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 April 30, 1997
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 - 409,578,344 shares as of May 30, 1997
INDEX
CUC INTERNATIONAL INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - April 30, 1997
and January 31, 1997. 3
Condensed Consolidated Statements of Income - Three months
ended April 30, 1997 and 1996. 4
Condensed Consolidated Statements of Cash Flows -
Three months ended April 30, 1997 and 1996. 5
Notes to Condensed Consolidated Financial Statements. 6
Independent Accountants' Review Report. 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 22
INDEX TO EXHIBITS 23
PART I. FINANCIAL INFORMATION
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 30, January 31,
1997 1997
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $812,164 $553,144
Marketable securities 356,831 69,139
Receivables, net of allowances 593,253 578,630
Prepaid membership materials 36,299 37,579
Prepaid expenses, deferred income
taxes and other 203,562 191,583
Total Current Assets 2,002,109 1,430,075
Membership solicitations in process 77,024 76,281
Deferred membership acquisition costs 383,418 401,564
Contract renewal rights and intangible
assets - net of accumulated amortization of
$132,301 and $126,013 427,811 366,038
Properties, at cost, less accumulated
depreciation of $136,649 and $132,090 155,699 145,620
Deferred income taxes and other 54,625 53,794
$3,100,686 $2,473,372
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $411,036 $405,388
Federal and state income taxes 33,917 75,988
Total Current Liabilities 444,953 481,376
Deferred membership income 697,594 702,359
Convertible debt - net of unamortized
original issue discount of $7,996 and $488 565,979 23,487
Other 9,835 11,060
Contingencies (Note 5)
Shareholders' Equity
Common stock-par value $.01 per share;
authorized 600 million shares; issued
415,182,522 shares and 409,011,654 shares 4,152 4,090
Additional paid-in capital 676,132 619,532
Retained earnings 799,858 722,354
Treasury stock, at cost, 6,168,382
shares and 6,136,757 shares (57,436) (56,618)
Other (40,381) (34,268)
Total Shareholders' Equity 1,382,325 1,255,090
$3,100,686 $2,473,372
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
April 30,
1997 1996
REVENUES
Membership and service fees $544,037 $455,006
Software 80,634 60,473
Total Revenues 624,671 515,479
EXPENSES
Operating 209,539 158,327
Marketing 219,793 205,202
General and administrative 86,360 70,066
Other interest income, net (8,689) (2,240)
Interest expense, 3% convertible notes 3,634
Total Expenses 510,637 431,355
INCOME BEFORE INCOME TAXES 114,034 84,124
Provision for income taxes 43,561 32,003
NET INCOME $70,473 $52,121
Net Income Per Common Share $0.17 $0.13
Weighted Average Number of
Common and Dilutive Common
Equivalent Shares Outstanding 434,006 396,665
See notes to condensed consolidated financial statements.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
April 30,
1997 1996
OPERATING ACTIVITIES:
Net income $70,473 $52,121
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Membership acquisition costs (133,110) (164,341)
Amortization of membership
acquisition costs 151,256 160,366
Deferred membership income (4,765) 13,179
Membership solicitations in process (743) (950)
Amortization of contract renewal
rights and excess cost 6,583 5,684
Deferred income taxes 4,647 (2,508)
Amortization of restricted stock and
original issue discount on convertible notes 1,939 739
Depreciation 9,119 6,925
Net loss during change in fiscal year-ends (4,268)
Changes in working capital items, net
of acquisitions:
Receivables (6,951) 3.316
Prepaid membership materials 4,153 (3,241)
Prepaid expenses and other current assets (7,026) 9,534
Accounts payable, accrued expenses and
federal & state income taxes payable (66,253) (36,114)
Product abandonment and related liabilities (7,410)
Other, net (8,038) (4,309)
Net cash provided by operating activities 21,284 28,723
INVESTING ACTIVITIES:
Proceeds from matured marketable securities 42,570 46,922
Purchases of marketable securities (330,262) (28,832)
Acquisitions, net of cash acquired (47,171) (28,932)
Acquisitions of properties (14,869) (15,575)
Net cash used in investing activities (349,732) (26,417)
FINANCING ACTIVITIES:
Issuance of Common Stock 46,567 12,984
Long-term obligations, net (1,562) 1,237
Net proceeds from the issuance of
convertible notes 542,463
Net cash provided by financing activities 587,468 14,221
Net increase in cash and cash equivalents 259,020 16,527
Cash and cash equivalents at beginning of period 553,144 333,036
Cash and cash equivalents at end of period $812,164 $349,563
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 10Q 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 of CUC International Inc. (the "Company"),
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The January 31, 1997
consolidated balance sheet was derived from the Company's audited financial
statements. Operating results for the three months ended April 30, 1997
are not necessarily indicative of the results that may be expected for the
year ending January 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K filing for the year ended January 31, 1997.
The condensed consolidated financial statements at April 30, 1997 and for
the three months ended April 30, 1997 and 1996 are unaudited, but have
been reviewed by independent accountants and their report is included herein.
NOTE 2 -- MERGERS AND ACQUISITIONS
During February 1997, the Company acquired substantially all of the assets
and assumed specific liabilities of Numa Corporation ("Numa") for $73.5
million. The purchase price was satisfied by the issuance of 3.4 million
shares of the Company's common stock, par value $.01 per share ("Common
Stock"). Numa publishes personalized heritage publications and markets and
sells personalized merchandise. This acquisition was accounted for as a
pooling-of-interests; however, financial statements for periods prior to
the date of acquisition have not been restated due to immateriality.
During the quarter ended April 30, 1997, the Company acquired certain
entities for an aggregate purchase price of $48.3 million, satisfied by
the payment of $10.5 million in cash and the issuance of 1.5 million shares
of Common Stock. The excess of cost over net assets acquired resulting from
these acquisitions aggregated $68.4 million. These acquisitions were
accounted for in accordance with the purchase method of accounting and,
accordingly, the results of operations have been included in the
consolidated results of operations from the respective dates of acquisition.
