EXHIBIT 10.1
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CONFORMED COPY
OUTSOURCING AGREEMENT
by and among
CENDANT CORPORATION,
CENDANT MEMBERSHIP SERVICES HOLDINGS SUBSIDIARY, INC.,
CENDANT MEMBERSHIP SERVICES, INC.
and
TRILEGIANT CORPORATION
Dated as of July 2, 2001
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TABLE OF CONTENTS
Page
ARTICLE I
LEASE OF ASSETS
Section 1.1. CMS Assets...................................2
Section 1.2. [Intentionally Omitted]......................6
Section 1.3. Retained Liabilities.........................6
Section 1.4. Time and Place of Closing....................7
Section 1.5. Purchase and Sale; Newco Shares..............7
Section 1.6. Deliveries by Cendant........................8
Section 1.7. Deliveries by Newco.........................10
Section 1.8. Business Books and Records..................11
Section 1.9. Post-Closing Arrangements...................11
Section 1.10. Treatment of Cendant Guarantees............11
Section 1.11. Definitions................................12
ARTICLE II
CONTINUING ROYALTY PAYMENTS AND RENTAL PAYMENTS
Section 2.1. Payment of Royalties........................16
Section 2.2. Applicable Membership Club Divestitures.....17
Section 2.3. Payment of Retained Member Income...........18
Section 2.4. Rental Payment for Leased Assets............18
Section 2.5. Payment Statements..........................19
Section 2.6. Interest....................................19
Section 2.7. Term of Revenue Obligations.................19
Section 2.8. No Accord and Satisfaction..................19
Section 2.9. No Withholding..............................20
Section 2.10. Computation, Calculation; Disputes.........20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CENDANT
Section 3.1. Organization; Etc...........................20
Section 3.2. Authority Relative to This Agreement........21
Section 3.3. Consents and Approvals; No Violations.......21
Section 3.4. Acquisition of Shares for Investment;
Ability to Evaluate and Bear Risk.........22
Section 3.5. Validity of Shares..........................22
Section 3.6. Assets......................................22
Section 3.7. Availability of Funds.......................23
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Section 3.8. Brokers; Finders and Fees...................23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Section 4.1. Organization; Etc...........................23
Section 4.2. Authority Relative to this Agreement........23
Section 4.3. Consents and Approvals; No Violations.......24
Section 4.4. Capitalization; Ownership of Shares.........24
Section 4.5. Acquisition of Shares for Investment;
Ability to Evaluate and Bear Risk.........25
Section 4.6. Newco Acknowledgment........................25
Section 4.7. Brokers; Finders and Fees...................26
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.1. Conduct of Business of Cendant..............26
Section 5.2. Consents; Cooperation.......................26
Section 5.3. Commercially Reasonable Efforts.............27
Section 5.4. Public Announcements........................27
Section 5.5. Tax Matters.................................27
Section 5.6. Knowledge of Breach; Prior Knowledge........28
Section 5.7. Employees; Employee Benefits................28
Section 5.8. Maintenance of Books and Records
by the Parties; Payment Disputes..........31
Section 5.9. Cendant's Trademarks and Logos..............33
Section 5.10. Transfers Not Effected as of Closing.......33
Section 5.11. Further Actions............................34
Section 5.12. Non-Competition Restrictions...............35
Section 5.13. Non Circumvention; Servicing Retained
Active Members by Newco..................36
Section 5.14. Operation of the Business and
Applicable Membership Clubs Following
the Closing Date.........................37
Section 5.15. Non-Solicitation...........................37
Section 5.16. Cooperation on Certain Litigation Matters..37
Section 5.17. Improvements...............................38
Section 5.18. Confidentiality............................39
ARTICLE VI
GRANT OF LICENSES
Section 6.1. Grant of Trademark License..................41
Section 6.2. Grant of Other Proprietary Rights License...42
Section 6.3. Pre-Existing Licenses.......................42
Section 6.4. Sublicensing................................43
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Section 6.5. Quality Control; Use of Licensed Marks......43
Section 6.6. Ownership of Licensed Intellectual
Property..................................45
Section 6.7. Registrations and Maintenance
of Licensed Intellectual Property.........45
Section 6.8. Newco Marks.................................46
Section 6.9. Infringements...............................46
Section 6.10. Effect of Termination of License...........47
Section 6.11. Option to Purchase Option Marks............47
Section 6.12. Disclaimer of Representations and
Warranties...............................49
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE TRANSACTION
Section 7.1. Conditions to Each Party's
Obligations to Consummate the Agreement...49
Section 7.2. Further Conditions to Cendant's
Obligations...............................49
Section 7.3. Further Conditions to Newco's Obligations...50
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.1. Termination.................................51
Section 8.2. Termination Following Closing...............51
Section 8.3. Procedure for and Effect of Termination.....52
Section 8.4. Additional Remedies for Breach..............52
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1. Survival Periods............................53
Section 9.2. Parent's Agreement to Indemnify.............53
Section 9.3. Newco Agreement to Indemnify................54
Section 9.4. Third-Party Indemnification.................56
Section 9.5. Insurance...................................58
Section 9.6. No Duplication; Sole Remedy.................58
Section 9.7. Indemnification Matters Governed by this
Article IX................................58
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1. Entire Agreement...........................58
Section 10.2. Severability...............................59
Section 10.3. Notices....................................59
Section 10.4. Governing Law; Jurisdiction................60
Section 10.5. Descriptive Headings.......................60
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Section 10.6. Counterparts...............................60
Section 10.7. Assignment.................................61
Section 10.8. Assignment upon Bankruptcy of Newco........61
Section 10.9. Fees and Expenses..........................61
Section 10.10. Interpretation............................62
Section 10.11. No Third-Party Beneficiaries..............62
Section 10.12. No Waivers; Modification..................62
Section 10.13. Specific Performance; Rights and
Remedies................................62
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PAGE
EXHIBITS
Exhibit A Revenues Percentage
OUTSOURCING AGREEMENT
OUTSOURCING AGREEMENT, dated as of July 2, 2001 (this "Agreement"),
by and among Cendant Corporation, a Delaware corporation ("Parent"), Cendant
Membership Services Holdings Subsidiary, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of Parent ("CMS"), and Cendant Membership
Services, Inc., a Delaware corporation and a direct wholly owned subsidiary of
CMS ("Incentives" and, together with CMS and Parent, "Cendant"), and Trilegiant
Corporation, a Delaware corporation ("Newco").
WHEREAS, CMS's Direct Marketing Division is engaged in the business
of operating the membership-based clubs and programs and the incentive based
programs provided by Incentives in the United States and Canada (the
"Business"), identified in Section 1.1(a) of the Cendant Disclosure Schedule (as
hereinafter defined), and is in the process of developing the membership-based
clubs identified in Section 1.1(b) of the Cendant Disclosure Schedule
(collectively, all such clubs referenced in this paragraph, the "Applicable
Membership Clubs"), the primary purpose of which is to offer to the members
thereof benefits, discounted products or services through online and offline
means;
WHEREAS, CMS will purchase 685,270 shares of common stock, par value
$.01 per share ("Common Stock"), of Parent, equal to $13,780,766 based on the
per share closing price of the Common Stock of Parent on the New York Stock
Exchange, Inc. (the "NYSE") on July 2, 2001 ("Parent Shares"), from Cendant
Stock Corporation, in exchange for an 8.0% promissory note with a principal
amount of $13,780,766 from CMS, pursuant to a Bill of Sale (the "CMS Purchase");
WHEREAS, Parent will contribute to Cendant Membership Services
Holdings, Inc., a Delaware corporation and a direct wholly owned subsidiary of
Parent, $1,519,233.50 in cash which immediately thereafter will contribute the
$1,519,233.50 in cash to CMS (the "Parent Cash Contribution");
WHEREAS, CMS will cause certain of its direct and indirect
subsidiaries to distribute all the issued and outstanding shares of SafeCard
Insurance (as hereinafter defined) and Cardwell (as hereinafter defined) to it
(the "Distribution");
WHEREAS, after the Parent Cash Contribution, the CMS Purchase and
the Distribution, CMS will contribute to Newco (a) $1,519,233.50 in cash, (b)
the Parent Shares and (c) the Transferred Subsidiaries (as hereinafter defined)
(collectively, the "CMS Contribution"), in exchange for shares of preferred
stock, par value $.01 per share, of Newco designated Series A 12% Cumulative
Convertible Pay-in-Kind Preferred Stock
(the "Series A Shares"), and Warrants (as hereinafter defined) to acquire shares
of common stock, par value $.001 per share, of Newco ("Newco Common Stock");
WHEREAS, certain employees of Newco (the "Employee Investors") will
contribute to Newco up to $2.8 million (in the aggregate) in cash in exchange
for up to 2.8 million shares of Newco Common Stock (the "Employee Investor
Contribution" and together with the CMS Contribution, the "Contributions");
WHEREAS, each of the Employee Investors intends to make an election
under Section 83(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), with respect to the Newco Common Stock purchased by each of the
Employee Investors pursuant to the Subscription Agreement (as hereinafter
defined);
WHEREAS, for federal income tax purposes, it is intended that the
Contributions will collectively qualify as an integrated transaction described
in Section 351 of the Code; and
WHEREAS, the Parties have agreed to certain other transactions
relating to the Business following the Closing, all of which shall be
consummated in the manner and subject to the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the Parties hereto agree as follows:
ARTICLE I
LEASE OF ASSETS
Section 1.1. CMS ASSETS.
(1) LEASED ASSETS. Subject to the terms of this Agreement and for
the Term (as hereinafter defined), CMS agrees, and agrees to cause one or more
of its respective Affiliates (as hereinafter defined), to lease or sublease to
Newco, and Newco agrees to lease or sublease (on an exclusive basis within the
Territory (as hereinafter defined)), free and clear of all Liens (as hereinafter
defined) except for Permitted Encumbrances (as hereinafter defined), CMS's and
its Affiliates' right, title and interest in and to the assets, properties,
interests and rights of every kind and description and wherever located, as the
same shall exist immediately prior to the Closing used primarily in, arising
primarily from or related primarily to the Business ("Related to the Business"),
including, without limitation, the following (collectively, the "Leased
Assets"):
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(1) all marketing, sales and promotional literature, books,
records, files, documents, financial records, bills, accounting, internal
and audit records, operating manuals, personnel records, member, customer
and supplier lists and files, preprinted materials, art work and other
similar items (excluding tax returns or any written materials relating to
taxes) in the possession of each of Parent and CMS or in the possession of
their respective Affiliates or the representatives of any of them and
Related to the Business (the "Business Books and Records"); PROVIDED,
HOWEVER, that use of such Business Books and Records is subject to (x) the
license agreement set forth in Article VI to the extent that such Business
Books and Records contain Retained Marks (as hereinafter defined) or
Licensed Proprietary Rights (as hereinafter defined) and (y) the
Information Technology Agreement (as hereinafter defined) to the extent
such Business Books and Records involve the use of any Licensed
Proprietary Rights (as hereinafter defined);
(2) all furnishings, furniture, office supplies, fixtures,
equipment and other tangible personal property Related to the Business
except for the computer hardware as provided for in the Information
Technology Agreement;
(3) all the real property located in Cheyenne, Wyoming and
Virginia Beach, Virginia and owned by CMS (collectively, the "Owned Real
Property"); and
(4) all inventories of supplies, spare and replacement parts
and other materials Related to the Business.
For purposes of this Agreement, "Liens" shall mean all liens, pledges, charges,
claims, security interests or other encumbrances. "Permitted Encumbrances" shall
mean (i) Liens for current taxes not yet due or taxes being contested in good
faith, (ii) mechanics', materialmen's, warehousemen's, contractors', workmen's,
repairmen's, carriers' and similar Liens attaching by operation of law, incurred
in the ordinary course of business and securing payments not delinquent or
payments which are being contested in good faith, (iii) the rights, if any, of
third-party suppliers or other vendors having possession of equipment of the
Business, or (iv) imperfections of title and easements and zoning restrictions,
if any, which do not materially detract from the value of the property subject
thereto for the uses and purposes to which such property is currently employed
or materially impair the operations of the Business.
(2) NON-LEASED ASSETS. Notwithstanding anything contained herein to
the contrary, Cendant shall not lease, sublease or otherwise assign, transfer,
convey or deliver, or cause to be leased, subleased or otherwise assigned,
transferred, conveyed or
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delivered, to Newco, and Newco shall not lease or sublease from Cendant the
following assets, properties, interests and rights of Cendant (the "Non-Leased
Assets"):
(1) any revenues collected by Newco in connection with the
Retained Active Members (as hereinafter defined) as set forth in Section
2.4;
(2) any products or services of CMS that are not related to
the Business as conducted on the Closing Date (as hereinafter defined),
including without limitation the products and services provided by
FISI*Madison Financial Corporation, Benefit Consultants, Inc., Cendant
International Membership Services, Inc. and Long Term Preferred Care Inc.
(the "Excluded Products"), provided that any and all products or services
obtained or derived directly or indirectly from the Business and set forth
in Section 1.1(b)(ii) of the Cendant Disclosure Schedule shall be deemed
to not be an Excluded Product;
(3) all accounts receivable Related to the Business created or
existing as of the Closing (as hereinafter defined);
(4) all books and records of Cendant that are primarily
related to the Non-Leased Assets or the Retained Liabilities (as
hereinafter defined);
(5) cash and cash equivalents, such as bank deposits,
certificates of deposits and marketable securities, including any cash
used as collateral for letters of credit or performance bonds in each case
held by Parent or CMS and any cash or cash equivalents held by any of the
Transferred Subsidiaries (as hereinafter defined) (other than amounts
contributed on or prior to the Closing pursuant to the Ancillary
Agreements);
(6) all payments, cash advances against commissions and
recoveries thereof, prepaid commissions, deposits (including security
deposits) and prepaid expenses of Cendant, in each case that are Related
to the Business (except as otherwise contemplated by the Marketing
Agreement (as hereinafter defined));
(7) subject to Article VI, including, but not limited to,
Section 6.1(b), all U.S. and foreign trade names, trademarks, logos or
service marks, product designations, slogans, Internet domain names and
designs, as to all of the foregoing, employing the word "CENDANT,"
"CENDANT MEMBERSHIP SERVICES," "CENDANT INCENTIVES," "CMS," the stylized
"C" logo or anything confusingly similar to any of the foregoing together
with all registrations therefor and recordings thereof and all
applications for registration therefor and
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the goodwill associated therewith (collectively, the "Cendant Trademarks
and Logos");
(8) subject to Article VI, including, but not limited to,
Section 6.1(a), all U.S. and foreign trade names, trademarks, logos or
service marks, product designations, slogans, Internet domain names and
designs relating to any of the Applicable Membership Clubs or anything
confusingly similar thereto together with all registrations and recordings
and all applications for registration, including the registrations and
applications set forth in Section 1.1(b)(viii) of the Cendant Disclosure
Schedule and the goodwill associated therewith (collectively, the
"Membership Club Trademarks and Logos" and, together with the Cendant
Trademarks and Logos, the "Retained Marks");
(9) subject to Article VI, the Licensed Proprietary Rights (as
hereinafter defined) and all intellectual property and proprietary rights
not Related to the Business;
(10) subject to the terms of the Information Technology
Agreement (as hereinafter defined), all software and hardware except as
provided in the Information Technology Agreement;
(11) all insurance policies, binders and prepaid expenses
related to insurance policies and binders that cover the Business or the
Leased Assets (and all rights thereunder) for activities prior to and as
of the Closing (other than any insurance policy that has been obtained by
Newco as of the date hereof or after the date hereof to cover any portion
of the Business);
(12) any refunds (or rights thereto) relating to taxes
attributable to or imposed upon CMS or their conduct of the Business for
activities prior to the Closing;
(13) any ownership interest in any corporation, partnership,
trust or other entity, other than (A) SafeCard Services Insurance Company,
a North Dakota corporation and a direct wholly owned subsidiary of
SafeCard ("SafeCard Insurance"), (B) Cendant Membership Insurance
Services, Inc., a Delaware corporation and a direct wholly owned
subsidiary of CMS ("CMS Insurance"), (C) Cardwell Agency, Inc., a Virginia
corporation and an indirect wholly owned subsidiary of CMS ("Cardwell"),
and (D) Cendant Membership Insurance Services (Canada) Inc., a company
organized and existing under the laws of the province of New Brunswick and
a direct wholly owned subsidiary of CMS ("CMS Insurance Canada" and
collectively, with SafeCard Insurance, CMS Insurance and Cardwell, the
"Transferred Subsidiaries"); and
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(14) the real property leased by CMS (the "Leased Real
Property"), pursuant to the lease agreements listed in Section 1.1(b)(xiv)
of the Cendant Disclosure Schedule.
(a) OTHER ASSETS. Subject to the terms of this Agreement, CMS
agrees, and agrees to cause one or more of its respective Affiliates, to sell,
assign, transfer, convey and deliver to Newco, and Newco agrees to purchase and
acquire (without payment of any additional compensation not contemplated by this
Agreement), free and clear of all Liens, CMS's and its Affiliates' right, title
and interest in and to, all of the contracts, agreements and the real property
leases that are Related to the Business identified in Section 1.1(c) of the
Cendant Disclosure Schedule (the "Assigned Real Property Leases" and, together
with the Leased Real Property, the "Real Property Leases"), including
amendments, supplements, modifications, and side letters related thereto,
including those identified in Section 1.1(c) to the Cendant Disclosure Schedule
(all such contracts, agreements and real property referred to herein in this
paragraph, referred to collectively, the "Contracts").
Section 1.2. [Intentionally Omitted]
Section 1.3. RETAINED LIABILITIES. Subject to the terms of this
Agreement, Newco shall not assume any responsibility for and each of Parent and
CMS shall retain responsibility for only those liabilities set forth below
(collectively, the "Retained Liabilities"):
(1) all accrued expenses Related to the Business as of the date
hereof;
(2) except as provided in Section 5.5, all taxes imposed on CMS or
Parent or attributable to the Leased Assets, including sales and use taxes
relating to sales of membership or product or service, relating to any period
ending on or before the Closing Date;
(3) all accounts payable, commissions payable, notes payable and
bonus accruals Related to the Business and arising in the ordinary course of the
Business prior to the Closing Date;
(4) all contractual earnout provisions of Parent or CMS arising from
any contract in connection with the sale of a subsidiary or Affiliate of Parent
or CMS entered into prior to the Closing including, without limitation, the
Contracts set forth in Section 1.3(d) of the Cendant Disclosure Schedule;
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(5) any liability relating to any action, suit, claim, charge or
proceeding (each, a "Legal Proceeding") set forth in Section 1.3(e) of the
Cendant Disclosure Schedule;
(6) any liability of Cendant arising out of or relating to the
execution, delivery or performance of this Agreement or any of the Ancillary
Agreements; and
(7) any liability or obligation relating to any Non-Leased Assets
set forth in Section 1.1(b).
