The original securities class action complaint alleges that Cendant (and its predecessor corporation, CUC International Inc.) and three of its officers violated the Securities Exchange Act of 1934 by publishing false and misleading financial statements and by overstating its income by over $100 million. The Plaintiffs allege that the market price of Cendant stock was artificially inflated during the Class Period as a result of the misrepresentations.

As summarized by the Company’s Form 10-K for the fiscal year ended December 31, 1999, since our April 15, 1998 announcement of the discovery of accounting irregularities in the former CUC business units, and prior to the date of this Annual Report on Form 10-K, approximately 70 lawsuits claiming to be class actions, two lawsuits claiming to be brought derivatively on our behalf and several other lawsuits and arbitration proceedings have been filed in various courts against us and other defendants.

In re: Cendant Corporation Litigation, Master File No. 98-1664 (WHW) (D.N.J.) (the "Securities Action"), is a consolidated action consisting of over sixty constituent class action lawsuits, that were originally filed in the United States District Court for the District of New Jersey, the District of Connecticut, and the Eastern District of Pennsylvania. The Securities Action is brought on behalf of all persons who acquired securities of the Company and CUC, except our PRIDES securities, between May 31, 1995 and August 28, 1998. The Court granted the lead plaintiffs' unopposed motion for class certification on January 27, 1999. Named as defendants are the Company; twenty-eight current and former officers and directors of the Company, CUC and HFS; and Ernst & Young LLP ("Ernst & Young"), CUC's former independent accounting firm.

The Amended and Consolidated Class Action Complaint in the Securities Action alleges that, among other things, the lead plaintiffs and members of the class were damaged when they acquired securities of the Company and CUC because, as a result of accounting irregularities, the Company's and CUC's previously issued financial statements were materially false and misleading, and the allegedly false and misleading financial statements caused the prices of the Company's and CUC's securities to be inflated artificially. The Amended and Consolidated Complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the "Securities Act") and Sections 10(b), 14(a), 20(a), and 20A of the Securities Exchange Act of 1934 (the "Exchange Act"). Lead plaintiffs in the Securities Action seek damages for themselves in unspecified amounts.

On December 14, 1998, the lead plaintiffs in the Securities Action moved for partial summary judgment, on liability only, against the Company on the claims under Section 11 of the Securities Act. The lead plaintiffs adjourned this motion, however, without prejudice to their right to re-notice the motion at a subsequent time.

On January 25, 1999, the Company answered the Amended Consolidated Complaint and asserted Cross-Claims against Ernst & Young. The Company's Cross-Claims allege that Ernst & Young failed to follow professional standards to discover, and recklessly disregarded, the accounting irregularities, and is therefore liable to the Company for damages in unspecified amounts. The Cross-Claims assert claims for breaches of Ernst & Young's audit agreements with the Company, negligence, breaches of fiduciary duty, fraud, and contribution.

On March 26, 1999, Ernst & Young filed Cross-Claims against the Company and certain of the Company's present and former officers and directors, alleging that any failure to discover the accounting irregularities was caused by misrepresentations and omissions made to Ernst & Young in the course of its audits and other reviews of the Company's financial statements. Ernst & Young's Cross-Claims assert claims for breach of contract, fraud, fraudulent inducement, negligent misrepresentation and contribution. Damages in unspecified amounts are sought for the costs to Ernst & Young associated with defending the various shareholder lawsuits and for harm to Ernst & Young's reputation.

On December 7, 1999, the Company announced that it had reached a preliminary agreement to settle the Securities Action.

According to the Notice of Settlement of Class Action dated April 7, 2000, the Settlements will create a settlement fund (the “Settlement Fund”) that totals $3,186,500,000 in cash plus interest. The settlement with Cendant and the HFS Individual Defendants (the “Cendant Settlement”) includes a payment for the Class of $2,851,500,000 in cash, and the settlement with E&Y (the “E&Y Settlement”) includes a payment for the Class of $335,000,000 in cash. A settlement hearing will be held to determine if the settlement should be approved.

On August 15, 2000, Judge William H. Walls approved the settlement with Cendant and certain Individual Defendants. Judge Walls also approved the settlement between the lead plaintiffs and Ernst & Young LLP. The Plan of Allocation was approved and the Court also granted the award of attorneys’ fees and expenses. According to the August 16, 2000 Order, the requested fee of $262,468,857 is awarded and expenses in the amount of $14,623,806 are allowed.