Filed Pursuant to Rule No. 424(B)(3)
File No. 333-59246
PROSPECTUS
[CENDANT LOGO]
$1,479,258,000
CENDANT CORPORATION
ZERO COUPON SENIOR CONVERTIBLE CONTINGENT DEBT SECURITIES (CODES(SM)) DUE 2021
AND CD COMMON STOCK ISSUABLE UPON CONVERSION OF THE CODES
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WE ISSUED THE CODES IN A PRIVATE PLACEMENT IN FEBRUARY 2001 AT AN ISSUE
PRICE OF $608.41 PER CODES (60.841% OF THE PRINCIPAL AMOUNT AT MATURITY).
SELLING SECURITYHOLDERS WILL USE THIS PROSPECTUS TO RESELL THEIR CODES AND THE
SHARES OF CD COMMON STOCK ISSUABLE UPON CONVERSION OF THEIR CODES.
HOLDERS MAY SURRENDER THE CODES FOR CONVERSION INTO SHARES OF OUR CD COMMON
STOCK AT A CONVERSION RATE OF 33.40 SHARES OF OUR CD COMMON STOCK PER CODES
UNDER ANY OF THE FOLLOWING CIRCUMSTANCES: (I) DURING ANY CONVERSION PERIOD IF
THE CLOSING SALE PRICE OF OUR CD COMMON STOCK FOR AT LEAST 20 TRADING DAYS IN
THE 30 CONSECUTIVE TRADING DAYS ENDING ON THE FIRST DAY OF SUCH CONVERSION
PERIOD IS MORE THAN 110% OF THE ACCRETED CONVERSION PRICE PER CODES ON THAT
THIRTIETH DAY; (II) IF THE CODES HAVE BEEN CALLED FOR REDEMPTION; (III) DURING
SUCH PERIOD, IF ANY, THAT THE CREDIT RATING ASSIGNED TO THE CODES BY BOTH
MOODY'S AND STANDARD & POOR'S IS BELOW A SPECIFIED LEVEL, OR IF NEITHER RATING
AGENCY IS RATING THE CODES; AND (IV) UPON THE OCCURRENCE OF SPECIFIED CORPORATE
TRANSACTIONS. THE CONVERSION RATE MAY BE ADJUSTED AS DESCRIBED IN THIS
PROSPECTUS. THE CONVERSION RATE WILL NOT BE ADJUSTED FOR ACCRUED ORIGINAL ISSUE
DISCOUNT.
WE WILL NOT PAY INTEREST ON THE CODES PRIOR TO MATURITY UNLESS CONTINGENT
INTEREST BECOMES PAYABLE OR WE ELECT TO CONVERT THE CODES TO SEMI-ANNUAL COUPON
NOTES. ON FEBRUARY 13, 2021, A HOLDER WILL RECEIVE $1,000 PER CODES. THE ISSUE
PRICE OF EACH CODES REPRESENTS A YIELD TO MATURITY OF 2.50% PER ANNUM CALCULATED
FROM FEBRUARY 13, 2001 IF NO CONTINGENT INTEREST IS PAID.
WE WILL PAY CONTINGENT INTEREST TO HOLDERS OF CODES DURING ANY SIX-MONTH
PERIOD COMMENCING AFTER FEBRUARY 13, 2004 IF THE AVERAGE MARKET PRICE OF A CODES
FOR A MEASUREMENT PERIOD PRECEDING SUCH SIX-MONTH PERIOD EQUALS 120% OR MORE OF
THE SUM OF THE ISSUE PRICE AND ACCRUED ORIGINAL ISSUE DISCOUNT FOR SUCH CODES.
THE CONTINGENT INTEREST PAYABLE PER CODES IN RESPECT OF ANY SIX-MONTH PERIOD
WILL BE PAID ON THE ACCRETED VALUE OF THE CODES AT A RATE OF 2% OF CENDANT'S
THEN-CURRENT ESTIMATED BORROWING RATE FOR SENIOR NON-CONVERTIBLE DEBT WITH A
MATURITY DATE COMPARABLE TO THE CODES, BUT NOT GREATER THAN 0.25% PER SIX-MONTH
PERIOD. FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, THE CODES WILL BE TREATED
AS CONTINGENT PAYMENT DEBT INSTRUMENTS. YOU SHOULD READ THE DISCUSSION OF
SELECTED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELEVANT TO THE CODES
BEGINNING ON PAGE 29.
HOLDERS MAY REQUIRE US TO PURCHASE ALL OR A PORTION OF THEIR CODES ON
FEBRUARY 13, 2004, AT A PRICE OF $655.49 PER CODES, ON FEBRUARY 13, 2009 AT A
PRICE OF $742.20 PER CODES AND ON FEBRUARY 13, 2014 AT A PRICE OF $840.37 PER
CODES. WE MAY CHOOSE TO PAY THE PURCHASE PRICE IN CASH, CD COMMON STOCK OR A
COMBINATION OF CASH AND CD COMMON STOCK. IN ADDITION, UPON A CHANGE IN CONTROL
OF CENDANT OCCURRING ON OR BEFORE FEBRUARY 13, 2004, HOLDERS MAY REQUIRE US TO
REPURCHASE ALL OR A PORTION OF THEIR CODES.
WE MAY REDEEM ALL OR A PORTION OF THE CODES AT ANY TIME ON OR AFTER
FEBRUARY 13, 2004 AT THE PRICES SET FORTH IN "DESCRIPTION OF THE CODES--OPTIONAL
REDEMPTION BY CENDANT."
SHARES OF OUR CD COMMON STOCK ARE QUOTED ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "CD." THE LAST REPORTED SALE PRICE OF THE SHARES ON JULY 19,
2001 WAS $21.53 PER SHARE.
INVESTING IN THE CODES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5 OF THIS PROSPECTUS.
WE WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THE CODES OR THE
SHARES OF CD COMMON STOCK BY ANY OF THE SELLING SECURITYHOLDERS. THE CODES AND
THE SHARES OF CD COMMON STOCK MAY BE OFFERED IN NEGOTIATED TRANSACTIONS OR
OTHERWISE, AT MARKET PRICES PREVAILING AT THE TIME OF SALE OR AT NEGOTIATED
PRICES. IN ADDITION, THE SHARES OF CD COMMON STOCK MAY BE OFFERED FROM TIME TO
TIME THROUGH ORDINARY BROKERAGE TRANSACTIONS ON THE NEW YORK STOCK EXCHANGE. SEE
"PLAN OF DISTRIBUTION." THE SELLING SECURITYHOLDERS MAY BE DEEMED TO BE
"UNDERWRITERS" AS DEFINED IN THE SECURITIES ACT OF 1933, AS AMENDED. IF THE
SELLING SECURITYHOLDERS USE ANY BROKER-DEALERS, ANY COMMISSION PAID TO BROKER-
DEALERS AND, IF BROKER-DEALERS PURCHASE ANY CODES OR SHARES OF CD COMMON STOCK
AS PRINCIPALS, ANY PROFITS RECEIVED BY SUCH BROKER-DEALERS ON THE RESALE OF THE
CODES OR SHARES OF CD COMMON STOCK MAY BE DEEMED TO BE UNDERWRITING DISCOUNTS OR
COMMISSIONS UNDER THE SECURITIES ACT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 25, 2001.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CENDANT.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CENDANT SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES OTHER THAN THOSE
SPECIFICALLY OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
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TABLE OF CONTENTS
PAGE
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Cautionary Statement Concerning
Forward-looking Statements.......... 3
Risk Factors.......................... 5
Cendant............................... 7
Use of Proceeds....................... 7
Description of the CODES.............. 8
Description of CD Common Stock........ 26
PAGE
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Certain United States Federal Income
Tax Considerations.................. 29
Selling Securityholders............... 34
Plan of Distribution.................. 42
Legal Opinions........................ 44
Experts............................... 44
Where You Can Find More Information... 44
2
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Forward-looking statements in this prospectus about Cendant are subject to
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous important assumptions and
other important factors that could cause actual results to differ materially
from those in the forward-looking statements. Forward-looking statements include
the information concerning our future financial performance, business strategy,
projected plans and objectives.
Statements preceded by, followed by or that otherwise include the words
"believes", "expects", "anticipates", "intends", "project", "estimates",
"plans", "may increase", "may fluctuate" and similar expressions or future or
conditional verbs such as "will", "should", "would", "may" and "could" are
generally forward-looking in nature and not historical acts. You should
understand that the following important factors and assumptions could affect the
future results of Cendant and could cause actual results to differ materially
from those expressed in such forward-looking statements:
- the effect of economic conditions and interest rate changes on the economy
on a national, regional or international basis and the impact thereof on
our businesses;
- the effects of changes in current interest rates, particularly on our real
estate franchise and mortgage businesses;
- the resolution or outcome of our unresolved pending litigation relating to
the previously announced accounting irregularities and other related
litigation;
- our ability to develop and implement operational and financial systems to
manage growing operations and to achieve enhanced earnings or effect cost
savings;
- competition in our existing and potential future lines of business and the
financial resources of, and products available to, competitors;
- our ability to integrate and operate successfully acquired and merged
businesses and risks associated with such businesses, including the
pending acquisition of Galileo International, Inc. and the acquisitions of
Avis Group Holdings Inc. and Fairfield Communities Inc., the compatibility
of the operating systems of the combining companies, and the degree to
which our existing administrative and back-office functions and costs and
those of the acquired companies are complementary or redundant;
- our ability to obtain financing on acceptable terms to finance our growth
strategy and to operate within the limitations imposed by financing
arrangements and rating agencies;
- competitive and pricing pressures in the vacation ownership and travel
industries, including the car rental industry;
- changes in the vehicle manufacturer repurchase arrangements between
vehicle manufacturers and Avis Group Holdings, Inc. in the event that used
vehicle values decrease; and
- changes in laws and regulations, including changes in accounting standards
and privacy policy regulation.
Other factors and assumptions not identified above were also involved in the
derivation of these forward-looking statements, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. Most of these factors are
difficult to predict accurately and are generally beyond our control.
3
You should consider the areas of risk described above in connection with any
forward-looking statements that may be made by us. Except for our ongoing
obligations to disclose material information under the federal securities laws,
we undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any additional disclosures we make in our Quarterly
Reports on Form 10-Q, Annual Report on Form 10-K and Current Reports on Form 8-K
to the SEC. See "Where You Can Find More Information". Also note that we provide
a cautionary discussion of risks and uncertainties under "Risk Factors" on
page 5 of this prospectus. These are factors that we think could cause our
actual results to differ materially from expected results. Other factors besides
those listed here could also adversely affect us. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
4
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO PURCHASE ANY CODES.
WE HAVE HAD ACCOUNTING IRREGULARITIES AND RELATED LITIGATION AND GOVERNMENTAL
INVESTIGATIONS.
Cendant was created in December 1997, through the merger of HFS Incorporated
into CUC International, Inc. with CUC surviving and changing its name to Cendant
Corporation. On April 15, 1998, Cendant announced that in the course of
transferring responsibility for Cendant's accounting functions from Cendant
personnel associated with CUC prior to the merger to Cendant personnel
associated with HFS before the merger and preparing for the report of first
quarter 1998 financial results, Cendant discovered account irregularities in
some of the CUC business units. As a result, Cendant, together with its counsel
and assisted by auditors, immediately began an intensive investigation. As a
result of the findings of the investigations, Cendant restated its previously
reported financial results for 1997, 1996 and 1995 and the six months ended
June 30, 1998.
Following 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, three lawsuits claiming to be brought derivatively
on Cendant's behalf and several individual lawsuits and arbitration proceedings
were commenced in various courts and other forums against Cendant and other
defendants by or on behalf of persons claiming to be stockholders of Cendant and
persons claiming to have purchased or otherwise acquired securities or options
issued by CUC or Cendant between May 1995 and August 1998.
The SEC and the United States Attorney for the District of New Jersey have
conducted investigations relating to the matters referenced above. As a result
of the findings from our internal investigations, we made all adjustments
considered necessary by Cendant, which are reflected in its previously filed
restated financial statements for the years ended December 31, 1997, 1996 and
1995 and for the six months ended June 30, 1998. On June 14, 2000, pursuant to
an offer of settlement made by Cendant, the SEC issued an Order Instituting
Public Administrative Proceedings Pursuant to Section 21C of the Securities
Exchange Act of 1934, Making Findings and Imposing a Cease and Desist Order. In
such Order, the SEC found that we had violated certain financial reporting
provisions of the Exchange Act and ordered us to cease and desist from
committing any future violations of such provisions. No financial penalties were
imposed against us.
On December 7, 1999, we announced that we had reached a preliminary
agreement to settle the principal securities class action pending against
Cendant in the U.S. District Court in Newark, New Jersey, brought on behalf of
purchasers of all Cendant and CUC publicly traded securities, other than PRIDES,
between May 1995 and August 1998. The PRIDES litigation had previously been
settled through the issuance of rights. Under the settlement agreement, we would
pay the class members approximately $2.85 billion in cash and 50% of any
recovery we may obtain in connection with claims we have asserted against CUC's
former public auditor. The definitive settlement document was approved by the
U.S. District Court by order dated August 14, 2000. Certain parties in the class
action have appealed various aspects of the District Court's orders approving
the settlement. The U.S. Court of Appeals for the Third Circuit heard oral
arguments for all appeals on May 22, 2001; the Court reserved its decision. The
settlement agreement required us to post collateral in the form of credit
facilities and/or surety bonds by November 13, 2000, which we have done.
The settlement does not encompass all litigations asserting against us
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 us in relation to our financial position or
liquidity.
5
AN ACTIVE TRADING MARKET FOR CODES MAY NOT DEVELOP.
