marketing Fee") for the access and marketing
provided under the Program. The amount of the Marketing Fee shall be
Two Million One Hundred Eighty Five Thousand Dollars ($2,185,000). The
Marketing Fee shall be paid within thirty (30) days after the Effective
Date (as defined below) of this Agreement. The Parties each acknowledge
and agree that the Marketing Fee reflects the reasonable and fair
market value of the goods and services to be provided by Move.com under
the Program, without regard to the value or volume of mortgage loans
that may be attributable to the Program.
3. REGULATORY COMPLIANCE. Each party will comply with all applicable
regulatory requirements of the United States or any state with respect
to its services to be provided under this Agreement. Each party shall
maintain any and all government approvals, licenses or authorizations
required by the laws of the United States or any state to engage in the
activities described in this Agreement.
4. RELATIONSHIP. The relationship between Cendant Mortgage and Move.com
shall be that of independent contractors and neither party shall be or
represent itself to be an agent, employee, partner or joint venturer of
the other, nor shall either party have or represent itself to have any
power or authority to act for, bind or commit the other. Cendant
Mortgage shall have sole discretion and authority with respect to
product development, origination, processing, underwriting and
servicing of all mortgage financing.
5. CONFIDENTIAL INFORMATION. Each party recognizes that, during the Term
of this Agreement, its directors, officers or employees may obtain
knowledge of trade secrets, membership lists and other confidential
information of the other party which are valuable, special or unique to
the continued business of that party. Accordingly, each party hereby
agrees to hold such information in confidence and to use its best
efforts to ensure that such information is held in confidence by its
officers, directors and employees and to be utilized only in accordance
with the terms of this Agreement.
6. TRADEMARKS. Each party shall grant the other party a license to use
certain of its trademarks (the "Marks") during the Term of this
Agreement. Each party agrees that nothing herein shall give to the
other party any right, title or interest in the other party's Marks,
except to use the Marks in accordance with the terms of this Agreement
and that the Cendant Mortgage Marks and the Move.com Marks are the sole
and exclusive property of Cendant Mortgage and Move.com, respectively.
-2-
<PAGE>
7. DISCLAIMER. Neither Cendant Mortgage nor Move.com make any
representation or warranty to the other regarding the effect that this
Agreement and the consummation of the transactions contemplated hereby
may have upon the Foreign, Federal, State or local tax liability of the
other.
8. SEVERABILITY. If any provision of this Agreement should be invalid,
illegal or in conflict with any applicable state or federal law or
regulation, such law or regulation shall control, to the extent of such
conflict, without affecting the remaining provisions of this Agreement.
9. TERM AND TERMINATION.
(a) The term of this Agreement (the "Term") shall commence on May
1, 2000 (the "Effective Date") and shall terminate on December
31, 2000, unless earlier terminated in accordance with the
provisions of this Section 9.
(b) Upon termination of this Agreement, as provided herein: (i)
Move.com shall refrain from any and all further use of or
reference to materials utilizing Cendant Mortgage in
connection with this Agreement, unless otherwise agreed in
writing by the parties; (ii) Cendant Mortgage shall continue
to process, in due course, any mortgage loan applications
submitted by Move.com's customers prior to termination of this
Agreement; and (iii) Cendant Mortgage shall be obligated to
pay any then due Marketing Fee; and (iv) the provisions of
Sections 5 and 10 of this Agreement shall survive.
(c) When fully executed, this Agreement will constitute a binding
obligation of both parties which may not be terminated by
either party except in the event of a material breach of the
terms of this Agreement by the other party. In the event of a
material breach as set forth above, the breaching party shall
be given written notice of such breach and the opportunity to
cure such breach within thirty (30) days of the date of such
notice. In the event the breaching party fails to cure such
breach within the applicable period stated above, the other
party shall have the right to immediately terminate this
Agreement upon written notice to the breaching party.
10. HOLD HARMLESS.
(a) Cendant Mortgage agrees to indemnify, defend and hold Move.com
harmless from and against any and all claims, suits, actions,
liability, losses, expenses, or damages which may hereafter
arise, which Move.com, its affiliates, directors, officers,
agents or employees may sustain due to or arising out of any
negligent act or omission by Cendant Mortgage, its affiliates,
officers, agents, representatives or employees or out of any
act by Cendant Mortgage, its affiliates, officers, agents,
-3-
<PAGE>
representatives or employees in violation of this Agreement or
in violation of any applicable law or regulation. Provided,
however, the above indemnification shall not provide coverage
for (i) any claim, suit, action, liability, loss, expense or
damage that resulted from an act or omission of Move.com or
(ii) the amount by which any cost, fee, expense or loss
associated with any of the foregoing were increased as a
result of an act or omission on the part of Move.com.
(b) Move.com agrees to indemnify, defend and hold Cendant Mortgage
harmless from and against any and all claims, suits, actions,
liability, losses, expenses, or damages which may hereafter
arise, which Cendant Mortgage, its affiliates, directors,
officers, agents or employees may sustain due to or arising
out of any negligent act or omission by Move.com, its
affiliates, officers, agents, representatives or employees or
out of any act by Move.com, its affiliates, officers, agents,
representatives or employees in violation of this Agreement or
in violation of any applicable law or regulation. Provided,
however, the above indemnification shall not provide coverage
for (i) any claim, suit, action, liability, loss, expense or
damage that resulted from an act or omission of Cendant
Mortgage or (ii) the amount by which any cost, fee, expense or
loss associated with any of the foregoing were increased as a
result of an act or omission on the part of Cendant Mortgage.
11. NON-EXCLUSIVITY. The parties acknowledge and agree that the marketing
and access services required of Move.com hereunder are provided under
this Agreement on a non-exclusive basis and, as such, Move.com may
enter into similar marketing agreements for the Program with parties
other than Cendant Mortgage.
12. NOTICES. All notices required or permitted by this Agreement shall be
in writing and shall be given by certified mail, return receipt
requested or by reputable overnight courier with package tracing
capability and sent to the address at the head of this Agreement or
such other address that a party specified in writing in accordance with
this paragraph.
13. AMENDMENT. The terms and conditions of this Agreement may not be
modified or amended other than by a writing signed by both Parties.
14. ASSIGNMENT; BINDING NATURE. The terms of this Agreement shall be
binding upon and shall inure to the benefit of the Parties hereto. This
Agreement shall not be assigned by any party without the express prior
written consent of the other party.
15. ENTIRE AGREEMENT. This Agreement and any exhibits, attachments and
schedules attached hereto constitute the entire agreement between the
Parties and supersede all oral or written negotiations (and prior
agreements and understandings) of the Parties with respect to the
subject matter hereof.
-4-
<PAGE>
16. GOVERNING LAW. This Agreement shall be subject to and construed under
the laws of the State of New Jersey, without reference to conflicts of
law provisions thereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed the day and year first above written.
MOVE.COM OPERATIONS, INC. CENDANT MORTGAGE
CORPORATION
Signature: /s/ Barry Allen Signature: /s/ Terence Edwards
--------------------------- ---------------------------
By: Barry Allen By: Terence W. Edwards
---------------------------------- ----------------------------------
Title: CFO Title: President & CEO
------------------------------- -------------------------------
-5-
<PAGE>
Exhibit 10.6
AMENDED & RESTATED
MARKETING AGREEMENT
BY AND BETWEEN
MOVE.COM OPERATIONS, INC.
AND
CENDANT MORTGAGE CORPORATION
<PAGE>
AMENDED & RESTATED
MARKETING AGREEMENT
This Marketing Agreement ("Agreement") is entered into as of the 1st
day of January, 2000 ("Effective Date"), between Cendant Mortgage Corporation
("Cendant Mortgage"), a New Jersey corporation having an office at 6000 Atrium
Way, Mt. Laurel, New Jersey 08054 and Move.com Operations, Inc. ("Move.com"), a
Delaware corporation having an office at 795 Folsom Street, 6th Floor, San
Francisco, California 94107 (collectively, the "Parties").
WHEREAS, Cendant Mortgage is engaged in providing mortgage services
that include counseling, efficient processing, origination, and servicing of
mortgage loans on homes located in the United States; and
WHEREAS, Move.com is an entity which provides marketing and access
services to mortgage lenders via the Internet; and
WHEREAS, Cendant Mortgage and Move.com wish to develop a marketing and
access program ("Program") the purpose of which will be to market Cendant
Mortgage services on the Internet.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Parties hereby agree as follows:
1. THE PROGRAM.
(a) Move.com shall provide access to Cendant Mortgage and market
Cendant Mortgage and its various mortgage programs and
products on the Internet at various web sites. The web sites
shall include promotional information about Cendant Mortgage
and educational materials to customers regarding the mortgage
process. Move.com shall be responsible for developing and
maintaining these sites which shall serve as a destination for
customers interested home listings, mortgage-related services,
and other real estate-related information online.
(b) The Parties contemporaneously have agreed upon additional
details concerning their respective obligations under the
Program, including but not limited to, as applicable, the
frequency, size, number and general content of the web sites
to be advertised. Move.com shall review and make suggestions
to Cendant Mortgage regarding Cendant Mortgage advertisements
and the most effective manner in which to promote its programs
and products on the Internet. Both parties shall cooperate
with each other, in good faith, to agree in selecting the
marketing materials that are ultimately placed on the web
site.
<PAGE>
(c) As part of the Program, Move.com shall provide monthly reports
to Cendant Mortgage (Move.com Reports), in form and format
reasonably acceptable to the Parties, that describe, among
other things, the extent to which Move.com has met its
obligations under the Program.
(d) In addition, Cendant Mortgage shall provide to Move.com its
standard monthly reporting on registrations, cancellations,
closings and pipeline so that Move.com may monitor the
effectiveness and quality of the mortgage services provided by
Cendant Mortgage.
2. COMPENSATION. For the four (4) month period from the Effective Date
through April 30, 2000, Cendant Mortgage shall pay a fee to Move.com
("Marketing Fee") for the access and marketing provided under the
Program. The amount of the Marketing Fee shall be $565,000. The
Marketing Fee shall be paid within thirty (30) days after the Effective
Date of this Agreement. The Parties each acknowledge and agree that the
Marketing Fee reflects the reasonable and fair market value of the
goods and services to be provided by Move.com under the Program,
without regard to the value or volume of mortgage loans that may be
attributable to the Program.
3. REGULATORY COMPLIANCE. Each party will comply with all applicable
regulatory requirements of the United States or any state with respect
to its services to be provided under this Agreement. Each party shall
maintain any and all government approvals, licenses or authorizations
required by the laws of the United States or any state to engage in the
activities described in this Agreement.
4. RELATIONSHIP. The relationship between Cendant Mortgage and Move.com
shall be that of independent contractors and neither party shall be or
represent itself to be an agent, employee, partner or joint venturer of
the other, nor shall either party have or represent itself to have any
power or authority to act for, bind or commit the other. Cendant
Mortgage shall have sole discretion and authority with respect to
product development, origination, processing, underwriting and
servicing of all mortgage financing.
5. CONFIDENTIAL INFORMATION. Each party recognizes that, during the term
of this Agreement, its directors, officers or employees may obtain
knowledge of trade secrets, membership lists and other confidential
information of the other party which are valuable, special or unique to
the continued business of that party. Accordingly, each party hereby
agrees to hold such information in confidence and to use its best
efforts to ensure that such information is held in confidence by its
officers, directors and employees and to be utilized only in accordance
with the terms of this Agreement.
6. TRADEMARKS. Each party shall grant the other party a license to use
certain of its trademarks (the "Marks") during the term of this
Agreement. Each party agrees that nothing herein shall give to the
other party any right, title or interest in the other party's Marks,
except to use the Marks in accordance with the terms of this Agreement
and that
-2-
<PAGE>
the Cendant Mortgage Marks and the Move.com Marks are the sole and
exclusive property of Cendant Mortgage and Move.com, respectively.
7. DISCLAIMER. Neither Cendant Mortgage nor Move.com make any
representation or warranty to the other regarding the effect that this
Agreement and the consummation of the transactions contemplated hereby
may have upon the Foreign, Federal, State or local tax liability of the
other.
8. SEVERABILITY. If any provision of this Agreement should be invalid,
illegal or in conflict with any applicable state or federal law or
regulation, such law or regulation shall control, to the extent of such
conflict, without affecting the remaining provisions of this Agreement.
9. TERM AND TERMINATION.
(a) The term of this Agreement shall be for a period of four (4)
months commencing on the Effective Date unless earlier
terminated in accordance with the provisions of this Section
9.
(b) Upon termination of this Agreement, as provided herein: (i)
Move.com shall refrain from any and all further use of or
reference to materials utilizing Cendant Mortgage in
connection with this Agreement, unless otherwise agreed in
writing by the parties; (ii) Cendant Mortgage shall continue
to process, in due course, any mortgage loan applications
submitted by Move.com's customers prior to termination of this
Agreement; and (iii) Cendant Mortgage shall be obligated to
pay any then due Marketing Fee; and (iv) the provisions of
Sections 5 and 10 of this Agreement shall survive.
(c) When fully executed, this Agreement will constitute a binding
obligation of both parties which may not be terminated by
either party except in the event of a material breach of the
terms of this Agreement by the other party. In the event of a
material breach as set forth above, the breaching party shall
be given written notice of such breach and the opportunity to
cure such breach within thirty (30) days of the date of such
notice. In the event the breaching party fails to cure such
breach within the applicable period stated above, the other
party shall have the right to immediately terminate this
Agreement upon written notice to the breaching party.
10. HOLD HARMLESS.
(a) Cendant Mortgage agrees to indemnify, defend and hold Move.com
harmless from and against any and all claims, suits, actions,
liability, losses, expenses, or damages which may hereafter
arise, which Move.com, its affiliates, directors, officers,
agents or employees may sustain due to or arising out of any
negligent act
-3-
<PAGE>
or omission by Cendant Mortgage, its affiliates, officers,
agents, representatives or employees or out of any act by
Cendant Mortgage, its affiliates, officers, agents,
representatives or employees in violation of this Agreement or
in violation of any applicable law or regulation. Provided,
however, the above indemnification shall not provide coverage
for (i) any claim, suit, action, liability, loss, expense or
damage that resulted from an act or omission of Move.com or
(ii) the amount by which any cost, fee, expense or loss
associated with any of the foregoing were increased as a
result of an act or omission on the part of Move.com.
(b) Move.com agrees to indemnify, defend and hold Cendant Mortgage
harmless from and against any and all claims, suits, actions,
liability, losses, expenses, or damages which may hereafter
arise, which Cendant Mortgage, its affiliates, directors,
officers, agents or employees may sustain due to or arising
out of any negligent act or omission by Move.com, its
affiliates, officers, agents, representatives or employees or
out of any act by Move.com, its affiliates, officers, agents,
representatives or employees in violation of this Agreement or
in violation of any applicable law or regulation. Provided,
however, the above indemnification shall not provide coverage
for (i) any claim, suit, action, liability, loss, expense or
damage that resulted from an act or omission of Cendant
Mortgage or (ii) the amount by which any cost, fee, expense or
loss associated with any of the foregoing were increased as a
result of an act or omission on the part of Cendant Mortgage.
11. NON-EXCLUSIVITY. The parties acknowledge and agree that the marketing
and access services required of Move.com hereunder are provided under
this Agreement on a non-exclusive basis and, as such, Move.com may
enter into similar marketing agreements for the Program with parties
other than Cendant Mortgage.
12. NOTICES. All notices required or permitted by this Agreement shall be
in writing and shall be given by certified mail, return receipt
requested or by reputable overnight courier with package tracing
capability and sent to the address at the head of this Agreement or
such other address that a party specified in writing in accordance with
this paragraph.
13. AMENDMENT. The terms and conditions of this Agreement may not be
modified or amended other than by a writing signed by both Parties.
14. ASSIGNMENT; BINDING NATURE. The terms of this Agreement shall be
binding upon and shall inure to the benefit of the Parties hereto. This
Agreement shall not be assigned by any party without the express prior
written consent of the other party.
15. ENTIRE AGREEMENT. This Agreement and any exhibits, attachments and
schedules attached hereto constitute the entire agreement between the
Parties and supersede all oral or written negotiations (and prior
agreements and understandings) of the Parties with respect to the
subject matter hereof.
-4-
<PAGE>
16. GOVERNING LAW. This Agreement shall be subject to and construed under
the laws of the State of New Jersey, without reference to conflicts of
law provisions thereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed the day and year first above written.
MOVE.COM OPERATIONS, INC. CENDANT MORTGAGE
CORPORATION
Signature: /s/ Barry Allen Signature: /s/ Terence Edwards
--------------------------- ---------------------------
By: Barry Allen By: Terence Edwards
---------------------------------- ----------------------------------
Title: CFO Title: President & CEO
------------------------------- -------------------------------
Date: 3/28/00 Date: March 23, 2000
-------------------------------- --------------------------------
-5-
<PAGE>
Exhibit 10.7
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of March 28, 2000 (this
"Agreement"), by and between Cendant Corporation, a Delaware corporation
("Cendant"), and Liberty Digital, Inc., a Delaware corporation ("Liberty
Digital").
WHEREAS, Cendant has created a network of websites which offer
a wide selection of quality relocation, real estate and home-related products
and services primarily through a new internet portal at WWW.MOVE.COM (the
"Move.com Group");
WHEREAS, Cendant has amended and restated its Certificate of
Incorporation in order to authorize a new series of Cendant common stock, par
value $.01 per share, intended to track the performance of Move.com Group; and
WHEREAS, Liberty Digital desires to purchase from Cendant, and
Cendant desires to sell to Liberty Digital, 1,598,030 shares (the "Shares") of
Move.com Common Stock ("Move.com Stock").
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereby agree as follows:
ARTICLE I
THE PURCHASE
Section 1.1 PURCHASE AND SALE. (a) Upon the terms and subject to the
conditions of this Agreement, at the Closing (as hereinafter defined), Cendant
will issue to Liberty Digital, and Liberty Digital will purchase from Cendant,
the Shares, in consideration for which, at the Closing, Liberty Digital will pay
to Cendant (i) ten million dollars ($10,000,000) in cash (the "Cash
Consideration") and (ii) a number of whole shares of Liberty Digital Series A
common stock, par value $.01 per share ("Series A Common Stock"), as determined
in accordance with paragraph (b) below (the "Purchaser Shares" and, together
with the Cash Consideration, the "Purchase Price"). Upon the Closing, Liberty
Digital shall pay the Cash Consideration to Cendant by wire transfer of
immediately available funds to an account or accounts designated by Cendant in
writing for such purpose prior to the Closing and delivery of Shares.
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(b) The number of whole shares of Series A Common Stock to be
delivered pursuant to Section 1.1.(a)(ii) hereof shall be determined by dividing
(i) $40,000,000 by (ii) the average of the per share closing sales prices of the
Series A Common Stock on the NASDAQ National Market System for the 20
consecutive trading days immediately preceding the third trading day prior to
the Closing Date ("Liberty Digital Stock Value"). If the above calculation would
result in the issuance of a fraction of a share of Series A Common Stock, such
result will be rounded up to the nearest whole share.
Section 1.2 TIME AND PLACE OF CLOSING. Upon the terms and subject to
the conditions of this Agreement, the closing of the transactions contemplated
by this Agreement (the "Closing") will take place at the offices of Skadden,
Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New York 10036, at
9:00 a.m. (New York City time) on the third business day following the
satisfaction or waiver of the conditions set forth in Article V, unless another
time or date is agreed to by the parties hereto (the "Closing Date").
Section 1.3 DELIVERIES BY CENDANT. Subject to the terms and conditions
hereof, at the Closing, Cendant will deliver the following to Liberty Digital:
(a) A certificate or certificates, duly registered on the
stock books of Cendant in the name of Liberty
Digital, representing the Shares;
(b) A counterpart to the Registration Rights Agreement
(as hereinafter defined) duly executed by Cendant;
(c) The officer's certificate provided for in Section
5.3(c);
(d) A copy of the Amended and Restated Certificate of
Incorporation of Cendant, as in effect on the Closing
Date, certified by the Delaware Secretary of State
within the five business day period prior to the
Closing Date;
(e) A copy of the amended and restated By-laws of
Cendant, as in effect on the Closing Date, certified
as of the Closing Date by the Secretary or an
Assistant Secretary of Cendant;
(f) A certificate of existence and good standing for
Cendant in the State
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of Delaware, certified by the Delaware Secretary of
State within the five business day period prior to
the Closing Date; and
(g) Such other documents as Liberty Digital may
reasonably request relating to the existence of
Cendant, the authority of Cendant to enter into, and
the validity of, this Agreement and any other matters
relevant hereto, all in form and substance reasonably
satisfactory to Liberty Digital.
Section 1.4 DELIVERIES BY LIBERTY DIGITAL. Subject to the terms and
conditions hereof, at the Closing, Liberty Digital will deliver the following to
Cendant:
(a) The Cash Consideration in immediately available
funds, in the manner set forth in Section 1.1 hereof;
(b) A certificate or certificates, duly registered on the
stock books of Liberty Digital in the name of
Cendant, representing the Purchaser Shares;
(c) The officer's certificate provided for in Section
5.2(c);
(d) A counterpart to the Registration Rights Agreement
duly executed by Liberty Digital;
(e) A certificate of existence and good standing for
Liberty Digital in the State of Delaware, certified
by the Delaware Secretary of State within the five
business day period prior to the Closing Date; and
(f) Such other documents as Cendant may reasonably
request relating to the existence of Liberty Digital,
the authority of Liberty Digital to enter into, and
the validity of, this Agreement and any other matters
relevant hereto, all in form and substance reasonably
satisfactory to Cendant.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CENDANT
Section 2.1 ORGANIZATION. Cendant is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to carry on its business
substantially as it is now being conducted.
Section 2.2 AUTHORITY. Cendant has the corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Cendant. This
Agreement has been validly executed and delivered by Cendant and (assuming this
Agreement has been duly authorized, executed and delivered by Liberty Digital)
constitutes a valid and binding agreement of Cendant, enforceable against
Cendant in accordance with its terms, except that (a) such enforcement may be
subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other laws, now or hereafter in effect, relating to or limiting
creditors' rights generally and (b) enforcement of this Agreement, including,
among other things, the remedy of specific performance and injunctive and other
forms of equitable relief, may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 2.3 THE SHARES. As of the Closing Date, the Shares will be duly
and validly authorized and, when a certificate evidencing the Shares is issued
and delivered against payment of the Purchase Price in accordance with the terms
of this Agreement, the Shares shall be duly and validly issued, fully paid and
non-assessable. Upon issuance, the Shares will have the designations,
preferences and relative participating, optional and other special rights, and
qualifications, limitations or restrictions of the Move.com Stock, as set forth
in the Amended and Restated Certificate of Incorporation of Cendant (the
"Amended Charter"), a true and correct copy of which has been delivered to
Liberty Digital, and as described in (a) the Proxy Statement of Cendant, dated
February 10, 2000, and distributed to Cendant's stockholders in connection with
the Special Meeting (the "Move.com Proxy Statement") and (b) the Registration
Statement on Form S-3 filed by Cendant with the Securities Exchange Commission
(the "SEC") on February 14, 2000 relating to the offering and sale of shares of
Move.com Stock to the public (as such registration statement was filed and
without giving effect to any amendments, modifications or
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<PAGE>
supplements thereto) (the "Move.com Registration Statement"). Delivery of the
certificate(s) for the Shares will pass valid title to the Shares, free and
clear of any claim, lien, charge, security interest, encumbrance, restriction on
transfer or voting or other defect in title whatsoever ("Liens"), other than
Liens resulting from any action(s) by Liberty Digital.
Section 2.4 CAPITALIZATION. The authorized capital of Cendant consists
of 2,500,000,000 shares of common stock, par value $.01 per share (the "Common
Stock") of which 2,000,000,000 have been designated as CD Common Stock ("CD
Stock") and 500,000,000 have been designated as Move.com Stock, and 10,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"). As
of January 24, 2000, there were 704,560,494 shares of CD Stock issued and
outstanding, no shares of Move.com Stock issued and outstanding and no shares of
Preferred Stock issued and outstanding.
Section 2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. As of the date
hereof and as of the Closing Date, neither the execution and delivery of this
Agreement by Cendant, nor the consummation by Cendant of the transactions
contemplated hereby will (a) conflict with or result in any breach of any
provision of the Amended Charter or amended and restated by-laws of Cendant, (b)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or require any consent under, any
indenture, license, contract, agreement or other instrument or obligation to
which the Cendant is a party, (c) violate any order, writ, injunction, decree or
award rendered by any Governmental Entity (as hereinafter defined) or any
statute, rule or regulation (collectively, "Laws" and, individually, a "Law")
applicable to Cendant, or (d) require any filing with, or the obtaining of any
permit, authorization, consent or approval of, any governmental or regulatory
authority or court, domestic or foreign (a "Governmental Entity"), except in the
case of clauses (c) and (d) of this Section 2.5, for the applicable requirements
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act").
Section 2.6 SEC REPORTS. Since January 1, 1999, Cendant has filed all
required reports, schedules, forms, statements and other documents, including
exhibits and all other information incorporated therein (the "SEC Documents"),
with the SEC. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents when filed (as amended and restated and as supplemented by
subsequently filed SEC Documents) contained
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any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; PROVIDED, that the SEC Documents relating to the Tracking Stock
Proposal and the proposed initial public offering of the Move.com Stock
(including, without limitation, the Move.com Proxy Statement and the Move.com
Registration Statement), each as amended and supplemented to the date hereof, do
not as of the date hereof, and will not as of the Closing Date, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
Section 2.7 MOVE.COM GROUP. As of the date hereof and as of the Closing
Date, the descriptions set forth in the Move.com Registration Statement of the
businesses, assets and properties included in the Move.com Group (including the
historical and pro forma financial information for those businesses, assets and
properties included therein) and the contracts, agreements, arrangements and
other relationships between the Cendant Group (as defined therein), on the one
hand, and the Move.com Group, on the other, are true and complete in all
material respects (without regard to any amendments or supplements to the
Move.com Registration Statement following the date hereof).
Section 2.8 TAX TREATMENT OF MOVE.COM STOCK. On the Closing Date,
shares of Move.com Stock will constitute stock of Cendant for purposes of the
Internal Revenue Code of 1986, as amended.
Section 2.9 INVESTMENT REPRESENTATIONS. Cendant understands that the
Purchaser Shares have not been registered under the Securities Act. Cendant also
understands that the Purchaser Shares are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
Cendant's representations contained in the Agreement.
Cendant hereby represents and warrants as follows:
(a) CENDANT BEARS ECONOMIC RISK. Cendant has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to Liberty Digital so that it is capable of evaluating the
merits and risks of its investment in Liberty Digital and has the capacity to
protect its own interests. Cendant must bear the economic risk of this
investment indefinitely unless the Purchaser Shares are registered pursuant to
the Securities Act or an exemption from registration is available. Cendant also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even
6
<PAGE>
if available, such exemption may not allow Cendant to transfer all or any
portion of the Purchaser Shares under the circumstances in the amounts or at the
times Cendant might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Cendant is acquiring the Purchaser
Shares for Cendant's own account for investment only and not with a view towards
their distribution other than as contemplated herein.
(c) CENDANT CAN PROTECT ITS INTEREST. Cendant represents that by reason
of its, or of its management's, business or financial experience, Cendant has
the capacity to protect its own interests in connection with the transactions
contemplated in this Agreement.
(d) ACCREDITED INVESTOR. Cendant represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(e) CENDANT ACKNOWLEDGMENT. Cendant has conducted its own independent
investigation, review and analysis of Liberty Digital. In entering into this
Agreement, Cendant acknowledges that it has relied solely upon the
representations and warranties made in Article III of this Agreement and/or the
aforementioned investigation, review and analysis, and, other than with respect
to the representations and warranties made in Article III of this Agreement,
Cendant acknowledges that none of Liberty Digital, or any of its directors,
officers, employees, affiliates, controlling persons, agents, advisors or
representatives makes or has made any representation or warranty, either express
or implied
(f) RULE 144. Cendant acknowledges and agrees that the Purchaser Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available as
contemplated herein. Cendant has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act, which permits limited resale of
Purchaser Shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things: the availability of certain
current public information about Liberty Digital, the resale occurring not less
than one year after a party has purchased and paid for the security to be sold,
the sale being through an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934, as amended) and the number of Purchaser Shares being sold
during any three-month period not exceeding specified limitations.
7
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LIBERTY DIGITAL
Section 3.1 ORGANIZATION. Liberty Digital is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power and authority to carry on its
business substantially as it is now being conducted.
Section 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Liberty Digital has
the corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all requisite corporate action on the part
of Liberty Digital. This Agreement has been duly and validly executed and
delivered by Liberty Digital and (assuming this Agreement has been duly
authorized, executed and delivered by Cendant) constitutes a valid and binding
agreement of Liberty Digital, enforceable against Liberty Digital in accordance
with its terms, except that (a) such enforcement may be subject to any
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws, now or hereafter in effect, relating to or limiting creditors' rights
generally and (b) enforcement of this Agreement, including, among other things,
the remedy of specific performance and injunctive and other forms of equitable
relief, may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Section 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the
execution and delivery of this Agreement by Liberty Digital, nor the
consummation by Liberty Digital of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws (or similar organizational documents) of Liberty
Digital, (b) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or require any consent under,
any indenture, license, contract, agreement or other instrument or obligation to
which Liberty Digital is a party, (c) violate any order, writ, injunction,
decree or award rendered by any Governmental Entity or Law applicable to Liberty
Digital, or (d) require any filing with, or the obtaining of any permit,
authorization, consent or approval of, any Governmental Entity, except in the
case of clauses (c) and (d) of this Section 3.3, for the applicable requirements
of the HSR Act.
Section 3.4 PURCHASER SHARES. The Purchaser Shares have been duly and
validly authorized and, when a certificate evidencing the Purchaser Shares is
issued
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<PAGE>
and delivered in accordance with the terms of this Agreement, the Purchaser
Shares shall be duly and validly issued, fully paid and non-assessable. Other
than as provided for herein, delivery of the certificate(s) for the Purchaser
Shares will pass valid title to the Purchaser Shares, free and clear of any
claim, lien, charge, security, interest, encumbrance, restriction on transfer or
voting or other defect in title whatsoever ("Liens"), other than Liens resulting
from any action(s) by Cendant.
Section 3.5 CAPITALIZATION. The authorized capital of Liberty Digital
consists of 295,000,000 shares of Series A Common Stock, 200,000,000 shares of
Series B Common Stock and 5,000,000 shares of preferred stock, par value $.01
per share (the "Preferred Stock"). As of January 31, 2000, there were 26,638,479
shares of Series A Common Stock issued and outstanding, 171,950,167 shares of
Series B Common Stock issued and outstanding and 150,000 shares of Preferred
Stock issued and outstanding, all of which are designated as Series B Preferred
Stock.
Section 3.6 SEC REPORTS. Since January 1, 1998, Liberty Digital has
filed all required reports, schedules, forms, statements and other documents,
including exhibits and all other information incorporated therein (the "SEC
Documents"), with the SEC. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents when filed (as
amended and restated and as supplemented by subsequently filed SEC Documents)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 3.7 INVESTMENT REPRESENTATIONS. Liberty Digital understands
that the Shares have not been registered under the Securities Act. Liberty
Digital also understands that the shares are being offered and sold pursuant to
an exemption from registration contained in the Securities Act based in part
upon Liberty Digital's representations contained in the Agreement.
Liberty Digital hereby represents and warrants as follows:
(a) LIBERTY DIGITAL BEARS ECONOMIC RISK. Liberty Digital has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to Cendant and Move.com Group so
that it is capable of evaluating the merits and risks of its investment in
Cendant and Move.com Group and has the capacity to protect its own interests.
Liberty Digital
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<PAGE>
must bear the economic risk of this investment indefinitely unless the Shares
are registered pursuant to the Securities Act or an exemption from registration
is available. Liberty Digital also understands that there is no assurance that
any exemption from registration under the Securities Act will be available and
that, even if available, such exemption may not allow Liberty Digital to
transfer all or any portion of the Shares under the circumstances in the amounts
or at the times Liberty Digital might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Liberty Digital is acquiring
the Shares for Liberty Digital's own account for investment only and not with a
view towards their distribution.
(c) LIBERTY DIGITAL CAN PROTECT ITS INTEREST. Liberty Digital
represents that by reason of its, or of its management's, business or financial
experience, Liberty Digital has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement.
(d) ACCREDITED INVESTOR. Liberty Digital represents that it is
an accredited investor within the meaning of Regulation D under the Securities
Act.
(e) LIBERTY DIGITAL ACKNOWLEDGMENT. Liberty Digital has
conducted its own independent investigation, review and analysis of Cendant and
Move.com Group. In entering into this Agreement, Liberty Digital acknowledges
that it has relied solely upon the representations and warranties made in
Article II of this Agreement, the information contained in the Move.com
Registration Statement and the Move.com Proxy Statement and the aforementioned
investigation, review and analysis, and, other than as specified above, Liberty
Digital acknowledges that none of Move.com Group, Cendant, or any of its
directors, officers, employees, affiliates, controlling persons, agents,
advisors or representatives makes or has made any representation or warranty,
either express or implied.
(f) RULE 144. Liberty Digital acknowledges and agrees that the
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. Liberty
Digital has been advised or is aware of the provisions of Rule 144 promulgated
under the Securities Act, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things: the availability of certain current public information about
Cendant, the resale occurring not less than one year after a party has purchased
and paid for the security to be sold, the sale being through an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of
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1934, as amended) and the number of shares being sold during any three-month
period not exceeding specified limitation.
ARTICLE IV
COVENANTS
Section 4.1 CONSENTS; COOPERATION. Each of Cendant and Liberty Digital
shall cooperate, and use its reasonable best efforts, to prepare and file all
necessary materials with the appropriate Governmental Entities pursuant to the
HSR Act within ten business days of the date of this Agreement. Each party
covenants to (x) furnish the other party with such necessary or appropriate
information and reasonable assistance as such other party may reasonably request
in connection with its preparation of necessary filings and submission pursuant
to the HSR Act and (y) use its commercially reasonable efforts to comply as
promptly as possible with requests for additional information issued by
applicable Governmental Entities pursuant to the HSR Act.
Section 4.2 FUTURE DEVELOPMENT EFFORTS.
(a) From and after the Closing Date, each of Cendant and
Liberty Digital agrees to use good faith efforts to negotiate and enter into
mutually acceptable agreements relating to the development of real estate
related programming for Liberty Digital's interactive home channel based on
Move.com Group's web content, subject to the negotiation of mutually agreeable
terms between the parties relating to such efforts. Unless terminated by either
party on or before any anniversary hereof occurring after the first anniversary
hereof, such provision will automatically continue until the following
anniversary hereof.
(b) From and after the Closing, each of Cendant and Liberty
Digital agree to endeavor to introduce the respective parties to their business
partners for purposes of enhancing their respective business development efforts
for as long as Cendant and Liberty Digital mutually agree to provide each other
such introductions; provided that the determination as to the appropriateness of
making an introduction shall be in the introducing party's sole discretion.
(c) The provisions of this Section 4.2 shall not prohibit nor
in any way interfere with the right of Liberty Digital, Move.com Group or
Cendant, or any of their respective affiliates, to engage in any business or
pursue any business opportunity (including entering into any agreement in
connection therewith),
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anywhere in the world, including those that may be in competition with, or
complimentary to, any business engaged in by the other party or any of its
affiliates.
Section 4.3 PUBLIC ANNOUNCEMENTS. Prior to the Closing, except as
otherwise agreed to by the parties, neither party shall issue any report,
statement or press release or otherwise make any public statements with respect
to this Agreement and the transactions contemplated hereby, except as in the
reasonable judgment of such party may be required by law or in connection with
its obligations as a publicly-held, exchange-listed company, in which case the
parties will use their reasonable best efforts to reach mutual agreement as to
the language of any such report, statement or press release. Upon execution
hereof and upon the Closing, Cendant and Liberty Digital will consult with each
other with respect to the issuance of a joint report, statement or press release
with respect to this Agreement and the transactions contemplated hereby.
Section 4.4 SALE OF PURCHASER SHARES.
(a) Until the second anniversary of the Closing, Cendant
agrees not to sell, transfer or otherwise dispose of Purchaser Shares other than
up to one-seventh of the Purchaser Shares in each fiscal quarter beginning with
the fiscal quarter following the Closing Date; provided that such restrictions
shall terminate if, at any time, Liberty Media Corporation, a Delaware
corporation ("Liberty Media"), together with any affiliates of Liberty Media,
fails to own at least 50% of the combined voting power of the securities of
Liberty Digital. Cendant acknowledges that, until such time as the Liberty
Digital Registration Statement becomes effective, the Purchaser Shares will
constitute "restricted securities" as that term is used in Rule 144 promulgated
under the Securities Act. The right to sell Purchaser Shares in any quarter
pursuant to the foregoing sentence shall not cumulate except that if the Liberty
Digital Registration Statement does not become effective within 90 days of the
Closing Date such sale right will cumulate for each fiscal quarter for which
Cendant was unable to sell the Purchaser Shares as a result of the failure of
the Liberty Digital Registration Statement to be declared effective.
Notwithstanding the foregoing, Liberty Digital shall have a one-time right to
request, and Cendant agrees to comply with such request, that Cendant not sell
the Purchaser Shares for a period not to exceed 42 days. Cendant agrees that
Liberty Digital may instruct its transfer agent to place stop transfer notations
in its records to enforce the immediately preceding sentence.
(b) Notwithstanding the foregoing, Cendant may subject the
Purchaser Shares to liens, pledges or other security interests in connection
with a bona fide financing so long as the pledgee or secured party executes an
instrument
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reasonably acceptable to Liberty Digital agreeing to be bound by the
restrictions on transfer set forth in this Section 4.4.
Section 4.5 BOARD REPRESENTATION. Cendant agrees to nominate and
appoint Lee Masters as a member of the Move.com Group advisory board or similar
board, effective upon the later of the Closing Date or the formation of such
board.
Section 4.6 REGISTRATION RIGHTS AGREEMENT. At the Closing, Cendant and
Liberty Digital shall enter into a registration rights agreement, substantially
in the form attached hereto as Exhibit B relating to the Shares (the
"Registration Rights Agreement").
Section 4.7 REGISTRATION STATEMENT. Following the Closing, Liberty
Digital shall prepare and file with the SEC a "shelf" registration statement on
Form S-3 (the "Liberty Digital Registration Statement") to register the
Purchaser Shares for resale by Cendant in accordance with the procedures
described on EXHIBIT A to this Agreement.
Section 4.8 REDEMPTION. If Cendant redeems all of the shares of
Move.com Stock in exchange for shares of Cendant common stock or other
securities of Cendant it will use commercially reasonable efforts to ensure that
shares of Move.com Stock held by Liberty Digital are redeemed in a transaction
that does not give rise to United States federal income tax liability.
Section 4.9 SALE OF SHARES BELOW PURCHASE PRICE. If Cendant issues or
sells Additional Shares of Move.com Stock (as defined below) after the date
hereof for aggregate consideration of at least $10 million, in any transaction
or series of related transactions (including in an initial public offering of
the Move.com Stock (an "IPO"), for an Effective Price (as defined below) less
than the Effective Price of the Shares (a "Qualifying Transaction"), Cendant
shall transfer to Liberty Digital a number of shares of Series A Common Stock
equal to the quotient of (a)(i) $50 million MINUS (ii) the product of (A)
1,598,030 (as adjusted for stock splits, stock dividends, combinations, or other
recapitalizations occurring after the date hereof and affecting the Move.com
Stock) MULTIPLIED BY (B) the Effective Price of the Additional Shares of
Move.com Stock issued or sold in such Qualified Transaction, DIVIDED BY (b) the
Liberty Digital Stock Value.
