Cendant Clears Up Affiliations

New York, NY 05-02-2002—Cendant Corporation today provided updated information on its relationships with affiliated entities.


Cendant has entered into these relationships principally to support its business model of growing earnings and cash flow with minimal asset risk. Cendant`s financial statements reflect these relationships in accordance with generally accepted accounting principles (“GAAP”) and such relationships are regularly reviewed by Cendant`s management, its independent auditors, its Audit Committee and its Board of Directors.


As of May 1, 2002, Cendant had investments in Trip Network, FFD Development Company, Trilegiant Corporation, Homestore.com and Entertainment Publications. Cendant does not have the ability to control the operating and financial policies of these entities. Therefore, in accordance with GAAP, these investments are accounted for using the equity method or at cost or classified as available-for-sale debt securities. Accordingly, Cendant is precluded from consolidating the financial statements of these companies. Certain Cendant officers may serve on the board of directors of these entities, but in no instances do they constitute a majority of the board, nor do they receive any economic benefit therefrom. Following is a description for each of Cendant`s investments in unconsolidated entities:


Trip Network, Inc.—During March 2001, Cendant funded the creation of Trip Network, formerly Travel Portal, Inc., with a contribution of assets valued at approximately $20 million in exchange for all of the common and preferred stock of Trip Network. Cendant transferred all of the common shares of Trip Network to an independent technology trust. Cendant`s preferred stock investment, which is convertible into approximately 80% of Trip Network’s common stock on a fully diluted basis, is accounted for using the cost method. The preferred stock investment is not convertible prior to March 31, 2003, except upon a change of control of Trip Network. Subsequently, Cendant contributed $85 million, including $45 million in cash and 1.5 million shares of Homestore common stock, then-valued at $34 million, to Trip Network to pursue the development of an online travel business for the benefit of certain of its current and future franchisees. Since the advance is repayable to Cendant only if the development results in the achievement of certain financial targets, such amount was expensed by Cendant during 2001. Cendant also received warrants to purchase up to 28,250 shares of Trip Network`s common stock, which are exercisable upon the achievement of certain financial targets beginning on March 31, 2003 or upon a change of control of Trip Network.


During October 2001, Cendant entered into two separate lease and licensing agreements with Trip Network, whereby, Trip Network was granted a license to operate the online businesses of Trip.com, Inc. and Cheap Tickets (both wholly-owned subsidiaries of Cendant) and a lease or sublease, as applicable, to all the assets of these companies necessary to operate such businesses. The Trip.com license agreement has a one-year term and is renewable at Trip Network`s option for 40 additional one-year periods. The Cheaptickets.com license agreement has a 40-year term. Under these agreements, Cendant receives a license fee of 3% of revenues generated by Trip.com and Cheaptickets.com during the term of the agreements. Cendant also received warrants to purchase up to 46,000 shares of Trip Network common stock, which are exercisable upon the achievement of certain financial targets beginning in October 2003 or upon a change of control of Trip Network. Also during October 2001, Cendant entered into a travel services agreement with Trip Network, whereby Cendant provides Trip Network with call center services. In addition, Cendant processes and supports Trip Network`s booking and fulfillment of travel transactions and provides travel-related products and services to maintain and develop relationships, discounts and favorable commissions with travel vendors. For these services, Cendant receives a fee of cost plus an applicable mark-up. During 2001, the revenue received by the Company in connection with these agreements was not material. Additionally, during October 2001, Cendant entered into a 40-year global distribution services subscriber agreement with Trip Network, whereby Cendant provides all global distribution services for Trip Network. Cendant is not obligated or contingently liable for any debt incurred by Trip Network. Cendant recorded a prepaid asset of approximately $40 million in connection with this agreement, which is being amortized over 40 years.

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FFD Development Company, LLC—Prior to Cendant`s acquisition of Fairfield in April 2001, Fairfield contributed approximately $60 million of timeshare inventory and $4 million of cash to FFD Development Company LLC. (“FFD”), a company created by Fairfield to acquire real estate for construction of vacation ownership units, which are sold to Fairfield upon completion. In exchange for this contribution, Fairfield received all of the common and preferred equity interests of FFD. Fairfield then contributed all the common equity interest to an independent trust and retained a convertible preferred equity interest, which is convertible at any time, and a warrant to purchase FFD`s common equity. The warrant is not exercisable until April 2004, except upon the occurrence of specified events, including Cendant`s conversion of more than half of its preferred equity interests into common equity interests. In connection with Cendant’s acquisition of Fairfield in April 2001, Cendant owns the preferred equity interest and the warrant to purchase a common equity interest in FFD. Cendant`s preferred equity interest, which approximated $59 million at December 31, 2001, is accounted for using the cost method. During 2001, Cendant recognized dividend income of $6 million, which was paid-in-kind, related to its preferred equity interest in FFD. Upon the conversion of such preferred equity interests and the exercise of such warrant, Cendant would own approximately 75% of FFD`s common equity interests on a fully diluted basis. Cendant is also now obligated to fulfill Fairfield’s purchase commitments with FFD. However, under the development contracts with FFD, Cendant is not obligated to purchase a resort property from FFD until construction is completed to the contractual specifications, a certificate of occupancy is delivered and clear title is obtained. During 2001, Cendant purchased $40 million of timeshare interval inventory and land from FFD and as of December 31, 2001, is obligated to purchase an additional $98 million. Subsequent to December 31, 2001, as is customary in “build to suit” agreements, when Cendant contracts with FFD for the development of a property, Cendant will issue a letter of credit for up to 20% of its purchase price for such property. Drawing under all such letters of credit will only be permitted if Cendant fails to meet its obligation under any purchase commitment. Cendant is not obligated or contingently liable for any other debt incurred by FFD.