We cannot assure you that an active trading market for the CODES will
develop or as to the liquidity or sustainability of any such market, the ability
of the holders to sell their CODES or the price at which holders of the CODES
will be able to sell their CODES. Future trading prices of the CODES will depend
on many factors, including, among other things, prevailing interest rates, the
market for similar securities, the price of our common stock, our performance
and other factors.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
IN CONTROL PURCHASE OR THE PURCHASE AT THE OPTION OF THE HOLDER.
On February 13, 2004, February 13, 2009 and February 13, 2014, and upon the
occurrence of a change in control of Cendant occurring on or before February 13,
2004, holders of CODES may require us to purchase their CODES. However, it is
possible that we would not have sufficient funds at that time to make the
required purchase of CODES. In addition, certain important corporate events,
such as leveraged recapitalizations that would increase the level of our
indebtedness, may not constitute a change in control under the indenture. See
"Description of CODES--Purchase of CODES at the Option of Holder" and
"--Repurchase at Option of Holders Upon Change in Control."
OUR HOLDING COMPANY STRUCTURE RESULTS IN STRUCTURAL SUBORDINATION AND MAY AFFECT
OUR ABILITY TO MAKE PAYMENTS ON CODES.
The CODES are obligations exclusively of Cendant. We are a holding company
and, accordingly, substantially all of our operations are conducted through our
subsidiaries. As a result, our cash flow and our ability to service our debt,
including the CODES, depends upon the earnings of our subsidiaries. In addition,
we depend on the distribution of earnings, loans or other payments by our
subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the CODES or to provide us with
funds for our payment obligations, whether by dividends, distributions, loans or
other payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries to us could be subject to statutory or contractual
restrictions. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of the
CODES to participate in those assets, will be effectively subordinated to the
claims of that subsidiary's creditors, including trade creditors. In addition,
even if we were a creditor of any of our subsidiaries, our rights as a creditor
would be subordinate to any security interest in the assets of our subsidiaries
and any indebtedness of our subsidiaries senior to that held by us.
YOU SHOULD CONSIDER THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNING
CODES.
While the proper tax treatment of a holder of CODES is uncertain, we and
each holder have agreed in the indenture to treat the CODES as "contingent debt
instruments." Under this characterization, a holder will be required to accrue
interest on a constant yield to maturity basis at a rate comparable to the rate
at which we would borrow in a noncontingent, nonconvertible borrowing (9.47%),
even though the CODES will have a lower yield to maturity. A holder will
recognize taxable income significantly in excess of cash received while the
CODES are outstanding. In addition, under the indenture, a holder will recognize
ordinary income, if any, upon a sale, exchange, conversion or redemption of the
CODES at a gain. See "Certain United States Federal Income Tax Considerations."
6
CENDANT
Cendant is one of the foremost providers of travel and real estate services
in the world. We were created through the merger of HFS into CUC in December
1997 with the resultant corporation being renamed Cendant Corporation.
We operate in four business segments--Hospitality, Real Estate Services,
Vehicle Services, and Financial Services. Our businesses provide a wide range of
complementary consumer and business services. Our businesses are intended to
complement one another and create cross-marketing opportunities both within each
segment and between segments.
- Our Hospitality segment franchises hotel businesses and facilitates the
sale and exchange of vacation ownership intervals;
- Our Real Estate Services segment franchises real estate brokerage
businesses, provides home buyers with mortgages and assists in employee
relocations;
- Our Vehicle Services segment franchises and operates car rental
businesses, provides fleet management services to corporate clients and
government agencies and operates parking facilities in the United Kingdom;
and
- Our Financial Services segment provides marketing strategies primarily to
financial institutions through offering an array of financial and
insurance-based products to consumers, franchises tax preparation service
businesses and provides consumers with access to a variety of discounted
products and services.
As a franchisor of hotels, residential and commercial real estate brokerage
offices, car rental operations and tax preparation services, we license the
owners and operators of independent businesses the right to use our brand names.
We do not own or operate hotels, real estate brokerage offices or tax
preparation offices. Instead, we provide our franchisees with services designed
to increase their revenue and profitability.
Our principal executive offices are located at 9 West 57th Street, New York,
New York 10019. Our telephone number is (212) 413-1800. Our Web site is
www.cendant.net. The information contained on our Web site is not incorporated
by reference in this prospectus.
All references to "we," "us," "our," or "Cendant" in this prospectus are to
Cendant Corporation.
***
We continually explore and conduct discussions with regards to acquisitions
and other strategic corporate transactions in our industries and in other
franchise, franchisable or service businesses in addition to transactions
previously announced. As part of our regular on-going evaluation of acquisition
opportunities, we currently are engaged in a number of separate, unrelated
preliminary discussions concerning possible acquisitions. The purchase price for
the possible acquisitions may be paid in cash, through the issuance of CD common
stock or of our other securities, borrowings, or a combination thereof. Prior to
consummating any such possible acquisition, we will need to, among other things,
initiate and complete satisfactorily our due diligence investigations; negotiate
the financial and other terms (including price) and conditions of such
acquisitions; obtain appropriate Board of Directors, regulatory and other
necessary consents and approvals; and, if necessary, secure financing. No
assurance can be given with respect to the timing, likelihood or business effect
of any possible transaction. In the past, we have been involved in both
relatively small acquisitions and acquisitions which have been significant.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale by any selling
securityholder of the CODES or the shares of CD common stock issuable upon
conversion of the CODES.
7
DESCRIPTION OF THE CODES
We issued the CODES under an indenture dated as of February 13, 2001,
between us and The Bank of New York, as trustee. The terms of the CODES include
those provided in the indenture and those provided in the registration rights
agreement dated as of February 13, 2001, between us and Lehman Brothers Inc.
The following description is only a summary of the material provisions of
the CODES and the indenture. We urge you to read these documents in their
entirety because they, and not this description, define your rights as holders
of these CODES. You may request copies of these documents at our address set
forth below under "Where You Can Find More Information."
When we refer to Cendant in this section, we refer only to Cendant
Corporation, a Delaware corporation, and not its subsidiaries.
BRIEF DESCRIPTION OF THE CODES
The CODES are:
- limited to $1,479,258,000 aggregate principal amount at maturity;
- general unsecured, unsubordinated obligations, and, as indebtedness of
Cendant, will be effectively subordinated to all indebtedness and
liabilities of our subsidiaries;
- convertible into our CD common stock as described below under "Conversion
Rights;"
- redeemable at our option on or after February 13, 2004 upon the terms and
at the redemption prices set forth below under "--Optional Redemption by
Cendant;"
- subject to repurchase by us at your option upon the terms and at the
repurchase prices set forth below under "--Purchase of CODES at the Option
of the Holder" and "--Repurchase at Option of Holders Upon Change in
Control;" and
- due on February 13, 2021, unless earlier converted, redeemed by us at our
option or repurchased by us at your option.
The CODES were originally offered at a substantial discount from their
principal amount at maturity. See "Certain United States Federal Income Tax
Considerations--Accrual of Interest." Except as described below under "Optional
Conversion to Semiannual Coupon Note Upon Tax Event," we will not make periodic
payments of interest on the CODES, other than contingent interest described
below under "--Contingent Interest." Each CODES was issued at an issue price of
$608.41 per CODES. However, original issue discount will accrue on the CODES
while they remain outstanding. Original issue discount is the difference between
the issue price and the principal amount at maturity of a CODES. Original issue
discount will accrue at a rate of 2.50% per annum from the date of issuance.
Original issue discount will be calculated on a semi-annual bond equivalent
basis, using a 360-day year composed of twelve 30-day months. The issue date of
the CODES and the commencement of accrual of original discount was February 13,
2001.
Original issue discount will cease to accrue on a CODES upon its maturity,
conversion, purchase by us at the option of a holder or redemption. We may not
reissue a CODES that has matured or been converted, purchased by us at the
option of a holder, redeemed or otherwise cancelled.
The CODES will be debt instruments treated as contingent payment debt
instruments for United States federal income tax purposes and were issued with
original issue discount for United States federal income tax purposes. Even if
we do not pay any cash interest (including any contingent interest) on the
CODES, holders will be required to include accrued tax original issue discount
in their gross income for United States federal income tax purposes. The rate at
which the tax original issue discount
8
will accrue will exceed the yield of 2.50% for the accrued original issue
discount described above. See "Certain United States Federal Income Tax
Considerations."
The indenture does not contain any financial covenants and does not restrict
us from paying dividends, incurring additional indebtedness or issuing or
repurchasing our other securities. The indenture also does not protect holders
in the event of a highly leveraged transaction or a change in control of Cendant
except to the extent described below under "--Repurchase at Option of Holders
Upon Change in Control." The CODES are not subject to legal or covenant
defeasance.
For information regarding conversion, registration of transfer and exchange
of global CODES, see "--Form, Denomination and Registration."
CONVERSION RIGHTS
Holders may convert any outstanding CODES (or portions of outstanding CODES)
into our CD common stock at a conversion rate of 33.40 shares per $1,000
principal amount at maturity of CODES. The conversion price is, however, subject
to adjustment as described below. We will not issue fractional shares of CD
common stock upon conversion of CODES. Instead, we will pay a cash adjustment
based upon the closing sale price of our CD common stock on the trading day
immediately preceding the conversion date. A holder may convert CODES only in
denominations of $1,000 and whole multiples of $1,000.
GENERAL
Holders may surrender CODES for conversion into our CD common stock prior to
stated maturity if any of the following conditions is satisfied:
- during any conversion period if the closing sale price of our CD common
stock for at least 20 trading days in the 30 trading day period ending on
the first day of such conversion period is more than 110% of the accreted
conversion price per CODES at that thirtieth trading day;
- if we have called the CODES for redemption;
- during such period, if any, that the credit rating assigned to the CODES
by both Moody's and Standard & Poor's is below a specified level, or if
neither rating agency is rating the CODES; and
- upon the occurrence of specified corporate transactions.
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITION
A holder may surrender any of its CODES for conversion into our CD common
stock during any conversion period if the closing sale price of our CD common
stock on the principal national securities exchange on which the CD common stock
is listed, for at least 20 trading days in the 30 trading day period ending on
the first day of such conversion period, exceeds 110% of the accreted conversion
price per CODES with a $1,000 principal amount at maturity on that thirtieth
day. The accreted conversion price per CODES with a $1,000 principal amount at
maturity as of any day equals the quotient of the issue price of a CODES plus
the accrued original issue discount for such CODES, divided by the number of
shares of CD common stock issuable upon conversion of the CODES on that day. A
conversion period will be the period from and including the thirtieth trading
day in a fiscal quarter to but not including the thirtieth trading day in the
immediately following fiscal quarter.
The conversion agent, which is The Bank of New York, will, on our behalf,
determine daily if the CODES are convertible as a result of the market price of
our common shares and notify us and the trustee.
9
CONVERSION UPON CREDIT RATING EVENT
A holder may surrender any of its CODES for conversion during any period in
which the credit rating assigned to the CODES by both Moody's and Standard &
Poor's is below Baa3 or BBB-, respectively, if the credit rating assigned to the
CODES is suspended or withdrawn by both such rating agencies or if neither
rating agency is rating the CODES.
CONVERSION UPON NOTICE OF REDEMPTION
A holder may surrender for conversion any CODES called for redemption at any
time prior to the close of business on the day that is two business days prior
to the redemption date, even if it is not otherwise convertible at such time. If
a holder has already delivered a purchase notice or a change in control purchase
notice with respect to a CODES, however, the holder may not surrender that CODES
for conversion until the holder has withdrawn the notice in accordance with the
indenture.
CONVERSION UPON SPECIFIED CORPORATE TRANSACTIONS
Even if the market price condition described above has not occurred, if we
elect to:
- distribute to all holders of CD common stock certain rights entitling them
to purchase, for a period expiring within 60 days, CD common stock at less
than the quoted price at the time, or
- distribute to all holders of our CD common stock our assets, debt
securities or certain rights to purchase our securities, which
distribution has a per share value exceeding 10% of the closing price of
the CD common stock on the day preceding the declaration date for such
distribution, except in relation to any distribution of assets, debt
securities or rights to purchase securities of Cendant Membership
Services, Inc. or successor to Cendant Membership Services Inc.'s
business,
we must notify the holders of CODES at least 20 days prior to the ex-dividend
date for such distribution. Once we have given such notice, holders may
surrender their CODES for conversion at any time until the earlier of close of
business on the business day prior to the ex-dividend date or our announcement
that such distribution will not take place. No adjustment to the ability of a
holder to convert will be made if the holder will otherwise participate in the
distribution without conversion.
In addition, if we are party to a consolidation, merger or binding share
exchange pursuant to which our CD common stock would be converted into cash,
securities or other property, a holder may surrender CODES for conversion at any
time from and after the date which is 15 days prior to the anticipated effective
date of the transaction until 15 days after the actual date of such transaction.
If we are a party to a consolidation, merger or binding share exchange pursuant
to which our CD common stock are converted into cash, securities or other
property, then at the effective time of the transaction, the right to convert a
CODES into CD common stock will be changed into a right to convert it into the
kind and amount of cash, securities or other property which the holder would
have received if the holder had converted its CODES immediately prior to the
transaction. If the transaction also constitutes a "change in control," as
defined below, the holder can require us to purchase all or a portion of its
CODES as described under "--Repurchase at Option of Holders Upon Change in
Control."
The accreted conversion price per CODES as of any day will equal the sum of
the issue price of a CODES plus the accrued original issue discount for such
CODES, with that sum divided by the number of shares of CD common stock issuable
upon a conversion of a CODES on that day.
The conversion agent will on our behalf determine at the end of each quarter
if the CODES are convertible and notify us and the trustee.
10
On conversion of a CODES, a holder will not receive any cash payment of
interest representing accrued original issue discount. By delivering to the
holder the number of shares of CD common stock issuable upon conversion,
together with a cash payment, if any, in lieu of fractional shares, we will
satisfy our obligation with respect to the CODES. That is, accrued but unpaid
interest, if any, will be deemed to be paid in full rather than canceled,
extinguished or forfeited.