Cendant's obligation to transfer shares of Series A Common Stock
pursuant to this Section 4.9 shall only apply to one Qualifying Transaction
which occurs upon the earlier of (i) the consummation of an IPO or (ii) June 30,
2001 (the earlier of such dates, the "Measurement Date"). Within five business
days following the
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Measurement Date, Cendant shall transfer to Liberty Digital a number of shares
of Series A Common Stock calculated pursuant to the formula described in the
preceding paragraph, using the lowest Effective Price of the Additional Shares
of Move.com Stock applicable to any Qualifying Transaction occurring after the
date hereof and on or prior to the Measurement Date.
"ADDITIONAL SHARES OF MOVE.COM STOCK" shall mean all shares of Move.com
Stock or securities convertible into or exercisable or exchangeable for Move.com
Stock issued or issuable by Cendant other than (a) shares of Move.com Stock
issued upon the conversion or exchange of (i) shares of Move.com, Inc. Common
Stock outstanding on the date hereof and (ii) shares of CD Stock in accordance
with the terms of the Amended Charter, (b) shares of Move.com Stock and/or
options, warrants or other rights to acquire Move.com Stock and the Move.com
Stock issued pursuant to such options, warrants or other rights to acquire
shares issued to employees, officers or directors of, or consultants or advisors
to Cendant or Move.com Group or any subsidiary pursuant to stock purchase or
stock option plans or other arrangements, (c) shares of Move.com Stock issued or
issuable pursuant to the exercise of options, warrants or convertible securities
outstanding as of the date hereof, including the option granted to Chatham
Street Holdings, LLC on September 30, 1999, (d) shares of Move.com Stock and/or
options, warrants or other rights to acquire Move.com Stock and the Move.com
Stock issued pursuant to such options, warrants or other rights which are issued
for consideration other than cash pursuant to a merger, consolidation,
acquisition or similar business combination approved by the Board, or (e) shares
of Move.com Stock and/or options, warrants or other rights to acquire Move.com
Stock issued pursuant to any bona fide lease, or debt financing from a bank or
similar financial institution covered in (c). The "EFFECTIVE PRICE" of
Additional Shares of Move.com Stock shall mean the quotient determined by
dividing the total number of Additional Shares of Move.com Stock issued or sold
by Cendant under this Section into the aggregate consideration received, or to
be received or deemed to have been received by Cendant under this Section for
such Additional Shares of Move.com Stock (including, in the case of options and
warrants and other rights to acquire shares, the consideration received for such
issuance as well as the exercise price payable, and in the case of indebtedness,
preferred stock or other securities which are convertible into or exchangeable
for Move.com Stock, the purchase price therefor together with the amount of
indebtedness or other obligations to be cancelled upon the conversion or
exchange of such indebtedness, preferred stock or other security in each case to
the extent such options, warrants or other rights to acquire shares are not
excluded from being Additional Shares of Move.com Stock pursuant to (a) through
(e) above). The "EFFECTIVE PRICE OF THE SHARES" shall equal $31.29 per share as
adjusted for stock splits, dividends, combinations or other recapitalizations
occurring after the date hereof.
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Section 4.10 EXCHANGE PROVISIONS. If the initial public offering of
Move.com Stock has not been consummated by June 30, 2001, then Cendant and
Liberty Digital agree to exchange the Shares for shares of Cendant common stock,
par value $.01 per share ("CD Stock"), as follows: Liberty Digital shall receive
a number of shares of CD Stock determined by dividing (a) $50 million by (b) the
average of the per share closing prices of CD Stock on the New York Stock
Exchange for the 20 consecutive trading days immediately preceding June 30, 2001
(appropriately adjusted in the event of any stock split, dividend, combination,
recapitalization or similar event occurring during such 20 day period. The CD
Stock delivered pursuant to this Section 4.10 shall be validly issued, fully
paid and nonassessible and not subject to any Liens (other than as may be
created by Liberty Digital) and will be registered under the Securities Act and
freely tradable by Liberty Digital.
ARTICLE V
CONDITIONS AND TERMINATION
Section 5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE
TRANSACTIONS UNDER THIS AGREEMENT. The respective obligations of each party to
consummate the transactions contemplated hereby is subject to the satisfaction
at or prior to the Closing of the following conditions:
(a) Any waiting periods applicable to the transactions
contemplated by this Agreement under the HSR Act shall have
expired or been terminated; and
(b) Neither Cendant nor Liberty Digital shall be subject to any
order, decree or injunction of a court of competent
jurisdiction, and no statute, rule or regulation shall have
been enacted, promulgated or issued, which enjoins or
prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 5.2 CONDITIONS TO CENDANT'S OBLIGATIONS TO CONSUMMATE THE
TRANSACTIONS UNDER THIS AGREEMENT. The obligation of Cendant to consummate the
transactions contemplated hereby are further subject to the satisfaction or
waiver of the following conditions:
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(a) The representations and warranties of Liberty Digital
contained in this Agreement shall be true and correct at and
as of the Closing Date in all material respects as though such
representations and warranties were made at and as of such
date (except to the extent expressly made as of an earlier
date, in which case, as of such date);
(b) Liberty Digital shall have performed and complied in all
material respects with all agreements and obligations required
by this Agreement to be performed or complied with by it on or
prior to the Closing; and
(c) Liberty Digital shall have delivered to Cendant an officer's
certificate to the effect that each of the conditions
specified above in Sections 5.2(a) and (b) is satisfied.
Section 5.3 CONDITIONS TO LIBERTY DIGITAL'S OBLIGATIONS TO CONSUMMATE
THE TRANSACTIONS UNDER THIS AGREEMENT. The obligation of Liberty Digital to
consummate the transactions contemplated hereby are further subject to
satisfaction or waiver of the following conditions:
(a) The representations and warranties of Cendant contained in
this Agreement shall be true and correct at and as of the
Closing Date in all material respects as though such
representations and warranties were made at and as of such
date (except to the extent expressly made as of an earlier
date, in which case, as of such date);
(b) Cendant shall have performed and complied in all material
respects with all agreements and obligations required by this
Agreement to be performed or complied with by it on or prior
to the Closing; and
(c) Cendant shall have delivered to Liberty Digital an officer's
certificate to the effect that each of the conditions
specified above in Sections 5.3(a) and (b) is satisfied.
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ARTICLE VI
TERMINATION
Section 6.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual agreement of the parties; or
(b) by Cendant or Liberty Digital at any time after 90 days from
the date of this Agreement if the Closing shall not have
occurred by such date; PROVIDED, however, that the right to
terminate this Agreement under this Section 6.1(b) shall not
be available to a party if it has breached any of its
representations, warranties or covenants hereunder in any
material respect and such breach has been the cause of or
resulted in the failure of the Closing to occur on or before
such date.
Section 6.2 PROCEDURE FOR AND EFFECT OF TERMINATION. In the event of
termination of this Agreement and the abandonment of the transactions
contemplated hereby by the parties pursuant to Section 6.1 hereof, written
notice thereof shall be given by a party so terminating to the other party and
this Agreement shall forthwith terminate and shall become null and void and of
no further effect, and the transactions contemplated hereby shall be abandoned
without further action by Cendant or Liberty Digital. If this Agreement is
terminated pursuant to Section 6.1 hereof:
(a) all filings, applications and other submissions made pursuant
hereto shall, to the extent practicable, be withdrawn from the
Governmental Entity to which made; and
(b) there shall be no liability or obligation hereunder on the
part of Cendant or Liberty Digital or any of their respective
directors, officers, employees, affiliates, controlling
persons, agents or representatives, except that Cendant or
Liberty Digital, as the case may be, may have liability to the
other party if the basis of termination is a breach by Cendant
or Liberty Digital, as the case may be, of one or more of the
provisions of this Agreement, and except that the obligations
provided for in this Section 6.2 shall survive any such
termination.
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ARTICLE VII
MISCELLANEOUS
Section 7.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties relating to the subject matter hereof and supersedes
other prior agreements and understandings between the parties both oral and
written regarding such subject matter.
Section 7.2 SEVERABILITY. Any provision of this Agreement that is held
by a court of competent jurisdiction to violate applicable law shall be limited
or nullified only to the extent necessary to bring the Agreement within the
requirements of such law.
Section 7.3 NOTICES. Any notice required or permitted by this Agreement
must be in writing and must be sent by facsimile, by nationally recognized
commercial overnight courier, or mailed by United States registered or certified
mail, addressed to the other party at the address below or to such other address
for notice (or facsimile number, in the case of a notice by facsimile) as a
party gives the other party written notice of in accordance with this Section
7.3. Any such notice will be effective as of the date of receipt:
(a) if to Cendant, to
Cendant Corporation
9 West 57th Street
37th Floor
New York, New York 10019
Fax: (212) 413-1922/23
Attention: Eric J. Bock
Senior Vice President, Legal
(b) if to Liberty Digital, to
Liberty Digital Inc.
12312 W. Olympic Blvd.
Los Angeles, CA 90064
Fax:
Attention: Craig Enenstein
Vice President, Business Development
and Strategy
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(c) with a copy (which shall not constitute effective notice)
to
Baker Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Fax: (212) 705-5125
Attention: Frederick H. McGrath
Craig Troyer
Section 7.4 GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by, enforced under and construed in accordance with the laws of the
State of New York, without giving effect to any choice or conflict of law
provision or rule thereof. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States of America in each case
located in the County of New York for any litigation arising out of or relating
to this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts) and further
agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in Section 7.3 (or to such
other address for notice that such party has given the other party written
notice of in accordance with Section 7.3) shall be effective service of process
for any litigation brought against it in any such court. Each of the parties
hereto hereby irrevocably and unconditionally waives any objection to the laying
of venue of any litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or of the United
States of America in each case located in the County of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such litigation brought in any such court has been
brought in an inconvenient forum.
Section 7.5 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and shall in no way be construed to
define, limit, describe, explain, modify, amplify, or add to the interpretation,
construction or meaning of any provision of, or scope or intent of, this
Agreement nor in any way affect this Agreement.
Section 7.6 COUNTERPARTS. This Agreement may be signed in counterparts
and all signed copies of this Agreement will together constitute one original of
this Agreement. This Agreement shall become effective when each party hereto
shall have received counterparts thereof signed by all the other parties hereto.
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Section 7.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party, except that Liberty Digital may cause the Shares to
be sold to, and registered in the name of, a wholly owned direct or indirect
subsidiary of Liberty Digital. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 7.8 DEFINITION OF "SHARES" AND "PURCHASER SHARES." As used in
this Agreement, the term "Shares" includes (a) all dividends (other than
ordinary cash dividends with a record date prior to the Closing) and
distributions declared by Cendant on the Shares subsequent to the date hereof
and prior to the Closing and (b) shall be appropriately adjusted to give effect
to any subdivision, combination or reclassification of the Shares effected prior
to the Closing. As used in this Agreement, the term "Purchaser Shares" includes
(a) all dividends (other than ordinary cash dividends with a record date prior
to the Closing) and distributions declared by Liberty Digital on the Purchaser
Shares subsequent to the date hereof and prior to the Closing and (b) shall be
appropriately adjusted to give effect to any subdivision, combination or
reclassification of the Purchaser Shares effected prior to the Closing.
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly
signed as of the date first above written.
CENDANT CORPORATION
By: /s/ Samuel L. Katz
------------------------
Name:
Title:
LIBERTY DIGITAL, INC.
By: /s/ Lee Masters
------------------------
Name: Lee Masters
Title: President
<PAGE>
EXHIBIT A
REGISTRATION PROCEDURES
The rights and obligations of Cendant and Liberty Digital with
respect to the registration, offer and sale of the Purchaser Shares contemplated
in Section 4.7 of the Agreement are as set forth on this Exhibit A.
Section 1. DEFINITIONS; INTERPRETATION.
1.1 DEFINITIONS. As used in this Exhibit A, the following
terms have the following meanings.
"ACTION" has the meaning set forth in Section 3.3.
"AGREEMENT" means the Purchase Agreement, dated as of March 28, 2000,
between Liberty Digital and Cendant, to which this Exhibit A is annexed, as such
agreement may be amended, supplemented or modified in accordance with its terms.
"COMMISSION" means the Securities and Exchange Commission.
"LIBERTY DIGITAL INDEMNIFIED PARTIES" has the meaning set forth in
Section 3.2.
"PERSON" means an individual, partnership, corporation, trust, limited
liability company, unincorporated organization or government or political
department or agency thereof or other entity.
"REGISTERED SHARES" means (i) the shares of Series A Common Stock
issued and delivered to Cendant pursuant to the Agreement and (ii) any shares of
capital stock issued with respect to or in exchange for the shares referred to
in the preceding clause (i) by way of a stock dividend or stock split or in
connection with a recapitalization or a merger, consolidation or other
reorganization. As to any particular Registered Shares, such shares shall cease
to be Registered Shares when (i) the Liberty Digital Registration Statement
shall have become effective under the Securities Act and such Registered Shares
shall have been disposed of in accordance with the Liberty Digital Registration
Statement, (ii) such shares shall have been distributed pursuant to Rule 144 (or
any successor provision then in force) under the Securities Act, (iii) such
shares shall have been otherwise transferred, new certificates or other
evidences of ownership for them not bearing a legend restricting further
transfer and not subject to any stop transfer order or other restrictions on
transfer shall have been delivered by Liberty Digital or the transfer agent for
such shares and subsequent disposition of such shares shall not require
registration or qualification under the Securities Act or any state securities
laws then in force, (iv) such shares shall become eligible for sale pursuant to
Rule 144(k) or (v) such shares shall cease to be outstanding.
<PAGE>
"REGISTRATION EXPENSES" means the following expenses incident to
Liberty Digital's performance of its obligations hereunder: (i) registration and
filing fees with the Commission; (ii) fees and expenses of compliance with state
securities or "blue sky" laws (including reasonable fees and disbursements of
"blue sky" counsel); (iii) printing expenses, messenger and delivery expenses;
(iv) fees and expenses incurred in connection with the listing of the Registered
Shares on the Nasdaq National Market or on such securities exchange or other
national market system on which shares of Liberty Digital Common Stock may then
be principally traded; and (v) fees and expenses of counsel for Liberty Digital
and of its independent certified public accountants, including the expenses of
any special audits or "cold comfort" letters. The term "Registration Expenses"
does not include, and Liberty Digital shall not be responsible for: (1)
brokerage commissions, underwriting discounts and commissions and transfer taxes
attributable to the sale of any of the Registered Shares; (2) fees and
disbursements of underwriters and underwriters counsel (other than fees and
expenses of such counsel incurred in connection the "blue sky" qualification of
the Registered Shares); (3) fees and disbursements of counsel or of any experts
retained by Cendant in connection with the registration of the Registered Shares
or the disposition of such securities; or (4) any other out-of-pocket expenses
of Cendant.
"SELLER INDEMNIFIED PARTIES" has the meaning set forth in Section 3.1.
All other capitalized terms used herein and not otherwise defined have
the meanings ascribed thereto in the Agreement.
1.2 INTERPRETATION. When a reference is made in this Exhibit A
to a Section, such reference shall be to a Section of this Exhibit A, unless
otherwise clearly indicated. The headings contained in this Exhibit A are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Schedule or the Agreement. Whenever the word "including"
is used in this Exhibit A, it shall be deemed to be followed by the words
"without limitation". The use of any gender herein shall be deemed to be or
include the other genders and the use of the singular herein shall be deemed to
be or include the plural (and VICE VERSA), wherever appropriate.
Section 2. REGISTRATION.
2.1 REGISTRATION PROCEDURES.
Following the Closing, Liberty Digital shall (i) prepare and,
as soon as practicable thereafter but in no event more than 60 days following
the Closing Date, cause to be filed with the Commission the Liberty Digital
Registration Statement, and (ii) use its commercially reasonable efforts to
cause the Liberty Digital Registration Statement to be declared effective at the
earliest practicable date. In connection with such registration of the Liberty
Digital Shares, Liberty Digital shall:
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(i) prepare and file with the Commission such amendments and
supplements to the Liberty Digital Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all Registered
Shares covered by such registration statement until such time as all of
such Registered Shares have been disposed of in accordance with the
intended methods of disposition thereof as set forth in such
registration statement;
(ii) furnish to Cendant and any managing underwriter such
number of conformed copies of such registration statement and of each
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus), and such other
documents as Cendant or such managing underwriter may reasonably
request to facilitate the disposition of the Registered Shares in
accordance with the intended methods of disposition thereof as set
forth in such registration statement;
(iii) use its commercially reasonable efforts to register or
qualify all the Registered Shares under such securities or "blue sky"
laws of such jurisdictions as Cendant shall reasonably request (given
the intended methods of distribution), and do any and all other acts
and things which may be reasonably necessary or advisable to enable
Cendant to consummate the disposition in such jurisdictions of his
Registered Shares covered by such registration statement; PROVIDED that
in connection therewith Liberty Digital shall not be required to
register or qualify any Registered Shares under the securities or "blue
sky" laws of any jurisdiction where Liberty Digital would be required
(x) to qualify to do business as a foreign corporation or as a dealer
in such jurisdiction, (y) to conform its capitalization or the
composition of its assets at the time to the securities or "blue sky"
laws of such jurisdiction or (z) to take any action that would subject
it to service of process in suits other than those arising out of the
offer and sale of the Registered Shares covered by such registration
statement or subject itself to taxation in such jurisdiction;
(iv) immediately notify Cendant, at any time when a prospectus
relating thereto is required to be delivered pursuant to the Securities
Act, of the happening of any event which comes to the attention of
Liberty Digital and as a result of which the prospectus included in
such registration statement, as then in effect, would contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, and, subject to Section 2.4(c), Liberty Digital will
promptly prepare and furnish to Cendant a supplement to or an amendment
of such prospectus so that, as thereafter delivered to the purchasers
of such Registered Shares, such prospectus will not contain an untrue
statement of material fact or omit to state a
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material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(v) immediately notify Cendant of the issuance or, to the
knowledge of Liberty Digital, threatened issuance of any stop order by
the Commission suspending the effectiveness of the registration
statement or of the receipt by Liberty Digital of any notification with
respect to the suspension or threatened suspension of the qualification
of any Registered Shares for sale under the securities or blue sky laws
of any jurisdiction, and Liberty Digital shall take all practicable
action necessary (A) to prevent the entry of any threatened stop order
or any threatened suspension or (B) to remove any stop order or lift
any suspension once entered;
(vi) otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the Commission, and
make available to its securities holders as promptly as practicable an
earnings statement covering a period of twelve months beginning after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
(vii) enter into customary agreements (including an
underwriting agreement containing customary terms and conditions) and
take such other actions as are reasonably required to facilitate the
disposition of such Registered Shares; and
(viii) use its reasonable best efforts to cause the Registered
Shares to be listed on the Nasdaq National Market or on such other
securities exchange or national market system on which securities of
Liberty Digital of the same class are then principally traded.
2.2 REGISTRATION EXPENSES. Liberty Digital will pay all
Registration Expenses in connection with the registration of Registered Shares
pursuant to Section 2.1. Cendant will pay, and hold Liberty Digital harmless
from, all other costs and expenses incurred by or on behalf of Cendant or
Cendant in connection with an offer and sale or other disposition of Registered
Shares pursuant to this Exhibit A.
2.3 PREPARATION; REASONABLE INVESTIGATION. In connection with
the preparation and filing of the Liberty Digital Registration Statement,
Liberty Digital shall provide Cendant and its attorneys and accountants the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and shall make available and give each
of them such access to its books and records, pertinent corporate documents and
such opportunities to discuss the business of Liberty Digital with its employees
as shall be necessary for Cendant to conduct a reasonable investigation within
the meaning of Section 11 of the Securities Act. Liberty Digital
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shall not file any registration statement, any prospectus included therein or
any amendment thereof or supplement thereto with the Commission over the
reasonable objections of counsel for Cendant.
2.4 CERTAIN COVENANTS. In addition to the obligations under
the Agreement, including but not limited to Section 4.4 thereof, Cendant agrees
with Liberty as follows: (a) Cendant shall furnish to Liberty Digital such
information regarding Cendant, its intended method of distribution of Registered
Shares and such other information as Liberty Digital may from time to time
reasonably request for purposes of preparation of the Liberty Digital
Registration Statement and to maintain the effectiveness of such registration
statement.
(b) At least two business days prior to any disposition of
Registered Shares by Cendant, Cendant will orally advise Liberty Digital of the
dates on which such disposition is expected to commence and terminate, the
number of Registered Shares expected to be sold, the method of disposition and
such other information as Liberty Digital may reasonably request in order to
supplement the prospectus contained in the registration statement in accordance
with the rules and regulations of the Commission. Promptly after receiving such
advice, Liberty Digital will, if necessary, (i) prepare a supplement to the
prospectus based upon such advice and file the same with the Commission pursuant
to Rule 424(b) under the Securities Act and (ii), if necessary, qualify the
Registered Shares to be sold under the securities or blue sky laws of such
jurisdictions in the United States as Cendant shall reasonably request (subject
to the proviso of Section 2.1(iii)).
(c) Liberty Digital may postpone the filing or the
effectiveness of the Liberty Digital Registration Statement or suspend the use
of the Liberty Digital Registration Statement for a period of time, not to
exceed 180 days in any 12-month period, if Liberty Digital determines that the
filing or continued use of the Liberty Digital Registration Statement would
require Liberty Digital to disclose a material financing, acquisition or other
corporate development of Liberty Digital or any of its affiliates and Liberty
Digital shall have determined that such disclosure is not in the best interest
of Liberty Digital (any such determination to be made by resolution of the Board
of Directors of Liberty Digital); provided that (i) each executive officer and
director of Liberty Digital and (ii) each holder of more than 1% of any class of
capital stock of Liberty Digital (who, in the case of (ii) above is entitled to
similar registration rights granted by Liberty Digital), are subject to
restrictions substantially equivalent to those imposed on Cendant.
(d) Cendant agrees that, upon receipt of any notice from
Liberty Digital of the happening of any event of the kind described in Section
2.1(iv), Cendant will forthwith discontinue disposition of the Registered Shares
pursuant to such registration statement until receipt of copies of the
supplemented or amended prospectus contemplated by Section 2.1(iv), and, if so
directed by Liberty Digital, will deliver to Liberty Digital all copies of the
prospectus covering the Registered Shares in its possession at the time of
receipt of such notice.
(e) Cendant shall, at any time it is engaged in a distribution
of Registered Shares, comply with all applicable laws, including Regulation M
promulgated under the Exchange Act and (i) will not engage in any stabilization
activity in connection with the
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securities of Liberty Digital in contravention of such rules, (ii) will
distribute the Registered Shares solely in the manner described in the Liberty
Digital Registration Statement and (iii) will not bid for or purchase any
securities of Liberty Digital or attempt to induce any person to purchase any
securities of Liberty Digital other than as permitted under the Exchange Act.
(f) Cendant shall provide such information and materials,
execute all such documents and take all such other actions as Liberty Digital
shall reasonably request in order to permit Liberty Digital to comply with all
applicable requirements of law and to effect the registration of Cendant's
Registered Shares.
Section 3. INDEMNIFICATION.
3.1 INDEMNIFICATION BY LIBERTY DIGITAL. Liberty Digital will
indemnify and hold harmless Cendant, its directors, officers and partners and
each other Person, if any, who controls Cendant within the meaning of the
Securities Act or the Exchange Act ("Seller Indemnified Parties"), against any
and all losses, claims, damages or liabilities, joint or several, and expenses
to which the Seller Indemnified Parties, or any of them, may become subject,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses arise out of or are based upon (x)
any untrue statement or alleged untrue statement of any material fact contained
in the Liberty Digital Registration Statement, any preliminary, final or summary
prospectus included therein, or any amendment or supplement thereto, or (y) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
Liberty Digital will reimburse such Seller Indemnified Parties for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending such loss, claim, liability, action or proceeding; PROVIDED, that
Liberty Digital shall not be liable to any Seller Indemnified Party to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon (i) any actual or
alleged untrue statement in or any actual or alleged omission from, the Liberty
Digital Registration Statement or amendment or supplement thereto or any
preliminary, final or summary prospectus, in reliance upon and in conformity
with written information furnished by or on behalf of Cendant to Liberty Digital
specifically for use in the preparation thereof, (ii) any actual or alleged
untrue statement of a material fact or any actual or alleged omission of a
material fact required to be stated in any preliminary prospectus if Cendant
sells Registered Shares to a Person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the final prospectus
or of the final prospectus as then amended or supplemented, whichever is most
recent, if Liberty Digital had previously furnished copies thereof to Cendant or
its representatives and such final prospectus, as then amended or supplemented,
corrected any such misstatement or omission, (iii) the use of any preliminary,
final or summary prospectus by or on behalf of Cendant after Liberty Digital has
notified Cendant, in accordance with Section 2.1(iv), that such prospectus
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein, in the light of the circumstances under
which they were made, not misleading, (iv) the use of any final prospectus, as
amended or supplemented, by or on behalf of Cendant after such time as the
obligation of Liberty Digital under Section 2.1(i) to keep the related
registration statement effective has expired or (v) any violation of any federal
or state securities laws, rules or regulations committed
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by Cendant (other than any violation that arises out of or is based upon the
circumstances described in clause (x) or (y) above and as to which Cendant would
otherwise be entitled to indemnification hereunder).
3.2 INDEMNIFICATION BY CENDANT. Cendant will indemnify and
hold harmless Liberty Digital, each of its directors and officers, and each
Person, if any, who controls Liberty Digital within the meaning of the
Securities Act or the Exchange Act (the "Liberty Digital Indemnified Parties"),
against any and all losses, claims, damages or liabilities, joint or several,
and expenses to which the Liberty Digital Indemnified Parties may become
subject, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Liberty Digital Registration Statement, any preliminary, final or summary
prospectus included therein, or amendment or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with written
information furnished to Liberty Digital by or on behalf of Cendant specifically
for use in the preparation thereof, (ii) the use of any prospectus by or on
behalf of Cendant (x) after Liberty Digital has notified Cendant that such
prospectus contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein, in light of the circumstances under
which they were made, not misleading or (y) after such time as the obligation of
Liberty Digital to keep the Liberty Digital Registration Statement effective and
current has expired, (iii) the failure to send or deliver to a Person to whom
Cendant sells Registered Shares, at or prior to the written confirmation of
sale, a copy of the final prospectus or of the final prospectus as then amended
or supplemented, whichever is most recent, if Liberty Digital had previously
furnished copies thereof to Cendant or its representatives, or (iv) any
violation by Cendant of any federal or state securities law or rule or
regulation thereunder (other than any violation that arises out of or is based
upon the circumstances described in clause (x) or (y) of Section 3.1 above and
as to which Cendant is entitled to indemnification thereunder). Notwithstanding
the foregoing, Cendant shall not be liable under this Section 3.2 for any
amounts exceeding the gross proceeds received by Cendant in connection with the
sale of Cendant's Registered Shares.
3.3 INDEMNIFICATION PROCEDURES. Any Person that proposes to
assert the right to be indemnified under this Section 3 shall, promptly after
receipt of notice of any claim, action, suit, proceeding or other litigation
(collectively, an "Action") against such Person in respect of which a claim is
to be made against an indemnifying party under this Section 3, notify such
indemnifying party of the commencement of such Action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party of any such
Action shall not relieve it from any liability that it may have to any
indemnified party otherwise than under this Section 3, except to the extent that
such indemnifying party is prejudiced by such failure to give notice. In case
any such Action shall be brought and notice given to the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, with counsel satisfactory to
the indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any further
legal or other
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expenses incurred by such indemnified party, except as provided below and except
for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ separate counsel and to participate in (but not
control) any such Action, but the fees and expenses of such counsel shall be the
expense of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by its counsel in writing that there
are legal defenses available to it that are different from or in addition to
those available to the indemnifying parties, (iii) the indemnified party shall
have been advised by its counsel in writing that there is a conflict of interest
between the indemnifying party and the indemnified party in the conduct of the
defense of such Action (in which case the indemnifying party shall not have the
right to direct the defense of such Action on behalf of the indemnified party)
or (iv) the indemnifying party shall not in fact have employed counsel to assume
the defense of such Action, in each of which cases the fees and expenses of such
counsel shall be at the expense of the indemnifying party. An indemnifying party
shall not be liable for any settlement of an Action effected without its written
consent (which consent shall not be unreasonably withheld). No indemnifying
party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such Action. An indemnifying party who is not entitled to, or elects not to,
assume the defense of an Action will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such Action.
3.4 CONTRIBUTION. If recovery is not available under the
foregoing indemnification provisions, for any reason other than as specified
therein, the parties entitled to indemnification by the terms thereof shall be
entitled to contribution for any and all losses, claims, damages or liabilities,
joint or several, and expenses to which they may become subject, in such
proportion as is appropriate to reflect the relative fault of the parties
entitled to indemnification, on the one hand, and the indemnifying parties, on
the other, in connection with the matter out of which such losses, claims,
damages, liabilities or expenses arise or result from. In determining the amount
of contribution to which the respective parties are entitled, there shall be
considered the parties' relative knowledge and access to information concerning
the matter with respect to which the Action was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances. Liberty Digital and Cendant
agree that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation.
Section 4. RULE 144. Liberty Digital hereby covenants to use its best
efforts to file in a timely manner all reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder (or, if at any time Liberty Digital is not required to
file such reports, it will, upon the request of Cendant, make publicly available
other information so long as necessary to permit sales under Rule 144 under the
Securities Act), and it will take such further action as Cendant may reasonably
request, all to the extent required from time to time to enable Liberty Digital
to meet the requirements for issuers entitled to register securities on Form S-3
or any successor form.
<PAGE>
Exhibit 10.8
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March [ ], 2000 by
and between Cendant Corporation, a Delaware corporation ( "Cendant"), and
Liberty Digital, Inc., a Delaware corporation ("Liberty Digital").
1. INTRODUCTION. Cendant is a party to a Purchase Agreement
(the "Purchase Agreement") with Liberty Digital, pursuant to which Cendant has
agreed, among other things, to issue to Liberty Digital shares of a new series
of Cendant common stock, par value $.01 per share (the "Move.com Stock"). This
Agreement shall become effective upon the issuance of such shares to Liberty
Digital pursuant to the Purchase Agreement (the date of such issuance being the
"Closing Date"). Certain capitalized terms used in this Agreement are defined in
Section 3 hereof; references to Sections shall be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 REGISTRATION ON REQUEST.
(a) REQUEST. Subject to Section 2.5, Liberty Digital may
make up to (2) written requests that Cendant effect the registration under the
Securities Act of all or part of the Registrable Securities (a "Demand
Registration"). Any request for a Demand Registration will specify the aggregate
number of Registrable Securities proposed to be sold and the intended method of
disposition thereof. Cendant will, subject to the terms of this Agreement, use
reasonable efforts to effect such registration under the Securities Act of:
(i) the Registrable Securities which Cendant has been
so requested to register by Liberty Digital for disposition in
accordance with the intended method of disposition stated in such
request; and
(ii) all securities which Cendant may elect to
register in connection with the offering of Registrable Securities
pursuant to this Section 2.1,
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional securities
<PAGE>
referred to in clause (ii) above, if any, so to be registered, PROVIDED that
Cendant shall not be required to effect any registration of Registrable
Securities pursuant to this Section 2.1 unless the aggregate value of the
Registrable Securities requested to be registered by Liberty Digital is equal to
or greater than $10 million.
(b) REGISTRATION STATEMENT FORM. Registrations under
Section 2.1(a) shall be on such appropriate registration form of the Commission
(i) as shall be selected by Cendant and (ii) as shall permit the disposition of
such Registrable Securities in accordance with the intended method or methods of
disposition specified in the request for such registration.
(c) EXPENSES. Cendant shall pay any Registration Expenses
(excluding underwriting discounts and commissions, the fees of Liberty Digital's
counsel and transfer taxes, if any) in connection with each registration
requested under Section 2.1(a). Underwriting discounts and commissions and
transfer taxes (if any) in connection with each such registration shall be
allocated PRO RATA among all persons on whose behalf securities of Cendant are
included in such registration, on the basis of the respective amounts of the
securities then being registered on their behalf.
(d) EFFECTIVE REGISTRATION STATEMENT. A registration
requested pursuant to Section 2.1(a) shall not be deemed to have been effected
(i) unless a registration statement with respect thereto has become effective,
PROVIDED that a registration which does not become effective after Cendant has
filed a registration statement with respect thereto solely by reason of the
refusal to proceed of Liberty Digital (other than a refusal to proceed based
upon the advice of counsel to Liberty Digital relating to a matter with respect
to Cendant, in which case the registration shall be deemed not to have been
effected) shall be deemed to have been effected by Cendant at the request of
Liberty Digital, (ii) if, after it has become effective, such registration
becomes subject to, for longer than 60 days, any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court for
any reason which would prevent the effectiveness of the registration statement
or (iii) the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration are not
satisfied, other than by reason of an act or omission by Liberty Digital.
(e) SELECTION OF UNDERWRITERS. If a registration pursuant
to Section 2.1(a) involves an underwritten offering, the underwriter or
underwriters thereof shall be selected by Cendant, provided that if Liberty
Digital reasonably objects to the qualifications of such underwriter or
underwriters, Cendant shall select one or more underwriters other than the
underwriter or underwriters to which objection was so made.
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(f) PRIORITY IN REQUESTED REGISTRATIONS. If a registration
pursuant to Section 2.1(a) involves an underwritten offering, and the managing
underwriter shall advise Cendant in writing (with a copy to Liberty Digital)
that, in its opinion, the number of securities requested to be included in such
registration (including securities of Cendant which are not Registrable
Securities) exceeds the number which can be sold in such offering, Cendant will
include in such registration, to the extent of the number which Cendant is so
advised can be sold in such offering, (i) first, Registrable Securities
requested to be included in such registration by Liberty Digital and (ii)
second, securities Cendant proposes to sell. If any shares requested to be
included in such registration by Liberty Digital are excluded from registration,
then Liberty Digital shall have the right to withdraw all, or any part, of its
shares from such registration and if all shares are withdrawn in full such
Demand Registration shall not be deemed to have been effected and will not count
as a Demand Registration.
2.2 INCIDENTAL REGISTRATION. Subject to Section 2.5, if
Cendant at any time after the Closing Date proposes to register any shares of
Move.com Stock under the Securities Act (other than on Form S-4 or S-8 or any
successor or similar forms and other than pursuant to Section 2.1), whether or
not for sale for its own account, it will each such time give prompt written
notice to Liberty Digital of its intention to do so and of Liberty Digital's
rights under this Section 2.2; PROVIDED that Cendant will not give such notice
and will have no obligation to effect any registration of any Registrable
Securities under this Section 2.2 if the proposed registration is pursuant to an
agreement in effect on the date hereof which prohibits other holders of shares
of Move.com Stock from participating in such registration. Upon the written
request of Liberty Digital made within 10 business days after the receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by Liberty Digital and the intended method of disposition
thereof, provided that if the shares to be registered by Cendant are to be
distributed through one or more underwriters as provided in Section 2.4 Liberty
Digital must agree to distribute such Registrable Securities by or through such
underwriter or underwriters), Cendant will, subject to the terms of this
Agreement, use its reasonable efforts to effect the registration under the
Securities Act of all Registrable Securities which Cendant has been so requested
to register by Liberty Digital, to the extent required to permit the disposition
(in accordance with the intended methods thereof as aforesaid) of the
Registrable Securities so to be registered, by inclusion of such Registrable
Securities in the registration statement which covers the shares of Move.com
Stock which Cendant proposes to register (whether or not for sale for its own
account); PROVIDED, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, Cendant shall
determine for any reason either not
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<PAGE>
to register or to delay registration of such securities, Cendant may, at its
election, give written notice of such determination to Liberty Digital and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of Liberty
Digital to request that such registration be effected as a Demand Registration,
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities, for the same period as the
delay in registering such other securities. No registration effected under this
Section 2.2 shall relieve Cendant of its obligation to effect any Demand
Registration, nor shall any such registration hereunder be deemed to be a Demand
Registration. Cendant will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 2.2.
2.3 REGISTRATION PROCEDURES. If and whenever Cendant is
required to use its reasonable efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Sections 2.1 and
2.2, Cendant shall:
(i) prepare and file (in the case of a Demand
Registration, such filing to be made within 60 days after the initial
request of Liberty Digital with the Commission the requisite
registration statement to effect such registration and thereafter use
its reasonable efforts to cause such registration statement to become
and remain effective, PROVIDED, HOWEVER, that Cendant may postpone the
filing or effectiveness of any registration statement otherwise
required to be filed by Cendant pursuant to this Agreement or suspend
the use of any registration statement for a period of time, not to
exceed 180 days in any 12-month period, if Cendant determines that the
filing or continued use of such registration statement would require
Cendant to disclose a material financing, acquisition or other
corporate development of Cendant or any of its subsidiaries and Cendant
shall have determined that such disclosure is not in the best interests
of Cendant (any such determination to be made by resolution of the
Board of Directors of Cendant) PROVIDED, FURTHER, that Cendant may
discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances specified in
Section 2.2, its securities which are Registrable Securities) at any
time prior to the effective date of the registration statement relating
thereto;
(ii) subject to Section 2.1(d), prepare and file with
the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep
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<PAGE>
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement until the earlier of (A) such
time as all of such securities have been disposed of in accordance with
the intended methods of disposition set forth in such registration
statement or (B) the expiration of 90 days after such registration
statement becomes effective;
(iii) furnish to Liberty Digital such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities
Act, and such other documents, as Liberty Digital may reasonably
request in order to facilitate the public sale or other disposition of
the Registrable Securities;
(iv) use its reasonable efforts to register or qualify
all Registrable Securities and other securities covered by such
registration statement under such other securities laws or blue sky
laws of such jurisdictions as Liberty Digital shall reasonably request,
to keep such registrations or qualifications in effect for so long as
such registration statement remains in effect, and take any other
action which may be reasonably necessary or advisable to consummate the
disposition in such jurisdictions of the Registrable Securities, except
that Cendant shall not for any such purpose be required to qualify
generally to do business as a foreign corporation or dealer in any
jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified, to subject itself to
taxation in any such jurisdiction, to conform its capitalization or the
composition of its assets at the time to the securities or blue sky
laws of such jurisdiction or to consent to general service of process
in any such jurisdiction;
(v) furnish to each underwriter, if an underwritten
offering, customary "cold comfort" letters from its independent
auditors, legal opinions from counsel to Cendant on customary matters,
and such other certificates or other instruments reasonably requested
by such underwriters;
(vi) notify Liberty Digital and the managing
underwriter or underwriters, if any, promptly and confirm such advice
in writing promptly thereafter:
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(A) when the registration statement, the
prospectus or any prospectus supplement related thereto or
post-effective amendment to the registration statement has
been filed, and, with respect to the registration statement or
any post-effective amendment thereto, when the same has become
effective;
(B) of any request by the Commission for
amendments or supplements to the registration statement or the
prospectus or for additional information;
(C) of the issuance by the Commission of any
stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings by any Person
for that purpose;
(D) if at any time the representations and
warranties of Cendant made as contemplated by Section 2.4
below cease to be true and correct; and
(E) of the receipt by Cendant of any
notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the
securities or blue sky laws of any jurisdiction or the
initiation or threat of any proceeding for such purpose;
(vii) notify Liberty Digital, at any time when a
prospectus relating to a registration statement is required to be
delivered under the Securities Act, upon Cendant's discovery that, or
upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made, and as soon as practicable prepare and furnish to
Liberty Digital and each underwriter, if any, a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made;
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<PAGE>
(viii) use its reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the
registration statement at the earliest possible moment;
(ix) cause the Registrable Securities included in any
registration statement to be (A) listed on each securities exchange, if
any, on which the same securities issued by Cendant are then listed, or
(B) authorized to be quoted and/or listed (to the extent) applicable on
the NASDAQ National Market if the Registrable Securities so qualify;
(x) cooperate with Liberty Digital and each
underwriter participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings
required to be made with the National Association of Securities
Dealers, Inc. ("NASD");
(xi) during the period when a prospectus is required
to be delivered under the Securities Act, promptly file all documents
required to be filed with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange act; and
(xii) otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months,
but not more than eighteen months, beginning with Cendant's first full
calendar quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.