The results of operations for the periods prior to the respective dates
of acquisition were not significant to the Company's operations.
Principally in connection with the Davidson & Associates, Inc ("Davidson"),
Sierra On-Line, Inc. ("Sierra") and Ideon Group, Inc. ("Ideon") mergers which
occurred during fiscal 1997, the Company charged approximately $179.9 million
($118.7 million or $.29 per common share after-tax effect) to operations as
merger, integration, restructuring and litigation charges for the year ended
January 31, 1997. Such costs in connection with the Davidson and Sierra
mergers with the Company (approximately $48.6 million) are non-recurring and
are comprised primarily of transaction costs, other professional fees and
integration costs. Such costs associated with the Company's merger with
Ideon (approximately $127.2 million) are non-recurring and include
integration and transcation costs as well as a provision relating to certain
litigation matters (see Note 5) giving consideration to the Company's
intended approach to these matters. To date, such payments amounted to
$96.0 million.
NOTE 3 -- SHAREHOLDERS' EQUITY AND NET INCOME PER COMMON SHARE
The change in common stock, additional paid-in capital and treasury stock
relates principally to acquisitions and stock option activity.
Net income per common share, assuming the conversions of subordinated
convertible notes during the three months ended April 30, 1997 occurred
at the beginning of such period, would not differ significantly from the
Company's actual earnings per share for such period.
Net income per common share includes the weighted average number of common
and common equivalent shares outstanding during the respective periods.
Common stock equivalents for the three month period ended April 30, 1997
includes the dilutive effect of the 3% convertible subordinated notes issued
February 11, 1997 using the if-converted method.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 3 -- SHAREHOLDERS' EQUITY AND NET INCOME PER COMMON SHARE (continued)
On January 31, 1998, the Company is required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". This new rule
requires the Company to change the method currently used to compute earnings
per share and requires restatement of all prior periods. Under the new
requirements, the dilutive effect of stock options and convertible
securities are excluded from computing primary earnings per share. The
impact of SFAS No. 128 on the calculation of primary and fully diluted
earnings per share for the quarters ended April 30, 1997 and 1996 is not
expected to be material.
NOTE 4 -- SOFTWARE RESEARCH AND DEVELOPMENT COSTS AND COSTS OF SOFTWARE
REVENUE
Software research and development costs are included in operating expenses
and aggregated $24.2 million and $14.9 million for the three months ended
April 30, 1997 and 1996, respectively. Costs of software revenue are
included in operating expenses and aggregated $29.0 million and $24.8
million for the three months ended April 30, 1997 and 1996, respectively.
NOTE 5 -- CONTINGENCIES - IDEON
At April 30, 1997, Ideon was defending or prosecuting claims in fifteen
complex lawsuits, twelve of which involved Peter Halmos, former Chairman of
the Board and Executive Management Consultant to SafeCard Services,
Incorporated ("SafeCard"), a subsidiary of Ideon, 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 fifteen cases in which Ideon or its
subsidiaries is a party to 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.
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 nonpublic 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.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
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 briefs 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 SafeCard's 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. The parties filed a joint
status report on December 10, 1996 requesting an order abating the action
until January 24, 1997 to permit further settlement discussions.
On February 11, 1997, the Court entered an order abating the stay and
setting the case for trial beginning September 2, 1997.
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 amended
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.
On June 13, 1997, the Company entered into an agreement (the "Agreement")
with Peter Halmos, the co-founder of SafeCard, which was reorganized in 1995
as Ideon. The Company acquired Ideon in August 1996. The Agreement,
which, among other matters, provides for the settlement of all of the
outstanding litigations involving Peter Halmos, SafeCard and Ideon
previously described in the Company's Form 10-K, is subject to the
confirmation of certain matters by a court in Wyoming in which certain
of these litigations are pending, and will not become effective unless and
until such confirmation is obtained. There can be no assurance that such
confirmation will be obtained, and in the event it is not, the litigation
will remain outstanding and no payments will be made to Mr. Halmos. The
Agreement calls for the dismissal with prejudice of these outstanding
litigation matters and the payment to Peter Halmos, over a six-year period,
of $70.5 million. Specifically, the Agreement requires that the Company
pay Peter Halmos one up-front payment of $13.5 million and six subsequent
annual payments of $9.5 million each, commencing at such time as the court's
confirmation may be obtained. The three class action matters involving,
among other parties, SafeCard, Ideon, the Company and certain Ideon and
SafeCard directors and officers remain pending.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
A suit seeking monetary damages and declatory 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. On December 5, 1996, plaintiffs filed a motion
for leave to file an amended complaint, name additional parties (previously
named as "John Does") and include additional legal claims. The amended
complaint is a purported buyer and class action under the securities
and racketeering laws alleging Ideon and others engaged in a stock
manipulation scheme to artificially inflate the price of SafeCard/Ideon
stock between January 1993 and December 1995. On February 11, 1997,
the Court entered an order abating the stay and setting this case for
trial beginning on September 2, 1997. On February 27, 1997, the Company
filed a response in opposition to plaintiffs' motion for leave to file
an amended complaint.
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 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. Plaintiff filed initial and reply briefs and Ideon
filed an answer brief. On June 6, 1997, the Appellate Court affirmed
the dismissal.
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 declatory 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. Ideon filed an answer and affirmative defenses to the
amended counterclaims on May 6, 1996.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
NOTE 5 -- CONTINGENCIES - IDEON (continued)
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 merit 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.
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 filed its answer on September 30, 1996.
A suit by First 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. The Company withdrew its motion to
dismiss and answered the complaint on December 5, 1996.