Section 1.4. TIME AND PLACE OF CLOSING. Upon the terms and subject
to the conditions of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place on the date of
execution of this Agreement at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, Four Times Square, New York, New York 10036, at 4:01 p.m. (local
time); PROVIDED, HOWEVER, if any of the conditions set forth in this Agreement
shall not have been satisfied or waived as of the date of this Agreement, then
the Closing shall take place on the third Business Day following the date on
which the last of the conditions to closing set forth in Section VII are
satisfied or waived, by the Party entitled to waive the applicable condition, or
at such other date, place or time as the Parties may agree in writing. The date
on which the Closing occurs and the transactions contemplated hereby become
effective is referred to herein as the "Closing Date."
Section 1.5. PURCHASE AND SALE; NEWCO SHARES. (a) Upon the terms and
subject to the conditions of this Agreement, at the Closing:
(1) CMS shall contribute, sell, convey, assign, transfer and
deliver to Newco (A) $1,519,233.50 in cash (the "CMS Cash Consideration"),
(B) the Parent Shares and (C) all of the issued and outstanding shares of
Common Stock (including any right to acquire an equity interest in such
entities) of each of the Transferred Subsidiaries (collectively, the
"Transferred Subsidiaries Shares"), in consideration for which, at the
Closing, Newco will issue, sell, convey, assign, transfer and deliver to
CMS, (i) 700,000 Series A Shares and (ii) warrants to acquire (A) 350,000
shares of Newco Common Stock if the Equity Value (as such term is defined
in each warrant) is equal to $200 million or more, (B) 350,000 additional
shares of Newco Common Stock if the Equity Value is equal to $250 million
or more, (C) 350,000 shares of Newco Common Stock if the Equity Value is
equal to $375 million or more, (D) 350,000 shares of Newco Common Stock if
the Equity Value is equal to $500 million or more, (E) 350,000 shares of
Newco Common Stock if the Equity Value is equal to $625 million or more,
and (F) 350,000 shares of Newco Common Stock if the Equity Value is equal
to $750
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million or more, in all cases subject to adjustment under certain
circumstances (collectively, the "Warrants");
(2) The Transferred Subsidiary Shares have an estimated Net
Book Value (as hereinafter defined) in the aggregate equal to
approximately $4.7 million, PROVIDED, the Parties agree that within
forty-five days following the Closing Date, CMS shall determine the actual
Net Book Value of the Transferred Subsidiaries Shares as of June 30, 2001
based upon the June 30, 2001 unaudited balance sheet of the Business
("Actual Amount"). In the event that the Actual Amount is greater than the
$4.7 million, Newco shall pay to CMS an amount in cash equal to the Actual
Amount less $4.7 million. In the event that the Actual Amount is less than
$4.7 million, CMS shall pay to Newco an amount in cash equal to $4.7
million less the Actual Amount. Any payments pursuant to this Section
1.5(b) shall be paid within five days following the determination of the
Actual Amount and shall be paid by wire transfer of immediately available
funds. In addition, the Parties agree that the assets held by each of the
Transferred Subsidiaries on the Closing Date (the "Transferred Subsidiary
Assets") are assets that are Related to the Business, and the Parties
further agree that if, any time after the Closing, it is determined by the
Parties that any of the Transferred Subsidiary Assets are not Related to
the Business, then Newco shall, or shall cause its Affiliates to, execute
and deliver such documents and take any such other actions as are
necessary to effectively convey, assign, transfer and deliver to CMS all
of Newco's rights, title and interests in and to those Transferred
Subsidiary Assets that are not Related to the Business.
(3) Newco shall from time to time following the Closing and
ending 60 days thereafter (the "Subscription Period"), offer for sale and
(if accepted) issue and sell shares of Newco Common Stock to those Newco
employees listed in Section 1.5(b) of the Cendant Disclosure Schedule
(each an "Eligible Employee Investor"); provided, however, that Newco
shall only offer and (if accepted) issue to each Eligible Employee
Investor that number of shares of Newco Common Stock set forth next to the
Eligible Employee Investor's name in Section 1.5(b) of the Cendant
Disclosure Schedule. The number of shares of Newco Common Stock issued at
the Closing and at all Subsequent Closings (as hereinafter defined) shall
not exceed, in the aggregate, 2.8 million shares. In order to accept
Newco's offer as contemplated hereby, each Eligible Employee Investor
shall be required to enter into and become a party to the Subscription
Agreement and the Stockholders Agreement through the execution of a
counterpart signature page thereto. Newco shall furnish copies of the
Private Placement Memorandum (as defined in the Subscription Agreement)
prior to, or concurrently with, the making of any offer contemplated
hereby. Newco and Parent shall mutually establish the dates upon which the
sales contemplated hereby shall be consummated (each, a "Subsequent
Closing").
Section 1.6. DELIVERIES BY CENDANT. At the Closing, Cendant will
deliver the following to Newco:
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(1) a Bill of Sale and Assignment with respect to the
Contracts and the Real Property Leases, duly executed by Cendant;
(2) the CMS Cash Consideration, in immediately available
funds, by wire transfer to an account or accounts designated by Newco
prior to the Closing;
(3) a certificate or certificates representing the Parent
Shares, accompanied by stock powers duly endorsed in blank or accompanied
by duly executed instruments of transfer;
(4) a certificate or certificates representing the Transferred
Subsidiaries Shares, accompanied by stock powers duly endorsed in blank or
accompanied by duly executed instruments of transfer; and
(5) the Stockholders Agreement by and among Parent, Newco and
certain stockholders set forth therein (the "Stockholders Agreement");
(6) the Warrants;
(7) the Marketing and Development Agency Agreement by and
between Newco and CMS (the "Marketing Agreement");
(8) the Transfer Plus Marketing Agreement by and between Newco
and Parent (the "Transfer Plus Agreement") hereto, pursuant to which
Parent will seek to have reservation agents at its central reservation
systems transfer calls to Newco;
(9) the Travel Services Agreement by and between Newco and
Parent (the "Travel Service Agreement");
(10) the Intercompany Agreement by and among Parent, CMS and
Newco (the "Intercompany Agreement");
(11) the Third Party Administrator Agreement by and among
Parent, CMS and Newco (the "TPA Agreement");
(12) the Lease Assignment and Assumption Agreement with
respect to the Leased Real Property set forth in Section 1.6(l) of the
Cendant Disclosure Schedule (the "Lease Assignments");
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(13) the Sublease Agreements by and between CMS and Newco with
respect to the Leased Real Property set forth in Section 1.6(m) of the
Cendant Disclosure Schedule (the "Sublease Agreements");
(14) the Lease Agreement by and between CMS and Newco with
respect to the Owned Real Property (the "Lease Agreements");
(15) the Information Technology Agreement by and among Parent,
Cendant Membership IT Services, Inc. and Newco (the "Information
Technology Agreement");
(16) the Agent Funding Agreement, by and between CMS and Newco
(the "Funding Agreement"); and
(17) all other documents, instruments and writings required to
be delivered by Cendant at or prior to the Closing Date pursuant to this
Agreement.
SECTION 1.7. DELIVERIES BY NEWCO. Subject to the terms and
conditions hereof, at the Closing, Newco will deliver the following to Cendant:
(1) certificates representing the Series A Shares, accompanied
by stock powers duly endorsed in blank or accompanied by duly executed
instruments of transfer;
(2) an Instrument of Assumption duly executed by Newco;
(3) the Stockholders Agreement;
(4) the Warrants;
(5) the Marketing Agreement;
(6) the Transfer Plus Agreement;
(7) the Travel Services Agreement;
(8) the Intercompany Agreement;
(9) the TPA Agreement;
(10) the Lease Assignments;
(11) the Sublease Agreements; (1)
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(12) the Lease Agreements;
(13) the Information Technology Agreement;
(14) the Funding Agreement; and
(15) all other documents, instruments and writings required to
be delivered by Newco at or prior to the Closing Date pursuant to this
Agreement.
Section 1.8. BUSINESS BOOKS AND RECORDS. Cendant agrees to deliver,
or cause to be delivered, to Newco, the Business Books and Records (as
hereinafter defined) at the Closing.
Section 1.9. POST-CLOSING ARRANGEMENTS. Except as set forth in
Section 1.9 of the disclosure schedule being delivered by Cendant to Newco
concurrently herewith (the "Cendant Disclosure Schedule"), or as agreed to in
the Ancillary Agreements, at the Closing all data processing, accounting,
insurance, banking, personnel, legal, communications and other products and
services provided to the Business by Cendant or their respective Affiliates,
including any agreements or understandings (written or oral) with respect
thereto, will terminate without any further action or liability on the part of
the Parties thereto. Notwithstanding the foregoing, the Parties acknowledge that
substantial numbers of services (similar to those contemplated by the preceding
sentence) have been provided by Cendant and their respective Affiliates in
connection with the Membership Clubs prior to and up to the time of the Closing.
In the event that any such services necessary for operation of the Business from
and after the Closing have been inadvertently and unintentionally omitted from
the Intercompany Agreement (the "Omitted Services"), the Parties will use their
reasonable efforts to continue to provide such services on an arm's-length basis
for a fee equal to Actual Cost (as defined in the Intercompany Agreement)
related thereto, and on service terms substantially similar to those provided
for prior to the Closing; provided, however, that in no event shall Cendant be
obligated to (x) provide the Omitted Services if providing such services would
require Parent to allocate personnel in a manner that would adversely impact
Cendant's ability to operate its business or (y) continue such services for more
than 12 months following the Closing Date.
Section 1.10. TREATMENT OF CENDANT GUARANTEES. Following the
Closing, Newco shall use commercially reasonable efforts to release and cancel
the agreements Relating to the Business as set forth on Section 1.10 of the
Cendant Disclosure Schedule (the "Cendant Guarantees"); PROVIDED, HOWEVER, that
to the extent that any Cendant Guarantees cannot be so released and cancelled,
Newco shall use commercially reasonable efforts to cause Newco or one of its
Affiliates to be substituted for Cendant or any of
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their respective Affiliates in respect of the Cendant Guarantees (or if not
possible, added as the primary obligor with respect thereto). In any event,
Newco shall indemnify, defend and hold harmless Cendant or its Affiliates with
respect to all liabilities or expenses that might arise or be incurred by
Cendant or its Affiliates with respect to the Cendant Guarantees and if
requested by Cendant, establish a letter of credit in favor of Cendant to
satisfy any potential liability of Cendant under such Cendant Guarantees.
Section 1.11. DEFINITIONS. The following words as used in this
Agreement shall have the meanings set forth below.
"AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2 of
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended.
"ANCILLARY AGREEMENTS" means the Intercompany Agreement, the TPA
Agreement, the Stockholders Agreement, the Warrants, the Information Technology
Agreement, the Transfer Plus Agreement, the Marketing Agreement, the Travel
Services Agreement, the Lease Assignments, the Lease Agreements and the Sublease
Agreements and all other documents, instruments and writings required to be
delivered by a Party under this Agreement.
"ANNUAL GROSS REVENUE AMOUNT" shall have the meaning set forth in Section
8.4(a).
"APPLICABLE MEMBERSHIP CLUB DIVESTITURE" has the meaning set forth in
Section 2.2 hereof.
"APPLICABLE MEMBERSHIP CLUBS" shall have the meanings set forth in the
recitals.
"BUSINESS DAY" means any day other than Saturday, Sunday, a holiday, a
bank holiday or a day in which the New York Stock Exchange is closed for
business, and shall consist of the time period from 12:00 a.m. through 12:00
midnight Eastern time.
"CENDANT COMPETING BUSINESS" means any business which engages in the
activities prohibited by the provisions of Section 5.12(c).
"CENDANT COMPETITION REVENUE" means consolidated gross revenues generated
from activities in which Newco or its subsidiaries would be restricted from
engaging in pursuant to the provisions of Section 5.12(c).
"CLIENT/PARTNER PARTIES" means the entities and institutions listed in
Section 1.11 of the Cendant Disclosure Schedule.
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"COMPETING BUSINESS" means any business which engages in the activities
prohibited by the provisions of Section 5.12(a).
"COMPETITION REVENUE" means consolidated gross revenues generated from
activities in which Cendant or its subsidiaries would be restricted from
engaging in pursuant to the provisions of Section 5.12(a).
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
5.18 hereof.
"CONTRACT YEAR" means the twelve-month period ending on the first
anniversary of the Closing Date, and each twelve-month period thereafter.
"EMPLOYEE INVESTOR" shall mean employees of Newco that become parties to
the Stockholders Agreement and the Subscription Agreement.
"EXISTING CENDANT BUSINESS" means any or all of Cendant's or any of its
respective subsidiaries' businesses in operation on the Closing Date excluding
the Business.
"EXPIRATION DATE" shall mean the last day of the Term.
"GAAP" shall mean United States generally accepted accounting principles
(and, where applicable, applied on a consistent basis with the principles
utilized by CMS in its Form 10 filed with the Securities and Exchange Commission
prior to the Closing).
"GROSS REVENUE PERCENTAGE" means the applicable percentage of Gross
Revenues as set forth on Exhibit A hereto.
"GROSS REVENUES" means any and all income of any type whether directly or
indirectly generated by activities of any nature of Newco including royalties,
membership fees, sales of products and services, interest, sublicenses, and
rents, all computed exclusive of (i) any gross-up for sales or other taxes, (ii)
refunds paid to New Members and (iii) revenues collected by Newco during any
Income Accrual Period from Retained Actual Members during the Contract Years in
question including (A) commissions paid, (B) refunds paid to Retained Active
Members and (C) any sales or comparable taxes payable in connection with any
such revenues for Retained Active Members, determined in accordance with GAAP
utilized by Newco, consistently applied. The term "Gross Revenues" does not
include interest income, investment income or any other non-operating gains or
losses of the Business.
"INCOME ACCRUAL PERIOD" has the meaning set forth in Section 2.3 hereof.
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"LICENSED BUSINESS" means the operation by Newco of the Applicable
Membership Clubs (as such clubs may be expanded or enhanced), including the sale
of discounted products and services by and through the Applicable Membership
Clubs, and the advertising, offering, marketing and sale of memberships in the
Applicable Membership Clubs through any media now known or hereafter developed
under the Licensed Marks in the Territory.
"LICENSED INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 6.2 hereof.
"LICENSED MARKS" shall mean the Membership Club Trademarks and Logos for
use in connection with the operation of the Applicable Membership Clubs, and
includes variations of such Licensed Marks as and when approved by Cendant
pursuant to Section 6.1 hereof, and all applications and registrations for such
Licensed Marks.
"LICENSED PROPRIETARY RIGHTS" shall have the meaning set forth in Section
6.2 hereof.
"LIQUIDATED DAMAGES EVENT" shall have the meaning set forth in Section
8.4(a).
"LIQUIDATED DAMAGES EVENT NOTICE" shall have the meaning set forth in
Section 8.4(a).
"MEMBERSHIP CLUB" shall mean any membership-based club or program which
has as a primary purpose the offering to members thereof products or services
and/or discounts related to areas falling within the primary focus of the
Applicable Membership Clubs; provided, however, the term "Membership Clubs" does
not, and is not intended to, include Cendant and its Affiliates' businesses (as
such businesses are presently conducted) that provide services to other
businesses owned and operated by unaffiliated third parties that have membership
club servicing needs.
"NET BOOK VALUE" shall mean the assets of the Transferred Subsidiaries
less the liabilities of the Transferred Subsidiaries excluding any receivables
or payables with Parent.
"NET RETAINED REVENUES" shall mean all revenues collected by Newco during
any Income Accrual Period from Retained Active Members during the Contract Years
in question, less (i) commissions paid, (ii) refunds paid to Retained Active
Members and (iii) any sales or comparable taxes payable in connection with any
such revenues.
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"NEW MEMBER" shall mean a member of a Membership Club of Newco who joins
as a member of such Membership Club following the Closing Date.
"NEWCO ADD-ON ACCRUAL PERIOD" shall have the meaning set forth in Section
2.4(a).
"NEWCO ADD-ON AMOUNT" shall mean the amount of depreciation recognized
under GAAP by Newco or any of its respective Affiliates for the Newco Assets for
the applicable Newco Accrual Period multiplied by the Retained Member
Percentage.
"NEWCO ASSETS" shall have the meaning set forth in Section 2.4(b).
"NEWCO MARKS" has the meaning set forth in Section 6.8 hereof.
"PARTY" means any of the Parties to this Agreement; "PARTIES" means all
the Parties to this Agreement; PROVIDED, HOWEVER, that unless the context
suggests otherwise, Trilegiant Corporation is to be considered as one Party and
Cendant Corporation, Cendant Membership Services, Inc. and Cendant Membership
Services Holdings Subsidiary, Inc. are to be considered together as one Party.
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization or a governmental entity (or any department, agency
or political subdivision thereof).
"RENTAL AMOUNT" shall mean the amount of depreciation recognized under
GAAP by Parent or CMS or any of their respective Affiliates for the Leased
Assets for the applicable Rental Amount Accrual Period multiplied by the
Retained Member Percentage.
"RENTAL AMOUNT ACCRUAL PERIOD" shall have the meaning set forth in Section
2.4.
"RENTAL AMOUNT PAYMENT DATE" shall have the meaning set forth in Section
2.4.
"RENTAL AMOUNT STATEMENT" shall have the meaning set forth in Section
2.5(c).
"RETAINED ACTIVE MEMBERS" shall mean a member of an Applicable Membership
Club who is enrolled as a member of such Applicable Membership Club as of the
Closing Date and who (i) continues to be a member of such Applicable Membership
Club or (ii) modifies the existing products or benefits received through the
Applicable Membership Club by upgrading or downgrading such products or benefits
in connection with any written or oral communication with such member by Newco
as an existing member of
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such Applicable Membership Club, in each case, during any period for which a
calculation of Net Retained Revenues is made hereunder.
"RETAINED MEMBER INCOME" shall mean the Net Retained Revenues less the
cost of Administrator Compensation (as defined in Section 1.2 of the TPA
Agreement) and paid in accordance with Section 2.3 hereof.
"RETAINED MEMBER PERCENTAGE" shall mean a percentage, the numerator of
which shall be the number of Retained Active Members during the applicable
Rental Amount Accrual Period (calculated based upon a weighted average of
month-end Retained Active Members for each month during such Rental Amount
Accrual Period) and the denominator of which shall be the Total Members
(calculated based upon a weighted average of month-end Total Members for each
month during such Rental Amount Accrual Period).
"ROYALTY ACCRUAL PERIODS" has the meaning set forth in Section 2.1 hereof.
"ROYALTY PAYMENTS" has the meaning set forth in Section 2.1 hereof.
"TERM" shall mean the period commencing on the Closing Date and continuing
until the fortieth anniversary of the Closing Date unless otherwise terminated
by Cendant as provided herein.
"TERRITORY" shall mean Canada and the United States and each of their
territories, protectorates and possessions, collectively.