You will not be required to pay any transfer taxes or duties relating to the
issuance or delivery of our CD common stock if you exercise your conversion
rights, but you will be required to pay any transfer taxes or duties which may
be payable relating to any transfer involved in the issuance or delivery of CD
common stock in a name other than yours. Certificates representing shares of CD
common stock will be issued or delivered only after all applicable transfer
taxes and duties, if any, payable by you have been paid.
To convert a global CODES, you must deliver to The Depositary Trust Company,
or DTC, the appropriate instruction form for conversion pursuant to DTC's
conversion program. To convert a definitive CODES, you must:
- complete the conversion notice on the back of the CODES (or a facsimile
thereof);
- deliver the completed conversion notice and the CODES to be converted to
the specified office of the conversion agent;
- pay all funds required, if any, relating to interest on the CODES to be
converted to which you are not entitled; and
- pay all transfer taxes or duties, if any, as described in the preceding
paragraph.
The conversion date will be the date on which all of the foregoing requirements
have been satisfied. The CODES will be deemed to have been converted immediately
prior to the close of business on the conversion date. A certificate for the
number of shares of CD common stock into which the CODES are converted (and cash
in lieu of any fractional shares) will be delivered as soon as practicable on or
after the conversion date.
The conversion rate will not be adjusted for accrued original issue
discount. We will adjust the initial conversion rate for:
- dividends or distributions on shares of our CD common stock payable in
shares of CD common stock or other capital stock of Cendant;
- subdivisions, combinations or certain reclassifications of our shares of
CD common stock;
- distributions to all holders of shares of CD common stock of certain
rights to purchase shares of CD common stock for a period expiring within
60 days at less than the market price at the time; and
- distributions to all holders of shares of CD common stock of our assets or
debt securities or certain rights to purchase our securities (excluding
cash dividends or other cash distributions from current or retained
earnings unless the annualized amount thereof per share exceeds 10% of the
closing price of the shares of CD common stock on the day preceding the
date of declaration of such dividend or other distribution).
However, no adjustment need be made if holders may participate in the
transaction or in certain other cases. In cases where the fair market value of
assets, debt securities or certain rights, warrants or options to purchase our
securities, applicable to one share of CD common stock, distributed to
stockholders
- equals or exceeds the average quoted price of the CD common stock, or
11
- such average quoted price exceeds the fair market value of such assets,
debt securities or rights, warrants or options so distributed by less than
$1.00,
rather than being entitled to an adjustment in the conversion rate, the holder
of a CODES will be entitled to receive upon conversion, in addition to the
shares of CD common stock, the kind and amount of assets, debt securities or
rights, warrants or options comprising the distribution that such holder would
have received if such holder had converted such CODES immediately prior to the
record date for determining the shareholders entitled to receive the
distribution.
In the event that we distribute shares of capital stock of a subsidiary of
ours, the conversion rate will be adjusted, if at all, based on the market value
of the subsidiary stock so distributed relative to the market value of our CD
common stock, in each case over a measurement period following the distribution.
In the event we elect to make a distribution described in the third or
fourth bullet of the third preceding paragraph above which, in the case of the
fourth bullet, has a per share value equal to more than 10% of the sale price of
our shares of CD common stock on the day preceding the declaration date for such
distribution, except in relation to any distribution of assets, debt securities
or rights to purchase securities of Cendant Membership Services, Inc. or any
successor to Cendant Membership Services Inc.'s business, we will be required to
give notice to the holders of CODES at least 20 days prior to the ex-dividend
date for such distribution and, upon the giving of such notice, the CODES may be
surrendered for conversion at any time until the close of business on the
business day prior to the ex-dividend date or until we announce that such
distribution will not take place. No adjustment to the conversion rate or the
ability of a holder of a CODES to convert will be made if the holder will
otherwise participate in the distribution without conversion or in certain other
cases.
The indenture permits us to increase the conversion rate from time to time.
In the event of:
- a taxable distribution to holders of shares of our CD common stock which
results in an adjustment of the conversion rate; or
- an increase in the conversion rate at our discretion,
the holders of the CODES may, in certain circumstances, be deemed to have
received a distribution subject to federal income tax as a dividend. See
"Certain United States Federal Income Tax Considerations--Constructive
Dividends."
If we exercise our option to have interest instead of original issue
discount accrue on the CODES following a Tax Event, or if contingent interest is
payable, the holder will be entitled on conversion to receive the same number of
shares of CD common stock the holder would have received if we had not exercised
such option. If we exercise this option, CODES surrendered for conversion by a
holder during the period from the close of business on any regular record date
to the opening of business on the next interest payment date, unless such CODES
have been called for redemption, must be accompanied by payment of an amount
equal to the interest that the registered holder is to receive on the CODES.
Except where CODES are surrendered for conversion after a record date as
described above, we will not pay interest on converted CODES on any interest
payment date subsequent to the date of conversion. See "--Optional Conversion to
Semi-annual Coupon Note Upon Tax Event."
CONTINGENT INTEREST
Subject to the accrual and record date provisions described below, we will
pay contingent interest to the holders of CODES during any six-month period from
February 13 to August 12 and from August 13 to February 12, commencing February
13, 2004, if the average market price of a CODES for the five trading days
ending on the second trading day immediately preceding the relevant six-month
12
period equals 120% or more of the sum of the issue price and accrued original
issue discount for such CODES to the day immediately preceding the relevant
six-month period. See "--Optional Redemption by Cendant" for some of these
values.
The amount of contingent interest payable per CODES in respect of any
six-month period will equal 2% of our estimated borrowing rate for senior
non-convertible fixed-rate indebtedness with a maturity date comparable to the
CODES (but in no case more than 0.25%) multiplied by the sum of the issue price
and the accrued original issue discount as of the day immediately preceding the
relevant six-month period.
Contingent interest, if any, will accrue and be payable to holders of CODES
as of the fifteenth day preceding the last day of the relevant six-month period.
Such payments will be paid on the last day of the relevant six-month period.
The original issue discount will continue to accrue at the yield to maturity
whether or not contingent interest is paid.
The market price of a CODES on any date of determination means the average
of the secondary market bid quotations per CODES obtained by the bid
solicitation agent for $10 million principal amount at maturity of CODES at
approximately 4:00 p.m., New York City time, on such determination date from two
unaffiliated securities dealers we select, provided that if:
- at least two such bids are not obtained by the bid solicitation agent, or
- in our reasonable judgment, the bid quotations are not indicative of the
secondary market value of the CODES,
then the market price of the CODES will equal (a) the then applicable conversion
rate of the CODES multiplied by (b) the average closing price of our CD common
stock on the five trading days ending on such determination date, appropriately
adjusted.
The bid solicitation agent is currently The Bank of New York. We may change
the bid solicitation agent, but the bid solicitation agent will not be our
affiliate. The bid solicitation agent will solicit bids from securities dealers
that are believed by us to be willing to bid for the CODES.
Upon determination that CODES holders will be entitled to receive contingent
interest which may become payable during a relevant six-month period, on or
prior to the start of such six-month period, we will issue a press release and
publish such information on our Web site.
In the event contingent interest is payable, we will not pay interest
accrued and unpaid on any CODES that is converted into our CD common stock,
except under certain limited circumstances. See "--Conversion Rights." If a
holder of CODES converts after a record date for an interest payment but prior
to the corresponding interest payment date, it will receive on the interest
payment date contingent interest accrued and paid on such CODES, notwithstanding
the conversion of such CODES prior to such interest payment date, because such
holder will have been the holder of record on the corresponding record date.
However, at the time such holder surrenders such CODES for conversion, it must
pay us an amount equal to the contingent interest that has accrued and will be
paid on the interest payment date. The preceding sentence does not apply,
however, to a holder that converts, after a record date for an interest payment
but prior to the corresponding interest payment date, CODES that are called by
us for redemption. Accordingly, if we redeem CODES on a date after a record date
for an interest payment but prior to the corresponding contingent interest
payment date, and prior to the redemption date the holder of such CODES chooses
to convert such CODES, the holder will not be required to pay us, at the time it
surrenders such CODES for conversion, the amount of interest on such CODES it
will receive on the interest payment date.
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We will not pay contingent interest, if any, to a person other than the
holder of record on the record date if we redeem the CODES on a date that is
after the record date and prior to the corresponding interest payment date. In
this instance, we will pay interest accrued and unpaid on the CODES being
redeemed to but not including the redemption date to the same person to whom we
will pay the principal of such CODES.
Except as provided below, we will pay contingent interest on:
- the global CODES to DTC in immediately available funds;
- definitive CODES having an aggregate principal amount of $5,000,000 or
less by check mailed to the holders of these CODES; and
- definitive CODES having an aggregate principal amount of more than
$5,000,000 by wire transfer in immediately available funds at the election
of the holders of these CODES.
Contingent interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
OPTIONAL REDEMPTION BY CENDANT
No sinking fund is provided for the CODES. Prior to February 13, 2004, the
CODES will not be redeemable at our option. Beginning on February 13, 2004, we
may redeem the CODES for cash as a whole at any time, or from time to time in
part. We will give not less than 15 days nor more than 60 days notice of
redemption by mail to holders of CODES. CODES or portions of CODES called for
redemption will be convertible by the holder until the close of business on the
second business day prior to the redemption date.
14
The table below shows redemption prices of a CODES on February 13, 2004, at
each February 13th thereafter prior to maturity and the price at maturity on
February 13, 2021. These prices reflect the issue price plus accrued original
issue discount to the redemption date or to maturity. The redemption price of a
CODES redeemed between such dates would include an additional amount reflecting
the additional discount accreted since the next preceding date in the table. In
addition to the amounts indicated below, the redemption price will include
accrued contingent interest, if any.
CODES ISSUE ACCRUED ORIGINAL REDEMPTION
REDEMPTION DATE PRICE ISSUE DISCOUNT PRICE
--------------- ----------- ---------------- ----------
February 13:
2004.................................. $608.41 $ 47.08 $ 655.49
2005.................................. 608.41 63.57 671.98
2006.................................. 608.41 80.48 688.89
2007.................................. 608.41 97.81 706.22
2008.................................. 608.41 115.57 723.98
2009.................................. 608.41 133.79 742.20
2010.................................. 608.41 152.46 760.87
2011.................................. 608.41 171.60 780.01
2012.................................. 608.41 191.22 799.63
2013.................................. 608.41 211.34 819.75
2014.................................. 608.41 231.96 840.37
2015.................................. 608.41 253.10 861.51
2016.................................. 608.41 274.77 883.18
2017.................................. 608.41 296.99 905.40
2018.................................. 608.41 319.76 928.17
2019.................................. 608.41 343.11 951.52
2020.................................. 608.41 367.05 975.46
At stated maturity.................... 608.41 391.59 1,000.00
If converted to semi-annual coupon notes following the occurrence of a Tax
Event, the CODES will be redeemable at the restated principal amount plus
accrued and unpaid interest from the date of conversion through the conversion
date. However, in no event may the CODES be redeemed prior to February 13, 2004.
See "Optional Conversion to Semiannual Coupon Note Upon Tax Event."
If we redeem less than all of the outstanding CODES, the trustee shall
select the CODES to be redeemed on a pro rata basis in principal amounts at
maturity of $1,000 or integral multiples of $1,000. If a portion of a holder's
CODES is selected for partial redemption and the holder converts a portion of
the CODES, the converted portion shall be deemed to be the portion selected for
redemption.
PURCHASE OF CODES AT THE OPTION OF HOLDER
On February 13, 2004, February 13, 2009 and February 13, 2014, holders may
require us to purchase any outstanding CODES for which the holder has properly
delivered and not withdrawn a written purchase notice, subject to certain
additional conditions. Holders may submit their CODES for purchase to the paying
agent at any time from the opening of business on the date that is 20 business
days prior to the purchase date until the close of business on the third
business day prior to the purchase date.
The purchase price of a CODES will be:
- $655.49 per CODES on February 13, 2004,
- $742.20 per CODES on February 13, 2009, and
- $840.37 per CODES on February 13, 2014.
15
The purchase prices shown above are equal to the issue price plus accrued
original issue discount to the purchase date. If prior to a purchase date the
CODES have been converted to semi-annual coupon CODES following the occurrence
of a Tax Event, the purchase price will be equal to the restated principal
amount plus accrued and unpaid interest from the date of the conversion to the
purchase date. See "Optional Conversion to Semi-annual Coupon Note Upon Tax
Event."
We may, at our option, elect to pay the purchase price in cash or shares of
our CD common stock or any combination thereof. For a discussion of the tax
treatment of a holder receiving cash, CD common stock or any combination
thereof, see "Certain United States Federal Income Tax Considerations."
We will be required to give notice on a date not less than 20 business days
prior to each purchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
- whether we will pay the purchase price of CODES in cash or CD common stock
or any combination thereof, specifying the percentages of each;
- if we elect to pay in common stock, the method of calculating the market
price of our CD common stock; and
- the procedures that holders must follow to require us to purchase their
CODES as described below.
The purchase notice given by each holder electing to require us to purchase
CODES shall be given so as to be received by the paying agent no later than the
close of business on the third business day prior to the purchase date and must
state:
- the certificate numbers of the holder's CODES to be delivered for
purchase;
- the portion of the principal amount at maturity of CODES to be purchased,
which must be $1,000 or an integral multiple of $1,000;
- that the CODES are to be purchased by us pursuant to the applicable
provisions of the CODES; and
- in the event we elect, pursuant to the notice that we are required to
give, to pay the purchase price in CD common stock, in whole or in part,
but the purchase price is ultimately to be paid to the holder entirely in
cash because any of the conditions to payment of the purchase price or
portion of the purchase price in CD common stock is not satisfied prior to
the close of business on the purchase date, as described below, whether
the holder elects:
(i) to withdraw the purchase notice as to some or all of the CODES to
which it relates; or
(ii) to receive cash in such event in respect of the entire purchase
price for all CODES or portions of CODES subject to such
purchase notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder shall be deemed
to have elected to receive cash in respect of the entire purchase price for all
CODES subject to the purchase notice in these circumstances.