The Company established a reserve upon the consummation of the merger with
Ideon during the third quarter of fiscal 1997 related, in part, to these
litigation matters. The Company is also involved in certain other claims
and litigation arising in the ordinary course of business which are not
considered material to the financial position, operations or cash flows of
the Company. Although management used their best estimates, if the
Agreement discussed above is not confirmed by the court, there can be no
assurance that the actual aggregate amount of such settlement will not
exceed the amount accrued. Although not anticipated, the outcome of the
class action matters discussed above could also exceed the amount accrued.
NOTE 6 -- SUBSEQUENT EVENT
On May 27, 1997, the Company entered into an agreement to merge with
HFS Incorporated ("HFS") in a tax-free exchange of common shares. Under
the terms of the agreement and plan of merger with HFS, the Company plans to
exchange 2.4031 shares of Common Stock for each outstanding share of
HFS Common Stock (158.1 million shares at April 30, 1997). The consummation
of the merger is subject to certain customary closing conditions, including
the approval of the shareholders of both companies. The transaction will be
accounted for in accordance with the pooling-of-interests method of
accounting and is expected to be completed during the Fall of 1997. Pursuant
to the merger agreement, HFS shall be merged with and into CUC at the
effective time. Following the effective time, CUC shall be the surviving
corporation and shall succeed to and assume all the rights and obligations
of HFS.
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 April 30, 1997, and the related condensed
consolidated statements of income and cash flows for the three-month periods
ended April 30, 1997 and 1996. These financial statements are the
responsibility of the Company's 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 have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of CUC International Inc. as of
January 31, 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated March 10, 1997, we expressed an unqualified
opinion on these consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance
sheet as of January 31, 1997, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been
derived.
ERNST & YOUNG LLP
June 13, 1997
Stamford, Connecticut
ITEM 2.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended April 30, 1997 vs.
Three Months Ended April 30, 1996
The Company's overall membership base continues to grow at a rapid rate
(from 60.9 million members at April 30, 1996 to 68.6 million members at
April 30, 1997), which is the largest contributing factor to the 20%
increase in membership revenues (from $455 million for the quarter ended
April 30, 1996 to $544 million for the quarter ended April 30, 1997).
While the overall membership base increased by approximately 2.2 million
members during the quarter, the average annual fee collected for the
Company's membership services increased by approximately 3%. 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 quarter, individual, wholesale
and discount program memberships grew by 10%, 24% and 12%, respectively.
Wholesale memberships have grown in part due to the success of the Company's
international business in Europe. For the quarter ended April 30, 1997,
individual, wholesale and discount program memberships represented 67%, 14%
and 19% 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 33% from $60.5 million for the quarter
ended April 30, 1996 to $80.6 million for the quarter ended April 30, 1997.
Distribution revenue, which consists principally of third-party software and
typically has low operating margins, increased 8% from $14.9 million for
the quarter ended April 30, 1996 to $16.1 million for the quarter ended
April 30, 1997. The Company's software operations continue to grow by
focusing on selling titles through retailers. Excluding distribution
revenue, core software revenue grew by 42%. Contributing to the
software revenue growth in fiscal 1998 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 impacted
profit margins. As a result, operating income before other interest income,
net, interest expense on 3% convertible notes and income taxes
("EBIT") increased from $81.9 million to $109.0 million and EBIT margins
improved from 15.9% to 17.4%.
Individual membership usage continues to increase, which contributes to
additional service fees and indirectly contributes to the Company's strong
renewal rates. 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. Included in total revenues for the quarter
ended April 30, 1997, are revenues resulting from acquisitions which were
completed during the quarter. However, total revenues contributed from these
acquisitions are not material to the Company's total reported revenues.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Three Months Ended April 30, 1997 vs.
Three Months Ended April 30, 1996 (continued)
Operating costs increased 32% (from $158.3 million to $209.5 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).
Historically, the Company has seen a direct correlation between providing
a high level of service to its members and improved retention. 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.
Marketing costs decreased as a percentage of revenue, from 40% to 35%. This
decrease is primarily due to improved per member acquisition costs and an
increase in renewing members. Membership acquisition costs incurred
decreased 19% (from $164.3 million to $133.1 million) primarily due to
increased conversion rates in the Company's various membership marketing
programs. 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 decreased by 6% (from $160.4 million to $151.3 million). Other
marketing costs increased by 53% (from $44.8 million to $68.5 million).
The overall increase in marketing costs 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 membership services are combined for its
various services, and, accordingly, there are no significant changes in
marketing costs by membership service.
The Company routinely reviews all membership 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 eligible for renewal.
General and administrative costs remained constant as a percentage of
revenue (14%). This is a result of the Company's ongoing focus on
controlling overhead. Other interest income, net, increased from
$2.2 million to $8.7 million primarily due to the increased level of
cash generated by the Company from the proceeds of its issuance of 3%
convertible subordinated notes in February 1997 (see "Liquidity And
Capital Resources; Inflation; Seasonality").
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. All membership data has been restated
to reflect the acquisition of Ideon Group, Inc. ("Ideon") in August 1996;
however it has not been restated to reflect other members added through
acquisitions ("Acquired Members").
Net New Member
Number of Additions
Period Members for the Period
Quarter Ended April 30, 1997 68,560,000 2,225,000
Year Ended January 31, 1997 66,335,000 6,685,000
Quarter Ended April 30, 1996 60,875,000 1,225,000
Year Ended January 31, 1996 59,650,000 12,750,000*
*Includes approximately 8 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 have been provided principally through
cash flows from operations and credit facilities, while acquisitions have
also been funded through the issuance of Common Stock. The Company entered
into a credit agreement effective March 26, 1996 which provides for
a $500 million revolving credit facility with a variety of different types
of loans available thereunder ("Credit Agreement"). At April 30, 1997, no
borrowings under the Credit Agreement were outstanding. The Credit
Agreement is scheduled to expire March 26, 2001.