"TOTAL MEMBERS" shall mean the total number of members of the Membership
Clubs (which number shall include both Retained Active Members and New Members).
"TRANSITION MARKS" shall have the meaning set forth in Section 6.1(b)
hereof.
"YEARLY ROYALTY AMOUNT" shall have the meaning set forth in Section
8.4(a).
ARTICLE II
CONTINUING ROYALTY PAYMENTS AND RENTAL PAYMENTS
Section 1.12. PAYMENT OF ROYALTIES. (a) Newco agrees to pay to CMS
certain payments in accordance with the terms and conditions set forth in this
Article II (the "Royalty Payments") in exchange for the Contracts, the licenses
set forth in Article VI and the covenant not to compete set forth in Section
5.12(a). Royalty Payments shall be due and payable quarterly on Gross Revenues
in the amount calculated pursuant to this
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Article II which are recognized quarterly during Contract Year Two through and
including Contract Year Forty (each such quarterly period, a "Royalty Accrual
Period"). Royalty Payments in respect of any Royalty Accrual Period shall be
remitted to CMS no later than the last Business Day of the next calendar month
following the end of each applicable quarterly period (each such date, a
"Royalty Payment Date"). The first Royalty Payment Date shall be on October 31,
2002 reflecting the Royalty Payments accrued during the Royalty Accrual Period
of July 2, 2002 through September 30, 2002.
(1) The Royalty Payments due in respect of any Royalty Accrual
Period shall be equal to the product obtained by multiplying the applicable
Gross Revenues Percentage by the amount of Gross Revenues recognized in such
Royalty Accrual Period; as to the foregoing, the Gross Revenues Percentage will
change as the revenue thresholds in Exhibit A are exceeded, and, for any quarter
during which a threshold is exceeded, the higher percentage shall apply as to
revenues recognized up to the threshold amount, and the lower percentage will
apply as to the balance of revenues recognized during such quarter. For
illustrative purposes only, in Contract Year Four, if during a certain Royalty
Accrual Period, Gross Revenues equal $215 million, the Royalty Payment due shall
be 14% of $50 million, plus 10% of $50 million, plus 7% of $100 million, plus 5%
of $15 million, which equals $19.75 million.
Section 1.13. APPLICABLE MEMBERSHIP CLUB DIVESTITURES. In the event
that Newco or any of its Affiliates divest, sell, transfer, license or otherwise
convey the right to operate any or all of the Applicable Membership Clubs or any
specific product lines of the Applicable Membership Clubs (whether by, direct or
indirect, merger, consolidation, reorganization, liquidation, dissolution, sale
of stock or any ownership interest, of the transfer of assets or otherwise)
(each, a "Applicable Membership Club Divestiture") to any third party
("Third-Party Transferee"), the Gross Revenues from such Applicable Membership
Clubs shall continue to be included in the calculation of Gross Revenues for the
purposes of Section 2.1(b), as if the Applicable Membership Club Divestiture did
not occur. In connection with any Applicable Membership Club Divestiture, Newco
agrees to enter into a written agreement with the Third-Party Transferee
requiring the Third-Party Transferee to provide Newco with quarterly statements,
from the date of the Applicable Membership Club Divestiture until the end of
Contract Year Forty, disclosing the Gross Revenues earned by the transferred
Applicable Membership Club during the relevant quarterly period. The written
agreement between Newco and the Third-Party Transferee shall be subject to the
prior approval of Cendant (such approval not to be unreasonably withheld or
delayed and to be limited to compliance with the terms of this Section 2.2) and
shall provide Newco with the right, upon the reasonable request and at the sole
expense of Newco or Cendant, to examine and audit the Third-Party Transferee's
books and records relating to the transferred Applicable Membership Club, and to
make copies and extracts therefrom, for the purpose of
17
confirming the accuracy of any quarterly Gross Revenues statement provided by
the Third-Party Transferee to Newco.
Section 1.14. PAYMENT OF RETAINED MEMBER INCOME. Newco agrees to
pay to CMS an amount equal to the Retained Member Income in accordance with
the terms and conditions set forth in this Section 2.3. Retained Member
Income shall be due quarterly for each calendar quarter during Contract Year
One through and including Contract Year Forty (each, an "Income Accrual
Period"). The Retained Member Income in respect of any Income Accrual Period
shall be remitted to CMS no later than on the fifteenth calendar day of the
next calendar month following the end of such quarterly period (each such
date an "Income Payment Date"). The first Income Payment Date shall be on
October 15, 2001, reflecting Retained Member Income accrued during the Income
Accrual Period of July 2, 2001 through September 30, 2001.
Section 1.15. RENTAL PAYMENT FOR LEASED ASSETS. (a) Newco agrees to
pay the Rental Amount to CMS in exchange for the lease of the Leased Assets
pursuant to the terms of this Agreement. The Rental Amount shall be due and
payable quarterly for each calendar quarter during Contract Year One through
Contract Year Forty (each, a "Rental Amount Accrual Period"), provided that CMS
furnish a written notice to Newco of the amount of depreciation recognized under
GAAP by Parent or CMS or any of their respective Affiliates for the Leased
Assets within five days following the end of each Rental Amount Accrual Period.
The Rental Amount in respect of any Rental Amount Accrual Period shall be
remitted to CMS no later than the fifteenth calendar day of the next calendar
month following the end of the applicable quarterly period (each such date, a
"Rental Amount Payment Date"). The first Rental Amount Payment Date shall be on
October 15, 2001, reflecting Rental Amounts accrued during the period of July 2,
2001 through September 30, 2001.
(1) CMS agrees to pay the New Add-on Amount to Newco in exchange for
any improvements to the Leased Assets by Newco or new assets acquired by Newco
during the term, in each case, that are utilized by Newco in connection with
servicing the Retained Active Members (the "Newco Assets"). The New Add-on
Amount shall be due and payable quarterly for each calendar quarter during
Contract Year One through Contract Year Forty (each, a "Newco Add-on Accrual
Period"), provided that Newco agrees to provide written notice to CMS of the
Retained Member Percentage for each Newco Add-on Accrual Period and the amount
of depreciation recognized under GAAP by Newco or any of their respective
Affiliates of the Newco, within five days of the end of any Newco Add-on Accrual
Period. The Newco Add-on Amount in respect of any Newco Add-on Accrual Period
shall be remitted to Newco no later than on the fifteenth calendar day of the
next calendar month following the end of such quarterly period. Newco and CMS
agree to set-off the Rental Amount and the New Add-on Amount against one another
for each Rental Account Accrual Period and Newco Rental
18
Accrual Period and the respective Parties agree to pay either the Rental Amount
or the New Add-on Amount, as the case may be, to the extent the Rental Amount or
the New Add-on Amount exceeds each other.
Section 1.16. PAYMENT STATEMENTS. (a) Each Royalty Payment shall be
accompanied by a written statement of account and certified as accurate by the
Chief Financial Officer of Newco (each, a "Royalty Payment Statement"). Each
Royalty Payment Statement shall set forth, in reasonable detail, the manner in
which such Royalty Payments were calculated, including but not limited to, the
Gross Revenues and applicable Gross Revenue Percentages.
(1) Each payment of Retained Member Income shall be accompanied by a
written statement of account, and certified as accurate by the Chief Financial
Officer of Newco (each, a "Retained Member Income Statement"). Each Retained
Member Income Statement shall set forth, in reasonable detail, the manner in
which such Retained Member Income and Net Retained Revenues were calculated.
(2) Each payment of Rental Amounts or Newco Add-on Amounts shall be
accompanied by a written statement of account, and certified as accurate by the
Chief Financial Officer of Newco in the case of a Rental Amount (each, a "Rental
Amount Statement") or the Chief Financial Officer of CMS in the case of a Newco
Add-on Amount (each, a "Newco Add-on Amount Statement"). Each Rental Amount
Statement or Newco Add-on Amount Statement shall set forth, in reasonable
detail, the manner in which such Rental Amount or Newco Add-on Amounts, Retained
Members Percentage and Total Members were calculated, as the case may be.
Section 1.17. INTEREST. In the event that Newco shall fail to
timely pay any Royalty Payments, Retained Member Income or Rental Amount due
hereunder then, in addition to all other remedies which CMS may have, CMS
shall be entitled to recover from Newco interest on such monies from the date
due at a rate equal to three hundred basis points above the "Prime Rate"
quoted in the New York City Edition of THE WALL STREET JOURNAL on the Royalty
Payment Date, or at such lesser rate as shall be the maximum interest rate
allowed by Law (as hereinafter defined).
Section 1.18. TERM OF REVENUE OBLIGATIONS. Newco's obligations to
pay Royalty Payments, Retained Member Income and Rental Amounts shall continue
until the end of the Term. CMS's obligation to pay the Newco Add-on Amount shall
continue until the end of the Term.
Section 1.19. NO ACCORD AND SATISFACTION. CMS's acceptance of any
Royalty Payment, Retained Member Income or Rental Amount payment by Newco of
a lesser amount than that properly payable under this Agreement, CMS's
endorsement on
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any check, or any statement in any letter accompanying any check or payment,
shall not be deemed an accord and satisfaction (and Newco agrees not to assert
otherwise), unless specifically so agreed by CMS in a written agreement, and CMS
may accept such payment or check without prejudice to its right to recover the
balance of any Royalty Payments, Retained Member Income or Rental Amount owed or
to pursue any other remedy provided in this Agreement in equity or at Law.
Section 1.20. NO WITHHOLDING. Any and all payments by Newco to CMS
under this Agreement shall be made free and clear of any withholding deduction
for any and all taxes, levies, deductions, charges or withholdings of any kind.
Section 1.21. COMPUTATION, CALCULATION; DISPUTES. (a) All
calculations and computations to be made under this Article II shall be made
by Newco. In each case, Newco shall provide any such calculation or
computation to CMS promptly in accordance with the provisions of Section 2.5
above. Subject to Sections 5.8(b) through 5.8(f), CMS shall have the right to
accept or reject, in good faith, such computation or calculation, provided
that CMS shall notify Newco in writing of any dispute with respect to such
computation or calculation, specifying the amount thereof in dispute (the
"Deficiency Amount") and setting forth, in reasonable detail, the basis for
such dispute (the "Dispute Amount").
(1) Any payments required to be made pursuant to any such
computation or calculation shall be made on a timely basis, as otherwise
required under this Agreement, subject to resolution of any dispute with regard
to the computation or calculation. Upon resolution of any such dispute, any
adjustment shall be made by prompt payment from CMS to Newco, or Newco to CMS,
as appropriate, in each case with interest from the date when the respective
payment was due as set forth in Section 2.6.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CENDANT
Each of Parent, CMS and Incentives hereby represents and warrants to
Newco as follows:
Section 1.22. ORGANIZATION; ETC. (a) Each of Parent, CMS and
Incentives and each of the Transferred Subsidiaries (i) is a corporation validly
existing and in good standing under the Laws of its jurisdiction of
incorporation, (ii) has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business
substantially as it is now being conducted, and (iii) is duly qualified and in
good
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standing to do business in each jurisdiction in which the nature of its business
or the ownership, operation or leasing of its properties makes such
qualification necessary, except where the failure to be so existing and in good
standing, to have such power and authority or to be so qualified would not,
individually or in the aggregate, have a Business Material Adverse Effect (as
hereinafter defined).
(1) As used in this Agreement, the term "Business Material Adverse
Effect" shall mean a material adverse change in, or effect on, the Leased Assets
or the business, financial condition or results of operations of the Business
taken as a whole; PROVIDED, HOWEVER, that the effects of changes that exist on
the date hereof and have been reflected in this Agreement or disclosed in the
Cendant Disclosure Schedule or that are otherwise known to the senior management
of the Business or that are generally applicable to the industries in which the
Business operates or to the economy of the United States or the other
jurisdictions in which the Business is conducted generally or resulting from the
announcement of the transactions contemplated hereby shall be excluded from such
determination.
Section 1.23. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of
Parent, CMS and Incentives has the requisite corporate power and authority to
execute and deliver this Agreement and each of the Ancillary Agreements to
which it is to be a Party and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the Ancillary
Agreements to which it is to be a Party and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action on the part of each of Parent, CMS and Incentives.
This Agreement has been and each of the Ancillary Agreements to which it is
to be a Party will be, at the Closing, duly and validly executed and
delivered by each of Parent, CMS and Incentives and (assuming this Agreement
has been and each of the Ancillary Agreements to which it is to be a Party
will at the Closing be duly authorized, executed and delivered by Newco)
constitutes or will at the Closing constitute a valid and binding agreement
of each of Parent, CMS and Incentives, enforceable against each of Parent,
CMS and Incentives in accordance with its terms, except that (a) such
enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other Laws, now or hereafter in effect,
relating to or limiting creditors' rights generally and (b) enforcement of
this Agreement and the Ancillary Agreements, including, among other things,
the remedy of specific performance and injunctive and other forms of
equitable relief, may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
Section 1.24. CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set
forth in Section 3.3 of the Cendant Disclosure Schedule or in any Ancillary
Agreement, neither the execution, delivery or performance of this Agreement or
any of the Ancillary Agreements by each of Parent, CMS and Incentives nor the
consummation by each of
21
Parent, CMS and Incentives of the transactions contemplated hereby or by any of
the Ancillary Agreements will (a) conflict with or result in any breach of any
provision of the certificate of incorporation, by-laws or comparable
organizational documents of each of Parent, CMS and Incentives, (b) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, or require any consent under, any indenture, license,
contract, agreement or other instrument or obligation to which any of Parent,
CMS and Incentives is a Party or by which any of them or any of their respective
properties or assets are bound, (c) violate any order, writ, injunction, decree
or award rendered by any Governmental Entity (as hereinafter defined) or any
statute, rule or regulation (collectively, "Laws" and, individually, a "Law"),
applicable to any of Parent, CMS and Incentives or any of their respective
properties or assets, or (d) require any filing with, or the obtaining of any
permit, authorization, consent or approval of, any governmental or regulatory
authority or tribunal, domestic or foreign (a "Governmental Entity"), except in
the case of clauses (b), (c) and (d) of this Section 3.3 for any such
violations, breaches, defaults, rights of termination, cancellation or
acceleration or requirements that, individually or in the aggregate, (x) would
not have a Business Material Adverse Effect or would not adversely affect the
ability of any of Parent, CMS and Incentives to consummate the transactions
contemplated by this Agreement or (y) become applicable as a result of the
business or activities in which Newco is or (other than in respect of its
acquisition of the Leased Assets) proposes to be engaged or as a result of any
acts or omissions by, or the status of or any facts pertaining to, Newco.
Section 1.25. ACQUISITION OF SHARES FOR INVESTMENT; ABILITY TO
EVALUATE AND BEAR RISK. Except transfers between Affiliates of Cendant, (a) CMS
is acquiring the Series A Shares and Warrants for investment and not with a view
toward, or for sale in connection with, any distributions thereof, nor with any
present intention of distributing or selling such Series A Shares and Warrants
and (b) CMS agrees that the Series A Shares and Warrants may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the Securities Act of 1933, as amended (the "Act"),
and any applicable state securities Laws, except pursuant to an exemption from
such registration under the Act and such Laws.
Section 1.26. VALIDITY OF SHARES. Each of the Parent Shares and
the Transferred Subsidiaries Shares when sold and delivered to Newco in
accordance with the terms of this Agreement will be validly issued, fully
paid and nonassessable and free and clear of all Liens other than Liens
imposed as a result of actions by Newco or its Affiliates (other than Parent
and CMS and their respective Affiliates).
Section 1.27. ASSETS. Except as set forth in Section 3.6 of the
Cendant Disclosure Schedule, CMS has good and marketable title to, or a valid
leasehold interest in or right to use by license or otherwise, the Leased Assets
(other than Owned Real
22
Property) and the Licensed Intellectual Property, free and clear of all Liens,
except for Permitted Encumbrances.
Section 1.28. AVAILABILITY OF FUNDS. CMS will at the Closing have
sufficient immediately available funds, in cash, to pay the CMS Cash
Consideration and to pay any other amounts payable pursuant to this Agreement
and to effect the transactions contemplated hereby.
Section 1.29. BROKERS; FINDERS AND FEES. Except for Goldman Sachs &
Co., whose fees will be paid by Parent, each of Parent, CMS and Incentives has
not employed any investment banker, broker or finder or incurred any liability
for any investment banking fees, brokerage fees, commissions or finders' fees in
connection with this Agreement, the Ancillary Agreements or the transactions
contemplated hereby and thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to each of Parent, CMS and
Incentives as follows:
Section 1.30. ORGANIZATION; ETC. Newco is a corporation validly
existing and in good standing under the Laws of the jurisdiction of its
organization.
Section 1.31. AUTHORITY RELATIVE TO THIS AGREEMENT. Newco has the
requisite corporate power and authority to execute and deliver this Agreement
and the Ancillary Agreements to which it is to be a Party and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and each of the Ancillary Agreements to which it is to be a Party
and the consummation of the transactions contemplated hereby have been duly
and validly authorized by all requisite corporate action on the part of
Newco. This Agreement has been and each of the Ancillary Agreements to which
it is to be a Party will at the Closing be duly and validly executed and
delivered by Newco and (assuming this Agreement has been and each of the
Ancillary Agreements to which it is to be a Party will at the Closing be duly
authorized, executed and delivered by each of Parent, CMS and Incentives)
constitutes or will at the Closing constitute a valid and binding agreement
of Newco, enforceable against Newco in accordance with its terms, except that
(a) such enforcement may be subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other Laws, now or
hereafter in effect, relating to or limiting creditors' rights generally and
(b) enforcement of this Agreement and the Ancillary Agreements, including,
among other
23
things, the remedy of specific performance and injunctive and other forms of
equitable relief, may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 1.32. CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the
execution, delivery and performance of this Agreement or any of the Ancillary
Agreements by Newco nor the consummation by Newco of the transactions
contemplated hereby or by any of the Ancillary Agreements will (a) conflict with
or result in any breach of any provision of the certificate of incorporation or
by-laws of Newco, (b) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or require any
consent under, any indenture, license, contract, agreement or other instrument
or obligation to which Newco is a Party or by which any of its properties or
assets may be bound, (c) violate any order, writ, injunction, decree or Laws
applicable to Newco or any of its properties or assets, or (d) require any
filing with, or the obtaining of any permit, authorization, consent or approval
of, any Governmental Entity, except in the case of clauses (b), (c) and (d) of
this Section 4.3 for any such violations, breaches, defaults, rights of
termination, cancellation or acceleration or requirements that, individually or
in the aggregate, would not have a Newco Material Adverse Effect (as hereinafter
defined). As used in this Agreement, the term "Newco Material Adverse Effect"
shall mean an event, change or circumstance that has been or is materially
adverse to the operations or conditions (financial or otherwise) of Newco or
that would adversely affect the ability of Newco to consummate the transactions
contemplated hereby or to perform their obligations hereunder.