A holder may withdraw any purchase notice by delivering a written notice of
withdrawal to the paying agent prior to the close of business on the purchase
date. The notice of withdrawal shall state:
- the principal amount at maturity being withdrawn;
- the certificate numbers of the CODES being withdrawn; and
- the principal amount at maturity, if any, of the CODES that remain subject
to the purchase notice.
16
If we elect to pay the purchase price, in whole or in part, in shares of our
CD common stock, the number of shares of CD common stock to be delivered by us
shall be equal to the portion of the purchase price to be paid in our CD common
stock divided by the market price of a share of our CD common stock. The "market
price" of our CD common stock means the average of the sale prices of our CD
common stock for the five trading day period ending on the third business day
prior to the applicable purchase date. If the third business day prior to the
applicable purchase date is not a trading day, the five day trading period will
end on the last trading day prior to such third business day. We will adjust the
market price to take into account the occurrence, during the period commencing
on the first of such trading days during such five trading day period and ending
on such purchase date, of certain events that would result in an adjustment of
the conversion rate with respect to our CD common stock.
The "sale price" of our CD common stock on any date means the closing per
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which our CD
common stock is traded or, if our CD common stock is not listed on a United
States national or regional securities exchange, as reported by Nasdaq.
Because the market price of our CD common stock is determined prior to the
applicable purchase date, holders of CODES bear the market risk with respect to
the value of our CD common stock to be received from the date such market price
is determined to such purchase date. We may pay the purchase price or any
portion of the purchase price in shares of our CD common stock only if the
information necessary to calculate the market price is published in a daily
newspaper of national circulation.
In addition to the above conditions, our right to purchase CODES, in whole
or in part, with common stock is subject to our satisfying various conditions,
including:
- listing such CD common stock on the principal United States securities
exchange on which our CD common stock is then listed;
- the registration of our CD common stock under the Securities Act and the
Exchange Act, if required; and
- any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such qualification
and registration.
If these conditions are not satisfied with respect to a holder prior to the
close of business on the purchase date, we will pay the purchase price of the
CODES of the holder entirely in cash. See "Certain United States Federal Income
Tax Considerations." We may not change the form or components or percentages of
components of consideration to be paid for the CODES once we have given the
notice that we are required to give to holders of CODES, except as described in
the first sentence of this paragraph.
In connection with any purchase offer, we will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
- file Schedule TO or any other required schedule under the Exchange Act.
Our obligation to pay the purchase price for a CODES for which a purchase
notice has been delivered and not validly withdrawn is conditioned upon the
holder delivering the CODES, together with necessary endorsements, to the paying
agent at any time after delivery of the purchase notice. We
17
will cause the purchase price for the CODES to be paid promptly following the
later of the purchase date or the time of delivery of the CODES.
If the paying agent holds money or securities sufficient to pay the purchase
price of the CODES on the business day following the purchase date in accordance
with the terms of the indenture, then, immediately after the purchase date, the
CODES will cease to be outstanding and original issue discount on such CODES
will cease to accrue, whether or not the CODES is delivered to the paying agent.
Thereafter, all other rights of the holder shall terminate, other than the right
to receive the purchase price upon delivery of the CODES.
Our ability to purchase CODES with cash may be limited by the terms of our
then existing borrowing agreements.
We may not purchase any CODES at the option of holders if an event of
default with respect to the CODES has occurred and is continuing, other than a
default in the payment of the purchase price with respect to such CODES.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL
In the event of a change in control occurring on or prior to February 13,
2004, each holder will have the right, at the holder's option, subject to the
terms and conditions of the indenture, to require us to purchase for cash all or
any portion of the holder's CODES in integral multiples of $1,000 principal
amount at maturity, at a price for each $1,000 principal amount at maturity of
such CODES equal to the issue price plus accrued original issue discount to the
purchase date. We will be required to purchase the CODES no later than 35
business days after the occurrence of such change in control. We refer to this
date in this prospectus as the "change in control purchase date."
If prior to a change in control purchase date the CODES have been converted
to semiannual coupon CODES following the occurrence of a Tax Event, we will be
required to purchase the CODES at a cash price equal to the restated principal
amount plus accrued and unpaid interest from the date of the conversion to the
change in control purchase date.
Within 15 business days after the occurrence of a change in control, we must
mail to the trustee and to all holders of CODES at their addresses shown in the
register of the registrar and to beneficial owners as required by applicable law
a notice regarding the change in control, which notice must state, among other
things:
- the events causing a change in control;
- the date of such change in control;
- the last date on which a holder may exercise the purchase right;
- the change in control purchase price;
- the change in control purchase date;
- the name and address of the paying agent and the conversion agent;
- the conversion rate and any adjustments to the conversion rate;
- that CODES with respect to which a change in control purchase notice is
given by the holder may be converted, if otherwise convertible, only if
the change in control purchase notice has been withdrawn in accordance
with the terms of the indenture; and
- the procedures that holders must follow to exercise these rights.
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To exercise this right, the holder must deliver a written notice so as to be
received by the paying agent no later than the close of business on the third
business day prior to the change in control purchase date. The required purchase
notice upon a change in control must state:
- the certificate numbers of the CODES to be delivered by the holder;
- the portion of the principal amount at maturity of CODES to be purchased,
which portion must be $1,000 or an integral multiple of $1,000; and
- that we are to purchase such CODES pursuant to the applicable provisions
of the CODES.
A holder may withdraw any change in control purchase notice by delivering to
the paying agent a written notice of withdrawal prior to the close of business
on the change in control purchase date. The notice of withdrawal must state:
- the principal amount at maturity of the CODES being withdrawn;
- the certificate numbers of the CODES being withdrawn; and
- the principal amount at maturity, if any, of the CODES that remain subject
to a change in control purchase notice.
Our obligation to pay the change in control purchase price for a CODES for
which a change in control purchase notice has been delivered and not validly
withdrawn is conditioned upon delivery of the CODES, together with necessary
endorsements, to the paying agent at any time after the delivery of such change
in control purchase notice. We will cause the change in control purchase price
for such CODES to be paid in cash promptly following the later of the change in
control purchase date or the time of delivery of such CODES.
If the paying agent holds money sufficient to pay the change in control
purchase price of the CODES on the business day following the change in control
purchase date in accordance with the terms of the indenture, then, immediately
after the change in control purchase date, original issue discount on such CODES
will cease to accrue, whether or not the CODES is delivered to the paying agent,
and all other rights of the holder shall terminate, other than the right to
receive the change in control purchase price upon delivery of the CODES.
Under the indenture, a "change in control" of Cendant is deemed to have
occurred at such time as:
- any person, including its affiliates and associates, other than us, our
subsidiaries or their employee benefit plans, files a Schedule TO (or any
successor schedule, form or report under the Exchange Act) disclosing that
such person has become the direct or indirect beneficial owner of 50% or
more of the voting power of our common stock or other capital stock into
which our common stock is reclassified or changed, with certain
exceptions; or
- there shall be consummated any share exchange, consolidation or merger of
Cendant pursuant to which the shares of CD common stock would be converted
into cash, securities or other property, in each case other than a share
exchange, consolidation or merger of Cendant in which the holders of the
CD common stock immediately prior to the share exchange, consolidation or
merger of Cendant have, directly or indirectly, at least a majority of the
total voting power in the aggregate of all classes of capital stock of the
continuing or surviving corporation immediately after the share exchange,
consolidation or merger.
The indenture does not permit our board of directors to waive our obligation
to purchase CODES at the option of holders in the event of a change in control.
19
In connection with any purchase offer in the event of a change in control,
we will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable; and
- file Schedule TO or any other required schedule under the Exchange Act.
The change in control purchase feature of the CODES may in certain
circumstances make more difficult or discourage a takeover of Cendant. The
change in control purchase feature, however, is not the result of our knowledge
of any specific effort:
- to accumulate shares of our common stock;
- to obtain control of Cendant by means of a merger, tender offer,
solicitation or otherwise; or
- part of a plan by management to adopt a series of anti-takeover
provisions.
Instead, the change in control purchase feature is a standard term contained
in securities similar to the CODES.
Our ability to purchase CODES with cash may be limited by the terms of our
then existing borrowing agreements.
We could, in the future, enter into certain transactions, including certain
recapitalizations, that would not constitute a change in control with respect to
the change in control purchase feature of the CODES but that would increase the
amount of our (or our subsidiaries') outstanding indebtedness.
We may not purchase CODES at the option of holders upon a change in control
if there has occurred and is continuing an event of default with respect to the
CODES, other than a default in the payment of the change in control purchase
price with respect to the CODES.
OPTIONAL CONVERSION TO SEMIANNUAL COUPON NOTE UPON TAX EVENT
From and after the date of the occurrence of a Tax Event, we will have the
option to elect to have interest in lieu of future original issue discount
accrue at 2.50% per year on a principal amount per CODES (the "restated
principal amount") equal to the issue price plus original issue discount accrued
to the date of the Tax Event or the date on which we exercise the option
described herein, whichever is later (the "option exercise date"). Except as
otherwise described in this section, the other terms of the CODES will remain
unchanged in all material respects.
Such interest shall accrue from the option exercise date and will be payable
semiannually on the interest payment dates of February 13 and August 13 of each
year to holders of record at the close of business on February 1 or August 1
immediately preceding the interest payment date. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Interest will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the option exercise date. In the event that we
exercise our option to pay interest, the redemption price, purchase price and
change in control purchase price on the CODES will be adjusted. However, there
will be no change in the holder's conversion rights.
A "Tax Event" means that Cendant shall have received an opinion from
independent tax counsel experienced in such matters to the effect that, on or
after February 8, 2001, as a result of:
- any amendment to, or change (including any announced prospective change)
in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or
- any amendment to, or change in, an interpretation or application of such
laws or regulations by any legislative body, court, governmental agency or
regulatory authority,
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in each case which amendment or change is enacted, promulgated, issued or
announced or which interpretation is issued or announced or which action is
taken, on or after February 8, 2001 there is more than an insubstantial risk
that interest (including original issue discount and contingent interest, if
any) payable on the CODES either:
- would not be deductible on a current accrual basis, or
- would not be deductible under any other method,
in either case, in whole or in part, by us (by reason of deferral, disallowance,
or otherwise) for United States federal income tax purposes.
The modification of the terms of CODES by us upon a Tax Event as described
above could possibly alter the timing of income recognition by holders of the
CODES with respect to the semiannual payments of interest due on the CODES after
the option exercise date. See "Certain United States Federal Income Tax
Considerations."
MERGER AND SALES OF ASSETS
The indenture provides that Cendant may not consolidate with or merge into
any other person or convey, transfer or lease its properties and assets
substantially as an entirety to another person unless, among other things,
- the resulting, surviving or transferee person is organized and existing
under the laws of the United States, any state thereof or the District of
Columbia;
- such person assumes all obligations of Cendant under the CODES and the
indenture; and
- Cendant or such successor is not then or immediately thereafter in default
under the indenture.
The occurrence of certain of the foregoing transactions could constitute a
change of control.
EVENTS OF DEFAULT
Each of the following constitutes an event of default under the indenture:
- default in the payment of the redemption price or purchase price
(including change in control purchase price);
- default in the payment of any contingent interest, liquidated damages or,
if the CODES have been converted to semiannual coupon notes following a
Tax Event, accrued and unpaid interest, in each case, when due and
payable, and continuance of such default for a period of 30 days;
- default in the performance of or breach of any other of our covenants or
agreements in the indenture or under the CODES (other than a default
specified above) following notice of such default by the trustee or the
holders of 25% or more in aggregate principal amount at maturity of the
CODES and such default or breach continues for a period of 60 consecutive
days after receipt by Cendant of such notice;
- there occurs with respect to any obligations for borrowed money or
evidenced by bonds, debentures, notes or similar instruments
("Indebtedness") of Cendant or certain subsidiaries of Cendant having an
outstanding principal amount of $50.0 million or more in the aggregate for
all such issues, whether such Indebtedness now exists or shall hereafter
be created,
(i) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its stated maturity and
such Indebtedness has not been discharged in full or such acceleration
has not been rescinded or annulled by the thirtieth day
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following notice of such default by the trustee or the holders of 25% or
more in aggregate principal amount at maturity of the CODES; and/or
(ii) the failure to make a principal payment at the final (but not
any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended by the thirtieth day following notice of
such default by the trustee or the holders of 25% or more in aggregate
principal amount at maturity of the CODES;
- certain events of bankruptcy or insolvency affecting Cendant.
If an event of default specified in the last two bullet points above occurs
and is continuing, then automatically the issue price plus the original issue
discount on the CODES, accrued through the date of such event, and any accrued
and unpaid contingent interest through such date shall become immediately due
and payable. If any other event of default shall occur and be continuing, (the
default not having been cured or waived as provided under "Modification and
Waiver" below), the trustee or the holders of at least 25% in aggregate
principal amount at maturity of the CODES then outstanding may declare the issue
price plus the original issue discount on the CODES accrued through the date of
such declaration, and any accrued and unpaid contingent interest through such
date, due and payable. Upon any such accelerations the trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of CODES by
appropriate judicial proceedings. Such declaration may be rescinded or annulled
either with the written consent of the holders of a majority in aggregate
principal amount of the CODES then outstanding upon the conditions provided in
the indenture. In the event of a declaration of acceleration because an event of
default set forth in the fourth bullet point above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the Indebtedness that is the subject of such event of default
has been discharged or the holders thereof have rescinded their declaration of
acceleration in respect of such Indebtedness, and written notice of such
discharge or rescission, as the case may be.
