UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-10308
CUC International Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0918165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 Summer Street
Stamford, Connecticut 06901
(Address of principal executive offices) (Zip Code)
(203) 324-9261
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value - 262,386,160 shares as of August
31, 1996
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - July 31, 1996
and January 31, 1996. 3
Condensed Consolidated Statements of Income - Three months
ended July 31, 1996 and 1995. 4
Condensed Consolidated Statements of Income - Six months
ended July 31, 1996 and 1995. 5
Condensed Consolidated Statements of Cash Flows -
Six months ended July 31, 1996 and 1995. 6
Notes to Condensed Consolidated Financial Statements. 7
Independent Accountants' Review Report. 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 23
INDEX TO EXHIBITS 24
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 31, January 31,
1996 1996
Assets (Unaudited)
Current Assets
Cash and cash equivalents $297,458 $307,965
Marketable securities 73,555 63,423
Receivables 415,665 391,539
Prepaid membership materials 47,021 39,061
Prepaid expenses, deferred taxes & other 143,831 135,772
Total Current Assets 977,530 937,760
Membership solicitations in process 61,881 60,713
Deferred membership acquisition costs 277,240 273,102
Contract renewal rights and intangible
assets - net of accumulated
amortization of $109,556 and $98,362 290,772 287,804
Properties, at cost, less accumulated
depreciation of $105,089 and $94,173 86,054 80,964
Deferred income taxes and other 50,823 41,943
$1,744,300 $1,682,286
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $138,402 $182,602
Federal and state income taxes payable 14,054 35,957
Total Current Liabilities 152,456 218,559
Deferred membership income 510,219 513,219
Convertible debt 23,428 23,389
Zero coupon convertible notes 14,410
Other 11,287 13,046
Contingencies (Note 6)
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 600 million shares;
issued 254,246,281 shares
and 246,171,191 shares 2,542 2,462
Additional paid-in capital 569,506 446,528
Retained earnings 560,422 483,679
Treasury stock, at cost, 3,979,095
shares and 3,410,631 shares (52,291) (30,998)
Deferred compensation (30,485)
Unrealized (loss)gain on marketable
securities (106) 248
Foreign currency translation (2,678) (2,256)
Total Shareholders' Equity 1,046,910 899,663
$1,744,300 $1,682,286
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
July 31,
1996 1995
REVENUES
Membership and service fees $421,797 $347,759
Software 68,580 62,260
Total Revenues 490,377 410,019
EXPENSES
Operating 155,995 135,178
Marketing 171,082 145,805
General and administrative 66,479 58,973
Merger costs 28,635
Interest income, net (1,103) (1,062)
Total Expenses 421,088 338,894
INCOME BEFORE INCOME TAXES 69,289 71,125
Provision for income taxes 33,981 26,823
NET INCOME $35,308 $44,302
Net Income Per Common Share $0.14 $0.18
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 256,806 248,767
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Six Months Ended
July 31,
1996 1995
REVENUES
Membership and service fees $811,823 $672,873
Software 129,053 109,962
Total Revenues 940,876 782,835
EXPENSES
Operating 301,466 254,699
Marketing 337,457 284,010
General and administrative 130,577 113,379
Merger costs 28,635
Interest income, net (2,770) (2,219)
Total Expenses 795,365 649,869
INCOME BEFORE INCOME TAXES 145,511 132,966
Provision for income taxes 63,218 50,661
NET INCOME $82,293 $82,305
Net Income Per Common Share $0.32 $0.33
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 255,084 247,542
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
JULY 31,
SIX MONTHS ENDED 1996 1995
OPERATING ACTIVITIES:
Net income $82,293 $82,305
Adjustments to reconcile net income to net
cash provided by operating activities:
Membership acquisition costs (235,308) (186,090)
Amortization of membership
acquisition costs 242,431 195,203
Deferred membership income (14,499) (18,283)
Membership solicitations in process (1,168) (6,184)
Amortization of contract renewal
rights and excess cost 11,744 10,325
Deferred income taxes 6,734 13,984
Amortization of original issue
discount on convertible notes 1,291 832
Depreciation 13,116 8,583
Changes in working capital items, net of acquisitions:
Increase in receivables (24,126) (44,781)
Increase in prepaid membership
materials (7,960) (7,938)
Increase in prepaid expenses other
current assets (16,453) (12,024)
Net decrease in accounts payable
and accrued expenses and federal
and state income taxes payable (30,286) (25,533)
Other, net (16,028) (8,597)
Net cash provided by operating activities 11,781 1,802
INVESTING ACTIVITIES:
Proceeds from matured marketable securities 34,204 29,916
Purchases of marketable securities (44,336) (30,177)
Acquisitions, net of cash acquired (14,841) (59,256)
Acquisitions of properties (17,839) (18,230)
Net cash used in investing activities (42,812) (77,747)
FINANCING ACTIVITIES:
Issuance of Common Stock 18,537 14,663
Repayments of long-term obligations, net 1,987 (5)
Equity distributions (60)
Net cash provided by financing activities 20,524 14,598
Net decrease in cash and cash equivalents (10,507) (61,347)
Cash and cash equivalents at beginning of
period 307,965 263,098
Cash and cash equivalents at end of period $297,458 $201,751
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended
July 31, 1996 are not necessarily indicative of the results that
may be expected for the year ending January 31, 1997. For
further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-K filing for
the year ended January 31, 1996. The condensed consolidated
financial statements at July 31, 1996 and for the six months
ended July 31, 1996 and 1995 are unaudited, but have been
reviewed by independent accountants and their report is included
herein. All periods presented reflect the Company's
reclassifications of deferred membership acquisition costs
(previously classified as an offset to deferred membership
income) and membership solicitations in process (previously
classified as a current asset) to noncurrent assets.
NOTE 2 -- MERGERS AND ACQUISITIONS
During July 1996 the Company acquired all of the outstanding
capital stock of Davidson & Associates, Inc. ("Davidson") for a
purchase price of approximately $1 billion, which was satisfied
by the issuance of approximately 30.1 million shares of the
Company's common stock, par value $.01 per share ("Common
Stock"). Also during July 1996 the Company acquired all of the
outstanding capital stock of Sierra On-Line, Inc. ("Sierra") for
a purchase price of approximately $858 million, which was
satisfied by the issuance of approximately 25.6 million shares of
Common Stock. Davidson and Sierra develop, publish and
distribute educational and entertainment software for home and
school use. The mergers with Davidson and Sierra have been
accounted for in accordance with the pooling-of-interests method
of accounting and, accordingly, the accompanying interim
consolidated financial statements have been retroactively
adjusted as if Davidson, Sierra and the Company had operated as
one since inception.
The following represents revenues and net income of the Company
and Davidson and Sierra for the six months ended July 31, 1995
and the last complete interim period preceding the mergers
(unaudited, in thousands).
Three
months Six months
ended ended July
April 30, 31, 1995
1996
Revenues:
The Company $390,026 $672,873
Davidson and
Sierra 60,473 109,962
---------- ----------
$450,499 $782,835
======= =======
Net Income
(Loss):
The Company $48,250 $77,738
Davidson and
Sierra (1,265) 4,567
---------- ----------
$46,985 $82,305
======= =======
Davidson and Sierra previously used the fiscal year-ends December
31 and March 31, respectively, for their financial reporting. To
conform to the Company's January 31 fiscal year-end, Davidson's
operating results for January 1996 have been excluded from the
six months ended July 31, 1996 operating results in the
accompanying financial statements. In addition, Sierra's
operating results for February and March 1996 have been included
in the operating results for the six months ended July 31, 1996
in the accompanying financial statements and for the year ended
January 31, 1996. The above-mentioned excluded and duplicated
periods have been adjusted by a $5.7 million charge to retained
earnings at July 31, 1996.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 2 -- MERGERS AND ACQUISITIONS (continued)
In connection with the Davidson and Sierra mergers, the Company
charged $28.6 million ($25.1 million or $.10 per common share
after-tax effect) to operations in the three months ended July
31, 1996 for merger costs. Such costs are non-recurring and are
comprised primarily of transaction costs, other professional fees
and integration costs.
NOTE 3 -- SHAREHOLDERS' EQUITY
For the three and six months ended July 31, 1996, $14.7 million
and $14.9 million principal of zero coupon convertible notes were
converted into 2.2 million shares and 2.3 million shares of
Common Stock, respectively, and the related unamortized original
issue discount ($64,000 and $68,000, respectively) was charged
against additional paid-in capital. The balance of the change in
additional paid-in capital and treasury stock relates to stock
option activity.
The Company's fiscal 1990 recapitalization included establishment
of a restricted stock plan designed to compensate and retain key
employees of the Company. During July 1996, 910,000 restricted
shares of Common Stock were granted with a fair value on the date
of grant of $30.5 million, which amount was deducted from
shareholders' equity and is being amortized over the vesting
period.
Net income per share, assuming the conversions of the zero coupon
convertible notes during the six months ended July 31, 1996
occurred at the beginning of such period, would not differ
significantly from the Company's actual earnings per share for
such period.
NOTE 4 -- SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF
SOFTWARE REVENUE
Software research and development costs are included in operating
expenses and aggregated $15.3 million and $13.5 million for the
three months ended July 31, 1996 and 1995, respectively, and
$30.2 million and $24.3 million for the six months ended July 31,
1996 and 1995, respectively. Costs of software revenue are
included in operating expenses and aggregated $21.1 million and
$28.4 million for the three months ended July 31, 1996 and 1995,
respectively, and $45.9 million and $47.9 million for the six
months ended July 31, 1996 and 1995, respectively.
NOTE 5 -- INCOME TAXES
The Company's effective tax rate differs from the Federal
statutory rate principally because of state income taxes and non-
deductible amortization of the excess of cost over net assets
acquired.
NOTE 6 -- CONTINGENCIES - IDEON
During August 1996, the Company acquired Ideon (as defined and
described in Note 7). At July 31, 1996, Ideon was defending or
prosecuting claims in thirteen complex lawsuits, twelve of which
involved Peter Halmos, former Chairman of the Board and Executive
Management Consultant to SafeCard, and various parties related to
him as adversaries. Peter Halmos is also a plaintiff in three
other lawsuits, one against a former officer, one against a
director of Ideon and one against SafeCard's outside counsel, in
which neither SafeCard nor Ideon have been named as defendant.
The thirteen cases in which Ideon or its subsidiaries is a party
are as follows:
A suit initiated by Peter Halmos, related entities, and Myron
Cherry (a former lawyer for SafeCard) in April 1993 in Cook
County Circuit Court in Illinois against SafeCard and one of
Ideon's directors, purporting to state claims aggregating in
excess of $100 million, principally relating to alleged rights to
"incentive compensation," stock options or their equivalent,
indemnification, wrongful termination and defamation. On February
7, 1995, the court dismissed with prejudice Peter Halmos' claims
regarding alleged rights to "incentive compensation," stock
options or their equivalent, wrongful termination and defamation.
Mr. Halmos has appealed this ruling. SafeCard has filed an answer
to the remaining indemnification claims. Its obligation to file
an answer to the claims of Myron Cherry have been stayed pending
settlement discussions. On December 28, 1995, the court stayed
Halmos' indemnification claims pending resolution of a declatory
judgment action filed by Ideon in Delaware Chancery Court.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- CONTINGENCIES - IDEON (continued)
A suit which seeks monetary damages and certain equitable relief
filed by SafeCard in August 1993 in Laramie County Circuit Court
in Wyoming against Peter Halmos and related entities alleging
that Peter Halmos dominated and controlled SafeCard, breached his
fiduciary duties to SafeCard, and misappropriated material non-
public information to make $48 million in profits on sales of
SafeCard stock. In March 1994, Mr. Halmos and related entities
filed a counterclaim in which claims were made of conspiracy in
restraint to trade, monopolization and attempted monopolization,
unfair competition and restraint of trade, breach of contract for
indemnity and intentional infliction of emotional distress.
SafeCard's motion to sever the conspiracy, monopolization and
restraint of trade claims was granted in May 1994. The claims for
the conspiracy, monopolization, restraint of trade and unfair
competition were dismissed without prejudice in June 1994. On
April 12, 1995, the trial court granted the motion of Mr. Halmos
and certain related entities to amend their counterclaims. The
amended counterclaims include claims for indemnification for
legal expenses incurred in the action and a claim that SafeCard's
contract with CreditLine should be rescinded. On April 19, 1995,
the trial court granted Mr. Halmos' motion for summary judgment
that certain of SafeCard's claims against him were barred by the
statute of limitation. On March 14, 1996, the Wyoming Supreme
Court reversed the trial court's ruling that certain of
SafeCard's claims were barred by the statute of limitations.
Pursuant to the Court's order of July 31, 1996, the action has
been abated to permit the parties to engage in settlement
negotiations.
A suit seeking monetary damages by Peter Halmos, purportedly in
his name and in the name of CreditLine Corporation and Continuity
Marketing Corporation against SafeCard, one of its officers and
three of Ideon's directors in United States District Court in the
Southern District of Florida, in September 1994 purporting to
state various tort claims, state and federal antitrust claims and
claims of copyright infringement. The claims principally relate
to the allegation by Peter Halmos and his companies that SafeCard
has taken action to prevent him from being a successful
competitor. All discovery in the case has been stayed pending a
ruling on a motion to dismiss filed by SafeCard, its officer and
Ideon's directors. On August 16, 1995, the United States
Magistrate Judge filed a Report and Recommendation that the case
be dismissed. The parties have filed various beliefs and
memoranda in response to this Report. On January 4, 1996, the
Magistrate recommended ruling that the statute of limitations was
tolled during pendency of the case in federal court and the
plaintiffs' state law claims were thus not time-barred.
Defendants have filed an objection to this recommendation.
A suit seeking monetary damages by Peter Halmos, as trustee for
the Peter A. Halmos revocable trust dated January 24, 1990 and
the Halmos Foundation, Inc. individually and certain other named
parties on behalf of themselves and all others similarly situated
against SafeCard, one of its officers, one of its former officers
and three of Ideon's directors in the United States District
Court for the Southern District of Florida in December 1994. This
litigation involves claims by a putative class of sellers of
SafeCard Stock for the period January 11, 1993 through December
8, 1994 for alleged violations of the federal and states
securities laws in connection with alleged improprieties in
SafeCards' investor relations program. The complaint also
includes individual claims made by Peter Halmos in connection
with the sale of stock by two trusts controlled by him. SafeCard
and the individual defendants have filed a motion to dismiss.
There has been limited discovery on class certification and
identification of "John Doe" defendant issues. Ideon filed its
opposition to the pending motion for class certification on
December 11, 1995. Plaintiffs' reply was filed March 19, 1996.
On September 9, 1996, the Court entered an order abating the
action until December 9, 1996 to permit the parties to engage in
settlement negotiations.
A suit seeking monetary damages and injunctive relief by LifeFax,
Inc. and Continuity Marketing Corporation, companies affiliated
with Peter Halmos, in the State Circuit Court in Palm Beach
County, Florida in April 1995 against Ideon, Family Protection
Network, Inc., SafeCard, one of Ideon's directors and Ideon's
Chief Executive Officer purporting to state various statutory and
tort claims. The claims principally relate to the allegation by
these companies that SafeCard's Early Warnings Service and Family
Protection Network were conceived and commercialized by, among
others, Peter Halmos and have been improperly copied. An
amendment complaint filed on June 14, 1995 seeking monetary
damages adds to the prior claims certain claims by Nicholas
Rubino that principally relate to the allegation that SafeCard's
Pet Registration Product was conceived by Mr. Rubino and has been
improperly copied. The Company has filed an appropriate answer.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
A suit seeking monetary damages and declaratory relief by Peter
Halmos, individually and as trustee for the Peter A. Halmos
revocable trust dated January 24, 1990 and by James B. Chambers,
individually and on behalf of himself and all others similarly
situated against Ideon, SafeCard, each of the members of Ideon's
Board of Directors, three non-board member officers of Ideon,
Ideon's previous outside auditor and one of Ideon's outside
counsel in the United States District Court for the Southern
District of Florida in June 1995. The litigation involves claims
by a putative class of purchasers of Ideon stock between December
14, 1994 and May 25, 1995 and on behalf of a separate class of
all record holders of SafeCard stock as of April 27, 1995. The
putative class claims are for alleged violations of the federal
securities laws, for alleged breach of fiduciary duty and alleged
negligence in connection with certain matters voted on at the
Annual Meeting of SafeCard stockholders held on April 27, 1995.
Ideon and the individual defendants have filed a motion to
dismiss these claims. There has been limited discovery on class
certification issues. Ideon filed its opposition to the pending
motion for class certification on December 11, 1995. Plaintiffs'
reply was filed March 19, 1996. On September 9, 1996, the Court
entered an order abating the action until December 9, 1996 to
permit the parties to engage in settlement negotiations.
A purported shareholder derivative action initiated by Michael P.
Pisano, on behalf of himself and other stockholders of SafeCard
and Ideon against SafeCard, Ideon, two of their officers, and
Ideon's directors in United States District Court, Southern
District of Florida. This litigation involves claims that the
officers and directors of SafeCard have improperly refused to
accede to Peter Halmos' litigation and indemnification demands
against Ideon. Ideon and the individual defendants have filed
motions to dismiss the first amended complaint. On September 29,
1995, Pisano filed a second amended complaint which made
additional allegations of waste and mismanagement against Ideon's
officers and directors in connection with the Family Protection
Network and PGA Tour Partner products. On December 26, 1995,
Ideon filed motions to dismiss the Second Amended Complaint. On
June 4 and June 19, 1996, orders were entered dismissing
plaintiff's claims with prejudice for failure to join an
indispensable party, Peter Halmos. On June 27, 1996, plaintiff
filed a notice of appeal.
A suit seeking monetary damages filed by Peter Halmos against
SafeCard, one of its directors, its former general counsel, and
its legal counsel in the Circuit Court, Fifteenth Judicial
Circuit, in and for Palm Beach County, Florida on August 10,
1995. This litigation involves claims by Peter Halmos for breach
of fiduciary duty and constructive fraud, fraud, and negligent
misrepresentation and is based on allegations arising out of the
resolution of a shareholder class action lawsuit in 1991 and
SafeCard's subsequent filing of an action against Halmos and his
related companies in Wyoming in 1993. Plaintiff filed an amended
complaint on June 26, 1996 and on July 11, 1996 Ideon moved to
dismiss plaintiff's amended complaint or in the alternative to
stay the action.
A declaratory judgment action by Ideon and its directors against
Peter Halmos in Delaware Chancery Court, New Castle County. This
action seeks a declaration regarding Ideon's advance
indemnification obligations, if any, to Peter Halmos in
connection with his many lawsuits. Halmos filed a motion to
dismiss on jurisdictional grounds on November 17, 1995. Ideon
filed a brief in opposition and an amended complaint on February
14, 1996. On April 22, 1996, Halmos filed an answer and amended
counterclaims in which High Plains Capital Corporation ("High
Plains") and Halmos Trading & Investment Company ("Halmos
Trading") were added as additional parties. The amended
counterclaims seek advancement and/or indemnification for Halmos,
High Plains and Halmos Trading for certain litigations and an IRS
investigation. The amended counterclaims also seek recovery
against individual defendant directors based on allegations they
willfully and unjustly denied Halmos indemnification and/or
advancement.
A suit by High Plains against Ideon, SafeCard, two of its
directors and The Dilenschneider Group, Inc. in Circuit Court in
Palm Beach County, Florida. This litigation involves claims by
High Plains for certain incentive compensation arising out of
Halmos' affiliation with SafeCard. The complaint includes claims
for breach of written agreements regarding additional services
and expenses, an alternative claim for quantum meruit based on
written agreement and a count for tortious interference with
advantageous business relationship. Ideon filed a motion for
final summary judgment. Discovery has been stayed pending a
ruling on this motion.
A suit filed by High Plains against Ideon and SafeCard in Circuit
Court in Broward County, Florida. This litigation involves claims
by High Plains for alleged breach of oral contract, alleged
violation of Florida's Uniform Trade Secrets Act, alleged
misappropriation of trade secrets and for declaration that
certain alleged trade secrets are property of High Plains. Ideon
filed motions to dismiss and to transfer on December 15, 1995.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 6 -- CONTINGENCIES - IDEON (continued)
A suit by Peter Halmos, purportedly in the name of Halmos
Trading, seeking monetary damages and specific performance
against SafeCard, one of its former officers and one of Ideon's
directors in Circuit Court in Broward County, Florida, making a
variety of claims related to the contested lease of SafeCard's
former Ft. Lauderdale headquarters. SafeCard had vacated the
building, ceased making payments related to such lease and had
filed counterclaims. On March 25, 1996, the parties entered into
a Settlement Agreement under which Ideon made a payment of $3.8
million to settle all claims currently pending or previously
brought in this lawsuit.
A suit by Lois Hekker on behalf of herself and all others
similarly situated seeking monetary damages against Ideon and its
former Chief Executive Officer in the United States District
Court for the Middle District of Florida on July 28, 1995. The
litigation involves claims by a putative class of purchasers of
Ideon stock for the period April 25, 1995 through May 25, 1995
for alleged violation of the federal securities laws in
connection with statements made about Ideon's business and
financial performance. Defendants filed a motion to dismiss on
October 2, 1995. On January 3, 1996, the court stayed all merits
discovery pending rulings on the motion to dismiss and on the
plaintiff's motion for class certification. On August 19, 1996,
the court denied the Company's motion to dismiss. The Company's
answer is currently scheduled to be filed on September 23, 1996.
A suit by Frist Capital Partners, Thomas F. Frist III and
Patricia F. Elcan against Ideon and two of its employees in the
United States District Court for the Southern District of New
York. The litigation involves claims against Ideon, its former
CEO and its Vice President of Investor Relations for alleged
material misrepresentations and omissions in connection with
announcements relating to Ideon's expected earnings per share in
1995 and its new product sales, which included the PGA Tour Card
Program, Family Protection Network and Collections of the Vatican
Museums. On July 15, 1996, Ideon filed a motion to dismiss.
As noted in Note 7, the Company will establish a reserve upon the
Ideon merger related, in part, to these litigation matters. See
Note 7. The Company is also involved in certain other claims and
litigation arising from the ordinary course of business, which
are not considered material to the operations of the Company.
NOTE 7 -- SUBSEQUENT EVENT
During August 1996, the Company acquired all of the outstanding
capital stock of Ideon Group, Inc. ("Ideon"), principally a
provider of credit card enhancement services, for a purchase
price of approximately $393 million, which was satisfied by the
issuance of approximately 11 million shares of Common Stock (the
"Ideon Merger"). This transaction will be accounted for under
the pooling-of-interests method of accounting. The following
represents unaudited pro forma financial data of the Company and Ideon
(in thousands).
Three Six
Months Months
Ended Ended
July 31, July 31,
1996 1995 1996 1995
Income Statement Data:
Revenue $555,744 $466,048 $1,077,957 $896,707
Income (loss) before
income taxes 77,217 (1,756) 161,341 60,514
Net income (loss) 40,461 (2,368) 92,582 35,936
Earnings (loss)
per share $0.15 ($0.01) $0.35 $0.14
July 31, January 31,
1996 1996
Balance Sheet Data:
Current assets $1,132,645 $1,091,276
Current liabilities 264,278 332,005
Shareholders' equity 1,158,498 1,002,523
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 7 -- SUBSEQUENT EVENT (continued)
All costs related to the Ideon Merger have not been reflected in
the Company's financial statements but will be reflected in the
consolidated statements of income during the period the Ideon
Merger is completed. Such costs are non-recurring and include
integration and transaction costs as well as costs relating to
certain outstanding litigation matters (see Note 6) giving
consideration to the Company's intended approach to these
matters, which are estimated by the Company's management to
approximate $125.0 million ($80.0 million after tax effect). Most
of the reserve is related to these outstanding litigation
matters. In determining such portion, the Company estimated the
cost of settling these litigation matters. In estimating such
cost, the Company considered potential liabilities related to
these matters and the estimated cost of prosecuting and defending
them (including out-of-pocket costs, such as attorneys' fees, and
the cost to the Company of having its management involved in
numerous complex litigation matters). The Company is unable at
this time to determine the estimated timing of the future cash
outflows with respect to this liability. Although the Company has
attempted to estimate the amounts that will be required to settle
these litigation matters, there can be no assurance that the
actual aggregate amount of such settlements will not exceed the
amount of the reserve to be accrued. The reserve for these
matters will be expensed in the consolidated statement of income
subsequent to the closing of the Ideon Merger, and any subsequent
payments related to these matters will reduce the amount of the
reserve. The Company considered litigation-related costs and
liabilities, as well as integration and transaction costs, in
determining the agreed upon exchange ratio in respect of the
Ideon Merger.
In determining the amount of the reserve related to the Company's
proposed integration and consolidation efforts, the Company
estimated the significant severance costs to be accrued upon the
consummation of the Ideon Merger and costs relating to the
expected obligations for certain third-party contracts (e.g.,
existing leases and vendor agreements) to which Ideon is a party
and which are neither terminable at will nor automatically
terminated upon a change-in-control of Ideon. The Company expects
to incur significant integration costs because Ideon's credit
card registration and enhancement services are substantially
similar to the Company's credit card registration and enhancement
services. All of the business activities related to the
operations performed by Ideon's Jacksonville, Florida office were
transferred to the Company's Comp-U-Card Division in Stamford,
Connecticut upon the consummation of the Ideon Merger. The
Company also expects that there will be additional consolidation
affecting other parts of Ideon's business that are substantially
the same as the Company's existing businesses. The Company does
not expect any loss in revenue as a result of these integration
and consolidation efforts.
Independent Accountants' Review Report
Shareholders and Board of Directors
CUC International Inc.
We have reviewed the accompanying condensed consolidated balance
sheet of CUC International Inc. as of July 31, 1996, the related
condensed consolidated statement of income for the three-month
and six-month periods ended July 31, 1996 and 1995, and the
related condensed consolidated statement of cash flows for the
six-month periods ended July 31, 1996 and 1995. These financial
statements are the responsibility of the CompanyOs management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, which will be performed for the full year with the
objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated balance
sheet of CUC International Inc. as of January 31, 1996, prior to
the restatement for the fiscal 1997 poolings of interests with
Davidson & Associates, Inc. ("Davidson") and Sierra On-Line, Inc.
("Sierra") described in Note 2 to the condensed consolidated
financial statements. The balance sheets of Davidson and Sierra
included in the January 31, 1996 consolidated balance sheet were
audited and reported on seperately by other auditors. We have
also audited, as to combination only, the consolidated balance
sheet as of January 31, 1996, after restatement for the fiscal
1997 poolings of interests with Davidson and Sierra; in our
opinion, such consolidated balance sheet has been properly
combined on the basis described in Note 2 to the condensed
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance as of January 31, 1996, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which is has been derived.
ERNST & YOUNG LLP
September 4, 1996
Stamford, Connecticut
ITEM 2.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1996 vs.
Three Months Ended July 31, 1995
The Company's overall membership base continues to grow at a
rapid rate (from 38 million members at July 31, 1995 to 49.5
million members at July 31, 1996), which is the largest
contributing factor to the 21% increase in membership revenues
(from $347.8 million for the quarter ended July 31, 1995 to
$421.8 million for the quarter ended July 31, 1996). While the
overall membership base increased by approximately 1.4 million
members during the quarter, the average annual fee collected for
the Company's membership services increased by less than 1%. The
Company divides its memberships into three categories:
individual, wholesale and discount program memberships.
Individual memberships consist of members that pay directly for
the services and the Company pays for the marketing costs to
solicit the member primarily using direct marketing techniques.
Wholesale memberships include members that pay directly for the
services to their sponsor and the Company does not pay for the
marketing costs to solicit the members. Discount program
memberships are generally marketed through a direct sales force,
participating merchant or general advertising and the related
fees are either paid directly by the member or the local
retailer. All of these categories share various aspects of the
Company's marketing and operating resources.
Compared to the previous year's second quarter, individual,
wholesale and discount program memberships grew by 17%, 25% and
54%, respectively, including members which came from acquisitions
completed during fiscal 1996 (members resulting from acquisitions
being "Acquired Members"). Discount program memberships have
incurred the largest increase from Acquired Members, principally
from Advance Ross Corporation, acquired in fiscal 1996, which
provides local discounts to consumers. For the quarter ended
July 31, 1996, individual, wholesale and discount coupon program
memberships represented 63%, 15% and 22% of membership revenues,
respectively. The Company maintains a flexible marketing plan so
that it is not dependent on any one service for the future growth
of the total membership base.
Software revenues increased 10% from $62.3 million for the
quarter ended July 31, 1995 to $68.6 million for the quarter
ended July 31, 1996. Distribution revenue, which typically has
low operating margins, was down from $28.6 million to $12.6
million. The
Company's software operations continue to focus on the growth of
selling titles through retailers. Excluding distribution
revenue, core software revenue grew by 66%. Contributing to the
software revenue growth in fiscal 1997 is the availability of a
larger number of titles as well as the significant increase in
the installed base of CD-ROM personal computers.
As the Company's membership services continue to mature, a
greater percentage of the total individual membership base is in
its renewal years. This results in increased profit margins for
the Company due to the significant decrease in certain marketing
costs incurred on renewing members. Improved response rates for
new members also favorably impact profit margins. As a result,
operating income before interest, merger costs and taxes ("EBIT")
increased from $70.0 million to $96.8 million, and EBIT margins
improved from 17% to 20%.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rate. Historically, an increase
in overall membership usage has had a favorable impact on renewal
rates. The Company records its deferred revenue net of estimated
cancellations which are anticipated in the Company's marketing
programs.
Operating costs increased 15% (from $135.2 million to $156.0
million). The major components of the Company's membership
operating costs continue to be personnel, telephone, computer
processing and participant insurance premiums (the cost of
obtaining insurance coverage for members). The major components
of the Company's software operating costs are material costs,
manufacturing labor and overhead, royalties paid to developers
and affiliated label publishers and research and development
costs related to designing, developing and testing new software
products. The increase in overall operating costs is due
principally to the variable nature of many of these costs and,
therefore, the additional costs incurred to support the growth in
the membership base and software sales. Historically, the
Company has seen a direct correlation between providing a high
level of service to its members and improved retention.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1996 vs.
Three Months Ended July 31, 1995
Marketing costs decreased as a percentage of revenue (from 36% to
35%). This decrease is primarily due to improved per member
acquisition costs and an increase in renewing members. Membership
acquisition costs incurred increased 10.5% (from $102.2 million
to $112.9 million) as a result of the increased marketing effort
which resulted in an increased number of new members acquired.
Marketing costs include the amortization of membership
acquisition costs and other marketing costs, which primarily
consist of membership communications and sales expenses.
Amortization of membership acquisition costs increased by 28%
(from $98 million to $125 million). Other marketing costs
decreased by 4% (from $47.8 million to $46.1 million). These
increases resulted primarily from the costs of servicing a larger
membership base and expenses incurred when selling and marketing
a larger number of software titles. The marketing functions for
the Company's consumer services are combined for its various
services and, accordingly, there are no significant changes in
marketing costs by service.
The Company routinely reviews all renewal rates and has not seen
any material change over the last year in the average renewal
rate. Renewal rates are calculated by dividing the total number
of renewing members not requesting a refund during their renewal
year by the total members up for renewal.
General and administrative costs remained constant as a
percentage of revenue (14%). This is the result of the Company's
ongoing ability to control overhead. Interest income, net, was
$1.1 million for the three months ended July 31, 1996 and 1995.