Cendant may require Liberty Digital to furnish Cendant such information
regarding the sellers and the distribution of the Registrable Securities as
Cendant may from time to time reasonably request in writing.
Cendant will not file any registration statement under Section
2.1 or amendment thereto or any prospectus or any supplement thereto (excluding
documents incorporated by reference which constitute required reports under the
Exchange Act) to which Liberty Digital shall reasonably object, PROVIDED that
Cendant may file such document in a form required by law or upon the advice of
its counsel.
At least two days prior to any disposition of Registrable
Securities by Liberty Digital, Liberty Digital will orally advise Cendant of the
dates on which such disposition is expected to commence and terminate, the
number of Registrable Securities
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<PAGE>
expected to be sold, the method of disposition and such other information as
Cendant may reasonably request in order to supplement the prospectus contained
in any registration statement in accordance with the rules and regulations of
the Commission. Promptly after receiving such advice, Cendant will, if
necessary, (i) prepare a supplement to such prospectus based upon such advice
and file the same with the Commission pursuant to Rule 424(b) under the
Securities Act and (ii) if necessary, qualify the Registrable Securities to be
sold under the securities or blue sky laws of such jurisdictions in the United
States as Liberty Digital shall reasonably request (subject to the proviso of
Section 2.3(iv)).
Liberty Digital agrees by acquisition of the Registrable
Securities that, upon receipt of any notice from Cendant of the occurrence of
any event of the kind described in subdivisions (vi) or (vii) of this Section
2.3, Liberty Digital will forthwith discontinue its disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until Liberty Digital's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivisions (vi) or (vii) of this Section
2.3 and, if so directed by Cendant, will deliver to Cendant (at Cendant's
reasonable expense) all copies, other than permanent file copies, then in
Liberty Digital's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
Liberty Digital shall, at any time it is engaged in the
distribution of Registrable Securities comply with all applicable laws,
including Regulation M promulgated under the Exchange Act and (i) will not
engage in any stabilization activity in connection with the securities Cendant
in contravention of such rules, (ii) will distribute the Registrable Securities
solely in the manner described in any applicable registration statement and
(iii) will not bid for or purchase any securities of Cendant or attempt to
induce any person to purchase any securities of Cendant other than as permitted
under the Exchange Act.
2.4 UNDERWRITTEN OFFERINGS.
(a) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the
underwriters for any underwritten offering pursuant to a Demand Registration,
Cendant will enter into an underwriting agreement with such underwriters for
such offering, such agreement to be reasonably satisfactory in substance and
form to Cendant and Liberty Digital, and to contain such representations and
warranties by Cendant and such other terms as are generally prevailing in
agreements of such type, including, without limitation, indemnities
substantially the same as those provided in Section 2.6. Liberty Digital will
cooperate with Cendant in the negotiation of the underwriting agreement
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<PAGE>
and will give consideration to the reasonable suggestions of Cendant regarding
the form thereof. Liberty Digital shall be a party to such underwriting
agreement.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If Cendant at any
time proposes to register any shares of Move.com Stock under the Securities Act
as contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, Cendant will, if requested by Liberty Digital
as provided in Section 2.2 and subject to the provisions of Section 2.3, use its
reasonable efforts to arrange for such underwriters to include all the
Registrable Securities to be offered and sold by Liberty Digital among the
securities to be distributed by such underwriters, PROVIDED that if the managing
underwriter of such underwritten offering shall inform Liberty Digital and the
holders of any other securities which shall have exercised, in respect of such
underwritten offering, registration rights comparable to the rights under
Section 2.2 by letter of its belief that inclusion in such underwritten
distribution of all or a specified number of such Registrable Securities or of
such other securities so requested to be included would interfere with the
successful marketing of the securities by the underwriters (such letter to state
the basis of such belief and the approximate number of such Registrable
Securities and shares of other securities so requested to be included which may
be included in such underwritten offering without such effect), then Cendant
may, upon written notice to Liberty Digital and all holders of such other
securities so requested to be included, exclude PRO RATA from such underwritten
offering (if and to the extent stated by such managing underwriter to be
necessary to eliminate such effect) the number of such Registrable Securities
and shares of such other securities so requested to be included the registration
of which shall have been requested by Liberty Digital and by the holders of such
other securities so that the resultant aggregate number of such Registrable
Securities and of such other shares of securities so requested to be included
which are included in such underwritten offering shall be equal to the
approximate number of shares stated in such managing underwriter's letter.
Liberty Digital shall be a party to the underwriting agreement between Cendant
and such underwriters. If as a result of the provisions of this Section 2.4(b)
Liberty Digital shall not be entitled to include all Registrable Securities in a
registration that it has requested to be so included, Liberty Digital may
withdraw its request to include Registrable Securities in such registration
statement prior to its effectiveness provided such withdrawal is made within 1
business day of Liberty Digital's receipt of notice of such event.
(c) HOLDBACK AGREEMENT. Liberty Digital agrees by
acquisition of the Registrable Securities, if so required by the managing
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of, effect any public sale or distribution of, make any sale or
distribution pursuant to Rule 144 (or any
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successor provision) under the Securities Act of or otherwise dispose of any
shares of Move.com Stock, during the period of not more than 180 days after any
underwritten registration of Move.com Stock pursuant to Section 2.1 or 2.2 has
become effective, except as part of such underwritten registration, whether or
not Liberty Digital participates in such registration. Liberty Digital agrees
that Cendant may instruct its transfer agent to place stop transfer notations in
its records to enforce this Section 2.4(c), provided that in connection with
such underwritten registration (i) each executive officer and director of
Cendant and (ii) each holder of 1% or more of any class of capital stock of
Cendant (who, in the case of (ii) above, is entitled to similar registration
rights granted by Cendant) are subject to restrictions substantially equivalent
to those imposed on Liberty Digital.
(d) PARTICIPATION IN UNDERWRITTEN OFFERINGS. Liberty
Digital agrees that it will complete and execute all questionnaires,
indemnities, underwriting agreements and other documents (other than powers of
attorney) reasonably required and on reasonably acceptable terms under the terms
of any underwriting arrangements.
2.5 RESTRICTIONS ON RESALE.
(a) Notwithstanding anything in this agreement, until the
first anniversary of the Closing Date, Liberty Digital will not sell, transfer
or otherwise dispose of any Registrable Securities. Following the first
anniversary of the Closing Date and until the second anniversary of the Closing
Date, Liberty Digital will not sell, transfer or otherwise dispose of more than
one-half of the Registrable Securities and will not make a request for more than
one Demand Registration. Following the second anniversary of the Closing Date,
Liberty Digital may sell, transfer or otherwise dispose of any or all of the
Registrable Securities. Notwithstanding the foregoing, Liberty Digital may
subject Registrable Securities to liens, pledges or other security interests in
connection with a bona fide financing so long as the pledgee or secured party
executes an instrument reasonably acceptable to Cendant agreeing to be bound by
the restrictions on transfer set forth herein.
(b) In no event will Liberty Digital have any rights under
Sections 2.1 or 2.2 of this agreement until after the closing of an initial
public offering of the Move.com Stock.
2.6 INDEMNIFICATION.
(a) INDEMNIFICATION BY CENDANT. In the event of any
registration of any securities of Cendant under the Securities Act, Cendant
will, and
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hereby agrees to, indemnify and hold harmless Liberty Digital, its directors and
officers, and each other Person, if any, who controls Liberty Digital within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which Liberty Digital or any such director or
officer or controlling Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (x) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or (y) alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and Cendant will reimburse Liberty Digital and each such
director, officer, and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, PROVIDED that Cendant shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to Cendant
through an instrument duly executed by Liberty Digital specifically stating that
it is for use in the preparation thereof, PROVIDED, FURTHER, that Cendant shall
not be liable to Liberty Digital in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of Liberty Digital's failure to send or give a copy of the
final prospectus, as the same may be then supplemented or amended, within the
time required by the Securities Act to the Person asserting the existence of an
untrue statement or alleged untrue statement or omission or alleged omission at
or prior to the written confirmation of the sale of Registrable Securities to
such Person if such statement or omission was corrected in such final
prospectus; and PROVIDED, FURTHER, that Cendant shall not be liable to Liberty
Digital in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based (i) upon the use of any preliminary final or summary prospectus by
or on behalf of Liberty Digital after Cendant has notified Liberty Digital, in
accordance with Section 2.3(vii), that such prospectus contains an untrue
statement of a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, (ii) the use of any final prospectus, as amended or
supplemented, by or on behalf of Liberty Digital after such time as the
obligation of Cendant to keep the related registration statement effective has
expired or (iii) any violation of any federal or state
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securities laws, rules or regulations committed by Liberty Digital (other than
any violation that arises out of or is based upon the circumstances described in
clause (x) or (y) above and as to which Liberty Digital would otherwise be
entitled to indemnification hereunder). Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of Liberty
Digital or any such director, officer, or controlling Person and shall survive
the transfer of such securities by Liberty Digital.
(b) INDEMNIFICATION BY LIBERTY DIGITAL. Cendant may
require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to this Agreement, that Cendant shall have
received an undertaking satisfactory to it from Liberty Digital, to indemnify
and hold harmless (in the same manner and to the same extent as set forth in
subdivision (a) of this Section 2.6) Cendant, each director of Cendant, each
officer of Cendant and each other Person, if any, who controls Cendant within
the meaning of the Securities Act, with respect to (i) any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to Cendant through an instrument
duly executed by Liberty Digital specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, (ii) the use of any
prospectus by or on behalf of Liberty Digital after Cendant has notified Liberty
Digital that such prospectus contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, (iii) the failure to send or deliver to a Person to whom
Liberty Digital sells Registrable Securities at or prior to the written
confirmation of sale, a copy of the final prospectus or of the final prospectus
as then amended or supplemented, whichever is most recent, if Cendant has
previously furnished copies thereof to Liberty Digital or its representatives,
or (iv) any violation by Liberty Digital of any federal or state securities law
or rule or regulation thereunder (other than any violation that arises out of or
is based upon circumstances described in clause (x) or (y) of Section 2.6(a)
above and as to which Liberty Digital is entitled to indemnification
thereunder). Any such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of Cendant or any such
director, officer or controlling person and shall survive the transfer of such
securities by Liberty Digital. Notwithstanding the foregoing, the indemnity
obligation of Liberty Digital pursuant to this Section 2.6(b) shall be limited
to an amount equal to the total proceeds (before deducting underwriting
discounts and commissions and expenses) received by Liberty Digital for the sale
of shares by Liberty Digital in a registration hereunder.
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(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.6,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, enclosing a copy of all papers served, PROVIDED that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 2.6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that the indemnifying
party may wish, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement of any such action which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability, and a covenant not to sue, in respect to such
claim or litigation. No indemnified party shall consent to entry of any judgment
or enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying party.
(d) INDEMNIFICATION PAYMENTS. The indemnification required
by this Section 2.6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(e) CONTRIBUTION. If the indemnification provided for in
the preceding subdivisions of this Section 2.6 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by
Cendant on the one hand and Liberty Digital on the other from the
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distribution of the Registrable Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of Cendant on the one hand and of Liberty
Digital on the other in connection with the statements or omissions which
resulted in such expense, loss, damage or liability, as well as any other
relevant equitable considerations. The relative benefits received by Cendant on
the one hand and Liberty Digital on the other in connection with the
distribution of the Registrable Securities shall be deemed to be in the same
proportion as the total net proceeds received by Cendant from the initial sale
of the Registrable Securities by Cendant bear to the gain, if any, realized by
Liberty Digital. The relative fault of Cendant on the one hand and of Liberty
Digital on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission to
state a material fact relates to information supplied by Cendant or by Liberty
Digital and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, PROVIDED that the
foregoing contribution agreement shall not inure to the benefit of any
indemnified party if indemnification would be unavailable to such indemnified
party by reason of the provisions contained in the first sentence of subdivision
(a) of this Section 2.6, and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (e) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (a) or
(b) of this Section 2.6 had been available under the circumstances.
Cendant and Liberty Digital agree that it would not be just
and equitable if contribution pursuant to this subdivision (e) were determined
by PRO RATA allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth in
the preceding sentence and subdivision (c) of this Section 2.6, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (e),
Liberty Digital shall not be required to contribute any amount in excess of the
amount by which the total proceeds (before deducting underwriting discounts and
commissions and expenses) received by Liberty Digital from the sale of
Registrable Securities exceeds the amount of any damages that Liberty Digital
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be
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entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
3. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any
other Federal agency at the time administering the
Securities Act.
MOVE.COM STOCK: As defined in Section 1.
CENDANT: As defined in the introductory paragraph of this
Agreement.
DEMAND REGISTRATION: A registration under the Securities
Act requested in accordance with Section 2.1.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in
effect at the time. Reference to a particular Section of
the Securities Exchange Act of 1934 shall include a
reference to the comparable Section, if any, of any such
similar Federal statute.
PERSON: A corporation, an association, a partnership, a
limited liability company, an organization, business, an
individual, a governmental or political subdivision
thereof, a governmental agency or any other entity.
REGISTRABLE SECURITIES: any shares of Move.com Stock
issued to Liberty Digital pursuant to the Purchase
Agreement and any securities issued or issuable with
respect to any Move.com Stock referred to above by way of
stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to
any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when
(a) a registration statement with respect to the sale of
such securities shall have become effective under the
Securities Act and such securities shall have been
disposed of in accordance with such
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registration statement, (b) they shall have been
distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act, (c) they
shall have been otherwise transferred, new certificates
for them not bearing a legend restricting further transfer
shall have been delivered by Cendant and subsequent
disposition of them shall not require registration or
qualification of them under the Securities Act or any
similar state law then in force, (d) they become eligible
for resale pursuant to Rule 144(k) (or any successor
provision) under the Securities Act or (e) they shall have
ceased to be outstanding.
REGISTRATION EXPENSES: All expenses incident to Cendant's
performance of or compliance with Section 2, including,
without limitation, all registration, filing and NASD
fees, all stock exchange listing fees, all fees and
expenses of complying with securities or blue sky laws,
all word processing, duplicating and printing expenses,
messenger and delivery expenses, the fees and
disbursements of counsel for Cendant and of its
independent public accountants, including the expenses of
any special audits or "cold comfort" letters required by
or incident to such performance and compliance and any
fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding (i)
brokerage commissions, underwriting discounts and
commissions and transfer taxes, if any; (ii) fees and
disbursements of counsel or of any experts retained by
Liberty Digital in connection with the registration of any
Registrable Securities or the distribution of such shares;
or (iii) any other out-of-pocket expenses of Liberty
Digital.
SECURITIES ACT: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the
Commission thereunder, all as of the same shall be in
effect at the time. References to a particular Section of
the Securities Act of 1933 shall include a reference to
the comparable Section, if any, of any such similar
federal statute.
4. AMENDMENTS AND WAIVERS. This Agreement may be amended and
Cendant may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if Cendant shall have obtained the written
consent to such amendment, action or omission to act, of Liberty Digital.
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5. NOTICES. Except as otherwise provided in this Agreement,
all notices, requests and other communications to any party hereto shall be in
writing and shall be given and addressed to such party in the manner set forth
in the Purchase Agreement or at such other address as such party shall have
furnished to the other party in writing. Each such notice, request or other
communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (ii) if given by any other means (including, without
limitation, by air courier), when delivered at the address specified above.
6. ASSIGNMENT. Except as set forth herein, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party, except that the provisions
of this Agreement which are for the benefit of Liberty Digital shall also be for
the benefit of and enforceable by any wholly owned direct or indirect subsidiary
of Liberty Digital to which Liberty Digital transfers any of its Registrable
Securities pursuant to the Purchase Agreement. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns. Liberty
Digital shall be entitled to assign all or any part of its rights under this
agreement to any Person to whom Liberty Digital sells, transfers, assigns or
pledges such Registrable Securities without the prior written consent of
Cendant; provided, that in the event of any such assignment, Liberty Digital
shall be appointed as representative of any such assignees for the purpose of
exercising the registration rights provided herein and Cendant shall not be
required to give any Person, other than Liberty Digital, any notice pursuant to
this Agreement or be obligated to take instruction from any Person other than
Liberty Digital.
7. DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
8. GOVERNING LAW. This agreement shall be governed by,
enforced under and construed in accordance with the laws of the State of New
York, without giving effect to any choice of law provision or rule thereof.
9. COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
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10. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between Cendant and Liberty Digital relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
11. SUBMISSION TO JURISDICTION. Each of the parties hereto
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United States of
America in each case located in the County of New York for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts) and further agrees that service of any process, summons, notice or
document by U.S. registered mail to its respective address set forth in Section
5 (or to such other address for notice that such party has given the other party
written notice of in accordance with Section 5) shall be effective service of
process for any litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York or of
the United States of America in each case located in the County of New York and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such litigation brought in any such court has
been brought in an inconvenient forum.
12. SEVERABILITY. If any provision of this Agreement, or the
application of such provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officers hereunto duly authorized
as of the date first above written.
CENDANT CORPORATION
By: /s/ Samuel L. Katz
---------------------------
Name:
Title:
LIBERTY DIGITAL, INC.
By: /s/ Lee Masters
---------------------------
Name: Lee Masters
Title: President
<PAGE>
Exhibit 10.9
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of March 28, 2000 (this
"Agreement"), by and between Cendant Corporation, a Delaware corporation
("Cendant"), and NRT Incorporated. a Delaware corporation ("NRT").
WHEREAS, Cendant has created a network of websites which offer
a wide selection of quality relocation, real estate and home-related products
and services primarily through a new internet portal at WWW.MOVE.COM (the
"Move.com Group");
WHEREAS, the shareholders of Cendant have approved a proposal
to create a new series of Cendant common stock, par value $.01 per share,
intended to track the performance of Move.com Group (the "Move.com Stock"); and
WHEREAS, NRT desires to purchase from Cendant, and Cendant
desires to sell to NRT, 319,591 shares (the "Shares") of Move.com Stock.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereby agree as follows:
ARTICLE I
THE PURCHASE
Section 1.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as hereinafter defined), Cendant
will issue to NRT, and NRT will purchase from Cendant, the Shares, in
consideration for which, at the Closing, NRT will pay to Cendant an amount equal
to ten million dollars ($10,000,000) in cash (the "Cash Consideration"). Upon
the Closing, NRT shall pay the Cash Consideration to Cendant by wire transfer of
immediately available funds to an account or accounts designated by Cendant in
writing for such purpose prior to the Closing and delivery of Shares.
Section 1.2 TIME AND PLACE OF CLOSING. Upon the terms and subject to
the conditions of this Agreement, the closing of the transactions contemplated
by this Agreement (the "Closing") will take place at the offices of Skadden,
Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New York 10036, at
9:00 a.m. (New York City time) on the third business day following the
satisfaction or waiver
<PAGE>
of the conditions set forth in Article V, unless another time or date is agreed
to by the parties hereto (the "Closing Date").
Section 1.3 DELIVERIES BY CENDANT. Subject to the terms and conditions
hereof, at the Closing, Cendant will deliver the following to NRT:
(a) A certificate or certificates, duly registered on the
stock books of Cendant in the name of NRT,
representing the Shares;
(b) A Registration Rights Agreement (as hereinafter
defined) duly executed by Cendant; and
(c) The officer's certificate provided for in Section
5.3(c).
Section 1.4 DELIVERIES BY NRT. Subject to the terms and conditions
hereof, at the Closing, NRT will deliver the following to Cendant:
(a) The Cash Consideration, in immediately available
funds, in the manner set forth in Section 1.1 hereof;
(b) The officer's certificate provided for in Section
5.2(c).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CENDANT
Section 2.1 ORGANIZATION. Cendant is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to carry on its business
substantially as it is now being conducted.
Section 2.2 AUTHORITY. Cendant has the corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all requisite corporate action on the part
of Cendant. This Agreement has been validly executed and delivered by Cendant
and (assuming this Agreement has been duly authorized, executed and delivered by
NRT) constitutes a valid and binding agreement of Cendant, enforceable against
Cendant in accordance with its terms, except that (a) such enforcement may be
subject to any
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bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws, now or hereafter in effect, relating to or limiting creditors' rights
generally and (b) enforcement of this Agreement, including, among other things,
the remedy of specific performance and injunctive and other forms of equitable
relief, may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Section 2.3 THE SHARES. Upon issuance, the Shares will be duly and
validly authorized and, when a certificate evidencing the Shares is issued and
delivered against payment of the Purchase Price in accordance with the terms of
this Agreement, the Shares shall be duly and validly issued, fully paid and
non-assessable. Delivery of the certificate(s) for the Shares will pass valid
title to the Shares, free and clear of any claim, lien, charge, security
interest, encumbrance, restriction on transfer or voting or other defect in
title whatsoever ("Liens"), other than Liens resulting from any action(s)
relating to NRT.
Section 2.4 CAPITALIZATION. The authorized capital of Cendant consists
of 2,000,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"); 500,000,000 shares of Move.com Stock; and 10,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). As of January
24, 2000, there were 704,560,494 shares of Common Stock issued and outstanding
and no shares of Preferred Stock or Move.com Stock issued and outstanding.
Section 2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the
execution and delivery of this Agreement by Cendant, nor the consummation by
Cendant of the transactions contemplated hereby or thereby will (a) conflict
with or result in any breach of any provision of the amended and restated
certificate of incorporation (the "Cendant Charter") or amended and restated
by-laws of Cendant, (b) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or require any
consent under, any indenture, license, contract, agreement or other instrument
or obligation to which the Cendant is a party, (c) violate any order, writ,
injunction, decree or award rendered by any Governmental Entity (as hereinafter
defined) or any statute, rule or regulation (collectively, "Laws" and,
individually, a "Law") applicable to Cendant, or (d) require any filing with, or
the obtaining of any permit, authorization, consent or approval of, any
governmental or regulatory authority or court, domestic or foreign (a
"Governmental Entity"), except in the case of clauses (c) and (d) of this
Section 2.5, for the applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act").
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Section 2.6 SEC REPORTS. Since January 1, 1999, Cendant has filed all
required reports, schedules, forms, statements and other documents, including
exhibits and all other information incorporated therein (the "SEC Documents"),
with the SEC. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents when filed (as amended and restated and as supplemented by
subsequently filed SEC Documents) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NRT
Section 3.1 ORGANIZATION. NRT is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to carry on its business
substantially as it is now being conducted.
Section 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. NRT has the corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action on the part of NRT. This
Agreement has been duly and validly executed and delivered by NRT and (assuming
this Agreement has been duly authorized, executed and delivered by Cendant)
constitutes a valid and binding agreement of NRT, enforceable against NRT in
accordance with its terms, except that (a) such enforcement may be subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally and (b) enforcement of this Agreement, including, among other
things, the remedy of specific performance and injunctive and other forms of
equitable relief, may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
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Section 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the
execution and delivery of this Agreement by NRT, nor the consummation by NRT of
the transactions contemplated hereby will (a) conflict with or result in any
breach of any provision of the certificate of incorporation or by-laws (or
similar organizational documents) of NRT, (b) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, or require any consent under, any indenture, license, contract, agreement
or other instrument or obligation to which the NRT is a party, (c) violate any
order, writ, injunction, decree or award rendered by any Governmental Entity or
Law applicable to NRT, or (d) require any filing with, or the obtaining of any
permit, authorization, consent or approval of, any Governmental Entity, except
in the case of clauses (c) and (d) of this Section 3.3, for the applicable
requirements of the HSR Act.
Section 3.4 NRT ACKNOWLEDGMENT. NRT has conducted its own independent
investigation, review and analysis of Cendant and Move.com Group. In entering
into this Agreement, NRT acknowledges that it has relied solely upon the
aforementioned investigation, review and analysis, and, other than with respect
to the representations and warranties made in Article II of this Agreement, NRT
acknowledges that none of Move.com Group, Cendant, or any of its directors,
officers, employees, affiliates, controlling persons, agents, advisors or
representatives makes or has made any representation or warranty, either express
or implied.
Section 3.9 INVESTMENT REPRESENTATIONS. NRT understands that the Shares
have not been registered under the Securities Act. NRT also understands that the
shares are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon NRT's representations
contained in the Agreement. NRT hereby represents and warrants as follows:
(a) NRT BEARS ECONOMIC RISK. NRT has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to Cendant and Move.com Group so that it is capable of
evaluating the merits and risks of its investment in Cendant and Move.com Group
and has the capacity to protect its own interests. NRT must bear the economic
risk of this investment indefinitely unless the Shares are registered pursuant
to the Securities Act or an exemption from registration is available. NRT also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow NRT
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to transfer all or any portion of the Shares under the circumstances in the
amounts or at the times NRT might propose.
(b) ACQUISITION FOR OWN ACCOUNT. NRT is acquiring the Shares
for NRT's own account for investment only and not with a view towards their
distribution.
(c) NRT CAN PROTECT ITS INTEREST. NRT represents the by reason
of its, or of its management's, business or financial experience, NRT has the
capacity to protect its own interests in connection with the transactions
contemplated in this Agreement. Further, NRT is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement.
(d) ACCREDITED INVESTOR. NRT represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) RULE 144. NRT acknowledges and agrees that the Shares must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. NRT has been
advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about
Cendant, the resale occurring not less than one year after a party has purchased
and paid for the security to be sold, the sale being through an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934, as amended) and the
number of shares being sold during any three-month period not exceeding
specified limitation
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ARTICLE IV
COVENANTS
Section 4.1 CONSENTS; COOPERATION. Each of Cendant and NRT shall
cooperate, and use its best efforts, to prepare and file all necessary materials
with the appropriate Governmental Entities pursuant to the HSR Act within ten
business days of the date of this Agreement. Each party covenants to (x) furnish
the other party with such necessary or appropriate information and reasonable
assistance as such other party may reasonably request in connection with its
preparation of necessary filings and submission pursuant to the HSR Act and (y)
use its commercially reasonable efforts to comply as promptly as possible with
requests for additional information issued by applicable Governmental Entities
pursuant to the HSR Act.
Section 4.2 PUBLIC ANNOUNCEMENTS. Prior to the Closing, except as
otherwise agreed to by the parties, the parties shall not issue any report,
statement or press release or otherwise make any public statements with respect
to this Agreement and the transactions contemplated hereby, except as in the
reasonable judgment of a party may be required by law or in connection with its
obligations as a publicly-held, exchange-listed company, in which case the
parties will use their reasonable best efforts to reach mutual agreement as to
the language of any such report, statement or press release. Upon execution
hereof and upon the Closing, Cendant and NRT will consult with each other with
respect to the issuance of a joint report, statement or press release with
respect to this Agreement and the transactions contemplated hereby.
Section 4.3 REGISTRATION RIGHTS AGREEMENT. At the Closing, Cendant and
NRT shall enter into a registration rights agreement, substantially in the form
attached hereto as Exhibit A relating to the Shares (the "Registration Rights
Agreement").
ARTICLE V
CONDITIONS AND TERMINATION
Section 5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE
TRANSACTIONS UNDER THIS AGREEMENT. The respective obligations of each party to
consummate the transactions contemplated hereby is subject to the satisfaction
at or prior to the Closing of the following conditions:
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(a) Any waiting periods applicable to the transactions
contemplated by this Agreement under the HSR Act shall have
expired or been terminated; and
(b) Neither Cendant nor NRT shall be subject to any order,
decree or injunction of a court of competent jurisdiction,
and no statute, rule or regulation shall have been enacted,
promulgated or issued, which enjoins or prohibits the
consummation of any of the transactions contemplated by this
Agreement.
Section 5.2 CONDITIONS TO CENDANT'S OBLIGATIONS TO CONSUMMATE THE
TRANSACTIONS UNDER THIS AGREEMENT. The obligation of Cendant to consummate the
transactions contemplated hereby are further subject to the satisfaction or
waiver of the following conditions:
(a) The representations and warranties of NRT contained in this
Agreement shall be true and correct at and as of the Closing
Date in all material respects as though such representations
and warranties were made at and as of such date (except to the
extent expressly made as of an earlier date, in which case, as
of such date);
(b) NRT shall have performed and complied in all material respects
with all agreements and obligations required by this Agreement
to be performed or complied with by it on or prior to the
Closing; and
(c) NRT shall have delivered to Cendant an officer's certificate
to the effect that each of the conditions specified above in
Sections 5.2(a) and (b) is satisfied.
Section 5.3 CONDITIONS TO NRT'S OBLIGATIONS TO CONSUMMATE THE
TRANSACTIONS UNDER THIS AGREEMENT. The obligation of NRT to consummate the
transactions contemplated hereby are further subject to satisfaction or waiver
of the following conditions:
(a) The representations and warranties of Cendant contained in
this Agreement shall be true and correct at and as of the
Closing Date in all material respects as though such
representations and warranties were made at and as of such
date (except to the extent expressly made as of an earlier
date, in which case, as of such date);
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(b) Cendant shall have performed and complied in all material
respects with all agreements and obligations required by this
Agreement to be performed or complied with by it on or prior
to the Closing; and
(c) Cendant shall have delivered to NRT an officer's certificate
to the effect that each of the conditions specified above in
Sections 5.3(a) and (b) is satisfied.
ARTICLE VI
TERMINATION
Section 6.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual agreement of the parties; or
(b) by Cendant or NRT at any time after 90 days from the date of
this Agreement if the Closing shall not have occurred by such
date; PROVIDED, HOWEVER, that the right to terminate this
Agreement under this Section 6.1(b) shall not be available to
a party if it has breached any of its representations,
warranties or covenants hereunder in any material respect and
such breach has been the cause of or resulted in the failure
of the Closing to occur on or before such date.
Section 6.2 PROCEDURE FOR AND EFFECT OF TERMINATION. In the event of
termination of this Agreement and the abandonment of the transactions
contemplated hereby by the parties pursuant to Section 6.1 hereof, written
notice thereof shall be given by a party so terminating to the other party and
this Agreement shall forthwith terminate and shall become null and void and of
no further effect, and the transactions contemplated hereby shall be abandoned
without further action by Cendant or NRT. If this Agreement is terminated
pursuant to Section 6.1 hereof:
(a) all filings, applications and other submissions made pursuant
hereto shall, to the extent practicable, be withdrawn from the
Governmental Entity to which made; and
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(b) there shall be no liability or obligation hereunder on the
part of Cendant or NRT or any of their respective directors,
officers, employees, affiliates, controlling persons, agents
or representatives, except that Cendant or NRT, as the case
may be, may have liability to the other party if the basis of
termination is a breach by Cendant or NRT, as the case may be,
of one or more of the provisions of this Agreement, and except
that the obligations provided for in this Section 6.2 shall
survive any such termination.
ARTICLE VII
MISCELLANEOUS
Section 7.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties relating to the subject matter hereof and supersedes
other prior agreements and understandings between the parties both oral and
written regarding such subject matter.
Section 7.2 SEVERABILITY. Any provision of this Agreement that is held
by a court of competent jurisdiction to violate applicable law shall be limited
or nullified only to the extent necessary to bring the Agreement within the
requirements of such law.
Section 7.3 NOTICES. Any notice required or permitted by this Agreement
must be in writing and must be sent by facsimile, by nationally recognized
commercial overnight courier, or mailed by United States registered or certified
mail, addressed to the other party at the address below or to such other address
for notice (or facsimile number, in the case of a notice by facsimile) as a
party gives the other party written notice of in accordance with this Section
7.3. Any such notice will be effective as of the date of receipt:
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(a) if to Cendant, to
Cendant Corporation
9 West 57th Street
37th Floor
New York, New York 10019
Fax: (212) 413-1922/23
Attention: Eric J. Bock
Senior Vice President, Legal
(b) if to NRT, to
NRT Incorporated
339 Jefferson Road
Parsippany, NJ 07054
Fax: (973) 240-5069
Attention: Steven L. Barnett
Senior Vice President &
General Counsel
Section 7.4 GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by, enforced under and construed in accordance with the laws of the
State of New York, without giving effect to any choice or conflict of law
provision or rule thereof. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States of America in each case
located in the County of New York for any litigation arising out of or relating
to this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts) and further
agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in Section 7.3 (or to such
other address for notice that such party has given the other party written
notice of in accordance with Section 7.3) shall be effective service of process
for any litigation brought against it in any such court. Each of the parties
hereto hereby irrevocably and unconditionally waives any objection to the laying
of venue of any litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or of the United
States of America in each case located in the County of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such litigation brought in any such court has been
brought in an inconvenient forum.
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Section 7.5 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and shall in no way be construed to
define, limit, describe, explain, modify, amplify, or add to the interpretation,
construction or meaning of any provision of, or scope or intent of, this
Agreement nor in any way affect this Agreement.
Section 7.6 COUNTERPARTS. This Agreement may be signed in counterparts
and all signed copies of this Agreement will together constitute one original of
this Agreement. This Agreement shall become effective when each party hereto
shall have received counterparts thereof signed by all the other parties hereto.
Section 7.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party, except that NRT may cause the Shares to be sold to,
and registered in the name of, a wholly owned direct or indirect subsidiary of
NRT. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
Section 7.8 DEFINITION OF "SHARES". As used in this Agreement, the term
"Shares" includes (a) all dividends (other than ordinary cash dividends with a
record date prior to the Closing) and distributions declared by Cendant on the
Shares subsequent to the date hereof and prior to the Closing and (b) shall be
appropriately adjusted to give effect to any subdivision, combination or
reclassification of the Shares effected prior to the Closing.
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IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly
signed as of the date first above written.
CENDANT CORPORATION
By: /s/ James Buckman
--------------------------
Name:
Title:
NRT INCORPORATED
By: /s/ Steven L. Barnett
--------------------------
Name:
Title:
<PAGE>
Exhibit 10.10
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March 28, 2000 by
and between Cendant Corporation, a Delaware corporation ( "Cendant"), and NRT
Incorporated, a Delaware corporation ("NRT").
1. INTRODUCTION. Cendant is a party to a Purchase Agreement
(the "Purchase Agreement") with NRT, pursuant to which Cendant has agreed, among
other things, to issue to NRT shares of a new series of Cendant common stock,
par value $.01 per share (the "Move.com Stock"). This Agreement shall become
effective upon the issuance of such shares to NRT pursuant to the Purchase
Agreement. Certain capitalized terms used in this Agreement are defined in
Section 3 hereof; references to Sections shall be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 INCIDENTAL REGISTRATION. If Cendant at any time after the
Offering Closing Date proposes to register any shares of Move.com Stock under
the Securities Act (other than on Form S-4 or S-8 or any successor or similar
forms), whether or not for sale for its own account, it will each such time give
prompt written notice to NRT of its intention to do so and of NRT's rights under
this Section 2.1. Upon the written request of NRT made within 10 business days
after the receipt of any such notice (which request shall specify the
Registrable
<PAGE>
Securities intended to be disposed of by NRT and the intended method of
disposition thereof, provided that if the shares to be registered by Cendant are
to be distributed through one or more underwriters as provided in Section 2.3
NRT must agree to distribute such Registrable Securities by or through such
underwriter or underwriters), Cendant will, subject to the terms of this
Agreement, use its reasonable efforts to effect the registration under the
Securities Act of all Registrable Securities which Cendant has been so requested
to register by NRT, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Securities so to be registered, by inclusion of such Registrable Securities in
the registration statement which covers the shares of Move.com Stock which
Cendant proposes to register (whether or not for sale for its own account);
PROVIDED that, prior to the first anniversary of the Offering Closing Date, and
together with all other Registrable Securities disposed of by NRT prior to such
first anniversary, NRT shall have the right to dispose of only up to one half
(1/2) of the Registrable Securities owned by NRT on the Offering Closing Date;
PROVIDED, FURTHER, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, Cendant shall
determine for any reason either not to register or to delay registration of all
such securities, Cendant may, at its election, give written notice of such
determination to NRT and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), and (ii) in the case of
a determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering all
such other securities. Cendant will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
Section 2.1.
2.2 REGISTRATION PROCEDURES. If and whenever Cendant is
required to use its reasonable efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 2.1,
Cendant shall:
(i) prepare and file with the Commission the
requisite registration statement to effect such registration and
thereafter use its reasonable efforts to cause such registration
statement to become and remain effective, PROVIDED, HOWEVER, that
Cendant may postpone the filing or effectiveness of any registration
statement otherwise required to be filed by Cendant pursuant to this
Agreement or suspend the use of any registration statement for a period
of time, not to exceed 180 days in any 12-month period, if Cendant
determines that the filing or continued use of such registration
statement would require Cendant to disclose a material financing,
acquisition or other corporate development and Cendant shall have
determined that such disclosure is not in the best interests of
Cendant; PROVIDED, FURTHER, that Cendant may discontinue any
registration of its securities which are not Registrable Securities
(and, under the circumstances specified in Section 2.1, its securities
which are Registrable Securities) at any time prior to the effective
date of the registration statement relating thereto;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement until the earlier of (A) such
time as all of such securities have been disposed of
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in accordance with the intended methods of disposition by NRT set forth
in such registration statement or (B) the expiration of 90 days after
such registration statement becomes effective;
(iii) furnish to NRT such number of conformed copies
of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as NRT may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities owned by
NRT;
(iv) use its reasonable efforts to register or
qualify all Registrable Securities and other securities covered by such
registration statement under such other securities laws or blue sky
laws of such jurisdictions as NRT shall reasonably request, to keep
such registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable NRT to
consummate the disposition in such jurisdictions of the Registrable
Securities, except that Cendant shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
or dealer in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified,
to subject itself to taxation in any such jurisdiction, to conform its
capitalization or the composition of its assets at the time to the
securities or blue sky laws of such jurisdiction or to consent to
general service of process in any such jurisdiction;
(v) furnish to each underwriter, if an underwritten
offering, customary "cold comfort" letters from its independent
auditors, legal opinions from counsel to Cendant on customary matters,
and such other certificates or other instruments reasonably requested
by such underwriters;
(vi) notify NRT and the managing underwriter or
underwriters, if any, promptly and confirm such advice in writing
promptly thereafter:
(A) when the registration statement, the
prospectus or any prospectus supplement related thereto or
post-effective
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amendment to the registration statement has been filed, and,
with respect to the registration statement or any
post-effective amendment thereto, when the same has become
effective;
(B) of any request by the Commission for
amendments or supplements to the registration statement or the
prospectus or for additional information;
(C) of the issuance by the Commission of any
stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings by any Person
for that purpose;
(D) if at any time the representations and
warranties of Cendant made as contemplated by Section 2.3
below cease to be true and correct; and
(E) of the receipt by Cendant of any
notification with respect to the suspension of the
qualification of any Registrable Securities for sale under the
securities or blue sky laws of any jurisdiction or the
initiation or threat of any proceeding for such purpose;
(vii) notify NRT, at any time when a prospectus
relating to a registration statement is required to be delivered under
the Securities Act, upon Cendant's discovery that, or upon the
happening of any event as a result of which, the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made, and as soon as practicable prepare and furnish to NRT
and each underwriter, if any, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances under which they were made;
(viii) use its reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the
registration statement at the earliest possible moment;
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(ix) otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months,
but not more than eighteen months, beginning with Cendant's first full
calendar quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder; and
Cendant may require NRT to furnish Cendant such information regarding NRT and
the distribution of the Registrable Securities as Cendant may from time to time
reasonably request in writing.