We are required to furnish annually to the trustee a statement as to the
fulfillment of our obligations under the indenture.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting will apply to payments of interest or dividends, if
any, made by us on, or the proceeds of the sale or other disposition of, the
CODES or shares of CD common stock with respect to certain noncorporate holders,
and backup withholding at a rate of 31% may apply unless the recipient of such
payment supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other information or otherwise establishes an
exemption from backup withholding. Any amount withheld under the backup
withholding rules will be allowable as a credit against the holder's federal
income tax, provided that the required information is provided to the Internal
Revenue Service.
MODIFICATION AND WAIVER
The indenture (including the terms and conditions of the CODES) may be
modified or amended by us and the trustee, without the consent of the holder of
any CODES, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of CODES;
- surrendering any right or power conferred upon us;
- providing for the assumption of our obligations to the holders of CODES in
the case of a permitted merger, consolidation, conveyance, transfer or
lease;
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- complying with the requirements of the SEC in connection with the
registration of the CODES under the Securities Act and the qualification
of the indenture under the Trust Indenture Act, provided that such
modification or amendment does not, in the good faith opinion of our board
of directors and the trustee, adversely affect the interests of the
holders of CODES in any material respect; and
- curing any ambiguity or correcting or supplementing any defective
provision contained in the indenture; provided that such modification or
amendment does not, in the good faith opinion of our board of directors
and the trustee, adversely affect the interests of the holders of CODES in
any material respect.
Modifications and amendments to the indenture or to the terms and conditions
of the CODES may also be made, and past defaults by us may be waived, with the
written consent of the holders of at least a majority in aggregate principal
amount at maturity of the CODES at the time outstanding.
However, no such modification, amendment or waiver may, without the written
consent or the affirmative vote of the holder of each CODES so affected:
- change the stated maturity of any CODES;
- reduce the principal amount at maturity, issue price, redemption price or
purchase price (including change in control purchase price) on any CODES;
- change the currency of payment of such CODES or interest thereon;
- alter the manner of calculation or rate of accrual of original issue
discount or interest (including contingent interest) on any CODES or
extend the time of payment of any such amount;
- except as otherwise permitted or contemplated by provisions concerning
corporate reorganizations, adversely affect the repurchase option of
holders, or adversely affect the conversion rights of holders of the
CODES;
- reduce the percentage in aggregate principal amount at maturity of CODES
outstanding necessary to modify or amend the indenture or to waive any
past default; or
- impair the right to institute suit for the enforcement of any payment with
respect to, or conversion of, any CODES.
GOVERNING LAW
The indenture and the CODES will be governed by, and construed in accordance
with, the law of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
The Bank of New York, as trustee under the indenture, has been appointed by
us as paying agent, conversion agent, registrar and custodian with regard to the
CODES. Mellon Investor Services is the transfer agent and registrar for our CD
common stock. The trustee or its affiliates may from time to time in the future
provide banking and other services to us in the ordinary course of their
business.
FORM, DENOMINATION AND REGISTRATION
DENOMINATION AND REGISTRATION. The CODES are issued in fully registered
form, without coupons, in denominations of $1,000 principal amount at maturity
and whole multiples of $1,000.
GLOBAL CODES: BOOK-ENTRY FORM. Except as provided below, the CODES are
evidenced by one or more global CODES deposited with the trustee as custodian
for DTC, and registered in the name of Cede & Co. as DTC's nominee.
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Record ownership of the global CODES may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee,
except as set forth below. Owners of beneficial interests in the CODES may hold
their interests in the global CODES directly through DTC if such owner is a
participant in DTC, or indirectly through organizations which are direct DTC
participants if such owner is not a participant in DTC. Transfers between direct
DTC participants will be effected in the ordinary way in accordance with DTC's
rules and will be settled in same-day funds. Owners may also beneficially own
interests in the global CODES held by DTC through certain banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a direct DTC participant, either directly or
indirectly.
So long as Cede & Co., as nominee of DTC, is the registered owner of the
global CODES, Cede & Co. for all purposes will be considered the sole holder of
the global CODES. Except as provided below, owners of beneficial interests in
the global CODES:
- will not be entitled to have certificates registered in their names;
- will not receive or be entitled to receive physical delivery of
certificates in definitive form; and
- will not be considered holders of the global CODES.
The laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability of an owner of a
beneficial interest in a global CODES to transfer the beneficial interest in the
global CODES to such persons may be limited.
We will wire, through the facilities of the trustee, payments of principal,
premium, if any, and interest payments on the global CODES to Cede & Co., the
nominee of DTC, as the registered owner of the global CODES. None of Cendant,
the trustee and any paying agent will have any responsibility or be liable for
paying amounts due on the global CODES to owners of beneficial interests in the
global CODES.
It is DTC's current practice, upon receipt of any payment of principal of
and premium, if any, and interest on the global CODES, to credit participants'
accounts on the payment date in amounts proportionate to their respective
beneficial interests in the CODES represented by the global CODES, as shown on
the records of DTC, unless DTC believes that it will not receive payment on the
payment date. Payments by DTC participants to owners of beneficial interests in
CODES represented by the global CODES held through DTC participants will be the
responsibility of DTC participants, as is now the case with securities held for
the accounts of customers registered in "street name."
If you would like to convert your CODES into CD common stock pursuant to the
terms of the CODES, you should contact your broker or other direct or indirect
DTC participant to obtain information on procedures, including proper forms and
cut-off times, for submitting those requests.
Because DTC can only act on behalf of DTC participants, who in turn act on
behalf of indirect DTC participants and other banks, your ability to pledge your
interest in the CODES represented by global CODES to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate.
Neither Cendant nor the trustee (nor any registrar, paying agent or
conversion agent under the indenture) will have any responsibility for the
performance by DTC or direct or indirect DTC participants of their obligations
under the rules and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder of the CODES,
including, without limitation, the presentation of the CODES for conversion as
described below, only at the direction of one or more direct DTC participants to
whose account with DTC interests in the global CODES are credited and only for
the principal amount of the CODES for which directions have been given.
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DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for DTC participants and to facilitate the clearance and
settlement of securities transactions between DTC participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations, such as Lehman Brothers Inc.
Certain DTC participants or their representatives, together with other entities,
own DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a custodial
relationship with, a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global CODES among DTC participants, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will cause CODES to be issued in definitive form in
exchange for the global CODES. None of Cendant, the trustee or any of their
respective agents will have any responsibility for the performance by DTC,
direct or indirect DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining, supervising or
reviewing the records relating to, or payments made on account of, beneficial
ownership interests in global CODES.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding CODES or by
depositing with the trustee, the paying agent or the conversion agent, if
applicable after the CODES have become due and payable, whether at stated
maturity, or any redemption date, or any purchase date, or a change in control
purchase date, or upon conversion or otherwise, cash or shares of common stock
(as applicable under the terms of the indenture) sufficient to pay all of the
outstanding CODES and paying all other sums payable under the indenture by us.
CALCULATIONS IN RESPECT OF CODES
We will be responsible for making all calculations called for under the
CODES. These calculations include, but are not limited to, determination of the
market prices of the CODES and of our CD common stock and amounts of contingent
interest payments, if any, payable on the CODES. We will make all these
calculations in good faith and, absent manifest error, our calculations will be
final and binding on holders of CODES. We will provide a schedule of our
calculations to the trustee, and the trustee is entitled to rely upon the
accuracy of our calculations without independent verification.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of Cendant, the claim of
the holder of a CODES is, under Title 11 of the United States Code, limited to
the issue price of the CODES plus that portion of the original issue discount
that has accrued from the date of issue to the commencement of the proceeding.
In addition, the holders of the CODES will be effectively subordinated to the
indebtedness and other obligations of our subsidiaries.
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DESCRIPTION OF CD COMMON STOCK
The following description of Cendant's CD common stock does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the more complete descriptions thereof set forth in our Amended and Restated
Certificate of Incorporation (the "Certificate"), and Amended and Restated
By-laws (the "By-laws") which are filed as exhibits to the registration
statement related to this prospectus.
We are authorized to issue up to 2,000,000,000 shares of CD common stock,
par value $.01 per share. As of June 30, 2001, there were 857,074,916 shares of
CD common stock outstanding.
GENERAL
In March 2000, our outstanding common stock was reclassified as CD common
stock and we created a series of common stock designated as Move.com common
stock. The Move.com common stock was designed to track the performance of our
Move.com Group, and the CD common stock represents our interests in the
remainder of our business and our interest in Move.com Group. No shares of
Move.com common stock are outstanding. For a description of the terms of our CD
common stock, see "Summary Comparison of Terms of Existing Common Stock with
Terms of CD Common Stock and Move.com Stock" in the Proxy Statement dated
February 10, 2000, which is incorporated by reference herein.
Subject to the rights of the holders of any shares of our preferred stock
which may at the time be outstanding, holders of CD common stock are entitled to
such dividends as the Board of Directors may declare out of funds legally
available therefor. The holders of common stock will possess exclusive voting
rights in us, except to the extent the Board of Directors specifies voting power
with respect to any preferred stock issued. Except as hereinafter described,
holders of CD common stock are entitled to one vote for each share of CD common
stock, but will not have any right to cumulate votes in the election of
directors. In the event of liquidation, dissolution or winding up of Cendant,
the holders of common stock are entitled to receive, after payment of all of our
debts and liabilities and of all sums to which holders of any preferred stock
may be entitled, the distribution of any remaining assets of Cendant. Holders of
the CD common stock will not be entitled to preemptive rights with respect to
any shares which may be issued. Any shares of CD common stock sold hereunder
will be fully paid and non-assessable upon issuance against full payment of the
purchase price therefor. The CD common stock is listed on the New York Stock
Exchange under the symbol "CD."
CERTAIN PROVISIONS
The provisions of the Certificate and By-Laws which are summarized below may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in such
stockholder's best interest, including those attempts that might result in a
premium over the market price for the shares held by stockholders.
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CLASSIFIED BOARD
The Board of Directors is divided into three classes that are elected for
staggered three-year terms. A director may be removed by the stockholders
without cause only by the affirmative vote of the holders, voting as a single
class, of 80% or more of the total number of votes entitled to be cast by all
holders of the voting stock, which shall include all capital stock of Cendant
which by its terms may vote on all matters submitted to stockholders of Cendant
generally.
COMMITTEES OF THE BOARD OF DIRECTORS
Pursuant to the Certificate, the Board of Directors' authority to designate
committees shall be subject to the provisions of the By-Laws. The Board of
Directors may designate one or more directors as alternate members of any
committee to fill any vacancy on the committee and to fill a vacant chairmanship
of a committee occurring as a result of a member or chairman leaving the
committee, whether through death, resignation, removal or otherwise. Pursuant to
the By-Laws, the Board of Directors shall have the following committees:
EXECUTIVE COMMITTEE. An Executive Committee that shall consist of not less
than three directors elected by a majority vote of the Board of Directors.
COMPENSATION COMMITTEE. A Compensation Committee consisting of not less than
three directors elected by a majority vote of the Board of Directors.
AUDIT COMMITTEE. An Audit Committee consisting of not less than four
directors elected by a majority vote of the Board of Directors.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely 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. Any directors elected
in accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of directors constituting
the Board of directors shall shorten the term of any incumbent director.
SPECIAL MEETINGS OF STOCKHOLDERS
A special meeting 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 approved by a majority of the entire Board of Directors.
QUORUM AT STOCKHOLDER MEETINGS
The holders of one-third of the shares entitled to vote at any meeting of
the stockholders, present in person or by proxy, shall constitute a quorum at
all stockholder meetings.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Stockholder action by written consent in lieu of a meeting is prohibited
under the Certificate. As a result, stockholder action can be taken only at an
annual or special meeting of stockholders. This prevents the holders of a
majority of the outstanding voting stock of Cendant from using the written
consent procedure to take stockholder action without giving all the stockholders
of Cendant entitled to vote on a proposed action the opportunity to participate
in determining the proposed action.
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ADVANCE NOTICE OF STOCKHOLDER--PROPOSED BUSINESS AT ANNUAL MEETINGS
The By-Laws provide that for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of Cendant. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of Cendant not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the date on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary must set forth as
to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on Cendant's books, of the
stockholder proposing such business, (iii) the class and number of shares of
Cendant which are beneficially owned by the stockholder, and (iv) any material
interest of the stockholder in such business.
In addition, the By-Laws provide that for a stockholder to properly nominate
a director at a meeting of stockholders, the stockholder must have given timely
notice thereof in writing to the Secretary of Cendant. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of Cendant (i) in the case of an annual meeting, at
least 90 days prior to the anniversary date of the last annual meeting of
Cendant stockholders and (ii) with respect to a special meeting of stockholders,
the close of business on the 10th day following the date on which notice of such
meeting is first given to stockholders. Such stockholder's notice to the
Secretary must set forth: (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated,
(ii) a representation that the stockholder is holder of record of common stock
and intends to appear in person or by proxy at the meeting to nominate each such
nominee, (iii) a description of all arrangements between such stockholder and
each nominee, (iv) such other information with respect to each nominee as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the SEC, and (v) the consent of each nominee to serve as director of
the Company if so elected.