Merger costs are non-recurring and are comprised primarily of
transaction costs, professional fees and integration costs
associated with the mergers of the Company with Davidson and
Sierra.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months Ended July 31, 1996 vs.
Six Months Ended July 31, 1995
The Company's overall membership base continues to grow at a
rapid rate (from 38 million members at July 31, 1995 to 49.5
million members at July 31, 1996), which is the largest
contributing factor to the 21% increase in membership revenues
(from $672.9 million for the six months ended July 31, 1995 to
$811.8 million for the six months ended July 31, 1996). While
the overall membership base increased by approximately 3 million
members during the six months ended July 31, 1996, the average
annual fee collected for the Company's membership services
increased by 1%. The Company divides its memberships into three
categories: individual, wholesale and discount program
memberships. Individual memberships consist of members that pay
directly for the services and the Company pays for the marketing
costs to solicit the member primarily using direct marketing
techniques. Wholesale memberships include members that pay
directly for the services to their sponsor and the Company does
not pay for the marketing costs to solicit the members. Discount
program memberships are generally marketed through a direct sales
force, participating merchant or general advertising and the
related fees are either paid directly by the member or the local
retailer. All of these categories share various aspects of the
Company's marketing and operating resources.
Compared to the previous year's first six months, individual,
wholesale and discount program memberships grew by 21%, 21% and
59%, respectively, including members which came from acquisitions
completed during fiscal 1996 (members resulting from acquisitions
being "Acquired Members"). Discount program memberships have
incurred the largest increase from Acquired Members, principally
from Advance Ross Corporation, acquired in fiscal 1996, which
provides local discounts to consumers. For the six months ended
July 31, 1996, individual, wholesale and discount coupon program
memberships represented 63%, 15% and 22% of membership revenues,
respectively. The Company maintains a flexible marketing plan so
that it is not dependent on any one service for the future growth
of the total membership base.
Software revenues increased 17% from $110 million for the six
months ended July 31, 1995 to $129.1 million for the six months
ended July 31, 1996. Distribution revenue, which typically has
low operating margins, was down from $41.7 million to $25.7
million. The
Company's software operations continue to focus on the growth of
selling titles through retailers. Excluding distribution
revenue, core software revenue grew by 57%. Contributing to the
software revenue growth in fiscal 1997 is the availability of a
larger number of titles as well as the significant increase in
the installed base of CD-ROM personal computers.
As the Company's membership services continue to mature, a
greater percentage of the total individual membership base is in
its renewal years. This results in increased profit margins for
the Company due to the significant decrease in certain marketing
costs incurred on renewing members. Improved response rates for
new members also favorably impact profit margins. As a result
EBIT increased from $130.7 million to $171.4 million, and EBIT
margins improved from 17% to 18%.
Individual membership usage continues to increase, which
contributes to additional service fees and indirectly contributes
to the Company's strong renewal rate. Historically, an increase
in overall membership usage has had a favorable impact on renewal
rates. The Company records its deferred revenue net of estimated
cancellations which are anticipated in the Company's marketing
programs.
Operating costs increased 18% (from $254.7 million to $301.5
million). The major components of the Company's membership
operating costs continue to be personnel, telephone, computer
processing and participant insurance premiums (the cost of
obtaining insurance coverage for members). The major components
of the Company's software operating costs are material costs,
manufacturing labor and overhead, royalties paid to developers
and affiliated label publishers and research and development
costs related to designing, developing and testing new software
products. The increase in overall operating costs is due
principally to the variable nature of many of these costs and,
therefore, the additional costs incurred to support the growth in
the membership base and software sales. Historically, the
Company has seen a direct correlation between providing a high
level of service to its members and improved retention.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months Ended July 31, 1996 vs.
Six Months Ended July 31, 1995
Marketing costs remained constant as a percentage of revenue
(36%). This is primarily due to maintained per member
acquisition costs and an increase in renewing members.
Membership acquisition costs incurred increased 26% (from $186.1
million to $235.3 million) as a result of the increased marketing
effort which resulted in an increased number of new members
acquired. Marketing costs include the amortization of membership
acquisition costs and other marketing costs, which primarily
consist of membership communications and sales expenses.
Amortization of membership acquisition costs increased by 24%
(from $195.2 million to $242.4 million). Other marketing costs
increased by 7% (from $88.8 million to $95.1 million). These
increases resulted primarily from the costs of servicing a larger
membership base and expenses incurred when selling and marketing
a larger number of software titles. The marketing functions for
the Company's consumer services are combined for its various
services and, accordingly, there are no significant changes in
marketing costs by service.
The Company routinely reviews all renewal rates and has not seen
any material change over the last year in the average renewal
rate. Renewal rates are calculated by dividing the total number
of renewing members not requesting a refund during their renewal
year by the total members up for renewal.
General and administrative costs remained constant as a
percentage of revenue (14%). This is the result of the Company's
ongoing ability to control overhead. Interest income, net,
increased from $2.2 million to $2.8 million primarily due to the
increased level of cash generated by the Company for investment.
Merger costs are non-recurring and are comprised primarily of
transaction costs, professional fees and integration costs
associated with the mergers of the Company with Davidson and
Sierra.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Membership Information
The following chart sets forth the approximate number of members
and net additions for the respective periods.
Net New Member
Number of Additions
Period Members for the Period
Six Months Ended July 31, 1996 49,450,000 2,970,000
Year Ended January 31, 1996 46,480,000 12,630,000*
Six Months Ended July 31, 1995 38,025,000 4,175,000**
Year Ended January 31, 1995 33,850,000 3,000,000
Quarter Ended July 31, 1996 49,450,000 1,435,000
Quarter Ended July 31, 1995 38,025,000 1,175,000
*Includes approximately 8 million Acquired Members.
**Includes approximately 2.1 million Acquired Members.
The membership acquisition costs incurred applicable to obtaining
a new member, for memberships other than coupon book memberships,
generally approximate the initial membership fee. Initial
membership fees for coupon book memberships generally exceed the
membership acquisition costs incurred applicable to obtaining a
new member.
Membership cancellations processed by certain of the Company's
clients report membership information only on a net basis.
Accordingly, the Company does not receive actual numbers of gross
additions and gross cancellations for certain types of
memberships. In calculating the number of members, the Company
has deducted its best estimate of cancellations which may occur
during the trial membership periods offered in its marketing
programs. Typically these periods range from one to three
months.
Liquidity And Capital Resources; Inflation; Seasonality
Funds for the Company's operations and acquisitions have been
provided through cash flow from operations. The Company also has
a credit agreement, dated March 26, 1996, with certain banks
signatory thereto; The Chase Manhattan Bank, N.A., Bank of
Montreal, Morgan Guaranty Trust Company of New York and The
Sakura Bank, Limited, as Co-Agents; and The Chase Manhattan Bank,
N.A., as Administrative Agent (the "Credit Agreement"). The
Credit Agreement provides for a $500 million revolving credit
facility with a variety of different types of loans available
thereunder. The Credit Agreement contains certain customary
restrictive covenants including, without limitation, financial
covenants and restrictions on certain corporate transactions, and
also contains various event of default provisions including,
without limitation, defaults arising from certain changes in
control of the Company. The amount of borrowings available to
the Company under the Credit Agreement was $500 million at July
31, 1996, as there were no borrowings under the Credit Agreement
at that date. The Credit Agreement is scheduled to expired March
26, 2001.
In fiscal 1996, Sierra entered into an unsecured bank line of
credit that provides for borrowing of up to $10 million, expiring
August 31, 1996. The line contains covenants requiring Sierra to
maintain certain financial ratios and minimum balances in cash
and cash equivalents. There have been no borrowings by Sierra
under this line of credit to date. This line of credit expired
August 31, 1996.
All costs related to the Ideon Merger have not been reflected in
the Company's financial statements but will be reflected in the
consolidated statement of income during the period the Ideon
Merger is completed. Such costs are non-recurring and include
integration and transaction costs as well as costs relating to
certain outstanding litigation matters (see Note 6 to the
condensed consolidated financial statements) giving consideration
to the Company's intended approach to these matters, which are
estimated by the Company's management to approximate $125.0
million ($80.0 million after tax effect). Most of the reserve is
related to these outstanding litigation matters. In determining
such portion, the Company estimated the cost of settling these
litigation matters. In estimating such cost, the Company
considered potential liabilities related to these matters and the
estimated cost of prosecuting and defending them (including out-
of-pocket costs, such as attorneys' fees, and the cost to the
Company of having its management involved in numerous complex
litigation matters). The Company is unable at this time to
determine the estimated timing of the future cash outflows with
respect to this liability. Although the Company has attempted to
estimate the amounts that will be required to settle these
litigation matters, there can be no assurance that the actual
aggregate amount of such settlements will not exceed the amount
of the reserve to be accrued.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity And Capital Resources; Inflation; Seasonality
(continued)
The Company invested approximately $15 million in acquisitions,
net of cash acquired, during the six months ended July 31, 1996.
These acquisitions have been fully integrated into the Company's
operations. The Company is not aware of any trends, demands or
uncertainties that will have a material effect on the Company's
liquidity. The Company anticipates that cash flow from
operations and the Credit Agreement will be sufficient to achieve
its current long-term objectives.
The Company does not anticipate any material capital expenditures
for the next year. Total capital expenditures were $18 million
for the six months ended July 31, 1996.
The Company intends to continue to review potential acquisitions
that it believes would enhance the Company's growth and
profitability. Any acquisitions paid for in cash will initially
be financed through excess cash flow from operations and the
Credit Agreement. However, depending on the financing necessary
to complete an acquisition, additional funding may be required.
To date, the overall impact of inflation on the Company has not
been material. Except for the cash receipts from the sale of
coupon book memberships, the Company's membership business is
generally not seasonal. Most cash receipts from these coupon
book memberships are received in the fourth quarter and, to a
lesser extent, in the first and the third quarters of each fiscal
year. As is typical in the consumer software industry, the
Company's software business is highly seasonal. Net revenues and
operating income are highest during the third and fourth quarters
and are lowest in the first and second quarters. This seasonal
pattern is primarily due to the increased demand for the
Company's software products during the year-end holiday season.
For the six months ended July 31, 1996, the Company's
international businesses represented less than 5% of EBIT.
Operating in international markets involves dealing with
sometimes volatile movements in currency exchange rates. The
economic impact of currency exchange rate movements on the
Company is complex because it is linked to variability in real
growth, inflation, interest rates and other factors. Because the
Company operates in a mix of membership services and numerous
countries, management believes currency exposures are fairly well
diversified. To date, currency exposure has not been a
significant competitive factor at the local market operating
level. As international operations continue to expand and the
number of cross-border transactions increases, the Company
intends to continue monitoring its currency exposures closely and
take prudent actions as appropriate.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
No. Description
3.1 Amended and Restated Certificate of Incorporation
of the Company, as filed June 5, 1996 (filed as Exhibit
3.1 to the Company's Form 10-Q for the period ended
April 30, 1996).*
3.2 By-Laws of the Company (filed as Exhibit 3.2 to
the Company's Registration Statement, No. 33-44453, on
Form S-4 dated December 19, 1991).*
4.1 Form of Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement, No. 33-44453, on
Form S-4 dated December 19, 1991).*
10.1-10.20 Management Contracts, Compensatory Plans and
Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of May
15, 1996.
10.2 Agreement with Christopher K. McLeod, dated as of
May 15, 1996.
10.3 Amended and Restated Employment Contract with
Walter A. Forbes, dated as of May 15, 1996.
10.4 Agreement with Cosmo Corigliano, dated February 1,
1994 (filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended January
31, 1995).*
10.5 Amendment to Agreement with Cosmo Corigliano,
dated February 21, 1996 (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996).*
10.6 Agreement with Amy N. Lipton, dated February 1,
1996 (filed as Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended January
31, 1996).*
10.7 Employment Agreement with Robert M. Davidson,
dated July 24, 1996.
10.8 Employment Agreement with Janice G. Davidson,
dated July 24, 1996.
10.9 Non-Competition Agreement with Robert M. Davidson,
dated July 24, 1996.
10.10 Non-Competition Agreement with Janice G.
Davidson, dated July 24, 1996.
10.11 Employment Agreement with Kenneth A.
Williams, dated July 24, 1996.
10.12 Non-Competition Agreement with Kenneth A.
Williams, dated July 24, 1996.
10.13 Form of Employee Stock Option under the 1987
Stock Option Plan (filed as Exhibit 10.6 to the
Company's Form 10-Q for the period ended April 30,
1995).*
10.14 Form of Director Stock Option for 1990 and
1992 Directors Stock Options Plans (filed as Exhibit
10.4 to the Company's Annual Report for the fiscal year
ended January 31, 1991, as amended December 12, 1991
and December 19, 1991).*
10.15 Form of Director Stock Option for 1994
Directors Stock Option Plan, as amended (filed as
Exhibit 10.11 to the Company's Form 10-Q for the period
ended April 30, 1996).*
10.16 1987 Stock Option Plan, as amended (filed as
Exhibit 10.9 to the Company's Form 10-Q for the period
ended April 30, 1995).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
10.17 1990 Directors Stock Option Plan, as amended
(filed as Exhibit 10.10. to the Company's Form 10-Q for
the period ended April 30, 1995).*
10.18 1992 Directors Stock Option Plan, as amended
(filed as Exhibit 10.14 to the Company's Form 10-Q for
the period ended April 30, 1996).*.
10.19 1994 Directors Stock Option Plan, as amended
(filed as Exhibit 10.15 to the Company's Form 10-Q for
the period ended April 30, 1996).*.
10.20 Restricted Stock Plan and Form of Restricted
Stock Plan Agreement (filed as Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1991, as amended December 12,
1991 and December 19, 1991).*
10.21 Credit Agreement, dated as of March 26, 1996,
among: CUC International Inc.; the banks signatory
thereto; The Chase Manhattan Bank, N.A., Bank of
Montreal, Morgan Guaranty Trust Company of New York,
and The Sakura Bank, Limited as Co-Agents; and The
Chase Manhattan Bank, N.A., as Administrative Agent
(filed as Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31,
1996).*
10.22 Agreement and Plan of Merger, dated October
17, 1995, among CUC International Inc., Retreat
Acquisition Corporation and Advance Ross Corporation
(filed as Exhibit 2 to the Company's Registration
Statement on Form S-4, Registration No. 33-64801, filed
on December 7, 1995).*
10.23 Agreement and Plan of Merger, dated as of
February 19, 1996, by and among Davidson & Associates,
Inc., CUC International Inc. and Stealth Acquisition I
Corp. (filed as Exhibit 2(a) to the Company's Report on
Form 8-K filed March 12, 1996).*
10.24 Amendment No.1 dated as of July 24, 1996,
among Davidson & Associates, Inc., CUC International
Inc. and Stealth I Acquisition Corp. (filed as Exhibit
2.2 to the Company's Report on Form 8-K filed August 5,
1996).*
10.25 Agreement and Plan of Merger, dated as of
February 19, 1996, by and among Sierra On-Line, Inc.,
CUC International Inc. and Larry Acquisition Corp.
(filed as Exhibit 2(b) to the Company's Report on Form
8-K filed March 12, 1996).*
10.26 Amendment No.1 dated as of March 27, 1996,
among Sierra On-Line, Inc., CUC International Inc. and
Larry Acquisition Corp. (filed as Exhibit 2.4 to the
Company's Report on Form 8-K filed August 5, 1996).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
10.27 Amendment No.2 dated as of July 24, 1996,
among Sierra On-Line, Inc., CUC International Inc. and
Larry Acquisition Corp. (filed as Exhibit 2.5 to the
Company's Report on Form 8-K filed August 5, 1996).*
10.28 Registration Rights Agreement dated July 24,
1996, among CUC International Inc. and the other
parties signatory thereto (filed as Exhibit 10.1 to the
Company's Report on Form 8-K filed August 5, 1996).*
10.29 Agreement of Sale dated July 23, 1996,
between Robert M. Davidson and Janice G. Davidson and
CUC Real Estate Holdings, Inc. (filed as Exhibit 10.2
to the Company's Report on Form 8-K filed August 5,
1996).*
10.30 Agreement and Plan of Merger, dated as of
April 19, 1996, by and among Ideon Group, Inc., CUC
International Inc. and IG Acquisition Corp. (filed as
Exhibit 10.21 to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31, 1996).*
11. Statement re: Computation of Per Share Earnings
(Unaudited)
15 Letter re: Unaudited Interim Financial
Information
27 Financial data schedule
(b) During the quarter ended July 31, 1996, the Company filed
the following Current Reports on Form 8-K:
None.
*Incorporated by reference
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CUC INTERNATIONAL INC.
(Registrant)
Date: September 16, 1996 By: WALTER A. FORBES
Walter A. Forbes - Chief
Executive Officer and Chairman
of the Board (Principal
Executive Officer)
Date: September 16, 1996 By: COSMO CORIGLIANO
Cosmo Corigliano - Senior Vice
President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
No. Description
Page
3.1 Amended and Restated Certificate of
Incorporation of the Company, as filed
June 5, 1996 (filed as Exhibit 3.1 to the
Company's Form 10-Q for the period ended
April 30, 1996).*
3.2 By-Laws of the Company (filed as Exhibit
3.2 to the Company's Registration
Statement, No. 33-44453, on Form S-4
dated December 19, 1991).*
4.1 Form of Stock Certificate (filed as
Exhibit 4.1 to the Company's Registration
Statement, No. 33-44453, on Form S-4
dated December 19, 1991).*
10.1-10.20 Management Contracts, Compensatory
Plans and Arrangements
10.1 Agreement with E. Kirk Shelton, dated as
of May 15, 1996.
10.2 Agreement with Christopher K. McLeod,
dated as of May 15, 1996.
10.3 Amended and Restated Employment Contract
with Walter A. Forbes, dated as of May
15, 1996.
10.4 Agreement with Cosmo Corigliano, dated
February 1, 1994 (filed as Exhibit 10.6
to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31,
1995).*
10.5 Amendment to Agreement with Cosmo
Corigliano, dated February 21, 1996
(filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal
year ended January 31, 1996).*
10.6 Agreement with Amy N. Lipton, dated
February 1, 1996 (filed as Exhibit 10.8
to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31,
1996).*
10.7 Employment Agreement with Robert M.
Davidson, dated July 24, 1996.
10.8 Employment Agreement with Janice G.
Davidson, dated July 24, 1996.
10.9 Non-Competition Agreement with
Robert M. Davidson, dated July 24, 1996.
10.10 Non-Competition Agreement
with Janice G. Davidson, dated July 24,
1996.
10.11 Employment Agreement with
Kenneth A. Williams, dated July 24, 1996.
10.12 Non-Competition Agreement with Kenneth A.
Williams, dated July 24, 1996.
10.13 Form of Employee Stock Option
under the 1987 Stock Option Plan (filed
as Exhibit 10.6 to the Company's Form 10-
Q for the period ended April 30, 1995).*
10.14 Form of Director Stock Option for 1990
and 1992 Directors Stock Options Plans
(filed as Exhibit 10.4 to the Company's
Annual Report for the fiscal year ended
January 31, 1991, as amended December 12,
1991 and December 19, 1991).*
10.15 Form of Director Stock Option for 1994
Directors Stock Option Plan, as amended
(filed as Exhibit 10.11 to the Company's
Form 10-Q for the period ended April 30,
1996).*
INDEX TO EXHIBITS
Exhibit
No. Description
Page
10.16 1987 Stock Option Plan, as amended (filed
as Exhibit 10.9 to the Company's Form 10-
Q for the period ended April 30, 1995).*
10.17 1990 Directors Stock Option Plan, as
amended (filed as Exhibit 10.10. to the
Company's Form 10-Q for the period ended
April 30, 1995).*
10.18 1992 Directors Stock Option Plan, as
amended (filed as Exhibit 10.14 to the
Company's Form 10-Q for the period ended
April 30, 1996).*.
10.19 1994 Directors Stock Option Plan, as
amended (filed as Exhibit 10.15 to the
Company's Form 10-Q for the period ended
April 30, 1996).*.
10.20 Restricted Stock Plan and Form of
Restricted Stock Plan Agreement (filed as
Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1991, as amended
December 12, 1991 and December 19,
1991).*
10.21 Credit Agreement, dated as of March 26,
1996, among: CUC International Inc.; the
Banks signatory thereto; The Chase
Manhattan Bank, N.A., Bank of Montreal,
Morgan Guaranty Trust Company of New
York, and the Sakura Bank, Limited as Co-
Agents; and The Chase Manhattan Bank,
N.A., as Administrative Agent (filed as
Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1996).*
10.22 Agreement and Plan of Merger, dated
October 17, 1995, among CUC International
Inc., Retreat Acquisition Corporation and
Advance Ross Corporation (filed as
Exhibit 2 to the Company's Registration
Statement on Form S-4, Registration No.
33-64801, filed on December 7, 1995).*
10.23 Agreement and Plan of Merger, dated as of
February 19, 1996, by and among Davidson
& Associates, Inc., CUC International
Inc. and Stealth Acquisition I Corp.
(filed as Exhibit 2(a) to the Company's
Report on Form 8-K filed March 12,
1996).*
10.24 Amendment No.1 dated as of July 24, 1996,
among Davidson & Associates, Inc., CUC
International Inc. and Stealth I
Acquisition Corp. (filed as Exhibit 2.2
to the Company's Report on Form 8-K filed
August 5, 1996).
10.25 Agreement and Plan of Merger, dated as of
February 19, 1996, by and among Sierra On-
Line, Inc., CUC International Inc. and
Larry Acquisition Corp. (filed as Exhibit
2(b) to the Company's Report on Form 8-K
filed March 12, 1996).*
10.26 Amendment No.1 dated as of March 27,
1996, among Sierra On-Line, Inc., CUC
International Inc. and Larry Acquisition
Corp.(filed as Exhibit 2.4 to the
Company's Report on Form 8-K filed August
5, 1996).*
10.27 Amendment No.2 dated as of July 24,
1996, among Sierra On-Line, Inc., CUC
International Inc. and Larry Acquisition
Corp. (filed as Exhibit 2.5 to the
Company's Report on Form 8-K filed August
5, 1996).*
10.28 Registration Rights Agreement dated July
24, 1996, among CUC International Inc.
and the other parties signatory thereto
(filed as Exhibit 10.1 to the Company's
Report on Form 8-K filed August 5,
1996).*
INDEX TO EXHIBITS
Exhibit
No. Description
Page
10.29 Agreement of Sale dated July 23, 1996,
between Robert M. Davidson and Janice G.
Davidson and CUC Real Estate Holdings,
Inc. (filed as Exhibit 10.2 to the
Company's Report on Form 8-K filed August
5, 1996).*
10.30 Agreement and Plan of Merger, dated as of
April 19, 1996, by and among Ideon Group,
Inc., CUC International Inc. and IG
Acquisition Corp. (filed as Exhibit 10.21
to the Company's Annual Report on Form 10-
K for the fiscal year ended January 31,
1996).*
11 Statement re: Computation of Per Share
Earnings (Unaudited)
15 Letter re: Unaudited Interim Financial
Information
27 Financial data schedule
*Incorporated by reference
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Three Months
Ended July 31,
------ --------
1996 1995
PRIMARY ---------- --------
Average shares outstanding 242,505 233,052
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 14,301 15,712
---------- ------------
Total 256,806 248,764
===== =====
Net Income $35,308 $44,302
===== =====
Net income per common share $0.137 $0.178
===== =====
FULLY DILUTED
Average shares outstanding 242,505 233,052
Net effect of dilutive stock
options - based on the treasury
stock method using the period-
end market price, if higher
than the average market price 14,302 17,108
Net effect of zero coupon
convertible notes - based on
the if converted method 2,896 5,372
---------- ------------
Total 259,703 255,532
===== =====
Net Income $35,308 $44,302
Zero Coupon Convertible Notes 522 599
---------- ------------
$35,830 $44,901
===== =====
Net income per common share $0.138 $0.176
===== =====
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Six Months
Ended July 31,
------- ---------
1996 1995
PRIMARY ---------- ---------
Average shares outstanding 241,224 232,285
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 13,860 15,255
---------- ------------
Total 255,084 247,540
===== =====
Net Income $82,293 $82,305
===== =====
Net income per common share $0.323 $0.332
===== =====
FULLY DILUTED
Average shares outstanding 241,224 232,285
Net effect of dilutive stock options
- based on the treasury stock
method using the period-end
market price, if higher than
the average market price 14,086 16,506
Net effect of zero coupon convertible
notes - based on the if converted
method 3,631 5,770
---------- ------------
Total 258,941 254,561
===== =====
Net Income $82,293 $82,305
Zero Coupon Convertible Notes 991 1,320
---------- ------------
$83,284 $83,625
===== =====
Net income per common share $0.322 $0.329
===== =====
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 15-LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
September 16, 1996
Shareholders and Board of Directors
CUC International Inc.
We are aware of the incorporation by reference in the
Registration Statements (Form S-8s: Numbers 33-17247, 33-17248,
33-17249, 33-26875, 33-75682, 33-93322, 33-41823, 33-48175, 33-
58896, 33-91656, 333-03241, 33-74068, 33-74066, 33-91658, 333-
00475, 333-03237, 33-75684, 33-80834, 33-93372, 333-09633, 333-
09637, and 333-09655) of the CUC International Inc. 1985 Non-
Qualified Stock Option Plan, the CUC International Inc. 1985
Incentive Stock Option Plan, the CUC International Inc. 1987
Performance Share Stock Option Plan, the CUC International Inc.
1987 Stock Option Plan, the CUC International Inc. 1987 Stock
Option Plan as amended, the CUC International Inc. 1987 Stock
Option Plan as amended, the CUC International Inc. 1990
Directors' Stock Option Plan, the Entertainment Publications Inc.
1988 Non-Qualified Stock Option Plan, the CUC International Inc.
1992 Bonus and Salary Replacement Stock Option Plan, the CUC
International Inc. 1992 Bonus and Salary Replacement Stock Option
Plan as amended, the CUC International Inc. 1992 Bonus and Salary
Replacement Stock Option Plan as amended, the CUC International
Inc. 1992 Directors Stock Option Plan, the CUC International Inc.
1992 Employee Stock Option Plan, the CUC International Inc. 1992
Employee Stock Option Plan as amended, the CUC International Inc.
Employee Stock Option Plan as amended, the CUC International Inc.
1994 Employee Stock Purchase Plan, the CUC International Inc.
1994 Employee Stock Option Plan as amended, the CUC International
Inc. Savings Incentive Plan, the CUC International Inc. 1994
Directors Stock Option Plan, the Sierra On-Line, Inc. 1987 Stock
Option Plan, the Sierra On-Line, Inc. 1995 Stock Option and Award
Plan and the Papyrus Design Group Inc. 1992 Stock Option Plan,
respectively and in the Registration Statements (Form S-3s:
Numbers 33-30306, 33-47271, 33-58598, 33-63237 and 33-95126) of
our report dated September 4, 1996 relating to the unaudited
condensed consolidated interim financial statements of CUC
International Inc. which are included in its Form 10-Q for the
quarter ended July 31, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report
is not a part of the registration statements prepared or
certified by accountants within the meaning of Section 7 or 11 of
the Securities Act of 1933.
Stamford, Connecticut
5
0000723612
CUC INTERNATIONAL INC.
1,000
6-MOS
JAN-31-1997
JUL-31-1996
297,458
73,555
415,665
0
0
977,530
191,143
105,089
1,744,300
152,456
23,428
0
0
2,542
1,044,368
1,744,300
940,876
940,876
0
769,500
28,635
0
(2,770)
145,511
63,218
82,293
0
0
0
82,293
.32
.32
AGREEMENT
This Agreement made effective as of May 15, 1996 by and
between CUC International Inc. (the "Company"), a Delaware
corporation, and E. Kirk Shelton("Executive").
WHEREAS, the Executive and the Company are parties to a
certain Agreement dated February 1, 1987, as amended on
November 1, 1991 and February 1, 1996 (the "Agreement"); and
WHEREAS, the Executive and the Company wish to make
certain further amendments to the Agreement and to restate
the Agreement as so amended in its entirety herein for ease
of reference.
NOW THEREFORE, in consideration of the foregoing and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
SECTION I
EMPLOYMENT
The Company agrees to employ the Executive and the
Executive agrees to be employed by the Company for the
Period of Employment as provided in Section III.A below and
upon the terms and conditions provided in this Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees
to serve as President and Chief Operating Officer of the
Company and to be responsible for the typical management
responsibilities expected of an officer holding such
position, reporting directly to the Chief Executive Officer
of the Company.
SECTION III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under
this Agreement (the "Period of Employment") will commence as
of May 15, 1996 and shall continue until February 1, 2001,
subject to extension or termination as provided in this
Agreement. On February 1, 2001, and on each February 1
thereafter, the Period of Employment will be automatically
extended by twelve additional calendar months unless prior
to February 1, 2001 or any subsequent February 1 the Company
shall deliver to the Executive, or the Executive shall
deliver to the Company, written notice that the Period of
Employment will end at the expiration of the then-existing
Period of Employment, including any previous extensions
thereof, and will not be further extended except by
agreement of the Company and the Executive. The Period of
Employment shall continue until the expiration of all
automatic extensions unless it is terminated as provided in
this Agreement.
B. Duties
During the Period of Employment and except for
illness, incapacity or any reasonable vacation periods in
any calendar year, the Executive shall devote all of his
business time, attention and skill exclusively to the
business and affairs of the Company and its subsidiaries.
The Executive will not engage in any other business activity
and will perform faithfully the duties which may be assigned
to him from time to time by the Chief Executive Officer of
the Company consistent with Section II of this Agreement.
Nothing in this Agreement shall preclude the Executive from
devoting time during reasonable periods required for:
i. Serving, with the prior approval of the Chief
Executive Officer of the Company, as a director or member of
a committee or organization involving no actual or potential
conflict of interest with the Company;
ii. Delivering lectures and fulfilling speaking
engagements;
iii. Engaging in charitable and community
activities; and
iv. Investing his personal assets in such form or
manner that will not violate this Agreement or require
services on the part of the Executive in the operation or
affairs of the companies in which those investments are
made.
The activities described in clauses i, ii and iii, above
will be allowed as long as they do not materially affect or
interfere with the performance of the Executive's duties and
obligations to the Company.
SECTION IV
COMPENSATION AND BENEFITS
A. Compensation
For all services rendered by the Executive
pursuant to this Agreement during the Period of Employment,
including services as an executive, officer, director or
committee member of the Company or any subsidiary of the
Company, the Executive shall be compensated as follows:
i. Base Salary
The Company shall pay the Executive a fixed
base salary ("Base Salary"), subject to annual increases as
the Company deems appropriate, in accordance with the
Company's customary procedures regarding the salaries of
senior officers. Annual increases in Base Salary, once
granted, shall not be subject to revocation. Base Salary
shall be payable according to the customary payroll
practices of the Company but in no event less frequently
than once each month.
ii. Annual Incentive Awards
The Executive will be eligible for
discretionary annual incentive compensation awards.
iii. Long-Term Incentive Awards
The Executive will be eligible for
discretionary stock option awards.