Trilegiant Corporation—On July 2, 2001, Cendant entered into an agreement with Trilegiant Corporation, a newly-formed company owned by the former management of Cendant’s Cendant Membership Services and Cendant Incentives subsidiaries, whereby Cendant outsourced its individual membership and loyalty business to Trilegiant. Trilegiant operates membership-based clubs and programs and other incentive-based programs. As part of this agreement, Trilegiant provides fulfillment services to members of Cendant`s individual membership business that existed as of the transaction date in exchange for a servicing fee and licenses and/or leases from Cendant the assets of Cendant`s individual membership business in order to service these members and also to obtain new members. Cendant continues to collect membership fees from, and is obligated to provide membership benefits to, existing members as of July 2, 2001, including their renewals. Trilegiant retains the economic benefits and service obligations for those new members who join the membership based clubs and programs and all other incentive programs subsequent to July 2, 2001 and will recognize the related revenue and expenses. Beginning in third quarter 2002, Cendant will recognize as revenue the royalty income received from Trilegiant for membership fees generated by the new members (initially 5%, increasing to approximately 16% over 10 years). Cendant licensed various tradenames, trademarks, logos, service marks, and other intellectual property relating to its membership business to Trilegiant for 40 years. Upon expiration of the 40 year term, Trilegiant will have the option to purchase any or all of the intellectual property licenses at their then-fair market values.


In connection with the foregoing arrangements, Cendant advanced approximately $100 million to support Trilegiant`s marketing activities and made a $20 million convertible preferred stock investment in Trilegiant, which is convertible into approximately 20% of Trilegiant’s common stock on a fully diluted basis. Cendant expenses the marketing advance as Trilegiant incurs qualified marketing costs. During 2001, Cendant expensed $66 million of the marketing advance. Cendant`s preferred stock investment is mandatorily redeemable and, therefore, classified as an available-for-sale debt security and accounted for at fair value. The preferred stock investment is convertible at any time at Cendant’s option and Cendant is entitled to receive a 12% cumulative non-cash dividend annually through July 2006. During third quarter 2001, Cendant wrote off the entire amount of its preferred stock investment due to operating losses incurred by Trilegiant. During 2001, Cendant paid Trilegiant $128 million in connection with services provided under the outsourcing arrangement and Trilegiant collected $212 million of cash on Cendant`s behalf in connection with membership renewals.


Cendant also provides Trilegiant with a $35 million revolving line of credit under which advances are at the sole and unilateral discretion of Cendant. As of March 31, 2002, Trilegiant had not drawn on this line. During August 2001, Trilegiant entered into marketing agreements with a third party, whereby Trilegiant will provide certain marketing services to the third party in exchange for a commission. As part of its royalty arrangement with Trilegiant, Cendant will participate in those commissions. In connection with these marketing agreements, Cendant provided Trilegiant with a $75 million loan facility bearing interest at a rate of 9% under which Cendant will advance funds to Trilegiant for marketing performed by Trilegiant on behalf of the third party. As of March 31, 2002, the outstanding balance under this facility was $60 million. Such amount will be repaid to Cendant as commissions are received by Trilegiant from the third party.


Additionally, Cendant maintains warrants to purchase up to 2.1 million shares of Trilegiant`s common stock, which are exercisable, upon the achievement of certain financial targets, into a majority ownership interest in Trilegiant. Cendant is not obligated or contingently liable for any debt incurred by Trilegiant.


Homestore.com, Inc.—Cendant`s investment in Homestore results from the sale of Cendant`s real estate Internet portal, move.com, to Homestore in February 2001. In return for the assets of move.com, Cendant received an equity ownership interest in Homestore.com, which approximated 15% as of December 31, 2001 and is accounted for using the equity method of accounting. The carrying value of Cendant`s investment in Homestore has been written down to zero due to a protracted decline in the value of Homestore`s common stock since July 2001 and Cendant`s proportionate share of Homestore`s losses. Accordingly, Cendant`s financial results will no longer reflect the earnings or losses of Homestore. Cendant has no other commitments resulting from this investment.


Entertainment Publications, Inc.—Cendant`s investment in Entertainment Publications results from the disposition of this business in 1999. At such time, Cendant sold 85% of the business to the Carlyle Group and retained the remaining 15%. This investment is accounted for under the equity method of accounting and has virtually no carrying value on Cendant`s books and a de minimis impact on earnings. Cendant has no other commitments resulting from this investment.


Cendant, its predecessors, and companies that were acquired by Cendant, have created the following independent entities. All contributions to these entities were expensed through Cendant`s income statement at the time of contribution.


Hospitality Technology Trust—Hospitality Technology Trust (“HTT”) was established in 1997 to fund the upgrade of Cendant`s lodging franchisees` front desk yield management and other systems. Between the years 1997 and 2000, Cendant funded this trust with total contributions of $95 million. Such amounts were expensed through Cendant`s income statement at the respective time of contribution. At December 31, 2001, HTT had no outstanding debt. Cendant has no investment in HTT and has no obligation to make additional contributions. HTT has complied with all contractual commitments, disbursed all remaining funds and completed the funding of all projects for Cendant lodging franchisees in the second quarter of 2002.


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