Section 1.33. CAPITALIZATION; OWNERSHIP OF SHARES. (a) The
authorized capital stock of Newco at the Closing will consist of 15,000,000
shares of Newco Common Stock, of which 2,800,000 shares are intended to be
issued and outstanding as of the Closing (which, for purposes of this Section
4.4, shall be deemed to include any Subsequent Closing), and 5,0000,000 shares
of preferred stock, par value $.01 per share (the "Newco Preferred Stock" and,
together with Newco Common Stock, the "Capital Stock"), 2,000,000 shares of
which are designated as the Series A Shares, of which 700,000 shares are
intended to be issued and outstanding as of the Closing (which, for purposes of
this Section 4.4, shall be deemed to include any Subsequent Closing). As of the
Closing Date, there will be issued and outstanding Warrants to purchase
2,100,000 shares of Newco Common Stock. All the outstanding shares of the
Capital Stock have been duly issued and are fully paid and non-assessable and
were issued in compliance with all applicable state and federal Laws concerning
the issuance of securities. The rights, preferences, privileges and restrictions
of the Series A Shares are as stated in Newco's Certificate of Designation for
the Series A Shares. Except as set forth in the Subscription Agreement, dated as
of the date hereof (the "Subscription Agreement") or the Stockholders Agreement,
holders of shares of Newco Common Stock, Newco
24
Preferred Stock and Senior A Shares have no preemptive rights. Except for the
transactions contemplated by this Agreement, the Subscription Agreement, the
Stockholders Agreement and the Warrants, there are (i) no outstanding warrants,
options, convertible securities or rights to subscribe for or purchase any
Capital Stock or other securities from Newco, (ii) no voting trusts or voting
agreements among, or irrevocable proxies executed by, stockholders of Newco,
(iii) no existing rights of stockholders to require Newco to register any
securities of Newco or to participate with Newco in any registration by Newco of
its securities, (iv) no agreements among the stockholders providing for the
purchase or sale of Newco's Capital Stock and (v) no obligations of Newco to
purchase, redeem or otherwise acquire any shares of its Capital Stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
(1) The Series A Shares to be sold pursuant to this Agreement, when
issued, sold and delivered in accordance with the terms of this Agreement, will
be duly and validly issued, fully paid and non-assessable and will be free and
clear of all Liens other than Liens imposed as a result of actions by any of
Parent, CMS or Incentives or their respective Affiliates or pursuant to the
Stockholders Agreement. The shares of Newco Common Stock issuable upon
conversion of the Series A Shares have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Newco's
Certificate of Designation for the Series A Shares, will be duly and validly
issued, fully paid, non-assessable and will be free and clear of all Liens other
than Liens imposed as a result of actions by any of Parent, CMS or Incentives or
their respective Affiliates or pursuant to the Stockholders Agreement.
Section 1.34. ACQUISITION OF SHARES FOR INVESTMENT; ABILITY TO
EVALUATE AND BEAR RISK. Newco is acquiring the Transferred Subsidiaries Shares
for investment and not with a view toward, or for sale in connection with, any
distributions thereof, nor with any present intention of distributing or selling
such Transferred Subsidiaries Shares. Newco is acquiring the Parent Shares in
accordance with the Act and not with a view toward, or for sale in connection
with, any distributions thereof in violation of the Act. Newco agrees that the
Transferred Subsidiaries Shares and the Parent Shares (except for transfers to
certain Employee Investors) may not be sold, transferred, offered for sale,
pledged, hypothecated or otherwise disposed of without registration under the
Act, and any applicable state securities Laws, except pursuant to an exemption
from such registration under the Act and such Laws.
Section 1.35. NEWCO ACKNOWLEDGMENT. Subject to Section 5.6, upon
entering into this Agreement, Newco acknowledges that it has relied, and
shall be entitled to rely, solely upon the representations and warranties
made in Article III of this Agreement as modified by the Cendant Disclosure
Schedule (and subject to the limitations contained in this Agreement). Newco,
also acknowledges that the officers and employees of the Business hold equity
in Newco and are familiar with the Business and all matters
25
related to or affecting the Business, including the fact that, prior to the
Closing, the Parties may not request or attempt to obtain or obtain third-party
consents which may be deemed to be required by virtue of the consummation of the
transactions contemplated pursuant to this Agreement and the Ancillary
Agreements and, notwithstanding anything to the contrary in this Agreement, each
of Parent, CMS and Incentives and their respective Affiliates (other than Newco)
shall not be liable to Newco or any of its directors, officers, employees,
Affiliates, controlling persons, agents and representatives for such matters.
Section 1.36. BROKERS; FINDERS AND FEES. Neither Newco nor any of
its Affiliates has employed any investment banker, broker or finder or incurred
any liability for any investment banking, financial advisory or brokerage fees,
commissions or finders' fees in connection with this Agreement, the Ancillary
Agreements or the transactions contemplated hereby.
ARTICLE V
COVENANTS OF THE PARTIES
Section 1.37. CONDUCT OF BUSINESS OF CENDANT. If the date of this
Agreement is not also the Closing Date, during the period from the date of
this Agreement to the Closing Date, except (x) as otherwise contemplated by
this Agreement or the transactions contemplated hereby, (y) for those matters
set forth in Section 5.1 of the Cendant Disclosure Schedule, or (z) consented
to by Newco in writing, each of Parent, CMS and Incentives agrees that,
solely in connection with the Business, it shall use its commercially
reasonable efforts to conduct the Business in the ordinary course consistent
with past practice and use all commercially reasonable efforts to preserve
intact the current Business organization, and use all commercially reasonable
efforts to keep available the services of the Business' current officers and
other key employees and preserve relationships with those persons having
business dealings with the Business to the end that its goodwill and ongoing
businesses shall be unimpaired at the time of the Closing.
Section 1.38. CONSENTS; COOPERATION. Each of the Parties shall
cooperate and continue to use their commercially reasonable efforts to obtain
all licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities and other third parties necessary to consummate
the transactions contemplated by this Agreement. In addition to the foregoing,
Newco agrees to use its commercially reasonable efforts to provide such
assurances as to financial capability, resources and creditworthiness as may be
reasonably requested by any third party whose consent or approval is sought
hereunder.
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Section 1.39. COMMERCIALLY REASONABLE EFFORTS. Each of the Parties
shall cooperate and use its commercially reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Laws to consummate and make effective the
transactions contemplated by this Agreement.
Section 1.40. PUBLIC ANNOUNCEMENTS. Prior to the Closing, except as
otherwise agreed to by the Parties, the Parties shall not issue any report,
statement or press release or otherwise make any public statements with respect
to this Agreement and the transactions contemplated hereby, except as in the
reasonable judgment of a Party may be required by Law or in connection with its
obligations as a publicly held, exchange-listed company in the United States, in
which case the Parties will use their commercially reasonable best efforts to
reach mutual agreement as to the language of any such report, statement or press
release. Upon the signing of this Agreement and upon the Closing, the Parties
will consult with each other with respect to the issuance of a joint report,
statement or press release with respect to this Agreement and the transactions
contemplated hereby.
Section 1.41. TAX MATTERS.
(1) TRANSFER TAXES. All sales (including, without limitation, bulk
sales), use, transfer, recording, ad valorem, privilege, documentary, gross
receipts, registration, conveyance, excise, license, gains, stamp, duties or
similar taxes and fees, together with any interest, additions, or penalties with
respect thereto and any interest in respect of such addition or penalties
(collectively, the "Transfer Taxes"), arising out of, in connection with or
attributable to the transactions contemplated pursuant to this Agreement shall
be borne and paid by Newco. The Party which has primary legal responsibility for
the payment of any particular Transfer Tax (the "Payor") shall prepare all
relevant tax returns required to be filed in respect of such Transfer Tax, pay
the Transfer Tax shown on such tax return and notify the other Parties in
writing of the Transfer Tax shown on such tax return and how such Transfer Tax
was calculated and if the Payor is Cendant, Newco shall pay to the Payor the
amount of such Transfer Tax in immediately executable funds within five Business
Days prior to the due date for filing such tax returns.
(2) PARENT OPTIONS. The Parties to this Agreement shall treat, with
respect to the exercise by any Affected Employee (as hereinafter defined) or a
permitted transferee of any existing option to purchase Parent Shares (the
"Parent Options"), any amount that is required to be included in the gross
income of such Affected Employee in respect of such exercise as an amount that
may be properly deductible by Cendant or an Affiliate thereof.
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(3) ASSISTANCE AND COOPERATION. After the Closing Date, (i) Newco
shall, and shall cause its Affiliates to, provide and make available to Cendant
all information relating to taxes of Cendant or the Business that is required by
Cendant in connection with the preparation or filing of any tax return of
Cendant or any matter relating to taxes of Cendant; and (ii) Cendant shall, and
shall cause their controlled Affiliates to, provide and make available to Newco
all information relating to taxes of the Business that is required by Newco in
connection with the preparation or filing of any tax return of Newco or any
matter relating to taxes of Newco.
Section 1.42. KNOWLEDGE OF BREACH; PRIOR KNOWLEDGE. If prior to
the Closing Newco or any Employee Investor shall have actual knowledge of any
breach of a representation and warranty of Cendant, Newco shall promptly
notify Parent of its knowledge, in reasonable detail. No breach by Cendant of
any representation, warranty, covenant, agreement or condition of this
Agreement shall be deemed to be a breach of this Agreement for any purpose
hereunder, and neither Newco nor any Affiliate of Newco shall have any claim
or recourse against Cendant or its respective directors, officers, employees,
Affiliates, controlling persons, agents, advisors or representatives with
respect to such breach, under Article IX or otherwise, if Newco, any
Affiliate of Newco or any Employee Investor had actual knowledge prior to the
Closing of such breach or of the threat of such breach or the circumstances
giving rise to such breach.
Section 1.43. EMPLOYEES; EMPLOYEE BENEFITS. (a) Effective as of
the Closing, Newco shall offer to employ, in comparable positions, all
employees of the Business who are active employees immediately prior to the
Closing and any employee who is, on such date, on disability or medical leave
or on an approved leave of absence upon such employee's return (the "Affected
Employees"). On and after the Closing, until at least the first anniversary
of the Closing, Newco or its Affiliates shall provide Affected Employees who
accept an offer of employment by Newco or its Affiliates with salaries,
incentive opportunities and benefit plans, programs and arrangements
comparable in the aggregate to those currently provided by Parent and CMS as
of the date hereof.
(1) From the Closing until December 31, 2001 (the "Benefits
Transition Period"), Parent will continue to (i) provide to the Affected
Employees (and any new employees hired by Newco following the Closing who
becomes eligible to participate in such plans prior to December 31, 2001) and
their dependents coverage under Parent's medical and health insurance, dental
insurance, vision benefits, flexible spending accounts, life insurance and
disability insurance, including all supplemental and optional coverages and (ii)
allow the Affected Employees to participate in Parent's tax-qualified defined
contribution plan (the "Parent 401(k) Plan"), in any case, only to the same
extent such Affected Employees and their dependents currently participate under
such benefit plans as currently constituted (such benefits, the "Extended
Benefits"). In addition, during the Benefits Transition Period, Parent will
provide administrative support and
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assistance for the Affected Employees with respect to the Extended Benefits
substantially comparable to the support and assistance Parent provides to its
own employees. Newco will make payroll deductions on behalf of the Affected
Employees in respect of the "employee-portion" of any premiums applicable to the
Extended Benefits or employee deferral contributions under the Parent 401(k)
Plan, provided that such amounts will be promptly remitted to Parent in partial
satisfaction of Newco's obligation to Parent under Section 5.7(e) below.
(2) If any Affected Employee becomes a participant in any employee
benefit plan, practice or policy of Newco or any of its Affiliates (a "Newco
Plan"), such Affected Employee shall be given credit under such Newco Plan for
all service prior to the Closing Date with Cendant or any of their subsidiaries
or any predecessor employer (to the extent such credit was given by Cendant or
any of their subsidiaries or any predecessor employer) for purposes of
determining eligibility and vesting rights. Such service also shall apply for
purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitations.
Affected Employees shall be given credit for amounts paid under any medical or
dental plan of Cendant during the same period for purposes of applying
deductibles, co-payments and out-of-pocket maximums as though such amounts had
been paid in accordance with the terms and conditions of the analogous Newco
Plan.
(3) Newco shall be responsible for providing severance pay to any
Affected Employee who is terminated by Newco or its Affiliates during the period
beginning on the Closing Date and ending one year following the Closing Date, in
accordance with the policies and procedures of Cendant in effect on the Closing
Date. Newco shall be responsible and assume all liability for all notices or
payments due to any Affected Employees subsequent to the Closing, and all
notices, payments, fines or assessments due to any government authority,
pursuant to any applicable foreign, federal, state or local Law, common law,
statute, with respect to the employment, discharge, constructive discharge or
layoff of Affected Employees after the Closing, including but not limited to the
Worker Adjustment and Retraining Notification Act and COBRA and any rules or
regulations as have been issued in connection with the foregoing.
(4) From and after the Closing, Newco shall be responsible for, and
shall defend, indemnify and hold harmless each of Parent and CMS and their
respective directors, employees, Affiliates, agents and fiduciaries (including
plan administrators) of any of Cendant's employee benefit plans, programs,
policies and arrangements, including but not limited to "employee benefit plans"
within the meaning of Section 3(3) of ERISA and any stock or cash-based
incentives, from and against any and all claims, losses, damages, costs and
expenses (including, without limitation, attorneys' fees and expenses) and other
liabilities and obligations relating to or arising out of (i) all salaries,
wages, commissions, employee incentive or other compensation, severance,
holiday, vacation,
29
health, dental or retirement benefits accrued but unpaid as of the Closing and
post-Closing bonuses due to any Affected Employee, (ii) with respect of each
specific type of coverage described under Section 5.7(b)(i), the greater of (x)
the per-employee estimated and budgeted premium or premium-equivalent cost
applicable to all Parent employees covered under such type of coverage and (y)
if such benefits are "self-insured" by Parent, the actual costs realized by
Parent in respect of each Affected Employee under such type of coverage, after
giving effect to Parent's actual losses by virtue of it acting as a
"self-insurer," in either case multiplied by 102% to reflect administration and
overhead expenses, (iii) all contributions with respect to the Affected
Employees to be made to the Parent 401(k) Plan in respect of the Benefits
Transition Period, (iv) the liabilities assumed by Newco under this Section 5.7
or any failure by Newco to comply with the provisions of this Section 5.7, and
(v) any claims of, or damages or penalties sought by, any Affected Employee, or
any Governmental Entity on behalf of or concerning any Affected Employee, with
respect to any act or failure to act by Newco or to the extent arising from the
employment, discharge, constructive discharge, layoff or termination of any
Affected Employee on or after the Closing.
(5) Following the Closing, Newco agrees to cooperate with each of
Parent and CMS in order to assist Parent and CMS in communicating with Affected
Employees or former Affected Employees of the Business holding Parent Options,
as required by applicable Law or for administrative purposes in connection with
the Parent Options.
(6) Effective as of the Closing, Cendant shall cause (i) all vested
Parent Options held by Affected Employees to remain outstanding for three years
following the Closing, (ii) all unvested Parent Options with an exercise price
at or above the per share closing price of the Parent Shares on the NYSE as of
the Closing that are held by Affected Employees who accept offers of employment
with Newco effective as of the Closing to become fully vested and remain
outstanding for three years following the Closing and (iii) all unvested Parent
Options with an exercise price below the per share closing price of Parent
Shares on the NYSE as of the Closing that are held by Affected Employees who
accept offers of employment with Newco effective as of the Closing to terminate
as of the Closing Date in accordance with the terms of the applicable plan;
PROVIDED, HOWEVER, that the foregoing will be subject to each Affected Employee
providing a written consent and, if applicable, providing a waiver of any
"Subsidiary Change of Control" rights that may be applicable as a result of the
consummation of the transactions contemplated hereby.
(7) As soon as practicable, and in any event within sixty days,
after the Closing Date, Newco shall (i) grant shares of restricted Parent Shares
to those individuals and in the amounts set forth in Section 5.7(h) of the
Cendant Disclosure Schedule, subject to such terms and conditions as are set
forth in the agreements evidencing such grants and
30
(ii) establish a plan for the grant of up to 2,000,000 stock appreciation rights
("SARs") relating to the Parent Shares (such plan, the "SAR Plan") and grant
such SARs under the SAR Plan to eligible employees of the Business, subject (i)
to such terms and conditions as are set forth in the SAR Plan and the agreements
evidencing such grants and (ii) approval of the Board except as otherwise
allocated to Employee Investors in writing as of the date hereof.
(8) Parent shall register the Parent Shares subject to the awards
set forth in this Section 5.7 under the Act pursuant to a registration statement
on Form S-8 (or any successor or other appropriate form) to the extent such
registration is required under the Act and shall cause the effectiveness of such
registration statement(s) to be maintained for so long as such awards remain
outstanding.
Section 1.44. MAINTENANCE OF BOOKS AND RECORDS BY THE PARTIES;
PAYMENT DISPUTES. (a) Except as set forth in Section 5.16, each of the Parties
hereto shall preserve, until at least the third anniversary of the Closing Date,
all pre-Closing Date records possessed or to be possessed by such Party relating
to the Business. After the Closing Date and up until at least the third
anniversary of the Closing Date, upon any reasonable request from a Party hereto
or its representatives, the Party holding such records shall, subject to
appropriate confidentiality provisions, (x) provide to the requesting Party or
its representatives reasonable access to such records during normal business
hours and (y) permit the requesting Party or its representatives to make copies
of such records, in each case at no cost to the requesting Party or its
representatives (other than for reasonable out-of-pocket expenses). Such records
may be sought under this Section 5.8(a) for any reasonable purpose, including,
without limitation, to the extent reasonably required in connection with the
audit, accounting, litigation, federal securities disclosure or other similar
needs of the Party seeking such records. Notwithstanding the foregoing, any and
all such records may be destroyed by a Party if such destroying party sends to
the other Parties hereto written notice of its intent to destroy such records,
specifying in reasonable detail the contents of the records to be destroyed;
such records may then be destroyed after the 60th day following such notice
unless another Party hereto notifies the destroying party that such other Party
desires to obtain possession of such records, in which event the destroying
Party shall transfer the records to such requesting Party and such requesting
Party shall pay all reasonable out-of-pocket expenses of the destroying Party in
connection with such transfer.