B. Additional Benefits
i. In addition, the Executive will be entitled
to participate in all compensation or employee benefit plans
or programs and receive all benefits and perquisites for
which salaried employees of the Company generally are
eligible under any plan or program now or established later
by the Company on the same basis as similarly situated
senior executives of the Company. The Executive will
participate to the extent permissible under the terms and
provisions of such plans or programs, in accordance with
program provisions. These include any group
hospitalization, health, dental care, life or other
insurance, savings, thrift and profit sharing plans,
termination pay programs, sick leave plans, travel or
accident insurance, disability insurance, company auto
allowance or auto lease plans, and contingent compensation
plans, including capital accumulation programs and stock
option plans, which the Company may establish. Nothing in
this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to
salaried employees or senior executives as long as such
amendment or termination is applicable to all salaried
employees or senior executives, as the case may be. The
Company will furnish to the Executive long-term disability
insurance in an amount not less than sixty percent (60%) of
Base Salary. The Company will reimburse the Executive for
the cost of an annual physical examination of the Executive
by a physician selected by the Executive, the results of
which will be reported to the Chief Executive Officer. The
Company will also furnish to the Executive (or reimburse the
Executive for) personal financial, investment or tax advice
in an amount not to exceed $4,500 per year.
ii. The Executive will be entitled to a minimum
of four (4) weeks of paid vacation annually.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all
reasonable travel and other expenses incurred by the
Executive in connection with the performance of his duties
and obligations under this Agreement. The Executive shall
comply with such limitations and reporting requirements with
respect to expenses as may be established from time to time.
SECTION VI
DISABILITY
A. i. If the Executive becomes Disabled, as defined
below, during the Period of Employment, the Period of
Employment may be terminated at the option of the Executive
upon notice of resignation to the Company or at the option
of the Company upon notice of termination to the Executive.
"Disabled" means a determination by an independent competent
medical authority that the Executive is unable to perform
his duties under this Agreement and in all reasonable
medical likelihood such inability will continue for a period
in excess of one hundred and eighty (180) days. Unless
otherwise agreed by the Executive and the Company, the
independent medical authority shall be selected by the
Executive and the Company each selecting a board-certified
licensed physician and the two physicians selected
designating an independent medical authority, whose
determination that the Executive is Disabled shall be
binding upon the Company and the Executive. In such event,
until the Executive reaches the age of sixty-five (65) (or
such earlier date on which he is no longer Disabled), the
Company shall continue to pay the Executive sixty percent
(60%) of his Base Salary as in effect at the time of the
termination minus the amount of any disability payments the
Executive may receive under any long-term disability
insurance maintained by the Company. Such amount shall be
payable as provided in Section IV.A hereof. Earned but
unpaid Base Salary and earned but unpaid incentive
compensation awards will be paid in a lump sum at the time
of such termination. No incentive compensation shall be
deemed earned within the meaning of this Agreement until the
Executive is informed in writing as to the amount of such
incentive compensation the Executive is to be awarded as to
a particular period.
ii. The Company will also continue the benefits
and perquisites described in this Agreement for a period of
sixty (60) months subsequent to any such termination.
iii. In the event of any such termination, all
unvested stock options held by the Executive shall be deemed
fully vested on the date of such termination and shall
remain fully exercisable until the applicable expiration
dates contained in the applicable stock option agreements
pursuant to which such stock options were granted.
iv. In the event of any such termination, any
restrictions on any shares of restricted stock issued to the
Executive prior to such termination shall be deemed to lapse
fully on the date of such termination.
B. During the period the Executive is receiving
payments of either regular compensation or disability
insurance described in this Agreement and as long as he is
physically and mentally able to do so without undue burden,
the Executive will furnish information and assistance to the
Company as reasonably requested and from time to time will
make himself reasonably available to the Company to
undertake assignments consistent with his prior position
with the Company and his physical and mental health. During
the disability period, the Executive is responsible and
reports directly to the Company's Chief Executive Officer.
If the Company fails to make a payment or provide a benefit
required as part of this Agreement, the Executive's
obligation to furnish information and assistance will end.
SECTION VII
DEATH
In the event of the death of the Executive during the
Period of Employment, the Period of Employment shall end and
the Company's obligation to make payments under this
Agreement shall cease as of the date of death, except for
earned but unpaid Base Salary and any earned but unpaid
incentive compensation awards, which will be paid to the
Executive's surviving spouse, estate or personal
representative, as applicable, in a lump sum within sixty
(60) days after the date of the Executive's death. The
Executive's designated beneficiary will be entitled to
receive the proceeds of any life or other insurance or other
death benefit programs provided in this Agreement. The
Company will also continue the benefits and perquisites
described in this Agreement for the benefit of Executive's
beneficiaries and surviving family for a period of thirty-
six (36) months commencing on the Executive's death. Any
stock options held by the Executive shall be deemed fully
vested on the date of the Executive's death and shall remain
fully exercisable until the applicable expiration dates
contained in the applicable stock
option agreements pursuant to which such stock options were
granted. Any restrictions on any shares of restricted stock
held by the Executive at the time of Executive's death shall
be deemed to lapse fully on the date of the Executive's
death.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. If the Executive's employment terminates due to
either a Without Cause Termination or a Constructive
Discharge (other than as contemplated by Section XI), as
defined below, the Company shall pay the Executive (or his
surviving spouse, estate or personal representative, as
applicable) upon such Without Cause Termination or
Constructive Discharge in a lump sum an amount equal to
three hundred percent (300%) of his Base Salary as in effect
at the time of such termination. Earned but unpaid Base
Salary and earned but unpaid incentive compensation awards
also will be paid in a lump sum at the time of such
termination. The benefits and perquisites described in this
Agreement will be continued for thirty-six (36) months
following such termination. In the event of any such Without
Cause Termination or Constructive Discharge, any unvested
stock options held by the Executive shall be deemed to vest
in full on the date of such termination, notwithstanding
anything to the contrary in any applicable stock option
agreements. In the event of any such Without Cause
Termination or Constructive Discharge, any restrictions on
any shares of restricted stock held by the Executive shall
be deemed to lapse fully on the date of such termination.
B. If the Executive resigns or the Executive's
employment terminates due to a Termination for Cause, earned
but unpaid Base Salary and any earned but unpaid incentive
compensation will be paid to the Executive in a lump sum
within sixty (60) days of such termination. In addition, if
the Executive resigns, any unvested stock options that would
have otherwise vested during the thirty-six (36) months
following the date of such resignation shall be deemed to
vest in full on the date of such resignation. No other
payments will be made or benefits or perquisites provided by
the Company.
C. Upon termination of the Executive's employment
other than for reasons due to death, disability, or pursuant
to Paragraph A of this Section VIII or Section XI, the
Period of Employment and the Company's obligation to make
payments under this Agreement will cease as of the date of
the termination, except as expressly provided in this
Agreement.
D. For this Agreement, the following terms have the
following meanings:
i. "Termination for Cause" means termination of
the Executive's employment by the Company upon a good faith
determination by the Board of Directors, by written notice
to the Executive specifying the event relied upon for such
termination, due to the Executive's serious, willful
misconduct with respect to his duties under this Agreement
(including but not limited to conviction for a felony or
perpetration of a common law fraud) which has resulted or is
likely to result in material economic damage to the Company
and which, in any such case, is not cured (if such is
capable of being cured) within thirty (30) days after
written notice thereof to the Executive.
ii. "Constructive Discharge" means termination of
the Executive's employment by the Executive due to a failure
of the Company to fulfill its obligations under this
Agreement in any material respect (including without
limitation any reduction of the Executive's Base Salary, as
the same may be increased during the Period of Employment,
or other compensation; or failure to appoint or reappoint
the Executive to the office of President and Chief Operating
Officer; or other material change by the Company in the
functions, duties or responsibilities of the Executive's
position which would reduce the ranking or level, dignity,
responsibility, importance or scope of such position; or any
relocation of the Executive outside of the Stamford,
Connecticut area). The Executive will provide the Company a
written notice which describes the circumstances being
relied on for the termination with respect to this Agreement
within ninety (90) days after the event giving rise to the
notice. The Company will have thirty (30) days after
receipt of such notice to remedy the situation prior to the
termination for Constructive Discharge.
iii. "Without Cause Termination" or "terminated
Without Cause" means termination of the Executive's
employment by the Company other than due to death,
disability, or Termination for Cause. Without limiting the
generality of the foregoing, the Executive shall be deemed
to have been terminated Without Cause if the Company
provides notice to the Executive pursuant to Section III A.
of this Agreement that the Period of Employment will end at
the expiration of the then-existing Period of Employment.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will, with reasonable notice during
or after the Period of Employment, furnish information as
may be in his possession and fully cooperate with the
Company and its affiliates as may be requested in connection
with any claims or legal action in which the Company or any
of its affiliates is or may become a party.
B. The Executive recognizes and acknowledges that all
information pertaining to this Agreement or to the affairs;
business; results of operations; accounting methods,
practices and procedures; members; acquisition candidates;
financial condition; clients; customers or other
relationships of the Company or any of its affiliates
("Information") is confidential and is a unique and valuable
asset of the Company or any of its affiliates. Access to
and knowledge of certain of the Information is essential to
the performance of the Executive's duties under this
Agreement. The Executive will not during the Period of
Employment or thereafter, except to the extent reasonably
necessary in performance of his duties under this Agreement,
give to any person, firm, association, corporation, or
governmental agency any Information, except as may be
required by law. The Executive will not make use of the
Information for his own purposes or for the benefit of any
person or organization other than the Company or any of its
affiliates. The Executive will also use his best efforts to
prevent the disclosure of this Information by others. All
records, memoranda, etc. relating to the business of the
Company or its affiliates, whether made by the Executive or
otherwise coming into his possession, are confidential and
will remain the property of the Company or its affiliates.
C. i. During the Period of Employment and for
a twelve (12) month period thereafter (the "Restricted
Period"), irrespective of the cause, manner or time of any
termination, the Executive will not use his status with the
Company or any of its affiliates to obtain loans, goods or
services from another organization on terms that would not
be available to him in the absence of his relationship to
the Company or any of its affiliates.
ii. During the Restricted Period, the Executive
will not make any statements or perform any acts intended to
or which may have the effect of advancing the interest of
any existing or prospective competitors of the Company or
any of its affiliates or in any way injuring the interests
of the Company or any of its affiliates. During the
Restricted Period, the Executive, without prior express
written approval by the Board of Directors of the Company,
will not engage in, or directly or indirectly (whether for
compensation or otherwise) own or hold proprietary interest
in, manage, operate, or control, or join or participate in
the ownership, management, operation or control of, or
furnish any capital to or be connected in any manner with,
any party which competes in any way or manner with the
business of the Company or any of its affiliates, as such
business or businesses may be conducted from time to time,
either as a general or limited partner, proprietor, common
or preferred shareholder, officer, director, agent,
employee, consultant, trustee, affiliate, or otherwise. The
Executive acknowledges that the Company's and its
affiliates' businesses are conducted nationally and
internationally and agrees that the provisions in the
foregoing sentence shall operate throughout the United
States and the world.
iii. During the Restricted Period, the Executive,
without express prior written approval from the Board of
Directors, will not solicit any members or the then-current
clients of the Company or any of its affiliates for any
existing business of the Company or any of its affiliates or
discuss with any employee of the Company or any of its
affiliates information or operation of any business intended
to compete with the Company or any of its affiliates.
iv. During the Restricted Period, the Executive
will not meddle with the employees or affairs of the Company
or any of its affiliates or solicit or induce any person who
is an employee of the Company or any of its affiliates to
terminate any relationship such person may have with the
Company or any of its affiliates, nor shall the Executive
during such period directly or indirectly engage, employ or
compensate, or cause or permit any person with which the
Executive may be affiliated, to engage, employ or
compensate, any employee of the Company or any of its
affiliates. The Executive hereby represents and warrants
that the Executive has not entered into any agreement,
understanding or arrangement with any employee of the
Company or any of its affiliates pertaining to any business
in which the Executive has participated or plans to
participate, or to the employment, engagement or
compensation of any such employee.
v. For the purposes of this Agreement,
proprietary interest means legal or equitable ownership,
whether through stock holding or otherwise, of an equity
interest in a business, firm or entity or ownership of more
than 5% of any class of equity interest in a publicly-held
company and the term "affiliate" shall include without
limitation all subsidiaries and licensees of the Company.
vi. The Company's obligation to make any payments
under the terms of this Agreement will cease upon any
violation of the preceding paragraphs.
D. The Executive hereby acknowledges that damages at
law may be an insufficient remedy to the Company if the
Executive violates the terms of this Agreement and that the
Company shall be entitled, upon making the requisite
showing, to preliminary and/or permanent injunctive relief
in any court of competent jurisdiction to restrain the
breach of or otherwise to specifically enforce any of the
covenants contained in this Agreement without the necessity
of showing any actual damage or that monetary damages would
not provide an adequate remedy. Such right to an injunction
shall be in addition to, and not in limitation of, any other
rights or remedies the Company may have. Without limiting
the generality of the foregoing, neither party shall oppose
any motion the other party may make for any expedited
discovery or hearing in connection with any alleged breach
of this Section IX.
E. The period of time during which the provisions of
this Section IX shall be in effect shall be extended by the
length of time during which the Executive is in breach of
the terms hereof as determined by any court of competent
jurisdiction on the Company's application for injunctive
relief.
F. The Executive agrees that the restrictions
contained in this Section IX are an essential element of the
compensation the Executive is granted hereunder and but for
the Executive's agreement to comply with such restrictions,
the Company would not have entered into this Agreement.
SECTION X
INDEMNIFICATION; LITIGATION
A. The Company will indemnify the Executive to the
fullest extent permitted by the laws of the state of the
Company's incorporation in effect at that time, or the
certificate of incorporation and by-laws of the Company,
whichever affords the greater protection to the Executive.
The Executive will be entitled to any insurance policies the
Company may elect to maintain generally for the benefit of
its officers and directors against all costs, charges and
expenses incurred in connection with any action, suit or
proceeding to which he may be made a party by reason of
being a director or officer of the Company.
B. In the event of any litigation or other proceeding
between the Company and the Executive with respect to the
subject matter of this Agreement, the Company shall
reimburse the Executive for all costs and expenses related
to the litigation or proceeding, including attorney's fees
and expenses, providing that the litigation or proceeding
results in either settlement requiring the Company to make a
payment to the Executive or judgment in favor of the
Executive.
SECTION XI
CHANGE IN CONTROL
A. In the event there is a Change in Control, as
defined below, the Executive may at any time immediately
resign upon written notice to the Company. In the event of
such resignation, or if the Executive is terminated Without
Cause following a Change in Control, the Company shall
immediately upon such resignation or termination pay to the
Executive in a lump sum an amount equal to five hundred
percent (500%) of the sum of his Base Salary as in effect at
the time of such resignation, plus the largest annual
incentive award paid to the Executive within the previous
three (3) year period. In addition, earned but unpaid Base
Salary and any earned but unpaid incentive compensation
awards will be paid to the Executive in a lump sum at such
time. The benefits and perquisites described in this
Agreement will also be continued for three (3) years from
the date of such resignation or termination Without Cause
pursuant to a Change in Control. In the event there is a
Change in Control, all unvested stock options held by the
Executive shall immediately upon such Change in Control be
deemed fully vested and shall remain exercisable until the
applicable expiration dates contained in the applicable
stock option agreements pursuant to which such stock options
were granted, whether or not the Executive resigns. In the
event there is a Change in Control, all restrictions on any
shares of restricted stock held by the Executive shall be
deemed to lapse fully immediately upon such Change in
Control, whether or not the Executive resigns. The Executive
shall not be entitled to receive any duplicative payments as
a result of the implementation of the provisions of this
Section XI.
B. The Executive shall not be required to mitigate the
amount of any payment provided for after a Change in Control
by seeking other employment or otherwise, nor shall the
amount of any such payment be reduced by any compensation
earned by the Executive as the result of employment by
another employer after the date the Executive's employment
hereunder terminates.
C. A "Change in Control" shall be deemed to have
occurred if (i) a tender offer shall be made and consummated
for the ownership of fifty-one percent (51%) or more of the
outstanding voting securities of the Company, (ii) the
Company or any subsidiary thereof shall be merged with or
into or consolidated with another corporation and as a
result of such merger or consolidation less than seventy-
five percent (75%) of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the
aggregate by the former shareholders of the Company, (iii)
the Company shall sell substantially all of its assets to
another corporation which is not a wholly-owned subsidiary
of the Company, (iv) a person, within the meaning of Section
3(a)(9) or of Section 13(d)(3) (as in effect on the date
hereof) of the Securities Exchange Act of 1934, as amended,
shall acquire twenty-five percent (25%) or more of the
outstanding voting securities of the Company (whether
directly, indirectly, beneficially or of record) or (v) any
other event shall take place that a majority of the Board of
Directors of the Company, in its sole discretion, shall
determine constitutes a "Change in Control" for the purposes
hereof. For purposes hereof, ownership of voting securities
shall take into account and shall include ownership as
determined by applying the provisions of Rule 13d-3(d)(1)(i)
(as in effect on the date hereof) pursuant to the Securities
Exchange Act of 1934, as amended.
D. i. In the event that any payment or benefit
received or to be received by the Executive pursuant to the
terms of this Agreement (the "Contract Payments") or of any
other plan, arrangement or agreement of the Company or any
affiliate ("Other Payments" and, together with the Contract
Payments, the "Payments") would, in the opinion of
independent tax counsel selected by the Company and
reasonably acceptable to the Executive ("Tax Counsel"), be
subject to the excise tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (in whole or in part), as determined as
provided below, the Payments shall be reduced (but not below
zero) until no portion of the Payments would be subject to
the Excise Tax. For purposes of this limitation, (a) no
portion of the Payments the receipt or enjoyment of which the
Executive shall have effectively waived in writing shall be
taken into account, (b) only the portion of the Payments
which in the opinion of Tax Counsel constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the
Code shall be taken into account, (c) the Payments shall be
reduced only to the extent necessary so that the Payments
would not be subject to the Excise Tax, in the opinion of
Tax Counsel, and (d) the value of any noncash benefit or any
deferred payment or benefit included in such Payments shall
be determined by the Tax Counsel in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. If
any reduction in Payments is necessary to satisfy this
Paragraph, the Executive shall be entitled, at any time by
written notice to the Company, to reduce the amount of any
Payment otherwise payable to him (including, without
limitation, by waiving, in whole or in part, the accelerated
vesting under this Agreement on options previously granted
the Executive), and to select from among the Payments those
to be so reduced in order to satisfy the limitations of this
Paragraph and the Company shall reduce the amount of such
Payments accordingly. Any options the vesting of which
would have otherwise accelerated but for the provisions of
this Paragraph shall continue to vest in accordance with
their respective terms; and shall upon such vesting remain
exercisable until the applicable expiration dates contained
in the applicable stock option agreements pursuant to which
such stock options were granted, whether or not the
Executive's employment is terminated.
ii. If it is established pursuant to an opinion
of Tax Counsel or a final determination of a court or an
Internal Revenue Service proceeding that, notwithstanding
the good faith of the Executive and the Company in applying
the terms of this Paragraph D., any Payments paid to the
Executive or for his benefit exceeded the limitation
contained in this Paragraph D., then the Executive shall pay
to the Company, within sixty (60) days of receipt of notice
of such final determination or opinion, an amount equal to
the sum of (a) the excess of the Payments paid to him or for
his benefit over the maximum Payments that should have been
paid to or for his benefit taking into account the
limitations contained in this Paragraph D. and (b) interest
on the amount set forth in clause (a) of this sentence at
the applicable federal rate (as defined in Section 1274(d)
of the Code) from the date of his receipt of such excess
until the date of such payment; provided, however, that (x)
he shall not be required to make any payment to the Company
pursuant to this Paragraph D.ii., (1) if such final
determination requires the payment by him of an Excise Tax
by reason of any Payment or portion thereof or (2) in the
case of the opinion of Tax Counsel, until the expiration of
the application statute of limitations or a final
determination of a court or an Internal Revenue Service
proceeding that no Excise Tax is due and (y) he shall only
be required to make a payment to the Company pursuant to
this Paragraph D.ii. to the extent such payment is
deductible (or excludable from income) for federal income
tax purposes.
iii. If it is established pursuant to an opinion of Tax
Counsel or a final determination of a court or an Internal
Revenue Service proceeding that, notwithstanding the good
faith of the Executive and the Company in applying the terms
of Paragraph D.i. hereof, any Payments paid to him or for
his benefit were in an amount less than the maximum Payments
which could be payable to him without such payments being
subject to the Excise Tax, then the Company shall pay to
him, within ninety (90) days of receipt of notice of such
final determination or opinion, an amount equal to the sum
of (a) the excess, if any, of the payments that should have
been paid to him or for his benefit over the payments paid
to or for his benefit and (b) interest on the amount set
forth in clause (a) of this sentence at the applicable
federal rate (as defined in Section 1274(d) of the Code)
from the date of his non-receipt of such excess until the
date of such payment.
iv. The Company shall pay the Contract Payments
at such times as set forth in the applicable paragraph
hereof; provided, however, that if the Company in good faith
believes that any such payments shall be reduced under the
provisions of Paragraph D.i. hereof, the Company shall pay
to the Executive at such time a good faith estimate of the
reduced payments, the computation of which shall be given to
him in writing together with a written explanation of the
basis for making such adjustment. The Company shall, within
thirty (30) days of the otherwise applicable payment date,
either (a) pay to the Executive the balance of the payments
together with interest thereon at the applicable federal
rate (as defined in Section 1274(d) of the Code) or (b)
deliver to him a copy of the opinion of Tax Counsel referred
to in Paragraph D.i. hereof, as applicable, establishing the
amount of the reduced payments, along with the excess, if
any, of the reduced payments over the estimate previously
paid on account thereof, together with interest thereon at
the applicable federal rate (as defined in Section 1274(d)
of the Code).
SECTION XII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from
any payments under this Agreement all federal, state, city
or other taxes that shall be required pursuant to any law or
governmental regulation.
SECTION XIII
EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding
between the Company and the Executive with respect to the
subject matter hereof and supersedes any prior employment
agreement between the Company and the Executive, except that
this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Executive of a kind
elsewhere provided and not expressly provided in this
Agreement.
SECTION XIV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company
from consolidating or merging into or with, or transferring
all or substantially all of its assets to, another
corporation which assumes this Agreement and all obligations
and undertakings of the Company hereunder. Upon such a
consolidation, merger or sale of assets the term "the
Company" will mean the other corporation and this Agreement
shall continue in full force and effect.
SECTION XV
MODIFICATION
This Agreement may not be modified or amended except in
writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in
writing by the party charged with waiver. A waiver shall
operate only as to the specific term or condition waived and
will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
SECTION XVI
LIFE INSURANCE POLICIES
A. The Executive owns insurance policies nos. 3022608,
2909164, and 2993536 with Guardian Life Insurance Company of
America ("Guardian"), policies nos. 1046440 and 1074718 with
Security Mutual Life Insurance Company of New York
("Security") and policy no. 2636034 with Canada Life
("Canada") (the Guardian, Security and Canada policies are
referred to herein as the "Policies"). The Policies provide
a death benefit equal to the cash surrender value of the
Policies. The Executive has the right to name a beneficiary
for all of the death benefits, subject to the rights of the
Company under the Prior Life Insurance Agreements described
below in Paragraph F. of this Section XVI. As part of the
compensation paid by the Company to the Executive pursuant
to this Agreement, the Company has advanced certain premium
payments on the Policies through the date hereof.
B. In consideration of the services performed by the
Executive pursuant to this Agreement, the Company agrees to
advance annual premium payments for the Policies, in the
aggregate, in the amount of approximately $285,000 or such
other annual amount as may be agreed to in writing between
the Company and the Executive per year (the "Required
Premiums") through the calendar year in which the Executive
attains age sixty (60) regardless of whether the Executive
is employed by the Company at the time the premiums are
paid; provided, however, that the Required Premiums made by
the Company shall cease in the event the Executive breaches
any of the Covenants contained in Section IX hereof (the
"Covenants").
C. In consideration of the Required Premiums to be
advanced annually by the Company pursuant to this Section
XVI, whether or not the Executive is employed by the Company
pursuant to this Agreement, the Executive agrees not to
breach the Covenants.
D. In further consideration of the premiums to be
advanced annually by the Company, the Executive further
agrees that between the date hereof and until the date the
Executive attains age sixty (60), the Executive may not
withdraw any amount (either as a Policy loan or a withdrawal
of cash surrender value) from the Policies.
E. The Policies have been transferred by the
Executive to the escrow agent agreed to by the Executive and
the Company (the "Escrow Agent") pursuant to the escrow
agreement dated as of February 1, 1996 between the Company,
the Executive and the Escrow Agent annexed hereto as Exhibit
A (the "Escrow Agreement"). In the event the Executive
violates the Covenants prior to the Executive attaining age
sixty (60), the Executive shall forfeit any interest in the
Policies, and the Escrow Agent shall transfer the Policies
to the Company, subject to the provisions of the Escrow
Agreement. The Executive has executed an assignment
agreement ("Assignment Agreement"), annexed hereto as
Exhibit B, to reflect the obligation of the Executive to
transfer the Policies to the Company in such event, and the
Assignment Agreement shall be held in escrow by the Escrow
Agent. Upon the Executive having attained age sixty (60)
without having violated any of the Covenants, the Escrow
Agent shall return the Policies to the Executive, and the
Executive shall hold all right, title and interest in and to
the Policies, without regard to the terms of the Covenants,
but subject to the New Collateral Assignments described in
Paragraph F of this Section XVI below.
F. Pursuant to collateral assignment agreements dated
December 13, 1988 and August 13, 1991, the Executive has
assigned to the Company an interest in the Policies issued
by Security equal to the premiums advanced by the Company.
Pursuant to collateral assignment agreements dated June 2,
1988, the Executive has assigned to the Company an interest
in the Policies issued by Guardian equal to the premiums
advanced by the Company. These agreements are referred to
herein collectively as the "Prior Life Insurance
Agreements." New collateral assignments have been entered
into between Guardian, Security and Canada (respectively),
the Company and the Executive, copies of which are annexed
hereto as Exhibit C ("New Collateral Assignments"). Each
provides that the Company shall have an interest in such
respective Policies equal to the premiums advanced by the
Company. The New Collateral Assignments shall supersede the
Prior Life Insurance Agreements.
G. During the term of this Agreement and further
provided that the Executive does not breach the terms of the
Covenants before his attainment of age sixty (60), in the
event that the Company fails to make Required Premium
payments for the Policies for any calendar year by December
31st of such year (the "Default Date"), the Company's right
under any or all of the New Collateral Assignments to be
repaid from the cash surrender value of the Policies, in
respect of the premiums advanced by the Company to the
Executive, shall be reduced by the shortfall (unless
otherwise subsequently advanced by the Company) with
interest at the rate of seven percent (7%) per annum
(without regard to which Policy there is a failure to pay).
Such interest shall be calculated from the Default Date to
the earlier of the (a) date the Company advances Required
Premiums with respect which there is a shortfall and
certifies to the Executive that such payment is being made
to make up for the shortfall, or (b) date of withdrawal of
premiums advanced by the Company pursuant to the New
Collateral Assignment. For purposes of the preceding
sentence, the Executive may request a reduction from any
Policy of the premiums to be repaid to the Company pursuant
to the New Collateral Assignments.
H. In the event the Executive breaches any of the
Covenants after attaining age sixty (60), the Company may
seek an injunction in a court of competent jurisdiction
barring the Executive from breaching such Covenants.
SECTION XVII
GOVERNING LAW; CONSTRUCTION
This Agreement has been executed and delivered in the
State of Connecticut and its validity, interpretation,
performance and enforcement shall be governed by the
internal laws of that state without giving effect to the
conflicts of laws provisions thereof. The construction and
interpretation of this Agreement shall not be strictly
construed against the drafter.
SECTION XVIII
ARBITRATION
A. Any controversy, dispute or claim arising out of or
relating to this Agreement or the breach hereof which cannot
be settled by mutual agreement (other than with respect to
the matters covered by Section IX for which the Company may,
but shall not be required to, seek injunctive relief) shall
be finally settled by binding arbitration in accordance with
the Federal Arbitration Act (or if not applicable, the
applicable state arbitration law) as follows: Any party who
is aggrieved shall deliver a notice to the other party
setting forth the specific points in dispute. Any points
remaining in dispute twenty (20) days after the giving of
such notice may be submitted to arbitration in New York, New
York, to Jams/Endispute, before a single arbitrator
appointed in accordance with the arbitration rules of
Jams/Endispute, modified only as herein expressly provided.
After the aforesaid twenty (20) days, either party, upon ten
(10) days notice to the other, may so submit the points in
dispute to arbitration. The arbitrator may enter a
default decision against any party who fails to participate
in the arbitration proceedings.
B. The decision of the arbitrator on the points in
dispute will be final, unappealable and binding, and
judgment on the award may be entered in any court having
jurisdiction thereof.
C. Except as otherwise provided in this Agreement,
the arbitrator will be authorized to apportion its fees and
expenses and the reasonable attorneys' fees and expenses of
any such party as the arbitrator deems appropriate. In the
absence of any such apportionment, the fees and expenses of
the arbitrator will be borne equally by each party, and each
party will bear the fees and expenses of its own attorney.
D. The parties agree that this Section XVIII has been
included to rapidly and inexpensively resolve any disputes
between them with respect to this Agreement, and that this
Section XVIII shall be grounds for dismissal of any court
action commenced by either party with respect to this
Agreement, other than post-arbitration actions seeking to
enforce an arbitration award. In the event that any court
determines that this arbitration procedure is not binding,
or otherwise allows any litigation regarding a dispute,
claim, or controversy covered by this Agreement to proceed,
the parties hereto hereby waive any and all right to a trial
by jury in or with respect to such litigation.
E. The parties shall keep confidential, and shall not
disclose to any person, except as may be required by law,
the existence of any controversy hereunder, the referral of
any such controversy to arbitration or the status or
resolution thereof.
SECTION XIX
SURVIVAL
Sections VI, VII, VIII, IX, X, XI, XVI, XVII, XVIII and
XX shall continue in full force in accordance with their
respective terms notwithstanding any termination of the
Period of Employment.
SECTION XX
SEPARABILITY
All provisions of this Agreement are intended to be
severable. In the event any provision or restriction
contained herein is held to be invalid or unenforceable in
any respect, in whole or in part, such finding shall in no
way affect the validity or enforceability of any other
provision of this Agreement. The parties hereto further
agree that any such invalid or unenforceable provision shall
be deemed modified so that it shall be enforced to the
greatest extent permissible under law, and to the extent
that any court of competent jurisdiction determines any
restriction herein to be unreasonable in any respect, such
court may limit this Agreement to render it reasonable in
the light of the circumstances in which it was entered into
and specifically enforce this Agreement as limited.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
CUC INTERNATIONAL INC.
By:_____________________
Walter A. Forbes
_____________________
E. Kirk Shelton
AGREEMENT
This Agreement made effective as of May 15, 1996 by and
between CUC International Inc. (the "Company"), a Delaware
corporation, and Christopher K. McLeod ("Executive").
WHEREAS, the Executive and the Company are parties to a
certain Agreement dated February 1, 1987, as amended on
November 1, 1991 and February 1, 1996 (the "Agreement"); and
WHEREAS, the Executive and the Company wish to make
certain further amendments to the Agreement and to restate
the Agreement as so amended in its entirety herein for ease
of reference.
NOW THEREFORE, in consideration of the foregoing and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
SECTION I
EMPLOYMENT
The Company agrees to employ the Executive and the
Executive agrees to be employed by the Company for the
Period of Employment as provided in Section III.A below and
upon the terms and conditions provided in this Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees
to serve as Executive Vice President and a Member of the
Office of the President of the Company and to be responsible
for the typical management responsibilities expected of an
officer holding such position, reporting directly to the
Chief Executive Officer of the Company.