On February 11, 1997, the Company issued $550 million in principal amount
of 3% convertible subordinated notes (the "3% Notes") due February 15, 2002.
Interest on the 3% Notes is payable semi-annually on February 15 and
August 15 of each year, commencing August 15, 1997. As of April 30, 1997,
interest expense on the 3% Notes was $3.6 million.
The Company invested approximately $47 million in acquisitions, net of cash
acquired, during the three months ended April 30, 1997. Substantially all
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 other than those relating to
the abovementioned litigation matters. The Company anticipates that cash
flows from operations and its credit facilities 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 $15 million for the three months
ended April 30, 1997.
The Company intends to continue to review potential acquisitions that it
believes would enhance the Company's growth and profitability. Any
acquisitions will initially be financed through the issuance of
Common Stock, excess cash flows from operations, the Company's Credit
Agreement and from the proceeds of the issuance of the 3% Notes.
However, depending on the financing necessary to complete an acquisition,
additional funding may be required.
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)
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 selling season.
For the three months ended April 30, 1997, the Company's international
businesses represented less than 10% 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.
Forward-Looking Statements
Except for historical information contained herein, the above discussion
contains certain forward-looking statements that involve potential risks
and uncertainties. The Company's future results could differ materially
from those discussed herein. Factors that could cause or contribute to
such differences include, but are not limited to, changes in market
conditions, effects of state and federal regulations and risks inherent
in international operations. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to revise or update
these forward-looking statements to reflect events or circumstances that
arise after the date hereof or to reflect the occurrence of unanticipated
events.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Ideon and certain of its subsidiaries are defending or prosecuting
fifteen complex lawsuits, twelve of which involve the former Chairman
of the Board and Executive Management Consultant to SafeCard (See Note 5
to Condensed Consolidated Financial Statements).
ITEM 2. CHANGES IN SECURITIES
During the fiscal quarter ended April 30, 1997, the Company issued the
following equity securities that were not registered under the
Securities Act:
(a) On February 13, 1997, the Company issued 3,445,851 shares
of Common Stock to Numa in connection with the acquisition by
the Company of substantially all of the assets of Numa and
the Company's assumption of specific liabilities of Numa.
This issuance was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act,
as this issuance of Common Stock did not involve a "public
offering" pursuant to the Securities Act given the limited
number and scope of persons to whom the securities were
issued. The Company has filed a Registration Statement with
the Commission, which has been declared effective by the
Commission, with respect to the resale of the Common Stock
received from the Company in connection with this
acquisition.
(b) On March 17, 1997, the Company issued 908,703 shares of
Common Stock to Tango Communications ("Tango") in connection
with the acquisition by the Company of substantially all of
the assets and the assumption of the liabilities of Tango.
This issuance was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act,
as this issuance of Common Stock did not involve a "public
offering" pursuant to the Securities Act given the limited
number and scope of persons to whom the securities were issued.
(c) On April 11, 1997, the Company issued 595,664 shares of
Common Stock to Berkeley Systems, Incorporated ("Berkeley")
in connection with the acquisition by the Company of all of
the outstanding capital stock of Berkeley. This issuance was
made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act, as this issuance of
Common Stock did not involve a "public offering" pursuant to
the Securities Act given the limited number and scope of
persons to whom the securities were issued. The Company has
filed a Registration Statement with the Commission with
respect to the resale of the Common Stock received from the
Company in connection with this acquisition.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Matters as specified in the Company's Proxy Statement dated May 5, 1997,
a copy of which has previously been filed with the Securities and Exchange
Commission, were considered and approved by the Company's shareholders at the
annual shareholders' meeting held on June 11, 1997. The results of such
matters are as follows:
Proposal 1: To elect Messrs. Bartlett Burnap, Walter A. Forbes
and Robert P. Rittereiser to the Board of Directors of the
Company, each for a term to expire at the 2000 Annual Meeting.
Results: Total Vote For Total Vote Withheld
Bartlett Burnap 338,775,954 4,084,602
Walter A. Forbes 338,825,540 4,035,016
Robert P. Rittereiser 338,814,275 4,046,281
The terms of office as a director of each of T. Barnes Donnelley,
Stephen A. Greyser, Christopher K. McLeod, Burton C. Perfit,
Stanley M. Rumbough, Jr., E. Kirk Shelton and Kenneth A. Williams
continued after the meeting.
Proposal 2: To approve the Company's 1997 Stock Option Plan.
Results: For Against Abstain
233,528,464 106,444,921 1,338,979
Proposal 3: To ratify the appointment of Ernst & Young LLP as the
Company's Independent Auditors for the fiscal year
ending January 31, 1998.