(1) In addition to, and not intending to limit the generality of the
foregoing, Newco and its Affiliates shall maintain accurate and complete records
and books of account covering all transactions that are the subject of Article
II ("Newco's Books and Records"). Newco shall maintain Newco's Books and Records
and make them available to Cendant for at least five years after the Royalty
Accrual Period, Income Accrual Period, Rental Amount Accrual Period or New
Add-on Amount Accrual Period
31
to which they relate. Cendant's duly authorized representatives shall have the
right, at Cendant's expense, during normal business hours, to examine and/or
audit Newco's Books and Records, and to make copies and extracts therefrom, for
the purpose of confirming the accuracy of any Royalty Payment Statement,
Retained Member Income Statement or Rental Amount Statement; provided, however,
that Cendant shall be limited to conducting no more than one audit during each
calendar quarter. In the event that such an examination or audit discloses a
deficiency in a Royalty Payment, Retained Member Income, Rental Amount or New
Add-on Amount in respect of any Royalty Accrual Period, Income Accrual Period,
Rental Amount Accrual Period or New Add-on Amount Accrual Period, then Cendant
will cause to be prepared and delivered to Newco a written notice (a "Dispute
Notice") setting forth in reasonable detail the calculation of the amount of any
Royalty Payment, Retained Member Income, Rental Amount or New Add-on Amount that
is owed to Cendant from Newco and describing in reasonable detail all areas of
disagreement.
(2) Newco shall have fifteen days from the date on which the Dispute
Notice is delivered to it to review such notice (the "Review Period"). If Newco
disagrees in any respect with such Dispute Notice, Newco shall, within fifteen
days after receipt of the Dispute Notice, deliver a notice to Cendant setting
forth, in reasonable detail, the basis for Newco's disagreement therewith (the
"Audit Dispute Notice"). If no Audit Dispute Notice is received by Cendant on or
prior to the last day of the Review Period, the Deficiency Amount shall be
deemed accepted by Newco. In the event that Newco delivers an Audit Dispute
Notice to Cendant, Newco will concurrently pay to Cendant any undisputed portion
of the Deficiency Amount, with interest on such amount as provided in Section
2.6. All payments made pursuant to the preceding sentence shall be made by wire
transfer of immediately available funds to an account or accounts designated for
such purpose by the Party entitled to receive such payment.
(3) For fifteen days after Cendant's receipt of an Audit Dispute
Notice, the Parties shall endeavor in good faith to resolve by mutual agreement
all disputed matters. In the event the Parties are unable to resolve by mutual
agreement any matter in dispute within such fifteen-day period, Cendant and
Newco hereby agree that they shall engage KPMG LLP as the "Accountant" (if KPMG
LLP is unable or unwilling to serve as the Accountant, the Parties shall, within
fifteen days of the end of such fifteen day period, agree on an alternate
independent accounting firm or have such selection made pursuant to the rules of
the AAA in the event they are unable to agree within such allotted time period)
to resolve any disputes pursuant to this Section 5.8(d). Cendant and Newco shall
submit the disputed matters, as described in the Dispute Notice, together with a
statement of facts agreed to by Cendant and Newco and such arguments as either
of them choose to make in connection therewith in writing, together with
supporting work papers, to the Accountant within twenty calendar days after the
Accountant's engagement.
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(4) Cendant and Newco shall use commercially reasonable efforts to
cause the Accountant to resolve the disputed matters based upon the materials
submitted to it pursuant to the last sentence of Section 5.8(d) within fifteen
days following the submission of such materials and the Accountant shall not
make any other determination. In connection with its resolution of the dispute,
the Accountant shall deliver to each of Cendant and Newco a report (the
"Adjustment Report") in which the Arbitrator shall, after considering all
matters set forth in the Dispute Notice, determine the appropriate amount to be
paid to Cendant or Newco, as the case may be. The Adjustment Report shall set
forth, in reasonable detail, the Accountant's determination with respect to the
disputed items or amounts specified in the Dispute Notice, and the revisions, if
any, to be made to such amounts, together with supporting calculations. All fees
and expenses relating to this work of the Accountant will be determined by the
Accountant and be included in the Adjustment Report. These fees and expenses
shall be paid by Cendant unless the Adjustment Report results in an additional
sum being due from Newco to Cendant, in which case these fees and expenses shall
be paid by Newco. The Adjustment Report shall be final and binding upon each of
Cendant and Newco, shall be deemed a final arbitration award that is binding on
each of Cendant and Newco, and no Party shall seek further recourse to courts,
other tribunals or otherwise, other than to enforce the Adjustment Report.
Judgment may be entered to enforce the Adjustment Report in any court having
jurisdiction over the Party against which such determination is to be enforced.
Newco agrees to pay Cendant the amount, if any, set forth in the Adjustment
Report, with interest on such amount as provided in Section 2.6, by wire
transfer of immediately available funds to an account or accounts designated by
Cendant prior to the applicable payment date within two Business Days of receipt
of the Adjustment Report.
Section 1.45. CENDANT'S TRADEMARKS AND LOGOS. Notwithstanding
anything to the contrary contained in this Agreement, it is expressly agreed
that, except as granted pursuant to Article VI, (i) Newco is not obtaining, any
right, title or interest in any Retained Marks, (ii) Newco or its Affiliates
shall not make any use of the Retained Marks from and after the Closing and
(iii) during the Term, Cendant and their controlled Affiliates shall not make
any use of the Membership Club Trademarks and Logos from and after the Closing
in the Territory except pursuant to joint promotional efforts or sublicenses of
the Membership Club Trademarks and Logos back to Cendant or their controlled
Affiliates from Newco.
Section 1.46. TRANSFERS NOT EFFECTED AS OF CLOSING. Nothing
herein shall be deemed to require Cendant to lease, license, sublease or
sublicense any Leased Asset or Licensed Intellectual Property that by its
terms or by operation of Law cannot be freely leased, licensed, subleased or
sublicensed. To the extent the Parties hereto have been unable to obtain any
governmental or any third party consents or approvals required to lease,
license, sublease or sublicense any Leased Asset or Licensed Intellectual
Property and to the extent not otherwise prohibited by the terms of any
Leased Asset or Licensed
33
Intellectual Property, Parent or CMS shall continue to be bound by the terms of
such applicable Leased Asset or Licensed Intellectual Property and Newco shall
pay, perform and discharge fully all of the obligations of Parent or CMS or any
of their respective Affiliates thereunder from and after the Closing. Parent or
CMS shall, without consideration therefor, pay, assign and remit to Newco
promptly all monies, rights and other consideration received in respect of such
performance. Parent or CMS shall exercise or exploit their rights in respect of
such Leased Assets or Licensed Intellectual Property only as reasonably directed
by Newco and at Newco's expense. Subject to and in accordance with Section 5.2,
for not more than 180 days following the Closing Date, the Parties hereto shall
continue to use their commercially reasonable efforts to obtain all such
unobtained consents or approvals at the earliest practicable date. If and when
any such consents or approvals shall be obtained, then Parent or CMS shall
promptly lease or license their rights and obligations thereunder to Newco
without payment of consideration and Newco shall, without the payment of any
consideration therefor, assume such rights and obligations. The Parties shall
execute such good and sufficient instruments as may be necessary to evidence
such assignment and assumption.
Section 1.47. FURTHER ACTIONS. (a) From and after the Closing Date,
Cendant shall cooperate with Newco and Newco's Affiliates and representatives,
and shall execute and deliver such documents and take such other actions as
Newco may reasonably request, for the purpose of evidencing the transactions
contemplated by this Agreement and putting Newco in possession and control of
all of the Leased Assets and effecting the transactions contemplated in this
Agreement.
(1) From and after the Closing Date, Newco shall cooperate with
Cendant and Cendant's Affiliates and representatives, and shall execute and
deliver such documents and take such other actions as Cendant may reasonably
request, for the purposes of evidencing the transactions contemplated by this
Agreement and having Newco indemnify Cendant against the Indemnified Liabilities
(as hereinafter defined) and effecting the transactions contemplated in this
Agreement.
(2) Unless Newco exercises its option to purchase the Licensed Marks
pursuant to Section 6.11, upon the expiration of the Term, Newco and Cendant
shall promptly perform all acts which may be necessary to effect the purposes of
this Agreement including, in the case of Newco, terminating any interest that it
may have obtained in the Licensed Marks by operation of Law or otherwise, for
example, by cancelling any recordation of this Agreement, any summary thereof,
or any separate "registered user" agreement, or by executing any assignment,
conveyance, acknowledgment, or other document reasonably required by Cendant,
including in connection with Cendant's designation of host servers and
technical, and other applicable billing contact people for Internet domain
names.
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Section 1.48. NON-COMPETITION RESTRICTIONS.
(1) NON-COMPETITION RESTRICTIONS ON CENDANT. For a period of ten
years from the Closing (the "Restricted Period") in the Territory, each of
Parent and CMS shall not, and shall cause each of their respective subsidiaries
and controlled Affiliates, not to, directly or indirectly, operate or own any
interest in any Membership Club the subject matter of which directly competes
with any Applicable Membership Clubs, as such clubs are currently operated on
the date of this Agreement. In the event that either of Parent or CMS, or any of
their subsidiaries and controlled Affiliates, acquires (whether by merger,
consolidation, reorganization, stock or asset acquisition, or otherwise) any
business that generates Competition Revenues, such acquisition shall not
constitute a breach of this Section 5.12 if, not later than one year from the
date of consummation of such acquisition, a portion of such acquired business is
sold or otherwise transferred to an unrelated third party so that, following
such disposition, not more than 25% of the revenues of the remaining acquired
business is comprised of Competition Revenues.
(2) EXCEPTIONS TO CENDANT'S NON-COMPETITION PROVISIONS. ( )
Notwithstanding paragraph (a) above, each of Parent and CMS and their respective
subsidiaries and controlled Affiliates shall not be prohibited or otherwise
restricted from (A) holding any legal or beneficial interest in any equity
interest or security in any person, which interests or securities represent less
than twenty percent of the total outstanding voting power of the equity
interests or securities of such person, (B) engaging in any business or
conducting any activity which is substantially the same as any business or
specific activity in which it has engaged or conducted on or prior to the date
of this Agreement (excluding, in the case of Cendant and its Affiliates, the
Business as in effect on the date of this Agreement), (C) except as provided in
the last sentence of Section 5.12(a) above, acquiring any Competing Business, or
(D) exercising any rights with respect to the Retained Active Members in
accordance with the terms of this Agreement or the TPA Agreement.
(1) Paragraph (a) above shall not be deemed to apply to any
person (or any of its subsidiaries) that acquires ownership or control of
Parent or CMS or that acquires all or substantially all of the assets of
Parent or CMS or merges with Parent or CMS, and upon such acquisition
Parent or CMS and its respective Affiliates that have been so acquired
shall no longer be subject to the provisions of paragraph (a) above. In
the event that Parent or CMS disposes of a subsidiary or a business,
paragraph (a) above shall no longer apply to such subsidiary or business
unit or to the person acquiring such subsidiary or business unit or such
disposed subsidiary or business.
(3) NON-COMPETITION RESTRICTIONS ON NEWCO. During the Restricted
Period, Newco shall not, and shall cause any of its direct and indirect
subsidiaries and
35
Affiliates not to, directly or indirectly, utilize any of the Leased Assets in
order to engage in any Existing Cendant Business. In the event that Newco, or
any of its direct and indirect subsidiaries or Affiliates, acquire (whether by
merger, consolidation, reorganization, stock or asset acquisition, or otherwise)
any Cendant Competing Business, such acquisition shall not constitute a breach
of this Section 5.12(b), if not later than one year from the date of
consummation of such acquisition, a portion of such acquired business is sold or
otherwise transferred to an unrelated third party so that, following such
disposition, not more than 5% of the revenues of the Cendant Competing Business
are comprised of Cendant Competition Revenues.
(4) EXCEPTIONS TO NEWCO'S NON-COMPETITION PROVISIONS.
Notwithstanding paragraph (c) above, Newco and any of its direct and indirect
subsidiaries or Affiliates shall not be prohibited or otherwise restricted from
(i) holding any legal or beneficial interest in any equity interest or security
in any person, which interests or securities represent less than five percent of
the total outstanding voting power of the equity interests or securities of such
person, (ii) engaging in any business or conducting any activity which is
substantially the same as any business or specific activity in which the
Business has engaged or conducted on or prior to the date of this Agreement or
(iii) except as provided in the last sentence of Section 5.12(c) above,
acquiring any Newco Competing Business (whether pursuant to merger,
consolidation, reorganization, stock or asset acquisition, or otherwise).
(5) EFFECTS OF BREACH. In the event that either Party breaches its
respective obligations pursuant to this Section 5.12, and such breach is not
cured within sixty days of the breaching Party receiving notice of such breach
from the non-breaching Party, the Parties agree that the non-breaching Party
shall be entitled to seek, in addition to any other right or remedy, a
temporary, preliminary or permanent injunction, without the necessity of proving
the inadequacy of monetary damages, enjoining or restraining the breaching Party
from any violation of this Section 5.12.
Section 1.49. NON CIRCUMVENTION; SERVICING RETAINED ACTIVE MEMBERS
BY NEWCO. Notwithstanding anything else in this Agreement or the Ancillary
Agreements, Newco agrees not to, and agrees not to permit or encourage any of
its Affiliates or encourage any third party to, directly or indirectly, take any
action or omit to take any action such that the resulting effect is that any
obligations of Newco, including the payment of the Royalty Payments, Rental
Amount or the Retained Member Income, would be circumvented in a manner that
would impair Cendant from receiving the full benefits due and owing to them
pursuant to this Agreement. From and after the Closing, Newco shall operate, and
shall cause any of its Affiliates to operate, the Business in the ordinary
course and neither Newco, nor any of its Affiliates, shall take any action that
would reduce the likelihood or the amount of any Royalty Payments, Rental Amount
or Retained Member Income. Newco shall not, and shall agree not to cause any of
its
36
Affiliates, to amend, cancel or otherwise terminate any agreement, arrangement
or understanding existing as of the Closing Date between Cendant and any of the
Client/Partner Parties in a manner that would adversely affect Cendant's rights
with respect to any of the Retained Active Members, without the written consent
of Cendant, which consent may not be unreasonably withheld.
Section 1.50. OPERATION OF THE BUSINESS AND APPLICABLE MEMBERSHIP
CLUBS FOLLOWING THE CLOSING DATE. Newco agrees to use its reasonable best
efforts to provide the necessary resources and support (monetary or otherwise)
to maintain, market, support and expand the Business and the Applicable
Membership Clubs following the Closing Date, which maintenance, marketing,
support and expansion shall not, in any event, be less than the level the
Business is currently operated as of the date hereof.
Section 1.51. NON-SOLICITATION. (a) For one year following the
Closing, neither Cendant nor any of its controlled Affiliates will, without
Newco's prior written consent, either directly or indirectly, on their own
behalf or in the service or on behalf of others, solicit or attempt to solicit
any person employed in or in connection with the Business as of the Closing
Date, whether or not such employee is a full-time or a temporary employee of
Newco or any of its Affiliates, and whether or not such employment is pursuant
to written agreement; PROVIDED, that the foregoing will not (i) prevent Cendant
or any of their controlled Affiliates from soliciting any such person after the
termination of such employee's employment with Newco or the Business, or (ii)
prohibit Cendant or any of their controlled Affiliates from placing public
advertisements or conducting any other form of general solicitation which is not
specifically targeted towards employees of Newco or the Business.
(1) For one year following the Closing, neither Newco nor any of its
Affiliates will, without Cendant's prior written consent, either directly or
indirectly, on their own behalf or in the service or on behalf of others,
solicit or attempt to solicit any person employed by Cendant as of the Closing
Date, whether or not such employee is a full-time or a temporary employee of
Cendant or any of their controlled Affiliates, and whether or not such
employment is pursuant to written agreement; PROVIDED, that the foregoing will
not (i) prevent Newco or any of its Affiliates from soliciting any such person
after the termination of such employee's employment with Cendant, or (ii)
prohibit Newco or any of its Affiliates from placing public advertisements or
conducting any other form of general solicitation which is not specifically
targeted towards employees of Cendant.
Section 1.52. COOPERATION ON CERTAIN LITIGATION MATTERS. (a) The
Parties hereby acknowledge that Parent and certain of its present and former
officers are currently plaintiffs and defendants in certain litigations that
assert various claims arising out of certain accounting irregularities that were
discovered at Parent in April 1998 (the
37
"Litigations"). The parties hereby acknowledge that the Securities and Exchange
Commission and the United States Attorneys Office are conducting ongoing
investigations into the accounting irregularities discussed above with which
Parent and its controlled Affiliates are cooperating, and that the United States
Attorneys Office and the SEC each have pending an action against former officers
of Cendant in connection with their alleged involvement with the accounting
irregularities entitled U.S. V. FORBES, D.N.J., Crim. No. 01-____ and SEC V.
FORBES, D.N.J., Civil Action No. 01-987 (collectively, the "Government
Investigations"). In order that Cendant may properly respond to, defend and
comply with all legal obligations with respect to the Litigations and cooperate
fully with the Government Investigations, Newco agrees to reasonably cooperate,
and to use their reasonable best efforts to cause their employees, agents and
representatives to reasonably cooperate, with Parent and its employees, agents
and representatives (including counsel) in connection with the Litigations and
the Government Investigations. Without limiting the scope of the foregoing,
Newco agrees to (i) preserve all books and records possessed by Newco relating
to the Litigation or Governmental Investigations until there is a
non-appealable, final judgment by a court of competent jurisdiction with respect
to such matters and (ii) afford Parent and its counsel, accountants and other
representatives reasonable access during normal business hours to its books and
records, and to its officers and employees, as is reasonably necessary or
desirable to enable Parent to properly conduct the Litigations and cooperate
with the Government Investigations including, but not limited to, producing
documents when requested or required; PROVIDED, HOWEVER, that any such access
shall be conducted, at a reasonable time, under the supervision of Newco's
personnel and in such a manner as not to interfere unreasonably with the normal
operation of the Business. Parent shall reimburse Newco for all reasonable
out-of-pocket costs incurred by Newco or its employees, counsel, accountants or
other representatives in connection with such cooperation.
(1) Each of Parent, CMS and Incentives agrees to cooperate with
Newco, to the extent reasonably requested by Newco on at least 10 days prior
written notice, in connection with the defense and possible settlement of (i)
the currently pending action in Connecticut federal court entitled "Cendant
Corporation v. Stuart L. Bell, Vincent R. D'Agostino, Jeffrey Kendall and Martin
D. Isaac" and on any other related matter, and (ii) any other litigation matters
which Newco has agreed to be responsible for pursuant to this Agreement.
Section 1.53. IMPROVEMENTS. Subject to the provisions of this
Agreement, Newco may, from time to time during the Term and at its sole cost
and expense (i) make changes to or improve the quality of the Leased Assets,
that Newco, in its discretion may deem necessary or desirable for the
betterment of the Leased Assets and/or the Business and (ii) acquire or
create new assets for the proper conduct and management of the Business. The
Parties acknowledge that any such improvements or acquisitions shall become
the assets of, and owned by, Newco.
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Section 1.54. CONFIDENTIALITY.
(1) CENDANT CONFIDENTIALITY. (i) As used in this Agreement, the term
"Newco Confidential Information" shall mean non-public, confidential
information, confidential know-how, or trade secrets regarding the Business,
Newco or its activities, which is not known to, or ascertainable by, persons not
employed by the Business, the disclosure or knowledge of which would be likely
to permit such persons to derive actual material economic value therefrom or to
cause material economic or material financial harm to the Business or Newco, and
for which reasonable efforts have been made to preserve its confidential nature.