SECTION III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under
this Agreement (the "Period of Employment") will commence as
of May 15, 1996 and shall continue until February 1, 2001,
subject to extension or termination as provided in this
Agreement. On February 1, 2001, and on each February 1
thereafter, the Period of Employment will be automatically
extended by twelve additional calendar months unless prior
to February 1, 2001 or any subsequent February 1 the Company
shall deliver to the Executive, or the Executive shall
deliver to the Company, written notice that the Period of
Employment will end at the expiration of the then-existing
Period of Employment, including any previous extensions
thereof, and will not be further extended except by
agreement of the Company and the Executive. The Period of
Employment shall continue until the expiration of all
automatic extensions unless it is terminated as provided in
this Agreement.
B. Duties
During the Period of Employment and except for
illness, incapacity or any reasonable vacation periods in
any calendar year, the Executive shall devote all of his
business time, attention and skill exclusively to the
business and affairs of the Company and its subsidiaries.
The Executive will not engage in any other business activity
and will perform faithfully the duties which may be assigned
to him from time to time by the Chief Executive Officer of
the Company consistent with Section II of this Agreement.
Nothing in this Agreement shall preclude the Executive from
devoting time during reasonable periods required for:
i. Serving, with the prior approval of the Chief
Executive Officer of the Company, as a director or member of
a committee or organization involving no actual or potential
conflict of interest with the Company;
ii. Delivering lectures and fulfilling speaking
engagements;
iii. Engaging in charitable and community
activities; and
iv. Investing his personal assets in such form or
manner that will not violate this Agreement or require
services on the part of the Executive in the operation or
affairs of the companies in which those investments are
made.
The activities described in clauses i, ii and iii, above
will be allowed as long as they do not materially affect or
interfere with the performance of the Executive's duties and
obligations to the Company.
SECTION IV
COMPENSATION AND BENEFITS
A. Compensation
For all services rendered by the Executive
pursuant to this Agreement during the Period of Employment,
including services as an executive, officer, director or
committee member of the Company or any subsidiary of the
Company, the Executive shall be compensated as follows:
i. Base Salary
The Company shall pay the Executive a fixed
base salary ("Base Salary"), subject to annual increases as
the Company deems appropriate, in accordance with the
Company's customary procedures regarding the salaries of
senior officers. Annual increases in Base Salary, once
granted, shall not be subject to revocation. Base Salary
shall be payable according to the customary payroll
practices of the Company but in no event less frequently
than once each month.
ii. Annual Incentive Awards
The Executive will be eligible for
discretionary annual incentive compensation awards.
iii. Long-Term Incentive Awards
The Executive will be eligible for
discretionary stock option awards.
B. Additional Benefits
i. In addition, the Executive will be entitled
to participate in all compensation or employee benefit plans
or programs and receive all benefits and perquisites for
which salaried employees of the Company generally are
eligible under any plan or program now or established later
by the Company on the same basis as similarly situated
senior executives of the Company. The Executive will
participate to the extent permissible under the terms and
provisions of such plans or programs, in accordance with
program provisions. These include any group
hospitalization, health, dental care, life or other
insurance, savings, thrift and profit sharing plans,
termination pay programs, sick leave plans, travel or
accident insurance, disability insurance, company auto
allowance or auto lease plans, and contingent compensation
plans, including capital accumulation programs and stock
option plans, which the Company may establish. Nothing in
this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to
salaried employees or senior executives as long as such
amendment or termination is applicable to all salaried
employees or senior executives, as the case may be. The
Company will furnish to the Executive long-term disability
insurance in an amount not less than sixty percent (60%) of
Base Salary. The Company will reimburse the Executive for
the cost of an annual physical examination of the Executive
by a physician selected by the Executive, the results of
which will be reported to the Chief Executive Officer. The
Company will also furnish to the Executive (or reimburse the
Executive for) personal financial, investment or tax advice
in an amount not to exceed $4,500 per year.
ii. The Executive will be entitled to a minimum
of four (4) weeks of paid vacation annually.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all
reasonable travel and other expenses incurred by the
Executive in connection with the performance of his duties
and obligations under this Agreement. The Executive shall
comply with such limitations and reporting requirements with
respect to expenses as may be established from time to time.
SECTION VI
DISABILITY
A. i. If the Executive becomes Disabled, as defined
below, during the Period of Employment, the Period of
Employment may be terminated at the option of the Executive
upon notice of resignation to the Company or at the option
of the Company upon notice of termination to the Executive.
"Disabled" means a determination by an independent competent
medical authority that the Executive is unable to perform
his duties under this Agreement and in all reasonable
medical likelihood such inability will continue for a period
in excess of one hundred and eighty (180) days. Unless
otherwise agreed by the Executive and the Company, the
independent medical authority shall be selected by the
Executive and the Company each selecting a board-certified
licensed physician and the two physicians selected
designating an independent medical authority, whose
determination that the Executive is Disabled shall be
binding upon the Company and the Executive. In such event,
until the Executive reaches the age of
sixty-five (65) (or such earlier date on which he is no
longer Disabled), the Company shall continue to pay the
Executive sixty percent (60%) of his Base Salary as in
effect at the time of the termination minus the amount of
any disability payments the Executive may receive under any
long-term disability insurance maintained by the Company.
Such amount shall be payable as provided in Section IV.A
hereof. Earned but unpaid Base Salary and earned but unpaid
incentive compensation awards will be paid in a lump sum at
the time of such termination. No incentive compensation
shall be deemed earned within the meaning of this Agreement
until the Executive is informed in writing as to the amount
of such incentive compensation the Executive is to be
awarded as to a particular period.
ii. The Company will also continue the benefits
and perquisites described in this Agreement for a period of
sixty (60) months subsequent to any such termination.
iii. In the event of any such termination, all
unvested stock options held by the Executive shall be deemed
fully vested on the date of such termination and shall
remain fully exercisable until the applicable expiration
dates contained in the applicable stock option agreements
pursuant to which such stock options were granted.
iv. In the event of any such termination, any
restrictions on any shares of restricted stock issued to the
Executive prior to such termination shall be deemed to lapse
fully on the date of such termination.
B. During the period the Executive is receiving
payments of either regular compensation or disability
insurance described in this Agreement and as long as he is
physically and mentally able to do so without undue burden,
the Executive will furnish information and assistance to the
Company as reasonably requested and from time to time will
make himself reasonably available to the Company to
undertake assignments consistent with his prior position
with the Company and his physical and mental health. During
the disability period, the Executive is responsible and
reports directly to the Company's Chief Executive Officer.
If the Company fails to make a payment or provide a benefit
required as part of this Agreement, the Executive's
obligation to furnish information and assistance will end.
SECTION VII
DEATH
In the event of the death of the Executive during the
Period of Employment, the Period of Employment shall end and
the Company's obligation to make payments under this
Agreement shall cease as of the date of death, except for
earned but unpaid Base Salary and any earned but unpaid
incentive compensation awards, which will be paid to the
Executive's surviving spouse, estate or personal
representative, as applicable, in a lump sum within sixty
(60) days after the date of the Executive's death. The
Executive's designated beneficiary will be entitled to
receive the proceeds of any life or other insurance or other
death benefit programs provided in this Agreement. The
Company will also continue the benefits and perquisites
described in this Agreement for the benefit of Executive's
beneficiaries and surviving family for a period of thirty-
six (36) months commencing on the Executive's death. Any
stock options held by the Executive shall be deemed fully
vested on the date of the Executive's death and shall remain
fully exercisable until the applicable expiration dates
contained in the applicable stock
option agreements pursuant to which such stock options were
granted. Any restrictions on any shares of restricted stock
held by the Executive at the time of Executive's death shall
be deemed to lapse fully on the date of the Executive's
death.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. If the Executive's employment terminates due to
either a Without Cause Termination or a Constructive
Discharge (other than as contemplated by Section XI), as
defined below, the Company shall pay the Executive (or his
surviving spouse, estate or personal representative, as
applicable) upon such Without Cause Termination or
Constructive Discharge in a lump sum an amount equal to
three hundred percent (300%) of his Base Salary as in effect
at the time of such termination. Earned but unpaid Base
Salary and earned but unpaid incentive compensation awards
also will be paid in a lump sum at the time of such
termination. The benefits and perquisites described in this
Agreement will be continued for thirty-six (36) months
following such termination. In the event of any such Without
Cause Termination or Constructive Discharge, any unvested
stock options held by the Executive shall be deemed to vest
in full on the date of such termination, notwithstanding
anything to the contrary in any applicable stock option
agreements. In the event of any such Without Cause
Termination or Constructive Discharge, any restrictions on
any shares of restricted stock held by the Executive shall
be deemed to lapse fully on the date of such termination.
B. If the Executive resigns or the Executive's
employment terminates due to a Termination for Cause, earned
but unpaid Base Salary and any earned but unpaid incentive
compensation will be paid to the Executive in a lump sum
within sixty (60) days of such termination. In addition, if
the Executive resigns, any unvested stock options that would
have otherwise vested during the thirty-six (36) months
following the date of such resignation shall be deemed to
vest in full on the date of such resignation. No other
payments will be made or benefits or perquisites provided by
the Company.
C. Upon termination of the Executive's employment
other than for reasons due to death, disability, or pursuant
to Paragraph A of this Section VIII or Section XI, the
Period of Employment and the Company's obligation to make
payments under this Agreement will cease as of the date of
the termination, except as expressly provided in this
Agreement.
D. For this Agreement, the following terms have the
following meanings:
i. "Termination for Cause" means termination of
the Executive's employment by the Company upon a good faith
determination by the Board of Directors, by written notice
to the Executive specifying the event relied upon for such
termination, due to the Executive's serious, willful
misconduct with respect to his duties under this Agreement
(including but not limited to conviction for a felony or
perpetration of a common law fraud) which has resulted or is
likely to result in material economic damage to the Company
and which, in any such case, is not cured (if such is
capable of being cured) within thirty (30) days after
written notice thereof to the Executive.
ii. "Constructive Discharge" means termination of
the Executive's employment by the Executive due to a failure
of the Company to fulfill its obligations under this
Agreement in any material respect (including without
limitation any reduction of the Executive's Base Salary, as
the same may be increased during the Period of Employment,
or other compensation; or failure to appoint or reappoint
the Executive to the office of President and Chief Operating
Officer; or other material change by the Company in the
functions, duties or responsibilities of the Executive's
position which would reduce the ranking or level, dignity,
responsibility, importance or scope of such position; or any
relocation of the Executive outside of the Stamford,
Connecticut area). The Executive will provide the Company a
written notice which describes the circumstances being
relied on for the termination with respect to this Agreement
within ninety (90) days after the event giving rise to the
notice. The Company will have thirty (30) days after
receipt of such notice to remedy the situation prior to the
termination for Constructive Discharge.
iii. "Without Cause Termination" or "terminated
Without Cause" means termination of the Executive's
employment by the Company other than due to death,
disability, or Termination for Cause. Without limiting the
generality of the foregoing, the Executive shall be deemed
to have been terminated Without Cause if the Company
provides notice to the Executive pursuant to Section III A.
of this Agreement that the Period of Employment will end at
the expiration of the then-existing Period of Employment.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will, with reasonable notice during
or after the Period of Employment, furnish information as
may be in his possession and fully cooperate with the
Company and its affiliates as may be requested in connection
with any claims or legal action in which the Company or any
of its affiliates is or may become a party.
B. The Executive recognizes and acknowledges that all
information pertaining to this Agreement or to the affairs;
business; results of operations; accounting methods,
practices and procedures; members; acquisition candidates;
financial condition; clients; customers or other
relationships of the Company or any of its affiliates
("Information") is confidential and is a unique and valuable
asset of the Company or any of its affiliates. Access to
and knowledge of certain of the Information is essential to
the performance of the Executive's duties under this
Agreement. The Executive will not during the Period of
Employment or thereafter, except to the extent reasonably
necessary in performance of his duties under this Agreement,
give to any person, firm, association, corporation, or
governmental agency any Information, except as may be
required by law. The Executive will not make use of the
Information for his own purposes or for the benefit of any
person or organization other than the Company or any of its
affiliates. The Executive will also use his best efforts to
prevent the disclosure of this Information by others. All
records, memoranda, etc. relating to the business of the
Company or its affiliates, whether made by the Executive or
otherwise coming into his possession, are confidential and
will remain the property of the Company or its affiliates.
C. i. During the Period of Employment and for
a twelve (12) month period thereafter (the "Restricted
Period"), irrespective of the cause, manner or time of any
termination, the Executive will not use his status with the
Company or any of its affiliates to obtain loans, goods or
services from another organization on terms that would not
be available to him in the absence of his relationship to
the Company or any of its affiliates.
ii. During the Restricted Period, the
Executive will not make any statements or perform any acts
intended to or which may have the effect of advancing the
interest of any existing or prospective competitors of the
Company or any of its affiliates or in any way injuring the
interests of the Company or any of its affiliates. During
the Restricted Period, the Executive, without prior express
written approval by the Board of Directors of the Company,
will not engage in, or directly or indirectly (whether for
compensation or otherwise) own or hold proprietary interest
in, manage, operate, or control, or join or participate in
the ownership, management, operation or control of, or
furnish any capital to or be connected in any manner with,
any party which competes in any way or manner with the
business of the Company or any of its affiliates, as such
business or businesses may be conducted from time to time,
either as a general or limited partner, proprietor, common
or preferred shareholder, officer, director, agent,
employee, consultant, trustee, affiliate, or otherwise. The
Executive acknowledges that the Company's and its
affiliates' businesses are conducted nationally and
internationally and agrees that the provisions in the
foregoing sentence shall operate throughout the United
States and the world.
iii. During the Restricted Period, the
Executive, without express prior written approval from the
Board of Directors, will not solicit any members or the then-
current clients of the Company or any of its affiliates for
any existing business of the Company or any of its
affiliates or discuss with any employee of the Company or
any of its affiliates information or operation of any
business intended to compete with the Company or any of its
affiliates.
iv. During the Restricted Period, the
Executive will not meddle with the employees or affairs of
the Company or any of its affiliates or solicit or induce
any person who is an employee of the Company or any of its
affiliates to terminate any relationship such person may
have with the Company or any of its affiliates, nor shall
the Executive during such period directly or indirectly
engage, employ or compensate, or cause or permit any person
with which the Executive may be affiliated, to engage,
employ or compensate, any employee of the Company or any of
its affiliates. The Executive hereby represents and
warrants that the Executive has not entered into any
agreement, understanding or arrangement with any employee of
the Company or any of its affiliates pertaining to any
business in which the Executive has participated or plans to
participate, or to the employment, engagement or
compensation of any such employee.
v. For the purposes of this Agreement,
proprietary interest means legal or equitable ownership,
whether through stock holding or otherwise, of an equity
interest in a business, firm or entity or ownership of more
than 5% of any class of equity interest in a publicly-held
company and the term "affiliate" shall include without
limitation all subsidiaries and licensees of the Company.
vi. The Company's obligation to make any
payments under the terms of this Agreement will cease upon
any violation of the preceding paragraphs.
D. The Executive hereby acknowledges that damages at
law may be an insufficient remedy to the Company if the
Executive violates the terms of this Agreement and that the
Company shall be entitled, upon making the requisite
showing, to preliminary and/or permanent injunctive relief
in any court of competent jurisdiction to restrain the
breach of or otherwise to specifically enforce any of the
covenants contained in this Agreement without the necessity
of showing any actual damage or that monetary damages would
not provide an adequate remedy. Such right to an injunction
shall be in addition to, and not in limitation of, any other
rights or remedies the Company may have. Without limiting
the generality of the foregoing, neither party shall oppose
any motion the other party may make for any expedited
discovery or hearing in connection with any alleged breach
of this Section IX.
E. The period of time during which the provisions of
this Section IX shall be in effect shall be extended by the
length of time during which the Executive is in breach of
the terms hereof as determined by any court of competent
jurisdiction on the Company's application for injunctive
relief.
F. The Executive agrees that the restrictions
contained in this Section IX are an essential element of the
compensation the Executive is granted hereunder and but for
the Executive's agreement to comply with such restrictions,
the Company would not have entered into this Agreement.
SECTION X
INDEMNIFICATION; LITIGATION
A. The Company will indemnify the Executive to the
fullest extent permitted by the laws of the state of the
Company's incorporation in effect at that time, or the
certificate of incorporation and by-laws of the Company,
whichever affords the greater protection to the Executive.
The Executive will be entitled to any insurance policies the
Company may elect to maintain generally for the benefit of
its officers and directors against all costs, charges and
expenses incurred in connection with any action, suit or
proceeding to which he may be made a party by reason of
being a director or officer of the Company.
B. In the event of any litigation or other proceeding
between the Company and the Executive with respect to the
subject matter of this Agreement, the Company shall
reimburse the Executive for all costs and expenses related
to the litigation or proceeding, including attorney's fees
and expenses, providing that the litigation or proceeding
results in either settlement requiring the Company to make a
payment to the Executive or judgment in favor of the
Executive.
SECTION XI
CHANGE IN CONTROL
A. In the event there is a Change in Control, as
defined below, the Executive may at any time immediately
resign upon written notice to the Company. In the event of
such resignation, or if the Executive is terminated Without
Cause following a Change in Control, the Company shall
immediately upon such resignation or termination pay to the
Executive in a lump sum an amount equal to five hundred
percent (500%) of the sum of his Base Salary as in effect at
the time of such resignation, plus the largest annual
incentive award paid to the Executive within the previous
three (3) year period. In addition, earned but
unpaid Base Salary and any earned but unpaid incentive
compensation awards will be paid to the Executive in a lump
sum at such time. The benefits and perquisites described in
this Agreement will also be continued for three (3) years
from the date of such resignation or termination Without
Cause pursuant to a Change in Control. In the event there
is a Change in Control, all unvested stock options held by
the Executive shall immediately upon such Change in Control
be deemed fully vested and shall remain exercisable until
the applicable expiration dates contained in the applicable
stock option agreements pursuant to which such stock options
were granted, whether or not the Executive resigns. In the
event there is a Change in Control, all restrictions on any
shares of restricted stock held by the Executive shall be
deemed to lapse fully immediately upon such Change in
Control, whether or not the Executive resigns. The Executive
shall not be entitled to receive any duplicative payments as
a result of the implementation of the provisions of this
Section XI.
B. The Executive shall not be required to mitigate
the amount of any payment provided for after a Change in
Control by seeking other employment or otherwise, nor shall
the amount of any such payment be reduced by any
compensation earned by the Executive as the result of
employment by another employer after the date the
Executive's employment hereunder terminates.
C. A "Change in Control" shall be deemed to have
occurred if (i) a tender offer shall be made and consummated
for the ownership of fifty-one percent (51%) or more of the
outstanding voting securities of the Company, (ii) the
Company or any subsidiary thereof shall be merged with or
into or consolidated with another corporation and as a
result of such merger or consolidation less than seventy-
five percent (75%) of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the
aggregate by the former shareholders of the Company, (iii)
the Company shall sell substantially all of its assets to
another corporation which is not a wholly-owned subsidiary
of the Company, (iv) a person, within the meaning of Section
3(a)(9) or of Section 13(d)(3) (as in effect on the date
hereof) of the Securities Exchange Act of 1934, as amended,
shall acquire twenty-five percent (25%) or more of the
outstanding voting securities of the Company (whether
directly, indirectly, beneficially or of record) or (v) any
other event shall take place that a majority of the Board of
Directors of the Company, in its sole discretion, shall
determine constitutes a "Change in Control" for the purposes
hereof. For purposes hereof, ownership of voting securities
shall take into account and shall include ownership as
determined by applying the provisions of Rule 13d-3(d)(1)(i)
(as in effect on the date hereof) pursuant to the Securities
Exchange Act of 1934, as amended.
D. i. In the event that any payment or benefit
received or to be received by the Executive pursuant to the
terms of this Agreement (the "Contract Payments") or of any
other plan, arrangement or agreement of the Company or any
affiliate ("Other Payments" and, together with the Contract
Payments, the "Payments") would, in the opinion of
independent tax counsel selected by the Company and
reasonably acceptable to the Executive ("Tax Counsel"), be
subject to the excise tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (in whole or in part), as determined as
provided below, the Payments shall be reduced (but not below
zero) until no portion of the Payments would be subject to
the Excise Tax. For purposes of this limitation, (a) no
portion of the Payments the receipt or enjoyment of which
the Executive shall have effectively waived in writing shall
be taken into account, (b) only the portion of the Payments
which in the opinion of Tax Counsel constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the
Code shall be taken into account, (c) the Payments shall be
reduced only to the extent necessary so that the Payments
would not be subject to the Excise Tax, in the opinion of
Tax Counsel, and (d) the value of any noncash benefit or any
deferred payment or benefit included in such Payments shall
be determined by the Tax Counsel in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. If
any reduction in Payments is necessary to satisfy this
Paragraph, the Executive shall be entitled, at any time by
written notice to the Company, to reduce the amount of any
Payment otherwise payable to him (including, without
limitation, by waiving, in whole or in part, the accelerated
vesting under this Agreement on options previously granted
the Executive), and to select from among the Payments those
to be so reduced in order to satisfy the limitations of this
Paragraph and the Company shall reduce the amount of such
Payments accordingly. Any options the vesting of which
would have otherwise accelerated but for the provisions of
this Paragraph shall continue to vest in accordance with
their respective terms; and shall upon such vesting remain
exercisable until the applicable expiration dates contained
in the applicable stock option agreements pursuant to which
such stock options were granted, whether or not the
Executive's employment is terminated.
ii. If it is established pursuant to an
opinion of Tax Counsel or a final determination of a court
or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Executive and the
Company in applying the terms of this Paragraph D., any
Payments paid to the Executive or for his benefit exceeded
the limitation contained in this Paragraph D., then the
Executive shall pay to the Company, within sixty (60) days
of receipt of notice of such final determination or opinion,
an amount equal to the sum of (a) the excess of the Payments
paid to him or for his benefit over the maximum Payments
that should have been paid to or for his benefit taking into
account the limitations contained in this Paragraph D. and
(b) interest on the amount set forth in clause (a) of this
sentence at the applicable federal rate (as defined in
Section 1274(d) of the Code) from the date of his receipt of
such excess until the date of such payment; provided,
however, that (x) he shall not be required to make any
payment to the Company pursuant to this Paragraph D.ii., (1)
if such final determination requires the payment by him of
an Excise Tax by reason of any Payment or portion thereof or
(2) in the case of the opinion of Tax Counsel, until the
expiration of the application statute of limitations or a
final determination of a court or an Internal Revenue
Service proceeding that no Excise Tax is due and (y) he
shall only be required to make a payment to the Company
pursuant to this Paragraph D.ii. to the extent such payment
is deductible (or excludable from income) for federal income
tax purposes.
iii. If it is established pursuant to an opinion
of Tax Counsel or a final determination of a court or an
Internal Revenue Service proceeding that, notwithstanding
the good faith of the Executive and the Company in applying
the terms of Paragraph D.i. hereof, any Payments paid to him
or for his benefit were in an amount less than the maximum
Payments which could be payable to him without such payments
being subject to the Excise Tax, then the Company shall pay
to him, within ninety (90) days of receipt of notice of such
final determination or opinion, an amount equal to the sum
of (a) the excess, if any, of the payments that should have
been paid to him or for his benefit over the payments paid
to or for his benefit and (b) interest on the amount set
forth in clause (a) of this sentence at the applicable
federal rate (as defined in Section 1274(d) of the Code)
from the date of his non-receipt of such excess until the
date of such payment.
iv. The Company shall pay the Contract
Payments at such times as set forth in the applicable
paragraph hereof; provided, however, that if the Company in
good faith believes that any such payments shall be reduced
under the provisions of Paragraph D.i. hereof, the Company
shall pay to the Executive at such time a good faith
estimate of the reduced payments, the computation of which
shall be given to him in writing together with a written
explanation of the basis for making such adjustment. The
Company shall, within thirty (30) days of the otherwise
applicable payment date, either (a) pay to the Executive the
balance of the payments together with interest thereon at
the applicable federal rate (as defined in Section 1274(d)
of the Code) or (b) deliver to him a copy of the opinion of
Tax Counsel referred to in Paragraph D.i. hereof, as
applicable, establishing the amount of the reduced payments,
along with the excess, if any, of the reduced payments over
the estimate previously paid on account thereof, together
with interest thereon at the applicable federal rate (as
defined in Section 1274(d) of the Code).
SECTION XII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from
any payments under this Agreement all federal, state, city
or other taxes that shall be required pursuant to any law or
governmental regulation.
SECTION XIII
EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding
between the Company and the Executive with respect to the
subject matter hereof and supersedes any prior employment
agreement between the Company and the Executive, except that
this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Executive of a kind
elsewhere provided and not expressly provided in this
Agreement.
SECTION XIV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company
from consolidating or merging into or with, or transferring
all or substantially all of its assets to, another
corporation which assumes this Agreement and all obligations
and undertakings of the Company hereunder. Upon such a
consolidation, merger or sale of assets the term "the
Company" will mean the other corporation and this Agreement
shall continue in full force and effect.
SECTION XV
MODIFICATION
This Agreement may not be modified or amended except in
writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in
writing by the party charged with waiver. A waiver shall
operate only as to the specific term or condition waived and
will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
SECTION XVI
LIFE INSURANCE POLICIES
A. The Executive owns insurance policies nos.
3023130, 2995020, and 2960304 with Guardian Life Insurance
Company of America ("Guardian"), policies nos. 1046439,
1208351 and 1074717 with Security Mutual Life Insurance
Company of New York ("Security") and policy no. 2636033 with
Canada Life ("Canada") (the Guardian, Security and Canada
policies are referred to herein as the "Policies"). The
Policies provide a death benefit equal to the cash surrender
value of the Policies. The Executive has the right to name
a beneficiary for all of the death benefits, subject to the
rights of the Company under the Prior Life Insurance
Agreements described below in Paragraph F. of this Section
XVI. As part of the compensation paid by the Company to the
Executive pursuant to this Agreement, the Company has
advanced certain premium payments on the Policies through
the date hereof.
B. In consideration of the services performed by the
Executive pursuant to this Agreement, the Company agrees to
advance annual premium payments for the Policies, in the
aggregate, in the amount of approximately $265,000 or such
other annual amount as may be agreed to in writing between
the Company and the Executive per year (the "Required
Premiums") through the calendar year in which the Executive
attains age sixty (60) regardless of whether the Executive
is employed by the Company at the time the premiums are
paid; provided, however, that the Required Premiums made by
the Company shall cease in the event the Executive breaches
any of the Covenants contained in Section IX hereof (the
"Covenants").
C. In consideration of the Required Premiums to be
advanced annually by the Company pursuant to this Section
XVI, whether or not the Executive is employed by the Company
pursuant to this Agreement, the Executive agrees not to
breach the Covenants.
D. In further consideration of the premiums to be
advanced annually by the Company, the Executive further
agrees that between the date hereof and until the date the
Executive attains age sixty (60), the Executive may not
withdraw any amount (either as a Policy loan or a withdrawal
of cash surrender value) from the Policies.
E. The Policies have been transferred by the
Executive to the escrow agent agreed to by the Executive and
the Company (the "Escrow Agent") pursuant to the escrow
agreement dated as of February 1, 1996 between the Company,
the Executive and the Escrow Agent annexed hereto as Exhibit
A (the "Escrow Agreement"). In the event the Executive
violates the Covenants prior to the Executive attaining age
sixty (60), the Executive shall forfeit any interest in the
Policies, and the Escrow Agent shall transfer the Policies
to the Company, subject to the provisions of the Escrow
Agreement. The Executive has executed an assignment
agreement ("Assignment Agreement"), annexed hereto as
Exhibit B, to reflect the obligation of the Executive to
transfer the Policies to the Company in such event, and the
Assignment Agreement shall be held in escrow by the Escrow
Agent. Upon the Executive having attained age sixty (60)
without having violated any of the Covenants, the Escrow
Agent shall return the Policies to the Executive, and the
Executive shall hold all right, title and interest in and to
the Policies, without regard to the terms of the Covenants,
but subject to the New Collateral Assignments described in
Paragraph F of this Section XVI below.
F. Pursuant to collateral assignment agreements dated
December 13, 1988 and August 13, 1991, the Executive has
assigned to the Company an interest in the Policies issued
by Security (other than policy no. 1208351) equal to the
premiums advanced by the Company. Pursuant to collateral
assignment agreements dated June 2, 1988, the Executive has
assigned to the Company an interest in the Policies issued
by Guardian equal to the premiums advanced by the Company.
These agreements are referred to herein collectively as the
"Prior Life Insurance Agreements." New collateral
assignments have been entered into between Guardian,
Security and Canada (respectively), the Company and the
Executive, copies of which are annexed hereto as Exhibit C
("New Collateral Assignments"). Each provides that the
Company shall have an interest in such respective Policies
equal to the premiums advanced by the Company. The New
Collateral Assignments shall supersede the Prior Life
Insurance Agreements.
G. During the term of this Agreement and further
provided that the Executive does not breach the terms of the
Covenants before his attainment of age sixty (60), in the
event that the Company fails to make Required Premium
payments for the Policies for any calendar year by December
31st of such year (the "Default Date"), the Company's right
under any or all of the New Collateral Assignments to be
repaid from the cash surrender value of the Policies, in
respect of the premiums advanced by the Company to the
Executive, shall be reduced by the shortfall (unless
otherwise subsequently advanced by the Company) with
interest at the rate of seven percent (7%) per annum
(without regard to which Policy there is a failure to pay).
Such interest shall be calculated from the Default Date to
the earlier of the (a) date the Company advances Required
Premiums with respect which there is a shortfall and
certifies to the Executive that such payment is being made
to make up for the shortfall, or (b) date of withdrawal of
premiums advanced by the Company pursuant to the New
Collateral Assignment. For purposes of the preceding
sentence, the Executive may request a reduction from any
Policy of the premiums to be repaid to the Company pursuant
to the New Collateral Assignments.
H. In the event the Executive breaches any of the
Covenants after attaining age sixty (60), the Company may
seek an injunction in a court of competent jurisdiction
barring the Executive from breaching such Covenants.
SECTION XVII
GOVERNING LAW; CONSTRUCTION
This Agreement has been executed and delivered in the
State of Connecticut and its validity, interpretation,
performance and enforcement shall be governed by the
internal laws of that state without giving effect to the
conflicts of laws provisions thereof. The construction and
interpretation of this Agreement shall not be strictly
construed against the drafter.
SECTION XVIII
ARBITRATION
A. Any controversy, dispute or claim arising out of
or relating to this Agreement or the breach hereof which
cannot be settled by mutual agreement (other than with
respect to the matters covered by Section IX for which the
Company may, but shall not be required to, seek injunctive
relief) shall be finally settled by binding arbitration in
accordance with the Federal Arbitration Act (or if not
applicable, the applicable state arbitration law) as
follows: Any party who is aggrieved shall deliver a notice
to the other party setting forth the specific points in
dispute. Any points remaining in dispute twenty (20) days
after the giving of such notice may be submitted to
arbitration in New York, New York, to Jams/Endispute, before
a single arbitrator appointed in accordance with the
arbitration rules of Jams/Endispute, modified only as herein
expressly provided. After the aforesaid twenty (20) days,
either party, upon ten (10) days notice to the other, may so
submit the points in dispute to arbitration. The arbitrator
may enter a default decision against any party who fails to
participate in the arbitration proceedings.
B. The decision of the arbitrator on the points in
dispute will be final, unappealable and binding, and
judgment on the award may be entered in any court having
jurisdiction thereof.