Results: For Against Abstain
342,305,022 135,646 419,888
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).*
4.2 Indenture dated as of February 11, 1997, between CUC International
Inc. and Marine Midland Bank, as trustee (filed as Exhibit 4(a) to
the Company's Report on Form 8-K filed February 13, 1997).*
10.1-10.26 Management Contracts, Compensatory Plans
and Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of May 15, 1996 (filed
as Exhibit 10.1 to the Company's Form 10-Q for the period ended
July 31, 1996).*
10.2 Agreement with Christopher K. McLeod, dated as of May 15, 1996
(filed as Exhibit 10.2 to the Company's Form 10-Q for the period
ended July 31, 1996).*
10.3 Amended and Restated Employment Contract with Walter A. Forbes,
dated as of May 15, 1996 (filed as Exhibit 10.3 to the Company's
Form 10-Q for the period ended July 31, 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 Amendment to Agreement with Cosmo Corigliano, dated
January 1, 1997 (filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997).*
10.7 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).*
10.8 Amendment to Agreement with Amy N. Lipton, dated January 1, 1997
(filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1997).*
10.9 Employment Agreement with Robert M. Davidson, dated July 24, 1996
(filed as Exhibit 10.7 to the Company's Form 10-Q for the period
ended July 31, 1996).* +
10.10 Employment Agreement with Janice G. Davidson, dated July 24, 1996
(filed as Exhibit 10.8 to the Company's Form 10-Q for the period
ended July 31, 1996).* +
10.11 Non-Competition Agreement with Robert M. Davidson, dated
July 24, 1996 (filed as Exhibit 10.9 to the Company's Form 10-Q
for the period ended July 31, 1996).* +
10.12 Non-Competition Agreement with Janice G. Davidson, dated
July 24, 1996 (filed as Exhibit 10.10 to the Company's Form 10-Q
for the period ended July 31, 1996).* +
10.13 Employment Agreement with Kenneth A. Williams, dated July 24, 1996
(filed as Exhibit 10.11 to the Company's Form 10-Q for the
period ended July 31, 1996).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibit
No. Description
10.14 Non-Competition Agreement with Kenneth A. Williams, dated
July 24, 1996 (filed as Exhibit 10.12 to the Company's Form 10-Q
for the period ended July 31, 1996).*
10.15 Form of Employee Stock Option under the 1987 Stock Option Plan,
as amended (filed as Exhibit 10.13 to the Company's Form 10-Q
for the period ended October 31, 1996).*
10.16 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).*
10.17 Form of Director Stock Option for 1994 Directors Stock Option
Plan, as amended (filed as Exhibit 10.15 to the Company's
Form 10-Q for the period ended October 31, 1996).*
10.18 1987 Stock Option Plan, as amended (filed as Exhibit 10.16 to
the Company's Form 10-Q for the period ended October 31, 1996).*
10.19 1990 Directors Stock Option Plan, as amended (filed as Exhibit
10.17 to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.20 1992 Directors Stock Option Plan, as amended (filed as Exhibit
10.18 to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.21 1994 Directors Stock Option Plan, as amended (filed as Exhibit
10.19 to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.22 1996 Executive Retirement Plan.
10.23 1997 Stock Option Plan.
10.24 Form of Employee Stock Option under the 1997 Stock Option Plan.
10.25 Settlement Agreement dated as of May 27, 1997 by and among
Janice G. Davidson; Robert M. Davidson; the Janice G. Davidson
Charitable Remainder Unitrust; the Robert M. Davidson Charitable
Remainder Unitrust; the Elizabeth A. Davidson Irrevocable Trust;
the Emilie A. Davidson Irrevocable Trust; the John R. Davidson
Irrevocable Trust; the Emilie A. Davidson Charitable Remainder
Unitrust; and the John R. Davidson Charitable Remainder Unitrust
and CUC International Inc. +
10.26 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).*
10.27 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).*
10.28 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).*
10.29 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).*
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(a) Exhibit
No. Description
10.30 Amendment No.1 dated as of July 24, 1996, among Davidson
& Associates, Inc., CUC International Inc. and Stealth
Acquisition I Corp. (filed as Exhibit 2.2 to the Company's Report
on Form 8-K filed August 5, 1996).*
10.31 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).*
10.32 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).*
10.33 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).*
10.34 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).* +
10.35 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).*
10.36 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 10K for the fiscal year ended January 31, 1996).*
10.37 Form of U.S. Underwriting Agreement dated October 1996, among CUC
International Inc., certain selling stockholders and the U.S.
Underwriters (filed as Exhibit 1.1 (a) to the Company's
Registration Statement on Form S-3, Registration No. 333-13537,
filed on October 9, 1996).*
10.38 Form of International Underwriting Agreement dated October 1996,
among CUC International Inc., certain selling stockholders and the
International Underwriters (filed as Exhibit 1.1 (b) to the
Company's Registration Statement on Form S-3, Registration
No. 333-13537, filed on October 9, 1996).*
10.39 Registration Rights Agreement dated as of February 11, 1997,
between CUC International Inc. and Goldman, Sachs & Co. (for
itself and on behalf of the other purchasers party thereto) (filed
as Exhibit 4(b) to the Company's Report on Form 8-K filed
February 13, 1997).*
10.40 Agreement and Plan of Merger between CUC International Inc. and
HFS Incorporated, dated as of May 27, 1997 (filed as Exhibit 2.1
to the Company's Report on Form 8-K filed on May 29, 1997).*
10.41 Plan for Corporate Governance of CUC International Inc. following
the Effective Time (filed as Exhibit 99.2 to the Company's Report
on Form 8-K filed on May 29, 1997).*
11 Statement re: Computation of Per Share Earnings (Unaudited)
15 Letter re: Unaudited Interim Financial Information
27 Financial data schedule
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(b) During the quarter ended April 30, 1997, the Company filed the
following Current Reports on Form 8-K:
(1) Current Report on Form 8-K, filed on February 4, 1997, reporting
an Item 9 ("Sales of Equity Securities Pursuant to Regulation S")
event.
(2) Current Report on Form 8-K, filed on February 13, 1997, reporting
an Item 7 ("Financial Statements and Exhibits") event and an Item 9
("Sales of Equity Securities Pursuant to Regulation S") event.
(3) Current Report on Form 8-K, filed on February 26, 1997, reporting
an Item 5 ("Other Events") event.
(4) Current Report on Form 8-K, filed on March 17, 1997, reporting
an Item 5 ("Other Events") event.
*Incorporated by reference
+These documents have been amended, supplemented and/or superseded
by the Settlement Agreement set forth as Exhibit 10.25 hereto.