FAIR PRICE PROVISIONS
Under the Delaware General Corporation Law and the Certificate, 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 and adopted by the holders of
a majority of the outstanding shares of stock entitled to vote thereon. However,
the Certificate 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's directors, voting together as a single class, to approve
certain business combination transactions (including certain mergers,
recapitalization and the issuance or transfer of securities of Cendant or a
subsidiary having an aggregate fair market value of $10 million or more)
involving Cendant or a subsidiary and an owner or any affiliate of an owner of
5% or more of the outstanding shares of capital stock entitled to vote, unless
either (i) such business combination is approved by a majority of disinterested
directors, or (ii) the shareholders receive a "fair price" for their securities
and certain other procedural requirements are met. The Certificate 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 directors.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
consequences relevant to holders of CODES and is based on the advice of Skadden,
Arps, Slate, Meagher & Flom LLP. The summary is based upon the Internal Revenue
Code of 1986, as amended, its legislative history, existing and proposed
regulations under the Internal Revenue Code, published rulings, and court
decisions, all as currently in effect. These laws are subject to change,
possibly on a retroactive basis. The discussion below deals only with CODES held
as a capital asset by a U.S. Holder (as defined below) and does not purport to
deal with persons in special tax situations, such as:
- dealers in securities or currencies,
- traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings,
- regulated investment companies,
- real estate investment trusts,
- banks,
- life insurance companies,
- tax-exempt organizations,
- persons who own CODES that are a hedge or that are hedged against interest
rate risks,
- persons who owns CODES as part of a straddle or conversion transaction for
tax purposes,
- persons whose functional currency for tax purposes is not the U.S. dollar,
or
- persons that are not U.S. Holders.
The summary below does not address all of the tax consequences that may be
relevant to a U.S. Holder. In particular, it does not address:
- the U. S. federal estate, gift or alternative minimum tax consequences of
the purchase, ownership or disposition of CODES,
- any state, local or foreign tax consequences of the purchase, ownership or
disposition of CODES, or
- any federal, state, local or foreign tax consequences of owning or
disposing of our CD common stock.
Accordingly, you should consult your tax advisor regarding the tax
consequences of purchasing, owning and disposing of CODES and our CD common
stock in light of your own circumstances.
If a partnership holds the CODES, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner in a partnership holding the CODES, you should
consult your tax advisors.
You are a U.S. Holder if you are a beneficial owner of a CODES and you are,
for U.S. federal income tax purposes:
- a citizen or resident of the U.S.,
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States,
- an estate whose income is subject to U.S. federal income tax regardless of
its source, or
29
- a trust if a U.S. court can exercise primary supervision over the trust's
administration and one or more U.S. persons are authorized to control all
substantial decisions of the trust.
WE URGE PROSPECTIVE INVESTORS TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CODES AND OUR CD COMMON STOCK IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.
CLASSIFICATION OF THE CODES
Under the indenture governing the CODES, we and each holder of the CODES
have agreed, for U.S. federal income tax purposes, to treat the CODES as
indebtedness for U.S. federal income tax purposes that is subject to the
regulations governing contingent payment debt instruments and the remainder of
this discussion assumes that the CODES will be so treated. However, the proper
U.S. federal income tax treatment of the CODES is uncertain in a number of
respects, and no rulings have been sought or are expected to be sought from the
Internal Revenue Service with respect to any of the U.S. federal income tax
consequences discussed below. Accordingly, no assurance can be given that the
IRS will not assert that the CODES should be treated differently. Such treatment
could affect the amount, timing and character of income, gain or loss in respect
of an investment in CODES. In particular, a holder might be required to accrue
interest income at a lower rate, might not recognize income or gain upon
conversion of the CODES to CD common stock, and might recognize capital gain
upon a taxable disposition of its CODES.
ACCRUAL OF INTEREST
Under the rules governing contingent payment debt obligations, a U.S. Holder
generally will be required to accrue interest income on the CODES, in the
amounts described below, regardless of whether the U.S. Holder uses the cash or
accrual method of tax accounting. Accordingly, U.S. Holders will be required to
include interest in taxable income in each year in excess of the accruals on the
CODES for non-tax purposes and in excess of any contingent interest payments
actually received in that year.
A U.S. Holder will accrue an amount of ordinary income for U.S. federal
income tax purposes, for each accrual period prior to and including the maturity
date of the CODES that equals:
- the product of (i) the adjusted issue price (as defined below) of the
CODES as of the beginning of the accrual period; and (ii) the comparable
yield to maturity (as defined below) of the CODES, adjusted for the length
of the accrual period;
- divided by the number of days in the accrual period; and
- multiplied by the number of days during the accrual period that the U.S.
Holder held the CODES.
The issue price of a CODES will be the first price at which a substantial
amount of the CODES is sold to the public, excluding bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The adjusted issue price of a CODES will be its
issue price increased by any interest income previously accrued, determined
without regard to any adjustments to interest accruals described below and
decreased by the projected amounts of any payments previously made with respect
to the CODES.
Under the rules governing contingent payment debt obligations, we are
required to establish a "comparable yield," and we have determined that the
comparable yield for the CODES is the annual yield we would incur, as of the
initial issue date, on a fixed rate nonconvertible debt security with no
30
contingent payments, but with terms and conditions otherwise comparable to those
of the CODES. Accordingly, we have determined the comparable yield to be 9.47%
compounded semiannually.
We are required to furnish annually to the IRS and to U.S. Holders, solely
for U.S. federal income tax purposes, a schedule of the projected amounts of
payments on the CODES. This schedule must produce the comparable yield. The
projected payment schedule for the CODES includes estimates for payments of
contingent interest and an estimate for a payment at maturity taking into
account the conversion feature. The comparable yield and the schedule of
projected payments will be set forth in the indenture. U.S. Holders may also
obtain the projected payment schedule by submitting a written request for it to
Cendant at the address set forth in "Where You Can Find More Information."
Pursuant to the terms of the Indenture, each U.S. Holder will be bound by our
determination. For U.S. federal income tax purposes, a U.S. Holder must use the
comparable yield and the schedule of projected payments in determining its
interest accruals, and the adjustments thereto described below, in respect of
the CODES.
THE COMPARABLE YIELD AND THE SCHEDULE OF PROJECTED PAYMENTS ARE NOT
DETERMINED FOR ANY PURPOSE OTHER THAN FOR THE DETERMINATION OF A U.S. HOLDER'S
INTEREST ACCRUALS AND ADJUSTMENTS THEREOF IN RESPECT OF THE CODES FOR U.S.
FEDERAL INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR REPRESENTATION
REGARDING THE ACTUAL AMOUNTS PAYABLE IN RESPECT OF THE CODES.
ADJUSTMENTS TO INTEREST ACCRUALS ON THE CODES
If a U.S. Holder receives actual payments with respect to the CODES in a
taxable year that in the aggregate exceed the total amount of projected payments
for that taxable year, the U.S. Holder would incur a "net positive adjustment"
equal to the amount of such excess. The U.S. Holder would treat the "net
positive adjustment" as additional interest income for the taxable year. For
this purpose, the payments in a taxable year include the fair market value of
property received in that year.
If a U.S. Holder receives actual payments with respect to the CODES in a
taxable year that in the aggregate are less than the amount of the projected
payments for that taxable year, the U.S. Holder would incur a "net negative
adjustment" equal to the amount of such deficit. This adjustment would
(a) reduce the U.S. Holder's interest income on the CODES for that taxable year,
and (b) to the extent of any excess after the application of (a), give rise to
an ordinary loss to the extent of the U.S. Holder's interest income on the CODES
during prior taxable years, reduced to the extent such interest was offset by
prior net negative adjustments.
SALE, EXCHANGE, CONVERSION OR REDEMPTION
Generally, the sale or exchange of a CODES, or the redemption of a CODES for
cash, will result in taxable gain or loss to a U.S. Holder. Also, we intend to
treat the receipt of our CD common stock by a U.S. Holder upon the conversion of
a CODES, or upon the redemption of a CODES where we elect to pay in CD common
stock, as a contingent payment. As described above, holders are generally bound
by our determination of the comparable yield and the schedule of projected
payments. Under this treatment, a sale or exchange, or such a conversion or
redemption, will also result in taxable gain or loss to the U.S. Holder. The
amount of gain or loss on a taxable sale, exchange, conversion or redemption
will equal the difference between (a) the amount of cash plus the fair market
value of any other property received by the U.S. Holder, including the fair
market value of any CD common stock received, and (b) the U.S. Holder's adjusted
tax basis in the CODES. A U.S. Holder's adjusted tax basis in a CODES generally
will equal the U.S. Holder's original purchase price for the CODES, increased by
any original issue discount income previously accrued by the U.S. Holder
(determined without regard to any adjustments to the accruals described above),
and decreased by the amount of
31
any projected payments previously made on the CODES to the U.S. Holder. Gain
recognized upon a sale, exchange, conversion or redemption of a CODES generally
will be treated as ordinary interest income; any loss will be ordinary loss to
the extent of interest previously included in income, and thereafter, capital
loss (which will be long-term if the CODES are held for more than one year). The
deductibility of net capital losses by individuals and corporations is subject
to limitations.
A U.S. Holder's tax basis in our CD common stock received upon a conversion
of a CODES or upon a holder's exercise of a put right that we elect to pay in CD
common stock should equal the then current fair market value of such CD common
stock. The U.S. Holder's holding period for our CD common stock received will
commence on the day immediately following the date of conversion or redemption.
PURCHASERS OF CODES AT A PRICE OTHER THAN THE ADJUSTED ISSUE PRICE
A U.S. Holder that purchases CODES in the secondary market for an amount
that differs from the adjusted issue price of the CODES at the time of purchase
will be required to accrue interest income on the CODES in accordance with the
comparable yield even if market conditions have changed since the date of
issuance. A U.S. Holder must reasonably determine whether the difference between
the purchase price for a CODES and the adjusted issue price of a CODES is
attributable to a change in expectations as to the contingent amounts
potentially payable in respect of the CODES, a change in interest rates since
the CODES were issued, or both, and allocate the difference accordingly.
Adjustments allocated to a change in interest rates will cause, as the case may
be, a "positive adjustment" or a "negative adjustment" to the U.S. Holder's
interest inclusion. If the purchase price of a CODES is less than its adjusted
issue price, a positive adjustment will result, and if the purchase price is
more than the adjusted issue price of a CODES, a negative adjustment will
result. To the extent that an adjustment is attributable to a change in interest
rates, it must be reasonably allocated to the daily portions of interest over
the remaining term of the CODES.
To the extent that the difference between a U.S. Holder's purchase price for
the CODES and the adjusted issue price of the CODES is attributable to a change
in expectations as to the contingent amounts potentially payable in respect of
the CODES (and not to a change in the market interest rates), the U.S. Holder
will be required to reasonably allocate that difference to the contingent
payments. Adjustments allocated to the contingent payments will be taken into
account when the contingent payments are made.
Any negative or positive adjustment of the kind described above made by a
U.S. Holder of a CODES will decrease or increase, respectively, the
U.S. Holder's tax basis in the CODES.
Certain U.S. Holders will receive Forms 1099-OID reporting interest accruals
on their CODES. Those forms will not, however, reflect the effect of any
positive or negative adjustments resulting from the U.S. Holder's purchase of a
CODES in the secondary market at a price that differs from its adjusted issue
price on the date of purchase. U.S. Holders are urged to consult their tax
advisors as to whether, and how, such adjustments should be made to the amounts
reported on any Form 1099-OID.
CONSTRUCTIVE DIVIDENDS
If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend for federal income tax
purposes and, in accordance with the anti-dilution provisions of the CODES, the
exchange rate of the CODES is increased, such increase may be deemed to be the
payment of a taxable dividend to holders of the CODES.
For example, an increase in the exchange rate in the event of distribution
of our evidence of indebtedness or our assets or an increase in the event of an
extraordinary cash dividend generally will
32
result in deemed dividend treatment to holders of the CODES, but generally an
increase in the event of stock dividends or the distribution of rights to
subscribe for CD common stock will not.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Payments of principal, premium, if any, and interest (including original
issue discount) on, and the proceeds of dispositions of, the CODES may be
subject to information reporting and U.S. federal backup withholding tax at a
rate of 31% if the U.S. Holder thereof fails to supply an accurate taxpayer
identification number or otherwise fails to comply with applicable U.S.
information reporting or certification requirements. Any amounts so withheld
will be allowed as a credit against such U.S. Holder's U.S. federal income tax
liability.
TAX EVENT
The modification of the terms of the CODES by us upon a Tax Event could
possibly alter the timing of income recognition by the holders with respect to
the payments of interest due after the option exercise date.
33
SELLING SECURITYHOLDERS
The CODES were originally issued by us and sold by Lehman Brothers Inc. (the
"Initial Purchaser") in a transaction exempt from the registration requirements
of the Securities Act to persons reasonably believed by the Initial Purchaser to
be "qualified institutional buyers" as defined by Rule 144A under the Securities
Act. The selling securityholders may from time to time offer and sell pursuant
to this prospectus any or all of the CODES listed below and the shares of CD
common stock issued upon purchase by us, or conversion, of such CODES. When we
refer to the "selling securityholders" in this prospectus, we mean those persons
listed in the table below, as well as the pledgees, donees, assignees,
transferees, successors and others who later hold any of the selling
securityholders' interests.
The table below sets forth the name of each selling securityholder, the
principal amount at maturity of CODES that each selling securityholder may offer
pursuant to this prospectus and the number of shares of CD common stock into
which such CODES are convertible. Unless set forth below, to the best of our
knowledge, none of the selling securityholders has, or within the past three
years has had, any material relationship with us or any of our predecessors or
affiliates or beneficially owns in excess of 1% of the outstanding CD common
stock.
We have prepared the table below based on information given to us by the
selling securityholders on or prior to July 25, 2001. However, any or all of the
CODES or shares of CD common stock listed below may be offered for sale pursuant
to this prospectus by the selling securityholders from time to time.
Accordingly, no estimate can be given as to the amounts of CODES or shares of CD
common stock that will be held by the selling securityholders upon consummation
of any such sales. In addition, the selling securityholders listed in the table
below may have acquired, sold or transferred, in transactions exempt from the
registration requirements of the Securities Act, some or all of their CODES
since the date of which the information in the table is presented.
Information about the selling securityholders may change over time. Any
changed information will be set forth in prospectus supplements. From time to
time, additional information concerning ownership of the CODES and shares of CD
common stock may rest with certain holders thereof not named in the table below
and of whom we are unaware.