To the extent allowed by applicable Law, such information shall include, but not
be limited to software, including, source codes and object codes to programs and
documents, software, product features, technical information regarding products
and product development, Licensed Proprietary Rights, confidential pricing and
sales data, customer lists, customer preference and buying information, current
and future development and expansion or contraction plans, information
concerning legal affairs and certain information concerning financial affairs.
Notwithstanding the foregoing, "Newco Confidential Information" shall not
include (i) information that is or becomes available to Cendant or any of their
Affiliates on a non-confidential basis from a non-confidential source by the act
of one who Cendant reasonably believe has the right to disclose such
information, or was learned from a third party not under a duty of
confidentiality to Newco, (ii) information that is or becomes generally
available to the public through no fault, act or omission of Cendant, (iii)
information that is being developed or has been developed by, or on behalf of,
Cendant independently of the Confidential Information, or (iv) information which
is within the general experience, skills, and knowledge in the unaided memory of
Cendant's employees.
(1) Cendant shall not, at any time after the execution of this
Agreement, directly or indirectly, transmit or disclose any Newco
Confidential Information to any unaffiliated third party, or make use of
any Newco Confidential Information itself or for or on behalf of others,
without the prior written consent of Newco. Notwithstanding the foregoing,
if required by Law, Cendant may make the disclosure necessary to comply
with Law or subpoena and shall promptly supply Newco with a copy of the
applicable order or process, so as to provide Newco with the maximum
allowable time and opportunity to intervene and object to the disclosure.
Cendant shall reasonably cooperate, at Newco's sole expense, with any
attempt by Newco to obtain a protective order or agreement or to prevent
disclosure in any lawful manner.
(2) NEWCO CONFIDENTIALITY. (i) As used in this Agreement, the term
"Cendant Confidential Information" shall mean non-public, confidential
information, confidential know-how, the Licensed Proprietary Rights or trade
secrets regarding the
39
Cendant Existing Business, which is not known to, or ascertainable by, persons
not employed by the Business, the disclosure or knowledge of which would be
likely to permit such persons to derive actual material economic value therefrom
or to cause material economic or material financial harm to Cendant or Cendant
Existing Business, and for which reasonable efforts have been made to preserve
its confidential nature. To the extent allowed by applicable Law, such
information shall include, but not be limited to software, including, source
codes and object codes to programs and documents, software, product features,
technical information regarding products and product development, confidential
pricing and sales data, customer lists, customer preference and buying
information, current and future development and expansion or contraction plans,
information concerning legal affairs and certain information concerning
financial affairs. Notwithstanding the foregoing, "Cendant Confidential
Information" shall not include (i) information that is or becomes available to
Newco or any of its Affiliates on a non-confidential basis from a
non-confidential source by the act of one who Newco reasonably believes has the
right to disclose such information, or was learned from a third party not under
a duty of confidentiality to Cendant, (ii) information that is or becomes
generally available to the public through no fault, act or omission of Newco,
(iii) information that is being developed or has been developed by, or on behalf
of, Newco independently of the Confidential Information, or (iv) information
which is within the general experience, skills, and knowledge in the unaided
memory of Newco's employees.
(1) Newco shall not, at any time after the execution of this
Agreement, directly or indirectly, transmit or disclose any Cendant
Confidential Information to any unaffiliated third party, or make use of
any Cendant Confidential Information itself or for or on behalf of others,
without the prior written consent of Cendant. Notwithstanding the
foregoing, if required by Law, Newco may make the disclosure necessary to
comply with Law or subpoena and shall promptly supply Cendant with a copy
of the applicable order or process, so as to provide Cendant with the
maximum allowable time and opportunity to intervene and object to the
disclosure. Newco shall reasonably cooperate, at Cendant's sole expense,
with any attempt by Cendant to obtain a protective order or agreement or
to prevent disclosure in any lawful manner.
Section 1.55. TRANSFERRED SUBSIDIARIES. Effective immediately
upon Closing, the Parties agree that the Transferred Subsidiaries shall cease
representing CMS as insurance agents and brokers and any and all such
appointments of the Transferred Subsidiaries on behalf of CMS as insurance
agents and brokers are hereby terminated (the "Agency Termination"). Each
Party shall use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary and proper
to cause the appropriate state regulatory agencies to terminate any and all
appointments of the Transferred Subsidiaries as insurance agents and brokers
of CMS. Newco agrees to notify the Transferred Subsidiaries of the Agency
Termination. Newco further agrees to
40
provide CMS with all information required for CMS to effectuate any Agency
Termination or terminate appointments of the Transferred Subsidiaries with any
regulatory agencies.
ARTICLE VI
GRANT OF LICENSES
Section 1.56. GRANT OF TRADEMARK LICENSE. (a) Subject to the
terms and conditions of this Agreement, Cendant hereby grants, to Newco,
effective as of the Closing, and Newco hereby accepts from Cendant, effective
as of the Closing, an exclusive (even as against Cendant but subject to
Section 6.3) license, with the right to sublicense as set forth in Section
6.4, during the Term to use the Licensed Marks in the Territory in connection
with the operation of the Applicable Membership Clubs in the Territory,
including the sale to members of discounted products and services by and
through the Applicable Membership Clubs, and in the advertising, offering,
marketing and sale of memberships in the Applicable Membership Clubs through
any media now known or hereafter developed in the Territory. The license
granted hereunder includes the right to use any Licensed Mark as all or part
of a corporate name, trade name, Internet domain name or other fictitious
business name; PROVIDED, HOWEVER, that any such corporate name, trade name,
Internet domain name, or other fictitious business name shall only be used in
the Territory for a business devoted solely to the particular Applicable
Membership Club to which such Licensed Mark pertains. Notwithstanding the
foregoing, Newco acknowledges that (i) Cendant and/or third parties may use
marks, domain names, corporate names and/or trade names that are identical,
similar to, or incorporating Licensed Marks or variations thereof outside the
Territory, including on the Internet and in or through other media such as
magazines, newspapers, radio broadcasts, and satellite and cable television
that are each directed for audiences outside of the Territory, (ii) such uses
may physically appear in the Territory or be accessible by people within the
Territory, provided that such uses are intended to be directed for audiences
outside of the Territory, and (iii) such uses do not breach or otherwise
violate the grant of exclusivity herein.
(1) Subject to the terms of this Agreement, Cendant hereby grants to
Newco, and Newco hereby accepts from Cendant, effective as of the Closing, a
limited, non-exclusive license to use the names and marks "CENDANT MEMBERSHIP
SERVICES," "CENDANT INCENTIVES," "CMS" and the stylized "C" logo (collectively,
the "Transition Marks") for use in connection with the operation of the Licensed
Business in the Territory, including as all or part of a trademark, service
mark, Internet domain name, corporate name, trade name, or other fictitious
business name, in a manner and extent consistent with Cendant's current use,
while Newco transitions to new names and
41
marks that do not consist of, or include any, Transition Marks or any
designation confusingly similar thereto (the "Transitional Trademark License").
Newco shall phase out its use of the Transition Marks as soon as reasonably
practicable, but in any event the Transitional Trademark License shall expire
one year from the Closing Date.
Section 1.57. GRANT OF OTHER PROPRIETARY RIGHTS LICENSE. Subject
to the terms and conditions of this Agreement, Cendant hereby grants to
Newco, effective as of the Closing, and Newco hereby accepts from Cendant,
effective as of the Closing, an exclusive license, with the right to
sublicense as set forth in Section 6.4, during the Term to use the Licensed
Proprietary Rights (as defined below) in the Territory in connection with the
operation of the Applicable Membership Clubs in the Territory, including the
sale to members of discounted products and services by and through the
Applicable Membership Clubs, and in the advertising, offering, marketing, and
sale of memberships in the Applicable Membership Clubs through any media now
known or hereafter developed means in the Territory. As used in this
Agreement, "Licensed Proprietary Rights" shall mean those intangible assets
owned by Cendant and Related to the Business, including, without limitation,
the following: (i) proprietary know how, proprietary trade secrets, and
proprietary processes and formulae (including all documentation relating
thereto and in existence as of the date hereof and on the Closing Date); (ii)
copyrights, copyright registrations, and copyright applications, including
the copyrights, copyright registrations and copyright applications set forth
in Section 6.2(ii) of the Cendant Disclosure Schedule, and including
copyrights in databases; (iii) patents, patent applications, disclosures of
inventions and the patents issued upon patent applications or based upon such
invention disclosures, including the patents and patent applications set
forth in Section 6.2(iii) of the Cendant Disclosure Schedule; (iv) all
telephone numbers and facsimile and all listings in all telephone books and
directories Related to the Business; (v) all rights under warranties,
representations and guarantees made by suppliers, manufacturers or
contractors in connection with the operation of the Business or affecting any
of the Leased Assets; and (vi) all permits, licenses and other governmental
authorizations, consents and approvals held by the Business as of the Closing
Date. In no event shall the Licensed Proprietary Rights include any of
Cendant's rights, title and interest in and to any software, hardware,
databases, and licenses relating to any of the foregoing, such rights to be
covered solely by the Information Technology Agreement. The Licensed
Proprietary Rights, together with the Licensed Marks and the Transition Marks
shall be referred to, collectively, in this Agreement as the "Licensed
Intellectual Property."
Section 1.58. PRE-EXISTING LICENSES. The scope of the licenses
granted in Section 6.1 and 6.2 above shall be limited by and subject to any
preexisting licenses, including any renewals made as of right thereof, granted
to third parties in the agreements set forth on Schedule 6.3 of the Cendant
Disclosure Schedule, as such agreements may be amended from time to time (the
"Preexisting Licenses").
42
Section 1.59. SUBLICENSING. (a) Newco may sublicense the rights
granted in Section 6.1 and Section 6.2 to subsidiaries and Affiliates of
Newco, their respective business partners and Cendant and its affiliates in
the ordinary course of business in a manner that is consistent with past
practice, upon prior written notice to Cendant pursuant to Section 6.4(c)
below. To the extent that Newco sublicenses the Licensed Intellectual
Property pursuant to this Section 6.4, then all references to "Newco"
hereunder shall be deemed to include such sublicensees.
(1) TERMS OF SUBLICENSES. Except to Cendant as contemplated in
Section 6.4(c), all sublicenses shall be in writing and incorporate terms not
inconsistent with this Agreement. Cendant shall be express third party
beneficiaries of each such sublicense with rights of direct enforcement with
respect to the sections of such agreements that pertain to the protection and
usage of the Licensed Marks. Newco further covenants to Cendant that, except to
the extent Cendant is a sublicensee pursuant to Section 6.4(c) Newco will: (i)
be responsible to Cendant for the performance of the sublicensee's obligations
under the sublicense; (ii) promptly and at Newco's sole expense, take all such
steps necessary for enforcing the obligations of the sublicensee under such
sublicense; and (iii) carry out the reasonable requirements of Cendant to ensure
that the relevant provisions of the sublicense agreement are duly performed.
Newco shall provide Cendant with copies of each sublicense agreement requested
in writing by Cendant within ten Business Days following receipt by Newco of
such request from Cendant. All sublicenses shall terminate no later than the
expiration of the Term or such earlier termination date as may be specified.
Sublicenses to subsidiaries of Newco shall also terminate automatically if and
when such sublicensee is no longer a subsidiary of Newco.
(2) SUBLICENSE TO CENDANT. Subject to the terms and conditions of
this Agreement, Newco hereby grants to Cendant, effective as of the Closing, and
Cendant hereby accepts from Newco, effective as of the Closing, a non-exclusive,
royalty-free sublicense to (A) use the Licensed Marks in connection with (i)
providing the Cendant Services (as defined in the Travel Services Agreement and
the Intercompany Agreement) and (ii) any written notice or communication to any
of the Retained Active Members in the Territory for a term that is forty years,
and (B) to provide such sublicense to Parent's business partners in the ordinary
course of business as of the date hereof with respect to any Services provided
under the Intercompany Agreement. In its use of the Licensed Marks pursuant to
this sublicense, Cendant agrees to abide by the terms and conditions of this
Article VI that apply to Newco as a licensee of the Licensed Marks.
Section 1.60. QUALITY CONTROL; USE OF LICENSED MARKS. (a) The
Parties acknowledge that Cendant and the Applicable Membership Clubs have
been associated with reputable member services and reputable goods and
services. Newco shall not use the Licensed Marks and the Transition Marks, or
conduct its business, in a manner which
43
is reasonably likely to detract from the reputation and goodwill associated with
Cendant, the Licensed Marks, and the Transition Marks. Without limiting the
generality of the foregoing, Newco and its Affiliates shall maintain a level of
quality in connection with the Licensed Business which is at least comparable to
that which has heretofore been applied by Cendant in connection with the
Licensed Marks, the Transition Marks and the Applicable Membership Clubs.
(1) Newco shall use the Licensed Marks and the Transition Marks only
in the format in which such Licensed Marks and the Transition Marks are
currently used by Cendant, or with respect to the Licensed Marks as otherwise
approved by Cendant in writing from time to time, such approvals not to be
unreasonably withheld when the variation in the format does not in any way
detract from the reputation or other goodwill of CMS or Parent. Notwithstanding
the foregoing, Newco shall not conjoin any of Newco's own trademarks, service
marks or Internet domain names with any Licensed Mark and the Transition Marks
in a way that creates a single commercial impression. Any variations in the
Licensed Marks and the Transition Marks which are approved by Cendant shall be
owned by Cendant and shall be deemed additional Licensed Marks hereunder.
(2) Newco at its own cost shall supply to Cendant at such time as is
reasonably requested by Cendant (but in no event more than two times per year),
(i) representative samples of materials, including membership materials,
advertising, and policy guidelines, used by Newco in connection with the
Licensed Business, and (ii) copies of all written or recorded customer
complaints, comments and service inquiries, and Newco's records pertaining to
such complaints, comments and service inquiries. In addition, upon reasonable
notice, Cendant may inspect during regular business hours and no more than once
per each calendar quarter, all facilities operated by Newco, or their agents or
contractors, in connection with the conduct of the Licensed Business and
information about the goods and services offered by Newco by and through the
Licensed Business.
(3) Newco shall identify the Licensed Marks and the Transition Marks
as trademarks, service marks, or registered marks by appropriate statutory or
other customary notice. Newco shall use such additional notice or other marking
as may be reasonably requested in writing by Cendant from time to time.
(4) If Cendant reasonably determines that any aspect of the Licensed
Business does not meet the quality standards set forth in this Section 6.5, then
Cendant may require Newco to take all reasonable steps to remedy any such
deficiencies within sixty calendar days of Newco's receipt of notice thereof. If
not remedied thereafter to Cendant's reasonable satisfaction at the end of such
sixty day period, then such deficiencies shall constitute a breach of this
Agreement. Notwithstanding the foregoing, at any
44
time Cendant believes that the quality standards violation at issue poses an
immediate public health or safety risk, or an immediate risk of materially
devaluing the Licensed Marks and the Transition Marks at issue, then Cendant
shall be entitled to seek immediate injunctive relief, without the necessity of
proving the inadequacy of money damages as a remedy.
(5) Newco shall at all times in all material respects comply with
all Laws applicable to the Licensed Business. No inspection or approval by
Cendant shall constitute any express or implied representation or warranty by
Cendant that the related activity, good, or service is in compliance with this
Agreement or any Laws or otherwise free of defects.
Section 1.61. OWNERSHIP OF LICENSED INTELLECTUAL PROPERTY. Newco
acknowledges that, as between Newco and Cendant, the Licensed Intellectual
Property and all rights therein (except for the rights and licenses expressly
granted to Newco under this Agreement) and the goodwill pertaining to the
Licensed Marks and the Transition Marks belong exclusively to Cendant. As
between Cendant and Newco, Newco's use of the Licensed Marks and the
Transition Marks shall inure to the benefit of Cendant for purposes of
trademark, service mark, trade name, and Internet domain name ownership,
registration, maintenance, and enforcement. To the fullest extent enforceable
as a matter of Law, Newco agrees not to challenge the validity or Cendant's
ownership of any Licensed Intellectual Property or any registration or
application for registration thereof, or allege that Newco's rights under
Sections 6.1 and 6.2 are other than those of a licensee.
Section 1.62. REGISTRATIONS AND MAINTENANCE OF LICENSED
INTELLECTUAL PROPERTY. (a) The Parties acknowledge that only Cendant may file
and prosecute, or upon Cendant's written consent authorize Newco to file and
prosecute in the name of either Parent, CMS, or another Affiliate of Cendant,
Internet domain name, trademark or service mark applications to register
Licensed Intellectual Property. Newco agrees not to seek registration in any
jurisdiction of any Licensed Intellectual Property, or any name, including
company names and Internet domain names, or mark confusingly similar to any
Licensed Mark except as provided in this Section 6.7. Upon Newco's reasonable
request, Cendant shall apply (or Newco shall apply in the name of and at the
direction of Cendant) for registration of any Licensed Intellectual Property
in the Territory where Newco conducts, or reasonably intends to conduct,
Licensed Business. Newco shall be responsible for all fees, costs, and
expenses, including filing fees and Cendant's out-of-pocket costs and
expenses, including attorneys' fees, incurred in connection with prosecuting
and maintaining the Licensed Intellectual Property. Cendant and Newco shall
reasonably cooperate with each other in connection with registering,
maintaining, and renewing registrations of Licensed Intellectual Property.
Subject to Cendant's prior knowledge and approval and at Cendant's direction,
Newco shall be responsible for the day-to-day prosecution and maintenance of
the Licensed Intellectual Property. Newco may select
45
outside counsel to assist with such registrations, maintenance, and renewals,
subject to Cendant's prior written consent, which consent shall not be
unreasonably withheld.
(1) With respect to Internet domain names that are Licensed Marks or
the Transition Marks hereunder, while the registrant of such Internet domain
names shall be Cendant or a designee of Cendant, Newco shall reasonably
designate the host servers and, to the extent requested by the applicable domain
name registrar, appoint the contact people (E.G., administrative contact,
technical contact, billing contact) for such Internet domain names during the
term of the license granted hereunder. Newco shall be responsible for the timely
payment of applicable fees, including renewal fees, submission of applicable
information and documentation, and maintenance of Internet domain names that are
Licensed Marks or Transition Marks hereunder. Newco shall promptly forward
copies of all official notices and complaints received by such contact people to
Cendant within ten business days after receipt by Newco, or sooner if reasonably
required under the circumstances, such as if Newco receives a cease-and-desist
letter, notice of an interparties proceeding or a deadline is near.