C. Except as otherwise provided in this Agreement,
the arbitrator will be authorized to apportion its fees and
expenses and the reasonable attorneys' fees and expenses of
any such party as the arbitrator deems appropriate. In the
absence of any such apportionment, the fees and expenses of
the arbitrator will be borne equally by each party, and each
party will bear the fees and expenses of its own attorney.
D. The parties agree that this Section XVIII has been
included to rapidly and inexpensively resolve any disputes
between them with respect to this Agreement, and that this
Section XVIII shall be grounds for dismissal of any court
action commenced by either party with respect to this
Agreement, other than post-arbitration actions seeking to
enforce an arbitration award. In the event that any court
determines that this arbitration procedure is not binding,
or otherwise allows any litigation regarding a dispute,
claim, or controversy covered by this Agreement to proceed,
the parties hereto hereby waive any and all right to a trial
by jury in or with respect to such litigation.
E. The parties shall keep confidential, and shall not
disclose to any person, except as may be required by law,
the existence of any controversy hereunder, the referral of
any such controversy to arbitration or the status or
resolution thereof.
SECTION XIX
SURVIVAL
Sections VI, VII, VIII, IX, X, XI, XVI, XVII, XVIII and
XX shall continue in full force in accordance with their
respective terms notwithstanding any termination of the
Period of Employment.
SECTION XX
SEPARABILITY
All provisions of this Agreement are intended to be
severable. In the event any provision or restriction
contained herein is held to be invalid or unenforceable in
any respect, in whole or in part, such finding shall in no
way affect the validity or enforceability of any other
provision of this Agreement. The parties hereto further
agree that any such invalid or unenforceable provision shall
be deemed modified so that it shall be enforced to the
greatest extent permissible under law, and to the extent
that any court of competent jurisdiction determines any
restriction herein to be unreasonable in any respect, such
court may limit this Agreement to render it reasonable in
the light of the circumstances in which it was entered into
and specifically enforce this Agreement as limited.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
CUC INTERNATIONAL INC.
By:_____________________
Walter A. Forbes
______________________
Christopher K. McLeod
RESTATED EMPLOYMENT AGREEMENT
OF
WALTER A. FORBES
This amended and restated employment agreement
("Agreement") made effective as of May 15, 1996 by and between
CUC International Inc., a Delaware corporation (the "Company")
and Walter A. Forbes (the "Executive").
In consideration of the mutual covenants contained in this
Agreement, the parties hereby agree as follows:
SECTION I
EMPLOYMENT
The Company agrees to employ the Executive and the
Executive agrees to be employed by the Company, for the Period
of Employment as provided in Section III A. below and upon the
other terms and conditions provided in this Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment the Executive agrees to
serve as the Company's Chief Executive Officer and to be
responsible for the general management of the affairs of the
Company, reporting only to the Board of Directors of the
Company and as a member of the Board of Directors of the
Company for the period for which he is and shall from time to
time be elected. During the Period of Employment, the Executive
also agrees to serve, if elected, as an Officer and Director of
any subsidiary or affiliate of the Company. The Company will
undertake to elect the Executive to its Board of Directors.
SECTION III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under this
Agreement (the "Period of Employment") shall continue through
December 31, 2001, subject to extension or termination as
provided in this Agreement. On January 1, 1997, and on each
January 1 thereafter, the Period of Employment will be
automatically extended by twelve additional calendar months
unless prior to January 1, 1997, or any subsequent January 1,
the Company shall deliver to the Executive, or the Executive
shall deliver to the Company, written notice that the Period of
Employment will end at the expiration of the then-existing
Period of Employment, including any previous extensions, and
will not be further extended except by agreement of the Company
and the Executive. The Period of Employment shall continue
until the expiration of all automatic extensions unless it is
terminated as provided in this Agreement.
B. Duties
During the Period of Employment and except for illness,
incapacity or any reasonable vacation periods in any calendar
year, the Executive shall devote all of his business time,
attention and skill exclusively to the business and affairs of
the Company and its subsidiaries. The Executive will not
engage in any other business activity, and will perform
faithfully the duties which may be assigned to him from time to
time by the Board of Directors of the Company. Nothing in this
Agreement shall preclude the Executive from devoting time
during reasonable periods required for:
i. Serving, with the prior approval of the Board of
Directors of the Company, as a director or member of a
committee or organization involving no actual or potential
conflict of interest with the Company;
ii. Delivering lectures and fulfilling speaking
engagements;
iii. Engaging in charitable and community activities;
and
iv. Investing his personal assets in such form or
manner that will not violate this Agreement or require services
on the part of the Executive in the operation or affairs of the
companies in which those investments are made.
The foregoing activities will be allowed as long as they
do not materially affect or interfere with the performance of
the Executive's duties and obligations to the Company.
SECTION IV
COMPENSATION
For all services rendered by the Executive in any capacity
during the Period of Employment, including services as an
executive officer, director or committee member of the Company
or any subsidiary of the Company, the Executive shall be
compensated as follows:
A. Base Salary
The Company shall pay the Executive a fixed base salary
("Base Salary") as determined by the Company's Board of
Directors, subject to annual increases as the Board of
Directors of the Company or a committee assigned by the Board
deems appropriate in accordance with the Company's customary
procedures regarding the salaries of senior officers. Annual
increases in Base Salary once granted shall not be subject to
revocation. Base Salary shall be payable according to the
customary payroll practices of the Company but in no event less
frequently than twice each month.
B. Annual Incentive Awards
The Company will pay the Executive annual incentive
compensation awards, if any, as may be granted by the Board or
a committee assigned by the Board of Directors to the Executive
under an annual incentive program. The annual incentive
program will be adopted by the Board or by a committee assigned
by the Board. The Board or committee will establish
appropriate criteria for the granting of such awards at the
beginning of each calendar year based on the financial and
strategic results achieved that year.
C. Long-Term Incentive Awards
Subject to any approval or ratification by shareholders as
required the Company will grant the Executive Incentive Stock
Options and Non-Qualified Stock Options at fair market value
from time to time based on the financial and strategic results
achieved each year, and at a competitive level based on the
then current Base Salary of the Executive. These options will
be a combination of Incentive Stock Options and Non-Qualified
Stock Options, the combination determined by the Board and
subject to any maximum restrictions determined by existing tax
legislation at that time.
D. Additional Benefits
In addition, the Executive will be entitled to participate
in all compensation or employee benefit plans or programs and
receive all benefits and perquisites for
which any salaried employees are eligible under any plan or
program now or later established by the Company for salaried
employees. The Executive will participate to the extent
permissible under the terms and provisions of such plans or
programs in accordance with program provisions. These include
group hospitalization, health, dental care, life or other
insurance, tax qualified pension, savings, thrift and profit
sharing plans, termination pay programs, sick leave plans,
vacation, travel or accident insurance, disability insurance,
and contingent compensation plans, including capital
accumulation programs, and stock option plans which the Company
may establish. Nothing in this Agreement will preclude the
Company from amending or terminating any of the plans or
programs applicable to salaried or senior executives as long as
such amendment or termination is applicable to all salaried
employees or senior executives, as the case may be.
Specifically, the Company shall furnish the Executive,
without cost to the Executive, group term and supplemental term
life insurance for the benefit of the Executive's beneficiary
in the combined amount of at least $2,500,000, coverage under
the Company's group hospitalization, health and dental care
insurance plans, supplemental medical reimbursement plan,
coverage for expenses incurred by the Executive or his
dependents who are covered under the Company's group
hospitalization, health and dental insurance plans which are
not covered by other Company plans and which do not exceed
$10,000 per year, and long-term disability insurance for the
benefit of the Executive in an amount no less than sixty
percent (60%) of base salary. The Executive will be entitled
to a minimum of four (4) weeks vacation annually.
E. Perquisites
The Company will reimburse the Executive for the cost of
an annual physical examination of the Executive by a physician
selected by the Executive, the results of which will be
reported to the Chairman of the Compensation Committee of the
Board of Directors. The Company will also furnish to the
Executive (or reimburse the Executive for) personal financial,
investment or tax advice in an amount not to exceed $15,000 per
year.
The Company shall pay directly (or reimburse the Executive
for) $15,000 per year of dues incurred by the Executive with
respect to clubs used primarily for business purposes.
Executive shall provide whatever information the Company might
request to ensure that such payment (or reimbursement) is tax
deductible for the Corporation.
F. Life Insurance Policies
i. The Executive owns insurance policies nos.
2913144, 3023808, and 3001153 with Guardian Life Insurance
Company of America ("Guardian"), policies nos. 1046438 and
1071502 with Security Mutual Life Insurance Company of New York
("Security") and policy 2633-125 with Canada Life (the
Guardian, Security and Canada Life policies are referred to
herein as the "Policies"). The Policies provide a death
benefit equal to the cash surrender value of the Policies. The
Executive has the right to name a beneficiary for all of the
death benefits, subject to the rights of the Company under the
Prior Life Insurance Agreements described below in subparagraph
vi. As part of the compensation paid by the Company to the
Executive pursuant to this Section IV, the Company has advanced
certain premium payments on the Old Policies.
ii. In consideration of the services performed by
the Executive pursuant to this Agreement, the Company agrees to
advance annual premium payments for the Policies, in the
aggregate, in the amount of approximately $540,000 or such
other annual amount as may be agreed to in writing between the
Company and the Executive per year (the "Required Premiums")
through the calendar year in which the Executive attains age
sixty-one (61) regardless of whether the Executive is employed
by the Company at the time the premiums are paid; provided,
however, that the Required Premiums made by the Company shall
cease in the event the Executive breaches the "Covenant Not To
Compete" annexed hereto as Exhibit A and described in
subparagraph iii. below. All references in such Exhibit A to
"Effective Date" shall refer to June 1, 1994.
iii. In consideration of the Required Premiums
to be advanced annually by the Company pursuant to this Section
IV F., whether or not the Executive is employed by the Company
pursuant to this Agreement, the Executive agrees not to compete
with the Company pursuant to the terms of the "Covenant Not To
Compete" annexed hereto as Exhibit A.
iv. In further consideration of the premiums to be
advanced annually by the Company, the Executive further agrees
that pursuant to the terms of this Paragraph F., until the date
the Executive attains age sixty (60), the Executive may not
withdraw any amount (either as a Policy loan or a withdrawal of
cash surrender value) from the Policies.
v. The Policies have been transferred by the
Executive to the escrow agent agreed to by the Executive and
the Company (the "Escrow Agent") pursuant to the escrow
agreement between the Company, the Executive and the Escrow
Agent annexed hereto as Exhibit B (the "Escrow Agreement"). In
the event the Executive violates the terms of the Covenant Not
To Compete prior to the Executive attaining age sixty (60), the
Executive shall forfeit any interest in the Policies, and the
Escrow Agent shall transfer the Policies to the Company,
subject to the provisions of the Escrow Agreement and the
provisions of subparagraph viii. below. The Executive has
executed an assignment agreement ("Assignment Agreement"),
annexed hereto as Exhibit C, to reflect the obligation of the
Executive to transfer the Policies to the Company in such
event, and the Assignment Agreement shall be held in escrow by
the Escrow Agent. Upon the Executive having attained age sixty
(60) without having violated the terms of the Covenant Not To
Compete, the Escrow Agent shall return the Policies to the
Executive, and the Executive shall hold all right, title and
interest in and to the Policies, without regard to the terms of
the Covenant Not To Compete, but subject to the New Collateral
Assignments described in subparagraph vi. below.
vi. Pursuant to collateral assignment agreements
dated December 12, 1988 and March 18, 1991, the Executive has
assigned to the Company an interest in the Policies issued by
Security equal to the premiums advanced by the Company.
Pursuant to collateral assignment agreements dated June 2,
1988, the Executive has assigned to the Company an interest in
the Policies issued by Guardian equal to the premiums advanced
by the Company. These agreements are referred to herein
collectively as the "Prior Life Insurance Agreements." New
collateral assignments have been entered into between Guardian,
Security and Canada Life (respectively), the Company and the
Executive, copies of which are annexed hereto as Exhibit D
("New Collateral Assignments"). Each provides that the Company
shall have an interest in such respective Policies equal to the
premiums advanced by the Company. The New Collateral
Assignments shall supersede the Prior Life Insurance
Agreements.
vii. During the term of this Agreement and further
provided that the Executive does not breach the terms of the
Covenant Not To Compete before his attainment of age sixty
(60), in the event that the Company fails to make Required
Premium payments for the Policies for any calendar year by
December 31st of such year (the "Default Date"), the Company's
right under any or all of the New Collateral Assignments to be
repaid from the cash surrender value of the Policies, in
respect of the premiums advanced by the Company to the
Executive, shall be reduced by the shortfall (unless otherwise
subsequently advanced by the Company) with interest at the rate
of seven percent (7%) per annum (without regard to which Policy
there is a failure to pay). Such interest shall be calculated
from the Default Date to the earlier of the (a) date the
Company advances Required Premiums with respect which there is
a shortfall and certifies to the Executive that such payment is
being made to make up for the shortfall, or (b) date of
withdrawal of premiums advanced by the Company pursuant to the
New Collateral Assignment. For purposes of the preceding
sentence, the Executive may request a reduction from any Policy
of the premiums to be repaid to the Company pursuant to the New
Collateral Assignments.
viii. Any such disputes regarding (a) the
interpretation and application of this Paragraph F., (b) the
Policies and (c) the documents set forth in Exhibits A, B, C
and D to this Agreement, except that the Covenant Not To
Compete as set forth in Exhibit A shall be included for
purposes of this subparagraph viii. only until the Executive
attains age sixty (60), which cannot be settled amicably within
thirty (30) days after written notice by one party to the other
of a dispute (or after such longer period agreed to in writing
by the parties), shall thereafter be determined by arbitration
in Stamford, Connecticut under the rules of the American
Arbitration Association and shall be the sole remedy for any
disputes arising under this Paragraph F. Judgment on the award
rendered in such arbitration may be entered in any court of
competent jurisdiction. If there is a dispute relating to any
matter under this Paragraph F. which would go to arbitration
any action to be taken by a party hereto or the Escrow Agent
shall be deferred until the final determination of the
arbitration proceedings.
ix. In the event the Executive breaches the Covenant
Not To Compete after attaining age sixty (60), the Company may
seek an injunction in a court of competent jurisdiction barring
the Executive from breaching the Covenant Not To Compete.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all
reasonable travel, entertainment, business and other expenses
incurred by the Executive in connection with the performance of
his duties and obligations under this Agreement.
SECTION VI
DISABILITY
A. In the event of disability of the Executive during
the Period of Employment, the Company will continue to pay the
Executive according to the compensation provisions of this
Agreement during the period of his disability. However, in the
event the Executive is disabled for a continuous period of six
months or more, the Company may terminate the employment of the
Executive and make payments to the Executive under Section VIII
D. of this Agreement.
B. During the period the Executive is receiving payments
of either regular compensation or disability insurance
described in this Agreement, and as long as he is physically
and mentally able to do so, the Executive will furnish
information and assistance to the Company to undertake
assignments consistent with his prior position with the Company
and his physical and mental health. During the disability
period, the Executive is responsible and reports directly to
the Board of Directors. If the Company fails to make a payment
or provide a benefit required as part of this Agreement, the
Executive's obligation to furnish information and assistance
will end.
C. The term "disability" will have the same meaning as
under the disability insurance provided pursuant to this
Agreement.
SECTION VII
DEATH
In the event of the death of the Executive during the
Period of Employment, the Company's obligation to make payments
under this Agreement shall cease as of the date of death,
except as provided in Section VIII D. of this Agreement. The
Executive's designated beneficiary will be entitled to receive
the proceeds of any life or other insurance or other death
benefit programs provided in this Agreement.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. If the Executive's employment terminates due to a
Termination for Cause, earned but unpaid Base Salary will be
paid on a lump sum basis for the year in which the termination
occurs. Earned but unpaid incentive awards for any prior years
shall be payable in full, but no other payments will be made or
benefits provided by the Company.
B. Upon termination of the Executive's employment (other
than for reasons due to death, disability, retirement or
pursuant to Paragraph D. of this section or Section XII), the
Period of Employment and the Company's obligation to make
payments under this Agreement will cease as of the date of the
termination, except as expressly provided in this Agreement.
C. For this Agreement the following terms have the
following meanings:
i. "Termination for Cause" means termination of the
Executive's employment by the Company by written notice to the
Executive specifying the event relied upon for such
termination, due to the Executive's serious, willful misconduct
with respect to his duties under this Agreement (including but
not limited to conviction for a felony or perpetration of a
common law fraud) which has resulted or is likely to result in
material economic damage to the Company and which is not cured
(if such breach is capable of being cured) within thirty (30)
days after written notice thereof to the Executive.
ii. "Constructive Discharge" means termination of
the Executive's employment by the Executive due to a failure of
the Company to fulfill any of its obligations under this
Agreement in any material respect including any reduction of
the Executive's Base Salary or failure to appoint or reappoint
the Executive to the office of Chief Executive Officer or Board
of Directors or other material change by the Company in the
functions, duties or responsibilities of the position which
would reduce the ranking or level, responsibility, importance
or scope of the position. This would also include any
assignment or reassignment by the Company of the Executive to a
place of employment other than the Company's present
headquarters or another location in the New York Metropolitan
Area. The Executive will provide the Company with a written
notice which describes the circumstances being relied on for
the termination with respect to this Agreement within ninety
(90) days after the event giving rise to the notice. The
Company will have thirty (30) days after receipt of such notice
to remedy the situation prior to the termination for
Constructive Discharge.
iii. "Without Cause Termination" or "terminated
Without Cause" means termination of the Executive's employment
by the Company other than due to death, disability or
expiration of the Period of Employment or Termination for
Cause.
D. In the event (i) the Executive's employment with the
Company terminates for any reason (including, without
limitation, disability, death, resignation, retirement, Without
Cause Termination or Constructive Discharge) other than
Termination for Cause and other than as a result of a Change of
Control (as defined in Section XII), (ii) in the case of the
Executive's proposed resignation or retirement (each, a
"voluntary termination") the Executive gives the Company no
less than six (6) months prior written notice of such proposed
voluntary termination of employment, and (iii) the Executive at
the time of any voluntary termination under (i) is over the age
of 55, the Company shall pay to the Executive or the Executive
(or his estate in the event of his death) shall be entitled to,
in lieu of any other payment or entitlement under the prior
provisions of this Section VIII, the following described in
(x), (y) and (z), below, as applicable:
(x) In the event of voluntary termination of
employment
a) $2,500,000 if termination occurs at or after
age 55 and before age 56;
b) $5,000,000 if termination occurs at or
after age 56 and before age 57;
c) $7,500,000 if termination occurs at or
after age 57 and before age 58; or
d) $10,000,000 if termination occurs at or
after age 58.
The payments referred to in (x) shall be made in
ten (10) equal, consecutive, pro rata installments, commencing
no later than thirty (30) days after the effective date of such
voluntary termination of employment and on each anniversary
thereof, together with interest on the unpaid principal balance
of such payments, based upon a 360 day year of twelve 30 day
months at a rate of seven percent (7%) per annum; provided,
however, that all such payments shall become immediately due
and payable in the event of any Change of Control (as defined
in Section XII). Interest payments shall be made on each such
anniversary date until the principal amount of such payments
shall be paid in full. If any such anniversary is not a
business day, such installment shall be paid on the business
day next following such anniversary. For purposes of this
Agreement, "business day" means any day on which commercial
banks are authorized to be open in New York City for the
transaction of business. Nothing in this section shall entitle
Executive to any of the payments or entitlements payable under
Section XII of this Agreement.
(y) In the event of termination of employment under
(i) other than voluntary termination, the amount of
$10,000,000.
(z) a) all earned but unpaid Base Salary and
Incentive Compensation Awards on a pro rata basis for the year
in which such termination occurs,
b) any stock options granted to the Executive
prior to such termination shall become fully vested upon such
termination,
c) any restrictions on any shares of
Restricted Stock issued to the Executive prior to such
termination shall lapse upon such termination,
d) the Company shall immediately contribute to
the Escrow Agent (or another escrow agent mutually acceptable
to the parties hereto), in a lump sum, all the Required
Premiums that would thereafter be payable under Section IV
F.ii., as if the Executive's employment continued through the
calendar year in which the Executive would have attained age
sixty-one (61), which Required Premiums shall be held pursuant
to an escrow agreement mutually acceptable to the parties
hereto, with all interest and/or dividends thereon to be paid
periodically to the Company, and
e) the welfare benefits otherwise provided to
the Executive under Section IV D., including without limitation
group hospitalization, health, dental care, life insurance and
disability insurance shall be continued for a period of five
years following such termination of employment for the benefit
of the Executive and, to the extent applicable, the Executive's
spouse.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will with reasonable notice during or
after the Period of Employment furnish information as may be in
his possession and cooperate with the Company as may reasonably
be requested in connection with any claims or legal actions in
which the Company is or may become a party.
B. The Executive recognizes and acknowledges that all
information pertaining to the affairs, business, clients,
customers or other relationships of the Company is confidential
and is a unique and valuable asset of the Company. Access to
and knowledge of this information are essential to the
performance of the Executive's duties under this Agreement.
The Executive will not during the Period of Employment or
after, except to the extent reasonably necessary in performance
of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information
concerning the affairs, business, clients, customers or other
relationships of the Company except as required by law. The
Executive will not make use of this type of information for his
own purposes or for the benefit of any person or organization
other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by
others. All records, memoranda, etc. relating to the business
of the Company whether made by the Executive or otherwise
coming into his possession are confidential and will remain the
property of the Company.
C. During the Period of Employment and upon a
Termination for Cause, for a 12-month period thereafter the
Executive will not use his status with the Company to obtain
loans, goods or services from another organization on terms
that would not be available to him in the absence of his
relationship to the Company. During such period, the Executive
will not make any statements or perform any acts intended to
advance the interest of any existing or prospective competitors
of the Company in any way that will injure the interest of the
Company. During such period, the Executive without express
prior written approval from the Board of Directors will not
solicit any members of the thencurrent clients of the Company
or discuss with any employee of the Company information or
operation of any business intended to compete with the Company.
The Company's obligation to make payments under the terms of
this Agreement will cease upon any violation of the preceding
paragraphs.
The parties desire that the provisions of Section IX are
enforced to the fullest extent permissible under the laws and
public policies applied in the jurisdictions in which
enforcement is sought. If any portion of Section IX is judged
to be invalid or unenforceable, Section IX will be amended to
conform to the legal changes so that the remainder of this
Agreement remains in effect.
SECTION X
RETIREMENT
The Executive may elect with no less than six (6) months
written advance notice to the Company to retire under this
Agreement. In the event of retirement, the Period of
Employment shall cease as of the retirement date (except as
provided in Section VIII D. of this Agreement).
SECTION XI
INDEMNIFICATION, LITIGATION
A. The Company will indemnify the Executive to the
fullest extent permitted by the laws of the Company's state of
incorporation in effect at that time, or certificate of
incorporation and by-laws of the Company, whichever affords the
greater protection to the Executive. The Executive will be
entitled to any insurance policies the Company may elect to
maintain generally for the benefit of its officers and
directors against all costs, charges and expenses incurred in
connection with any action, suit or proceeding to which he may
be made a party by reason of being a director or officer of the
Company.
B. In the event of any litigation or other proceeding
between the Company and the Executive with respect to the
subject matter of this Agreement, and the enforcement of the
rights under this Agreement, the Company shall reimburse the
Executive for all costs and expenses related to the litigation
or proceeding including attorney's fees and expenses, providing
that the litigation or proceeding results in either settlement
requiring the Company to make a payment to the Executive or
judgment in favor of the Executive.
SECTION XII
EFFECTS OF CHANGE OF CONTROL
A. In the event there is a Change of Control (as defined
below) of the ownership of the Company, the Executive may, at
any time, immediately resign upon written notice to the
Company. Within thirty (30) days of any such termination of
employment, the Company shall pay to the Executive, or to his
estate in the event of death, the sum of $10,000,000. In
addition, there shall be paid to the Executive or he (or his
estate, in the event of his death) shall be entitled to:
i. all earned but unpaid Base Salary and Incentive
Compensation Awards on a pro rata basis for the year in which
such termination occurs,
ii. the Company shall immediately contribute to the
Escrow Agent (or another escrow agent mutually acceptable to
the parties hereto), in a lump sum, all the Required Premiums
that would thereafter be payable under Section IV F.ii. as if
the Executive's employment continued through the calendar year
in which the Executive would have attained age sixty-one (61),
which Required Premiums shall be held pursuant to an escrow
agreement mutually acceptable to the parties hereto, with all
interest and/or dividends thereon to be paid periodically to
the Company, and
iii. welfare benefits otherwise provided to the
Executive under Section IV D., including without limitation,
group hospitalization, health, dental care, life insurance and
disability insurance shall be continued for a period of five
(5) years following such termination of employment for the
benefit of the Executive and, to the extent applicable, the
Executive's spouse,
In the event that there is a Change of Control, whether or
not the Executive resigns, any stock options granted to the
Executive prior to such Change of Control shall become fully
vested upon such Change of Control, and any restrictions on any
shares of Restricted Stock issued to the Executive prior to
such Change of Control shall lapse upon such Change of Control.
The foregoing payments and entitlements under this Section XII
shall be in lieu of any entitlements or amounts otherwise
payable under Section VIII of this Agreement.
B. i. In the event that any payment or benefit
received or to be received by the Executive pursuant to the
terms of this Agreement (the "Contract Payments") or of any
other plan, arrangement or agreement of the Company or any
affiliate ("Other Payments" and, together with the Contract
Payments, the "Payments") would, in the opinion of independent
tax counsel selected by the Company and reasonably acceptable
to the Executive ("Tax Counsel"), be subject to the excise tax
(the "Excise Tax") imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (in whole or in
part), as determined as provided below, the Payments shall be
reduced (but not below zero) until no portion of the Payments
would be subject to the Excise Tax. For purposes of this
limitation, (a) no portion of the Payments the receipt or
enjoyment of which the Executive shall have effectively waived
in writing shall be taken into account, (b) only the portion of
the Payments which in the opinion of Tax Counsel constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of
the Code shall be taken into account, (c) the Payments shall be
reduced only to the extent necessary so that the Payments would
not be subject to the Excise Tax, in the opinion of Tax
Counsel, and (d) the value of any noncash benefit or any
deferred payment or benefit included in such Payments shall be
determined by the Tax Counsel in accordance with the principles
of Sections 280G(d)(3) and (4) of the Code. If any reduction
in Payments is necessary to satisfy this Paragraph, the
Executive shall be entitled, at any time by written notice to
the Company, to reduce the amount of any Payment otherwise
payable to him (including, without limitation by waiving, in
whole or in part, the accelerated vesting under this Agreement
of options previously granted Executive), and to select from
among the Payments those to be so reduced in order to satisfy
the limitations of this Paragraph, and the Company shall reduce
the amount of such Payments accordingly. Any options the
vesting of which would have otherwise accelerated but for the
provisions of this Paragraph shall continue to vest in
accordance with their respective terms, and shall, upon such
vesting, remain exercisable until the applicable expiration
dates contained in the applicable stock option agreements
pursuant to which such stock options were granted, whether or
not the Executive's employment is terminated.
ii. If it is established pursuant to an opinion of
Tax Counsel or a final determination of a court or an Internal
Revenue Service proceeding that, notwithstanding the good faith
of the Executive and the Company in applying the terms of this
Paragraph B., any Payments paid to the Executive or for his
benefit exceeded the limitation contained in Paragraph B.
hereof, then the Executive shall pay to the Company, within 60
days of receipt of notice of such final determination or
opinion, an amount equal to the sum of (a) the excess of the
Payments paid to him or for his benefit over the maximum
Payments that should have been paid to or for his benefit
taking into account the limitations contained in this Paragraph
B. and (b) interest on the amount set forth in clause (a) of
this sentence at the applicable federal rate (as defined in
Section 1274(d) of the Code) from the date of his receipt of
such excess until the date of such payment; provided, however,
that (x) he shall not be required to make any payment to the
Company pursuant to this Paragraph B.ii., (1) if such final
determination requires the payment by him of an Excise Tax by
reason of any Payment or portion thereof or (2) in the case of
the opinion of Tax Counsel, until the expiration of the
application statute of limitations or a final determination of
a court or an Internal Revenue Service proceeding that no
Excise Tax is due and (y) he shall only be required to make a
payment to the Company pursuant to this Paragraph B.ii. to the
extent such payment is deductible (or excludable from income)
for federal income tax purposes.
iii. If it is established pursuant to an opinion of
Tax Counsel or a final determination of a court or an Internal
Revenue Service proceeding that, notwithstanding the good faith
of the Executive and the Company in applying the terms of
Paragraph B.i. hereof, any Payments paid to him or for his
benefit were in an amount less than the maximum Payments which
could be payable to him without such payments being subject to
the Excise Tax, then the Company shall pay to him, within
ninety days of receipt of notice of such final determination or
opinion, an amount equal to the sum of (a) the excess, if any,
of the payments that should have been paid to him or for his
benefit over the payments paid to or for his benefit and (b)
interest on the amount set forth in clause (a) of this sentence
at the applicable federal rate (as defined in Section 1274(d)
of the Code) from the date of his non-receipt of such excess
until the date of such payment.
iv. The Company shall pay the Contract Payments at
such times as set forth in the applicable paragraph hereof;
provided, however, that if the Company in good faith believes
that any such payments shall be reduced under the provisions of
Paragraph B.i. hereof, the Company shall pay to the Executive
at such time a good faith estimate of the reduced payments, the
computation of which shall be given to him in writing together
with a written explanation of the basis for making such
adjustment. The Company shall, within thirty days of the
otherwise applicable payment date, either (a) pay to the
Executive the balance of the payments together with interest
thereon at the applicable federal rate (as defined in Section
1274(d) of the Code) or (b) deliver to him a copy of the
opinion of Tax Counsel referred to in Paragraph B.i. hereof, as
applicable, establishing the amount of the reduced payments,
along with the excess, if any, of the reduced payments over the
estimate previously paid on account thereof, together with
interest thereon at the applicable federal rate (as defined in
Section 1274(d) of the Code).
C. A "Change Of Control" shall be deemed to have
occurred if (i) a tender offer shall be made and consummated
for the ownership of 51% or more of the outstanding voting
securities of the Company, (ii) the Company or any subsidiary
thereof shall be merged with or into or consolidated with
another corporation and as a result of such merger or
consolidation less than 75% of the outstanding voting
securities of the surviving or resulting corporation shall be
owned in the aggregate by the former shareholders of the
Company, (iii) the Company shall sell substantially all of its
assets to another corporation which is not a wholly-owned
subsidiary of the Company, (iv) a person, within the meaning of
Section 3(a)(9) or of Section 13(d)(3) (as in effect on the
date hereof) of the Securities Exchange Act of 1934, as
amended, shall acquire 25% or more of the outstanding voting
securities of the Company (whether directly, indirectly,
beneficially or of record), or (v) any other event shall take
place that a majority of the Board of Directors of the Company,
in its sole discretion, shall determine constitutes a "Change
of Control" for the purposes hereof. For purposes hereof,
ownership of voting securities shall take into account and
shall include ownership as determined by applying the
provisions of Rule 13d3(d)(I)(i) (as in effect on the date
hereof) pursuant to the Securities Exchange Act of 1934, as
amended.
SECTION XIII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any
payments under this Agreement all federal, state, city or other
taxes that shall be required pursuant to any law or
governmental regulation.
SECTION XIV
EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding between
the Company and the Executive with respect to the subject
matter hereof and supersedes any prior employment agreement
between the Company and the Executive, except that this
Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere
provided and not expressly provided in this Agreement.