PERCENTAGE OF SHARES
AGGREGATE PRINCIPAL NUMBER OF SHARES OF CD COMMON
AMOUNT AT MATURITY OF PERCENTAGE OF CODES OF CD COMMON STOCK STOCK
NAME CODES THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------------- ------------------- ------------------- --------------------
AFTRA Health Fund........ $ 1,050,000 * 35,070 *
AIG SoundShore Holdings
Ltd. .................. 7,616,000 * 254,374 *
AIG SoundShore
Opportunity Holding
Fund Ltd. ............. 6,488,000 * 216,699 *
AIG SoundShore Strategic
Holding Fund Ltd. ..... 5,896,000 * 196,926 *
AIG/National Union Fire
Insurance.............. 1,050,000 * 35,070 *
Allstate Insurance
Company (3)............ 5,250,000 * 175,350 *
Allstate Life Insurance
Company (3)............ 11,800,000 * 394,120 *
Alpha U.S. Sub Fund VIII
LLC.................... 1,800,000 * 60,120 *
American Fidelity
Assurance Company...... 400,000 * 13,360 *
34
PERCENTAGE OF SHARES
AGGREGATE PRINCIPAL NUMBER OF SHARES OF CD COMMON
AMOUNT AT MATURITY OF PERCENTAGE OF CODES OF CD COMMON STOCK STOCK
NAME CODES THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------------- ------------------- ------------------- --------------------
American Masters Fund "AG
Absolute Return Series"
Limited................ $ 4,700,000 * 156,980 *
Amerisure Companies/
Michigan Mutual
Insurance Company...... 875,000 * 29,225 *
Angelo, Gordon & Co.,
L.P.................... 2,700,000 * 90,180 *
Argent Convertible
Arbitrage Fund Ltd..... 5,000,000 * 167,000 *
Aristeia International
Limited................ 18,000,000 1.22% 601,200 *
Aristeia Partners,
L.P.................... 7,000,000 * 233,800 *
Associated Electric & Gas
Insurance Services
Limited................ 2,000,000 * 66,800 *
Aventis Pension Master
Trust.................. 710,000 * 23,714 *
Bancroft Convertible
Fund, Inc.............. 1,500,000 * 50,100 *
BankAmerica Pension
Plan................... 5,000,000 * 167,000 *
Bankers Trust Company
Trustee for
DaimlerChrysler Corp
Emp#1 Pension Plan
dated 4/1/89........... 9,870,000 * 329,658 *
Blue Cross Blue Shield of
Florida................ 4,500,000 * 150,300 *
Boilermaker--Blacksmith
Pension Trust.......... 4,450,000 * 148,630 *
CALAMOS-Registered Trademark-
Convertible
Fund--CALAMOS-Registered Trademark-
Investment Trust....... 9,350,000 * 312,290 *
CALAMOS-Registered Trademark-
Convertible Growth and
Income
Fund--CALAMOS-Registered Trademark-
Investment Trust....... 6,000,000 * 200,400 *
CALAMOS-Registered Trademark-
Convertible
Portfolio--CALAMOS-Registered Trademark-
Advisors Trust......... 400,000 * 13,360 *
CapitalCare, Inc......... 155,000 * 5,177 *
CareFirst of Maryland,
Inc.................... 600,000 * 20,040 *
CFFX, LLC................ 10,000,000 * 334,000 *
CGU Life Insurance Co. of
America................ 6,000,000 * 200,400 *
Chrysler Corporation
Master Retirement
Trust.................. 15,040,000 1.02% 502,336 *
CIBC World Markets....... 2,500,000 * 83,500 *
City of Albany Pension
Plan................... 395,000 * 13,193 *
City of Birmingham
Retirement & Relief
System................. 3,250,000 * 108,550 *
City of Knoxville Pension
System................. 920,000 * 30,728 *
Clarica Life Insurance
Co.--U.S............... 1,100,000 * 36,740 *
35
PERCENTAGE OF SHARES
AGGREGATE PRINCIPAL NUMBER OF SHARES OF CD COMMON
AMOUNT AT MATURITY OF PERCENTAGE OF CODES OF CD COMMON STOCK STOCK
NAME CODES THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------------- ------------------- ------------------- --------------------
Commonwealth Professional
Assurance Company c/o
Income Research &
Management............. $ 1,300,000 * 43,420 *
Conseco Annuity Assurance
Company--Multi-bucket
Annuity Convertible
Bond Fund.............. 5,000,000 * 167,000 *
Conseco Fund Group--
Convertible Securities
Fund................... 1,000,000 * 33,400 *
D.E. Shaw Investments,
L.P.................... 2,286,000 * 76,352 *
D.E. Shaw Valence,
L.P.................... 9,144,000 * 305,410 *
Deephaven Domestic
Convertible Trading
Ltd.................... 28,200,000 1.91% 941,880 *
Delta Air Lines Master
Trust (c/o Oaktree
Capital Management,
LLC)................... 4,300,000 * 143,620 *
Delta Airlines Master
Trust.................. 7,850,000 * 262,190 *
Delta Pilots D & S
Trust.................. 2,115,000 * 70,641 *
Delta Pilots Disability
and Survivorship
Trust.................. 1,495,000 * 49,933 *
Dorinco Reinsurance
Company................ 1,825,000 * 60,955 *
Drury University......... 155,000 * 5,177 *
Duckbill & Co............ 5,000,000 * 167,000 *
Dylan (IMA) Limited...... 6,000,000 * 200,400 *
Ellsworth Convertible
Growth and Income Fund,
Inc.................... 1,500,000 * 50,100 *
Family Service Life
Insurance Company...... 300,000 * 10,020 *
Federated Equity Income
Fund................... 66,000,000 4.46% 2,204,400 *
Federated Insurance
Series, on behalf of
its Federated Equity
Income Fund II......... 2,600,000 * 86,840 *
Forest Alternative
Strategies Fund II L.P.
A5M.................... 1,270,000 * 42,418 *
Forest Fulcrum
Fund, L.P.............. 13,100,000 * 437,540 *
Forest Global Convertible
Fund A5................ 68,830,000 4.65% 2,298,922 *
Franklin and Marshall
College................ 640,000 * 21,376 *
FreeState Health Plan,
Inc.................... 125,000 * 4,175 *
Gaia Offshore Master Fund
Ltd.................... 20,000,000 1.35% 668,000
Genesee County Employees'
Retirement System...... 875,000 * 29,225 *
GLG Market Neutral Fund.. 44,500,000 3.01% 1,486,300 *
Global Bermuda Limited
Partnership............ 3,000,000 * 100,200 *
36
PERCENTAGE OF SHARES
AGGREGATE PRINCIPAL NUMBER OF SHARES OF CD COMMON
AMOUNT AT MATURITY OF PERCENTAGE OF CODES OF CD COMMON STOCK STOCK
NAME CODES THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------------- ------------------- ------------------- --------------------
Granville Capital
Corporation............ 19,000,000 1.28% 634,600 *
Greek Catholic Union..... 115,000 * 3,841 *
Greek Catholic Union
II..................... 75,000 * 2,505 *
Group Hospitalization and
Medical Services,
Inc.................... 650,000 * 21,710 *
Guardian Life Insurance
Company of America..... 16,700,000 1.13% 557,780 *
Guardian Pension Trust... 900,000 * 30,060 *
H. K. Porter Company,
Inc.................... 110,000 * 3,674 *
Healthcare Underwriters
Mutual Insurance
Company (4)............ 1,050,000 * 35,070 *
HealthNow New York,
Inc.................... 300,000 * 10,020 *
Highbridge International
LLC (5)................ 23,000,000 1.56% 768,200 *
International Monetary
Fund, Convertible
Fund................... 1,900,000 * 63,460 *
Investcorp--SAM Fund
Ltd. .................. 8,700,000 * 290,580 *
Island Holdings.......... 60,000 * 2,004 *
J.P. Morgan Securities,
Inc.................... 10,000,000 * 334,000 *
Jackson County Employees'
Retirement System...... 475,000 * 15,865 *
JMG Capital Partners,
L.P.................... 2,500,000 * 83,500 *
JMG Triton Offshore Fund,
Ltd.................... 2,500,000 * 83,500 *
KBC Financial Products
USA.................... 1,500,000 * 50,100 *
Kettering Medical Center
Funded Depreciation
Account................ 265,000 * 8,851 *
Knoxville Utilities Board
Retirement System...... 630,000 * 21,042 *
Lakeshore International
Limited................ 7,000,000 * 233,800 *
Landesbank Schleswig-
Holstein International
S.A.................... 5,000,000 * 167,000 *
Lehman Brothers Inc...... 95,000,000 6.42% 3,173,000 *
LibertyView Funds L.P.... 8,775,000 * 293,085 *
Lincoln National Global
Asset Allocation Fund,
Inc.................... 50,000 * 1,670 *
LLT Limited.............. 3,400,000 * 113,560 *
Louisiana Workers'
Compensation
Corporation............ 600,000 * 20,040 *
Lutheran Brotherhood..... 7,000,000 * 233,800 *
Lydian Jerseas Partners
Masterfund............. 113,000,000 7.64% 3,774,200 *
Lyxor Master Fund,
c/o Forest Investment
Management L.L.C....... 15,990,000 1.08% 534,066 *
Macomb County Employees'
Retirement System...... $ 1,150,000 * 38,410 *
37
PERCENTAGE OF SHARES
AGGREGATE PRINCIPAL NUMBER OF SHARES OF CD COMMON
AMOUNT AT MATURITY OF PERCENTAGE OF CODES OF CD COMMON STOCK STOCK
NAME CODES THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------------- ------------------- ------------------- --------------------
Mag Mutual Insurance
Company (4)............ 350,000 * 11,690 *
Mainstay Convertible
Fund................... 15,185,000 1.03% 507,179 *
Mainstay Strategic Value
Fund................... 90,000 * 3,006 *
Mainstay VP Convertible
Portfolio.............. 3,830,000 * 127,922 *
McMahan Securities Co.,
L.P.................... 4,500,000 * 150,300 *
Medical Liability Mutual
Insurance Company (4).. 6,600,000 * 220,440 *
Michael Angelo, L.P...... 5,400,000 * 180,360 *
Morgan Stanley & Co...... 14,000,000 * 467,600 *
Motion Picture Industry
Health Plan--Active
Member Fund............ 1,485,000 * 49,599 *
Motion Picture Industry
Health Plan--Retiree
Member Fund............ 540,000 * 18,036 *
Museum of Fine Arts,
Boston................. 25,000 * 835 *
Nalco Chemical Company... 350,000 * 11,690 *
Nashville Electric
Service................ 550,000 * 18,370 *
Nationwide Separate
Account Trust, on
behalf of its
Nationwide Equity
Income Fund............ 1,700,000 * 56,780 *
NCMIC Insurance
Company (4)............ 400,000 * 13,360 *
New York Life Separate
Account #7............. 2,055,000 * 68,637 *
Nomura Securities
International Inc...... 15,000,000 1.01% 501,000 *
NORCAL Mutual Insurance
Company................ 700,000 * 23,380 *
OCM Convertible Trust.... 10,315,000 * 344,521 *
OHIC Insurance
Company (4)............ 700,000 * 23,380 *
Ohio National Fund, Inc.