At least one day prior to any disposition of Registrable
Securities by NRT, NRT will orally advise Cendant of the dates on which such
disposition is expected to commence and terminate, the number of Registrable
Securities expected to be sold, the method of disposition and such other
information as Cendant may reasonably request in order to supplement the
prospectus contained in any registration statement in accordance with the rules
and regulations of the Commission. Promptly after receiving such advice, Cendant
will, if necessary, (i) prepare a supplement to such prospectus based upon such
advice and file the same with the Commission pursuant to Rule 424(b) under the
Securities Act and (ii) if necessary, qualify the Registrable Securities to be
sold under the securities or blue sky laws of such jurisdictions in the United
States as NRT shall reasonably request (subject to the proviso of Section
2.3(iv)).
NRT agrees by acquisition of the Registrable Securities that,
upon receipt of any notice from Cendant of the occurrence of any event of the
kind described in subdivisions (vi) or (vii) of this Section 2.2, NRT will
forthwith discontinue its disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until NRT's
receipt of the copies of the supplemented or amended prospectus contemplated by
subdivisions (vi) or (vii) of this Section 2.2 and, if so directed by Cendant,
will deliver to Cendant (at Cendant's reasonable expense) all copies, other than
permanent file copies, then in NRT's possession of the prospectus relating to
such Registrable Securities current at the time of receipt of such notice.
NRT shall, at any time it is engaged in the distribution of
Registrable Securities comply with all applicable laws, including Regulation M
promulgated under the Exchange Act and (i) will not engage in any stabilization
activity in connection with the securities Cendant in contravention of such
rules, (ii) will distribute the Registrable Securities solely in the manner
described in any applicable registration statement and (iii) will not bid for or
purchase any securities of Cendant or attempt to induce any
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person to purchase any securities of Cendant other than as permitted under the
Exchange Act.
2.3 UNDERWRITTEN OFFERINGS.
(a) INCIDENTAL UNDERWRITTEN OFFERINGS. If Cendant at any
time proposes to register any shares of Move.com Stock under the Securities Act
as contemplated by Section 2.1 and such securities are to be distributed by or
through one or more underwriters, Cendant will, if requested by NRT as provided
in Section 2.1 and subject to the provisions of Section 2.2, use its reasonable
efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by NRT among the securities to be distributed
by such underwriters, PROVIDED that if the managing underwriter of such
underwritten offering shall inform NRT and the holders of any other securities
which shall have exercised, in respect of such underwritten offering,
registration rights comparable to the rights under Section 2.1 by letter of its
belief that inclusion in such underwritten distribution of all or a specified
number of such Registrable Securities or of such other securities so requested
to be included would interfere with the successful marketing of the securities
by the underwriters (such letter to state the basis of such belief and the
approximate number of such Registrable Securities and shares of other securities
so requested to be included which may be included in such underwritten offering
without such effect), then Cendant may, upon written notice to NRT and all
holders of such other securities so requested to be included, exclude PRO RATA
from such underwritten offering (if and to the extent stated by such managing
underwriter to be necessary to eliminate such effect) the number of such
Registrable Securities and shares of such other securities so requested to be
included the registration of which shall have been requested by NRT and by the
holders of such other securities so that the resultant aggregate number of such
Registrable Securities and of such other shares of securities so requested to be
included which are included in such underwritten offering shall be equal to the
approximate number of shares stated in such managing underwriter's letter. NRT
shall be a party to the underwriting agreement between Cendant and such
underwriters.
(b) HOLDBACK AGREEMENT. NRT agrees by acquisition of the
Registrable Securities, if so required by the managing underwriter, not to sell,
make any short sale of, loan, grant any option for the purchase of, effect any
public sale or distribution of, make any sale or distribution pursuant to Rule
144 (or any successor provision) under the Securities Act of or otherwise
dispose of any securities of Cendant, during the period of not more than180 days
after any underwritten registration pursuant to Section 2.1 has become
effective, except as part of such underwritten registration, whether or not NRT
participates in such registration. NRT agrees that Cendant may in-
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struct its transfer agent to place stop transfer notations in its records to
enforce this Section 2.3(c).
(c) PARTICIPATION IN UNDERWRITTEN OFFERINGS. NRT may not
participate in any underwritten offering hereunder unless NRT completes and
executes all questionnaires, indemnities, underwriting agreements and other
documents (other than powers of attorney) required under the terms of any
underwriting arrangements.
2.4 RESTRICTIONS ON RESALE.
(a) Until the first anniversary of the Offering Closing
date, NRT agrees not to sell, transfer or otherwise dispose of Registrable
Securities other than pursuant to section 2.1 of this Agreement.
(b) In no event will NRT have any rights under Section 2.1
of this agreement until after the closing of an initial public offering of the
Move.com Stock.
2.5 INDEMNIFICATION.
(a) INDEMNIFICATION BY CENDANT. In the event of any
registration of any securities of Cendant under the Securities Act, Cendant
will, and hereby agrees to, indemnify and hold harmless NRT, its directors and
officers, and each other Person, if any, who controls NRT within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which NRT or any such director or officer or controlling Person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (x) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or (y) alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
Cendant will reimburse NRT and each such director, officer, and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding, PROVIDED that Cendant shall not be liable in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such
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registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to Cendant through an instrument duly
executed by NRT specifically stating that it is for use in the preparation
thereof, PROVIDED, FURTHER, that Cendant shall not be liable to NRT in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of NRT's failure to send or
give a copy of the final prospectus, as the same may be then supplemented or
amended, within the time required by the Securities Act to the Person asserting
the existence of an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus; and PROVIDED, FURTHER, that Cendant shall
not be liable to NRT in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based (i) upon the use of any preliminary final or summary
prospectus by or on behalf of NRT after Cendant has notified NRT, in accordance
with Section 2.2(vii), that such prospectus contains an untrue statement of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, (ii) the use of any final prospectus, as amended or supplemented, by
or on behalf of NRT after such time as the obligation of Cendant to keep the
related registration statement effective has expired or (iii) any violation of
any federal or state securities laws, rules or regulations committed by NRT
(other than any violation that arises out of or is based upon the circumstances
described in clause (x) or (y) above and as to which NRT would otherwise be
entitled to indemnification hereunder). Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of NRT or
any such director, officer, or controlling Person and shall survive the transfer
of such securities by NRT.
(b) INDEMNIFICATION BY THE NRT. Cendant may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to this Agreement, that Cendant shall have received an
undertaking satisfactory to it from NRT, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 2.5) Cendant, each director of Cendant, each officer of Cendant and each
other Person, if any, who controls Cendant within the meaning of the Securities
Act, with respect to (i) any statement or alleged statement in or omission or
alleged omission from such registration statement, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to Cendant through an instrument duly executed by NRT
specifically stating that it is for use in the preparation of such registration
statement,
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preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement, (ii) the use of any prospectus by or on behalf of NRT after Cendant
has notified NRT that such prospectus contains an untrue statement of material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, (iii) the failure to send or deliver to a
Person to whom NRT sells Registrable Securities at or prior to the written
confirmation of sale, a copy of the final prospectus or of the final prospectus
as then amended or supplemented, whichever is most recent, if Cendant has
previously furnished copies thereof to NRT or its representatives, or (iv) any
violation by NRT of any federal or state securities law or rule or regulation
thereunder (other than any violation that arises out of or is based upon
circumstances described in clause (x) or (y) of Section 2.5(a) above and as to
which NRT is entitled to indemnification thereunder). Any such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of Cendant or any such director, officer or controlling person and shall
survive the transfer of such securities by NRT. Notwithstanding the foregoing,
the indemnity obligation of NRT pursuant to this Section 2.5(b) shall be limited
to an amount equal to the total proceeds (before deducting underwriting
discounts and commissions and expenses) received by NRT for the sale of shares
by NRT in a registration hereunder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.5,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, PROVIDED that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.5, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional
9
<PAGE>
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability, or a covenant not to sue, in respect to such
claim or litigation. No indemnified party shall consent to entry of any judgment
or enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying party.
(d) INDEMNIFICATION PAYMENTS. The indemnification required
by this Section 2.5 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(e) CONTRIBUTION. If the indemnification provided for in
the preceding subdivisions of this Section 2.5 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by
Cendant on the one hand and NRT on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of Cendant on the one hand and of NRT on the other in connection
with the statements or omissions which resulted in such expense, loss, damage or
liability, as well as any other relevant equitable considerations. The relative
benefits received by Cendant on the one hand and NRT on the other in connection
with the distribution of the Registrable Securities shall be deemed to be in the
same proportion as the total net proceeds received by Cendant from the initial
sale of the Registrable Securities by Cendant bear to the gain, if any, realized
by NRT. The relative fault of Cendant on the one hand and of NRT on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission to state a material fact
relates to information supplied by Cendant or by NRT and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, PROVIDED that the foregoing contribution agreement
shall not inure to the benefit of any indemnified party if indemnification would
be unavailable to such indemnified party by reason of the provisions contained
in the first sentence of subdivision (a) of this Section 2.5, and in no event
shall the obligation of any indemnifying party to contribute under this
subdivision (e) exceed the amount that such indemnifying party would have been
obligated to pay by way of indemnification if the indemnification provided for
under subdivisions (a) or (b) of this Section 2.5 had been available under the
circumstances.
10
<PAGE>
Cendant and NRT agree that it would not be just and equitable
if contribution pursuant to this subdivision (e) were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth in
the preceding sentence and subdivision (c) of this Section 2.5, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (e), NRT
shall not be required to contribute any amount in excess of the amount by which
the total proceeds (before deducting underwriting discounts and commissions and
expenses) received by NRT from the sale of Registrable Securities exceeds the
amount of any damages that NRT has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
3. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any
other Federal agency at the time administering the
Securities Act.
MOVE.COM STOCK: As defined in Section 1.
CENDANT: As defined in the introductory paragraph of this
Agreement.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in
effect at the time. Reference to a particular Section of
the Securities Exchange Act of 1934 shall include a
reference to the comparable Section, if any, of any such
similar Federal statute.
PERSON: A corporation, an association, a partnership, a
limited liability company, an organization, business, an
individual, a
11
<PAGE>
governmental or political subdivision thereof or a
governmental agency or any other entity.
REGISTRABLE SECURITIES: any shares of Move.com Stock issued
to NRT pursuant to the Purchase Agreement and any
securities issued or issuable with respect to any Move.com
Stock referred to above by way of stock dividend or stock
split or in connection with a combination of shares,
recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall
have become effective under the Securities Act and such
securities shall have been disposed of in accordance with
such registration statement, (b) they shall have been
distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act, (c) they
shall have been otherwise transferred, [new certificates
for them not bearing a legend restricting further transfer
shall have been delivered by Cendant] and subsequent
disposition of them shall not require registration or
qualification of them under the Securities Act or any
similar state law then in force, (d) they become eligible
for resale pursuant to Rule 144(k) (or any successor
provision) under the Securities Act or (e) they shall have
ceased to be outstanding.
REGISTRATION EXPENSES: All expenses incident to Cendant's
performance of or compliance with Section 2, including,
without limitation, all registration, filing and NASD fees,
all stock exchange listing fees, all fees and expenses of
complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger
and delivery expenses, the fees and disbursements of
counsel for Cendant and of its independent public
accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such
performance and compliance and any fees and disbursements
of underwriters customarily paid by issuers or sellers of
securities, but excluding (i) brokerage commissions,
underwriting discounts and commissions and transfer taxes,
if any; (ii) fees and disbursements of counsel or of any
experts retained by NRT in connection with the registration
of any Registrable Securities or
12
<PAGE>
the distribution of such shares; or (iii) any other
out-of-pocket expenses of NRT.
SECURITIES ACT: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the
Commission thereunder, all as of the same shall be in
effect at the time. References to a particular Section of
the Securities Act of 1933 shall include a reference to the
comparable Section, if any, of any such similar federal
statute.
4. AMENDMENTS AND WAIVERS. This Agreement may be amended and
Cendant may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if Cendant shall have obtained the written
consent to such amendment, action or omission to act, of NRT.
5. NOTICES. Except as otherwise provided in this Agreement,
all notices, requests and other communications to any party hereto shall be in
writing and shall be given and addressed to such party in the manner set forth
in the Purchase Agreement or at such other address as such party shall have
furnished to the other party in writing. Each such notice, request or other
communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (ii) if given by any other means (including, without
limitation, by air courier), when delivered at the address specified above.
6. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party, except that the provisions of this Agreement which
are for the benefit of NRT shall also be for the benefit of and enforceable by
any wholly owned direct or indirect subsidiary of NRT to which NRT transfers any
of its Registrable Securities pursuant to the Purchase Agreement. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
7. DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
13
<PAGE>
8. GOVERNING LAW. This agreement shall be governed by,
enforced under and construed in accordance with the laws of the State of New
York, without giving effect to any choice of law provision or rule thereof.
9. COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
10. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between Cendant and NRT relating to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
11. SUBMISSION TO JURISDICTION. Each of the parties hereto
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of New York and of the United States of
America in each case located in the County of New York for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts) and further agrees that service of any process, summons, notice or
document by U.S. registered mail to its respective address set forth in Section
5 (or to such other address for notice that such party has given the other party
written notice of in accordance with Section 5) shall be effective service of
process for any litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York or of
the United States of America in each case located in the County of New York and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such litigation brought in any such court has
been brought in an inconvenient forum.
12. SEVERABILITY. If any provision of this Agreement, or the
application of such provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officers hereunto duly authorized
as of the date first above written.
CENDANT CORPORATION
BY: /s/ James Buckman
--------------------------
Name:
Title:
NRT INCORPORATED
By: /s/ Steven L. Barnett
--------------------------
Name:
Title:
<PAGE>
Exhibit 10.11
================================================================================
ASSET PURCHASE AGREEMENT
by and among
CENDANT CORPORATION,
COMPLETEHOME.COM, INC.,
RENT NET, INC.,
JOHN P. McWEENY,
JOSEPH A. PREIS,
and
METRO-RENT, INC.
Dated as of October 29, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
SALE OF ASSETS
Section 1.1. Seller's Assets ............................................. 2
Section 1.2. Assumption of Liabilities ................................... 5
Section 1.3. Retained Liabilities ........................................ 6
Section 1.4. Purchase Price .............................................. 7
Section 1.5. Deferred Payments ........................................... 7
Section 1.6. Time and Place of Closing ................................... 18
Section 1.7. Deliveries by the Seller .................................... 18
Section 1.8. Deliveries by the Buyer or the Sub .......................... 19
Section 1.9. Deliveries by the Seller Shareholders ....................... 20
Section 1.10. Preclosing Transactions ..................................... 20
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE SELLER AND THE SELLER SHAREHOLDERS
Section 2.1. Organization; Etc ........................................... 21
Section 2.2. Authority Relative to this Agreement ........................ 21
Section 2.3. Consents and Approvals; No Violations ....................... 22
Section 2.4. Financial Statements ........................................ 23
Section 2.5. Absence of Undisclosed Liabilities .......................... 23
Section 2.6. Absence of Certain Changes .................................. 24
Section 2.7. Litigation .................................................. 24
Section 2.8. Compliance with Law ......................................... 24
Section 2.9. Employee Benefit Plans ...................................... 25
Section 2.10. Labor Relations ............................................. 26
Section 2.11. Taxes ....................................................... 26
Section 2.12. Contracts ................................................... 27
Section 2.13. Real Property ............................................... 28
Section 2.14. Intellectual Property ....................................... 28
Section 2.15. Year 2000 Compliance ........................................ 32
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Page
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Section 2.16. Assets ...................................................... 33
Section 2.17. Affiliate Transactions ...................................... 33
Section 2.18. Brokers; Finders and Fees ................................... 33
Section 2.19. Restricted Securities ....................................... 33
Section 2.20. Suitability Standards ....................................... 34
Section 2.21. No General Solicitation ..................................... 35
Section 2.22. Private Placement ........................................... 35
Section 2.23. Fair Credit Reporting Act ................................... 36
Section 2.24. Sale of Inventory ........................................... 36
Section 2.25. Homerenters Guide ........................................... 36
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE BUYER, THE SUB AND CENDANT
Section 3.1. Organization; Etc ........................................... 36
Section 3.2. Authority Relative to this Agreement ........................ 36
Section 3.3. Consents and Approvals; No Violations ....................... 37
Section 3.4. Availability of Funds ....................................... 38
Section 3.5. Brokers; Finders and Fees ................................... 38
Section 3.6. Status of Share Equivalents ................................. 38
Section 3.7. Licenses and Approvals ...................................... 38
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.1. Conduct of Business of the Seller ........................... 38
Section 4.2. Access to Information for Cendant, the Buyer and the Sub .... 39
Section 4.3. Consents; Cooperation ....................................... 40
Section 4.4. No Solicitation ............................................. 40
Section 4.5. Best Efforts ................................................ 41
Section 4.6. Public Announcements ........................................ 41
Section 4.7. Tax Matters ................................................. 41
Section 4.8. Knowledge of Breach; Prior Knowledge; Supplemental
Disclosure ................................................ 42
Section 4.9. Employees; Employee Benefits ................................ 43
ii
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Page
----
Section 4.10. Maintenance of Books and Records ............................ 43
Section 4.11. Covenant Not to Compete ..................................... 44
Section 4.12. Post-Closing Confidentiality ................................ 45
Section 4.13. Transfers Not Effected as of Closing ........................ 46
Section 4.14. Seller Shareholder Loans .................................... 46
Section 4.15. Post Closing Capital Budgets and Acquisitions ............... 49
Section 4.16. Ancillary Revenues .......................................... 49
Section 4.17. Escrow Delivery ............................................. 49
Section 4.18. Lockup ...................................................... 50
Section 4.19. Post Closing Operations and Expense Budget .................. 50
Section 4.20. Release of Personal Liability ............................... 50
Section 4.21. Monthly Financial Information ............................... 50
Section 4.22. Mail Received After the Closing ............................. 51
Section 4.23. Use of Trademarks ........................................... 51
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE ASSET PURCHASE
Section 5.1. Conditions to Each Party's Obligations to Consummate
the Asset Purchase ........................................ 52
Section 5.2. Further Conditions to the Seller's and the Seller
Shareholders' Obligations ................................. 52
Section 5.3. Further Conditions to Cendant's, the Buyer's and the
Sub's Obligations ......................................... 53
ARTICLE VI
TERMINATION AND ABANDONMENT
Section 6.1. Termination ................................................. 55
Section 6.2. Procedure for and Effect of Termination ..................... 56
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1. Survival Periods ............................................ 57
Section 7.2. The Seller's and the Seller Shareholders' Agreement to
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Page
----
Indemnify ................................................. 57
Section 7.3. The Buyer's and the Sub's Agreement to Indemnify ............ 59
Section 7.4. Third-Party Indemnification ................................. 60
Section 7.5. No Duplication; Sole Remedy ................................. 62
Section 7.6. Indemnification Matters Governed by this Article VII ........ 62
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. Entire Agreement ............................................ 62
Section 8.2. Severability ................................................ 63
Section 8.3. Notices ..................................................... 63
Section 8.4. Governing Law; Jurisdiction ................................. 64
Section 8.5. Descriptive Headings ........................................ 65
Section 8.6. Counterparts ................................................ 65
Section 8.7. Assignment .................................................. 65
Section 8.8. Fees and Expenses ........................................... 65
Section 8.9. Interpretation .............................................. 66
Section 8.10. No Third-Party Beneficiaries ................................ 66
Section 8.11. No Waivers; Modification .................................... 67
Section 8.12. Specific Performance ........................................ 67
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<PAGE>
INDEX OF DEFINED TERMS
Page
----
AAA ....................................................................... 16
AAA Rules ................................................................. 16
Accepted Additions ........................................................ 7
Accounting Changes ........................................................ 23
Acquired Assets ........................................................... 2
Acquisition Proposal ...................................................... 40
Actual Capital Expenditures ............................................... 8
Actual Expenses ........................................................... 8
Actual Results ............................................................ 15
Actual Revenues ........................................................... 8
Actual Tax Payment ........................................................ 47
Affected Employee ......................................................... 43
Agreement ................................................................. 1
Allocation Schedule ....................................................... 41
Appreciated Value ......................................................... 48
Assumed Liabilities ....................................................... 5
Balance Sheet ............................................................. 23
Big Five Accounting Firm .................................................. 16
Books and Records ......................................................... 2
Budgeted Capital .......................................................... 8
Budgeted Expenses ......................................................... 9
Budgeted Revenues ......................................................... 9
Business .................................................................. 1
Business Material Adverse Effect .......................................... 23
Buyer ..................................................................... 1
Buyer Common Stock ........................................................ 7
Buyer Damages ............................................................. 57
Buyer Indemnitees ......................................................... 57
Buyer Material Adverse Effect ............................................. 37
Calculated Deferred Payment ............................................... 9
Calculation Certificate ................................................... 15
Capital Adjustment ........................................................ 9
Capital Savings ........................................................... 10
v
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Page
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Cendant ................................................................... 1
Cendant Internet Business ................................................. 1
CIB Stock ................................................................. 1
Claim ..................................................................... 60
Closing ................................................................... 18
Closing Arbitrator ........................................................ 16
Closing Cash Payment ...................................................... 7
Closing Date .............................................................. 18
Closing Dispute ........................................................... 16
Closing Payments .......................................................... 7
Closing Stock Payment ..................................................... 7
Code ...................................................................... 25
Confidential Information .................................................. 45
Confidentiality Agreements ................................................ 40
Contracts ................................................................. 2
Copyrights ................................................................ 3
Date Data ................................................................. 32
Deferred Payment .......................................................... 10
Deferred Payment Period ................................................... 10
Deferred Payment Target ................................................... 10
Dispute Notice ............................................................ 16
Employment Agreements ..................................................... 25
ERISA ..................................................................... 25
ERISA Affiliate ........................................................... 25
Escrow Agent .............................................................. 49
Escrow Agreement .......................................................... 19
Escrow Amount ............................................................. 49
Excess Capital Expenditures ............................................... 11
Expanded Business ......................................................... 11
Expense Adjustment ........................................................ 11
Expense Percentage at Budget .............................................. 12
Financial Statements ...................................................... 23
Governmental Entity ....................................................... 22
Gross-up Amount ........................................................... 48
Intellectual Property ..................................................... 28
Interest Bearing Seller Shareholder Loan .................................. 48
vi
<PAGE>
Page
----
IPO ....................................................................... 1
Law ....................................................................... 22
Laws ...................................................................... 22
Legal Proceeding .......................................................... 24
License Agreements ........................................................ 29
Liens ..................................................................... 4
Lockup Period ............................................................. 50
McWeeny ................................................................... 1
Monthly Unaudited Financial Information ................................... 51
Patents ................................................................... 3
Permits ................................................................... 24
Person .................................................................... 66
Personal Liability Creditors .............................................. 50
Plans ..................................................................... 25
Preclosing Transaction Expenses ........................................... 21
Preclosing Transactions ................................................... 21
Preis ..................................................................... 1
Proprietary Software ...................................................... 29
Purchase Price ............................................................ 7
Real Property Leases ...................................................... 28
Registration Rights Agreement ............................................. 19
Retained Assets ........................................................... 5
Retained Employment Contracts ............................................. 5
Retained Insurance Policies ............................................... 5
Retained Liabilities ...................................................... 6
Revenue Adjusted Target ................................................... 12
Review Period ............................................................. 16
Section ................................................................... 66
Securities Act ............................................................ 33
Seller .................................................................... 1
Seller Damages ............................................................ 59
Seller Financial Advisor .................................................. 6
Seller Indemnitees ........................................................ 59
Seller Shareholder Employment Agreement.................................... 20
Seller Shareholder Loan ................................................... 47
Seller Shareholder Loans .................................................. 47
vii
<PAGE>
Page
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Seller Shareholders ....................................................... 1
Seller's Service Mark and Logos ........................................... 51
Share Equivalents ......................................................... 7
Share Value ............................................................... 7
Shareholders' Agreement ................................................... 5
Software .................................................................. 2
Sub ....................................................................... 1
Tax ....................................................................... 27
Tax Liability ............................................................. 47
Tax Returns ............................................................... 27
Taxes ..................................................................... 27
Trade Secrets ............................................................. 3
Trademarks ................................................................ 3
Transfer .................................................................. 50
Year ...................................................................... 13
Year 1, Year 2, and Year 3 ................................................ 13
Year 2 Actual Expenses .................................................... 8
Year 2 Budgeted Expenses .................................................. 9
Year 2 Budgeted Revenues .................................................. 9
Year 2 Deferred Payment Target ............................................ 11
Year 2000 Compliance ...................................................... 32
Year 2000 Compliant ....................................................... 32
Year 3 Actual Revenues .................................................... 8
viii
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 29, 1999 (this
"Agreement"), by and among Cendant Corporation, a Delaware corporation
("Cendant"), CompleteHome.com, Inc., a Delaware corporation and an indirect
wholly owned subsidiary of Cendant (the "Buyer"), Rent Net, Inc., a Delaware
corporation and a wholly owned subsidiary of the Buyer (the "Sub"), John P.
McWeeny ("McWeeny"), Joseph A. Preis ("Preis"), and together with McWeeny, the
"Seller Shareholders") and Metro-Rent, Inc., a California corporation (the
"Seller").
WHEREAS, the Seller is engaged in an Internet-based real estate and
ancillary services business (the "Business");
WHEREAS, the Buyer (or the Sub if designated by the Buyer) desires to
purchase and assume from the Seller, and the Seller desires to sell, convey,
assign, and transfer to the Buyer (or the Sub if designated by the Buyer), all
the assets and properties relating to the Business, together with certain
obligations and liabilities relating thereto, all in the manner and subject to
the terms and conditions set forth herein;
WHEREAS, the only assets of the Seller immediately after the Closing (as
hereinafter defined) will consist exclusively of the consideration provided by
the Buyer (or the Sub if designated by the Buyer) as set forth in Section 1.4 of
this Agreement and the Retained Assets (as hereinafter defined);
WHEREAS, it is contemplated that the Business will form part of an
Internet real estate portal business being developed by the Buyer (the "Cendant
Internet Business") which will include among other business operations the Sub
and certain other Cendant real estate assets; and
WHEREAS, Cendant is currently planning an initial public offering
("IPO") of a new series of tracking stock designed to reflect the performance of
the Cendant Internet Business (the "CIB Stock") although the plans for the
Cendant Internet Business are not finalized and are not likely to be finalized
before the closing of the transactions contemplated herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
<PAGE>
ARTICLE I
SALE OF ASSETS
--------------
Section 1.1. SELLER'S ASSETS.
a) ACQUIRED ASSETS. Subject to the terms of this Agreement, the
Seller agrees to sell, assign, transfer, convey and deliver to the Buyer (or the
Sub if designated by the Buyer), and the Buyer (or the Sub if designated by the
Buyer) agrees to purchase and acquire from the Seller, free and clear of all
Liens (as hereinafter defined), all of the Seller's right, title and interest in
and to the assets held for use or used in, arising from or related to the
Business of every kind and nature, tangible and intangible, wherever located and
whether or not on the books of the Seller (collectively, the "Acquired Assets"),
including without the limitation the following:
(i) all goodwill related to the Business;
(ii) all of the Seller's contracts, agreements, Intellectual
Property (as hereinafter defined) agreements, license agreements and
leases, including amendments and supplements, modifications, side
letters or agreements relating to the foregoing, or entered into after
the date hereof in accordance with the terms of Section 4.1
(collectively, the "Contracts");
(iii) all marketing, sales and promotional literature, books,
records, files, documents, financial records, bills, accounting,
internal and audit records, operating manuals, personnel records,
customer and supplier lists and files, preprinted materials, art work,
and other similar items related to the Business in the possession or
under the control of the Seller or related primarily to the Business and
in the possession or under the control of affiliates of the Seller, or
its representatives (the "Books and Records");
(iv) all copies of computer programs, including any and all
software implementations of algorithms, models and methodologies whether
in source code or object code form, databases and compilations,
including any and all data and collections of data, all documentation,
including user manuals and training materials, related to any of the
foregoing and the content and information
2
<PAGE>
contained on any Web site (collectively, "Software") held for use or
used in the Business as conducted as of the Closing Date (as hereinafter
defined) or as presently contemplated to be conducted;
(v) all accounts receivable related to the Business set
forth in Section 1.1(a)(v) of the Seller Disclosure Schedule as well as
those accounts receivable related to the Business arising after the date
set forth in Section 1.1(a)(v) of the Seller Disclosure Schedule and all
rights to insurance proceeds in respect of any of the Acquired Assets;
(vi) all rights to all telephone numbers related to the
Business;
(vii) all intangible assets held for use or used in the Busi
ness as conducted as of the Closing Date or as presently contemplated to
be conducted, including without limitation the following:
(A) the confidential information, technology, know-
how, inventions, processes, formulae, algorithms, models and
methodologies (such confidential items collectively, "Trade
Secrets") held for use or used in the Business as conducted as
of the Closing Date or as presently contemplated to be conducted
(including all documentation relating thereto);
(B) the copyrights, copyright registrations and
copyright applications (collectively, "Copyrights") set forth in
Section 1.1(a)(vii) of the Seller Disclosure Schedule;
(C) the patents, patent applications, disclosures of
inventions and the patents issued upon patent applications or
based upon such invention disclosures (collectively, "Patents")
set forth in Section 1.1(a)(vii) of the Seller Disclosure
Schedule;
(D) the trade names, trademarks, service marks,
product designations, trade dress, logos, slogans, and designs
and general intangibles of a like nature together with goodwill,
all registrations and applications related to the foregoing
(collectively, "Trademarks") set forth in Section 1.1(a)(vii) of
the Seller Disclosure Schedule;
3
<PAGE>
(E) the Internet domain names set forth in Section
1.1(a)(vii) of the Seller Disclosure Schedule;
(F) subject to the consent requirements for the
agreements set forth in Section 2.3 of the Seller Disclosure
Schedule, license agreements held for use or used in, or related
to the Business as conducted as of the Closing Date or as
presently contemplated to be conducted and relating to any of
the foregoing types of intangible assets whether Seller is a
party as licensor or licensee thereunder, including the licenses
set forth in Section 1.1(a)(vii) of the Seller Disclosure
Schedule;
(viii) all payments, deposits (including security deposits) and
prepaid expenses of the Seller related to the Business;
(ix) all furnishings, furniture, office supplies, hardware,
fixtures and other tangible personal property related to the Business;
(x) all rights under warranties, representations and guaran
tees made by suppliers, manufacturers or contractors in connection with
the operation of the Business or affecting any of the Acquired Assets;
(xi) to the extent assignable, all Permits (as hereinafter
defined); and
(xii) all other assets of the Seller other than the Retained
Assets (as hereinafter defined).
For purposes of this Agreement, "Liens" shall mean all liens, pledges, charges,
claims (excluding claims of vendors of supplies or services used in the ordinary
course for payment of invoices issued in the ordinary course, and claims of
customers for refunds in the ordinary course), security interests or other
encumbrances except for statutory liens relating to taxes not yet due and
payable.
(b) RETAINED ASSETS. Notwithstanding anything contained herein to
the contrary, the Seller shall not sell, transfer, convey or deliver, or cause
to be sold, transferred, conveyed or delivered, to the Buyer (or the Sub if
designated by the Buyer),
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and the Buyer (or the Sub if designated by the Buyer) shall not purchase from
the Seller the following assets, properties, interests and rights of the Seller
(the "Retained Assets"):
(i) all books and records solely related to the Retained
Liabilities (as hereinafter defined);
(ii) any cash or bank account balances of the Seller in
excess of (x) an amount reasonably anticipated to be necessary to fund
the Business from the Closing Date through December 31, 1999 to be
calculated as of the Closing Date by the Seller and reasonably agreed to
by the Buyer (or the Sub if designated by the Buyer) and (y) cash to
fund the outstanding but unpaid checks as of the Closing Date; such
amount to be calculated at least three business days prior to the
Closing by the Seller on a certificate detailing the Seller's
calculation of excess cash and certified by the Seller as complete and
correct along with copies of all documents used in calculating said
amounts;
(iii) the shareholders' agreement among the Seller and the
Seller Shareholders listed in Section 2.17 of the Seller Disclosure
Schedule (the "Shareholders' Agreement");
(iv) any Employment Agreement (as hereinafter defined) for
which the employee of the Seller who is a party to such Employment
Agreement does not receive an offer of employment from the Buyer (or the
Sub if designated by the Buyer) following the Closing pursuant to
Section 4.9(a) (the "Retained Employment Contracts"); and
(v) the Seller's workers compensation insurance policy
(policy number 97-NK-0608-9) with State Farm Fire and Casualty Company
and business insurance policy (policy number 97-EK-5805-2) with State
Farm General Insurance Company (the "Retained Insurance Policies")
Section 1.2. ASSUMPTION OF LIABILITIES. Subject to the terms of this
Agreement and excluding the Retained Liabilities, the Buyer (or the Sub if
designated by the Buyer) hereby agrees to assume, pay, perform and discharge
when due all the liabilities and obligations of the Business, whether fixed,
absolute, contingent, material or immaterial, matured or unmatured other than
the Retained Liabilities (collectively, the "Assumed Liabilities"), including
without limitation:
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(a) all liabilities and obligations reflected on the Balance Sheet
(as hereinafter defined) and any liabilities or obligations arising in the
ordinary course of the Business and consistent with past practice since the date
of the Balance Sheet (excluding all costs and expenses (including legal fees and
expenses) incurred in connection with, or in anticipation of, this Agreement and
the transactions contemplated hereby) including, without limitation, any amounts
payable or reserved for payments of refunds to customers of the Seller in the
ordinary course;
(b) all liabilities and obligations of the Seller under the
Contracts; and
(c) all liabilities and obligations that the Buyer (or the Sub if
designated by the Buyer) has agreed to assume pursuant to Section 4.9.
Section 1.3. RETAINED LIABILITIES. Subject to the terms of this
Agreement, the Buyer (or the Sub if designated by the Buyer) shall not assume
and the Seller or the Seller Shareholders, as applicable, shall retain all the
liabilities and obligations of the Seller or the Seller Shareholders, as
applicable not specifically assumed by the Buyer (or the Sub if designated by
the Buyer) in Section 1.2, including without limitation, the following (the
"Retained Liabilities"):
(a) all Taxes (as hereinafter defined) attributable to or related to
the Business or the Acquired Assets for all taxable periods (or portions
thereof) ending on or prior to the Closing Date including, without limitation,
Taxes incurred as a result of the transactions contemplated by this Agreement
and the Preclosing Transactions (as hereinafter defined) and all Taxes imposed
upon the Seller or the Seller Shareholders for any taxable period;
(b) all costs and expenses (including legal fees and expenses)
incurred in connection with, or in anticipation of, this Agreement and the
transactions contemplated hereby including, without limitation, the fees and
expenses of Booth Capital Corporation and Scott Miller (collectively, the
"Seller Financial Advisor") and the Preclosing Transaction Expenses (as
hereinafter defined);
(c) all liabilities and obligations of the Seller in connection with
the Shareholders' Agreement and the promissory note payable to Preis by the
Seller in the amount of $390,000 listed in Section 2.17 of the Seller Disclosure
Schedule;
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(d) the Retained Employment Contracts; and
(e) the Retained Insurance Policies.
Section 1.4. PURCHASE PRICE. Subject to the terms of this Agreement, in
consideration of the aforesaid sale, assignment, transfer and conveyance of the
Acquired Assets, the Buyer (or the Sub if designated by the Buyer) agrees to (i)
assume the Assumed Liabilities and (ii) pay to the Seller a purchase price of up
to $9.0 million (the "Purchase Price") to be paid as follows: (a) at the
Closing, $2.0 million in cash by wire transfer in immediately available funds to
an account designated in writing by the Seller (the "Closing Cash Payment") and
a payment of $1.0 million in Share Equivalents (as hereinafter defined) (the
"Closing Stock Payment" and together with the Closing Cash Payment, the "Closing
Payments"); (b) up to $6.0 million in Deferred Payments as set forth in Section
1.5 below. "Share Equivalents" for a given payment amount shall mean (i) that
number of shares of Buyer Common Stock (as hereinafter defined) determined by
dividing such payment amount by the Share Value (as hereinafter defined), or
(ii) if the CIB Stock has been issued, that number of shares of CIB Stock
determined by calculating the number of shares of Buyer Common Stock that would
have been issued pursuant to (i) above and converting such shares into CIB Stock
at the same conversion ratio at which the Buyer Common Stock converted into CIB
Stock at the time of the IPO. "Buyer Common Stock" means the Non-Voting Common
Stock, par value $.01 per share of the Buyer. The key provisions of the Buyer
Common Stock are attached as Exhibit A hereto. "Share Value" shall mean $20.51
per share, as the same may be adjusted to reflect stock dividends, stock-splits,
combinations or other reclassifications of stock or any other similar
transactions.
Section 1.5. DEFERRED PAYMENTS.
(a) DEFINITIONS. The following terms shall be defined as follows:
(i) "Accepted Addition" means any expansion of the
activities of the Business to a new location other than those
contemplated by Budgeted Capital or any expansion to a location or
activity not previously contemplated by Budgeted Capital or Budgeted
Expenses, and which is accepted in writing as an "Accepted Addition" by
the Buyer (or the Sub if designated by the Buyer) and Preis. An
"Accepted Addition" may be proposed by any party hereto. Accepted
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Additions are intended only to affect the calculation of the Deferred
Payments hereunder and shall not be construed as giving any other party
veto power or control over investment decisions of Cendant, the Buyer or
the Sub, which power and control shall remain in the sole discretion of
Cendant, the Buyer and the Sub. Any location or business activity which
is not an Accepted Addition shall be excluded from the calculation of
Actual Capital Expenditures, Excess Capital Expenditures, Actual
Revenues and Actual Expenses (including, if such activities or locations
are not Accepted Additions and the Seller Shareholders or the Expanded
Business devote a material amount of time to such locations or
activities, an adjustment to allocate overhead to the excluded location
or activity to be determined in good faith by the Buyer (or the Sub if
designated by the Buyer)) in calculating the Calculated Deferred
Payment. If an expansion is an Accepted Addition the actual results of
the Accepted Addition (determined according to Section 1.5(c) hereof)
shall be included in determining Actual Capital Expenditures, Actual
Revenues and Actual Expenses for purposes of determining the Calculated
Deferred Payment.
(ii) "Actual Capital Expenditures" means the cumulative
amount of capital expenditures of the Expanded Business (as hereinafter
defined) actually made from the Closing Date until the end of the
Deferred Payment Period (as hereinafter defined).
(iii) "Actual Expenses" means the expenses of the Expanded
Business (as determined under Section 1.5 (c)) for a particular Year (as
hereinafter defined) during the Deferred Payment Period (including any
expenses associated with moving, closing or opening an office for the
Expanded Business except for expenses associated with any relocation of
the Fillmore Street office within six months of the Closing Date which
is directed by the Buyer (and not agreed to by Preis) without a legal
requirement for such relocation to have occurred) and referred to by
reference to the particular Year, e.g., "Year 2 Actual Expenses."
(iv) "Actual Revenues" means the revenues of the Expanded
Business (as determined under Section 1.5 (c)) for a particular Year
during the Deferred Payment Period and referred to by reference to a
particular Year, e.g., "Year 3 Actual Revenues" (including Ancillary
Revenues as described in Section 4.16).
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(v) (1) "Budgeted Capital" means $1,900,000 for the
entire Deferred Payment Period, measured on a cumulative basis from the
Closing Date until the end of the Deferred Payment Period.
(2) Section 1.5(a)(v)(2) of the Seller Disclosure
Schedule sets forth a description of all targeted acquisitions by
region, including the targeted capital expenditures, revenues and
expenses allocated to each such acquisition in the Budgeted Capital,
Budgeted Expenses and Budgeted Revenues and including, where known, the
name and the aforementioned information with respect to each individual
target within such region.