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: June 16, 1997 By: WALTER A. FORBES
Walter A. Forbes - Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: June 16, 1997 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).*
4.2 Indenture dated as of February 11, 1997, between CUC
International Inc. and Marine Midland Bank, as trustee (filed
as Exhibit 4(a) to the Company's Report on Form 8-K filed
February 13, 1997).*
10.1-10.26 Management Contracts, Compensatory Plans and Arrangements
10.1 Agreement with E. Kirk Shelton, dated as of May 15, 1996
(filed as Exhibit 10.1 to the Company's Form 10-Q for the
period ended July 31, 1996).*
10.2 Agreement with Christopher K. McLeod, dated as of May 15, 1996
(filed as Exhibit 10.2 to the Company's Form 10-Q for the
period ended July 31, 1996).*
10.3 Amended and Restated Employment Contract with Walter A. Forbes,
dated as of May 15, 1996 (filed as Exhibit 10.3 to the
Company's Form 10-Q for the period ended July 31, 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 Amendment to Agreement with Cosmo Corigliano, dated
January 1, 1997 (filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1997).*
10.7 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).*
10.8 Amendment to Agreement with Amy N. Lipton, dated
January 1, 1997 (filed as Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1997).*
10.9 Employment Agreement with Robert M. Davidson, dated July 24,
1996 (filed as Exhibit 10.7 to the Company's Form 10-Q
for the period ended July 31, 1996).* +
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.10 Employment Agreement with Janice G. Davidson, dated July 24,
1996 (filed as Exhibit 10.8 to the Company's Form 10-Q
for the period ended July 31, 1996).* +
10.11 Non-Competition Agreement with Robert M. Davidson, dated
July 24, 1996 (filed as Exhibit 10.9 to the Company's
Form 10-Q for the period ended July 31, 1996).* +
10.12 Non-Competition Agreement with Janice G. Davidson, dated
July 24, 1996 (filed as Exhibit 10.10 to the Company's
Form 10-Q for the period ended July 31, 1996).* +
10.13 Employment Agreement with Kenneth A. Williams, dated
July 24, 1996 (filed as Exhibit 10.11 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.14 Non-Competition Agreement with Kenneth A. Williams, dated
July 24, 1996 (filed as Exhibit 10.12 to the Company's
Form 10-Q for the period ended July 31, 1996).*
10.15 Form of Employee Stock Option under the 1987 Stock Option
Plan, as amended (filed as Exhibit 10.13 to the Company's
Form 10-Q for the period ended October 31, 1996).*
10.16 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).*
10.17 Form of Director Stock Option for 1994 Directors Stock Option
Plan, as amended (filed as Exhibit 10.15 to the Company's
Form 10-Q for the period ended October 31, 1996).*
10.18 1987 Stock Option Plan, as amended (filed as Exhibit 10.16
to the Company's Form 10-Q for the period ended
October 31, 1996).*
10.19 1990 Directors Stock Option Plan, as amended (filed as
Exhibit 10.17 to the Company's Form 10-Q for the period
ended October 31, 1996).*
10.20 1992 Directors Stock Option Plan, as amended (filed as
Exhibit 10.18 to the Company's Form 10-Q for the period
ended October 31, 1996).*
10.21 1994 Directors Stock Option Plan, as amended (filed as
Exhibit 10.19 to the Company's Form 10-Q for the period
ended October 31, 1996).*
10.22 1996 Executive Retirement Plan.
10.23 1997 Stock Option Plan.
10.24 Form of Employee Stock Option under the 1997 Stock
Option Plan.
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.25 Settlement Agreement dated as of May 27, 1997 by and among
Janice G. Davidson; Robert M. Davidson; the Janice G.
Davidson Charitable Remainder Unitrust; the Robert M. Davidson
Charitable Remainder Unitrust; the Elizabeth A. Davidson
Irrevocable Trust; the Emilie A. Davidson Irrevocable Trust;
the John R. Davidson Irrevocable Trust; the Emilie A. Davidson
Charitable Remainder Unitrust; and the John R. Davidson
Charitable Remainder Unitrust and CUC International Inc. +
10.26 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).*
10.27 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).*
10.28 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).*
10.29 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).*
10.30 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).
10.31 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).*
10.32 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).*
10.33 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).*
10.34 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).* +
10.35 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).*
INDEX TO EXHIBITS
Exhibit
No. Description Page
10.36 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).*
10.37 Form of U.S. Underwriting Agreement dated October 1996,
among CUC International Inc., certain selling stockholders
and the U.S. Underwriters (filed as Exhibit 1.1 (a) to the
Company's Registration Statement on Form S-3, Registration
No. 333-13537, filed on October 9, 1996).*
10.38 Form of International Underwriting Agreement dated October
1996, among CUC International Inc., certain selling
stockholders and the International Underwriters (filed as
Exhibit 1.1 (b) to the Company's Registration Statement on
Form S-3, Registration No. 333-13537, filed on
October 9, 1996).*
10.39 Registration Rights Agreement dated as of February 11, 1997,
between CUC International Inc. and Goldman, Sachs & Co. (for
itself and on behalf of the other purchasers party thereto)
(filed as Exhibit 4(b) to the Company's Report on Form 8-K
filed February 13, 1997).*
10.40 Agreement and Plan of Merger between CUC International Inc.
and HFS Incorporated, dated as of May 27, 1997 (filed as
Exhibit 2.1 to the Company's Report on Form 8-K filed on
May 29, 1997).*
10.41 Plan for Corporate Governance of CUC International Inc.
following the Effective Time (filed as Exhibit 99.2 to
the Company's Report on Form 8-K filed on May 29, 1997).*
11 Statement re: Computation of Per Share Earnings (Unaudited)
15 Letter re: Unaudited Interim Financial Information
27 Financial data schedule
*Incorporated by reference
+These documents have been amended, supplemented and/or superseded
by the Settlement Agreement set forth as Exhibit 10.25 hereto.