SECTION XV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or
substantially all of its assets to another corporation which
assumes this Agreement and all obligations and undertakings of
the Company hereunder. Upon such a consolidation, merger or
sale of assets the term "the Company" as used herein will mean
the other corporation and this Agreement shall continue in full
force and effect.
SECTION XVI
MODIFICATION
This Agreement may not be modified or amended except in
writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in writing
by the party charged with waiver. A waiver shall operate only
as to the specific term or condition waived and will not
constitute a waiver for the future or act on anything other
than that which is specifically waived.
SECTION XVII
GOVERNING LAW
This Agreement has been executed and delivered in the
State of Connecticut and its validity, interpretation,
performance and enforcement shall be governed by the laws of
that state.
SECTION XVIII
SURVIVAL
Sections IV, V, VI, VII, VIII, IX, X, XI, XII, XV and XVII
shall continue in full force and effect in accordance with
their respective terms, notwithstanding any termination of the
Period of Employment.
In Witness Whereof, the undersigned have caused the foregoing
agreement to be executed as of the date first above written.
CUC International Inc.
By:
_________________________
E. Kirk Shelton
President
____________________________
Walter A. Forbes
AGREEMENT
This Agreement made effective as of July 24, 1996 by and
between CUC International Inc. (the "Company"), a Delaware
corporation, and Robert M. Davidson ("Executive").
The Executive is willing to serve in the employ of the
Company on a full-time basis upon such other terms and
conditions as provided in this Agreement.
In consideration of the mutual covenants contained in
this Agreement, the parties hereby agree as follows:
I
EMPLOYMENT
The Company agrees to employ the Executive and the
Executive agrees to be employed by the Company for the
Period of Employment as provided in Section III.A below and
upon the terms and conditions provided in this Agreement.
II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees to
serve as a Vice Chairman (upon election to the Board of
Directors) of the Company, as a director and the Chief
Executive Officer of the Company's Davidson & Associates,
Inc. subsidiary ("Subsidiary") and as a director, Chairman
and Chief Executive Officer of the Company's educational and
entertainment software division, regardless of the corporate
form in which it may be operated (including CUC Software
Services, Inc.). The Executive shall be responsible for
overall management of Subsidiary and the Company's
educational and entertainment software division, subject to
the reasonable directives of senior management and the Board
of Directors of the Company. The Executive shall report to
the President of the Company. For purposes of this
Agreement, "senior management" of the Company shall mean
only the Chairman and Chief Executive Officer of the
Company, the President of the Company and Chris McLeod, an
Executive Vice President of the Company.
III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under
this Agreement (the "Period of Employment") will commence as
of July 24, 1996 and shall continue for a period of thirty-
six (36) full calendar months through July 24, 1999, subject
to extension or termination as provided in this Agreement.
The period of the Executive's employment may be extended
upon the mutual agreement of the Company and the Executive.
B. Duties
During the Period of Employment and except for
illness, incapacity or any reasonable vacation periods in
any calendar year, the Executive shall devote all of his
business time, attention and skill exclusively to the
business and affairs of the Company and its subsidiaries.
The Executive will not engage in any other business activity
and will perform faithfully and competently the duties which
may be assigned to him from time to time by the Company.
Nothing in this Agreement shall preclude the Executive from
devoting time during reasonable periods required for:
i. Serving, with prior approval of the President or
Chief
Executive Officer of the Company, as a director or member of a
committee or organization involving no actual or potential
conflict of interest with the Company;
ii. Delivering lectures and fulfilling speaking
engagements;
iii. Engaging in charitable and community activities;
and
iv. Investing his personal assets in business in
such form or manner that will not violate this Agreement or
require services on the part of the Executive in the operation
or affairs of the companies in which those investments are
made. These activities will be allowed as long as they do not
materially affect or interfere with the performance of the
Executive's duties and obligations to the Company.
IV
COMPENSATION
A. Compensation
For all services rendered by the Executive in any
capacity during the Period of Employment, including services as
an executive, officer, director or committee member of the
Company or any subsidiary, the Executive shall be compensated
as follows:
i. Base Salary
The Company shall pay the Executive a fixed base
salary of $333,000.00 per annum ("Base Salary"), subject to
annual increases as the Company deems appropriate, in
accordance with the Company's customary procedures regarding
the salaries of senior officers. Annual increases in Base
Salary, once granted, shall not be subject to revocation. Base
Salary shall be payable according to the customary payroll
practices of the Company but in no event less frequently than
once each month.
ii. Annual Incentive Awards
The Executive will be eligible for discretionary
annual incentive compensation awards.
B. Additional Benefits
i. In addition, the Executive will be entitled to
participate in all compensation or employee benefit plans or
programs and receive all benefits and perquisites for which
salaried employees of the Company generally are eligible for
under any plan or program now or established later by the
Company for salaried employees generally. The Executive will
participate to the extent permissible under the terms and
provisions of such plans or programs, in accordance with program
provisions. These include any group hospitalization, health,
dental care, life or other insurance, savings, thrift and profit
sharing plans, termination pay programs, sick leave plans,
travel or accident insurance, disability insurance, and
contingent compensation plans, including capital accumulation
programs and stock option plans, which the Company may
establish. Nothing in this Agreement will preclude the Company
from amending or terminating any of the plans or programs
applicable to salaried employees or senior executives as long as
such amendment or termination is applicable to all salaried
employees or senior executives, as the case may be.
ii. The Executive will be entitled to a minimum of four (4)
weeks of paid vacation annually.
V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable
travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this
Agreement. The Executive shall comply with such limitations and
reporting requirements with respect to expenses as may be
established from time to time.
VI
DISABILITY
A. i. If the Executive becomes Disabled during the
Period of Employment the Period of Employment may be terminated at
the option of the Executive upon notice of resignation to the
Company or the Company upon notice of termination to the Executive.
"Disabled" means a determination by independent competent medical
authority that the Executive is unable to perform his duties under
this Agreement and in all reasonable medical likelihood such
inability will continue for a period in excess of one hundred and
eighty (180) days. Unless otherwise agreed by the Executive and the
Company's Board of Directors, the independent medical authority
shall be selected by the Executive and the Company each selecting a
board-certified licensed physician and the two physicians selected
designating an independent medical authority, whose determination
that the Executive is Disabled shall be binding upon the Company and
the Executive. In such event, the Company shall continue to pay the
Executive until two (2) years after the date on which the Period of
Employment otherwise would have expired, had the Executive not so
resigned or his employment not been so terminated, sixty percent
(60%) of his Base Salary as in effect at the time of the
termination, minus the amount of any disability payments the
Executive may receive under any long-term disability insurance
maintained by the Company. Such amount shall be payable as provided
in Section IV.A. hereof. Earned but unpaid Base Salary and earned
but unpaid incentive compensation awards will be paid in a lump sum
at the time of such termination.
i. The Company will also continue the benefits and
perquisites described in this Agreement for a period of twelve
(12) months subsequent to any such termination.
ii. In the event of any such termination, all unvested
stock options held by the Executive shall be deemed fully vested
on the date of such termination and shall remain fully
exercisable until the applicable expiration dates contained in the
applicable stock option agreements pursuant to which such stock
options were granted.
B. During the period the Executive is receiving payments of
either regular compensation or disability insurance described in
this Agreement and as long as he is physically and mentally able
to do so, the Executive will furnish information and assistance to
the Company and from time to time will make himself available to
the Company to undertake assignments consistent with his prior
position with the Company and his physical and mental health. If
the Company fails to make a payment or provide a benefit required
as part of the Agreement, the Executive's obligation to furnish
information and assistance will end.
VII
DEATH
In the event of the death of the Executive during the Period
of Employment, the Period of Employment shall end and the
Company's obligation to make payments under this Agreement shall
cease as of the date of death, except for earned but unpaid Base
Salary and any earned but unpaid incentive compensation awards,
which will be paid to the Executive's surviving spouse, estate or
personal representative, as applicable, in a lump sum within
sixty (60) days after the date of the Executive's death.
The Executive's designated beneficiary will be entitled to
receive the proceeds of any life or other insurance or other
death benefit programs provided in this Agreement. The
Company will also continue the benefits and perquisites
described in this Agreement for a period of twelve (12)
months commencing on the Executive's death.
VIII
TERMINATION; EFFECT OF TERMINATION OF EMPLOYMENT
A. The Executive's employment may at any time be
terminated by the Company without Cause or for Cause.
B. If the Executive's employment terminates due
to either a Without Cause Termination or a Constructive
Discharge (other than as contemplated by Section XI), as
defined in this Section below, the Company shall pay the
Executive (or his surviving spouse, estate or personal
representative, as applicable) his Base Salary as in effect at
the time of the termination for the remainder of the thirty-six
(36) month term of this Agreement. Such amount shall be payable
as provided in Section IV.A hereof. Earned but unpaid Base
Salary and earned but unpaid incentive compensation awards will
be paid in a lump sum at the time of such termination. The
benefits and perquisites described in this Agreement will be
continued for the remainder of the thirty-six (36) month term
of this Agreement. In the event of any such Without Cause
Termination or Constructive Discharge, any unvested stock
options held by the Executive which would have vested during
the twelve (12) months following such termination, shall
continue to vest in accordance with the respective terms of the
applicable stock option agreements pursuant to which such
options were granted, notwithstanding anything to the contrary
in any such stock option agreements.
C. If the Executive resigns or the Executive's employment
terminates due to a Termination for Cause, as defined in this
Section below, earned but unpaid Base Salary and any earned but
unpaid incentive compensation will be paid to the Executive in a
lump sum within sixty (60) days of such termination. No other
payments will be made or benefits or perquisites provided by the
Company.
D. Upon termination of the Executive's employment other
than for reasons due to death, disability, or pursuant to
Paragraph B of this Section or Section XI, the Period of
Employment and the Company's obligation to make payments
under this Agreement will cease as of the date of the
termination, except as expressly provided in this Agreement.
E. For this Agreement, the following terms have the
following meanings:
i. "Termination for Cause" or "terminated for Cause" means
termination of the Executive's employment by the Company upon a
good faith determination by the Board of Directors by written
notice to the Executive specifying the event relied upon for such
termination, due to the Executive's material breach of any of his
duties or covenants under this Agreement or his serious, willful
misconduct with respect to the Company or any of its affiliates
(including but not limited to conviction for a felony or
perpetration of a common law fraud which has resulted or is likely
to result in material economic damage to the Company) which, in any
such case, if curable, is not cured within thirty (30) days after
written notice thereof to the Executive.
ii. "Constructive Discharge" means termination of the
Executive's employment by the Executive due to a failure of the
Company to fulfill any of its material obligations under this
Agreement in any material respect (including without limitation
any reduction of the Executive's Base Salary as the same may be
increased during the Employment Term (other than reductions
applicable to all senior executives of the Company) or other
material change by the Company in the functions, duties or
responsibilities of the Executive's position); or any relocation of
the Executive outside of the Los Angeles area. The Executive will
provide the Company a written notice which describes the
circumstances being relied on for the termination with respect to
this Agreement within ninety (90) days after the event giving rise
to the notice. The Company will have sixty (60) days after receipt
of such notice to remedy the situation prior to the termination for
Constructive Discharge.
iii. "Without Cause Termination" or "terminated Without
Cause" means termination of the Executive's employment by the
Company other than due to death, disability, expiration of the
Period of Employment or Termination for Cause.
IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will with reasonable notice during or
after the Period of Employment furnish information as may be in
his possession and fully cooperate with the Company and its
affiliates as may be requested in connection with any claims or
legal action in which the Company or any of its affiliates is or
may become a party.
B. The Executive recognizes and acknowledges that all
information pertaining to this Agreement or to the affairs;
business; results of operations; accounting methods, practices
and procedures; members; acquisition candidates; financial
condition; clients; customers or other relationships of the
Company or any of its affiliates ("Information") is confidential
and is a unique and valuable asset of the Company or any of its
affiliates. Access to and knowledge of certain of the
Information is essential to the performance of the Executive's
duties under this Agreement. The Executive will not during the
Period of Employment or thereafter, except to the extent
reasonably necessary in performance of his duties under this
Agreement, give to any person, firm, association, corporation,
or governmental agency any Information, except as may be
required by law. The Executive will not make use of the
Information for his own purposes or for the benefit of any
person or organization other than the Company or any of its
affiliates. The Executive will also use his best efforts to
prevent the disclosure of this Information by others.
C. During and after the Period of Employment, the
Executive will disclose to the Company all ideas, inventions and
business plans developed by him during the Period of Employment
which relate directly or indirectly to the Company's business or
to the business of any of its subsidiaries or affiliates,
including but not limited to, any process, operation, product or
improvement which may be patentable or copyrightable. The
Executive agrees that such will be the property of the Company
and that, at the Company's request and cost, he will do whatever
is necessary to secure the rights thereto to the Company, by
patent, copyright or otherwise. All records, memoranda and
similar items relating to the business of the Company or its
affiliates, whether made by the Executive or otherwise coming
into his possession, are confidential and will remain the
property of the Company or its affiliates.
D. i. During the Period of Employment, irrespective of
the cause, manner or time of any termination, the Executive will
not use his status with the Company or any of its affiliates to
obtain loans, goods or services from another organization on
terms that would not be available to him in the absence of his
relationship to the Company or any of its affiliates.
i. During the Period of Employment, the Executive will not
make any statements or perform any acts intended to or which are
reasonably likely to have the effect of advancing the interest of
any existing or prospective competitors of the Company or any
of its affiliates or in any way injuring the interests of the
Company or any of its affiliates. During the Period of
Employment, the Executive, without prior express written
approval by the Board of Directors of the Company, will not
engage in competition, or directly or indirectly own or hold
proprietary interest in or be employed by or receive
compensation from any party which competes, in any way or
manner with the business of the Company or any of its
affiliates, as such business or businesses may be conducted
from time to time. The Executive acknowledges that the
Company's and its affiliates' businesses are conducted
nationally and internationally and agrees that the provisions
in the foregoing sentence shall operate throughout the United
States and the World.
ii. During the Period of Employment, the Executive,
without express prior written approval from the Board of
Directors, will not solicit any members or the then current
clients of the Company or any of its affiliates for any
existing business of the Company or any of its affiliates or
discuss with any employee of the Company or any of its
affiliates information or operation of any business intended to
compete with the Company or any of its affiliates.
iii. During the Period of Employment, the
Executive will not solicit or induce any person who is an
employee of the Company or any of its affiliates to terminate
any relationship such person may have with the Company or any
of its affiliates, nor shall the Executive during such period
directly or indirectly engage, employ or compensate, or cause
or permit any person with which the Executive may be
affiliated, to engage, employ or compensate, any employee of
the Company or any of its affiliates. The Executive hereby
represents and warrants that the Executive has not entered into
any agreement, understanding or arrangement with any employee
of the Company or any of its affiliates pertaining to any
business in which the Executive has participated or plans to
participate, or to the employment, engagement or compensation
of any such employee.
iv. For the purposes of this Agreement, proprietary interest
means legal or equitable ownership, whether through stock holding or
otherwise, of an equity interest in a business, firm or entity or
ownership of more than 5% (or such greater percentage as may be approved
by the Company) of any class of equity interest in a publicly held
company and the term "affiliate" shall include without limitation all
subsidiaries and licensees of the Company.
v. The Company's obligation to make any payments under the
terms of this Agreement will cease upon any violation of the
preceding paragraphs.
E. The Executive hereby acknowledges that damages at law
may be an insufficient remedy to the Company if the Executive
violates the terms of this Agreement and that the Company shall be
entitled to preliminary and/or permanent injunctive relief in any
court of competent jurisdiction to restrain the breach of or
otherwise to specifically enforce any of the covenants contained in
this Agreement without the necessity of showing any actual damage
or that monetary damages would not provide an adequate remedy.
Such right to an injunction shall be in addition to, and not in
limitation of, any other rights or remedies the Company may have.
Without limiting the generality of the foregoing, neither party
shall oppose any motion the other party may make for any expedited
discovery or hearing in connection with any alleged breach of this
Section IX.
F. The period of time during which the provisions of this
Section IX shall be in effect shall be extended by the length of
time during which the Executive is in breach of the terms hereof
as determined by any court of competent jurisdiction on the
Company's application for injunctive relief.
G. The Executive agrees that the restrictions contained in
this Section IX are an essential element of the compensation the
Executive is granted hereunder and but for the Executive's
agreement to comply with such restrictions, the Company would not
have entered into this Agreement.
X
INDEMNIFICATION; LITIGATION
A. The Company will indemnify the Executive to the fullest
extent permitted by the laws of the state of the Company's
incorporation in effect at that time, or certificate of
incorporation and by-laws of the Company, whichever affords the
greater protection to the Executive. The Executive will be
entitled to any insurance policies the Company may elect to
maintain generally for the benefit of its officers and directors
against all costs, charges and expenses incurred in connection
with any action, suit or proceeding to which he may be made a
party by reason of being a director or officer of the Company.
B. In the event of any litigation or other proceeding
between the Company and the Executive with respect to the
subject matter of this Agreement, the Company shall reimburse
the Executive for all costs and expenses related to the
litigation or proceeding including attorney's fees and expenses,
providing that the litigation or proceeding results in either
settlement requiring the Company to make a payment to the
Executive or judgment in favor of the Executive.
XI
CHANGE IN CONTROL
A. In the event there is a Change in Control of the
ownership of the Company and the Executive's employment is
terminated Without Cause or the Executive's employment
terminates due to a Constructive Discharge, in either case
within two (2) years thereafter, the Company shall pay to the
Executive (or his surviving spouse, estate or personal
representative, as applicable) his Base Salary as in effect at
the time of such termination for a period of two (2) years
following such termination. In addition, in such event earned
but unpaid Base Salary and any earned but unpaid incentive
compensation awards will be paid to the Executive (or his
surviving spouse, estate or personal representative, as
applicable) in a lump sum at the time of such termination. In
such event, any unvested stock options held by the Executive
shall continue to vest in accordance with the agreements
pursuant to which such options were granted, notwithstanding
anything to the contrary in any such stock option agreements.
The benefits and perquisites described in this Agreement will
also be continued for two (2) years from the effective date of
termination or Constructive Discharge, as the case may be,
pursuant to a Change of Control as aforesaid.
B. The Executive shall not be required to mitigate the
amount of any payment provided for after a Change in Control by
seeking other employment or otherwise, nor shall the amount of
any such payment be reduced by any compensation earned by the
Executive as the result of employment by another employer after
the date the Executive's employment hereunder terminates.
C. A "Change in Control" shall be deemed to have
occurred if (i) a tender offer shall be made and consummated
for the ownership of 51% or more of the outstanding voting
securities of the Company, (ii) the Company shall be merged
with or into or consolidated with another corporation and as a
result of such merger or consolidation less than 75% of the
outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former
shareholders of the Company, other than affiliates (within the
meaning of the Securities Exchange Act of 1934, as amended) of
any party to such merger or consolidation, as the same shall
have existed immediately prior to such merger or consolidation,
(iii) the Company shall sell substantially all of its assets to
another corporation which is not a wholly-owned subsidiary,
(iv) a person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the
Securities Exchange Act of 1934, as amended, shall acquire 51%
or more of the outstanding voting securities of the Company
(whether directly, indirectly, beneficially or of record) or
(v) any other event shall take place that a majority of the
Board of Directors of the Company, in its sole discretion,
shall determine constitutes a "Change in Control" for the
purposes hereof. For purposes hereof, ownership of voting
securities shall take into account and shall include ownership
as determined by applying the provisions of Rule 13d-3(d)(1)(i)
(as in effect on the date hereof) pursuant to the Securities
Exchange Act of 1934, as amended.
XII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any
payments under this Agreement all federal, state, city or other
taxes that shall be required pursuant to any law or
governmental regulation.
XIII
EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding between
the Company and the Executive with respect to the subject
matter hereof and supersedes any prior employment agreement
between the Company and the Executive, except that this
Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere
provided and not expressly provided in this Agreement.
XIV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or
substantially all of its assets to, another corporation which
assumes this Agreement and all obligations and undertakings of
the Company hereunder. Upon such a consolidation, merger or
sale of assets, the term "the Company" will mean the other
corporation and this Agreement shall continue in full force and
effect.
XV
MODIFICATION
This Agreement may not be modified or amended except in
writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in writing
by the party charged with waiver. A waiver shall operate only
as to the specific term or condition waived and will not
constitute a waiver for the future or act on anything other
than that which is specifically waived.
XVI
GOVERNING LAW; CONSTRUCTION
This Agreement has been executed and delivered in the
State of Connecticut and its validity, interpretation,
performance and enforcement shall be governed by the internal
laws of that state. The construction and interpretation of this
Agreement shall not be strictly construed against the drafter.
XVII
ARBITRATION
A. Any controversy, dispute or claim arising out of or
relating to this Agreement or the breach hereof which cannot be
settled by mutual agreement (other than with respect to the matters
covered by Section IX for which the Company may, but shall not be
required to, seek injunctive relief) shall be finally settled by
binding arbitration in accordance with the Federal Arbitration Act
(or if not applicable, the applicable state arbitration law) as
follows: Any party who is aggrieved shall deliver a notice to the
other party setting forth the specific points in dispute. Any
points remaining in dispute twenty (20) days after the giving of
such notice may be submitted to arbitration in New York, New York,
or Los Angeles, California, whichever the complaining party may
choose, to Jams/Endispute, before a single arbitrator appointed in
accordance with the arbitration rules of Jams/Endispute, modified
only as herein expressly provided. After the aforesaid twenty (20)
days, either party, upon ten (10) days notice to the other, may so
submit the points in dispute to arbitration. The arbitrator may
enter a default decision against any party who fails to participate
in the arbitration proceedings.
B. The decision of the arbitrator on the points in dispute
will be final, unappealable and binding, and judgment on the
award may be entered in any court having jurisdiction thereof.
C. Except as otherwise provided in this Agreement, the
arbitrator will be authorized to apportion its fees and expenses
and the reasonable attorneys fees and expenses of any such party
as the arbitrator deems appropriate. In the absence of any such
apportionment, the fees and expenses of the arbitrator will be
borne equally by each party, and each party will bear the fees
and expenses of its own attorney.
D. The parties agree that this Section has been included to
rapidly and inexpensively resolve any disputes between them with
respect to this Agreement, and that this Section shall be grounds
for dismissal of any court action commenced by either party with
respect to this Agreement, other than post-arbitration actions
seeking to enforce an arbitration award.
E. The parties shall keep confidential, and shall not
disclose to any person, except as may be required by law, the
existence of any controversy hereunder, the referral of any such
controversy to arbitration or the status or resolution thereof.
XVIII
SURVIVAL
Sections VI, VII, VIII, IX, X, XI, XVI, and XVII shall
continue in full force in accordance with their respective terms
not withstanding any termination of the Period of Employment.
XIX
SEPARABILITY
All provisions of this Agreement are intended to be
severable. In the event any provision or restriction contained
herein is held to be invalid or unenforceable in any respect,
in whole or in part, such finding shall in no way affect the
validity or enforceability of any other provision of this
Agreement. The parties hereto further agree that any such
invalid or unenforceable provision shall be deemed modified so
that it shall be enforced to the greatest extent permissible
under law, and to the extent that any court of competent
jurisdiction determines any restriction herein to be
unreasonable in any respect, such court may limit this
Agreement to render it reasonable in the light of the
circumstances in which it was entered into and specifically
enforce this Agreement as limited.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
CUC INTERNATIONAL INC.
By:_________________________
E. Kirk Shelton
President
_________________________
Robert M. Davidson
AGREEMENT
This Agreement made effective as of July 24, 1996 by and
between CUC International Inc. (the "Company"), a Delaware
corporation, and Janice G. Davidson ("Executive").
The Executive is willing to serve in the employ of the
Company on a full-time basis upon such other terms and
conditions as provided in this Agreement.
In consideration of the mutual covenants contained in
this Agreement, the parties hereby agree as follows:
I
EMPLOYMENT
The Company agrees to employ the Executive and the
Executive agrees to be employed by the Company for the
Period of Employment as provided in Section III.A below and
upon the terms and conditions provided in the Agreement.
II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees
to serve as a director (upon election to the Board of
Directors) of the Company, as a director and the President
of the Company's Davidson & Associates, Inc. subsidiary
("Subsidiary") and as a director of the Company's
educational and entertainment software division, regardless
of the corporate form in which it may be operated (including
CUC Software Services, Inc.). The Executive shall report to
the Chief Executive Officer of Subsidiary.
III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under
this Agreement (the "Period of Employment") will commence as
of July 24, 1996 and shall continue for a period of thirty-
six (36) full calendar months through July 24, 1999, subject
to extension or termination as provided in this Agreement.
The period of the Executive's employment may be extended
upon the mutual agreement of the Company and the Executive.
B. Duties
During the Period of Employment and except for
illness, incapacity or any reasonable vacation periods in
any calendar year, the Executive shall devote all of her
business time, attention and skill exclusively to the
business and affairs of the Company and its subsidiaries.
The Executive will not engage in any other business activity
and will perform faithfully and competently the duties which
may be assigned to her from time to time by the Company.
Nothing in this Agreement shall preclude the Executive from
devoting time during reasonable periods required for:
i. Serving, with prior approval of the President or Chief
Executive Officer of the Company, as a director or member of a
committee or organization involving no actual or potential
conflict of interest with the Company;
ii. Delivering lectures and fulfilling speaking
engagements;
iii. Engaging in charitable and community activities; and
iv. Investing her personal assets in business in such form or
manner that will not violate this Agreement or require
services on the part of the Executive in the operation or
affairs of the companies in which those investments are made.
These activities will be allowed as long as they do not
materially affect or interfere with the performance of the
Executive's duties and obligations to the Company.
IV
COMPENSATION
A. Compensation
For all services rendered by the Executive in any
capacity during the Period of Employment, including services as
an executive, officer, director or committee member of the
Company or any subsidiary, the Executive shall be compensated
as follows:
i. Base Salary
The Company shall pay the Executive a fixed base
salary of $250,000.00 per annum ("Base Salary"), subject to
annual increases as the Company deems appropriate, in
accordance with the Company's customary procedures regarding
the salaries of senior officers. Annual increases in Base
Salary, once granted, shall not be subject to revocation. Base
Salary shall be payable according to the customary payroll
practices of the Company but in no event less frequently than
once each month.
ii. Annual Incentive Awards
The Executive will be eligible for discretionary
annual incentive compensation awards.
B. Additional Benefits
i. In addition, the Executive will be entitled to
participate in all compensation or employee benefit plans or
programs and receive all benefits and perquisites for which
salaried employees of the Company generally are eligible for
under any plan or program now or established later by the
Company for salaried employees generally. The Executive will
participate to the extent permissible under the terms and
provisions of such plans or programs, in accordance with
program provisions. These include any group hospitalization,
health, dental care, life or other insurance, savings, thrift
and profit sharing plans, termination pay programs, sick leave
plans, travel or accident insurance, disability insurance, and
contingent compensation plans, including capital accumulation
programs and stock option plans, which the Company may
establish. Nothing in this Agreement will preclude the Company
from amending or terminating any of the plans or programs
applicable to salaried employees or senior executives as long
as such amendment or termination is applicable to all salaried
employees or senior executives, as the case may be.
ii. The Executive will be entitled to a minimum of four (4)
weeks of paid vacation annually.
V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable
travel and other expenses incurred by the Executive in connection
with the performance of her duties and obligations under this
Agreement. The Executive shall comply with such limitations
and reporting requirements with respect to expenses as may be
established from time to time.
VI
DISABILITY
A. i. If the Executive becomes Disabled during the
Period of Employment the Period of Employment may be terminated
at the option of the Executive upon notice of resignation to
the Company or the Company upon notice of termination to the
Executive. "Disabled" means a determination by independent
competent medical authority that the Executive is unable to
perform her duties under this Agreement and in all reasonable
medical likelihood such inability will continue for a period in
excess of one hundred and eighty (180) days. Unless otherwise
agreed by the Executive and the Company's Board of Directors,
the independent medical authority shall be selected by the
Executive and the Company each selecting a board-certified
licensed physician and the two physicians selected designating
an independent medical authority, whose determination that the
Executive is Disabled shall be binding upon the Company and the
Executive. In such event, the Company shall continue to pay
the Executive until two (2) years after the date on which the
Period of Employment otherwise would have expired, had the
Executive not so resigned or her employment not been so
terminated, sixty percent (60%) of her Base Salary as in effect
at the time of the termination, minus the amount of any
disability payments the Executive may receive under any long-
term disability insurance maintained by the Company. Such
amount shall be payable as provided in Section IV.A. hereof.
Earned but unpaid Base Salary and earned but unpaid incentive
compensation awards will be paid in a lump sum at the time of
such termination.
i. The Company will also continue the benefits and
perquisites described in this Agreement for a period of twelve
(12) months subsequent to any such termination.
ii. In the event of any such termination, all unvested
stock options held by the Executive shall be deemed fully vested
on the date of such termination and shall remain fully
exercisable until the applicable expiration dates contained in the
applicable stock option agreements pursuant to which such stock
options were granted.
B. During the period the Executive is receiving payments of
either regular compensation or disability insurance described in
this Agreement and as long as she is physically and mentally able
to do so, the Executive will furnish information and assistance to
the Company and from time to time will make herself available to
the Company to undertake assignments consistent with her prior
position with the Company and her physical and mental health. If
the Company fails to make a payment or provide a benefit required
as part of the Agreement, the Executive's obligation to furnish
information and assistance will end.
VII
DEATH
In the event of the death of the Executive during the Period
of Employment, the Period of Employment shall end and the
Company's obligation to make payments under this Agreement shall
cease as of the date of death, except for earned but unpaid Base
Salary and any earned but unpaid incentive compensation awards,
which will be paid to the Executive's surviving spouse, estate or
personal representative, as applicable, in a lump sum within
sixty (60) days after the date of the Executive's death.
The Executive's designated beneficiary will be entitled to
receive the proceeds of any life or other insurance or other
death benefit programs provided in this Agreement. The
Company will also continue the benefits and perquisites
described in this Agreement for a period of twelve (12)
months commencing on the Executive's death.
VIII
TERMINATION; EFFECT OF TERMINATION OF EMPLOYMENT
A. The Executive's employment may at any time be
terminated by the Company without Cause or for Cause.
B. If the Executive's employment terminates due to
either a Without Cause Termination or a Constructive Discharge
(other than as contemplated by Section XI), as defined in this
Section below, the Company shall pay the Executive (or her
surviving spouse, estate or personal representative, as
applicable) her Base Salary as in effect at the time of the
termination for the remainder of the thirty-six (36) month term
of this Agreement. Such amount shall be payable as provided in
Section IV.A hereof. Earned but unpaid Base Salary and earned
but unpaid incentive compensation awards will be paid in a lump
sum at the time of such termination. The benefits and
perquisites described in this Agreement will be continued for
the remainder of the thirty-six (36) month term of this
Agreement. In the event of any such Without Cause Termination
or Constructive Discharge, any unvested stock options held by
the Executive which would have vested during the twelve (12)
months following such termination, shall continue to vest in
accordance with the respective terms of the applicable stock
option agreements pursuant to which such options were granted,
notwithstanding anything to the contrary in any such stock
option agreements.
C. If the Executive resigns or the Executive's employment
terminates due to a Termination for Cause, as defined in this
Section below, earned but unpaid Base Salary and any earned but
unpaid incentive compensation will be paid to the Executive in a
lump sum within sixty (60) days of such termination. No other
payments will be made or benefits or perquisites provided by the
Company.