(vi) "Budgeted Revenues" and "Budgeted Expenses" mean, for
Year 1, Year 2, and Year 3 of the Expanded Business, the following gross
dollar amounts:
Budgeted Revenues Budgeted Expenses
----------------- -----------------
Year 1 $ 5,930,000 $ 7,229,000
Year 2 $10,215,000 $ 8,883,000
Year 3 $12,593,000 $10,062,000
Budgeted Revenues and Budgeted Expenses are referred to in this Section
1.5 by reference to a specific year (e.g., "Year 2 Budgeted Revenues and
Year 2 Budgeted Expenses").
(vii) "Calculated Deferred Payment" means, for each Year, the
portion of the Deferred Payment Target (as hereinafter defined) actually
calculated to be due and payable to the Seller pursuant to this Section
1.5. The Calculated Deferred Payment is referred to by reference to the
particular Year with respect to which the calculation is made, e.g., the
Year 3 Calculated Deferred Payment.
(viii) "Capital Adjustment" means, for each Year during the
Deferred Payment Period, an adjustment determined as follows:
(1) If there are no Excess Capital Expenditures (as herein
after defined) for the Year, or for any period Year, the Capital
Adjustment is zero ($0).
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(2) If there are Excess Capital Expenditures in Year 1, the
Year 1 Capital Adjustment shall be equal to twenty five percent
(25%) of the Year 1 Excess Capital Expenditures.
(3) If there are Excess Capital Expenditures in either Year
1 or Year 2, the Year 2 Capital Adjustment shall be (A) fifty
percent (50%) of the Year 2 Excess Capital Expenditures, plus (B)
fifty percent (50%) of the Year 1 Excess Capital Expenditures.
(4) If there are Excess Capital Expenditures in any of Year
1, Year 2 or Year 3, the Year 3 Capital Adjustment shall be (A) one
hundred percent (100%) of the Year 3 Excess Capital Expenditures,
plus (B) fifty percent (50%) of the Year 2 Excess Capital
Expenditures, plus (C) twenty five percent (25%) of the Year 1
Excess Capital Expenditures.
In all cases where the Capital Adjustment is a number other than zero
($0), it will be expressed as a negative number.
(ix) "Capital Savings" means, for each Year during the
Deferred Payment Period, the amount, if any, by which Actual Expenses
for the Year are less than Budgeted Expenses for the Year, PROVIDED,
HOWEVER that such Capital Savings cannot exceed the positive difference
between (A) Actual Revenues for the Year multiplied by the Expense
Percentage at Budget (as hereinafter defined) for the Year minus (B)
Actual Expenses for the Year.
(x) "Deferred Payment" means any one of the payments
determined hereunder for Year 1, Year 2 and Year 3.
(xi) "Deferred Payment Period" means the period from the
Closing Date until the end of Year 3.
(xii) "Deferred Payment Target" means, with respect to each
Year the following dollar amounts:
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Year Deferred Payment Target
---- -----------------------
Year 1 $2,000,000
Year 2 $3,000,000
Year 3 $1,000,000
The Deferred Payment Target for a particular Year is referred to by
reference to such Year, e.g., "Year 2 Deferred Payment Target."
(xiii) "Excess Capital Expenditures" means, to the extent that
such amount is greater than zero, (A) the amount of Actual Capital
Expenditures made in any Year, minus (B) the Budgeted Capital less
aggregate Capital Expenditures in all prior Years, minus (C) the Capital
Savings for the Year, PROVIDED, HOWEVER, that if there were Excess
Capital Expendi tures in any prior Year, then the Excess Capital
Expenditures for the Year being calculated shall equal the Actual
Capital Expenditures for such Year. The Excess Capital Expenditures are
referred to by reference to each particular Year, including only the
Actual Capital Expenditures made during that Year. (e.g., If there are
no Capital Savings in Year 1 or Year 2, and if $2,000,000 in chargeable
capital is spent on the Expanded Business before the end of Year 1, and
an additional $200,000 in Year 2, the Year 1 Excess Capital Expenditures
would be $100,000, and the Year 2 Excess Capital Expenditures would be
$200,000.) Year 1 Excess Capital Expenditures includes all Actual
Capital Expenditures made from the Closing Date through the end of Year
1.
(xiv) "Expanded Business" means, for purposes of determin ing
the Actual Revenues, Actual Expenses and Actual Capital Expenditures for
any Year of the Expanded Business the operations of the Business,
expanded by (i) additionaloperations, locations or offices contemplated
by the Budgeted Capital or in the existing Budgeted Expenses and
included in Section 1.5(a)(v)(2) of the Seller Disclosure Schedule, and
(ii) any Accepted Additions.
(xv) "Expense Adjustment" means a dollar amount (which may be
positive or negative) determined for each of Year 2 and Year 3 as
follows:
(1) If Actual Expenses for the Year are less than Budgeted
Expenses for the Year, the Expense Adjustment is zero ($0).
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(2) If Actual Expenses for the Year are greater than
Budgeted Expenses for the Year, the Expense Adjustment is equal to:
(A) Actual Revenues for the Year multiplied by the
Expense Percentage at Budget for the Year,
minus
(B) Actual Expenses for the Year.
A positive difference is a positive Expense Adjustment for the Year; a
negative difference is a negative Expense Adjustment for the Year.
(xvi) "Expense Percentage at Budget" means, for each of Year
1, Year 2 and Year 3, Budgeted Expenses for the Year divided by Budgeted
Revenues for the same Year, expressed as a percentage. The Expense
Percentage at Budget for each of Year 1, Year 2 and Year 3 is as
follows:
Year 1 121.91%
Year 2 86.96%
Year 3 79.90%
(xvii) "Revenue Adjusted Target" means the dollar amount
determined for each of Year 2 and Year 3 by multiplying the appropriate
Revenue Adjustment Percentage in the following chart, by the Deferred
Payment Target for the Year:
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Actual Revenues for the
Year as a Percentage of Revenue Adjustment
Budgeted Revenues for the Year Percentage for the Year
------------------------------ -----------------------
65% 32.5%
70% 45.8%
75% 59.2%
80% 72.5%
Above 80% Same Percentage Above 80%
If Actual Revenues as a percentage of Budgeted Revenues falls at an
intermediate point between 65% and 80%, the Revenue Adjustment
Percentage for such intermediate point is determined by linear
interpolation from the results indicated for 65%, 70%, 75% and 80%.
(xviii) "Year" means any one of Year 1, Year 2, or Year 3.
(xix) "Year 1, Year 2, and Year 3" mean the following time
periods regardless of the scheduled time for payment of a Calculated
Deferred Payment with respect to such periods:
Period Covered (Inclusive)
--------------------------
Year 1 1/1/2000-12/31/2000
Year 2 1/1/2001-12/31/2001
Year 3 1/1/2002-12/31/2002
(b) DETERMINATION OF CALCULATED DEFERRED PAYMENT.
(i) YEAR 1 CALCULATED DEFERRED PAYMENT.
(1) If Year 1 Actual Revenues are less than fifty percent
(50%) of Year 1 Budgeted Revenues, the Year 1 Calculated Deferred
Payment is zero ($0).
(2) If Year 1 Actual Revenues equal or exceed fifty per cent
(50%) of Year 1 Budgeted Revenues, the Year 1 Calculated Deferred
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Payment will be the sum of (A) the Year 1 Deferred Payment Target,
and (B) the Year 1 Capital Adjustment, if any. No other adjustments
will be taken into account or applied in determining the Year 1
Calculated Deferred Payment.
(3) The Year 1 Calculated Deferred Payment shall be payable
fifty percent (50%) in cash and fifty percent (50%) in Share
Equivalents.
(ii) YEAR 2 CALCULATED DEFERRED PAYMENT.
(1) If Year 2 Actual Revenues are less than sixty five
percent (65%) of Year 2 Budgeted Revenues, the Year 2 Calculated
Deferred Payment will be zero ($0), and no adjustments will apply to
raise the Year 2 Calculated Deferred Payment above zero ($0).
(2) If (A) Year 2 Actual Revenues equal or exceed Year 2
Budgeted Revenues, (B) Year 2 Actual Expenses are less than or equal
to Year 2 Budgeted Expenses, and (C) there are no Excess Capital
Expenditures for Year 2 or Year 1, then the Year 2 Calculated
Deferred Payment will be the Year 2 Deferred Payment Target.
(3) In any circumstances other than those described in
Sections 2.15(b)(ii)(1) and (2) above, the Year 2 Calculated
Deferred Payment will be the sum of: (A) the Year 2 Revenue Adjusted
Target, (B) the Year 2 Expense Adjustment and (C) the Year 2 Capital
Adjustment; PROVIDED, HOWEVER, that in no event shall the Year 2
Calculated Deferred Payment exceed the Year 2 Deferred Payment
Target.
(4) The Year 2 Calculated Deferred Payment shall be payable
in Share Equivalents.
(iii) YEAR 3 CALCULATED DEFERRED PAYMENT AMOUNT.
(1) If Year 3 Actual Revenues are less than sixty five
percent (65%) of Year 3 Budgeted Revenues, the Year 3 Calculated
Deferred
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Payment will be zero ($0), and no adjustments will apply to raise
the Year 3 Calculated Deferred Payment above zero ($0).
(2) If (A) Year 3 Actual Revenues equal or exceed Year 3
Budgeted Revenues, (B) Year 3 Actual Expenses are less than or equal
to Year 3 Budgeted Expenses, and (C) there are no Excess Capital
Expenditures for Year 3, Year 2 or Year 1, then the Year 3
Calculated Deferred Payment will be the Year 3 Deferred Payment
Target.
(3) In any circumstances other than those described in
Sections 2.15(b)(iii)(1) and (2) above, the Year 3 Calculated
Deferred Payment will be the sum of: (A) the Year 3 Revenue
Adjusted Target, (B) the Year 3 Expense Adjustment and (C) the
Year 3 Capital Adjustment; PROVIDED, HOWEVER, that in no event
shall the Year 3 Calculated Deferred Payment Amount exceed the
Year 3 Deferred Payment Target.
(4) The Year 3 Calculated Deferred Payment shall be payable
in Share Equivalents.
(iv) CAPITAL ADJUSTMENT OPTION. Notwithstanding anything to
the contrary contained within this Section 1.5(b), if the Calculated
Deferred Payment for a Year includes a number other than zero as the
Capital Adjustment for such Year, then the Seller may, by written notice
to the Buyer (or the Sub if designated by the Buyer), elect to pay to
the entity issuing such Share Equivalents an amount of cash equal to but
no more or less than the Capital Adjustment for such Year in lieu of a
reduction in the Share Equivalents payable to the Seller for such Year
due to the Capital Adjustment for such Year.
(c) DETERMINATION OF ACTUAL REVENUES, ACTUAL EXPENSES AND ACTUAL
CAPITAL EXPENDITURES. Promptly after the end of a Year and in any event not
later than 90 days following the end of such Year, the Buyer (or the Sub, if
designated by the Buyer) shall prepare and deliver to the Seller a calculation
of the Actual Revenues, Actual Expenses and Actual Capital Expenditures for the
Year (the "Actual Results") and a certificate (the "Calculation Certificate")
signed by the Chief Operating Officer of the Buyer (or the Sub, if designated by
the Buyer) setting forth the calculation of the Calculated Deferred Payment for
such Year. The Actual Results shall be prepared in good faith in a
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manner consistent with the Seller's current accounting practices (after
consultation and due regard for the suggestions of Preis).
(d) DISPUTES CONCERNING ACTUAL RESULTS. The Seller may dispute (a
"Closing Dispute") any aspect of the Actual Results or the Calculation
Certificate by notice (a "Dispute Notice") in writing given to Cendant within 30
days (the "Review Period") following the delivery of the Actual Results and the
Calculation Certificate to the Seller. The Seller shall be provided with
reasonable access during normal business hours under the supervision of the
Buyer's (or the Sub's if designated by the Buyer) personnel and upon reasonable
prior notice, to all documents, records, facilities and personnel reasonably
necessary to conduct its review of the Actual Results and the Calculation
Certificate. The Seller shall conduct such review in such a manner as not to
disrupt the business operations of the Buyer (or the Sub if designated by the
Buyer). The Dispute Notice shall specify the item or items on the Actual Results
or the Calculation Certificate which the Seller disputes and shall specify the
aggregate amount by which the Seller believes the Calculated Deferred Payment
for the year should be increased. In the event that no Dispute Notice is given
within 30 days following the delivery of the Actual Results and the Calculation
Certificate to the Seller, the Actual Results and the Calculation Certificate
shall be deemed to have been accepted by the Seller in the form in which it was
delivered to the Seller and shall be final and binding upon the parties hereto.
If the Seller has a Closing Dispute and delivers a Dispute Notice, the Buyer (or
the Sub if designated by the Buyer) and the Seller shall attempt to resolve the
Closing Dispute. In the event that such Closing Dispute is not resolved by
agreement of the parties within 60 days of delivery of such notice by the
Seller, the Closing Dispute shall be finally settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA Rules") then in effect, except as modified herein. The
place of arbitration shall be New York, New York. There shall be a single
arbitrator (the "Closing Arbitrator") appointed by the Seller and Cendant and
who shall be a mutually acceptable certified public accountant from either (w)
Deloitte & Touche LLP, (x) PricewaterhouseCoopers LLP, (y)Arthur Andersen LLP or
(z) KPMG Peat Marwick LLP (each, individually, a "Big Five Accounting Firm")
(PROVIDED, HOWEVER, that in no event shall a certified public accountant from
the accounting firm of Ernst & Young LLP be chosen, and Ernst & Young LLP shall
not, for the purposes of this agreement, be defined as a Big Five Accounting
Firm). If Cendant and the Seller are unable to agree as to the identity of the
Closing Arbitrator within 30 days of receipt by respondent of the notice of the
demand for arbitration sent by the American Arbitration Association (the "AAA"),
such appointment shall be made by the AAA in accordance with the AAA Rules and
this Section 1.5. Any Closing Arbitrator
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appointed by the AAA shall be a certified public accountant who is a partner
from a Big Five Accounting Firm (excluding Ernst & Young LLP) who is
experienced in large business transactions of this type. In connection with
the resolution of any Closing Dispute, the Closing Arbitrator shall have
access to all documents, records, facilities and personnel necessary to
perform his function. The Closing Arbitrator shall resolve all Closing
Disputes in accordance with the terms of this Agreement. Any arbitration
proceedings, decision or award rendered hereunder and the validity, effect
and interpretation of this arbitration agreement shall be governed by the
United States Federal Arbitration Act, 9 U.S.C. Section 1 ET SEq. The
decision of the Closing Arbitrator shall be final and binding on all the
parties hereto and judgment upon any award may be entered in any court having
competent jurisdiction. Upon agreement by the parties with respect to all
matters in dispute, or upon an award or decision of the Closing Arbitrator
with respect to all matters in dispute, such amendments shall be made to the
Actual Results and the Calculation Certificate as may be necessary to reflect
such agreement or such decision, as the case may be. In such event,
references in this Agreement to the Actual Results and the Calculation
Certificate shall refer to the Actual Results or the Calculation Certificate,
as the case may be, as amended in accordance with the foregoing sentence, and
the final determination of the Calculated Deferred Payment for the Year and
any resulting payment pursuant to this Section 1.5 shall be made in
accordance therewith. The fees payable to the Closing Arbitrator shall be
paid equally by the Seller and Cendant and each party shall bear their own
costs and attorneys fees.
(e) TIMING OF DEFERRED PAYMENTS.
(i) The Year 1 Calculated Deferred Payment shall be effected
through the payments and transfers to the Escrow Agent as provided in
Section 4.17 of this Agreement, and the timing and terms of the release
of the Year 1 Calculated Deferred Payment will be governed by the Escrow
Agreement.
(ii) The Year 2 Calculated Deferred Payment, if any, shall be
paid on or after January 1, 2002, as follows: (A) the amount of the Year
2 Calculated Deferred Payment based upon the calculation of the Actual
Results included in the Calculation Certificate under Section 1.5(c) of
this Agreement shall accompany the Buyer's delivery of the Calculation
Certificate to the Seller with respect to the Year 2 Actual Results, and
(B) any additional Year 2 Calculated Deferred Payment payable as the
result of resolution of any dispute concerning the Actual Results under
Section 1.5(d) of this Agreement shall be paid to the Seller
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within ten (10) business days after such dispute is resolved pursuant to
Section 1.5(d).
(iii) The Year 3 Calculated Deferred Payment, if any, shall be
paid on or after January 1, 2003, as follows: (A) the amount of the Year
3 Calculated Deferred Payment based upon the calculation of the Actual
Results included in the Calculation Certificate under Section 1.5(c) of
this Agreement shall accompany the Buyer's delivery of the Calculation
Certificate to the Seller with respect to the Year 3 Actual Results, and
(B) any additional Year 3 Calculated Deferred Payment payable as the
result of resolution of any dispute concerning the Actual Results under
Section 1.5(d) of this Agreement shall be paid to the Seller within ten
(10) business days after such dispute is resolved pursuant to Section
1.5(d).
Section 1.6. TIME AND PLACE OF CLOSING. Upon the terms and subject to
the conditions of this Agreement, the closing of the transactions contemplated
by this Agreement (the "Closing") will take place at the offices of Skadden,
Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, at
10:00 a.m. (local time) on the third business day following the date on which
all the conditions to each party's obligations specified in Article V hereunder
that are susceptible to being satisfied prior to the Closing have been satisfied
or waived by the party entitled to waive the applicable condition, or at such
other date, place or time as the parties may agree in writing; PROVIDED,
HOWEVER, that if Cendant's auditors, Deloitte & Touche LLP, notifies Cendant
that audited financial statements of the Seller or the Business are required in
order to file Cendant's proxy statement for the shareholder vote on the creation
of the CIB Stock, then the Closing shall take place on the third business day
after the filing of such proxy statement. The date on which the Closing occurs
and the transactions contemplated hereby become effective is referred to herein
as the "Closing Date".
Section 1.7. DELIVERIES BY THE SELLER. At the Closing, the Seller will
deliver the following to the Buyer (or the Sub if designated by the Buyer):
(a) the officer's certificate provided for in Section 5.3(c);
(b) the Secretary's certificate provided for in Section 5.3(d);
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(c) a Bill of Sale and Assignment duly executed by the Seller and
substantially in the form of Exhibit B hereto;
(d) a certificate of non-foreign status as provided in Treasury
Regulation Section 1.1445-2(b);
(e) copies of certificates from the appropriate taxing authorities
stating that no Taxes (as hereinafter defined) are due to any state or other
taxing authority for which the Buyer (or the Sub if designated by the Buyer)
could have liability to withhold or pay Taxes with respect to the transfer of
the Acquired Assets;
(f) an Escrow Agreement duly executed by the Seller and
substantially in the form of Exhibit C hereto (the "Escrow Agreement");
(g) a Registration Rights Agreement duly executed by the Seller and
substantially in the form of Exhibit D hereto (the "Registration Rights
Agreement");
(h) all other assignments and other instruments or documents
reasonably necessary in the reasonable judgement of the Buyer (or the Sub if
designated by the Buyer) to evidence the sale, assignment, transfer and
conveyance by the Seller of the Acquired Assets in accordance with the terms of
this Agreement; and
(i) all other documents, instruments and writings required to be
delivered by the Seller at or prior to the Closing Date pursuant to this
Agreement.
Section 1.8. DELIVERIES BY THE BUYER OR THE SUB. Subject to the terms
and conditions hereof, at the Closing the Buyer (or the Sub if designated by the
Buyer) will deliver to the Seller:
(a) the officer's certificate provided for in Section 5.2(c);
(b) the Closing Payments;
(c) an Instrument of Assumption duly executed by the Buyer (or the
Sub if designated by the Buyer) and substantially in the form of Exhibit E
hereto;
(d) the Secretary's certificate referenced in Section 5.2(d);
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(e) the Escrow Agreement duly executed by the Buyer (or the Sub if
designated by the Buyer);
(f) the Employment Agreements between the Buyer (or the Sub if
designated by the Buyer) and each of the Seller Shareholders duly executed by
the Buyer (or the Sub if designated by the Buyer) and substantially in the form
of Exhibit F hereto (each a "Seller Shareholder Employment Agreement"); and
(g) The Registration Rights Agreement duly executed by the Buyer and
Cendant;
(h) all other documents, instruments and writings required to be
delivered by the Buyer (or the Sub if designated by the Buyer) at or prior to
the Closing Date pursuant to this Agreement.
Section 1.9. DELIVERIES BY THE SELLER SHAREHOLDERS. At the Closing, each
of the Seller Shareholders shall deliver to the Buyer (or the Sub if designated
by the Buyer):
(a) the Seller Shareholder Employments Agreements duly executed by
each Seller Shareholder;
(b) all other assignments and other instrument or documents
reasonably necessary in the reasonable judgement of the Buyer (or the Sub if
designated by the Buyer) to evidence the sale, assignment, transfer and
conveyance by the Seller of the Acquired Assets in accordance with the terms of
this Agreement; and
(c) The Registration Rights Agreement duly executed by each Seller
Shareholder;
(d) all other documents, instruments and writings required to be
delivered by the Seller Shareholders at or prior to the Closing Date pursuant to
this Agreement.
Section 1.10. PRECLOSING TRANSACTIONS. Prior to the Closing, the Seller
Shareholders shall contribute to the Seller the Internet domain names "Move.com"
and "For-Rent.com", any and all assets (tangible or intangible) relating to
those domain names
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and the Websites located at such domain name addresses. The foregoing
transactions (the "Preclosing Transactions") shall be consummated pursuant to
and in accordance with instruments of conveyance and otherwise on terms and
conditions reasonably acceptable to Cendant and its outside counsel. The Seller
and the Seller Shareholders shall provide Cendant with copies of the executed
documents promptly following the execution thereof. The Seller and the Seller
Shareholders shall be responsible for all costs, expenses and Taxes relating to
the Preclosing Transactions (the "Preclosing Transaction Expenses").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE SELLER AND THE SELLER SHAREHOLDERS
Each of the Seller and the Seller Shareholders hereby represents and
warrants to the Buyer and the Sub as follows:
Section 2.1 ORGANIZATION; ETC. The Seller (i) is a corporation validly
existing and in good standing under the laws of its jurisdiction of
incorporation, (ii) has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as it
is now being conducted, and (iii) is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership, operation or leasing of its properties makes such qualification
necessary. All of the outstanding capital stock of the Seller is owned
beneficially and of record by the Seller Shareholders.
Section 2.2. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of the Seller
and the Seller Shareholders has the requisite power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite action on the part of the Seller and each of the Seller Shareholders.
This Agreement has been duly and validly executed and delivered by the Seller
and each of the Seller Shareholders and (assuming this Agreement has been duly
authorized, executed and delivered by Cendant, the Buyer and the Sub)
constitutes a valid and binding agreement of the Seller and each of the Seller
Shareholders, enforceable against the Seller and each of the Seller Shareholders
in accordance with its terms, except that (a) such enforcement may be subject to
any bankruptcy, insolvency,
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reorganization, moratorium, fraudulent transfer or other laws, now or hereafter
in effect, relating to or limiting creditors' rights generally and (b)
enforcement of this Agreement, including, among other things, the remedy of
specific performance and injunctive and other forms of equitable relief, may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 2.3. CONSENTS AND APPROVALS; NO VIOLATIONS. () Except as set
forth in Section 2.3 of the Seller Disclosure Schedule, neither the execution
and delivery of this Agreement by the Seller and each of the Seller
Shareholders, nor the consummation by the Seller and each of the Seller
Shareholders of the transactions contemplated hereby will (w) conflict with or
result in any breach of any provision of the certificate or articles of
incorporation, as the case may be, or by-laws of the Seller, (x) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, or require any consent under, any indenture, license,
contract, agreement or other instrument or obligation to which the Seller is a
party or by which any of them or any of their respective properties or assets
are bound, (y) violate any order, writ, injunction, decree or award rendered by
any Governmental Entity (as hereinafter defined) or any statute, rule or
regulation (collectively, "Laws" and, individually, a "Law") applicable to the
Seller or any of their respective properties or assets, or (z) require any
filing with, or the obtaining of any permit, authorization, consent or approval
of, any governmental or regulatory authority, domestic or foreign (a
"Governmental Entity"), except in the case of clauses (x), (y) and (z) of this
Section 2.3 for any such violations, breaches, defaults, rights of termination,
cancellation or acceleration or requirements that (i), individually or in the
aggregate, would not have a Business Material Adverse Effect (as hereinafter
defined) or would not adversely affect the ability of the Seller or each of the
Seller Shareholders to consummate the transactions contemplated by this
Agreement; (ii), individually or in the aggregate become applicable as a result
of the business or activities in which the Buyer, the Sub or Cendant is or
proposes to be engaged (excluding the Expanded Business) or as a result of any
acts or omissions by, or the status of or any facts pertaining to, the Buyer,
the Sub or Cendant; or (iii) are listed in Section 3.7 of the Seller Disclosure
Schedule. Notwithstanding anything to the contrary in this Agreement, prior to
the Closing, the Seller will not seek a consent (which may or may not be
required) for the transfer to the Buyer (or the Sub if designated by the Buyer)
of that certain agreement between the Seller and SFGate listed in Section 2.3 of
the Seller Disclosure Schedule unless previously authorized in writing by the
Buyer. The Seller will use its commercially reasonable efforts to obtain such
consent as soon as practicable following the Closing.
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(b) As used in this Agreement, the term "Business Material Adverse
Effect" shall mean a material adverse change in, or effect on, the Acquired
Assets or the business, prospects, financial condition or results of operations
of the Business.
Section 2.4. FINANCIAL STATEMENTS. () The Seller previously has
delivered to Cendant the unaudited consolidated balance sheet of the Business as
of August 31, 1999 (the "Balance Sheet") and the related unaudited consolidated
statement of income of the Business for the nine months then ended (collectively
the "Financial Statements"). The Financial Statements have not been prepared
according to GAAP. The Seller has identified the changes which, to its
knowledge, should conform its current method of accounting to GAAP. The effects
of these changes are listed in Section 2.4 of the Seller Disclosure Schedule,
and the changes in treatment of customer receipts and refunds are set forth in
detail in Section 2.4 of the Seller Disclosure Schedule (the "Accounting
Changes"). The Financial Statements together with the Accounting Changes present
fairly and accurately the consolidated financial condition of the Business as of
such date and the results of its operations for the nine months then ended.
(b) The Financial Statements together with the Accounting Changes,
including the related schedules and notes thereto, have all been prepared from
the books and records of the Seller consistently throughout the periods
involved. Except for the Accounting Changes, the statements of income included
in the Financial Statements do not contain any special or nonrecurring items
except as expressly specified therein, and the balance sheets included in the
Financial Statements do not reflect any write-up or revaluation increasing the
book value of any assets. The books and accounts of the Seller are, to the
knowledge of the Seller and the Seller Shareholders, complete and correct and
fully and fairly reflect all of the transactions of the Seller.
(c) Notwithstanding paragraphs (a) and (b) of this Section 2.4, the
Buyer, the Sub and Cendant acknowledge that the Seller's accounting for refund
obligations owed to its clients and reflected on the Financial Statements is not
in accordance with GAAP, and may therefore constitute a special or nonrecurring
item.
Section 2.5. ABSENCE OF UNDISCLOSED LIABILITIES. Except for (a)
liabilities or obligations incurred in the ordinary course of business and
consistent with past practice since August 31, 1999, (b) liabilities or
obligations accrued or reserved against in the Financial Statements or (c)
liabilities or obligations disclosed herein or since August 31,
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1999, the Business has not incurred any material liabilities or obligations
(whether direct, indirect, known, unknown accrued, unaccrued, contingent or
otherwise relating to the Acquired Assets or the Business).
Section 2.6. ABSENCE OF CERTAIN CHANGES. Except as set forth in Section
2.6 of the Seller Disclosure Schedule oras otherwise contemplated by this
Agreement, since August 31, 1999, (a) there has not been any development or
event that has had or could reasonably be expected to have, individually or in
the aggregate, a Business Material Adverse Effect and (b) the Business has been
conducted in the ordinary course consistent with past practice.
Section 2.7. LITIGATION. Except as set forth in Section 2.7 of the
Seller Disclosure Schedule, there is no action, suit, proceeding (each, a "Legal
Proceeding") or governmental investigation pending or, to the knowledge of the
Seller or either of the Seller Shareholders, threatened against any of the
Seller or either of the Seller Shareholders in respect of the Business by or
before any court or Governmental Entity. There is no Legal Proceeding pending
or, to the knowledge of the Seller or either of the Seller Shareholders,
threatened, against any of the Seller or the Seller Shareholders in respect of
the Business that questions the validity of this Agreement or any action taken
or to be taken by the Seller or either of the Seller Shareholders in connection
with the consummation of the transactions contemplated hereby or except as set
forth in Section 2.7 of the Seller Disclosure Schedule that, individually or in
the aggregate, could have or could reasonably be expected to have a Business
Material Adverse Effect. Except as set forth in Section 2.7 of the Seller
Disclosure Schedule, there is not outstanding or, to the knowledge of the Seller
or either of the Seller Shareholders, threatened, any orders, judgements,
decrees or injunctions issued by any Government Entity against, affecting or
naming any of the Seller or the Seller Shareholders or affecting any of the
Acquired Assets.
Section 2.8. COMPLIANCE WITH LAW. Except as set forth in Section 2.8 of
the Seller Disclosure Schedule, to the knowledge of the Seller or either of the
Seller Shareholders, the Business is not being and has not been conducted in
material violation of any applicable Law or any order, writ, injunction or
decree of any court or Governmental Entity. Except as set forth in Section 2.8
of the Seller Disclosure Schedule, the Business has all material permits,
licenses, and other governmental authorizations, consents, and approvals
necessary to conduct its business as currently conducted (collectively, the
"Permits"). All of the Permits are identified in Section 2.8 of the Seller
Disclosure
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Schedule. Except as set forth in Section 2.8 of the Seller Disclosure Schedule,
the Business is not in material violation of the terms of any Permit.
Section 2.9. EMPLOYEE BENEFIT PLANS. (a) Section 2.9(a) of the Seller
Disclosure Schedule sets forth, as of the date of this Agreement, a list of all
"employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Security Act of 1974, as amended ("ERISA")), "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA), and deferred compensation,
bonus, retention bonus, incentive, severance, stock bonus, stock option,
restricted stock, stock appreciation right, stock purchase, holiday pay, and
vacation pay plans, and any other employee benefit plan, program, policy or
arrangement that is either maintained by orcontributed to by the Seller or any
of their subsidiaries or any of their ERISA Affiliates (as hereinafter defined)
or to which the Seller or any of their subsidiaries or any of their ERISA
Affiliates is obligated to make payments or otherwise have any liability,
(collectively, the "Plans"), and each employment, severance, consulting or
similar agreement currently in effect that has been entered into by the Seller
or a subsidiary of the Seller, on the one hand, and any employee of the
Business, on the other hand (collectively, the "Employment Agreements"). For
purposes of this Agreement, "ERISA Affiliate" shall mean any person (as defined
in Section 3(9) of ERISA) that, is or has been a member of any group of persons
described in Section 414(b), (c), (m) or (o) of the Internal Revenue Code of
1986, as amended (the "Code"), including, without limitation, the Seller and its
subsidiaries. Accurate and complete copies of all such Plans and Employment
Agreements have been delivered to the Buyer (or the Sub if designated by the
Buyer).
(b) No Plan is subject to Title IV of ERISA. The Business is not a
participant in any "multiemployer plan" within the meaning of Section 3(37) of
ERISA. No liability or contingent liability under Title IV or Section 302 of
ERISA has been incurred by the Seller or any ERISA Affiliate that has not been
satisfied in full, and no condition exists that presents a material risk to the
Seller or any ERISA Affiliate of incurring any such liability or contingent
liability. The Internal Revenue Service has issued a favorable determination
letter for each Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code, and each such Plan is qualified.
(c) (i) All payments required to be made by or under any Plan,
any related trusts, insurance policies or ancillary agreements, or any
collective bargaining agreements have been timely made; (ii) the Seller has
performed all obligations required to be performed by it under any Plan; (iii)
the Plans have been administered and are in
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compliance with their terms, the terms of any collective bargaining agreements,
and the requirements of ERISA, the Code and other applicable Laws; and (iv)
there are no actions, suits, arbitrations or claims pending or, to the knowledge
of the Seller or the Seller Shareholders, threatened against any Plan.
(d) Except as set forth in Section 2.9(d) of the Seller Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will, (i) increase any
benefits otherwise payable under any Plan or Employment Agreement, or (ii)
result in the acceleration of the time of payment or vesting of any such
benefits. Except as set forth in Section 2.9(d) of the Seller Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in any payment
becoming due, or increase the compensation due, to any current or former
employee or director of the Seller or any of its subsidiaries.
(e) Except as set forth in Section 2.9(e) of the Seller Disclosure
Schedule, none of the Plans provides for post-employment or post-retirement life
or health insurance, benefits or coverage for any participant or any beneficiary
of a participant, except as may be required under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended.
Section 2.10. LABOR RELATIONS. Except as set forth in Section 2.10 of
the Seller Disclosure Schedule, (a) the Business is, and has been, in compliance
in all material respects with all applicable Laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, and is not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
Law; (b) there is no labor strike, slowdown, stoppage or lockout actually
pending, or threatened against or affecting the Business; and (c) the Business
is not now, and has never been, a party to or bound by any collective bargaining
or similar agreement with any labor organization.
Section 2.11. TAXES. Except as set forth on Section 2.11 of the Seller
Disclosure Schedule: All Taxes that are dueand payable or required to be
withheld, collected and/or paid over by the Seller or the Seller Shareholders
for all periods ending on or before the Closing Date have been paid in full, and
adequate reserves for all other Taxes of the Seller attributable to the Business
or the Acquired Assets, whether or not due and payable, and whether or not
disputed, have been set up on the Financial Statements
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except for payroll taxes for a period of up to two weeks, and other Taxes
accruing after the date of the Financial Statements. The Seller and the Seller
Shareholders have duly and timely filed (or there has been filed on their
behalf) with the appropriate governmental authorities all Tax Returns required
to be filed with respect to the Business and the Acquired Assets, and all such
Tax Returns are true, correct and complete in all material respects. No audit is
pending or, to the knowledge of the Seller, threatened with respect to any Taxes
due from the Seller or the Seller Shareholders or attributable to the Business
or the Acquired Assets. There are no outstanding waivers extending the statutory
period of limitations relating to the payment of Taxes due from the Seller or
the Seller Shareholders for any taxable period ending on or prior to the Closing
Date that are expected to be outstanding as of the Closing Date. No deficiency
or adjustment for any Taxes has been threatened, proposed, asserted or assessed,
in writing, against the Seller or any of the Seller Shareholders. None of the
Assumed Liabilities is an obligation to make a payment that will not be
deductible by reason of Section 280G of the Code. The Seller is not a party to
any Tax allocation or sharing agreement, or similar arrangement. There are no
Liens on the Acquired Assets. "Tax" or "Taxes" shall mean taxes of any kind,
levies or other like assessments, customs, duties, imposts, charges or fees,
including income, gross receipts, ad valorem, value added, excise, real or
property, asset, sales, use, license, payroll, transaction, capital, net worth,
withholding, estimated, social security, utility, workers' compensation,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes, other governmental taxes imposed or payable
to the United States, or any state, county, local or foreign government or
subdivision or agency thereof, including any such liabilities that arise by
virtue of transferee liability, successor liability, bulk transfer or sales
laws, fraudulent conveyance statute, contracts, or otherwise, together with any
interest, penalties or additions with respect thereto and any interest in
respect of such additions or penalties; and "Tax Returns" shall mean all
returns, reports, statements, declarations, estimates and forms or other
documents (including any related or supporting information), required to be
filed with respect to any Taxes.
Section 2.12. CONTRACTS. (a) The Seller has made available to the Buyer
(or the Sub if designated by the Buyer) true, correct and complete copies of all
Contracts which individually, or together with related Contracts with the same
or related parties, involves the receipt or payment after the date hereof of
more than $10,000 on an annual basis or over the remaining term thereof. Except
as provided in Section 2.12(a) of the Seller Disclosure Schedule, neither the
Seller, the Seller Shareholders nor any of the Acquired Assets, is a party to or
is bound by any: (i) employment, personal services,
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consulting, non-competition or other similar restriction on the conduct of the
Business, severance, golden parachute or director, officer or employee
indemnification agreements; (ii) contracts granting a right of first refusal or
first negotiation with respect to any assets or line of business of the
Business; (iii) partnership or joint venture agreements; (iv) agreements for the
acquisition, sale or lease of material properties or assets of the Business (by
merger, purchase or sale of assets or stock or otherwise) entered into since
January 1, 1997; (v) contracts or agreements with any Governmental Entity; (vi)
Real Property Leases (as hereinafter defined); (vii) loan agreements, credit
agreements, promissory notes, guarantees, subordination agreements, letters of
credit or other similar types of contract; (viii) collective bargaining or other
agreements with any labor unions; (ix) other contracts which individually, or
together with contracts with the same or related parties, involve the receipt or
payment after the date hereof of more than $10,000 on an annual basis or over
the remaining term thereof; (x) contracts or agreements restricting the conduct
of the Business; and (xi) commitments and agreements to enter into any of the
foregoing.
(b) Except as set forth in Section 2.12(b) of the Seller Disclosure
Schedule: (i) there is no material default under any Contract by the Seller or,
to the knowledge of the Seller or the Seller Shareholders, by any other party
thereto, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a material default thereunder by the Seller, or
to the knowledge of the Seller or the Seller Shareholders, any other party; (ii)
no party to any such Contract has given notice to the Seller of, or made a claim
against the Business with respect to, any breach or default thereunder; and
(iii) all the Contracts, to the extent not fully performed by Seller, are valid,
binding and enforceable (except as such enforceability may be subject to any
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws, now or hereafter in effect, relating to or limiting creditors' rights
generally, or to equitable defenses or the discretion of the court before which
proceedings may be brought) obligations of the Seller. Except as set forth in
Section 2.3 of the Seller Disclosure Schedule, each Contract is transferrable to
the Buyer (or the Sub if designated by the Buyer) without third party consent.
Section 2.13. REAL PROPERTY. Section 2.13 of the Seller Disclosure
Schedule sets forth a list of all real property leased on behalf of the Business
(the "Real Property Leases") and includes the expiration dates of such Real
Property Leases. The Seller does not own any real property.
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Section 2.14. INTELLECTUAL PROPERTY. (a) As used herein, the term
"Intellectual Property" means all Trademarks, Internet domain names, Patents,
Copyrights, Software, and Trade Secrets, held for use, used in or related to the
Business as conducted as of the Closing Date or as presently contemplated by the
Seller or the Seller Shareholders to be conducted and any licenses to use any of
the foregoing (except for additional "shrink wrap" or other software licenses
which may be needed in connection with expanding the Business).
(b) Section 1.1(a)(vii) of the Seller Disclosure Schedule sets
forth, for all Intellectual Property owned directly or indirectly by the Seller
or a subsidiary of the Seller, a complete and accurate list, of all U.S. and
foreign: (i) patents and patent applications; (ii) trademark and service mark
registrations (including Internet domain name registrations owned directly or
indirectly by the Seller), trademark and service mark applications and material
unregistered trademarks and service marks; and (iii) copyright registrations,
copyright applications and material unregistered copyrights. Neither of the
Seller Shareholders own any Internet domain names held for, used in or related
to the Business.