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
April 30,
-----------------------
1997 1996
-----------------------
PRIMARY
Average shares outstanding 407,446 376,469
Net effect of dilutive stock options
- based on the treasury stock
method using average market price 11,594 20,196
Assumed conversion of 3% convertible notes 14,966
-------- -------
Total 434,006 396,665
======= =======
Net income $70,473 $52,121
Interest expense on 3%
convertible notes, net of tax benefit 2,246
-------- -------
$72,719 $52,121
======= =======
Net income per common share $0.168 $0.131
===== =====
FULLY DILUTED
Average shares outstanding 407,446 376,469
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 11,593 20,874
Assumed conversion of convertible notes 18,052 6,549
-------- -------
Total 437,091 403,892
======= =======
Net income $70,473 $52,121
Interest expense on convertible
notes, net of tax benefit 2,487 469
-------- -------
$72,960 $52,590
======= =======
Net income per common share $0.167 $0.130
====== ======
CUC INTERNATIONAL INC. AND SUBSIDIARIES
EXHIBIT 15-LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
June 13, 1997
Shareholders and Board of Directors
CUC International Inc.
We are aware of the incorporation by reference in the following
Registration Statements of our report dated June 13, 1997 relating
to the unaudited condensed consolidated interim financial statements
of CUC International Inc. that are included in its Form 10-Q for the
quarter ended April 30, 1997:
Form S-3s,
33-30306, 33-47271, 33-58598, 33-63237, 33-95126, 333-11035,
333-13537, 333-17323, 333-17411, 333-20391, 333-23063 and 333-26927
Form S-8s,
33-17247 CUC International Inc. 1985 Non-Qualified Stock Option Plan
33-17248 CUC International Inc. 1985 Incentive Stock Option Plan
33-17249 CUC International Inc. 1987 Performance Share Stock Option
Plan
33-26875 CUC International Inc. 1987 Stock Option Plan
33-75682 CUC International Inc. 1987 Stock Option Plan as amended
33-93322 CUC International Inc. 1987 Stock Option Plan as amended
33-41823 CUC International Inc. 1990 Directors Stock Option Plan
33-48175 Entertainment Publications Inc. 1988 Non-Qualified Stock
Option Plan
33-58896 CUC International Inc. 1992 Bonus and Salary Replacement
Stock Option Plan
33-91656 CUC International Inc. 1992 Bonus and Salary Replacement
Stock Option Plan as amended
333-03241 CUC International Inc. 1992 Bonus and Salary Replacement
Stock Option Plan as amended
33-74068 CUC International Inc. 1992 Directors Stock Option Plan
33-74066 CUC International Inc. 1992 Employee Stock Option Plan
33-91658 CUC International Inc. 1992 Employee Stock Option Plan as
amended
333-00475 CUC International Inc. 1992 Employee Stock Option Plan as
amended
333-03237 CUC International Inc. 1992 Employee Stock Option Plan as
amended
33-75684 CUC International Inc. 1994 Employee Stock Purchase Plan
33-80834 CUC International Inc. Savings Incentive Plan
33-93372 CUC International Inc. 1994 Directors Stock Option Plan
333-09633 Sierra On-Line, Inc. 1987 Stock Option Plan
333-09637 Sierra On-Line, Inc. 1995 Stock Option and Award Plan
333-09655 Papyrus Design Group Inc. 1992 Stock Option Plan
333-22003 Knowledge Adventure 1993 Stock Option Plan
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.
ERNST & YOUNG LLP
Stamford, Connecticut
5
0000723612
CUC INTERNATIONAL INC.
1,000
3-MOS
JAN-31-1998
APR-30-1997
812,164
356,831
593,253
0
0
2,002,109
292,348
136,649
3,100,686
444,953
565,979
0
0
4,152
1,378,173
3,100,686
624,671
624,671
0
515,692
0
0
(5,055)
114,034
43,561
70,473
0
0
0
70,473
.17
.17
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17
NYFS01...:\01\39801\0001\31\PLN4307W.59E
NYFS01...:\01\39801\0001\31\PLN4307W.59E
Do not delete this box or the codes above it; do not type
above this box.
_ _ _ Text should begin immediately below this line.
_ _ _ CUC INTERNATIONAL INC.
EXECUTIVE RETIREMENT PLAN
CUC International Inc., a Delaware corporation
(the "Company"), hereby adopts the CUC International Inc.
Executive Retirement Plan (the "Plan") effective as of
January 1, 1997.
1
PURPOSE AND DEFINITIONS
1.1 The purpose of the Plan is to afford officers and other
key employees of the Company, who will be responsible for
the management, growth, success and protection of the
Company's business, with a long-term incentive in order to
create in such employees an increased interest in and a
greater concern for the welfare of the Company and to reward
those officers and key employees who have been responsible
for the growth and success of the Company. The Plan is
intended to provide additional retirement security for the
participants under the Plan and to constitute an unfunded
retirement plan for a select group of management or highly
compensated employees within the meaning of Title I of the
Employee Retirement Income Security Act of 1974, as amended.
1.2 For purposes of the Plan, the following terms shall
have the meaning set forth below:
"Accrued Target Value" means that portion of the Target
Value of a Participant described in Section 10.4.
"Actuarial Assumption" means, for purposes of the Plan,
an interest rate of 8% and the 1983 Group Annuity
Mortality Table (male) as published by the Society of
Actuaries, to be utilized to determine an Actuarial
Equivalent benefit to be provided by the Target Value.
"Actuarial Equivalent" means the use of Actuarial
Assumptions to achieve a value equal to the Target
Value or Adjusted Target Value, as the case may be.
"Adjusted Target Value" means the Target Value of a
Participant increased or decreased in value based upon
an assumed interest rate of 8%, to reflect the deferral
of the Commencement Date of a Participant as a result
of the continued employment of the Participant with the
Company or its Affiliates on or after the Retirement
Date of the Participant or to determine the equivalent
Target Value prior to the Participant's Retirement Date
as required under Articles 3 and 5.
"Affiliate" means a subsidiary or joint venture in
which the Company owns directly or indirectly fifty
percent (50%) or more of the equity interest (excluding
preferred stock).