D. Upon termination of the Executive's employment other
than for reasons due to death, disability, or pursuant to
Paragraph B of this Section or Section XI, the Period of
Employment and the Company's obligation to make payments
under this Agreement will cease as of the date of the
termination, except as expressly provided in this Agreement.
E. For this Agreement, the following terms have the
following meanings:
I. "Termination for Cause" or "terminated for Cause" means
termination of the Executive's employment by the Company upon a
good faith determination by the Board of Directors by written
notice to the Executive specifying the event relied upon for such
termination, due to the Executive's material breach of any of her
duties or covenants under this Agreement or her serious, willful
misconduct with respect to the Company or any of its affiliates
(including but not limited to conviction for a felony or
perpetration of a common law fraud which has resulted or is likely
to result in material economic damage to the Company) which, in any
such case, if curable, is not cured within thirty (30) days after
written notice thereof to the Executive.
ii. "Constructive Discharge" means termination of the
Executive's employment by the Executive due to a failure of the
Company to fulfill any of its material obligations under this
Agreement in any material respect (including without limitation
any reduction of the Executive's Base Salary as the same may be
increased during the Employment Term (other than reductions
applicable to all senior executives of the Company) or other
material change by the Company in the functions, duties or
responsibilities of the Executive's position); or any relocation of
the Executive outside of the Los Angeles area. The Executive will
provide the Company a written notice which describes the
circumstances being relied on for the termination with respect to
this Agreement within ninety (90) days after the event giving rise
to the notice. The Company will have sixty (60) days after receipt
of such notice to remedy the situation prior to the termination for
Constructive Discharge.
iii. "Without Cause Termination" or "terminated Without
Cause" means termination of the Executive's employment by the
Company other than due to death, disability, expiration of the
Period of Employment or Termination for Cause.
IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will with reasonable notice during or
after the Period of Employment furnish information as may be in
her possession and fully cooperate with the Company and its
affiliates as may be requested in connection with any claims or
legal action in which the Company or any of its affiliates is or
may become a party.
B. The Executive recognizes and acknowledges that all
information pertaining to this Agreement or to the affairs;
business; results of operations; accounting methods, practices
and procedures; members; acquisition candidates; financial
condition; clients; customers or other relationships of the
Company or any of its affiliates ("Information") is
confidential and is a unique and valuable asset of the Company
or any of its affiliates. Access to and knowledge of certain
of the Information is essential to the performance of the
Executive's duties under this Agreement. The Executive will
not during the Period of Employment or thereafter, except to
the extent reasonably necessary in performance of her duties
under this Agreement, give to any person, firm, association,
corporation, or governmental agency any Information, except as
may be required by law. The Executive will not make use of the
Information for her own purposes or for the benefit of any
person or organization other than the Company or any of its
affiliates. The Executive will also use her best efforts to
prevent the disclosure of this Information by others.
C. During and after the Period of Employment, the
Executive will disclose to the Company all ideas, inventions
and business plans developed by her during the Period of
Employment which relate directly or indirectly to the Company's
business or to the business of any of its subsidiaries or
affiliates, including but not limited to, any process,
operation, product or improvement which may be patentable or
copyrightable. The Executive agrees that such will be the
property of the Company and that, at the Company's request and
cost, she will do whatever is necessary to secure the rights
thereto to the Company, by patent, copyright or otherwise. All
records, memoranda and similar items relating to the business
of the Company or its affiliates, whether made by the Executive
or otherwise coming into her possession, are confidential and
will remain the property of the Company or its affiliates.
D. i. During the Period of Employment, irrespective of
the cause, manner or time of any termination, the Executive will
not use her status with the Company or any of its affiliates to
obtain loans, goods or services from another organization on
terms that would not be available to her in the absence of her
relationship to the Company or any of its affiliates.
I. During the Period of Employment, the Executive will not
make any statements or perform any acts intended to or which are
reasonably likely to have the effect of advancing the interest of
any existing or prospective competitors of the Company or any of its
affiliates or in any way injuring the interests of the Company or any of
its affiliates. During the Period of Employment, the Executive, without
prior express written approval by the Board of Directors of the Company,
will not engage in competition, or directly or indirectly own or hold
proprietary interest in or be employed by or receive compensation from
any party which competes, in any way or manner with the business of the
Company or any of its affiliates, as such business or businesses may be
conducted from time to time. The Executive acknowledges that the
Company's and its affiliates' businesses are conducted nationally and
internationally and agrees that the provisions in the foregoing sentence
shall operate throughout the United States and the World.
ii. During the Period of Employment, the Executive, without
express prior written approval from the Board of Directors, will
not solicit any members or the then current clients of the
Company or any of its affiliates for any existing business of
the Company or any of its affiliates or discuss with any
employee of
the Company or any of its affiliates information or operation
of any business intended to compete with the Company or any of
its affiliates.
iii. During the Period of Employment, the Executive will not
solicit or induce any person who is an employee of the Company or
any of its affiliates to terminate any relationship such person
may have with the Company or any of its affiliates, nor shall the
Executive during such period directly or indirectly engage,
employ or compensate, or cause or permit any person with which
the Executive may be affiliated, to engage, employ or compensate,
any employee of the Company or any of its affiliates. The
Executive hereby represents and warrants that the Executive has
not entered into any agreement, understanding or arrangement with
any employee of the Company or any of its affiliates pertaining
to any business in which the Executive has participated or plans
to participate, or to the employment, engagement or compensation
of any such employee.
iv. For the purposes of this Agreement, proprietary
interest means legal or equitable ownership, whether through
stock holding or otherwise, of an equity interest in a business,
firm or entity or ownership of more than 5% (or such greater
percentage as may be approved by the Company) of any class of
equity interest in a publicly held company and the term
"affiliate" shall include without limitation all subsidiaries and
licensees of the Company.
v. The Company's obligation to make any payments under the
terms of this Agreement will cease upon any violation of the
preceding paragraphs.
E. The Executive hereby acknowledges that damages at law
may be an insufficient remedy to the Company if the Executive
violates the terms of this Agreement and that the Company shall be
entitled to preliminary and/or permanent injunctive relief in any
court of competent jurisdiction to restrain the breach of or
otherwise to specifically enforce any of the covenants contained in
this Agreement without the necessity of showing any actual damage
or that monetary damages would not provide an adequate remedy.
Such right to an injunction shall be in addition to, and not in
limitation of, any other rights or remedies the Company may have.
Without limiting the generality of the foregoing, neither party
shall oppose any motion the other party may make for any expedited
discovery or hearing in connection with any alleged breach of this
Section IX.
F. The period of time during which the provisions of this
Section IX shall be in effect shall be extended by the length of
time during which the Executive is in breach of the terms hereof
as determined by any court of competent jurisdiction on the
Company's application for injunctive relief.
G. The Executive agrees that the restrictions contained in
this Section IX are an essential element of the compensation the
Executive is granted hereunder and but for the Executive's
agreement to comply with such restrictions, the Company would not
have entered into this Agreement.
X
INDEMNIFICATION; LITIGATION
A. The Company will indemnify the Executive to the fullest
extent permitted by the laws of the state of the Company's
incorporation in effect at that time, or certificate of
incorporation and by-laws of the Company, whichever affords the
greater protection to the Executive. The Executive will be
entitled to any insurance policies the Company may elect to
maintain generally for the benefit of its officers and directors
against all costs, charges and expenses incurred in connection
with any action, suit or proceeding to which she may be made a
party by reason of being a director or officer of the Company.
B. In the event of any litigation or other proceeding
between the Company and the Executive with respect to the
subject matter of this Agreement, the Company shall reimburse
the Executive for all costs and expenses related to the
litigation or proceeding including attorney's fees and expenses,
providing that the litigation or proceeding results in either
settlement requiring the Company to make a payment to the
Executive or judgment in favor of the Executive.
XI
CHANGE IN CONTROL
A. In the event there is a Change in Control of the
ownership of the Company and the Executive's employment is
terminated Without Cause or the Executive's employment
terminates due to a Constructive Discharge, in either case
within two (2) years thereafter, the Company shall pay to the
Executive (or her surviving spouse, estate or personal
representative, as applicable) her Base Salary as in effect at
the time of such termination for a period of two (2) years
following such termination. In addition, in such event earned
but unpaid Base Salary and any earned but unpaid incentive
compensation awards will be paid to the Executive (or her
surviving spouse, estate or personal representative, as
applicable) in a lump sum at the time of such termination. In
such event, any unvested stock options held by the Executive
shall continue to vest in accordance with the agreements
pursuant to which such options were granted, notwithstanding
anything to the contrary in any such stock option agreements.
The benefits and perquisites described in this Agreement will
also be continued for two (2) years from the effective date of
termination or Constructive Discharge, as the case may be,
pursuant to a Change of Control as aforesaid.
B. The Executive shall not be required to mitigate the
amount of any payment provided for after a Change in Control by
seeking other employment or otherwise, nor shall the amount of
any such payment be reduced by any compensation earned by the
Executive as the result of employment by another employer after
the date the Executive's employment hereunder terminates.
C. A "Change in Control" shall be deemed to have
occurred if (i) a tender offer shall be made and consummated
for the ownership of 51% or more of the outstanding voting
securities of the Company, (ii) the Company shall be merged
with or into or consolidated with another corporation and as a
result of such merger or consolidation less than 75% of the
outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former
shareholders of the Company, other than affiliates (within the
meaning of the Securities Exchange Act of 1934, as amended) of
any party to such merger or consolidation, as the same shall
have existed immediately prior to such merger or consolidation,
(iii) the Company shall sell substantially all of its assets to
another corporation which is not a wholly-owned subsidiary,
(iv) a person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the date hereof) of the
Securities Exchange Act of 1934, as amended, shall acquire 51%
or more of the outstanding voting securities of
the Company (whether directly, indirectly, beneficially or of
record) or (v) any other event shall take place that a majority
of the Board of Directors of the Company, in its sole
discretion, shall determine constitutes a "Change in Control"
for the purposes hereof. For purposes hereof, ownership of
voting securities shall take into account and shall include
ownership as determined by applying the provisions of Rule 13d-
3(d)(1)(i) (as in effect on the date hereof) pursuant to the
Securities Exchange Act of 1934, as amended.
XII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any
payments under this Agreement all federal, state, city or other
taxes that shall be required pursuant to any law or
governmental regulation.
XIII
EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding between
the Company and the Executive with respect to the subject
matter hereof and supersedes any prior employment agreement
between the Company and the Executive, except that this
Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere
provided and not expressly provided in this Agreement.
XIV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or
substantially all of its assets to, another corporation which
assumes this Agreement and all obligations and undertakings of
the Company hereunder. Upon such a consolidation, merger or
sale of assets, the term "the Company" will mean the other
corporation and this Agreement shall continue in full force and
effect.
XV
MODIFICATION
This Agreement may not be modified or amended except in
writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in writing
by the party charged with waiver. A waiver shall operate only
as to the specific term or condition waived and will not
constitute a waiver for the future or act on anything other
than that which is specifically waived.
XVI
GOVERNING LAW; CONSTRUCTION
This Agreement has been executed and delivered in the
State of Connecticut and its validity, interpretation,
performance and enforcement shall be governed by the internal
laws of that state. The construction and interpretation of this
Agreement shall not be strictly construed against the drafter.
XVII
ARBITRATION
A. Any controversy, dispute or claim arising out of or
relating to this Agreement or the breach hereof which cannot be
settled by mutual agreement (other than with respect to the
matters covered by Section IX for which the Company may, but
shall not be required to, seek injunctive relief) shall be
finally settled by binding arbitration in accordance with the
Federal Arbitration Act (or if not applicable, the applicable
state arbitration law) as follows: Any party who is aggrieved
shall deliver a notice to the other party setting forth the
specific points in dispute. Any points remaining in dispute
twenty (20) days after the giving of such notice may be
submitted to arbitration in New York, New York, or Los Angeles,
California, whichever the complaining party may choose, to
Jams/Endispute, before a single arbitrator appointed in
accordance with the arbitration rules of Jams/Endispute,
modified only as herein expressly provided. After the aforesaid
twenty (20) days, either party, upon ten (10) days notice to the
other, may so submit the points in dispute to arbitration. The
arbitrator may enter a default decision against any party who
fails to participate in the arbitration proceedings.
B. The decision of the arbitrator on the points in
dispute will be final, unappealable and binding, and judgment on
the award may be entered in any court having jurisdiction
thereof.
C. Except as otherwise provided in this Agreement, the
arbitrator will be authorized to apportion its fees and expenses
and the reasonable attorneys fees and expenses of any such party
as the arbitrator deems appropriate. In the absence of any such
apportionment, the fees and expenses of the arbitrator will be
borne equally by each party, and each party will bear the fees
and expenses of its own attorney.
D. The parties agree that this Section has been included to
rapidly and inexpensively resolve any disputes between them with
respect to this Agreement, and that this Section shall be grounds
for dismissal of any court action commenced by either party with
respect to this Agreement, other than post-arbitration actions
seeking to enforce an arbitration award.
E. The parties shall keep confidential, and shall not
disclose to any person, except as may be required by law, the
existence of any controversy hereunder, the referral of any such
controversy to arbitration or the status or resolution thereof.
XVIII
SURVIVAL
Sections VI, VII, VIII, IX, X, XI, XVI, and XVII shall
continue in full force in accordance with their respective terms
not withstanding any termination of the Period of Employment.
XIX
SEPARABILITY
All provisions of this Agreement are intended to be
severable. In the event any provision or restriction contained
herein is held to be invalid or unenforceable in any respect, in
whole or in part, such finding shall in no way affect the
validity or enforceability of any other provision of this
Agreement. The parties hereto further agree that any such
invalid or unenforceable provision shall be deemed modified so
that it shall be enforced to the greatest extent permissible
under law, and to the extent that any court of competent
jurisdiction determines any restriction herein to be
unreasonable in any respect, such court may limit this
Agreement to render it reasonable in the light of the
circumstances in which it was entered into and specifically
enforce this Agreement as limited.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
CUC INTERNATIONAL INC.
By:_________________________
E. Kirk Shelton
President
_________________________
Janice G. Davidson
NONCOMPETITION AGREEMENT
By signing below, I, Robert M. Davidson
(sometimes referred to hereinafter as the "Executive"),
agree to the terms and conditions set forth in this
agreement (the "Agreement") between me and CUC
International Inc. (the "Company"). I am entering into
this Agreement (a) in connection with, and as additional
consideration for, the Company's acquisition, on the date
hereof (the "Acquisition"), of all of the outstanding
capital stock of Davidson & Associates, Inc. ("Davidson")
pursuant to an Agreement and Plan of Merger, dated as of
February 19, 1996 (the "Merger Agreement") and (b) in
accordance with the terms and conditions of Section 4.17
of the Merger Agreement. Immediately prior to the
Acquisition, I was Chairman and Chief Executive Officer of
Davidson and beneficially owned 16,000,125 shares of
Davidson common stock.
1. Confidentiality. The Executive acknowledges that
all secret, non-public, or proprietary information
pertaining to the affairs, business, results of
operations, accounting methods, practices and procedures,
acquisition candidates, financial condition, clients,
customers or other relationships of Davidson or any of its
subsidiaries (as defined in the Merger Agreement) that he
possesses on the date hereof and may come to possess
hereafter ("Informa tion") is confidential and is a unique
and valuable asset of the Company and its affiliates. The
Executive will not, except to the extent reasonably
necessary in performance of his duties under his
employment agreement with the Company, give any person,
firm, association, corporation or govern mental agency any
Information, except as may be required by law. The
Executive will not make use of the Information for his own
purposes or for the benefit of any person or organi
zation. The Executive will also use his best efforts to
prevent the disclosure of the Information by others.
2. Restricted Activities
(a) For the period commencing on the date hereof
and ending on the fifth anniversary of the date hereof (the
"Restricted Period"), the Executive, without prior express written
approval by the Board of Directors of the Company (the "Board of
Directors"), will not engage in competition, or directly or
indirectly own or hold a proprietary interest in or be employed by,
or consult with or receive compensa tion from, any party which
competes, in any way or manner with the business of Davidson or any
of its subsidiaries, as such business or businesses may be
conducted from time to time. The Executive acknowledges that
Davidson's and its subsidiaries' businesses are conducted
nationally and internationally and agrees that the provisions in
the fore going sentence shall operate throughout the United States
and the World.
(b) During the Restricted Period, the Executive,
without express prior written approval from the Board of
Directors, will not solicit any clients of Davidson or any of its
subsidiaries for any business of Davidson or any of its subsidiaries or
discuss with any employee of the Company or any of its affiliates
information or operation of any business intended to compete with the
Company or any of its affiliates.
(c) During the Restricted Period, the Executive will
not solicit or induce any person who is an employee of
Davidson or any of its subsidiaries to terminate any relationship such
person may have with Davidson or any of its subsidiaries, nor shall
the Executive during such period directly or indirectly engage, employ
or compensate, or cause or permit any person with which the Executive
may be affiliated, to engage, employ or compensate, any employee of
the Company or any of its affiliates. The Executive hereby represents
and warrants that the Executive has not entered into any agreement,
understanding or arrangement with any employee of the Company or any
of its affiliates pertaining to any business in which the Executive
has participated or plans to participate, or to the employment,
engagement or compensation of any such employee.
(d) For the purposes of this Agreement, proprietary
interest means legal or equitable ownership, whether through
stock holding or otherwise, of an equity interest in a business, firm or
entity of ownership or more than 5% (or such greater percentage as may
be approved by the Company) of any class of equity interest in a
publicly-held company and the term "affiliate", when used in respect of
the Company, shall include, without limitation, all subsidiaries of the
Company, including Davidson and its subsidiaries, and all licensees of
the Company.
(e) The Executive hereby acknowledges that damages at
law may be an insufficient remedy to the Company if the
Executive violates the terms of this Agreement and that the Company
shall be entitled to preliminary and/or permanent injunctive relief in
any court of competent jurisdiction to restrain the breach of or
otherwise to specifically enforce any of the covenants contained in this
Agreement without the necessity of showing any actual damage or that
monetary damages would not provide an adequate remedy. Such right to an
injunction shall be in addition to, and not in limitation of, any other
rights or remedies the Company may have. Without limiting the generality
of the foregoing, neither party shall oppose any motion the other party
may make for any expedited discovery of hearing in connection with any
alleged breach of this Agreement.
(f) The period of time during which the provisions of
this Agreement shall be in effect shall be extended by the
length of time during which the Executive is in breach
of the terms hereof as determined by any court of
competent jurisdiction on the Company's application
for injunctive relief.
(g) The Executive agrees that the
restrictions contained in this Agreement are material
to the Company and,
but for the Executive's agreement to comply with such
re strictions, the Company would not have entered into
the Merger Agreement.
3. Governing Law; Construction. This Agreement has
been executed and delivered in the State of Connecticut and
its validity, interpretation, performance and enforcement shall
be governed by the internal laws of that state. The
construction and interpretation of this Agreement shall not be
strictly construed against the drafter.
4. Arbitration. (a) Any controversy, dispute or
claim arising out of or relating to this Agreement or the
breach hereof which cannot be settled by mutual agreement (other than
with respect to the matters for which the Compa ny may, but shall not
be required to, seek injunctive re lief) shall be finally settled by
binding arbitration in accordance with the Federal Arbitration Act (or
if not ap plicable, the applicable state arbitration law) as follows:
Any party who is aggrieved shall deliver a notice to the other party
setting forth the specific points in dispute. Any points remaining in
dispute twenty (20) days after the giving of such notice may be
submitted to arbitration in New York, New York, or Los Angeles,
California, whichever the complaining party may choose, to
Jams/Endispute, before a single arbitrator appointed in accordance
with the arbitra tion rules of Jams/Endispute, modified only as herein
ex pressly provided. After the aforesaid twenty (20) days, either
party, upon ten (10) days notice to the other, may so submit the
points in dispute to arbitration. The arbitrator may enter a default
decision against any party who fails to participate in the arbitration
proceedings.
(a) The decision of the arbitrator on the points in
dispute will be final, unappealable and binding, and judgment on the
award may be entered in any court having jurisdiction thereof.
(b) Except as otherwise provided in this Agreement,
the arbitrator will be authorized to apportion its fees and
expenses and the reasonable attorney's fees and expenses of any such
party as the arbitrator deems appropriate. In the absence of any
such apportionment, the fees and expenses of the arbitrator will be
borne equally by each party, and each party will bear the fees and
expenses of its own attorney.
(c) The parties agree that this Section 4 has been
included to rapidly and inexpensively resolve any disputes
between them with respect to this Agreement, and that this Section shall
be grounds for dismissal of any court action commenced by either party
with respect to this Agreement, other than with respect to matters for
which the Company has sought injunctive relief, and post-arbitration
actions seeking to enforce an arbitration award.
(d) The parties shall keep confidential, and shall not
disclose to any person, except as may be required by law,
the existence of any controversy hereunder, the referral of any
such controversy to arbitration or the status or resolution
thereof.
5. Separability. All provisions of this Agreement
are intended to be severable. In the event any provision or
restriction contained herein is held to be invalid or
unenforceable in any respect, in whole or in part, such
finding shall in no way affect the validity or enforce ability of
any other provision of this Agreement. The par ties hereto
further agree that any such invalid or un enforceable provision
shall be deemed modified so that it shall be enforced to the
greatest extent permissible under law, and to the extent that any
court of competent jurisdic tion determines any restriction herein
to be unreasonable in any respect, such court may limit this
Agreement to render it reasonable in the light of the
circumstances in which it was entered into and specifically
enforce this Agreement as limited.
6. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and
shall be given (and shall be deemed to have been duly
received if so given) by hand delivery, telegram, telex or
telecopy, or by mail (registered or certified mail,
postage prepaid, return receipt requested) or by any
courier service, such as Federal Express, providing proof
of deliv ery. All communications hereunder shall be
delivered to the respective parties at the following
addresses:
If to the Executive: Robert M. Davidson
c/o Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, California 90503
Telephone: (310) 793-0600
Facsimile: (310) 793-0601
with a copy to: Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California
90071-3197
Telephone: (213) 229-7000
Facsimile: (213) 229-7520
Attention: Peter F. Ziegler, Esq.
If to the Company: CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Telephone: (203) 324-9261
Facsimile: (203) 348-1982
Attention: Amy N. Lipton, Esq.
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Howard Chatzinoff,Esq.
or to such other address as the person to whom notice is given
may have previously furnished to the others in writing in the
manner set forth above.
7. No Waiver. The failure of any party hereto to
exercise any right, power or remedy provided under this
Agreement or otherwise available in respect hereof at law or
in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any
custom or practice of the parties at variance with the
terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power
or remedy or to demand such compliance.
8. Assignability and Binding Effect. This
Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors. The
obligations of the parties hereto may not be delegated,
and any attempted delegation shall be null and void and
without effect.
IN WITNESS WHEREOF, the undersigned have
executed this Agreement as of the 24th day of July, 1996.
CUC INTERNATIONAL INC.
By:
Name: E. Kirk Shelton
Title: President
ROBERT M. DAVIDSON
NONCOMPETITION AGREEMENT
By signing below, I, Janice G. Davidson
(sometimes referred to hereinafter as the "Executive"),
agree to the terms and conditions set forth in this
agreement (the "Agreement") between me and CUC
International Inc. (the "Company"). I am entering into
this Agreement (a) in connection with, and as additional
consideration for, the Company's acquisition, on the date
hereof (the "Acquisition"), of all of the outstanding
capital stock of Davidson & Associates, Inc. ("Davidson")
pursuant to an Agreement and Plan of Merger, dated as of
February 19, 1996 (the "Merger Agreement") and (b) in
accordance with the terms and conditions of Section 4.17
of the Merger Agreement. Immediately prior to the
Acquisition, I was President of Davidson and beneficially
owned 16,000,325 shares of Davidson common stock.
1. Confidentiality. The Executive acknowledges that
all secret, non-public, or proprietary information
pertaining to the affairs, business, results of
operations, accounting methods, practices and procedures,
acquisition candidates, financial condition, clients,
customers or other relationships of Davidson or any of its
subsidiaries (as defined in the Merger Agreement) that he
possesses on the date hereof and may come to possess
hereafter ("Informa tion") is confidential and is a unique
and valuable asset of the Company and its affiliates. The
Executive will not, except to the extent reasonably
necessary in performance of his duties under his
employment agreement with the Company, give any person,
firm, association, corporation or govern mental agency any
Information, except as may be required by law. The
Executive will not make use of the Information for his own
purposes or for the benefit of any person or organi
zation. The Executive will also use his best efforts to
prevent the disclosure of the Information by others.
2. Restricted Activities
(a) For the period commencing on the date
hereof and ending on the fifth anniversary of the date
hereof (the "Restricted Period"), the Executive, without
prior express written approval by the Board of Directors
of the Company (the "Board of Directors"), will not engage
in competition, or directly or indirectly own or hold a
proprietary interest in or be employed by, or consult with
or receive compensa tion from, any party which competes,
in any way or manner with the business of Davidson or any
of its subsidiaries, as such business or businesses may be
conducted from time to time. The Executive acknowledges
that Davidson's and its subsidiaries' businesses are
conducted nationally and internationally and agrees that
the provisions in the fore going sentence shall operate
throughout the United States and the World.
(b) During the Restricted Period, the
Executive, without express prior written approval from the
Board of Directors, will not solicit any clients of
Davidson or any of its subsidiaries for any business of
Davidson or any of its subsidiaries or discuss with any
employee of the Company or any of its affiliates
information or operation of any business intended to
compete with the Company or any of its affiliates.
(c) During the Restricted Period, the
Executive will not solicit or induce any person who is an
employee of Davidson or any of its subsidiaries to
terminate any relationship such person may have with
Davidson or any of its subsidiaries, nor shall the
Executive during such period directly or indirectly
engage, employ or compensate, or cause or permit any
person with which the Executive may be affiliated, to
engage, employ or compensate, any employee of the Company
or any of its affiliates. The Executive hereby represents
and warrants that the Executive has not entered into any
agreement, understanding or arrangement with any employee
of the Company or any of its affiliates pertaining to any
business in which the Executive has participated or plans
to participate, or to the employment, engagement or
compensation of any such employee.
(d) For the purposes of this Agreement,
proprietary interest means legal or equitable ownership,
whether through stock holding or otherwise, of an equity
interest in a business, firm or entity of ownership or
more than 5% (or such greater percentage as may be
approved by the Company) of any class of equity interest
in a publicly-held company and the term "affiliate", when
used in respect of the Company, shall include, without
limitation, all subsidiaries of the Company, including
Davidson and its subsidiaries, and all licensees of the
Company.
(e) The Executive hereby acknowledges that
damages at law may be an insufficient remedy to the
Company if the Executive violates the terms of this
Agreement and that the Company shall be entitled to
preliminary and/or permanent injunctive relief in any
court of competent jurisdiction to restrain the breach of
or otherwise to specifically enforce any of the covenants
contained in this Agreement without the necessity of
showing any actual damage or that monetary damages would
not provide an adequate remedy. Such right to an
injunction shall be in addition to, and not in limitation
of, any other rights or remedies the Company may have.
Without limiting the generality of the foregoing, neither
party shall oppose any motion the other party may make for
any expedited discovery of hearing in connection with any
alleged breach of this Agreement.
(f) The period of time during which the
provisions of this Agreement shall be in effect shall be extended
by the length of time during which the Executive is in breach of
the terms hereof as determined by any court of competent
jurisdiction on the Company's application for injunctive
relief.
(g) The Executive agrees that the restrictions
contained in this Agreement are material to the Company and,
but for the Executive's agreement to comply with such re
strictions, the Company would not have entered into the Merger
Agreement.
3. Governing Law; Construction. This Agreement has
been executed and delivered in the State of Connecticut and
its validity, interpretation, performance and enforcement shall
be governed by the internal laws of that state. The
construction and interpretation of this Agreement shall not be
strictly construed against the drafter.
4. Arbitration. (a) Any controversy, dispute or
claim arising out of or relating to this Agreement or the
breach hereof which cannot be settled by mutual agreement (other than
with respect to the matters for which the Compa ny may, but shall not
be required to, seek injunctive re lief) shall be finally settled by
binding arbitration in accordance with the Federal Arbitration Act (or
if not ap plicable, the applicable state arbitration law) as follows:
Any party who is aggrieved shall deliver a notice to the other party
setting forth the specific points in dispute. Any points remaining in
dispute twenty (20) days after the giving of such notice may be
submitted to arbitration in New York, New York, or Los Angeles,
California, whichever the complaining party may choose, to
Jams/Endispute, before a single arbitrator appointed in accordance
with the arbitra tion rules of Jams/Endispute, modified only as herein
ex pressly provided. After the aforesaid twenty (20) days, either
party, upon ten (10) days notice to the other, may so submit the
points in dispute to arbitration. The arbitrator may enter a default
decision against any party who fails to participate in the arbitration
proceedings.
(a) The decision of the arbitrator on the points in
dispute will be final, unappealable and binding, and
judgment on the award may be entered in any court having
jurisdiction thereof.
(b) Except as otherwise provided in this Agreement,
the arbitrator will be authorized to apportion its fees and
expenses and the reasonable attorney's fees and expenses of any such
party as the arbitrator deems appropriate. In the absence of any
such apportionment, the fees and expenses of the arbitrator will be
borne equally by each party, and each party will bear the fees and
expenses of its own attorney.
(c) The parties agree that this Section 4 has been
included to rapidly and inexpensively resolve any disputes
between them with respect to this Agreement, and that this
Section shall be grounds for dismissal of any court action
commenced by either party with respect to this Agreement, other
than with respect to matters for which the Company has sought
injunctive relief, and post-arbitration actions seeking to
enforce an arbitration award.
(d) The parties shall keep confidential, and shall
not disclose to any person, except as may be required by law,
the existence of any controversy hereunder, the referral of any
such controversy to arbitration or the status or resolution
thereof.
5. Separability. All provisions of this Agreement
are intended to be severable. In the event any provision or
restriction contained herein is held to be invalid or
unenforceable in any respect, in whole or in part, such
finding shall in no way affect the validity or enforce ability of
any other provision of this Agreement. The par ties hereto
further agree that any such invalid or un enforceable provision
shall be deemed modified so that it shall be enforced to the
greatest extent permissible under law, and to the extent that any
court of competent jurisdic tion determines any restriction herein
to be unreasonable in any respect, such court may limit this
Agreement to render it reasonable in the light of the
circumstances in which it was entered into and specifically
enforce this Agreement as limited.
6. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and
shall be given (and shall be deemed to have been duly
received if so given) by hand delivery, telegram, telex or
telecopy, or by mail (registered or certified mail,
postage prepaid, return receipt requested) or by any
courier service, such as Federal Express, providing proof
of delivery. All communications hereunder shall be
delivered to the respective parties at the following
addresses:
If to the Executive:Janice G. Davidson
c/o Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, California 90503
Telephone: (310) 793-0600
Facsimile: (310) 793-0601
with a copy to: Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California
90071-3197 Telephone: (213) 229-
7000 Facsimile: (213) 229-7520
Attention: Peter F. Ziegler,
Esq.
If to the Company: CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Telephone: (203) 324-9261
Facsimile: (203) 348-1982
Attention: Amy N.Lipton,Esq.
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
or to such other address as the person to whom notice is given
may have previously furnished to the others in writing in the
manner set forth above.
7. No Waiver. The failure of any party hereto to
exercise any right, power or remedy provided under this
Agreement or otherwise available in respect hereof at law or
in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to
demand such compliance.
8. Assignability and Binding Effect. This
Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors. The
obligations of the parties hereto may not be delegated,
and any attempted delegation shall be null and void and
without effect.