(c) Section 1.1(a)(vii) of the Seller Disclosure Schedule lists all
contracts for material Software which is licensed, leased or otherwise used by
the Seller or a subsidiary of the Seller, and all Software which is owned by the
Seller or a subsidiary of the Seller ("Proprietary Software"), and identifies
which Software is owned, licensed, leased, or otherwise used, as the case may
be.
(d) Section 1.1(a)(vii) of the Seller Disclosure Schedule sets forth
a complete and accurate list of all material agreements granting or obtaining
any right to use or practice any rights under any Intellectual Property, to
which the Seller or a subsidiary of the Seller is a party or otherwise bound, as
licensee or licensor thereunder, including, without limitation, license
agreements, settlement agreements and covenants not to sue (collectively, the
"License Agreements").
(e) Except as would not individually or in the aggregate have a
Business Material Adverse Effect on the Seller or any subsidiary of the Seller:
(i) The Seller and its subsidiaries own or have the right to
use all Intellectual Property, free and clear of all Liens, other than
any Liens disclosed
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on Section 2.11 of the Seller Disclosure Schedule or as otherwise
disclosed in Section 2.14(e) of the Seller Disclosure Schedule;
(ii) any Intellectual Property owned or used by the Seller or
any subsidiary of the Seller has been duly maintained, is valid and
subsisting, in full force and effect and has not been cancelled, expired
or abandoned;
(iii) except as may be otherwise disclosed in Section 2.14(e)
of the Seller Disclosure Schedule, the Seller has not received written
notice from any third party regarding any actual or potential
infringement by the Seller or any subsidiary of the Seller of any
intellectual property of such third party, and the Seller and either of
the Seller Shareholders have no knowledge of any basis for such a claim
against the Seller or any subsidiary of the Seller;
(iv) the Seller has not received written notice from any
third party regarding any assertion or claim challenging the validity of
any Intellectual Property owned or used by the Seller or any subsidiary
of the Seller and the Seller has no knowledge of any basis for such a
claim;
(v) neither Seller nor any subsidiary of the Seller has
licensed or sublicensed its rights in any Intellectual Property, or
received or been granted any such rights, other than pursuant to the
License Agreements;
(vi) to the knowledge of the Seller and each Seller Share
holder, and except as disclosed in Section 2.14(e) of the Seller
Disclosure Schedule, no third party is misappropriating, infringing,
diluting or violating any Intellectual Property owned by the Seller or
any subsidiary of the Seller;
(vii) the License Agreements are valid and binding obligations
of the Seller or its subsidiaries, enforceable in accordance with their
terms (except as may be limited by bankruptcy or creditors' rights laws,
equitable principles or the discretion of the courts), and there exists
no event or condition which will result in a violation or breach of, or
constitute a default by the Seller or any subsidiary of the Seller or,
to the knowledge of the Seller or either of the Seller Shareholders, the
other party thereto, under any such License Agreement;
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(viii) the Seller and each subsidiary of the Seller take
reasonable measures to protect the confidentiality of Trade Secrets
including requiring third parties having access thereto to execute
written nondisclosure agreements. To the knowledge of the Seller and
each Seller Shareholder, no Trade Secret of the Seller or any subsidiary
of the Seller has been disclosed or authorized to be disclosed to any
third party other than pursuant to a written nondisclosure agreement
that adequately protects the Seller's and the applicable Seller
subsidiary's proprietary interests in and to such Trade Secrets;
(ix) except as disclosed in Section 2.3 of the Seller Disclo
sure Schedule, the consummation of the transactions contemplated hereby
will not result in the loss or impairment of the Seller's or any Seller
subsidiary's rights to own or use any of the Intellectual Property, nor
will such consummation require the consent of any third party in respect
of any Intellectual Property; and
(x) all Proprietary Software set forth in Section
1.1(a)(vii) of the Seller Disclosure Schedule, was either developed (a)
by employees of the Seller (or its predecessors) or any subsidiary of
the Seller within the scope of their employment; or (b) by independent
contractors of Seller or the Seller's predecessors, all of whose
interests have been assigned to the Seller or any subsidiary of the
Seller pursuant to written agreement.
(f) Except as set forth in Section 2.14(f) of the Seller Disclosure
Schedule, neither the Seller nor any subsidiary of the Seller:
(i) has granted to any third party any exclusive rights of
any kind (including, without limitation, exclusivity with regard to
categories of advertisers on any World Wide Web site, territorial
exclusivity or exclusivity with respect to particular versions,
implementations or translations of any of the Intellectual Property),
nor has the Seller or any subsidiary of the Seller granted any third
party any right to market any of the Intellectual Property under any
private label or "OEM" arrangements;
(ii) has any outstanding sales or advertising contract,
commitment or proposal (including, without limitation, insertion orders,
slotting agreements or other agreements under which the Seller or any
subsidiary of the Seller has allowed third parties to advertise on or
otherwise be included in a World
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Wide Web site) that the Seller currently expects to result in any loss
to the Seller upon completion or performance thereof;
(iii) has any oral contracts or arrangements for the sale of
advertising or any other product or service which individually, or
together with related oral contracts or arrangements with the same or
related parties, involve the receipt or payment of more than $5,000 on
an annual basis or over the remaining term thereof; or
(iv) employs any employee, contractor or consultant who, to
the knowledge of the Seller or the Seller Shareholders, is, as a result
of that employee's, contractor's or consultant's relationship to the
Seller or any subsidiary of the Seller or because of the nature of the
Business, in violation of any term of any written employment contract,
patent disclosure agreement or any other written contract or agreement.
Section 2.15. YEAR 2000 COMPLIANCE. (a) Except as otherwise disclosed in
Section 2.15(a) of the Seller Disclosure Schedule, and to the knowledge of the
Seller and each Seller Shareholder, all Software listed in Section 1.1(a)(vii)
of the Seller Disclosure Schedule and internal systems and equipment of the
Seller are Year 2000 Compliant. As used herein, "Year 2000 Compliant" and "Year
2000 Compliance" mean for all dates and times, including, without limitation,
dates and times after December 31, 1999 and in the multi-century scenario, when
used on a stand-alone system or in combination with other software or systems:
(i) the application system functions and receives and processes dates and times
correctly without abnormal results; (ii) all date related calculations are
correct (including, without limitation, age calculations, duration calculations
and scheduling calculations); (iii) all manipulations and comparisons of
date-related data produce correct results for all valid date values within the
scope of the application; (iv) there is no century ambiguity; (v) all reports
and displays are sorted correctly; and (vi) leap years are accounted for and
correctly identified (including, without limitation, that 2000 is recognized as
a leap year).
(b) Except as disclosed in Section 2.15(b) of the Seller Disclosure
Schedule, prior to the Closing, the Seller shall have obtained (and have
provided to the Buyer (or the Sub, if designated by the Buyer) copies of)
written representations or assurances from each entity that (x) provides data of
any type that includes date information or which is otherwise derived from,
dependent on or related to date
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information ("Date Data") to the Seller or any subsidiary of the Seller, (y)
processes in any way Date Data for the Seller or any subsidiary of the Seller or
(z) otherwise provides any material product or service to the Seller or any
subsidiary of the Seller that is dependent on Year 2000 Compliance, that all of
such entity's Date Data and related software and systems that are used for, or
on behalf of, the Seller or any subsidiary of the Seller are either (i) Year
2000 Compliant or (ii) reasonably expected to be Year 2000 Compliant prior to
the occurrence of any Year 2000 Compli ance related failure, except where the
failure of such provision or processing would not, individually or in the
aggregate, have a Business Material Adverse Effect.
Section 2.16. ASSETS. () Except as set forth in Section 2.16(a) of the
Seller Disclosure Schedule, the Seller has good and marketable title to, or a
valid leasehold interest in or right to use by license or otherwise, the
Acquired Assets, free and clear of all Liens.
(b) Except as set forth in Section 2.16(b) of the Seller Disclosure
Schedule, the Acquired Assets include or will include as of the Closing Date,
without limitation, all personal property, both tangible and intangible, rights
and agreements necessary to conduct the Business in all material respects as
conducted on or immediately prior to the date hereof.
Section 2.17. AFFILIATE TRANSACTIONS. Section 2.17 of the Seller
Disclosure Schedule sets forth a complete and correct list as of the date hereof
of all contracts and agreements to which both (i) the Business and the Seller or
its predecessors, on the one hand, and (ii) the Seller Shareholders or any of
their affiliates, on the other hand, are a party that are in effect as of the
date hereof or have been in effect during the prior three years.
Section 2.18. BROKERS; FINDERS AND FEES. Except for the fees of Seller
Financial Advisor which shall be the sole responsibility of the Seller and the
Seller Shareholders, neither the Seller nor either of the Seller Shareholders
has employed any investment banker, broker or finder or incurred any liability
for any investment banking fees, brokerage fees, commissions or finders' fees in
connection with this Agreement or the transactions contemplated hereby.
Section 2.19. RESTRICTED SECURITIES. The Seller and each of the Seller
Shareholders understand that the Buyer Common Stock and the CIB Stock to be
received
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by the Seller and each of the Seller Shareholders hereunder as part of the
Purchase Price are characterized as "restricted securities" under the federal
securities laws inasmuch as such securities are being acquired from Cendant, the
Buyer or the Sub in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act"), only in certain
limited circumstances.
Section 2.20. SUITABILITY STANDARDS.
(a) The Seller and each Seller Shareholder are acquiring the Buyer
Common Stock for investment purposes only and solely for their own accounts and
not with a view to, or for resale in connection with, the distribution or
disposition thereof, except for such distributions or dispositions which are
effected in compliance with the Securities Act and in accordance with the terms
of the Certificate of Incorporation of the Buyer;
(b) The Seller and each Seller Shareholder understand that there is
no established market for the Buyer Common Stock (and it is not anticipated that
such a market will develop) and that the Buyer Common Stock has not been
registered under the Securities Act or under any state securities or "blue sky"
laws;
(c) The Seller and each Seller Shareholder will not directly or
indirectly offer, sell, transfer, assign, pledge, hypothecate or otherwise
dispose of, or solicit any offers to purchase or otherwise acquire or take a
pledge of, any shares of the Buyer Common Stock, except in accordance with the
Securities Act and all applicable state securities or "blue sky" laws, and in
any event subject to the terms of the Certificate of Incorporation of the Buyer;
(d) The Seller and each Seller Shareholder's financial situations
are such that they can afford to bear the economic risk of holding the Buyer
Common Stock for an indefinite period of time and suffer complete loss of their
investment in the Buyer Common Stock;
(e) The Seller and each Seller Shareholder have such knowledge and
experience in financial and business matters that they are capable of evaluating
the merits and risks relating to their investment in the Buyer Common Stock;
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(f) The Seller and each Seller Shareholder have been given the
opportunity to examine documents relating to the Buyer, and to ask questions of
and receive answers from the Buyer concerning the terms and conditions of the
Buyer Common Stock, and to obtain any additional information necessary to verify
the accuracy of the information provided;
(g) The Seller and each Seller Shareholder acknowledge that the
Buyer Common Stock must be held indefinitely and the Seller and each Seller
Shareholder must continue to bear the economic risk of their investments in the
Buyer Common Stock unless the Buyer Common Stock is subsequently registered
under the Securities Act or an exemption from such registration is available;
(h) The Seller and each Seller Shareholder understand that the Buyer
Common Stock represents a speculative investment which involves a high degree of
risk of loss of their investment therein, and for an indefinite period following
the Closing there may be no public market for the shares of the Buyer Common
Stock;
(i) in making their decisions to receive the Buyer Common Stock
under this Agreement, the Seller and each Seller Shareholder have relied upon
independent investigations made by them and, to the extent believed by them to
be appropriate, their representatives, including their own professional, tax and
other advisors; and
(j) all information the Seller and each Seller Shareholder have
provided to the Buyer concerning themselves and their financial position and the
financial position of each Seller Shareholder and his spouse is true, complete
and correct as of the date of this Agreement.
(k) The Buyer, the Sub and Cendant acknowledge and agree that the
Share Equivalents received by the Seller under Sections 1.4 and 1.5, as well as
the Seller's right to receive any interest in any Share Equivalents under the
terms of the Escrow Agreement, may be distributed or otherwise transferred in
whole or in part, at any time and from time to time, by the Seller to the Seller
Shareholders, or either of them (subject to restrictions, conditions or other
limitations imposed upon the Seller or the Seller Shareholders under state or
federal securities laws or in conjunction with a Lockup Period (as hereinafter
defined)), and that such distribution or transfer is not intended to be
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restricted or limited under any term of this Agreement or any other agreement or
document executed in connection herewith.
Section 2.21. NO GENERAL SOLICITATION. The offer to invest in the Buyer
was made to the Seller and each Seller Shareholder on a personal contact basis
and not by means of any general solicitation or general advertising.
Section 2.22. PRIVATE PLACEMENT. The Seller and each Seller Share holder
understand that the Buyer Common Stock has not been registered with the
Securities and Exchange Commission and has not been qualified with any state
securities regulatory authority, but is offered and sold under exemptions under
the Securities Act predicated in part upon information and representations
provided by the Seller and each Seller Shareholder to the Buyer. The Seller and
each Seller Shareholder understand that the Buyer Common Stock must be held by
each Seller Shareholder for an indefinite period, and may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of or encumbered except
in accordance with the terms of this Agreement and the Certificate of
Incorporation of the Buyer.
Section 2.23. FAIR CREDIT REPORTING ACT. The Seller is in material
compliance with the Fair Credit Reporting Act, 15 U.S.C. Sections 1681-1681u.
Section 2.24. SALE OF INVENTORY. The principle activities of the
Business are not the sale of inventory (as such term is defined in Section 9109
of the California Commercial Code) from stock.
Section 2.25. HOMERENTERS GUIDE. All obligations of and payments due
from the Seller and Preis relating to the purchase of the assets of Homerenters
Guide (including all amounts due under the promissory note executed by Preis in
relation to such purchase) have been fully satisfied and paid by the Seller and
Preis.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE BUYER, THE SUB AND CENDANT
The Buyer, the Sub and Cendant hereby represent and warrant to the
Seller and the Seller Shareholders as follows:
Section 3.1. ORGANIZATION; ETC. The Buyer, the Sub and Cendant (i) are
corporations validly existing and in good standing under the laws of their
respective jurisdictions of organization, (ii) have all requisite corporate
power and authority to own, lease and operate their respective properties and
assets and to carry on their respective businesses as they are now being
conducted, and (iii) are duly qualified and in good standing to do business in
each jurisdiction in which the nature of their respective business or the
ownership, operation or leasing of their respective business properties makes
such qualification necessary.
Section 3.2. AUTHORITY RELATIVE TO THIS AGREEMENT. The Buyer, the Sub
and Cendant have the corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of the Buyer, the Sub and Cendant. This Agreement
has been duly and validly executed and delivered by the Buyer, the Sub and
Cendant and (assuming this Agreement has been duly authorized, executed and
delivered by the Seller and the Seller Shareholders) constitutes a valid and
binding agreement of the Buyer, the Sub and Cendant, enforceable against the
Buyer, the Sub and Cendant in accordance with its terms, except that (a) such
enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws, now or hereafter in effect,
relating to or limiting creditors' rights generally and (b) enforcement of this
Agreement, including, among other things, the remedy of specific performance and
injunctive and other forms of equitable relief, may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
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Section 3.3. CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the
execution and delivery of this Agreement by the Buyer, the Sub and Cendant nor
the consummation by the Buyer, the Sub and Cendant of the transactions
contemplated hereby will (a) conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws of the Buyer, the Sub
or Cendant, (b) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or require any
consent under, any indenture, license, contract, agreement or other instrument
or obligation to which the Buyer, the Sub or Cendant is a party or by which any
of them or any of their respective properties or assets may be bound, (c)
violate any order, writ, injunction, decree or Laws applicable to the Buyer, the
Sub or Cendant, any of its subsidiaries or any of their respective properties or
assets, or (d) require any filing with, or the obtaining of any permit,
authorization, consent or approval of, any Governmental Entity, except in the
case of clauses (b), (c) and (d) of this Section 3.3 for any such violations,
breaches, defaults, rights of termination, cancellation or acceleration or
requirements that, individually or in the aggregate, would not have a Buyer
Material Adverse Effect (as hereinafter defined). As used in this Agreement, the
term "Buyer Material Adverse Effect" shall mean an event, change or circumstance
that would adversely affect the ability of the Buyer, the Sub and Cendant to
consummate the transactions contemplated hereby or to perform their obligations
hereunder.
Section 3.4. AVAILABILITY OF FUNDS. Cendant, the Buyer and the Sub
currently have and will at the Closing have sufficient immediately available
funds, in cash, to pay the Closing Payment and to pay any other amounts payable
pursuant to this Agreement and to effect the transactions contemplated hereby.
Section 3.5. BROKERS; FINDERS AND FEES. Neither Cendant, the Buyer, the
Sub nor any of their affiliates has employed any investment banker, broker or
finder or incurred any liability for any investment banking, financial advisory
or brokerage fees, commissions or finders' fees in connection with this
Agreement or the transactions contemplated hereby.
Section 3.6. STATUS OF SHARE EQUIVALENTS. The Share Equivalents to be
issued to the Seller pursuant to Section 1.4, when so issued, shall be duly and
validly issued, fully paid and non-assessable.
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Section 3.7. LICENSES AND APPROVALS. The Buyer (or the Sub, if
designated by the Buyer) will use its commercially reasonable efforts to obtain
and have in force at the Closing the licenses and approvals listed in Section
3.7 of the Seller Disclosure Schedule, or provide reasonable assurances to the
Seller that the Buyer (or the Sub, if designated by the Buyer) will be permitted
to operate the Business after the Closing in substantially the form currently
operated by the Seller.
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.1 CONDUCT OF BUSINESS OF THE SELLER. During the period from
the date of this Agreement to the Closing Date, except (x) as otherwise
contemplated by this Agreement or the transactions contemplated hereby, (y) for
those matters set forth in Section 4.1 of the Seller Disclosure Schedule, or (z)
consented to by Cendant in writing, the Seller shall:
(a) use its best efforts to conduct the Business in the ordinary
course consistent with past practice, including the payment of salaries in the
ordinary course; and
(b) not (i) sell, assign, license, transfer, convey or otherwise
dispose of any of its properties or assets, except in the ordinary course of
business; (ii) make any loans, advances (other than advances in the ordinary
course of business consistent with past practice) or capital contributions to,
or investments in, any other Person; (iii) terminate, modify, transfer or amend
any of its Contracts, except in the ordinary course of business; (iv) enter into
any new material agreement other than renewals of existing agreements or
otherwise in the ordinary course of business consistent with past practice; (v)
enter into any written employment agreement with any employee providing for
annual cash compensation in excess of $50,000 or increase the compensation of
any of the officers or other employees of the Business, except for such
increases as are granted in the ordinary course of business in accordance with
its customary practices (which shall include normal periodic performance reviews
and related compensation and benefit increases); (vi) adopt, grant, extend or
increase the rate or terms of any bonus, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with any such officers or
employees of the Business, except (A) increases required by any applicable Law,
(B) increases in the ordinary course of business consistent with past practice,
and (C) any
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other benefits payable in any form by the Seller or any affiliate of the Seller;
(vii) make any change in any of its present accounting methods and practices,
except as required by changes in GAAP; (viii) license any intellectual property
rights to or from any third party pursuant to an arrangement other than in the
ordinary course of business consistent with past practice; (ix) make or
authorize any capital expenditures other than in accordance with its annual plan
or other than capital expenditures not exceeding $5,000 individually or $15,000
in the aggregate; (x) incur any indebtedness for borrowed money, issue any debt
securities or assume, guarantee or endorse the obligations of any other Persons
or subject any of their respective properties or assets to any Liens; (xi) amend
its certificate of incorporation or by-laws; (xii) issue, sell, pledge or
transfer, or propose to issue, sell, pledge or transfer, any shares of its
capital stock, or securities convertible into or exchangeable or exercisable
for, or options with respect to, or warrants to purchase or rights to subscribe
for, any shares of its capital stock; (xiii) cancel or compromise any debt or
claim or waive or release any rights of the Seller; (xiv) utilize its working
capital except in the ordinary course consistent with past practice; (xv)
collect any receivables except in the ordinary course consistent with past
practice; or (xvi) take, or agree to take, any of the foregoing actions.
Section 4.2. ACCESS TO INFORMATION FOR CENDANT, THE BUYER AND THE SUB.
(a) From the date of this Agreement to the Closing, the Seller shall (i) give
Cendant, the Buyer and the Sub and their authorized representatives reasonable
access to all books, records, personnel, offices and other facilities and
properties of the Business and its accountants, (ii) permit Cendant, the Buyer
and the Sub to make such copies and inspections thereof as Cendant, the Buyer or
the Sub may reasonably request and (iii) cause the officers of the Seller to
furnish Cendant, the Buyer or the Sub with such financial and operating data and
other information with respect to the business and properties of the Business as
Cendant, the Buyer or the Sub may from time to time reasonably request;
PROVIDED, HOWEVER, that any such access shall be conducted at Cendant, the Buyer
and the Sub's expense, at a reasonable time, under the supervision of the
personnel of the Seller and in such a manner as to maintain the confidentiality
of this Agreement and the transactions contemplated hereby and not to interfere
unreasonably with the normal operation of the business of the Seller.
(b) All such information and access shall be subject to the terms
and conditions of the letter agreements (the "Confidentiality Agreements")
between the Seller and Cendant, dated July 16, 1999.
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Section 4.3. CONSENTS; COOPERATION. Each of the parties shall cooperate
and use its commercially reasonable efforts to make all filings and obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities and other third parties necessary to consummate
the transactions contemplated by this Agreement. In addition to the foregoing,
the Buyer, the Sub and Cendant agree to provide such assurances as to financial
capability, resources and creditworthiness as may be reasonably requested by any
third party whose consent or approval is sought hereunder. Notwithstanding the
foregoing, in no event shall any of the parties be required to offer
consideration to any third party to obtain consents or to initiate litigation.
Section 4.4. NO SOLICITATION. Neither the Seller nor any of its
officers, directors, employees, shareholders, affiliates, agents or
representatives will, directly or indirectly, solicit, initiate or encourage the
submission of any proposal or offer from any Person other than Cendant, the
Buyer and the Sub or their directors, officers, employees, or other affiliates
or representatives, enter into or continue any discussions or negotiations with,
or provide any information to, any Person other than Cendant, the Buyer and the
Sub or its directors, officers, employees or other affiliates or
representatives, relating to any (a) merger, consolidation or other business
combination involving the Seller, (b) restructuring, recapitalization or
liquidation of the Seller, or (c) acquisition or disposition of any material
assets of the Seller or any of their securities (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal"). The Seller will
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of this Agreement with any parties
other than Cendant, the Buyer and the Sub with respect to any of the foregoing.
The covenant contained in this Section 4.4 is not intended to preclude the
Seller or Preis from engaging in discussions with potential candidates for
acquisition by the Seller; PROVIDED, HOWEVER, that such discussions will be
conducted only with the prior knowledge of the Buyer or the Sub, and until the
Closing no final commitment or use of Cendant's, the Buyer's or the Sub's name
with respect to any acquisition may be undertaken without the prior written
consent of the Buyer or the Sub.
Section 4.5. BEST EFFORTS. Each of the parties shall cooperate and use
its commercially reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable Laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
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Section 4.6. PUBLIC ANNOUNCEMENTS. Prior to the Closing, except as
otherwise agreed to by the parties, the parties shall not issue any report,
statement or press release or otherwise make any public statements with respect
to this Agreement and the transactions contemplated hereby, except as in the
reasonable judgment of a party may be required by law or in connection with its
obligations as a publicly-held, exchange-listed company, in which case the
parties will use their best efforts to reach mutual agreement as to the language
of any such report, statement or press release.
Section 4.7. TAX MATTERS.
(a) TRANSFER TAXES. All excise, sales, use, transfer (including real
property transfer or gains), stamp, documentary, filing, recordation and other
similar taxes, together with any interest, additions or penalties with respect
thereto and any interest in respect of such additions or penalties, resulting
directly from the transactions contemplated by this Agreement, shall be borne by
the Seller.
(b) ALLOCATION OF PURCHASE PRICE; TAX FILINGS. Within ninety days
following of the Closing and within ninety days following the payment of each
Deferred Payment, the Buyer, the Sub and the Seller shall negotiate and draft a
schedule (each an "Allocation Schedule") allocating the Closing Payments (which
for purposes of this Section 4.7 shall include the Assumed Liabilities) or the
Deferred Payments, as applicable, among the Acquired Assets. Each Allocation
Schedule shall be prepared in accordance with Section 1060 of the Code and the
regulations thereunder, it being agreed among the parties that $100,000 (in cash
payments, with no more than $66,667 of payments at the Closing to be so
allocated) of the Purchase Price shall be allocated to the non-compete
obligations of the Seller and the Seller Shareholders. The Buyer, the Sub and
the Seller further agree that the amount of the Purchase Price allocated to
tangible personal property shall not exceed the amounts allocated to such
Acquired Assets on the Financial Statements. Each of the Buyer, the Sub and the
Seller shall (a) timely file all forms and Tax Returns required to be filed in
connection with such Allocation Schedules, (b) be bound by such Allocation
Schedules for purposes of determining Taxes, (c) prepare and file, and cause its
affiliates to prepare and file, all of its Tax Returns including amended Tax
Returns and Form 8594 on a basis consistent with such Allocation Schedules and
(d) take no position, and cause its affiliates to take no position, inconsistent
with such Allocation Schedules on any applicable Tax Return, in any audit or
proceeding before any taxing authority, in any report made for Tax, financial
accounting or any other purposes or otherwise PROVIDED, HOWEVER, that to the
extent permitted under applicable law, the Buyer,
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the Sub and the Seller shall be permitted, for purposes of filing Form 8594 and
all other purposes, to take into account legal and accounting fees and other
buying and selling expenses, respectively, as applicable. In the event that any
Allocation Schedule is disputed by any taxing authority, the party receiving
notice of such dispute shall promptly notify the other parties hereto concerning
the existence and resolution of such dispute.
(c) ASSISTANCE AND COOPERATION. After the Closing Date, the Buyer
and the Sub shall, and shall cause their respective affiliates to, provide and
make available to the Seller all information relating to taxes of the Seller or
the Business that is reasonably required by the Seller in connection with the
preparation or filing of any tax return of the Seller or any matter relating to
taxes of the Seller.
Section 4.8. KNOWLEDGE OF BREACH; PRIOR KNOWLEDGE; SUPPLEMENTAL
DISCLOSURE. If prior to the Closing any party shall have actual knowledge of any
breach of a representation and warranty of other party, such party shall
promptly notify all other parties of its knowledge, in reasonable detail;
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 4.8
shall not limit or otherwise affect any remedies available to the parties
hereunder. The Seller shall from time to time prior to the Closing supplement or
amend the Seller Disclosure Schedule with respect to any matter hereafter
arising or discovered which if existing or known at the date of this Agreement
would have been required to be set forth or described in the Seller Disclosure
Schedule. No such supplemental or amended disclosure shall be deemed to have
cured any breach of any representation, warranty or covenant made in this
Agreement or to limit or otherwise affect any remedies available to the parties
hereunder.
Section 4.9. EMPLOYEES; EMPLOYEE BENEFITS. (a) As promptly as
practicable, but no later than 45 days, following the Closing, the Buyer (or the
Sub if designated by the Buyer) shall provide a list to the Seller of each
employee of the Seller who has accepted the Buyer's (or the Sub's if designated
by the Buyer) offer of employment and who shall become (and shall be deemed to
have become) employed by the Buyer (or the Sub if designated by the Buyer)
effective as of the Closing (each such employee, an "Affected Employee");
PROVIDED, THAT, prior to the Closing the Buyer and the Sub are given reasonable
access to the employment records for all employees (including, but not limited
to, a list of all employees of the Seller along with salaries of each employee
of the Seller) to the extent permitted under applicable law; and, PROVIDED,
FURTHER, that immediately after the Closing, the Buyer and the Sub are given
reasonable access to such employees for the purpose of conducting interviews. As
soon as practicable after the
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Closing, the Buyer (or the Sub if designated by the Buyer) or its affiliates
shall provide Affected Employees who accept the Buyer's (or the Sub's if
designated by the Buyer) offer of employment with salaries, incentive
opportunities and benefit plans, programs and arrangements comparable in the
aggregate to those currently provided as of the date hereof by the Seller.
Without limiting the generality of the preceding sentence, the foregoing is not
intended to require the Buyer or the Sub to modify any of their existing
employee benefit plans or establish any new employee benefit plans.
(b) If any Affected Employee becomes a participant in any employee
benefit plan,practice or policy of the Buyer, the Sub or any of their
affiliates, such Affected Employee shall be given credit under such plan for all
service prior to the Closing Date with the Seller (to the extent such credit was
given by the Seller) for purposes of determining eligibility and vesting;
PROVIDED, HOWEVER, such service need not be credited to the extent it would
result in a duplication of benefits. Such service also shall apply for purposes
of satisfying any waiting periods, evidence of insurability requirements, or the
application of any preexisting condition limitations. Affected Employees shall
be given credit for amounts paid under a corresponding benefit plan during the
same period for purposes of applying deductibles, copayments and out-of-pocket
maximums as though such amounts had been paid in accordance with the terms and
conditions of the comparable Buyer or Sub employee benefit plan.
Section 4.10. MAINTENANCE OF BOOKS AND RECORDS. Each of the parties
hereto shall preserve, until at least the seventh anniversary of the Closing
Date, all pre-Closing Date records possessed or to be possessed by such party
relating to the Business. After the Closing Date and up until at least the
seventh anniversary of the Closing Date, upon any reasonable request from a
party hereto or its representatives, the party holding such records shall,
subject to the confidentiality provisions of Section 4.2(b), (x) provide to the
requesting party or its representatives reasonable access to such records during
normal business hours and (y) permit the requesting party or its representatives
to make copies of such records, in each case at no cost to the requesting party
or its representatives (other than for reasonable out-of-pocket expenses). Such
records may be sought under this Section 4.10 for any reasonable purpose,
including, without limitation, to the extent reasonably required in connection
with the audit, accounting, tax, litigation, federal securities disclosure or
other similar needs of the party seeking such records. Notwithstanding the
foregoing, any and all such records may be destroyed by a party if such
destroying party sends to the other parties hereto written notice of its intent
to destroy such records, specifying in reasonable detail the contents of the
records to be destroyed;
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such records may then be destroyed after the 60th day following such notice
unless another party hereto notifies the destroying party that such other party
desires to obtain possession of such records (subject to the confidentiality
provisions of Section 4.2(b) above), in which event the destroying party shall
transfer the records to such requesting party and such requesting party shall
pay all reasonable expenses of the destroying party in connection therewith.
Section 4.11 COVENANT NOT TO COMPETE.
(a) The parties agree that this Agreement and the transactions
contemplated hereby constitute a sale of all or substantially all of the
operating assets of the Seller for the purposes of Section 16601 of the
California Business and Professions Code. In furtherance of the sale to the
Buyer (or the Sub if designated by the Buyer) of the Acquired Assets and the
Business, the Seller and Preis shall not, directly or indirectly, through
equity ownership or otherwise anywhere in the world compete with the Buyer or
the Sub in any business in which the Buyer, the Sub or the Expanded Business
competes, for a period of five years from the Closing and McWeeny shall not,
directly or indirectly, through equity ownership or otherwise, anywhere in
the world compete with the Buyer or the Sub in any business in which the Sub
or the Expanded Business competes, for a period of three years from the
Closing. Notwithstanding the foregoing, the Seller Shareholders shall not be
prevented from owning, at any time, as an investment, upto 1% of a class of
equity securities issued by any competitor of Cendant, the Buyer or the Sub
that is publicly traded and each Seller Shareholder will be released from
such obligations if such Seller Shareholder's employment with the Buyer or
the Sub is Terminated Without Cause (as such term is defined in the
respective Seller Shareholder Employment Agreements);
(b) The parties intend that the covenant contained in the preceding
Section 4.11(a) shall be construed as a series of separate covenants, one for
each area of business and country, county and city included within each state
and, except for business and geographic coverage, each such separate covenant
shall be deemed identical. The parties agree that the covenants included in this
Section 4.11 are, taken as a whole, reasonable in their business scope,
geographic scope and duration and no party shall raise any issue of the
reasonableness of the scope or duration of the covenants in any proceeding to
enforce any such covenants. The unenforceable covenant shall be deemed
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.
Furthermore, because a substantial portion of the Business is conducted on the
Internet, geographic
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boundaries should not apply and, therefore, the parties further agree that the
geographic scope of the convenants contained herein should not be limited to any
particular geographic region smaller than the range of places where the Internet
is accessible. If, in any judicial proceeding, a court shall refuse to enforce
any of the separate covenants deemed included in this Section 4.11, it is
expressly agreed that the parties intend that they be bound by the longest time
period and the maximum geographic coverage permitted by law.
Section 4.12. POST-CLOSING CONFIDENTIALITY. For a period of seven years
after the Closing and without limitation solely in the case of Trade Secrets of
the Business included in the Acquired Assets, the Seller and the Seller
Shareholders agree to, and to cause each of their affiliates to, maintain the
confidentiality of all confidential or proprietary information with respect to
the Business and the Acquired Assets (collectively, "Confidential Information")
and shall not disclose any Confidential Information except (i) where
specifically required by Law or legal process (and in such case only after
providing Cendant, where practicable, with sufficient notice to enable it to
move for a protective order), (ii) to the extent such information becomes
generally available to the public other than as a result of a disclosure by the
Seller or either of the Seller Shareholders or any of their affiliates in
violation of this Section 4.12, (iii) to the extent such information becomes
available to the Seller or the Seller Shareholders or their affiliates on a
non-confidential basis from a source other than Cendant, the Buyer or the Sub,
provided such source is not prohibited from disclosing such information by a
contractual, legal or fiduciary obligation (whether or not in writing) or (iv)
independently developed by the Seller, or the Seller Shareholders or any of
their respective affiliates, without use of or inclusion of any Confidential
Information.
Section 4.13. TRANSFERS NOT EFFECTED AS OF CLOSING. Nothing herein shall
be deemed to require the conveyance, assignment or transfer of any Acquired
Asset that by its terms or by operation of law cannot be freely conveyed,
assigned, transferred or assumed. To the extent the parties hereto have been
unable to obtain any governmental or any third party consents or approvals
required for the transfer of any Acquired Asset and to the extent not otherwise
prohibited by the terms of any Acquired Asset, the Seller shall continue to be
bound by the terms of such applicable Acquired Asset and the Buyer (or the Sub
if designated by the Buyer) shall pay, perform and discharge fully all of the
obligations of the Seller or any of their respective affiliates thereunder from
and after the Closing. The Seller shall, without consideration therefor, pay,
assign and remit to the Buyer (or the Sub if designated by the Buyer) promptly
all monies, rights and other
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consideration received in respect of such performance. The Seller shall exercise
or exploit their rights in respect of such Acquired Assets only as reasonably
directed by the Buyer (or the Sub if designated by the Buyer) and at the Buyer's
or the Sub's expense. Subject to and in accordance with Section 4.3, the parties
hereto shall continue to use their commercially reasonable efforts to obtain all
such unobtained consents or approvals at the earliest practicable date. If and
when any such consents or approvals shall be obtained, then the Seller shall
promptly assign its rights and obligations thereunder to the Buyer (or the Sub
if designated by the Buyer) without payment of consideration and the Buyer (or
the Sub if designated by the Buyer) shall, without the payment of any
consideration therefor, assume such rights and obligations. The parties shall
execute such good and sufficient instruments as may be necessary to evidence
such assignment and assumption.
Section 4.14. SELLER SHAREHOLDER LOANS. (a) If Share Equivalents
delivered to the Seller with respect to the Year 2 Calculated Deferred Payment
or the Year 3 Calculated Deferred Payment are not freely tradeable on a
nationally recognized securities market (either (i) due to the lockup set forth
in Section 4.18 or similar terms of other agreements to which the Seller or the
Seller Shareholders and one or more of the Sub, the Buyer and Cendant are a
party, (ii) due to restrictions set forth in Rule 144 promulgated under the
Securities Act, or (iii) because the IPO has not occurred) before the day on
which an estimated income Tax Return or an annual income Tax Return for the
taxable year ending on December 31, 2002 or for the taxable year ending December
31, 2003, as applicable, is required to be filed by the Seller Shareholders, and
the Seller has received the Year 2 Calculated Deferred Payment with respect to
Year 2, or the Year 3 Calculated Deferred Payment with respect to Year 3, as
applicable, then, upon written request of the Seller, but not more than 5 days
before the day that the Tax reported on such income Tax Return is required to be
paid by a Seller Shareholder in respect of the receipt of the Year 2 Calculated
Deferred Payment or the Year 3 Calculated Deferred Payment, as applicable,
Cendant, the Buyer or the Sub will loan (each, a "Seller Shareholder Loan" and
together the "Seller Shareholder Loans") to the Seller an amount, subject to
reduction pursuant to Section 7.2(b)(v) hereof, equal to the lesser of (x) the
Actual Tax Payment (as hereinafter defined) made in connection with the filing
of such Tax Return or (y) the tax liability of the Seller Shareholders that
would be deemed to be payable in connection with the filing of such Tax Return
as a result of the receipt by the Seller of the Year 2 Calculated Deferred
Payment or the Year 3 Calculated Deferred Payment, as applicable (the "Tax
Liability"). For purposes of computing the Tax Liability, it shall be assumed
that the tax rate of each Seller Shareholder is 30%, that the value of the Share
Equivalents received in Year 2 is the Year 2 Calculated Deferred Payment, and
that
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the value of the Share Equivalents received in Year 3 is the Year 3 Calculated
Deferred Payment. The Seller's written request for a Seller Shareholder Loan
shall set forth the last day on which the Seller Shareholders will be required
to file such Tax Return, with respect to the Year 2 Calculated Deferred Payment
or the Year 3 Calculated Deferred Payment, as applicable (without incurring
interest or penalties in respect thereto), and the amount of tax to be paid with
such Tax Return, as reflected on such Tax Return, in respect of the Year 2
Calculated Deferred Payment, or the Year 3 Calculated Deferred Payment, as
applicable (the "Actual Tax Payment"). Each of such Seller Shareholder Loans, if
any, shall: (i) be evidenced by a loan agreement containing commercially
reasonable terms in form reasonably satisfactory to Cendant, (ii) have a
two-year term, (iii) be interest free until due or callable, (iv) bear interest
at a rate of ten percent until paid from the due date or the date the loan is
callable pursuant to subsection (vi) of this Section 4.14(a), (v) be
collateralized by Share Equivalents with a value (based on Appreciated Value) of
not less than 120% of the aggregate amount of all Seller Shareholder Loans, and
(vi) be callable as to each Seller Shareholder by Cendant, the Buyer or the Sub
(x) in full, if such Seller Shareholder ceases to be employed by Cendant, the
Buyer, the Sub or any of their subsidiaries or affiliates (unless such cessation
is the result of a Without Cause Termination (as such term is defined in the
respective Seller Shareholder Employment Agreements)), or (y) if any Share
Equivalents owned by the Seller or the Seller Shareholders become freely
tradeable on a nationally recognized securities market, in an amount equal to
70% of the excess of (A) the fair market value of such Share Equivalents on the
day that such Seller Shareholder Loan is so called, over (B) the Seller's or the
Seller Shareholders' tax basis in such Share Equivalents.