Section 1.63. NEWCO MARKS. Nothing in this Agreement shall
require Newco to use any or all of the Licensed Marks or the Transition Marks
in connection with the Applicable Membership Clubs. Newco may, in its
discretion and at any time, change the name of any Applicable Membership Club
to a new name, provided that such name is not confusingly similar to,
infringing, or dilutive of a Licensed Mark or the Transition Marks (such new
names, "Newco Marks"). Newco Marks shall be owned by Newco or such other
entity as Newco shall designate, and Newco shall bear all costs, expenses,
and risks associated with the adoption, use, maintenance, and enforcement of
the Newco Marks. Newco agrees that it shall remain obligated to perform its
duties pursuant to Article II regardless of whether Newco utilizes the
Licenesd Marks, the Transition Marks or the Newco Marks.
Section 1.64. INFRINGEMENTS. (a) Newco and Cendant shall promptly
provide written notification to one other if any of the following should come
to any of their attention: (i) any conflicting third-party uses of, or any
third-party applications or registrations for, marks that may infringe,
dilute, misappropriate or otherwise conflict with a Licensed Intellectual
Property; (ii) any acts of infringement or unfair competition with respect to
the Licensed Intellectual Property; (iii) any allegations by third Parties in
writing that the use of the Licensed Intellectual Property infringes,
dilutes, or otherwise unfairly competes or conflicts with such third party's
intellectual property rights.
(1) As between the Parties, Cendant will have the sole initial right
to initiate any infringement, opposition, cancellation or other proceeding to
enforce the Licensed Intellectual Property. Newco shall cooperate with Cendant
in such proceedings including by joining as a party or being a witness in any
such enforcement proceedings
46
and/or by producing documents, other evidence or potentially discoverable
materials, upon the request of Cendant. Cendant shall have the sole initial
right to control and settle any such proceedings, but will give due
consideration to the potential adverse impact of any such settlement on Newco's
right to use the Licensed Intellectual Property hereunder on the terms
contemplated hereunder. Notwithstanding the foregoing, if Cendant fails to take
appropriate enforcement action within thirty days of the receipt of notice from
Newco of the objectionable activities, then Newco shall have the right to take
such enforcement action at Newco's expense as Newco deems necessary; PROVIDED,
however, that in any such instance (i) Newco's action shall not violate or
breach any covenants or obligations of Cendant to any third party of which Newco
is aware, (ii) Newco shall keep Cendant fully informed of Newco's enforcement
actions in a timely manner, (iii) Cendant at all times shall retain the right to
participate in any such enforcement actions, and (iv) the settlement of any such
action shall be subject to Cendant's prior written approval, which shall not be
unreasonably withheld. Any monies recovered from or paid to Cendant or Newco as
a result of such enforcement action shall be divided between Cendant and Newco
proportionately, based upon their respective expenses incurred in connection
with the enforcement action, determined by out-of-pocket expenditures only.
Section 1.65. EFFECT OF TERMINATION OF LICENSE. In the event the
parties mutually agree to terminate the license granted pursuant to this
Agreement, or upon the Expiration Date, subject to Section 6.11, Newco shall
(i) cease all use of the Licensed Intellectual Property, (ii) destroy or at
the request of Cendant deliver to Cendant, all materials and other items
bearing the Licensed Marks or the Transition Marks or embodying or describing
the Licensed Proprietary Rights, and (iii) not thereafter use the Licensed
Proprietary Rights or any Licensed Intellectual Property, or hold itself out
as a licensee of Cendant with respect to the Licensed Intellectual Property.
Notwithstanding the foregoing, unless termination of the licenses granted
pursuant to this Agreement occurs upon the Expiration Date, Newco may
continue to use the Licensed Intellectual Property for a period of up to
sixty days after such termination in connection with the Applicable
Membership Clubs, through ordinary distribution channels and in the ordinary
course of business, for the purpose of transitioning to the Newco Marks and
other proprietary rights, and using up the inventory of advertisements and
other business materials on hand or on irrevocable order on the termination
date.
Section 1.66. OPTION TO PURCHASE OPTION MARKS. (a) Subject to any
third party options, existing as of Closing and set forth in Section 6.11 of
the Cendant Disclosure Schedule, Newco shall have the option to purchase any
or all of the Licensed Marks (the "Option Marks") in the Territory along with
the goodwill associated with such Option Marks from Cendant upon the
Expiration Date (the "Marks Option"). Newco shall exercise the Marks Option
at any time no later than three months after, and no earlier than six months
prior to the Expiration Date, by providing a written notice to Cendant (the
"Option Notice") indicating (i) the Option Marks that Newco desire to
47
purchase and (ii) the offer price for each Option Mark. Following receipt of the
Option Notice, the Parties agree to negotiate in good faith to reach an
agreement regarding the purchase price, terms and conditions of the sale of the
Option Marks to Newco (the "Option Price"). In the event the Parties are unable
to agree upon the Option Price by the Expiration Date, then the Option Price
shall be the fair market value of such marks as of the date three months prior
to the Expiration Date as determined by a mutually agreed upon nationally
recognized investment banking or similar firm that provides valuations of
intellectual property (the "Valuation Firm"). If the Parties are unable to agree
upon a Valuation Firm within sixty days prior to Expiration Date, then the
Parties shall have such selection made pursuant to the rules of the AAA within
forty-five days of the Expiration Date. The Valuation Firm shall have forty-five
Business Days to determine the fair market value of the Option Marks and shall
provide written notice of the fair market value of the Option Marks and the
basis for its calculation to each of Cendant and Newco. The determination by the
Valuation Firm shall be valid and binding upon the Parties. During the period of
negotiations and in which the Valuation Firm is making its determination, if
such determination should extend beyond the Expiration Date, the licenses
granted pursuant to this Agreement shall be deemed to continue during such
valuation and/or negotiation period on the terms and conditions set forth
herein.
(1) If Newco should exercise the Marks Option, then Newco agrees to
pay to Cendant either (i) the mutually agreed Option Price within one Business
Day of the Expiration Date or (ii) the Option Price as determined by the
Valuation Firm within two Business Days of such determination. Upon such
payments, Cendant shall, or shall cause its Affiliates, to assign such Option
Marks to Newco free and clear of any Liens but subject to pre-existing licenses
set forth in Section 6.3 and Newco shall assume such Option Marks. Payment of
the Option Price shall be made by wire transfer of immediately available funds
to an account or accounts designated by Cendant prior to the applicable payment
date.
(2) In the event the Marks Option is not exercised for any reason
and either Parent or CMS or their respective Affiliates negotiate an acceptable
offer for the sale of any of the Option Marks to any third party, Parent or CMS
shall first be required to re-offer in writing the applicable Option Marks to
Newco on the same terms as have been offered by the third party before
completing any transaction for the applicable Option Marks with such third
party. Within 30 days of receiving such written proposal, in the event Newco
accepts such terms of purchase, Newco will be required to close on the purchase
of such Option Marks.
(3) Upon the applicable payments to either Parent or CMS for the
applicable Option Marks, either Parent or CMS shall, or shall cause their
Affiliates, to assign the applicable Option Marks to Newco free and clear of any
Liens but subject to pre-existing licenses set forth in Section 6.3 and Newco
shall assume such Option Marks.
48
Payment of such purchase price shall be made by wire transfer of immediately
available funds to an account or accounts designated by either Parent or CMS
prior to the applicable payment date.
Section 6.12. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. EXCEPT
TO THE EXTENT EXPLICITLY SET FORTH IN THIS AGREEMENT, THE LICENSE OF THE
LICENSED INTELLECTUAL PROPERTY BY CENDANT IS WITHOUT ANY REPRESENTATION OR
WARRANTY WHATSOEVER (WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES,
MERCHANTABILITY, FITNESS OR NON-INFRINGEMENT), INCLUDES ONLY WHATEVER RIGHT,
TITLE, AND INTEREST CENDANT HAS TO THE LICENSED INTELLECTUAL PROPERTY, AND IS
SUBJECT TO WHATEVER CLAIMS, IF ANY, THIRD PARTIES MAY HAVE NOW OR IN THE FUTURE.
EXCEPT AS EXPLICITLY SET FORTH IN THIS AGREEMENT, NEWCO SHALL BEAR THE RISKS, IF
ANY, THAT ACCOMPANY THE USE OF THE LICENSED INTELLECTUAL PROPERTY.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE TRANSACTION
To the extent that the date of this Agreement is not also the
Closing Date, the following shall apply:
Section 7.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE
THE AGREEMENT. The respective obligations of each Party to consummate the
transactions contemplated hereby is subject to the satisfaction at or prior to
the Closing Date of the following condition: No statute, rule, regulation,
executive order, decree, or injunction shall have been enacted, entered,
promulgated or enforced by any court or Governmental Entity that remains in
force and prohibits the consummation of the transactions described herein.
Section 7.2. FURTHER CONDITIONS TO CENDANT'S OBLIGATIONS. The
obligation of Cendant to consummate the transactions contemplated hereby are
further subject to satisfaction or waiver by Cendant of the following
conditions:
(1) The representations and warranties of Newco contained in this
Agreement (without giving effect to any "materiality" or Newco Material Adverse
Effect qualification or exception contained therein) shall be true and correct
at and as of the Closing Date as though such representations and warranties were
made at and as of such date (except to the extent expressly made as of an
earlier date, in which case, as of such date), except (i) changes specifically
permitted by this Agreement or resulting from any
49
transaction expressly consented to in writing by Cendant and (ii) where the
failure of such representations and warranties to be so true and correct has not
had, in the aggregate, a Newco Material Adverse Effect;
(2) Newco shall have performed and complied in all material respects
with all agreements, obligations and covenants contained in this Agreement to be
performed or complied with by it on or prior to the Closing; and
(3) Each of the documents referred to in Section 1.7 shall have been
executed by Newco and delivered to Cendant.
Section 1.70. FURTHER CONDITIONS TO NEWCO'S OBLIGATIONS. The
obligation of Newco to consummate the transactions contemplated hereby are
further subject to the satisfaction or waiver by Cendant at or prior to the
Closing Date of the following conditions:
(1) The representations and warranties of Cendant contained in this
Agreement (without giving effect to any "materiality" or Business Material
Adverse Effect qualification or exception contained therein) shall be true and
correct at and as of the Closing Date as though such representations and
warranties were made at and as of such date (except to the extent expressly made
as of an earlier date, in which case, as of such date), except (i) changes
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by Cendant and (ii) where the failure of such
representations and warranties to be so true and correct has not had, in the
aggregate, a Business Material Adverse Effect;
(2) Each of Parent, CMS and Incentives shall have performed and
complied in all material respects with all agreements, obligations and covenants
contained in this Agreement to be performed or complied with by it on or prior
to the Closing; and
(3) Each of the documents referred to in Section 1.6 shall have been
executed by each of Parent, CMS and Incentives, as the case may be, and
delivered to Newco.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 1.71. TERMINATION. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned at any time prior to
the Closing Date:
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(1) by mutual written consent of Cendant and Newco;
(2) by Cendant or Newco at any time after July 31, 2001 if the
Closing shall not have occurred by such date; PROVIDED, HOWEVER, that the right
to terminate this Agreement under this Section 8.1(b) shall not be available to
(i) Cendant, if Cendant has breached any of their representations, warranties or
covenants hereunder in any material respect and such breach has been the cause
of or resulted in the failure of the Closing to occur on or before such date or
(ii) Newco, if Newco has breached any of its representations, warranties or
covenants hereunder in any material respect and such breach has been the cause
of or resulted in the failure of the Closing to occur on or before such date;
and
(3) by Cendant, on the one hand, or Newco, on the other hand, if the
other shall have breached or failed to perform in any material respect any of
its respective representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform (i) would give
rise to the failure of a condition set forth in Section 7.2 (a) or (b) or 7.3(a)
or (b), as applicable, and (ii) cannot be or has not been cured within ten
Business Days after the giving of written notice to Cendant by Newco or to Newco
by Cendant.
Section 1.72. TERMINATION FOLLOWING CLOSING. (a) This Agreement
may be terminated by Cendant at any time following the Closing if Newco (i)
commits a material breach of this Agreement or any of the Ancillary
Agreements and such breach is not cured by Newco within sixty days (or such
shorter or longer period as may be provided in the applicable Ancillary
Agreement) after written notice from Cendant, describing such breach with
reasonably particularity; (ii) becomes insolvent or commences a voluntary
action under the Bankruptcy Code (as hereinafter defined), an involuntary
case is commenced against Newco and the petition is not dismissed within
sixty days after commencement of the case or a trustee or custodian is
appointed for, or takes charge of, all or substantially all of the property
or assets of Newco, or (iii) fails to pay any Royalty Payments, Rental
Amounts or Retained Member Income to CMS pursuant to the terms of Article II
and such failure is not cured within ten Business Days after written notice
from Cendant. In addition to the foregoing, Cendant shall also be entitled to
seek any other right or remedy, specific performance or a temporary,
preliminary or permanent injunction, without the necessity of proving the
inadequacy of monetary damages, enjoining or restraining Newco from breaching
this Agreement or any of the Ancillary Agreements.
(1) In the event that Cendant commits a material breach of its
respective obligations pursuant to this Agreement and such material breach is
not cured within sixty days of Cendant receiving written notice from Newco,
describing such breach with reasonable particularity, Newco shall be entitled to
seek, in addition any other right or
51
remedy, specific performance or a temporary, preliminary or permanent
injunction, without the necessity of proving the inadequacy of monetary damages,
enjoining or restraining Cendant from breaching this Agreement.
Section 1.73. PROCEDURE FOR AND EFFECT OF TERMINATION. In the
event of termination of this Agreement and abandonment of the transactions
contemplated hereby by the Parties hereto pursuant to Section 8.1 hereof,
written notice thereof shall be given by a Party so terminating to the other
Party and this Agreement shall forthwith terminate and shall become null and
void and of no further effect, and the transactions contemplated hereby shall
be abandoned without further action by Cendant or Newco. If this Agreement is
terminated pursuant to Section 8.1 hereof there shall be no liability or
obligation hereunder on the part of Cendant or Newco or any of their
respective directors, officers, employees, Affiliates, controlling persons,
agents or representatives, except that Cendant or Newco, as the case may be,
may have liability to the other Party if the basis of termination is a
willful, material breach by Cendant or Newco, as the case may be, of one or
more of the provisions of this Agreement, and except that the obligations
provided for in Article II and Sections 8.2, 8.3 and 10.9 hereof shall
survive any termination pursuant to Sections 8.1 and 8.2.
Section 1.74. ADDITIONAL REMEDIES FOR BREACH. (a) In the event
that prior to the Expiration Date, there occurs a termination of this
Agreement pursuant to Section 8.2(a) (a "Liquidated Damages Event"), in each
case after providing Newco with any written notice that may be provided in
Section 8.2(a) (a "Liquidated Damages Event Notice") in accordance with
Section 10.3, Newco shall immediately become obligated to pay CMS's "lost
future royalties." For purposes of this Section 8.4, "lost future royalties"
shall consist of all Royalty Payments which Newco would have paid to CMS from
the date of the Liquidated Damages Event through the entire Term originally
contemplated by this Agreement had a Liquidated Damages Event not occurred.
The Parties acknowledge and agree that it would be impracticable and
extremely difficult to calculate the actual method of lost future royalties
payable by Newco, and that the following method of calculation represents a
fair and reasonable estimate of foreseeable lost future royalties. "Lost
future royalties" shall be calculated by determining (i) the Gross Revenue
generated by Newco for the twelve months preceding the date of the Liquidated
Damages Event multiplied by (ii) the Growth Rates for each remaining Contract
Year following the Liquidated Damages Event (such product for each remaining
Contract Year being referred to herein as an "Annual Gross Revenue Amount").
Each Annual Gross Revenue Amount shall then be multiplied by the applicable
Gross Revenue Percentages as set forth on Exhibit A through the end of each
Contract Year (such product of which being referred to herein as a "Yearly
Royalty Amount"). The net present value of the aggregate amount of all Yearly
Royalty Amounts shall be calculated assuming a 7% discount rate. The net
present value of the Yearly Royalty Amounts shall equal the "lost future
royalties" payable to CMS hereunder. The "Growth Rates" shall equal 15% for
Contract Year
52
Two through Contract Year Four; 8% for Contract Year Five through Contract Year
Eleven, and 4% for Contract Year Twelve through Contract Year Forty. An example
of the calculation of "lost future royalties" is set forth in Section 8.4 to the
Cendant Disclosure Schedule.
(1) Newco shall pay CMS for any lost future royalties within 20 days
of a Liquidated Damages Event Notice (in the case of terminations under clauses
(i) or (ii) of Section 8.2(a)), unless the Liquidated Damages Event shall have
been cured within 20 days of the Liquidated Damages Event (in the case of a
termination under clause (i) of Section 8.2(a)). In the event of a dispute of
the amount of the lost future royalties, Newco shall deliver a Dispute Notice to
Cendant and such dispute will be governed in accordance with the terms of
Sections 5.8(b) through 5.8(e).
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 1.75. SURVIVAL PERIODS. Except for Sections 3.2 and 4.2,
each of the representations and warranties made by the Parties in this
Agreement shall not survive the Closing. This Section 9.1 shall not limit any
covenant or agreement of the Parties that contemplates performance after the
Closing.
Section 1.76. PARENT'S AGREEMENT TO INDEMNIFY. Subject to the
terms and conditions set forth herein (including the terms of Sections 4.6
and 5.6), from and after the Closing, Parent shall indemnify and hold
harmless Newco and its respective directors, officers, employees, Affiliates,
controlling persons, agents and representatives and their successors and
assigns (collectively, the "Newco Indemnitees") from and against all
liabilities, demands, claims, actions or causes of action, assessments,
losses, damages, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) (collectively, the "Newco Damages")
incurred by any Newco Indemnitee as a result of or arising out of (i) a
breach of the representation and warranty set forth in Section 3.2; (ii) a
breach of any covenant or agreement on the part of Cendant under this
Agreement or the Ancillary Agreements; or (iii) the Retained Liabilities and
the Non-Leased Assets (except for Newco Damages as a result of or arising out
of Newco's conduct, maintenance or operation of the Licensed Marks).
Section 1.77. NEWCO AGREEMENT TO INDEMNIFY. (a) Subject to the
terms and conditions set forth herein, from and after the Closing, Newco
shall indemnify and hold harmless each of Parent and CMS and their respective
directors, officers, employees, Affiliates, controlling persons, agents and
representatives and their successors and assigns (collectively, the "Cendant
Indemnitees") from and against all liabilities, demands,
53
claims, actions or causes of action, assessments, losses, damages, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) (collectively, "Cendant Damages") incurred by any Cendant Indemnitee
as a result of or arising out of (i) a breach of the representation or warranty
of Newco set forth in Section 4.2; (ii) a breach of any covenant or agreement on
the part of Newco under this Agreement or the Ancillary Agreements; (iii) the
conduct, maintenance or operation of the Licensed Business and the use of any
Licensed Intellectual Property, including, without limitation, any legal
proceeding arising out of or in connection with such conduct, maintenance or
operation; (iv) the sale of the Transferred Subsidiaries to Newco; or (v) the
failure of the Transferred Subsidiaries to comply with the Agency Termination,
including the payment of any and all claims related to any policies of insurance
issued in violation of the Agency Termination.