IN WITNESS WHEREOF, the undersigned have
executed this Agreement as of the 24th day of July, 1996.
CUC INTERNATIONAL INC.
By:__________________________
Name: E. Kirk Shelton
Title: President
JANICE G. DAVIDSON
EMPLOYMENT AGREEMENT
This Agreement made effective as of July 24, 1996 by and
between CUC International Inc. (the "Company"), a Delaware
corporation, and Kenneth A. Williams ("Executive").
I
EMPLOYMENT
The Company agrees to employ the Executive and the
Executive agrees to be employed by the Company for the
Period of Employment as provided in Section III.A below and
upon the terms and conditions provided in the Agreement.
II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees to
serve as a director and the Chief Executive Officer of the
Company's Sierra On-Line, Inc. ("Sierra") subsidiary
("Subsidiary"). The Executive shall be responsible for
overall management of Subsidiary, subject to the reasonable
directives of senior management and the Board of Directors
of the Company. During the Period of Employment, the Company
shall cause the Executive to be (i) elected to the Board of
Directors of the Company and to serve as a Vice Chairman of
such Board, (ii) appointed to the Office of the President of
the Company, and (iii) elected to the Board of Directors of
the Company's CUC Software Services, Inc. subsidiary. The
Executive shall report to the President of the Company.
III
TERMS AND DUTIES
A. Period of Employment
The period of the Executive's employment under
this Agreement (the "Period of Employment") will commence as
of July 24, 1996 and shall continue for a period of thirty-
six (36) full calendar months through July 24, 1999, subject
to extension or termination as provided in this Agreement.
The period of the Executive's employment may be extended
upon the mutual agreement of the Company and the Executive.
B. Duties
During the Period of Employment and except for
illness, incapacity or any reasonable vacation periods in
any calendar year, the Executive shall devote substantially
all of his business time, attention and skill to the
business and affairs of the Company and its subsidiaries.
The Executive will not engage in any other business activity
that would materially interfere with the performance of the
Executive's duties under this Agreement and will perform
faithfully and competently the duties which may be assigned
to him from time to time by the Company consistent with
Section II of this Agreement. Nothing in this Agreement
shall preclude the Executive from devoting time during
reasonable periods required for:
i. Serving as a director or member of a committee or
organization involving no actual or potential conflict of
interest with the Company;
ii. Delivering lectures and fulfilling speaking
engagements and publishing books and articles;
iii. Engaging in charitable and community activities;
and
iv. Investing his personal assets in such form or
manner that will not violate this Agreement or require services
on the part of the Executive in the operation or affairs of the
companies in which those investments are made (except that the
Executive may, subject to clause i. above, serve on the board
of directors of such companies).
The activities described in clauses i., ii. and iii.
above will be allowed as long as they do not materially
interfere with the performance of the Executive's duties and
obligations to the Company.
IV
COMPENSATION
A. Compensation
For all services rendered by the Executive pursuant
to this Agreement during the Period of Employment, including
services as an executive, officer, director or committee member
of the Company or subsidiary of the Company, the Executive
shall be compensated as follows:
i. Base Salary
The Company shall pay the Executive a fixed base
salary of $333,000.00 per annum ("Base Salary"), subject to
annual increases as the Company deems appropriate, in
accordance with the Company's customary procedures regarding
the salaries of senior officers. Base Salary shall be payable
according to the customary payroll practices of the Company but
in no event less frequently than once each month.
ii. Annual Incentive Awards
The Executive will be eligible for discretionary
annual incentive compensation awards on the same terms as are
applicable to the senior executives of the Company. The
Executive's target bonus shall not be less than his target bonus
at Subsidiary as most recently approved by Subsidiary's board of
directors and disclosed to the Company prior to the date of this
Agreement.
B. Additional Benefits
i. In addition, the Executive will be entitled to
participate in all compensation or employee benefit plans or
programs and receive all benefits and perquisites for which
salaried employees of the Company generally are eligible under
any plan or program now or established later by the Company.
The Executive will participate on the same basis as similarly
situated senior executives of the Company to the extent
permissible under the terms and provisions of such plans or
programs, in accordance with program provisions. These include
any group hospitalization, health, dental care, life or other
insurance, savings, thrift and profit sharing plans, termination
pay programs, sick leave plans, travel or accident insurance,
disability insurance, and contingent compensation plans,
including capital accumulation programs and stock option plans,
which the Company may establish. Nothing in this Agreement will
preclude the Company from amending or terminating any of the
plans or programs applicable to salaried employees or senior
executives as long as such amendment or termination is
applicable to all salaried employees or senior executives, as
the case may be.
ii. The Executive will be entitled to a minimum of four (4)
weeks of paid vacation annually.
V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable
travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this
Agreement. The Executive shall comply with such limitations and
reporting requirements with respect to expenses as may be
established from time to time and made applicable to similarly
situated employees; provided that the Executive may travel first
class.
VI
DISABILITY
A. i. If the Executive becomes Disabled during the
Period of Employment, the Period of Employment may be terminated at
the option of the Executive upon notice of resignation to the
Company or at the option of the Company upon notice of termination
to the Executive. "Disabled" means a determination by independent
competent medical authority that the Executive is unable to perform
his duties under this Agreement and in all reasonable medical
likelihood such inability will continue for a period in excess of
one hundred and eighty (180) days. Unless otherwise agreed by the
Executive and the Company, the independent medical authority shall
be selected by the Executive and the Company each selecting a board-
certified licensed physician and the two physicians selected
designating an independent medical authority, whose determination
that the Executive is Disabled shall be binding upon the Company and
the Executive. In such event, the Company shall continue to pay the
Executive until two (2) years after the date on which the Period of
Employment otherwise would have expired, had the Executive not
so resigned or his employment not been so terminated, sixty percent
(60%) of his Base Salary as in effect at the time of the
termination, minus the amount of any disability payments the
Executive may receive under any long-term disability insurance
maintained by the Company but in no event shall the aggregate
payments under this sentence exceed two hundred and fifty thousand
dollars per annum. Such amount shall be payable as provided in
Section IV.A. hereof. Earned but unpaid Base Salary and earned but
unpaid incentive compensation awards will be paid in a lump sum at
the time of such termination.
i. The Company will also continue the benefits and
perquisites described in this Agreement for a period of twelve
(12) months subsequent to any such termination.
ii. In the event of any such termination, all
unvested stock options held by the Executive shall be deemed fully
vested on the date of such termination and shall remain fully
exercisable until the applicable expiration dates contained in the
applicable stock option agreements pursuant to which such stock
options were granted.
B. During the period the Executive is receiving payments of
either regular compensation or disability insurance described in
this Agreement and as long as he is physically and mentally able
to do so without undue burden, the Executive will furnish
information and assistance to the Company as reasonably requested
and from time to time will make himself reasonably available to
the Company to undertake assignments consistent with his prior
position with the Company and his physical and mental health. If
the Company fails to make a payment or provide a benefit required
as part of the Agreement, the Executive's obligation to furnish
information and assistance will end.
VII
DEATH
In the event of the death of the Executive during the Period
of Employment, the Period of Employment shall end and the
Company's obligation to make payments under this Agreement shall
cease as of the date of death, except for earned but unpaid Base
Salary and any earned but unpaid incentive compensation awards,
which will be paid to the Executive's surviving spouse, estate or
personal representative, as applicable, in a lump sum within
sixty (60) days after the date of the Executive's death. The
Executive's designated beneficiary will be entitled to receive
the proceeds of any life or other insurance or other death
benefit programs provided in this Agreement. The Company will
also continue the benefits and perquisites described in this
Agreement for a period of twelve (12) months commencing on the
Executive's death. Any stock options held by the Executive
will vest and become immediately exercisable upon his death,
without regard to the provisions of the agreements under which
such options were granted.
VIII
TERMINATION; EFFECT OF TERMINATION OF EMPLOYMENT
A. The Executive's employment may at any time be
terminated by the Company without Cause or for Cause.
B. If the Executive's employment terminates due to
either a Without Cause Termination or a Constructive Discharge
(other than as contemplated by Section XI), as defined in this
Section below, the Company shall pay the Executive (or his
surviving spouse, estate or personal representative, as applicable)
his Base Salary as in effect at the time of the termination for a
period of twenty-four (24) months following such termination. Such
amount shall be payable as provided in Section IV.A hereof. Earned
but unpaid Base Salary and earned but unpaid incentive compensation
awards will be paid in a lump sum at the time of such termination.
The benefits and perquisites described in this Agreement will be
continued for twenty-four (24) months. In the event of any such
Without Cause Termination or Constructive Discharge, all unvested
stock options held by the Executive shall immediately vest and
become exercisable in full, notwithstanding anything to the
contrary in the stock option agreements under which such options
were granted.
C. If the Executive resigns or the Executive's employment
terminates due to a Termination for Cause, as defined in this
Section below, earned but unpaid Base Salary and any earned but
unpaid incentive compensation will be paid to the Executive in a
lump sum within sixty (60) days of such termination. No other
payments will be made or benefits or perquisites provided by the
Company.
D. Upon termination of the Executive's employment other
than for reasons due to death, disability, or pursuant to
Paragraph B of this Section or Section XI, the Period of
Employment and the Company's obligation to make payments
under this Agreement will cease as of the date of the
termination, except as expressly provided in this Agreement.
E. For this Agreement, the following terms have the
following meanings:
i. "Termination for Cause" or "terminated for
Cause" means termination of the Executive's employment by the
Company by written notice to the Executive specifying the event
relied upon for such termination, due to the Executive's
material breach of any of his duties or covenants under this
Agreement or his serious, willful misconduct with respect to
the Company or any of its affiliates (including but not limited
to conviction for a felony or perpetration of a common law
fraud) which, in any such case, if curable, is not cured within
thirty (30) days after written notice thereof to the Executive.
ii. "Constructive Discharge" means termination of
the Executive's employment by the Executive due to a failure of
the Company to fulfill any of its material obligations under
this Agreement in any material respect (including without
limitation any reduction of the Executive's Base Salary as the
same may be increased during the Employment Term (other than
reductions applicable to all senior executives of the Company)
or other material change by the Company in the functions,
duties or responsibilities of the Executive's position which
materially diminishes the ranking, scope and importance of the
Executive's position); or any relocation of the Executive
outside of the Seattle area. Without limiting the generality
of the foregoing, "Constructive Discharge" shall not include
the consolidation of one or more functions pertaining to
Larry's business (other than software design and development)
into other Company affiliates. The Executive will provide the
Company a written notice which describes the circumstances
being relied on for the termination with respect to this
Agreement within one hundred twenty (120) days after the event
giving rise to the notice. The Company will have thirty (30)
days after receipt of such notice to remedy the situation prior
to the termination for Constructive Discharge.
iii. "Without Cause Termination" or "terminated Without
Cause" means termination of the Executive's employment by the
Company other than due to death, disability, expiration of the
Period of Employment or Termination for Cause.
IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will with reasonable notice during or
after the Period of Employment furnish information as may be in
his possession and fully cooperate with the Company and its
affiliates as may be requested in connection with any claims or
legal action in which the Company or any of its affiliates is or
may become a party.
B. Simultaneously with the execution and delivery of this
Agreement, the Executive and the Company are entering into a Non
Competition Agreement. The Executive agrees to comply with the
provisions of such agreement during the Period of Employment.
C. During and after the Period of Employment, the
Executive will disclose to the Company all ideas, inventions and
business plans developed by him during the Period of Employment
which relate directly to the Company's business or to the
business of any of its subsidiaries or affiliates, including, but
not limited to, any process, operation, product or improvement
which may be patentable or copyrightable. The Executive agrees
that such will be the property of the Company and that, at the
Company's reasonable request and cost, he will do whatever is
reasonably necessary to secure the rights thereto to the Company,
by patent, copyright or otherwise. All records, memoranda and
similar items relating to the business of the Company or its
affiliates, whether made by the Executive or otherwise coming into
his possession, are confidential and will remain the property of
the Company or its affiliates.
D. The Executive hereby acknowledges that damages at law
may be an insufficient remedy to the Company if the Executive
violates the terms of this Agreement and that the Company shall
be entitled, upon making the requisite showing, to preliminary
and/or permanent injunctive relief in any court of competent
jurisdiction to restrain the breach of or otherwise to specifically
enforce any of the covenants contained in this Agreement without
the necessity of showing any actual damage or that monetary damages
would not provide an adequate remedy. Such right to an injunction
shall be in addition to, and not in limitation of, any other rights
or remedies the Company may have. Without limiting the generality
of the foregoing, neither party shall oppose any motion the other
party may make for any expedited discovery or hearing in connection
with any alleged breach of this Section IX.
E. The period of time during which the provisions of this
Section IX shall be in effect shall be extended by the length of
time during which the Executive is in breach of the terms hereof
as determined by any court of competent jurisdiction on the
Company's application for injunctive relief.
F. The Executive agrees that the restrictions contained in
this Section IX are an essential element of the compensation the
Executive is granted hereunder and but for the Executive's
agreement to comply with such restrictions, the Company would not
have entered into this Agreement.
X
INDEMNIFICATION; LITIGATION
A. The Company will indemnify the Executive to the fullest
extent permitted by the laws of the state of the Company's
incorporation in effect at that time, or certificate of
incorporation and by-laws of the Company, whichever affords the
greater protection to the Executive. The Executive will be
entitled to any insurance policies the Company may elect to
maintain generally for the benefit of its officers and
directors, including without limitation the insurance policies
the Company agreed to maintain pursuant to the Agreement and
Plan of Merger dated as of February 19, 1996 among the Company,
Sierra and Larry Acquisition Corp. (the "Merger Agreement"),
against all costs, charges and expenses incurred in connection
with any action, suit or proceeding to which he may be made a
party by reason of being a director or officer of the Company.
This Section shall not limit the obligations of the Company
under the Merger Agreement with respect to indemnification and
insurance.
B. In the event of any litigation or other proceeding
between the Company and the Executive with respect to the
subject matter of this Agreement, the Company shall reimburse
the Executive for all costs and expenses related to the
litigation or proceeding including attorney's fees and
expenses, providing that the litigation or proceeding results
in either settlement requiring the Company to make a payment to
the Executive or judgment in whole or in part in favor of the
Executive.
XI
CHANGE IN CONTROL
A. In the event there is a Change in Control of the
ownership of the Company and the Executive resigns or the
Executive's employment is terminated Without Cause or the
Executive's employment terminates due to a Constructive
Discharge, in any such case within two (2) years after such
Change of Control, the Company shall pay to the Executive (or
his surviving spouse, estate or personal representative, as
applicable) his Base Salary as in effect at the time of such
termination of employment for a period of two (2) years
following such termination. In addition, in such event earned
but unpaid Base Salary and any earned but unpaid incentive
compensation awards will be paid to the Executive (or his
surviving spouse, estate or personal representative, as
applicable) in a lump sum at the time of such termination. In
such event, any unvested stock options held by the Executive
shall vest immediately and become exercisable in full,
notwithstanding the terms of the stock option agreements under
which such options were granted. The benefits and perquisites
described in this Agreement will also be continued for two (2)
years from the effective date of termination of employment.
The Executive shall not be entitled to receive any duplicative
payments as a result of the implementation of the provisions of
this Section XI.
B. The Executive shall not be required to mitigate the
amount of any payment provided for after a Change in Control by
seeking other employment or otherwise, nor shall the amount of any
such payment be reduced by any compensation earned by the Executive
as the result of employment by another employer after the date the
Executive's employment hereunder terminates.
C. A "Change in Control" shall be deemed to have occurred if
(i) a tender offer shall be made and consummated for the
ownership of 51% or more of the outstanding voting securities of
the Company, (ii) the Company shall be merged with or into or
consolidated with another corporation and as a result of such
merger or consolidation less than 75% of the outstanding voting
securities of the surviving or resulting corporation shall be
owned in the aggregate by the former shareholders of the
Company, other than affiliates (within the meaning of the
Securities Exchange Act of 1934, as amended) of any party to
such merger or consolidation, as the same shall have existed
immediately prior to such merger or consolidation, (iii) the
Company shall sell substantially all of its assets to another
corporation which is not a wholly-owned subsidiary, (iv) a
person, within the meaning of Section 3(a)(9) or of Section
13(d)(3) (as in effect on the date hereof) of the Securities
Exchange Act of 1934, as amended, shall acquire 51% or more of
the outstanding voting securities of the Company (whether
directly, indirectly, beneficially or of record) or (v) any
other event shall take place that a majority of the Board of
Directors of the Company, in its sole discretion, shall
determine constitutes a "Change in Control" for the purposes
hereof. For purposes hereof, ownership of voting securities
shall take into account and shall include ownership as
determined by applying the provisions of Rule 13d-3(d)(1)(i) (as
in effect on the date hereof) pursuant to the Securities
Exchange Act of 1934, as amended.
XII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any
payments under this Agreement all federal, state, city or other
taxes that shall be required pursuant to any law or governmental
regulation.
XIII
EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding between
the Company and the Executive with respect to the subject matter
hereof and supersedes any prior employment agreement between the
Company and the Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring
to the Executive of a kind elsewhere provided and not expressly
provided in this Agreement.
XIV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or
substantially all of its assets to, another corporation which
assumes this Agreement and all obligations and undertakings of
the Company hereunder. Upon such a consolidation, merger or
sale of assets, the term "the Company" will mean the other
corporation and this Agreement shall continue in full force and
effect.
XV
MODIFICATION
This Agreement may not be modified or amended except in
writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived except in writing
by the party charged with waiver. A waiver shall operate only
as to the specific term or condition waived and will not
constitute a waiver for the future or act on anything other than
that which is specifically waived.
XVI
GOVERNING LAW; CONSTRUCTION
This Agreement has been executed and delivered in the State
of Connecticut and its validity, interpretation, performance and
enforcement shall be governed by the internal laws of that
state.
XVII
ARBITRATION
A. Any controversy, dispute or claim arising out of or
relating to this Agreement or the breach hereof which cannot be
settled by mutual agreement (other than with respect to the
matters covered by Section IX for which the Company may, but
shall not be required to, seek injunctive relief) shall be
finally settled by binding arbitration in accordance with the
Federal Arbitration Act (or if not applicable, the applicable
state arbitration law) as follows: Any party who is aggrieved
shall deliver a notice to the other party setting forth the
specific points in dispute. Any points remaining in dispute
twenty (20) days after the giving of such notice may be
submitted to arbitration in New York, New York or Seattle,
Washington, whichever the complaining party chooses, to
Jams/Endispute, before a single arbitrator appointed in
accordance with the arbitration rules of Jams/Endispute,
modified only as herein expressly provided. After the aforesaid
twenty (20) days, either party, upon ten (10) days notice to the
other, may so submit the points in dispute to arbitration. The
arbitrator may enter a default decision against any party who
fails to participate in the arbitration proceedings.
B. The decision of the arbitrator on the points in
dispute will be final, unappealable and binding, and judgment on
the award may be entered in any court having jurisdiction
thereof.
C. Except as otherwise provided in this Agreement, the
arbitrator will be authorized to apportion its fees and expenses
and the reasonable attorneys fees and expenses of any such party
as the arbitrator deems appropriate. In the absence of any such
apportionment, the fees and expenses of the arbitrator will be
borne equally by each party, and each party will bear the fees
and expenses of its own attorney.
D. The parties agree that this Section has been included to
rapidly and inexpensively resolve any disputes between them with
respect to this Agreement, and that this Section shall be grounds
for dismissal of any court action commenced by either party with
respect to this Agreement, other than post-arbitration actions
seeking to enforce an arbitration award. In the event that any
court determines that this arbitration procedure is not binding,
or otherwise allows any litigation regarding a dispute, claim, or
controversy covered by this Agreement to proceed, the parties
hereto hereby waive any and all right to a trial by jury in or
with respect to such litigation.
XVIII
SURVIVAL
Sections VI, VII, VIII, IX, X, XI, XVI, XVII and XIX shall
continue in full force in accordance with their respective
terms notwithstanding any termination of the Period of
Employment.
XIX
SEPARABILITY
All provisions of this Agreement are intended to be
severable. In the event any provision or restriction contained
herein is held to be invalid or unenforceable in any respect,
in whole or in part, such finding shall in no way affect the
validity or enforceability of any other provision of this
Agreement. The parties hereto further agree that any such
invalid or unenforceable provision shall be deemed modified so
that it shall be enforced to the greatest extent permissible
under law, and to the extent that any court of competent
jurisdiction determines any restriction herein to be
unreasonable in any respect, such court may limit this
Agreement to render it reasonable in the light of the
circumstances in which it was entered into and specifically
enforce this Agreement as limited.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
CUC INTERNATIONAL INC.
By:___________________________
E. Kirk Shelton
President
___________________________
Kenneth A. Williams
NONCOMPETITION AGREEMENT
By signing below, I, Kenneth A.
Williams (sometimes referred to hereinafter as the
"Executive"), agree to the terms and conditions set
forth in this agreement (the "Agreement") between me and
CUC International Inc. (the "Company"). I am entering
into this Agreement (a) in connection with, and as
additional consideration for, the Company's acquisition,
on the date hereof (the "Acquisition"), of all of
the outstanding capital stock of Sierra On-Line, Inc.
("Sierra") pursuant to an Agreement and Plan of Merger,
dated as of February 19, 1996, as amended by an Amendment
No. 1 thereto, dated as of March 27, 1996 (as amended,
the "Merger Agreement") and (b) in accordance with the
terms and conditions of Section 4.17 of the Merger
Agreement and Section IXB. of the Employment Agreement
(as defined therein). Immediately prior to the
Acquisition, I was Chairman and Chief Executive
Officer of Sierra and beneficially owned 1,803,918
shares of Sierra common stock.
1. Confidentiality. The Executive acknowledges that
all secret, non-public, or proprietary information
pertaining to the affairs, business, results of operations,
accounting methods, practices and procedures, members,
acquisition candidates, financial condition, clients, customers
or other relationships of the Company or any of its
affiliates (including Sierra) that he possesses on the
date hereof and may come to possess hereafter
("Information") is confidential and is a unique and
valuable asset of the Com pany or any of its
affiliates. The Executive will not, except to the
extent reasonably necessary in performance of his duties
under his employment agreement with the Company, give any
person, firm, association, corporation or govern mental
agency any Information, except (a) as may be
required by law, court order or other legal process, (b)
as may be necessary in connection with any dispute
between Executive and the Company or any of its affiliates
relating to this Agreement or Executive's employment with
the Company or any of its affiliates, or (c)
Information which has entered the public domain or
becomes generally available to the public other than
as a result of a disclosure by Executive in
contravention of this Agreement. The Executive will not
make use of the Information for his own purposes or for
the benefit of any person or organization. The
Executive will also use his best efforts to prevent
the disclosure of the Information by others.
2. Restricted Activities
(a) For the period commencing on the date hereof and
ending on the third anniversary of the date hereof (the
"Initial Restricted Period"), the Executive will not make any
statements or perform any acts intended to or which may have the
effect of advancing the interest of any existing or prospective
competitors of Sierra or any of its subsidiaries or in any way
injuring the interests of Sierra or any of its subsidiaries. During
the Initial Restricted Period, the Executive, without prior express
written approval by the Board of Directors of the Company (the
"Board of Direc tors"), will not engage in competition, or directly
or indi rectly own or hold a proprietary interest in or be employed
by, or consult with or receive compensation from, any party which
competes, in any way or manner with the business of Sierra or any
of its subsidiaries, as such business or businesses may be
conducted from time to time. The Execu tive acknowledges that
Sierra's and its subsidiaries' businesses are conducted nationally
and internationally and agrees that the provisions in the foregoing
sentence shall operate throughout the United States and the World.
(b) During the period commencing on the date hereof
and ending on the later of the fifth anniversary of the date
hereof and the expiration or termination of the Period of Employment
(as defined in the Employment Agreement) (the "Restricted Period"),
the Executive, without express prior written approval from the
Board of Directors, will not solicit any clients of the Company or
any of its affiliates for any business of the Company or any of its
affiliates or discuss with any employee of the Company or any of
its affiliates information or operation of any business intended to
compete with the Company or any of its affiliates.
(c) During the Restricted Period, the Executive will
not solicit or induce any person who is an employee of the
Company or any of its affiliates to terminate any
relationship such person may have with the Company or any
of its affiliates, nor shall the Executive during such
period directly or indirectly engage, employ or
compensate, or cause or permit any person with which the
Executive may be affiliated, to engage, employ or
compensate, any employee of the Company or any of its
affiliates. The Executive hereby represents and warrants
that the Executive has not entered into any agreement,
understanding or arrangement which is currently in effect
with any employee of the Company or any of its
affiliates pertaining to any business in which the
Executive has participated or plans to participate, or
to the employment, engagement or compensation of any
such employee.
(d) Without limiting the provisions of
Sections 2(a), (b) and (c) above, during the Restricted
Period, Williams shall not own or hold proprietary
interest in, manage, be employed by or consult with,
operate, join, control or participate in the
ownership, management, operation or control of any
person or entity that (i) competes, in any way or
manner, with Sierra or its subsidiaries in the
packaged entertainment or education software
business anywhere in the World as such business may be
conducted from time to time or (ii) markets or
distributes entertainmentrelated software or services on
the Internet or any similar computer network.
(e) For the purposes of this Agreement,
proprietary interest means legal or equitable ownership,
whether through stock holding or otherwise, of an
equity interest in a business, firm or entity or
ownership or more than 5% of any class of equity interest
in a publicly-held company and the term "affiliate", when
used in respect of the Company, shall include without
limitation all subsidiaries of the Company, including
Stealth, and all licensees of the Company.
(f) The Executive hereby acknowledges
that damages at law may be an insufficient remedy to
the Company if the Executive violates the terms of this
Agreement and that the Company shall be entitled, upon
making the required showing, to preliminary and/or
permanent injunctive relief in any court of competent
jurisdiction to restrain the breach of or otherwise to
specifically enforce any of the covenants contained in
this Agreement without the necessity of showing any actual
damage or that monetary damages would not provide an
adequate remedy. Such right to an injunction shall be in
addition to, and not in limitation of, any other rights
or remedies the Company may have. Without limiting
the generality of the foregoing, neither party shall
oppose any motion the other party may make for any
expedited discovery or hearing in connection with any
alleged breach of this Agreement.
(g) The period of time during which the
provisions of this Agreement shall be in effect shall be
extended by the length of time during which the
Executive is in breach of the terms hereof as
determined by any court of competent jurisdiction on
the Company's application for injunctive relief.
(h) The Executive also agrees to
indemnify and hold the Company harmless from and against
any and all damages and expenses, including reasonable
attorneys' fees and dis bursements, resulting from any
breach by him of the terms and conditions of this
Agreement, which remedy is in addition to any and all
other remedies that the Company may possess at law or in
equity.
(i) The Executive agrees that the
restrictions contained in this Agreement are material to
the Company and, but for the Executive's agreement to
comply with such re strictions, the Company would not
have entered into the Merger Agreement.
3. Governing Law; Construction. This Agreement has
been executed and delivered in the State of Washington and
its validity, interpretation, performance and enforcement
shall be governed by the internal laws of that state.
4. Arbitration. (a) Any controversy, dispute or
claim arising out of or relating to this Agreement or the
breach hereof which cannot be settled by mutual agreement
(other than with respect to the matters for which the Compa
ny may, but shall not be required to, seek injunctive
re lief) shall be finally settled by binding
arbitration in accordance with the Federal Arbitration
Act (or if not ap plicable, the applicable state
arbitration law) as follows: Any party who is aggrieved
shall deliver a notice to the other party setting
forth the specific points in dispute. Any points
remaining in dispute twenty (20) days after the giving of
such notice may be submitted to arbitration in New York,
New York, or Seattle, Washington, whichever the
complaining party may choose, to Jams/Endispute, before
a single arbitrator appointed in accordance with the
arbitra tion rules of Jams/Endispute, modified only as
herein ex pressly provided. After the aforesaid twenty
(20) days, either party, upon ten (10) days notice to the
other, may so submit the points in dispute to arbitration.
The arbitrator may enter a default decision against any
party who fails to participate in the arbitration
proceedings.
(a) The decision of the arbitrator on the points in
dispute will be final, unappealable and binding, and
judgment on the award may be entered in any court having
jurisdiction thereof.
(b) Except as otherwise provided in this Agreement,
the arbitrator will be authorized to apportion its fees and
expenses and the reasonable attorney's fees and expenses of any
such party as the arbitrator deems appropriate. In the absence of
any such apportionment, the fees and expenses of the arbitrator will
be borne equally by each party, and each party will bear the fees and
expenses of its own attorney.
(c) The parties agree that this Section 4 has been
included to rapidly and inexpensively resolve any disputes
between them with respect to this Agreement, and that
this Section shall be grounds for dismissal of any court
action commenced by either party with respect to this
Agreement, other than with respect to matters for which
the Company has sought injunctive relief, and post-
arbitration actions seeking to enforce an arbitration
award. In the event that any court determines that this
arbitration procedure is not binding, or otherwise
allows any litigation regarding a dispute, claim or
controversy covered by this Agreement to proceed, the
parties hereto hereby waive any and all right to a trial
by jury in or with respect to such litigation.
5. Separability. All provisions of this Agreement
are intended to be severable. In the event any provision or
restriction contained herein is held to be invalid or
unenforceable in any respect, in whole or in part, such
finding shall in no way affect the validity or enforce
ability of any other provision of this Agreement. The par
ties hereto further agree that any such invalid or un
enforceable provision shall be deemed modified so that it shall
be enforced to the greatest extent permissible under law, and to
the extent that any court of competent jurisdic tion determines
any restriction herein to be unreasonable in any respect, such
court may limit this Agreement to render it reasonable in the
light of the circumstances in which it was entered into and
specifically enforce this Agreement as limited.
6. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and
shall be given (and shall be deemed to have been
duly received if so given) by hand delivery, telegram,
telex or telecopy, or by mail (registered or certified
mail, postage prepaid, return receipt requested) or
by any courier service, such as Federal Express,
providing proof of deliv ery. All communications
hereunder shall be delivered to the respective parties at
the following addresses:
If to the Executive: Kenneth A. Williams
c/o Sierra On-Line, Inc.
3380 146th Place, S.E., Ste. 300
Bellevue, WA 98007
with a copy to: Perkins Coie
1201 Third Avenue
40th Floor
Seattle, WA 98101-3099
Telephone: (206) 583-8534
Facsimile: (206) 583-8500
Attention: Stephen A. McKeon, Esq.
If to the Company: CUC International Inc.
707 Summer Street
Stamford, CT 06901
Telephone: (203) 924-9261
Facsimile: (203) 977-8501
Attention: Amy N. Lipton, Esq.
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000 Facsimile:
(212) 310-8007 Attention: Howard
Chatzinoff, Esq.
or to such other address as the person to whom notice
is given may have previously furnished to the others in
writing in the manner set forth above.
7. No Waiver. The failure of any party hereto to
exercise any right, power or remedy provided under this
Agreement or otherwise available in respect hereof at law or
in equity, or to insist upon compliance by any other party hereto
with its obligations hereunder, and any custom or practice of
the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such
compliance.
8. Assignability and Binding Effect. This Agreement
shall be binding upon and inure to the benefit of the
parties and their respective successors. The obligations of
the parties hereto may not be delegated, and any
attempted delegation shall be null and void and without
effect.
IN WITNESS WHEREOF, the undersigned have
executed this Agreement as of the 24th day of July, 1996.
CUC INTERNATIONAL
By:
Name: E. Kirk Shelton
Title: President
Kenneth A. Williams