on behalf of its Equity
Income Portfolio....... 250,000 * 8,350 *
Onyx Fund Holdings, LDC.. 30,000,000 2.03% 1,002,000 *
Paloma Securities LLC.... 40,000,000 2.70% 1,336,000 *
Park Avenue Life
Insurance Company...... 100,000 * 3,340 *
Parker-Hannifin
Corporation............ 80,000 * 2,672 *
Partner Reinsurance
Company Ltd............ 2,495,000 * 83,333 *
Penn Treaty Network
America Insurance
Company................ 800,000 * 26,720 *
Physicians' Reciprocal
Insurers Account #7.... 3,250,000 * 108,550 *
38
PERCENTAGE OF SHARES
AGGREGATE PRINCIPAL NUMBER OF SHARES OF CD COMMON
AMOUNT AT MATURITY OF PERCENTAGE OF CODES OF CD COMMON STOCK STOCK
NAME CODES THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------------- ------------------- ------------------- --------------------
Port Authority of
Allegheny County
Retirement and
Disability Allowance
Plan For Employees
Represented by Local 85
of the Amalgated
Transit Union.......... $ 4,675,000 * 156,145 *
Primex, Ltd. (4)......... 350,000 * 11,690 *
Prisma Foundation........ 130,000 * 4,342 *
Putman Convertible
Opportunities and
Income Trust........... 110,000 * 3,674 *
Putman Asset Allocation
Funds--Balanced
Portfolio.............. 410,000 * 13,694 *
Putnam Asset Allocation
Funds--Conservative
Portfolio.............. 310,000 * 10,354 *
Putnam Variable Trust--
Putnam VT Global Asset
Allocation Fund........ 100,000 * 3,340 *
RAM Trading Ltd.......... 10,000,000 * 334,000 *
Ramius, L.P.............. 2,700,000 * 90,180 *
Raphael II, Ltd.......... 9,750,000 * 325,650 *
RBC Capital Services,
Inc.,
c/o Forest Investment
Management L.L.C....... 505,000 * 16,867 *
RCG Baldwin, L.P......... 1,350,000 * 45,090 *
RCG Multi-Strategy
Account, L.P........... 5,400,000 * 180,360 *
Rhapsody Fund, L.P. ..... 10,900,000 * 364,060 *
Sagamore Hill Hub Fund
Ltd.................... 10,000,000 * 334,000 *
Salomon Smith Barney,
Inc. .................. 4,490,000 * 149,966 *
SAM Investments LDC...... 100,000,000 6.76% 3,340,000 *
SCI Endowment Care Common
Trust Fund--
Suntrust............... 200,000 * 6,680 *
SCI Endowment Care Common
Trust Fund--National
Fiduciary Services..... 500,000 * 16,700 *
Southdown Pension Plan... 500,000 * 16,700 *
Southern Farm Bureau Life
Insurance Company...... 1,675,000 * 55,945 *
SPT...................... 3,650,000 * 121,910 *
Starvest Combined
Portfolio.............. 1,150,000 * 38,410 *
State Employees'
Retirement Fund of The
State of Delaware...... 6,410,000 * 214,094 *
State of Connecticut
Combined Investment
Funds.................. 10,000,000 * 334,000 *
State of Florida, Office
of the Treasurer....... 5,500,000 * 183,700 *
39
PERCENTAGE OF SHARES
AGGREGATE PRINCIPAL NUMBER OF SHARES OF CD COMMON
AMOUNT AT MATURITY OF PERCENTAGE OF CODES OF CD COMMON STOCK STOCK
NAME CODES THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------------- ------------------- ------------------- --------------------
State Street Bank
Custodian for GE
Pension Trust.......... $ 4,890,000 * 163,326 *
Sylvan I.M.A. Ltd.,
c/o Forest Investment
Management L.L.C....... 6,405,000 * 213,927 *
Teachers Insurance and
Annuity Association.... 17,500,000 1.18% 584,500 *
The Class IC Company,
Ltd.................... 4,000,000 * 133,600 *
The Cockrell
Foundation............. 125,000 * 4,175 *
The Dow Chemical Company
Employees' Retirement
Plan................... 8,800,000 * 293,920 *
The Fondren Foundation... 280,000 * 9,352 *
The Northwestern Mutual
Life Insurance
Company (6)............ 24,200,000 1.64% 808,280 *
The Reciprocal of
America (4)............ 550,000 * 18,370 *
Tokai Asia Ltd........... 15,000,000 1.01% 501,000 *
Triborough Partners QP,
LLC.................... 3,000,000 * 100,200 *
Tufts Associated Health
Plan c/o Income
Research & Management.. 1,690,000 * 56,446 *
UBS AG, London Branch.... 39,936,000 2.70% 1,333,862 *
UBS O'Connor LLC F/B/O
UBS Global Equity
Arbitrage Master
Ltd.................... 40,000,000 2.70% 1,336,000 *
Unifi, Inc. Profit
Sharing Plan and
Trust.................. 435,000 * 14,529 *
Union Carbide Retirement
Account................ 3,200,000 * 106,880 *
United Food and
Commercial Workers
Local 1262 and
Employers Pension
Fund................... 2,100,000 70,140 *
University of
Massachusetts c/o
Income Research &
Management............. 260,000 * 8,684 *
University of
Rochester.............. 40,000 * 1,336 *
Van Waters & Rogers, Inc.
Retirement Plan........ 1,220,000 * 40,748 *
White River Securities,
L.L.C.................. 25,000,000 1.69% 835,000 *
William Blair & Company
LLC.................... 750,000 * 25,050 *
Worldwide Transactions
Ltd.................... 843,000 * 28,156 *
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PERCENTAGE OF SHARES
AGGREGATE PRINCIPAL NUMBER OF SHARES OF CD COMMON
AMOUNT AT MATURITY OF PERCENTAGE OF CODES OF CD COMMON STOCK STOCK
NAME CODES THAT MAY BE SOLD OUTSTANDING THAT MAY BE SOLD(1) OUTSTANDING(2)
---- ---------------------- ------------------- ------------------- --------------------
Zurich Master Hedge Fund,
c/o Forest Investment
Management L.L.C....... $ 5,500,000 * 183,700 *
All other holders of
CODES or future
transferees, pledgees,
donees, assignees or
successors of any such
holders (7)(8)......... 112,849,000 7.63% 3,769,157 0.44%
-------------- ------ ---------- ----
Total................ $1,479,258,000 100.00% 49,407,217 5.76%
============== ====== ========== ====
--------------------------
* Less than one percent.
(1) Assumes conversion of all of the holder's CODES at a conversion rate of
33.40 shares of CD common stock per $1,000 principal amount at maturity of
the CODES. This conversion rate is subject to adjustment, however, as
described under "Description of the CODES--Conversion Rights". As a result,
the number of shares of CD common stock issuable upon conversion of the
CODES may increase or decrease in the future. Does not include shares of CD
common stock that may be issued by us upon purchase of CODES by us at the
option of the holder.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act, using 857,074,916
shares of CD common stock outstanding as of June 30, 2001. In calculating
this amount for each holder, we treated as outstanding the number of shares
of CD common stock issuable upon conversion of all that holder's CODES, but
we did not assume conversion of any other holder's CODES. Does not include
shares of CD common stock that may be issued by us upon purchase of CODES by
us at the option of the holder.
(3) Allstate Insurance Company is the parent company of Allstate Life Insurance
Company. Allstate Insurance Company and Allstate Life Insurance Company
collectively hold 1.15% of the outstanding CODES.
(4) INVESCO, Inc. ("INVESCO") is the investment adviser of Medical Liability
Mutual Insurance Company, Healthcare Underwriters Mutual Insurance Company,
OHIC Insurance Company, Primex, Ltd., The Reciprocal of America, NCMIC
Insurance Company and Mag Mutual Insurance Company, and has sole dispositive
power and voting authority over the securities held by these entities.
INVESCO disclaims beneficial ownership of the securities held by each of
these entities.
(5) Highbridge International LLC also beneficially owns $27,343,000 of the
outstanding $550 million of the 3% convertible subordinated notes of Cendant
due February 2002.
(6) Includes $1,200,000 principal amount of CODES held in The Northwestern
Mutual Life Insurance Company Group Annuity Separate Account.
(7) Information about other selling securityholders will be set forth in
prospectus supplements, if required.
(8) Assumes that any other holders of CODES, or any future pledgees, donees,
assignees, transferees or successors of or from any other such holders of
CODES, do not beneficially own any shares of CD common stock other than the
CD common stock issuable upon conversion of the CODES at the initial
conversion rate.
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PLAN OF DISTRIBUTION
We are registering the CODES and shares of CD common stock covered by this
prospectus to permit holders to conduct public secondary trading of these
securities from time to time after the date of this prospectus. We have agreed,
among other things, to bear all expenses, other than underwriting discounts and
selling commissions, in connection with the registration and sale of the CODES
and the shares of CD common stock covered by this prospectus.
We will not receive any of the proceeds from the offering of CODES or the
shares of CD common stock by the selling securityholders. We have been advised
by the selling securityholders that the selling securityholders may sell all or
a portion of the CODES and shares of CD common stock beneficially owned by them
and offered hereby from time to time:
- directly; or
- through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, commissions or concessions from the
selling securityholders or from the purchasers of the CODES and shares of
CD common stock for whom they may act as agent.
The CODES and the shares of CD common stock may be sold from time to time in
one or more transactions at:
- fixed prices, which may be changed;
- prevailing market prices at the time of sale;
- varying prices determined at the time of sale; or
- negotiated prices.
These prices will be determined by the holders of the securities or by agreement
between these holders and underwriters or dealers who may receive fees or
commissions in connection with the sale. The aggregate proceeds to the selling
securityholders from the sale of the CODES or shares of CD common stock offered
by them hereby will be the purchase price of the CODES or shares of CD common
stock less discounts and commissions, if any.
The sales described in the preceding paragraph may be effected in
transactions:
- on any national securities exchange or quotation service on which the
CODES or shares of CD common stock may be listed or quoted at the time of
sale, including the New York Stock Exchange in the case of the shares of
CD common stock,
- in the over-the counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
- through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the CODES and shares of CD common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in short sales of the
CODES and shares of CD common stock in the course of hedging their positions.
The selling securityholders may also sell the CODES and shares of CD common
stock short and deliver CODES and shares of CD common stock to close out short
positions, or loan or pledge CODES and shares of CD common stock to
broker-dealers that in turn may sell the CODES and shares of CD common stock.
42
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the CODES and the shares of CD
common stock by the selling securityholders. Selling securityholders may not
sell any, or may not sell all, of the CODES and the shares of CD common stock
offered by them pursuant to this prospectus. In addition, we cannot assure you
that a selling securityholder will not transfer, devise or gift the CODES and
the shares of CD common stock by other means not described in this prospectus.
In addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus.
The outstanding shares of CD common stock are listed for trading on the New
York Stock Exchange.
The selling securityholders and any broker and any broker-dealers, agents or
underwriters that participate with the selling securityholders in the
distribution of the CODES or the shares of CD common stock may be deemed to be
"underwriters" within the meaning of the Securities Act. In this case, any
commissions received by these broker-dealers, agents or underwriters and any
profit on the resale of the CODES or the shares of CD common stock purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act. In addition, any profits realized by the selling securityholders
may be deemed to be underwriting commissions.
The CODES were issued and sold in February, 2001 in transactions exempt from
the registration requirements of the Securities Act to persons reasonably
believed by the Initial Purchaser to be "qualified institutional buyers," as
defined in Rule 144A under the Securities Act. We have agreed to indemnify the
Initial Purchaser and each selling securityholder, and each selling
securityholder has agreed to indemnify us, our directors, our officers who sign
the registration statement to which this prospectus relates and each person, if
any, who controls Cendant within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, against specified liabilities
arising under the Securities Act.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the CODES and the underlying shares of CD common
stock by the selling securityholders and any such other person. In addition,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the CODES and the underlying shares of CD common stock to
engage in market-making activities with respect to the particular CODES and the
underlying shares of CD common stock being distributed for a period of up to
five business days prior to the commencement of distribution. This may affect
the marketability of the CODES and the underlying shares of CD common stock and
the ability of any person or entity to engage in market-making activities with
respect to the CODES and the underlying shares of CD common stock.
We will use our reasonable efforts to keep the registration statement of
which this prospectus is a part effective until the earlier of:
- two years after the last date of original issuance of any of the CODES;
- the date when the holders of the CODES and the common stock issuable upon
conversion of the CODES are able to sell all such securities immediately
without restriction pursuant to the volume limitation provisions of
Rule 144 under the Securities Act;
- the date when all the CODES and the common stock issuable upon conversion
of the CODES have ceased to be outstanding (whether as a result of
redemption, repurchase and cancellation, conversion or otherwise); or
43
- the sale, pursuant to the registration statement to which this prospectus
relates, of all the securities registered thereunder.
Our obligation to keep the registration statement to which this prospectus
relates effective is subject to specified, permitted exceptions. In these cases,
we may prohibit offers and sales of CODES and shares of CD common stock pursuant
to the registration statement to which this prospectus relates.
LEGAL OPINIONS
Certain legal matters with respect to the CODES will be passed upon for us
by Eric J. Bock, Esq., Senior Vice President, Law and Secretary of Cendant.
Mr. Bock holds shares of CD common stock and options to acquire shares of CD
common stock. Skadden, Arps, Slate, Meagher & Flom, LLP has advised us as to
certain tax matters relating to the CODES.
EXPERTS
Our financial statements incorporated in this prospectus by reference from
our Annual Report on Form 10-K/A for the year ended December 31, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which expresses an unqualified opinion and includes explanatory
paragraphs relating to the change in certain revenue recognition policies
regarding the recognition of non-refundable one-time fees and pro rata
refundable subscription revenue and the restatement of the financial statements
to reflect the individual membership business as part of continuing operations
as discussed in Note 1), which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Cendant is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy and information statements and
other information with the SEC. Such reports, proxy statements and other
information can be inspected and copied at prescribed rates at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the SEC:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. The SEC
also maintains a website that contains reports, proxy and information statements
and other information. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The website address is
http://www.sec.gov. In addition, such material can be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information it files
with the SEC, which means that we can disclose important information to you by
referring to another document filed separately with the SEC. The information
that Cendant files later with the SEC will automatically update and supersede
this information. Cendant incorporates by reference the documents listed below
and any future filings made with the SEC under sections 13(a), 13(c), 14 or
15(d) of the Exchange Act until the end of the offering of the CODES and shares
of CD common stock under this document.
- our Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2000, filed on July 3, 2001;
- our Quarterly Report on Form 10-Q/A for the quarterly period ended
March 31, 2001, filed on July 3, 2001;
- our Current Reports on Form 8-K dated January 9, 2001, January 18,
2001, February 7, 2001 (filed on February 8, 2001), February 8, 2001,
February 20, 2001, March 1, 2001 (filed on March 9, 2001), March 12,
2001, April 2, 2001 (filed on April 3, 2001), April 18, 2001
44
(filed on April 19, 2001), April 18, 2001 (filed on April 19, 2001),
May 2, 2001, May 4, 2001, May 10, 2001 (filed on May 11, 2001),
May 24, 2001 (filed on May 25, 2001), June 13, 2001 (filed on June 15,
2001), June 18, 2001, July 2, 2001 (filed on July 3, 2001), July 10,
2001, July 18, 2001 (filed on July 19, 2001), July 19, 2001 and
July 23, 2001;
- our Current Reports on Form 8-K/A dated January 19, 2001, March 21,
2001 and July 23, 2001 (filed on July 24, 2001); and
- the description of Cendant's CD common stock in the Proxy Statement
dated February 10, 2000, filed on February 11, 2000.
Any statement contained in a document incorporated or considered to be
incorporated by reference in this prospectus shall be considered to be modified
or superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document that is or is
considered to be incorporated by reference modifies or supersedes such
statement. Any statement that is modified or superseded shall not, except as so
modified or superseded, constitute a part of this prospectus.
You may request a copy of any of the documents which are incorporated by
reference in this prospectus, other than exhibits which are not specifically
incorporated by reference into such documents and our Certificate and By-laws,
at no cost, by writing or telephoning Cendant at the following:
Investor Relations
Cendant Corporation
9 West 57th Street
New York, NY 10019
Telephone: (212) 413-1800
45