(b) GROSS-UP OF THE SELLER SHAREHOLDERS. If it is determined that a
Seller Shareholder is required to include an amount in income as a result of the
imputation of compensation to a Seller Shareholder in connection with a Seller
Shareholder Loan, Cendant, the Buyer or the Sub shall pay to such Seller
Shareholder upon a written request filed by such Seller Shareholder, but not
earlier than January 15 of any year following a year in which the Seller
Shareholder recognized imputed compensation income, an amount equal to the
"Gross-up Amount". For purposes of this section, the Gross-up Amount in respect
of any such Tax shall be the product of (i) 0.82 and (ii) the amount of
compensation imputed to the Seller Shareholder in the taxable year in which the
Seller Shareholder Loan is outstanding; PROVIDED, that neither Cendant, the
Buyer nor the Sub shall have an obligation to pay a Gross-up Amount to a Seller
Shareholder in respect of any period after such Seller Shareholder Loan ceases
to be interest free as provided in subsection (a) or is called pursuant to
subsection (a)(v) of this Section 4.14. Cendant, the
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Buyer and the Sub shall be entitled to deduct and withhold all applicable
amounts and taxes in respect of the Gross-up Amount as required by any law, and
such amounts shall be treated as received by the Seller Shareholders.
(c) INTEREST BEARING SELLER SHAREHOLDER LOAN. If at the time that
Cendant, the Buyer or the Sub makes a Seller Shareholder Loan to any of the
Seller Shareholders pursuant to subsection (a) of this Section 4.14, the fair
market value of the Share Equivalents, as reported on the estimated and annual
Tax Returns for Year 2 or Year 3, paid as part of the Year 2 Calculated Deferred
Payment or the Year 3 Calculated Deferred Payment, as applicable, exceeds the
Year 2 Calculated Deferred Payment or the Year 3 Calculated Deferred Payment, as
applicable, (such excess shall be referred to as the "Appreciated Value"), then
upon written request of the Seller, Cendant, the Buyer or the Sub will make an
"Interest Bearing Seller Shareholder Loan" to the Seller at the same time it
makes a Shareholder Loan. The amount of each Interest Bearing Seller Shareholder
Loan shall be, subject to reduction pursuant to Section 7.2(b)(v) hereof, the
lesser of (x) the excess of the Actual Tax Payment (as defined above) in respect
of such Tax Return over the Seller Shareholder Loan in respect of such Tax
Return; or (y) the product of 30% and the portion of the Appreciated Value with
respect to which a Tax has to be paid, as reported on such Tax Return. The
Seller's written request for an Interest Bearing Shareholder Loan shall be filed
at the time and in the manner described in Subsection (a) of this Section 4.14.
Each such Interest Bearing Seller Shareholder Loan, if any, shall: (i) be
evidenced by a loan agreement containing commercially reasonable terms in form
reasonably satisfactory to Cendant, (ii) have a two-year term, (iii) bear
interest at the applicable federal rate for short term loans for the month of
such loan as published by the Internal Revenue Service, to be paid annually at
the anniversary of such loan, (iv) bear interest at a rate of ten percent until
paid from the due date or the date the loan is callable pursuant to subsection
(vi) of this Section 4.14(c), (v) be collateralized by Share Equivalents with a
value (based on Appreciated Value) of not less than 120% of the aggregate amount
of all Interest Bearing Seller Shareholder Loans, and (vi) be callable as to
each Seller Shareholder by Cendant, the Buyer or the Sub (x) in full, if such
Seller Shareholder ceases to be employed by Cendant, the Buyer, the Sub or any
of their subsidiaries or affiliates (unless such cessation is the result of a
Without Cause Termination (as such term is defined in the respective Seller
Shareholder Employment Agreements)), or (y) if any Share Equivalents owned by
the Seller or the Seller Shareholders become freely tradeable on a nationally
recognized securities market, in an amount equal to 70% of the excess of (A) the
fair market value of such Share Equivalents on the day that such Interest
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Bearing Seller Shareholder Loan is so called, over (B) the Seller's or the
Seller Shareholders' tax basis in such Share Equivalents.
Section 4.15. POST CLOSING CAPITAL BUDGETS AND ACQUISITIONS. Cendant,
the Buyer or the Sub agree to fund acquisitions for the Business identified by
Preis and approved by the executive committee of the board of directors of the
Buyer (or the Sub if designated by the Buyer) in its sole discretion after the
Closing and until December 31, 2002 up to a cumulative maximum value of
$1,900,000; PROVIDED that any portion or all of that amount may be funded in CIB
Stock or Buyer Common Stock.
Section 4.16. ANCILLARY REVENUES. The Buyer, the Sub and the Seller
understand that the acquisition and operation of the Business by the Buyer (or
the Sub if designated by the Buyer) will likely generate ancillary revenues for
other business units of Cendant, the Buyer, the Sub and/or the Cendant Internet
Business. The Buyer, the Sub and the Seller agree that for the purposes of
calculating the Deferred Payments, the Sellers will get an allocation toward
Actual Revenues for a given year for any such ancillary revenues actually
realized in such year, such allocation amount to be finally determined in
accordance with Schedule 4.16.
Section 4.17. ESCROW DELIVERY. On January 1, 2000, the Buyer (or the Sub
if designated by the Buyer) shall deliver to the escrow agent (the "Escrow
Agent") named in the Escrow Agreement (i) $940,000 (the "Escrow Amount") to be
paid in cash to a bank account designated by the Escrow Agent upon three days
prior written notice to the Buyer (or the Sub if designated by the Buyer), and
(ii) that number of shares of Buyer Common Stock calculated by dividing $1.0
million by the Share Value to be released to the Seller or the Seller
Shareholders, as the case may be, pursuant to Section 1.5 in connection with the
Year 1 Calculated Deferred Payment Amount.
Section 4.18. LOCKUP. In the event of an IPO, the Seller or the Seller
Shareholders, as the case may be, shall not directly or indirectly transfer,
sell, assign, pledge, hypothecate, encumber or otherwise dispose of ("Transfer")
any CIB Stock owned by it for a period (the "Lockup Period") commencing on the
date on which such IPO is consummated. The length of the Lockup Period shall be
determined by the Buyer, after consultation with the underwriters in connection
with the IPO and shall be no longer than the Lockup Period required for
similarly situated shareholders of the Buyer. The Seller or the Seller
Shareholders, as the case may be, shall, if requested by the Buyer, enter into a
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separate agreement in customary form evidencing the restrictions on Transfer
during the Lockup Period.
Section 4.19. POST CLOSING OPERATIONS AND EXPENSE BUDGET. Cendant, the
Buyer or the Sub agree to fund those amounts needed to fund the Budgeted
Expenses and to cooperate reasonably in allowing Preis and McWeeny to execute
current plans for maintaining, expanding and improving the Business.
Section 4.20. RELEASE OF PERSONAL LIABILITY. Promptly after the Closing,
Cendant, the Buyer or the Sub shall use its reasonable best efforts to obtain
releases of the Seller Shareholders from all "Personal Liability Creditors" of
the Business. As used herein, the term "Personal Liability Creditors" shall mean
the creditors of the Business which at the Closing are owed money or a duty
which is an Assumed Liability for which either or both Seller Shareholders have
or may have personal liability, including but not limited to the Real Property
Leases or equipment lessors and parties extending loans or other credit lines in
the name of or otherwise utilized by the Seller and which shall be set forth on
Section 4.20 of the Seller Disclosure Schedule. If and to the extent the
releases set forth on Section 4.20 of the Seller Disclosure Schedule are not
obtained, Cendant, the Buyer or the Sub shall indemnify and hold harmless the
Seller Shareholders for any amounts due to such Personal Liability Creditors.
Section 4.21. MONTHLY FINANCIAL INFORMATION. Within 10 business days
after the end of each calendar month after the date hereof until the earlier of
the Closing Date or the termination of this Agreement, the Seller shall deliver
to Cendant (i) an unaudited balance sheet of the Seller and its subsidiaries as
of the end of such monthly period and the related unaudited statements of
operations for the period then ended (together, the "Monthly Unaudited Financial
Information") and (ii) a certificate, duly executed by the chief executive
officer of the Seller restating with respect to such Monthly Unaudited Financial
Information, the representations and warranties set forth in Section 2.4.
Section 4.22. MAIL RECEIVED AFTER THE CLOSING. Following the Closing,
Cendant, the Buyer and the Sub may receive and open all mail addressed to the
Seller, any subsidiary of the Seller or the Seller Shareholders and deal with
the contents thereof in their sole discretion to the extent that such mail and
the contents thereof relate to the Expanded Business, the Acquired Assets or any
of the Assumed Liabilities. Cendant, the Buyer or the Sub shall deliver or cause
to be delivered to the Seller or the Seller Shareholders all mail received by
Cendant, the Buyer or the Sub after the Closing addressed to the Seller, any
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subsidiary of the Seller or the Seller Shareholders which does not relate to the
Expanded Business, the Acquired Assets or the Assumed Liabilities.
Section 4.23. USE OF TRADEMARKS. The Seller and the Seller Share-
holders agree that promptly following the Closing Date, the Seller and the
Seller Shareholders shall cease and desist from all further use of the
"Metro-Rent" Service Mark and all logos of the Seller (the "Seller's Service
Mark and Logos") and will (i) adopt new trade names, trademarks, identifying
logos and service marks related thereto which are not confusingly similar to the
Sellers's Service Mark and Logos, (ii) file amendments to the Articles of
Incorporation of the Seller with the California Secretary of State and shall
make appropriate filings with any other applicable registry(ies) changing the
Seller's corporate name and any d/b/a to a name that does not include any of the
Sellers's Service Mark and Logos or words confusingly similar thereto; and (iii)
neither the Seller, the Seller Shareholders nor any of their affiliates shall
make any further use of the Sellers's Service Mark and Logos.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE ASSET PURCHASE
Section 5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE
ASSET PURCHASE. The respective obligations of each party to consummate the
transactions contemplated hereby are subject to the satisfaction at or prior to
the Closing Date of the following conditions:
(a) No statute, rule, regulation, executive order, decree, or
injunction shall have been enacted, entered, promulgated or enforced by any
court or Governmental Entity that remains in force and prohibits the
consummation of the transactions described herein; and
(b) There shall not be any suit, action, or other proceeding pending
by any Governmental Entity or administrative agency or commission that seeks to
enjoin or otherwise prevent consummation of the transactions contemplated
hereby, other than suits, actions or proceedings that, in the reasonable opinion
of counsel to the parties hereto, are unlikely to result in a Business Material
Adverse Effect or Buyer Material Adverse Effect;
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PROVIDED, HOWEVER, that the provisions of this Section 5.1(b) shall not apply to
any party that has directly or indirectly encouragd such suit, action or
proceeding.
Section 5.2. FURTHER CONDITIONS TO THE SELLER'S AND THE SELLER SHARE
HOLDERS' OBLIGATIONS. The obligations of the Seller and the Seller Shareholders
to consummate the transactions contemplated hereby are further subject to
satisfaction or waiver by the Seller and the Seller Shareholders of the
following conditions:
(a) The representations and warranties of Cendant, the Buyer and the
Sub contained in this Agreement (without giving effect to any "materiality" or
Buyer Material Adverse Effect qualification or exception contained therein)
shall be true and correct at and as of the Closing Date as though such
representations and warranties were made at and as of such date (except to the
extent expressly made as of an earlier date, in which case, as of such date),
except where the failure of such representations and warranties to be so true
and correct does not have, in the aggregate, a Buyer Material Adverse Effect;
(b) Cendant, the Buyer and the Sub shall have performed and complied
in all material respects with all agreements, obligations and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Closing;
(c) Cendant, the Buyer and the Sub shall have delivered to the
Seller a certificate satisfactory in form and substance to the Seller to the
effect that each of the conditions specified above in Sections 5.2(a) and (b) is
satisfied in all respects;
(d) The Seller shall have received a certificate of the Secretary of
the Buyer (or the Sub if designated by the Buyer) satisfactory in form and
substance to the Seller setting forth resolutions of the Board of Directors of
the Buyer (or the Sub if designated by the Buyer) authorizing the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and certifying that such resolutions have been duly made and have not
been rescinded or amended as of the Closing Date; and
(e) The Buyer (or the Sub if designated by the Buyer) shall have
obtained the licenses, consents and approvals listed in Section 3.7 of the
Seller Disclosure Schedule or have provided reasonable assurances to the Seller
that the Buyer (or the Sub if designated by the Buyer) will be permitted to
operate the Business after the Closing in substantially the form currently
operated by the Seller.
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Section 5.3. FURTHER CONDITIONS TO CENDANT'S, THE BUYER'S AND THE SUB'S
OBLIGATIONS. The obligations of Cendant, the Buyer and the Sub to consummate the
transactions contemplated hereby are further subject to the satisfaction or
waiver by Cendant, the Buyer and the Sub at or prior to the Closing Date of the
following conditions:
(a) The representations and warranties of the Seller and the Seller
Shareholders contained in this Agreement (without giving effect to any
"materiality" or Business Material Adverse Effect qualification or exception
contained therein) shall be true and correct at and as of the Closing Date as
though such representations and warranties were made at and as of such date
(except to the extent expressly made as of an earlier date, in which case, as of
such date), except where the failure of such representations and warranties to
be so true and correct does not have, in the aggregate, a Business Material
Adverse Effect;
(b) Each of the Seller and the Seller Shareholders shall have
performed and complied in all material respects with all agreements, obligations
and covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing;
(c) Each of the Seller and the Seller Shareholders shall have
delivered to Cendant, the Buyer and the Sub a certificate satisfactory in form
and substance to Cendant to the effect that each of the conditions specified
above in Sections 5.3(a) and (b) is satisfied in all respects;
(d) Cendant, the Buyer and the Sub shall have received a certifi
cate of the Secretary of the Seller satisfactory in form and substance to
Cendant setting forth resolutions of the Board of Directors of the Seller
authorizing the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and certifying that such resolutions have
been duly made and have not been rescinded or amended as of the Closing Date;
(e) Cendant shall have completed a due diligence investigation of
the Seller and the Business including, without limitation, meetings with
management, office visitations and other informational requests in scope,
detail, substance and result reasonably satisfactory to Cendant; PROVIDED,
HOWEVER, that if Cendant shall not have exercised its termination right pursuant
to Section 6.1(d) hereof within 30 days of the date of this Agreement, this
condition shall be deemed to be satisfied;
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(f) Notwithstanding anything to the contrary contained herein, if
the Seller fails to provide the Buyer (or the Sub if designated by the Buyer)
with the certificates described in Section 1.7(d) hereof and the Buyer (or the
Sub if designated by the Buyer) elects to proceed with the Closing, the Buyer
(or the Sub if designated by the Buyer) shall be entitled to withhold from the
amount realized by the Seller the amount required to be withheld pursuant to
Section 1445 of the Code. If the Seller fails to provide the Buyer (or the Sub
if designated by the Buyer) with any of the certificates described in Section
1.7(e) hereof and the Buyer (or the Sub if designated by the Buyer) elects to
proceed with the Closing, the Buyer (or the Sub if designated by the Buyer)
shall withhold or, where appropriate, escrow such amount as necessary based upon
Buyer's (or the Sub's if designated by the Buyer) reasonable estimate of the
amount of such potential liability, or as determined by the appropriate taxing
authority, to cover such Taxes until such time as the required certificates are
provided;
(g) The Preclosing Transactions shall have been consummated in form
and substance reasonably satisfactory to Cendant;
(h) The Buyer (or the Sub if designated by the Buyer) shall have
approved the certificate called for in Section 1.1(b)(2);
(i) The Buyer (or the Sub if designated by the Buyer) shall have
obtained the licenses, consents and approvals described in Section 3.7 of the
Seller Disclosure Schedule; and
(j) The Seller shall have obtained the licenses, consents and
approvals described in Section 5.3(j) of the Seller Disclosure Schedule.
ARTICLE VI
TERMINATION AND ABANDONMENT
Section 6.1. TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual written consent of the Seller and Cendant;
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(b) by the Seller or Cendant at any time after December 31, 1999 if
the Closing shall not have occurred by such date; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 6.1(b) shall not be
available to (i) the Seller, if the Seller has breached any of its
representations, warranties or covenants hereunder in any material respect and
such breach has been the cause of or resulted in the failure of the Closing to
occur on or before such date or (ii) Cendant, if Cendant has breached any of its
representations, warranties or covenants hereunder in any material respect and
such breach has been the cause of or resulted in the failure of the Closing to
occur on or before such date;
(c) by the Seller or the Seller Shareholders, on the one hand, or
Cendant, the Buyer or the Sub, on the other hand, if one of the others shall
have breached or failed to perform in any material respect any of its respective
representations, warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (i) would give rise to the failure
of a condition set forth in Section 5.2(a) or (b) or 5.3(a) or (b), as
applicable, and (ii) cannot be or has not been cured within 30 days after the
giving of written notice to the Seller or Cendant; and
(d) by Cendant, if it shall not be reasonably satisfied with its due
diligence investigation of the Seller contemplated by Section 5.3(e) hereof;
PROVIDED, HOWEVER, that if Cendant shall not have exercised its termination
right contained in this Section 6.1(d) within 30 days of the date of this
Agreement, this termination right shall be deemed to have lapsed.
Section 6.2. PROCEDURE FOR AND EFFECT OF TERMINATION. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by the parties hereto pursuant to Section 6.1 hereof, written notice
thereof shall be given by a party so terminating to the other party and this
Agreement shall forthwith terminate and shall become null and void and of no
further effect, and the transactions contemplated hereby shall be abandoned
without further action by the Seller, the Seller Shareholders, Cendant, the
Buyer or the Sub. If this Agreement is terminated pursuant to Section 6.1
hereof:
(a) each party shall redeliver all documents, work papers and other
materials of the other parties relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same, and all
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confidential information received by any party hereto with respect to the other
party shall be treated in accordance with the Confidentiality Agreements and
Section 4.2(b) hereof;
(b) all filings, applications and other submissions made pursuant
hereto, if any, shall, to the extent practicable, be withdrawn from the agency
or other Person to which made; and
(c) there shall be no liability or obligation hereunder on the part
of the Seller, the Seller Shareholders, Cendant, the Buyer or the Sub or any of
their respective directors, officers, employees, affiliates, controlling
persons, agents or representatives, except that the Seller, the Seller
Shareholders, Cendant, the Buyer or the Sub, as the case may be, may have
liability to the other parties if the basis of termination is a material breach
by the Seller, the Seller Shareholders, Cendant, the Buyer or the Sub, as the
case may be, of one or more of the provisions of this Agreement, and except that
the obligations provided for in Sections 4.2(b), 6.2 and 8.8 hereof shall
survive any such termination.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1. SURVIVAL PERIODS. Each of the representations and
warranties made by the parties in this Agreement shall survive the Closing for a
period of three years; PROVIDED, HOWEVER, that (i) the representations and
warranties contained in Sections 2.2 and 3.2 shall survive the Closing without
limitation (subject to any applicable statutes of limitations), other than the
termination of this Agreement, and (ii) the representations and warranties
contained in Section 2.11, clause (iv) of Section 2.9(c) and Section 2.14 shall
survive for the applicable period of the relevant statute of limitations (taking
into account valid extensions thereof). No claims or causes of action may be
brought against the Seller, the Seller Shareholders, Cendant, the Buyer or the
Sub based upon, directly or indirectly, any of the representations, warranties
or agreements contained in Articles II and III hereof after the applicable
survival period or, except as provided in Section 6.2(c) hereof, any termination
of this Agreement. This Section 7.1 shall not limit any covenant or agreement of
the parties that contemplates performance after the Closing, including, without
limitation, such covenants and agreements set forth in Sections 1.4, 1.5 and
Article IV hereof.
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Section 7.2. THE SELLER'S AND THE SELLER SHAREHOLDERS' AGREEMENT TO
INDEMNIFY. (a) Subject to the terms and conditions set forth herein, from and
after the Closing, the Seller and each of the Seller Shareholders shall jointly
and severally indemnify and hold harmless Cendant, the Buyer, the Sub and their
respective directors, officers, employees, affiliates, controlling persons,
agents and representatives and their successors and assigns (collectively, the
"Buyer Indemnitees") from and against all liability, demands, claims, actions or
causes of action, assessments, losses, damages, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) (collectively, the
"Buyer Damages") asserted against or incurred by any Buyer Indemnitee as a
result of or arising out of (i) a breach of any representation or warranty of
the Seller or the Seller Shareholders contained in this Agreement (determined
without regard to any materiality or Business Material Adverse Effect
qualification contained in such representation or warranty), (ii) a breach of
any covenant or agreement on the part of the Seller or the Seller Shareholders
under this Agreement, (iii) the Retained Liabilities and the Retained Assets, or
(iv) any failure to comply with any "bulk sales" laws applicable to the
transactions contemplated hereby.
(b) The Seller's and the Seller Shareholders' obligation to indem
nify the Buyer Indemnitees pursuant to Section 7.2(a) hereof is subject to the
following:
(i) No indemnification on the part of either the Seller or
the Seller Shareholders to indemnify the Buyer Indemnitees under clauses
(i) and (ii) of Section 7.2(a) shall arise unless the aggregate amount
of Buyer Damages exceeds $20,000;
(ii) In the absence of fraud or willful misconduct on the
part of the Seller or either of the Seller Shareholders, in no event
shall the Seller's and the Seller Shareholders' aggregate obligation to
indemnify the Buyer Indemnitees under clauses (i) and (ii) of Section
7.2(a) exceed the aggregate dollar value, as set forth in Section 1.4 of
this Agreement, of (a) the Closing Cash Payment, (b) the Closing Stock
Payment and (c) the actual Calculated Deferred Payments for Year 1, Year
2 and Year 3; PROVIDED, HOWEVER, that the foregoing limitation shall not
apply to Buyer Damages in respect of Taxes;
(iii) The Seller or the Seller Shareholders shall be obligated
to indemnify the Buyer Indemnitees pursuant to clause (i) of Section
7.2(a) only for those claims giving rise to Buyer Damages as to which
the Buyer Indemnitees have
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given the Seller and the Seller Shareholders written notice thereof
prior to the end of the applicable survival period (as provided for in
Section 7.1). Any written notice delivered by a Buyer Indemnitee to the
Seller and the Seller Shareholders with respect to Buyer Damages shall
set forth with as much specificity as is reasonably practicable the
basis of the claim for Buyer Damages and, to the extent reasonably
practicable, a reasonable estimate of the amount thereof;
(iv) Notwithstanding anything to the contrary in this
Agreement, the Seller and the Seller Shareholders shall have no
obligation to indemnify any Buyer Indemnitee for incidental,
consequential, exemplary, special or punitive damages; and
(v) Cendant, the Buyer and the Sub shall be entitled to set-
off any Buyer Damages against any Calculated Deferred Payment, if any,
payable to the Seller or the Seller Shareholders; PROVIDED, that any
such set-off shall be made only against the cash portion of such
Calculated Deferred Payment, unless the cash portion is insufficient to
satisfy the full amount of the set-off, in which case the balance may be
set-off against the Share Equivalent portion of such Calculated Deferred
Payment (at the Appreciated Value at the time of set-off); and PROVIDED,
FURTHER, that the principal amount of any Seller Shareholder Loans or
Interest Bearing Seller Shareholder Loans to which the Seller
Shareholders may be entitled pursuant to Section 4.14 of this Agreement
will be reduced by the total amount of any set-off made against the cash
portion of such Calculated Deferred Payment.
Section 7.3. THE BUYER'S AND THE SUB'S AGREEMENT TO INDEMNIFY. (a)
Subject to the terms and conditions set forth herein, from and after the
Closing, Cendant, the Buyer and the Sub shall indemnify and hold harmless the
Seller and the Seller Shareholders and their respective directors, officers,
employees, affiliates, controlling Persons, agents and representatives and their
successors and assigns (collectively, the "Seller Indemnitees") from and against
all liability, demands, claims, actions or causes of action, assessments,
losses, damages, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) (collectively, "Seller Damages") asserted against
or incurred by any Seller Indemnitee as a result of or arising out of (i) a
breach of any representation or warranty of Cendant, the Buyer and the Sub
contained in this Agreement (determined without regard to any materiality or
Buyer Material Adverse Effect qualification contained in such representation or
warranty) and (ii) a breach of any covenant or agreement on the part of Cendant,
the Buyer or the Sub under this Agreement.
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(b) Cendant, the Buyer and the Sub's obligation to indemnify the
Seller Indemnitees pursuant to Section 7.3(a) hereof is subject to the following
limitations:
(i) No indemnification on the part of Cendant, the Buyer or
the Sub to indemnify the Seller Indemnitees under clauses (i) and (ii)
of Section 7.3(a) shall arise unless the aggregate amount of Seller
Damages exceeds $20,000;
(ii) In the absence of fraud or willful misconduct on the
part of Cendant, the Buyer or the Sub, in no event shall Cendant, the
Buyer and the Sub's aggregate obligation to indemnify the Seller
Indemnitees under clauses (i) and (ii) of Section 7.3(a) exceed the
Purchase Price;
(iii) Cendant, the Buyer and the Sub shall be obligated to
indemnify the Seller Indemnitees pursuant to clause (i) of Section
7.3(a) only for those claims giving rise to Seller Damages as to which
the Seller Indemnitees have given Cendant, the Buyer and the Sub written
notice thereof prior to the end of the applicable survival period (as
provided for in Section 7.1). Any written notice delivered by a Seller
Indemnitee to Cendant, the Buyer and the Sub with respect to Seller
Damages shall set forth with as much specificity as is reasonably
practicable the basis of the claim for Seller Damages and, to the extent
reasonably practicable, a reasonable estimate of the amount thereof; and
(iv) Notwithstanding anything to the contrary in this
Agreement, Cendant, the Buyer and the Sub shall have no obligation to
indemnify any Seller Indemnitee for incidental, consequential,
exemplary, special or punitive damages.
Section 7.4. THIRD-PARTY INDEMNIFICATION. The obligations of the Seller
and the Seller Shareholders to indemnify the Buyer Indemnitees under Section 7.2
hereof with respect to Buyer Damages and the obligations of Cendant, the Buyer
and the Sub to indemnify the Seller Indemnitees under Section 7.3 with respect
to Seller Damages, in either case resulting from the assertion of liability by
third parties (each, as the case may be, a "Claim"), will be subject to the
following terms and conditions:
(a) Any party against whom any Claim is asserted will give the
indemnifying party written notice of any such Claim promptly after learning of
such Claim, and the indemnifying party may at its option undertake the defense
thereof by
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representatives of its own choosing. Failure to give prompt notice of a Claim
hereunder shall not affect the indemnifying party's obligations under this
Article VII, except to the extent the indemnifying party is materially
prejudiced by such failure to give prompt notice. If the indemnifying party,
within 30 days after notice of any such Claim, or such shorter period as is
reasonably required, fails to assume the defense of such Claim, the Buyer
Indemnitee or the Seller Indemnitee, as the case may be, against whom such claim
has been made will (upon further notice to the indemnifying party) have the
right to undertake the defense, compromise or settlement (subject to the terms
of Section 7.4(c)) of such claim on behalf of and for the account and risk, and
at the expense, of the indemnifying party, subject to the right of the
indemnifying party to assume the defense of such Claim at any time prior to
settlement, compromise or final determination thereof.
(b) So long as the indemnifying party has assumed the defense of any
Claim in the manner set forth above, the indemnifying party shall have the
exclusive right to contest, defend and litigate such Claim and, except as
expressly provided in Section 7.4(c), shall have the exclusive right, in its
sole discretion, to settle any such claim, either before or after the initiation
of litigation at such time and on such terms as the indemnifying party deems
appropriate. If the indemnifying party elects not to assume the defense of any
such Claim (which shall be without prejudice to its right at any time to assume
subsequently such defense), the indemnifying party will nonetheless be entitled,
at its own expense, to participate in such defense. The indemnified party shall
have the right to participate, with separate counsel (which counsel shall act in
an advisory capacity only), in any such contest, defense, litigation or
settlement conducted by the indemnifying party. After notice from the
indemnifying party to such indemnified party of the indemnifying party's
election to assume the defense of such Claim, the indemnifying party will not be
liable to such indemnified party for any expenses of the indemnified party's
counsel that are subsequently incurred in connection with the defense thereof;
PROVIDED, HOWEVER, that the expense of such indemnified party's counsel shall be
paid by the indemnifying party if (i) the indemnifying party requested such
separate counsel to participate or (ii) in the reasonable opinion of counsel to
the indemnified party, a significant conflict of interest exists between the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, that would make such separate representation clearly advisable.
(c) Without the prior written consent of the indemnified party
(which consent shall not be unreasonably withheld or delayed), the indemnifying
party shall not admit any liability with respect to, or settle, compromise or
discharge, any Claim or consent to the entry of any judgment with respect
thereto, except in the case of any settlement that
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includes as an unconditional term thereof the delivery by the claimant or
plaintiff to the indemnified party of a written release from all liability in
respect of such Claim. In addition, whether or not the indemnifying party shall
have assumed the defense of the Claim, the indemnified party shall not admit any
liability with respect to, or settle, compromise or discharge, any Claim or
consent to the entry of any judgment with respect thereto, without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld or delayed), and the indemnifying party will not be
subject to any liability for any such admission, settlement, compromise,
discharge or consent to judgment made by an indemnified party without such prior
written consent of the indemnifying party.
(d) The indemnifying party and the indemnified party shall cooperate
fully in all aspects of any investigation, defense, pre-trial activities, trial,
compromise, settlement or discharge of any claim in respect of which indemnity
is sought pursuant to this Article VII, including, but not limited to, by
providing the other party with reasonable access to employees and officers
(including as witnesses) and other information.
Section 7.5. NO DUPLICATION; SOLE REMEDY. (a) Any liability for
indemnification hereunder shall be determined without duplication of recovery
by reason of the state of facts giving rise to such liability constituting a
breach of more than one representation, warranty, covenant or agreement.
(b) Cendant's, the Buyer's and the Sub's, on the one hand, and the
Seller's and the Seller Shareholders', on the other hand, respective rights to
indemnification as provided for in Sections 7.2 and 7.3, as applicable, shall be
the exclusive remedy for any Buyer Damages or Seller Damages, respectively, for
which indemnification is provided hereunder; PROVIDED, HOWEVER, that nothing
contained herein shall prevent an indemnified party from pursuing remedies as
may be available to such party under applicable law in the event of (i) fraud or
willful misconduct, (ii) only equitable relief being suitable to address the
injury or possible injury, or (iii) an indemnifying party's failure to comply
with its indemnification obligations hereunder.
Section 7.6. INDEMNIFICATION MATTERS GOVERNED BY THIS ARTICLE VII. The
indemnification and other provisions of this Article VII shall govern the
procedure for all indemnification matters under this Agreement.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. ENTIRE AGREEMENT. This Agreement (including the Seller
Disclosure Schedule), the Seller Shareholder Employment Agreements, the Escrow
Agreement, the Registration Rights Agreement and the Confidentiality Agreements
constitute the entire agreement of the parties relating to the subject matter
hereof and supersede other prior agreements and understandings between the
parties both oral and written regarding such subject matter.
Section 8.2. SEVERABILITY. Any provision of this Agreement that is held
by a court of competent jurisdiction to violate applicable law shall be limited
or nullified only to the extent necessary to bring the Agreement within the
requirements of such law.
Section 8.3. NOTICES. Any notice required or permitted by this Agreement
must be in writing and must be sent by facsimile, by nationally recognized
commercial overnight courier, or mailed by United States registered or certified
mail, addressed to the other party at the address below or to such other address
for notice (or facsimile number, in the case of a notice by facsimile) as a
party gives the other party written notice of in accordance with this Section
8.3. Any such notice will be effective as of the date of receipt:
(a) if to Cendant, the Buyer or the Sub, to
Cendant Corporation
6 Sylvan Way
Parsippany, New Jersey 07054
Telecopy: (973) 496-5335
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2000
Attention: David Fox, Esq.
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(b) if to the Seller, to
Metro-Rent, Inc.
2021 Fillmore Street
San Francisco, California 94115
Telecopy: (415) 563-0383
Attention: Joseph A. Preis
with a copy to:
Dudnick Detwiler Rivin & Stikker LLP
351 California Street, 15th Floor
San Francisco, California 94104
Telecopy: (415) 982-1401
Attention: Jeffrey B. Detwiler, Esq.
(c) if to the Seller Shareholders, to
Joseph A. Preis
c/o Metro-Rent, Inc.
2021 Fillmore Street
San Francisco, California 94115
Telecopy: (415) 563-0383
and
John P. McWeeny
c/o Metro-Rent, Inc.
2021 Fillmore Street
San Francisco, California 94115
Telecopy: (415) 563-0383
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with a copy to:
Dudnick Detwiler Rivin & Stikker LLP
351 California Street, 15th Floor
San Francisco, California 94104
Telecopy: (415) 982-1401
Attention: Jeffrey B. Detwiler, Esq.
Section 8.4. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by, enforced under and construed in accordance with the laws of the
State of New York, without giving effect to any choice or conflict of law
provision or rule thereof. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States of America in each case
located in the County of New York for any litigation arising out of or relating
to this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts) and further
agrees that service of any process, summons, notice or document by U.S.
certified or registered mail to its respective address set forth in Section 8.3
(or to such other address for notice that such party has given the other party
written notice of in accordance with Section 8.3) shall be effective service of
process for any litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York or of
the United States of America in each case located in the County of New York and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such litigation brought in any such court has
been brought in an inconvenient forum.
Section 8.5. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and shall in no way be construed to
define, limit, describe, explain, modify, amplify, or add to the interpretation,
construction or meaning of any provision of, or scope or intent of, this
Agreement nor in any way affect this Agreement.
Section 8.6. COUNTERPARTS. This Agreement may be signed by facsimile
and in counterparts and all signed copies of this Agreement will together
constitute one original of this Agreement. This Agreement shall become effective
when each party hereto shall have received counterparts thereof signed by all
the other parties hereto.
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Section 8.7. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns. Notwithstanding anything in this
Agreement to the contrary, Cendant, the Buyer, the Sub or their permitted
assigns may assign all or a part of their respective rights and obligations
under this Agreement to any Person that directly or indirectly acquires all or a
part of the assets and operations of the Expanded Business.
Section 8.8. FEES AND EXPENSES. Whether or not this Agreement and the
transactions contemplated hereby are consummated, and except as otherwise
expressly set forth herein, all costs and expenses (including legal fees and
expenses) incurred in connection with, or in anticipation of, this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses. Each of the Seller and the Seller Shareholders, on the one hand, and
Cendant, the Buyer and the Sub, on the other hand, shall indemnify and hold
harmless the other parties from and against any and all claims or liabilities
for financial advisory and finders' fees incurred by reason of any action taken
by such party or otherwise arising out of the transactions contemplated by this
Agreement by any Person claiming to have been engaged by such party.
Section 8.9. INTERPRETATION. Throughout this Agreement, nouns, pronouns
and verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable. Unless otherwise specified, all references herein
to "Section" shall refer to corresponding provisions of this Agreement or the
Seller Disclosure Schedule, as the case may be, whenever the words "include,"
"includes" or "including" are used in this Agreement, they are deemed to be
followed by the words "without limitation." The phrase "to the knowledge of the
Seller" or any similar phrase shall mean such facts and other information that
as of the date hereof are actually known to any executive officer of the Seller
or the Seller Shareholders after due inquiry. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement. As used in this Agreement, the term "Person"
includes an individual, a partnership, a limited partnership, a joint venture, a
syndicate, a sole proprietorship, a company or corporation with or without share
capital, a limited liability company, an unincorporated association, a trust, a
trustee, an executor, an
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administrator or other legal personal representative, a regulatory body or
agency, any domestic or foreign national, supranational, state, provincial,
county, municipal, district or local government or government body, or any
public administrative or regulatory agency, political subdivision, commission,
court, board or body of or established by any such government or government body
which has authority in respect of a particular matter or any quasi-governmental
body having the right to exercise any regulatory or taxing authority thereunder,
an authority or entity however designated or constituted, and every other legal
or business entity whatsoever.
Section 8.10. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
benefit or create any right or cause of action in or on behalf of any Person
other than the parties hereto, the Buyer Indemnitees and the Seller Indemnitees;
PROVIDED, HOWEVER, that this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and permitted assigns.
Section 8.11. NO WAIVERS; MODIFICATION. Any waiver of any right or
default hereunder will be effective only in the instance given and will not
operate as or imply a waiver of any other or similar right or default on any
subsequent occasion. No waiver, modification or amendment of this Agreement or
of any provision hereof will be effective unless in writing and signed by the
party against whom such waiver, modification or amendment is sought to be
enforced.
Section 8.12. SPECIFIC PERFORMANCE. The parties hereto agree that if any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof and immediate injunctive relief, without the necessity of proving the
inadequacy of money damages as a remedy, in addition to any other remedy at law
or equity.
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IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to
be duly signed as of the date first above written.
CENDANT CORPORATION
By: /s/ James E. Buckman
------------------------------------
Name: James E. Buckman
Title: Vice Chairman
COMPLETEHOME.COM, INC.
By: /s/ James E. Buckman
------------------------------------
Name: James E. Buckman
Title: Executive Vice President
RENT NET, INC.
By: /s/ Richard Smith
------------------------------------
Name: Richard Smith
Title: Chairman
/s/ John P. McWeeny
----------------------------------------
JOHN P. MCWEENY
/s/ Joseph A. Preis
----------------------------------------
JOSEPH A. PREIS
METRO-RENT, INC.
By: /s/ Joseph A. Preis
------------------------------------
Name: Joseph A. Preis
Title: President
<PAGE>
SPOUSAL CONSENT
The undersigned represents that the undersigned is the spouse of
Joseph A. Preis
and that the undersigned is familiar with the terms of the Asset Purchase
Agreement attached hereto and all related agreements and instruments executed
pursuant to or in connection with the Asset Purchase Agreement (together the
"Agreements"). The undersigned hereby agrees that the interest of the
undersigned's spouse in all property which is the subject of such Agreements
shall be irrevocably bound by the terms of such Agreements and by any amendment,
modification, waiver or termination signed by the undersigned's spouse . The
undersigned further agrees that the undersigned's community property interest,
if any, in all property which is the subject of such Agreements shall be
irrevocably bound by the terms of such Agreements, and that such Agreements
shall be binding on the executors, administrators, heirs and assigns of the
undersigned. The undersigned further authorizes the undersigned's spouse to
amend, modify or terminate such Agreements, or waive any rights thereunder, and
that each such amendment, modification, waiver or termination signed by the
undersigned's spouse shall be binding on the community property interest, if
any, of the undersigned in all property which is the subject of such Agreements
and on the executors, administrators, heirs and assigns of the undersigned, each
as fully as if the undersigned had signed such amendment, modification, waiver
or termination.
Dated: October 29, 1999
-----------------------------
Name:
<PAGE>
Exhibit 10.12
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of March 29, 2000 (this "Agreement")
between Cendant Corporation, a Delaware corporation (the "Company"), and Chatham
Street Holdings, LLC (the "Investor").
WHEREAS, the Investor desires to purchase from the Company, and the
Company desires to sell to the Investor an aggregate of 1,561,000 shares of a
tracking stock associated with the Company's real estate internet businesses
(the "Common Stock").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. PURCHASE OF SUBSCRIPTION SHARES. Upon the terms and subject to
conditions herein set forth, the Investor hereby subscribes for and agrees to
purchase, and the Company agrees to issue and sell, 1,561,000 shares of Common
Stock at a purchase price of $16.02 per share (the shares of Common Stock
subscribed for pursuant to this Agreement being collectively referred to herein
as the "Subscription Shares"). The total purchase price payable by the Investor
shall be paid in full in immediately available funds at the Closing (as defined
in Section 2 below).
2. CLOSING. (a) The closing (the "Closing") of the purchase
provided for in Section 1 shall take place as soon as practicable following the
satisfaction of the conditions set forth in Section 7 herein at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New York.
The date and time of the Closing is referred to as the "Closing Date".