(1) Newco shall also indemnify and hold harmless the Cendant
Indemnitees from and against all Cendant Damages related to or arising out of
liabilities Related to the Business including, but not limited to, those set
forth below (other than Retained Liabilities) (collectively, the "Indemnified
Liabilities"):
(1) all liabilities and obligations of Cendant under any of
the Contracts (except for liabilities or obligations under the Contracts
that relate to other businesses of Cendant and are not liabilities or
obligations under the Contracts that are Related to the Business);
(2) all liabilities and obligations that Newco has agreed to
assume pursuant to Sections 5.5 and 5.7; provided, however, that other
than as set forth in this Agreement, Newco shall not assume any obligation
or liability related to or arising from any of Cendant's employee benefit
plans, programs or other coverage referenced within the definition of
Extended Benefits.
(3) all liabilities related to the environmental condition of
any of the Owned Real Property or the Leased Real Property or in any space
which is the subject of Real Property Leases, including, but not limited
to, the presence or release of Hazardous Substances at, on, in, under or
migrating from the Owned Real Property or the Leased Real Property or the
space which is the subject of Real Property Leases, whether said Hazardous
Substances were present or had been released prior to, on, or after the
Closing Date and whether or not such liabilities or environmental
conditions were known or unknown or contingent or fixed as of the Closing
Date provided, however, in the event that (i) Newco and Cendant or their
respective subsidiaries share the use of any Owned Real Property or the
Leased Real Property ("Shared Real Property") during the Term, (ii) Newco
incurrs any cost to satisfy an Indemnified Liability arising under this
paragraph (iii) or paragraph (iv) with respect to any Shared Real Property
("Shared Real
54
Property Liability") and (iii) the Shared Real Property Liability does not
arise in connection with or as a result of any act or failure to act of
Newco or any of its subsidiaries, then the Shared Real Property Liability
shall be deemed decreased by the percentage that such Shared Real Property
is used by Cendant at such time;
(4) any liability or obligation arising under any of the Real
Property Leases prior to the Closing, or as a result of, and any liability
or obligation arising from or related to any breach or violation by
Cendant or default by Cendant or any of its subsidiaries under any
provision of the Real Property Leases prior to the Closing;
(5) monetary penalties, if any, issued by any governmental
entity in a final non-appealable judgment, ruling or order with respect to
actions occurring on or before the Closing Date or during the Term,
including the liabilities associated with any and all investigations by
state attorney generals in all cases with respect to matters that are
Related to the Business;
(6) damages, if any, of any contracting party with respect to
any Contract or the Real Property Release assigned to Newco without a
consent required by the Contract or the Real Property Release;
(7) any liability, obligation, commitment or cost of any kind
arising out of or associated with any requirement under applicable federal
or state Law to provide any privacy notice to any New Member;
(8) any other liability, obligation or commitment of any kind
related to or arising out of the operation of the Business or in
connection with the ownership of a leasehold interest in the Leased Assets
on or prior to the Closing Date that is not referred to specifically in
Section 1.3;
(9) all liabilities, obligations or commitments related to or
arising from the operation of the Business or in connection with the
ownership of a leasehold interest in the Leased Assets occurring after the
Closing and during the Term; and
(10) any liability relating to any Legal Proceeding that is
Related to the Business as conducted prior to, on, or after the Closing
Date, including those set forth in Section 9.3(b)(x) of the Cendant
Disclosure Schedule, net of any amounts previously recorded on the
financial statements of Parent or its Affiliates with respect to such
matters (and excluding those Legal Proceedings that are retained by
Cendant as set forth in Section 1.3(e)).
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Section 1.78. THIRD-PARTY INDEMNIFICATION. The obligations of
Parent to indemnify Newco Indemnitees under Section 9.2 hereof with respect
to Newco Damages and the obligations of Newco to indemnify the Cendant
Indemnitees under Section 9.3 with respect to Cendant Damages, in either case
resulting from the assertion of liability by third Parties (each, as the case
may be, a "Claim"), will be subject to the following terms and conditions:
(1) Any Party against whom any Claim is asserted will give the
indemnifying party written notice of any such Claim promptly after learning of
such Claim, and the indemnifying party may at its option undertake the defense
thereof by representatives of its own choosing. Failure to give prompt notice of
a Claim hereunder shall not affect the indemnifying party's obligations under
this Article IX, except to the extent the indemnifying party is materially
prejudiced by such failure to give prompt notice. If the indemnifying party,
within thirty days after notice of any such Claim, or such shorter period as is
reasonably required, fails to assume the defense of such Claim, Newco Indemnitee
or the Cendant Indemnitee, as the case may be, against whom such Claim has been
made will (upon further notice to the indemnifying party) have the right to
undertake the defense, compromise or settlement (subject to the terms of Section
9.4(c)) of such Claim on behalf of and for the account and risk, and at the
expense, of the indemnifying party, subject to the right of the indemnifying
party to assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof.
(2) So long as the indemnifying party has assumed the defense of any
Claim in the manner set forth above, the indemnifying party shall have the
exclusive right to contest, defend and litigate such Claim and, except as
expressly provided in Section 9.4(c), shall have the exclusive right, in its
sole discretion, to settle any such claim, either before or after the initiation
of litigation at such time and on such terms as the indemnifying party deems
appropriate. If the indemnifying party elects not to assume the defense of any
such Claim (which shall be without prejudice to its right at any time to assume
subsequently such defense), the indemnifying party will nonetheless be entitled,
at its own expense, to participate in such defense. The indemnified party shall
have the right to participate, with separate counsel (which counsel shall act in
an advisory capacity only), in any such contest, defense, litigation or
settlement conducted by the indemnifying party. After notice from the
indemnifying party to such indemnified party of the indemnifying party's
election to assume the defense of such Claim, the indemnifying party will not be
liable to such indemnified party for any expenses of the indemnified party's
counsel that are subsequently incurred in connection with the defense thereof;
PROVIDED, HOWEVER, that the expense of such indemnified party's counsel shall be
paid by the indemnifying party if (i) the indemnifying party requested such
separate counsel to participate or (ii) in the reasonable opinion of counsel to
the indemnified party, a significant conflict of interest exists between the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, that would make such separate representation clearly advisable.
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(3) Without the prior written consent of the indemnified party
(which consent shall not be unreasonably withheld or delayed), the indemnifying
party shall not admit any liability with respect to, or settle, compromise or
discharge, any Claim or consent to the entry of any judgment with respect
thereto, except in the case of any settlement that includes as an unconditional
term thereof the delivery by the claimant or plaintiff to the indemnified party
of a written release from all liability in respect of such Claim. In addition,
whether or not the indemnifying party shall have assumed the defense of the
Claim, the indemnified party shall not admit any liability with respect to, or
settle, compromise or discharge, any Claim or consent to the entry of any
judgment with respect thereto, without the prior written consent of the
indemnifying party (which consent shall not be unreasonably withheld or
delayed), and the indemnifying party will not be subject to any liability for
any such admission, settlement, compromise, discharge or consent to judgment
made by an indemnified party without such prior written consent of the
indemnifying party.
(4) Notwithstanding anything in this Section 9.4 to the contrary, in
the event of a Claim in respect of a Retained Liability that Newco, by virtue of
their leasehold interest in the Business and the Leased Assets is better able to
defend or satisfy than Cendant, Cendant shall have the right, within thirty days
after notice of any such Claim, to request that Newco assume the defense of such
Claim and/or take commercially reasonable action in connection with compromising
or otherwise satisfying such Claim on behalf of and for the account and risk,
and at the expense, of Cendant, subject to the reasonable direction of the
Cendant and subject to the right of Cendant to assume the defense of such Claim
at any time prior to settlement, compromise or final determination thereof. In
connection with the foregoing, Newco shall use commercially reasonable efforts
to reduce any Cendant Damages resulting from or arising out of any Claim covered
by this Section 9.4(d). Cendant shall have the right to participate, with
separate counsel, in any such contest, defense, litigation or settlement
conducted by Newco. Without the prior written consent of Cendant (which consent
may be withheld or delayed in Cendant's sole discretion), Newco shall not admit
any liability with respect to, or settle, compromise or discharge, any Claim
covered by this Section 9.4(d) or consent to the entry of any judgment with
respect thereto.
(5) The indemnifying party and the indemnified party shall cooperate
fully in all aspects of any investigation, defense, pre-trial activities, trial,
compromise, settlement or discharge of any claim in respect of which indemnity
is sought pursuant to this Article IX, including, but not limited to, by
providing the other party with reasonable access to employees and officers
(including as witnesses) and other information.
Section 1.79. INSURANCE. The indemnifying party shall be subrogated
to the rights of the indemnified party in respect of any insurance relating to
Newco Damages
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or Cendant Damages, as the case may be, to the extent of any indemnification
payments made hereunder.
Section 1.80. NO DUPLICATION; SOLE REMEDY. (a) Any liability for
indemnification hereunder shall be determined without duplication of recovery
by reason of the state of facts giving rise to such liability constituting a
breach of more than one representation, warranty, covenant or agreement.
(1) Newco Indemnitees', on the one hand, and the Cendant
Indemnitees', on the other hand, respective rights to indemnification as
provided for in Sections 9.2 and 9.3, as applicable, shall be the exclusive
remedy for any Newco Damages or Cendant Damages, respectively, for which
indemnification is provided hereunder; PROVIDED, HOWEVER, that nothing contained
herein shall prevent an indemnified party from pursuing remedies as may be
available to such party under applicable Law in the event of (i) fraud, (ii)
only equitable relief would be suitable to address the injury or possible
injury, or (iii) an indemnifying party's failure to comply with its
indemnification obligations hereunder.
Section 1.81. INDEMNIFICATION MATTERS GOVERNED BY THIS ARTICLE
IX. The indemnification and other provisions of this Article IX shall govern
the procedure for all indemnification matters under this Agreement, except to
the extent otherwise expressly provided in Sections 5.7(e) or 1.10 of this
Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 1.82. ENTIRE AGREEMENT. This Agreement (including Cendant
Disclosure Schedule) and the Ancillary Agreements constitute the entire
agreement of the Parties relating to the subject matter hereof and supersede
all prior agreements and understandings among or between the Parties both
oral and written regarding such subject matter.
Section 1.83. SEVERABILITY. Any provision of this Agreement that
is held by a court of competent jurisdiction to violate applicable Law shall
be limited or nullified only to the extent necessary to bring the Agreement
within the requirements of such Law.
Section 1.84. NOTICES. Any notice required or permitted by this
Agreement must be in writing and must be sent by facsimile, by nationally
recognized commercial overnight courier, or mailed by United States
registered or certified mail, addressed to the other Party at the address
below or to such other address for notice (or facsimile
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number, in the case of a notice by facsimile) as a Party gives the other Party
written notice of in accordance with this Section 10.3. Any such notice will be
effective as of the date of receipt:
(a) if to Parent, CMS or Incentives, to:
Cendant Corporation
9 West 57th Street
37th Floor
New York, New York 10019
Facsimile: (212) 413-1923
Attention: Eric J. Bock, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Facsimile: (212) 735-2000
Attention: Eric J. Friedman, Esq.
(b) if to Newco, to:
Trilegiant Corporation
100 Connecticut Avenue
Norwalk, Connecticut 06850
Facsimile: (203) 956-1206
Attention: Peter G. McGonagle, Esq.
with a copy to:
O'Sullivan LLP
30 Rockefeller Plaza
New York, New York 10112
Facsimile: (212) 408-2420
Attention: Brad R. Okun, Esq.
John M. Scott, Esq.
Section 1.85. GOVERNING LAW; JURISDICTION. This Agreement shall
be governed by, enforced under and construed in accordance with the Laws of
the State of New York, without giving effect to any choice or conflict of Law
provision or rule thereof. Each of the Parties hereto hereby irrevocably and
unconditionally consents to
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submit to the exclusive jurisdiction of the courts of the State of New York and
of the United States of America in each case located in the County of New York
for any litigation arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any litigation
relating thereto except in such courts) and further agrees that service of any
process, summons, notice or document by U.S. registered mail to its respective
address set forth in Section 10.3 (or to such other address for notice that such
Party has given the other Party written notice of in accordance with Section
10.3) shall be effective service of process for any litigation brought against
it in any such court. Each of the Parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any litigation
arising out of this Agreement or the transactions contemplated hereby in the
courts of the State of New York or of the United States of America in each case
located in the County of New York and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such litigation brought in any such court has been brought in an
inconvenient forum.
Section 1.86. DESCRIPTIVE HEADINGS. The descriptive headings
herein are inserted for convenience of reference only and shall in no way be
construed to define, limit, describe, explain, modify, amplify, or add to the
interpretation, construction or meaning of any provision of, or scope or
intent of, this Agreement nor in any way affect this Agreement.
Section 1.87. COUNTERPARTS. This Agreement may be signed in
counterparts and all signed copies of this Agreement will together constitute
one original of this Agreement. This Agreement shall become effective when
each Party hereto shall have received counterparts thereof signed by all the
other Parties hereto.
Section 1.88. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either Party
without the prior written consent of the other Party. Notwithstanding the
preceding sentence, each of Parent, CMS and Incentives may, after the
Closing, assign all or a part of its rights or interests, and may delegate
all or any part of its obligations, under this Agreement to (i) any
controlled Affiliate or (ii) any person or entity that acquires, directly or
indirectly, (i) ownership or control of Parent or that acquires all or
substantially all of the assets of Parent or that merges with or into Parent
or (ii) acquires ownership or control of CMS or that acquires all or
substantially all of the assets of CMS. Subject to the preceding sentences,
this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
Section 1.89. ASSIGNMENT UPON BANKRUPTCY OF NEWCO. In the event
that, notwithstanding Section 10.7, it is determined by any court of
competent jurisdiction that this Agreement may be assumed or assigned in
connection with a case commenced by or
60
against Newco under Title 11 of the United States Bankruptcy Code, 11 U.S.C.
ss.ss. 101-1330, as it may be amended from time to time (the "BankrupTCY Code"),
or any applicable foreign Laws relating to Bankruptcy (together with the
Bankruptcy Code, "Bankruptcy Laws"), each of Cendant and Newco acknowledges that
adequate assurance of future performance under this Agreement (within the
meaning of the Bankruptcy Code or any applicable Bankruptcy Laws) shall include,
INTER ALIA, adequate assurance that (a) any and all amounts due from Newco to
Cendant under or pursuant to this Agreement shall be duly and timely paid and
all breaches cured and (b) the value, reputation, or goodwill of the Licensed
Marks to Cendant shall not be likely to diminish by reason of the assumption or
assumption and assignment of this Agreement, the identity of the assignee, if
any. Any person or entity to which this Agreement is assigned pursuant to the
applicable provisions of the applicable Bankruptcy Laws shall be deemed, without
further act or deed, to have assumed all of the obligations arising under this
Agreement on and after the date of such assignment. Any such assignee shall,
upon demand, execute and deliver to Cendant, an instrument confirming such
assumption.
Section 1.90. FEES AND EXPENSES. Subject to Section 5.5(a) and
except as otherwise provided below in this Section 10.9, whether or not this
Agreement and the transactions contemplated hereby are consummated, and
except as otherwise expressly set forth herein, all costs and expenses
(including legal and financial advisory fees and expenses) incurred in
connection with, or in anticipation of, this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such expenses,
except that Newco shall pay for all legal, accounting and financial advisory
incurred in connection with the transactions contemplated hereby other than
the initial $1 million of costs and expenses which shall be paid for by
Cendant. Each of Cendant, on the one hand, and Newco, on the other hand,
shall indemnify and hold harmless the other Party from and against any and
all claims or liabilities for financial advisory and finders' fees incurred
by reason of any action taken by such Party or otherwise arising out of the
transactions contemplated by this Agreement by any person claiming to have
been engaged by such Party.
Section 1.91. INTERPRETATION. Throughout this Agreement, nouns,
pronouns and verbs shall be construed as masculine, feminine, neuter,
singular or plural, whichever shall be applicable. Unless otherwise
specified, all references herein to "Section" shall refer to corresponding
provisions of this Agreement or the Cendant Disclosure Schedule, as the case
may be, whenever the words "include," "includes" or "including" are used in
this Agreement, they are deemed to be followed by the words "without
limitation." In the event an ambiguity or question of either intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any
provisions of this Agreement. The Parties agree that all amounts payable
hereunder shall be payable in United States dollars.
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Section 1.92. NO THIRD-PARTY BENEFICIARIES. This Agreement shall
not benefit or create any right or cause of action in or on behalf of any
person other than the Parties hereto; PROVIDED, HOWEVER, that this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
Parties and their respective successors and permitted assigns.
Section 1.93. NO WAIVERS; MODIFICATION. Any waiver of any right
or default hereunder will be effective only in the instance given and will
not operate as or imply a waiver of any other or similar right or default on
any subsequent occasion. No waiver, modification or amendment of this
Agreement or of any provision hereof will be effective unless in writing and
signed by the Party against whom such waiver, modification or amendment is
sought to be enforced.
Section 1.94. SPECIFIC PERFORMANCE; RIGHTS AND REMEDIES. (a) The
Parties hereto agree that if any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached,
irreparable damage would occur, no adequate remedy at Law would exist and
damages would be difficult to determine, and that the Parties shall be
entitled to specific performance of the terms hereof and immediate injunctive
relief, without the necessity of proving the inadequacy of money damages as a
remedy, in addition to any other remedy at Law or equity. Newco acknowledges
that use of the Licensed Intellectual Property outside the scope of the
licenses granted pursuant to this Agreement, or the infringement of Cendant'
intellectual property rights, can cause Cendant irreparable harm and entitle
Cendant to seek immediate preliminary and/or permanent injunctive relief,
without the necessity of proving the inadequacy of money damages as remedy.
(1) Anything in this Agreement or elsewhere to the contrary
notwithstanding, the remedy for any breach of the this Agreement shall not
include termination of this Agreement or any of the Ancillary Agreements, but
may include any other remedy provided for under applicable law, except as and to
the extent otherwise provided in this Agreement.
[Signature Page Immediately Follows]
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IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly signed as of the date first above written.
CENDANT CORPORATION
By: /s/ Tobia Ippolito
---------------------------------------
Name: Tobia Ippolito
Title: Executive Vice President
CENDANT MEMBERSHIP SERVICES
HOLDINGS SUBSIDIARY, INC.
By: /s/ Tobia Ippolito
---------------------------------------
Name: Tobia Ippolito
Title: Executive Vice President
CENDANT MEMBERSHIP SERVICES, INC.
By: /s/ Tobia Ippolito
---------------------------------------
Name: Tobia Ippolito
Title: Executive Vice President
TRILEGIANT CORPORATION
By: /s/ Scott W. Bernstein
---------------------------------------
Name: Scott W. Bernstein
Title: Chief Executive Officer