(b) At the Closing, the Company will deliver to the Investor
a certificate or certificates evidencing the number of Subscription Shares
purchased by the Investor, registered in the Investor's name and bearing legends
substantially in the form set forth in the Registration Rights Agreement
attached hereto as Exhibit A (the "Registration Rights Agreement"), against
delivery by the Investor to the Company of the purchase price provided for in
Section 1.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
<PAGE>
(b) The authorized capital stock of Move.com, Inc. consists
of (i) 37,000,000 shares of voting common stock, of which 22,500,000 shares were
issued and outstanding (all of which were held by Cendant) as of March 6, 2000,
(ii) 12,500,000 shares of non-voting common stock, of which 48,750 shares of
were issued and outstanding as of March 6, 2000, and (iii) 5,000,000 shares of
preferred stock, none of which were outstand ing as of March 6, 2000. Except for
options to acquire 4,984,680 shares of Move.com, Inc. common stock and except as
provided herein, as of March 6, 2000, there were no outstand ing options,
warrants, calls, rights, commitments, agreements of any kind to which the
Company is bound relating to the sale, issuance or voting of, or the granting of
rights to acquire, any shares of Common Stock. When the certificates evidencing
the Subscription Shares have been delivered against payment therefor as provided
in this Agreement, the Subscription Shares will be duly authorized, validly
issued, fully paid and non-assessable.
(c) The Company has the corporate power and authority to
execute, deliver and perform this Agreement and the Registration Rights
Agreement (together, the "Company Agreements") and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Company Agreements and the consummation of the transactions contemplated
thereby have been duly authorized by all necessary corporate action on the part
of the Company. Each of the Company Agreements has been duly authorized,
executed and delivered by the Company and is a valid and binding obligation of
the Company, assuming the due execution and delivery by the other parties
thereto, enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors rights generally.
(d) There are no actions, suits, claims or proceedings
pending or, to the knowledge of the Company, threatened against the Company
which seek to prevent the consummation of the transactions contemplated by the
Company Agreements.
(e) Neither the execution and delivery by the Company of the
Company Agreements nor the performance by the Company of any of its obligations
thereunder, nor the consummation of the transactions contemplated thereby, will
conflict with the Certificate of Incorporation or By-laws of the Company, or
conflict with or result in a breach or violation of, or constitute default under
any material agreement to which the Company or any of its subsidiaries is bound
or to which any of their property or assets may be subject, or any applicable
law, rule, regulation, judgment, order or decree of any government, governmental
instrumentality or agency or arbitrator or court having jurisdic tion over the
Company or its subsidiaries or any of their property or assets. No order,
license, consent, authorization or approval of, or exemption by, or notice to or
registration with any federal, state, municipal or other governmental agency is
necessary (except as otherwise set forth in the Company Agreements) to authorize
the execution, delivery and performance by the Company of the Company
Agreements.
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(f) None of the Company or any affiliate of the Company or
any person acting on their behalf has (i) engaged, in connection with the
issuance of the Subscription Shares, in any form of general solicitation or
general advertising (as those terms are used within the meaning of Regulation D
under the Securities Act) or (ii) solicited offers for, or offered or sold, the
Subscription Shares by means of any form of general solicitation or general
advertising (as those terms are used within the meaning of Regulation D under
the Securities Act).
(g) The Company acknowledges the Investor is entering into
this Agreement in reliance upon the Company's representations and warranties
herein.
4. PURCHASE FOR INVESTMENT; OTHER REPRESENTATIONS AND WARRANTIES OF
THE INVESTOR. The Investor represents and warrants that:
(a) Each of the Company Agreements has been duly authorized,
executed and delivered by the Investor and is a valid and binding obligation of
the Investor, assuming the due execution and delivery by the other parties
thereto, enforceable against the Investor in accordance with its terms, except
as enforceability may be limited by bank ruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors rights generally.
(b) The Investor acknowledges its understanding that the
offering and sale of the Subscription Shares to be purchased pursuant hereto by
such Investor are intended to be exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"). In furtherance thereof, the
Investor represents and warrants to the Company that:
(i) The Investor is an accredited investor within
the meaning of Regulation D promulgated under the Securities Act
("Regulation D") and, if there should be any change in such status prior
to the Closing Date, the Investor will immediately inform the Company of
such change;
(ii) The Investor: (A) has the financial ability to
bear the economic risk of its investment in the Subscription Shares to
be purchased pursuant hereto, (B) can bear a total loss of its
investment therein at this time, (C) has no need for liquidity with
respect to its investment therein, (D) has adequate means for providing
for its current needs and contingencies; and (E) has such knowledge,
experience and skill in evaluat ing and investing in issues of equity
securities, including securities of new and speculative issuers, based
on actual participation in financial, invest ment and business matters,
such that it is capable of evaluating the merits and risks of an
investment in the Company and the suitability of the Subscription
Shares as an investment for itself; and
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(iii) The Investor has been given the opportunity to
conduct a due diligence review of the Company concerning the terms and
conditions of the offering of the Subscription Shares to be purchased by
the Investor and other matters pertaining to an investment in the
Subscription Shares, in order for the Investor to evaluate the merits
and risks of an investment in the Subscription Shares to be purchased
by the Investor to the extent the Company possesses such information or
can acquire it without unreasonable effort or expense; it being
understood, however, that the Investor's performance of due diligence
will not preclude the Investor from asserting claims that the Investor
may have against the Company in respect of its reliance upon statements
made by the Company in its filings with the Securities and Exchange
Commission.
(c) The Investor has been advised that the Subscription
Shares have not been registered under the Securities Act, or any state
securities or blue sky laws, and therefore cannot be resold unless they are
registered under such laws or unless an exemption from registration thereunder
is available. The Investor is purchasing the Subscription Shares for its own
account for investment, and not with a view to, or for resale in connection
with, the distribution thereof, and has no present intention of distributing or
reselling any thereof. In making the foregoing representations, the Investor is
aware that it must bear, and represents that the Investor is able to bear, the
economic risk of such investment for an indefinite period of time.
(d) The Investor is aware of and familiar with the
restrictions imposed on the transfer of any Subscription Shares, including,
without limitation, the restrictions contained in the Registration Rights
Agreement, and the rights of the Company under the Registration Rights Agreement
in connection with transfers of shares of Common Stock.
(e) The Investor acknowledges that the Company is entering
into this Agreement in reliance upon the Investor's representations and
warranties herein.
5. DELIVERY OF LEGAL OPINION. The Company agrees to use reasonable
efforts to cause to be delivered to the Investor on the Closing Date an opinion
of counsel to the Company covering the matters set forth in Exhibit A hereto.
6. CONDITIONS TO OBLIGATIONS OF THE INVESTORS. The Investor's
obligations hereunder are subject to the fulfillment, prior to or at the
Closing Date, of the following condition, unless waived in writing by the
Investor:
(a) The representations and warranties made by the Company
in Section 3 shall be true and correct in all material respects at and as of the
Closing Date.
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(b) The Company shall have entered into the Registration
Rights Agreement.
(c) The Investor shall have received an opinion of counsel
to the Company covering the matters set forth in Exhibit A hereto.
7. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligations hereunder are subject to the fulfillment, prior to or at the Closing
Date, unless waived in writing by the Company, of each of the following
conditions:
(a) The representations and warranties made by each of the
Investors in Section 4 shall be true and correct in all material respects at and
as of the Closing Date.
(b) The Company shall have entered into the Registration
Rights Agreement.
8. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each of the parties hereunder are subject to the fulfillment,
prior to or at the Closing Date, unless waived in writing by each of the other
parties hereto, of the following conditions:
(a) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
preventing consum mation of the transactions contemplated hereby shall be in
effect.
(b) Any applicable waiting period (and any extension
thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "Hart-Scott-Rodino Act"), relating to the transactions
contemplated by this Agreement shall have been terminated or shall have expired.
(c) The Subscription Shares shall have been approved for
listing, subject to notice of issuance, on the principal securities exchange, if
any, on which the Common Stock is then listed.
9. TRANSFERS. (a) Except as otherwise permitted by this Section 9,
each certificate or other instrument evidencing any Subscription Shares
(including each such certificate or other instrument issued upon the transfer of
any Subscription Shares) shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be transferred
in the absence of such registration or an exemption therefrom under such
Act."
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The shares represented by this certificate may be transferred only in
compliance with the conditions specified in the Subscription Agreement,
dated as of March 29, 2000, between Cendant Corporation and the investor
named therein, a counterpart of which has been placed on file with the
issuer at its principal place of business."
(b) Prior to any transfer of any shares of Common Stock
which are not registered under an effective registration statement under the
Securities Act ("Restricted Securities"), the holder thereof will give written
notice to the Company of such holder's intention to effect such transfer and to
comply in all other respects with this Section 9(b). Each such notice (i) shall
describe the manner and circumstances of the proposed transfer in sufficient
detail to enable counsel to render the opinions referred to below, and (ii)
shall designate counsel for the holder giving such notice (who may be in house
counsel for such holder). The holder giving such notice will submit a copy
thereof to the counsel designated in such notice and the Company will promptly
submit a copy thereof to its counsel. The following provisions shall then apply:
(x) If (A) in the opinion of such counsel for the holder the
proposed transfer may be effected without registration of such
Restricted Securities under the Securities Act, and (B) counsel for
the Company shall not have rendered an opinion within 15 days
after the receipt by the Company of such written notice that
such registration is required, such holder shall thereupon be
entitled to transfer such Restricted Securities in accordance
with the terms of the notice delivered by such holder to the
Company. Each certificate, if any, issued upon or in connection
with such transfer shall bear the appropriate restrictive legend
set forth in Section 9(a), unless in the opinion of counsel to
the holder such legend is no longer required to insure
compliance with the Securities Act.
(y) If in the opinion of either or both of such counsel the
proposed transfer may not legally be effected without
registration of such Restricted Securities under the Securities
Act (such opinion or opinions to state the basis of the legal
conclusions reached therein), the Company will promptly so
notify the holder thereof and thereafter such holder shall not
be entitled to transfer such Restricted Securities until receipt
of a further notice from the Company under clause (x) above or
until registration of such Restricted Securities under the
Securities Act has become effective.
Notwithstanding anything herein to the contrary, no transfer of shares
of Common Stock by the Investor (other than transfers which are
registered pursuant to an effective registration statement under the
Securities Act or sold in brokers' transactions exempt from registration
pursuant to Rule 144 under the Securities Act) shall be made to a person
who is, or is an affiliate of, a direct competitor of any of the
businesses conducted by Move.com, Inc. For
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purposes of this Agreement, the term "affiliate" shall mean any person
that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the person
specified; provided that the ownership of less than five percent of any
class of outstanding equity securities of a company shall not, without
more, give rise to affiliate status.
(c) Any purported transfer of shares of Common Stock without
compliance with the applicable provisions of this Agreement shall be void and of
no effect, and the Company shall not transfer any such shares of Common Stock on
its books or recognize the purported transferee as a stockholder of the Company
for any purpose, until the applicable provisions of this Agreement have been
complied with.
10. EXPENSES. All reasonable costs and reasonable expenses incurred
by Apollo, including the reasonable fees and reasonable expenses of one counsel
to Apollo, in connection with this Agreement and the transactions contemplated
hereby shall be borne by the Company; provided that in no event shall the
Company's obligation pursuant to this Section 10 extend to expenses in excess of
the amount of any required Hart-Scott-Rodino Act filing fee plus $25,000.
11. SURVIVAL; SUCCESSORS AND ASSIGNS. All agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the execution and delivery of this Agreement, the
delivery to the Investor of the Subscription Shares to be purchased pursuant
hereto and the payment therefor and, notwithstanding any investigation
heretofore and hereafter made by or on behalf of a party hereto, shall continue
in full force and effect. The rights and obligations of the Investor under this
Agreement shall not be assignable by such Investor without the prior written
consent of the Company, provided that any Investor may assign this Agreement to
the same extent and in the same manner as such Investor may transfer
Subscription Shares in accordance with the Registra tion Rights Agreement.
Nothing herein expressed or implied is intended to confer upon any person, other
than the parties hereto or their respective permitted assignees, successors,
heirs and legal representatives, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
12. AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
the Company and the Investor.
13. WAIVER OF COMPLIANCE; CONSENTS. The failure of any of the
parties to comply with any obligation, covenant, agreement or condition herein
may be waived by the party entitled to the benefits thereof only by a written
instrument signed by the party granting such waiver. Any such waiver or failure
to insist upon strict compliance with such
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obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
14. NOTICES. Any notice, request or other document to be given
hereun der to any party shall be effective upon receipt (or refusal of receipt)
and shall be in writing and delivered personally or sent by telex, telecopy or
certified or registered mail, postage prepaid addressed to:
If to the Company, addressed to:
Cendant Corporation
9 West 57th Street
37th Floor
New York, NY 10019
Attention: Eric J. Bock
If to the Investor, addressed to:
Apollo Advisors II, L.P.
1301 Avenue of the Americas, 38th Floor
New York, NY 10019
Telecopy No.: (212) 261-4071
Attention: Joshua J. Harris
With a copy to:
O'Sullivan, Graev & Karabell
30 Rockefeller Plaza
24th Floor
New York, NY 10112
Telecopy No.: (212) 728-5950
Attention: John Suydam
John Scott
or to such other address as any party shall have specified by written notice
given to the other parties in the manner specified above.
15. ENTIRE AGREEMENT. This Agreement, and the other agreements
referred to herein or expressly contemplated hereby, embody the entire agreement
and understanding between the Investor and the Company with respect to the
purchase of Subscription Shares by the Investor and supersede all prior oral or
written agreements,
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memoranda, understandings and undertakings among the parties hereto relating to
the subject matter hereof.
16. CONSTRUCTION. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to the
principles of conflicts of laws thereof other than Sections 5-1401 and 5-1402 of
the New York General Obligations Law. The section headings contained in this
Agreement are for reference purposes and shall not affect in any way the meaning
or interpretation of this Agreement. Each party irrevocably consents to the
service of any and all process in any action or proceeding arising out of or
relating to this Agreement by the mailing of copies of such process to each
party at its address specified herein. The parties hereto irrevocably submit to
the non-exclusive jurisdiction of any court of competent jurisdiction in the
State of New York or of the United States of America for the Southern District
of New York over any dispute arising out of or relating to this Agreement or any
agreement or instrument contem plated hereby or entered into in connection
herewith or any of the transactions contemplated hereby or thereby. Each party
hereby irrevocably agrees that all claims in respect of such dispute or
proceeding may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum in
connection therewith.
17. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS HEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
CENDANT CORPORATION
By: /s/ Eric J. Bock
------------------------------------
Name: Eric J. Bock
Title: SVP
INVESTOR:
CHATHAM STREET HOLDINGS, LLC
By: /s/ Michael D. Weinir
------------------------------------
Name: Michael D. Weinir
Title: Vice President
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Exhibit 10.13
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March 29, 2000, among Cendant
Corporation, a Delaware corporation (the "Company"), and Chatham Street
Holdings, LLC (the "Investor").
1. INTRODUCTION. The Company is a party to a Subscription Agreement
(the "Subscription Agreement") with the Investor, pursuant to which the Company
has agreed, among other things, to issue to the Investor shares of a tracking
stock associated with the Company's real estate internet businesses (the "Common
Stock"). This Agreement shall become effective upon the issuance of such shares
to the Investor pursuant to the Subscription Agreement. Certain capitalized
terms used in this Agreement are defined in Section 3 hereof; references to
Sections shall be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 REGISTRATION ON REQUEST.
(a) REQUEST. At any time or from time to time after the
180th day following the date of the closing (the "Offering Closing Date") of the
initial public offering (the "Offering") of the Common Stock until the fourth
anniversary of the Offering Closing Date, upon the written request of one or
more Initiating Holders requesting that the Company effect the registration
under the Securities Act of all or part of such Initiating Holders' Registrable
Securities and specifying the intended method of disposition thereof, the
Company will promptly give written notice of such requested registration to all
registered holders of Registrable Securities, and thereupon the Company will,
subject to the terms of this Agreement, use reasonable efforts to effect the
registration under the Securities Act of:
(i) the Registrable Securities which the Company has
been so requested to register by such Initiating Holders for disposition
in accordance with the intended method of disposition stated in such
request; and
(ii) all other Registrable Securities the holders of
which shall have made a written request to the Company for registration
thereof within 30 days after the giving of such written notice by the
Company (which request shall specify the intended method of disposition
of such Registrable Securities); and
(iii) all securities which the Company may elect to
register in connection with the offering of Registrable Securities
pursuant to this Section 2.1,
<PAGE>
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional securities, if any, so to be registered, PROVIDED that the Company
shall not be required to effect any registration of Registrable Securities
pursuant to this Section 2.1 unless the aggregate value of the Registrable
Securities requested to be registered by the Initiating Holders is equal to or
greater than $10 million. Once the Company is eligible to register securities on
Form S-3 under the Securities Act (or any successor or similar form then in
effect), the Company shall, at the request of the Initiating Holders, use its
reasonable efforts to file and cause to be effective, if available, a
registration statement on Form S-3 (a "Shelf Registration Statement") for an
offering of Registrable Securities to be made on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act (a "Shelf Registration") and shall
use its reasonable efforts to keep the Shelf Registration Statement effective
and usable for the resale of Registrable Securities until the earlier of (i) the
date on which all Registrable Securities so registered have been sold pursuant
to the Shelf Registration Statement or (ii) the 180th day following the date on
which the Shelf Registration Statement is initially declared effective by the
Commission. Notwithstanding the foregoing, the Company shall not be required to
effect (i) more than one registration pursuant to this Section 2.1(a) prior to
the first anniversary of the Offering Closing Date, (ii) more than three
registrations pursuant to this Section 2.1(a), or (iii) more than one
registration pursuant to this Section 2.1(a) in any period of nine consecutive
calendar months.
(b) REGISTRATION STATEMENT FORM. Registrations under Section
2.1(a) shall be on such appropriate registration form of the Commission (i) as
shall be selected by the Company and (ii) as shall permit the disposition of
such Registrable Securities in accor dance with the intended method or methods
of disposition specified in their request for such registration.
(c) EXPENSES. The Company shall pay any Registration
Expenses (excluding underwriting discounts and commissions and transfer taxes,
if any) in connection with each registration requested under Section 2.1(a).
Underwriting discounts and commissions and transfer taxes (if any) in connection
with each such registration shall be allocated PRO rata among all Persons on
whose behalf securities of the Company are included in such registration, on the
basis of the respective amounts of the securities then being registered on their
behalf.
(d) EFFECTIVE REGISTRATION STATEMENT. A registration
requested pursuant to Section 2.1(a) shall not be deemed to have been effected
(i) unless a registration statement with respect thereto has become effective,
PROVIDED that a registration which does not become effective after the Company
has filed a registration statement with respect thereto solely by reason of the
refusal to proceed of the Initiating Holders (other than a refusal to proceed
based upon the advice of counsel relating to a matter with respect to the
Company) shall be deemed to have been effected by the Company at the request of
such Initiating Holders, (ii) if, after it has become effective, such
registration becomes subject to, for longer than 60 days, any stop order,
injunction or other order or requirement of the Commission or other
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governmental agency or court for any reason or (iii) the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied, other than by reason of an
act or omission by such Initiating Holders. If a requested registration pursuant
to this Section 2.1 is to be a Shelf Registration, the Company shall not be
required to keep the registration statement effective during any period or
periods (up to a total of 180 days in any 12-month period) if the continued
effectiveness of the registration statement would require the Company to
disclose a material financing, acquisition or other corporate development and
the Company shall have determined that such disclosure is not in the best
interests of the Company; PROVIDED, FURTHER, that the requirement to use
reasonable efforts to keep the registration statement effective shall be
extended one day for each day that the Company allows the effectiveness of the
registration statement to lapse in reliance on the preceding proviso.
(e) SELECTION OF UNDERWRITERS. If a registration pursuant to
Section 2.1(a) involves an underwritten offering, the underwriter or
underwriters thereof shall be selected by the Company, provided that if the
holders of a majority of the Registrable Securities reasonably object to the
qualifications of such underwriter or underwriters, the Company shall select one
or more underwriters other than the underwriter or underwriters to which
objection was so made.
(f) PRIORITY IN REQUESTED REGISTRATIONS. If a registration
pursuant to Section 2.1(a) involves an underwritten offering, and the managing
underwriter shall advise the Company in writing (with a copy to each holder of
Registrable Securities requesting registration) that, in its opinion, the number
of securities requested to be included in such registration (including
securities of the Company which are not Registrable Securities) exceeds the
number which can be sold in such offering, the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in such offering, (i) first, Registrable Securities requested to be
included in such registration by the holder or holders of Registrable
Securities, PRO RATA among such holders requesting such registration on the
basis of the number of such securities requested to be included by such holders
and (ii) second, securities the Company proposes to sell and other securities of
the Company included in such registration by the holders thereof.
2.2 INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company
at any time proposes to register any of its securities under the Securities Act
(other than on Form S-4 or S-8 or any successor or similar forms and other than
pursuant to Section 2.1), whether or not for sale for its own account, it will
each such time give prompt written notice to all holders of Registrable
Securities of its intention to do so and of such holders' rights under this
Section 2.2. Upon the written request of any such holder made within 10 business
days after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed
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of by such holder and the intended method of disposition thereof), the Company
will, subject to the terms of this Agreement, use its reasonable efforts to
effect the registration under the Securities Act of all Registrable Securities
which the Company has been so requested to register by the holders thereof, to
the extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered,
by inclusion of such Registrable Securities in the registration statement which
covers the securities which the Company proposes to register (whether or not for
sale for its own account), PROVIDED that if, at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason either not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to each holder of Registrable Securities and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any holder
or holders of Registrable Securities entitled to do so to request that such
registration be effected as a registration under Section 2.1, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
2.2 shall relieve the Company of its obligation to effect any registration upon
request under Section 2.1, nor shall any such registration hereunder be deemed
to have been effected pursuant to Section 2.1. The Company will pay all
Registration Expenses in connection with each registration of Registrable
Securities requested pursuant to this Section 2.2.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If (i) a
registration pursuant to this Section 2.2 involves an underwritten offering of
the securities so being regis tered, whether or not for sale for the account of
the Company, to be distributed (on a firm commitment basis) by or through one or
more underwriters of recognized standing under underwriting terms appropriate
for such a transaction, (ii) the Registrable Securities so requested to be
registered for sale for the account of holders of Registrable Securities are not
also to be included in such underwritten offering (either because the Company
has not been requested so to include such Registrable Securities pursuant to
Section 2.4(b) or, if requested to do so, is not obligated to do so under
Section 2.4(b)), and (iii) the managing underwriter of such underwritten
offering shall inform the Company and holders of the Registrable Securities
requesting such registration by letter of its belief that the distribution of
all or a specified number of such Registrable Securities concurrently with the
securities being distributed by such underwriters would interfere with the
successful marketing of the securities being distributed by such underwriters
(such writing to state the basis of such belief and the approximate number of
such Registrable Securities which may be distributed without such effect), then
the Company may, upon written notice to all holders of such Registrable
Securities, reduce PRO RATA (if and to the extent stated by such managing
underwriter to be necessary to eliminate such effect) the number of such
Registrable Securities the registration of which shall have been requested by
each holder of Registrable
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Securities so that the resultant aggregate number of such Registrable Securities
so included in such registration shall be equal to the number of shares stated
in such managing underwriter's letter.
2.3 REGISTRATION PROCEDURES. If and whenever the Company is required
to use its reasonable efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2.1 and 2.2, the
Company shall, as expeditiously as possible:
(i) prepare and (in the case of a registration
pursuant to Section 2.1, such filing to be made within 90 days after the
initial request of one or more Initiating Holders of Registrable
Securities or in any event as soon thereafter as possible) file with the
Commission the requisite registration statement to effect such
registration and thereafter use its reasonable efforts to cause such
registration statement to become and remain effective, PROVIDED,
HOWEVER, that the Company may postpone the filing or effectiveness of
any registration statement otherwise required to be filed by the Company
pursuant to this Agreement or suspend the use of any registration
statement for a period of time, not to exceed 180 days in any 12-month
period, if the Company determines that the filing or continued use of
such registration statement would require the Company to disclose a
material financing, acquisition or other corporate development and the
Company shall have determined that such disclosure is not in the best
interests of the Company; provided, FURTHER, that the Company may
discontinue any registration of its securities which are not Registrable
Securities (and, under the circumstances specified in Section 2.2(a),
its securities which are Registrable Securities) at any time prior to
the effective date of the registration statement relating thereto;
(ii) subject to Section 2.1(d), prepare and file with
the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
until the earlier of (A) such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such registra tion statement
or (B) the expiration of 90 days after such registration statement
becomes effective (or, in the case of a Shelf Registration, the
expiration of 180 days after such Shelf Registration Statement becomes
effective);
(iii) furnish to each seller of Registrable Securities
covered by such registration statement such number of conformed copies
of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any
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other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Securities owned
by such seller; () use its reasonable efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities laws or blue sky laws of such
jurisdictions as any seller thereof shall reasonably request, to keep
such registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such seller to
consummate the disposi tion in such jurisdictions of the securities
owned by such seller, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the require
ments of this subdivision (iv) be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(iv) use its reasonable efforts to cause all
Registrable Secu rities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Registrable Securities;
(v) furnish to each underwriter, if an underwritten
offering, customary "cold comfort" letters from its independent
auditors, legal opinions from counsel to the Company on customary
matters, and such other certificates or other instruments reasonably
requested by such underwriters;
(vi) notify the holders of Registrable Securities and
the managing underwriter or underwriters, if any, promptly and confirm
such advice in writing promptly thereafter:
(A) when the registration statement, the
prospectus or any prospectus supplement related thereto or
post-effective amendment to the registration statement has been
filed, and, with respect to the registration statement or any
post-effective amendment thereto, when the same has become
effective;
(B) of any request by the Commission for
amendments or supplements to the registration statement or the
prospectus or for additional information;
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(C) of the issuance by the Commission of any
stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings by any Person for
that purpose;
(D) if at any time the representations and
warran ties of the Company made as contemplated by Section 2.4
below cease to be true and correct; and
(E) of the receipt by the Company of any
notifica tion with respect to the suspension of the
qualification of any Registrable Securities for sale under the
securities or blue sky laws of any jurisdiction or the
initiation or threat of any proceeding for such purpose;
(viii) notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon the Company's discovery that, or upon the happening of any event as
a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and at the request of
any such seller promptly prepare and furnish to such seller and each
underwriter, if any, a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances under which they were made;
(ix) use its reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement at the earliest possible moment;
(x) otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months, but
not more than eighteen months, beginning with the Company's first full
calendar quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder, and will
furnish to each such seller prior to the filing thereof a copy of any
amendment or supplement to such registration statement or prospectus and
shall not file any thereof to which any such seller shall have
reasonably objected on the grounds that such amendment or supplement
does not comply in all
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material respects with the requirements of the Securities Act or of the
rules or regulations thereunder; and
(xi) take such other action that may be requested by
a seller of Registrable Securities that are customary and reasonably
required in connection with the sale of Registrable Securities.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
The Company will not file any registration statement or amendment
thereto or any prospectus or any supplement thereto (including such documents
incorporated by reference and proposed to be filed after the initial filing of
the registration statement) to which the holders of at least a majority of the
Registrable Securities covered by such registration statement or the underwriter
or underwriters, if any, shall reasonably object, PROVIDED that the Company may
file such document in a form required by law or upon the advice of its counsel.
Each holder of Registrable Securities agrees by acquisition of such Registrable
Securities that, upon receipt of any notice from the Company of the occurrence
of any event of the kind de scribed in subdivision (vii) of this Section 2.3,
such holder will forthwith discontinue such holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (vii) of this Section 2.3 and, if
so directed by the Company, will deliver to the Company (at the Company's
reasonable expense) all copies, other than permanent file copies, then in such
holder's possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
2.4 UNDERWRITTEN OFFERINGS.
(a) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, such
agreement to be satisfactory in substance and form to the Company, each such
holder and the underwriters, and to contain such representa tions and warranties
by the Company and such other terms as are generally prevailing in agreements of
such type, including, without limitation, indemnities substantially the same as
those provided in Section 2.6. The holders of the Registrable Securities will
cooperate with the Company in the negotiation of the underwriting agreement and
will give consideration to the reasonable suggestions of the Company regarding
the form thereof. The holders of Registrable Securities to be distributed by
such underwriters shall be parties to such underwriting agree ment. Any such
holder of Registrable Securities shall not be required to make any
representations or
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warranties to or agreements with the Company or the underwriters other than
representations and warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any
time proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Section 2.2 and subject to the
provisions of Section 2.2(b), use its reasonable efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such holder among the securities to be distributed by such underwriters,
PROVIDED that if the managing underwriter of such underwritten offering shall
inform the holders of the Registrable Securities requesting such registration
and the holders of any other securities which shall have exercised, in respect
of such underwritten offering, registration rights comparable to the rights
under Section 2.2 by letter of its belief that inclusion in such underwritten
distribution of all or a specified number of such Registrable Securities or of
such other securities so requested to be included would interfere with the
successful marketing of the securities by the underwriters (such writing to
state the basis of such belief and the approximate number of such Registrable
Securities and shares of other securities so requested to be included which may
be included in such underwritten offering without such effect), then the Company
may, upon written notice to all holders of such Registrable Securities and of
such other securities so requested to be included, exclude PRO RATA from such
underwritten offering (if and to the extent stated by such managing underwriter
to be necessary to eliminate such effect) the number of such Registrable
Securities and shares of such other securities so requested to be included the
registration of which shall have been requested by each holder of Registrable
Securities and by the holders of such other securities so that the resultant
aggregate number of such Registrable Securities and of such other shares of
securities so requested to be included which are included in such underwritten
offering shall be equal to the approximate number of shares stated in such
managing underwriter's letter. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Company. Any such holder of Registrable Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such holder's
intended method of distribution and any other representation required by law.
(c) HOLDBACK AGREEMENT. Each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so required
by the managing underwriter, not to sell, make any short sale of, loan, grant
any option for the purchase of, effect any public sale or distribution of or
otherwise dispose of any securities of the Company, in violation of Regulation M
under the Securities Act or during the 120 days (or such longer time as
reasonably requested by the managing underwriter up to 180 days) after any
underwritten registration pursuant to Section 2.1 or 2.2 has become effective,
except as part of such underwritten
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registration, whether or not such holder participates in such registration;
provided that the restrictions contained in this sentence shall not apply to the
holders of Registrable Securities in any registration following the Offering
Closing Date if such holders and their affiliates collectively beneficially own
(within the meaning of Rule 13d-3 under the Exchange Act) less than 5% of the
outstanding Common Stock and none of such holders nor any of their respective
affiliates is participating in such registration. Each holder of Registrable
Securities agrees that the Company may instruct its transfer agent to place stop
transfer notations in its records to enforce this Section 2.4(c).
(d) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No Person may
participate in any underwritten offering hereunder unless such Person (i) agrees
to sell such Person's securities on the basis provided in any underwriting
arrangements approved, subject to the terms and conditions hereof, by the
Company and the holders of a majority of Registrable Securities to be included
in such underwritten offering and (ii) completes and executes all
questionnaires, indemnities, underwriting agreements and other documents (other
than powers of attorney) required under the terms of such underwriting
arrangements. Notwithstanding the foregoing, no underwriting agreement (or other
agreement in connection with such offering) shall require any holder of
Registrable Securities to make any representations or warranties to or
agreements with the Company or the underwriters other than representations and
warranties or agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution and any other
representation required by law.
2.5 REGISTRATION CONCURRENTLY WITH CLOSING OF OFFERING. Without
limiting the foregoing, the Company agrees that to the extent that the Investor
purchases Registrable Securities concurrently with the closing of the Offering,
the Company will use its reasonable best efforts to register such Registrable
Securities concurrently with or immediately prior to the closing of the
Offering; provided that any sales of such Registrable Securities shall be
subject to any restrictions on sale required by the underwriters in connection
with such Offering. Notwithstanding the foregoing, if the Company is advised by
the managing underwriter in the Offering that registering the Registrable
Securities concurrently with the closing of the Offering would be detrimental to
the Offering, the Company will not be required to register the Registrable
Securities concurrently with the closing of the Offering.
2.6 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby agrees to, indemnify and hold harmless the holder of
any Registrable Securities covered by such registration statement, its directors
and officers, each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who controls
such holder or any such underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
such holder or any such
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director or officer or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such holder and each such director, officer, under writer and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding, PROVIDED that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company through an
instrument duly executed by such holder specifically stating that it is for use
in the preparation thereof, and PROVIDED, FURTHER, that the Company shall not be
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities or to any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
within the time required by the Securities Act to the Person asserting the
existence of an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such holder
or any such director, officer, underwriter or controlling person and shall
survive the transfer of such securities by such holder.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require,
as a condition to including any Registrable Securities in any registration
statement filed pursuant to Section 2.3, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such Registrable
Securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.6) the Company, each
director of the Company, each officer of the Company, each other person, if any,
who controls the Company within the meaning of the Securities Act, each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such holder or any such
underwriter within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged
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statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Any such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling person
and shall survive the transfer of such securities by such seller.
Notwithstanding the foregoing, the indemnity obligation of each seller of
Registrable Securities pursuant to this Section 2.6(b) shall be limited to an
amount equal to the total proceeds (before deducting underwriting discounts and
commissions and expenses) received by such seller from the underwriters for the
sale of shares by such seller in a registration hereunder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.6,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, PROVIDED that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.6, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability, or a covenant not to sue, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.6 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
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(e) INDEMNIFICATION PAYMENTS. The indemnification required
by this Section 2.6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in the
preceding subdivisions of this Section 2.6 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the holder or underwriter, as the case may be, on
the other from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the holder or underwriter, as the case may be, on the other
in connection with the statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the holder or underwriter, as the case may be, on the other in connection
with the distribution of the Registrable Securities shall be deemed to be in the
same proportion as the total net proceeds received by the Company from the
initial sale of the Registrable Securities by the Company bear to the gain, if
any, realized by the selling holder or the underwriting discounts and
commissions received by the underwriter, as the case may be. The relative fault
of the Company on the one hand and of the holder or underwriter, as the case may
be, on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission to
state a material fact relates to information supplied by the Company, by the
holder or by the underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission,
PROVIDED that the foregoing contribution agreement shall not inure to the
benefit of any indemnified party if indemnification would be unavailable to such
indemnified party by reason of the provisions contained in the first sentence of
subdivision (a) of this Section 2.6, and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (f) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (a) or
(b) of this Section 2.6 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this subdivision (f)
were determined by PRO RATA allocation (even if the holders and any underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the
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immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (c) of this
Section 2.6, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
COMMON STOCK: As defined in Section 1.
COMPANY: As defined in the introductory paragraph of this Agree
ment.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of the
Commission there under, all as the same shall be in effect at
the time. Reference to a particular Section of the Securities
Exchange Act of 1934 shall include a reference to the comparable
Section, if any, of any such similar Federal statute.
INITIATING HOLDERS: Any holder or holders of Registrable
Securities holding at least $10 million in value of Registrable
Securities (based on the Market Price of such Registrable
Securities), and initiating a request pursuant to Section 2.1
for the registration of all or part of such holder's or holders'
Registrable Securities.
MARKET PRICE: The market price per share of Common Stock on any
date shall be deemed to be the average of the daily closing
prices for
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the 20 consecutive trading days on the New York Stock Exchange
ending on the day prior to such date. The closing price for each
day shall be the last sale price regular way, or, in case no
such sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case on the New York
Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on such exchange, on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading, or if the Common Stock is not listed or
admitted to trading on any national securities exchange, the
average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities
Dealers ("NASD") or similar organization if the NASD is no
longer reporting such information.
PERSON: A corporation, an association, a partnership, an
organization, business, an individual, a governmental or
political subdivision thereof or a governmental agency.
REGISTRABLE SECURITIES: any shares of Common Stock issued to the
Investor pursuant to the Subscription Agreement or issued upon
conversion of any common stock purchase warrants issued to the
Investor and any securities issued or issuable with respect to
any Common Stock referred to above by way of stock dividend or
stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization
or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities
when (a) a registration statement with respect to the sale of
such securities shall have become effective under the Securities
Act and such securities shall have been disposed of in
accordance with such registration statement, (b) they shall have
been distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act, (c) they shall
have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been
delivered by the Company and subse quent disposition of them
shall not require registration or qualification of them under
the Securities Act or any similar state law then in force, or
(d) they shall have ceased to be outstanding.
REGISTRATION EXPENSES: All expenses incident to the Company's
performance of or compliance with Section 2, including, without
limitation, all registration, filing and NASD fees, all stock
exchange listing fees, all fees and expenses of complying with
securities or blue
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sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such
performance and compliance, the reasonable fees and
disbursements of counsel retained by the holder or holders of
Registrable Securities being registered (up to a maximum of
$25,000 and any fees and disbursements of underwriters custom
arily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if
any.
SECURITIES ACT: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as of the same shall be in effect at the time.
References to a particular Section of the Securities Act of 1933
shall include a reference to the comparable Section, if any, of
any such similar federal statute.
4. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of a majority of the Registrable Securities. Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 4, whether or not such Registrable
Securities shall have been marked to indicate such consent.
5. NOTICES. Except as otherwise provided in this Agreement, all
notices, requests and other communications to any Person provided for hereunder
shall be in writing and shall be given to such Person (a) in the case of a party
hereto other than the Company, addressed to such party in the manner set forth
in the applicable Subscription Agreement or at such other address as such party
shall have furnished to the Company in writing, (b) in the case of any other
holder of Registrable Securities, at the address that such holder shall have
furnished to the Company in writing, or, until any such other holder so
furnishes to the Company an address, then to and at the address of the last
holder of such Registrable Securities who has furnished an address to the
Company, or (c) in the case of the Company, at 9 West 57th Street, 37th Floor,
New York, New York 10019, to the attention of its President, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding. Each
such notice, request or other communication shall be effective (i) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (ii) if given by any other
means (including, without limitation, by air courier), when delivered at the
address
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specified above, PROVIDED that any such notice, request or communication
to any holder of Registrable Securities shall not be effective until received.
6. ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent holder of any Registrable Securities, subject
to the provisions respecting the minimum numbers or percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein.
7. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE CON STRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PAR TIES SHALL BE GOVERNED BY, THE
LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS
OF LAWS (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).
9. COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the Company and each other party hereto relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
11. SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND,
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM ANY THEREOF. EACH
PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF TO SUCH PARTY BY REGISTERED OR CERTIFIED MAIL, POSTAGE
17
<PAGE>
PREPAID, RETURN RECEIPT REQUESTED, TO SUCH PARTY AT ITS ADDRESS SPECIFIED IN
SECTION 5. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND EACH
OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
12. SEVERABILITY. If any provision of this Agreement, or the
application of such provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
CENDANT CORPORATION
By: /s/ Eric J. Bock
------------------------------------
Name: Eric J. Bock
Title: SVP
CHATHAM STREET HOLDINGS, LLC
By: /s/ Michael D. Weinir
------------------------------------
Name: Michael D. Weinir
Title: Vice President
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statment
No. 333-30314 of Cendant Corporation on Form S-3 of our report on Cendant
Corporation and subsidiaries dated February 28, 2000 (which expresses an
unqualified opinion and includes an explanatory paragraph relating to the change
in the method of recognizing revenue and membership solicitation costs as
described in Note 1), appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
New York, New York
April 4, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-30314 of Cendant Corporation ("Cendant") on Form S-3 of our report on
Move.com Group (wholly owned by Cendant) dated February 1, 2000 (which expresses
an unqualified opinion and includes an explanatory paragraph relating to the
relationship of Move.com Group to Cendant) appearing in the Prospectus, which is
a part of such Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
San Francisco, California
April 4, 2000