"Beneficiary" means the beneficiary designated by the
Participant, or deemed designated by the Participant,
pursuant to Section 7.1.
"Change in Control" means a change in ownership of the
Company or any other action as described in Section
6.3.
"Commencement Date" means the first day of the month
following a Participant's Retirement Date, or if the
Participant is then employed by the Company or any of
its Affiliates, the first day of the month following
the Participant's termination of employment with the
Company and all of its Affiliates.
"Compensation Committee" means the Compensation
Committee of the board of directors of the Company.
"Employment Agreement" means an employment agreement
between the Company or an Affiliate and a Participant,
in effect at the time of any applicable determinations
under the Plan.
"Participant" means a key employee recommended by the
Chief Executive Officer of the Company and selected by
the Compensation Committee to participate in the Plan
pursuant to Section 2.1.
"Retirement Date" means the Retirement Date set by the
Compensation Committee at the time a key employee first
becomes a Participant under the Plan or any earlier
date subsequently set by the Compensation Committee.
"Target Value" means the target value of a
Participant's retirement benefit as determined by the
Compensation Committee at the date a key employee
becomes a Participant of the Plan, or as thereafter may
be increased by action of the Compensation Committee.
"Total Disability" means any permanent mental or physi
cal condition which (i) in the good faith judgment of
the Compensation Committee prevents the Participant
from reasonably discharging the duties of his or her
position, (ii) is attested to in writing from time to
time by a physician selected by the Compensation
Committee and (iii) has continued for a period of at
least twelve consecutive months.
"Year of Participation" shall mean a twelve-month
period of participation under the Plan during a period
of employment with the Company or its Affiliates or
while Totally Disabled.
"Year of Vesting Service" means a twelve-month period
of employment with the Company or any of its Affiliates
or a period of Total Disability as defined in Section
3.1.
2
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility. The Chief Executive Officer of the
Company shall recommend to the Compensation Committee key
employees of the Company for participation in the Plan. The
Compensation Committee shall make a determination of each
such person who shall participate in the Plan and shall
notify such person of participation in writing. Each key
employee so designated by the Compensation Committee is
hereinafter referred to as a "Participant."
2.2 Designation of Vesting Requirement, Age for
Commencement of Payment of Benefits and Target Value. The
Compensation Committee shall determine for each Participant
at the time a key employee is selected as a Participant and
shall advise each Participant in writing the number of Years
of Service with the Company that shall be required to
achieve vesting of the benefit provided for the Participant
under the Plan, the age at which a Participant who is vested
may commence to receive benefits under the Plan (provided
the Participant has then terminated employment with the
Company) and the Target Value of the Participant.
3
VESTING AND FORFEITURES
3.1 Vesting. A Participant shall become vested in the
benefit provided under the Plan after achieving the number
of Years of Vesting Service initially set by the
Compensation Committee upon the Participant becoming
eligible for participation in the Plan, or such lesser
number of Year of Vesting Service subsequently set by the
Compensation Committee. A Year of Vesting Service is a one-
year period of employment of a Participant as an employee of
the Company or an Affiliate, the computation of which shall
commence with the initial date of employment of the
Participant and terminate with the Participant's termination
of employment with the Company and all of its Affiliates.
Only a consecutive period of employment shall be considered,
provided however, that if a Participant terminates
employment and thereafter is re-employed within a period of
one year, the period of absence shall be counted towards a
Year of Vesting Service for purposes of the calculation of
vesting. Periods of Total Disability shall be included in
calculating Years of Vesting Service.
3.2 Forfeiture. Except as provided under Articles 5 and 6,
upon a Participant's termination of employment for any
reason other than death or Total Disability with the Company
and all of its Affiliates prior to the vesting of the
Participant under Section 3.1, above, the Participant's
entire benefit under the Plan shall be forfeited.
3.3 Death. Upon a Participant's death while employed by
the Company or any of its Affiliates or while Totally
Disabled, prior to becoming vested pursuant to Section 3.1,
the Participant's entire benefit under the Plan shall be
forfeited. Upon a Participant's death whether before or
after termination of employment with the Company and its
Affiliates, but after becoming vested pursuant to Section
3.1 and prior to the commencement of payment of benefits
under Section 4.1, a benefit shall be payable under the Plan
to the Participant's Beneficiary based upon the Adjusted
Target Value of the Participant as of the date of death.
The benefit shall be payable in equal installments over a
period of 60 months, commencing as of the first day of the
month following the Participant's death.
3.4 Total Disability. If a Participant terminates
employment by reason of Total Disability and thereafter
ceases to be Totally Disabled prior to becoming vested under
Section 3.1 and is not reemployed by the Company or its
Affiliates, the Participant shall forfeit any benefit under
the Plan.
4
BENEFITS
4.1 Commencement. A vested Participant upon attaining the
Participant's Retirement Date shall be entitled to commence
to receive as of the Commencement Date, a monthly retirement
benefit for life equal to the Actuarial Equivalent of
(a) the Target Value of the Participant if the Commencement
Date is the first day of the month following the Retirement
Date or (b) the Adjusted Target Value if the Commencement
Date is any time thereafter.
4.2 Optional Form of Benefit. A Participant may elect an
Actuarial Equivalent optional form of benefit, with the
approval of the Compensation Committee. Such optional form
may be any benefit payable over the life of a Participant
with or without a survivor benefit for a designated
Beneficiary of the Participant and with or without a payment
for a period certain (e.g., benefit for life with a 50%
survivor benefit for spouse or benefit for life with
payments for ten (10) years certain in the event of prior
death).
5
TERMINATION OF EMPLOYMENT WITHOUT CAUSE OR FOR GOOD
REASON
5.1 Minimum Benefit. In the event of a termination of a
Participant's employment with the Company and all Affiliates
(whether prior to, on or after the vesting of the
Participant under Section 3.1 above) (i) by the Company or
the applicable Affiliate without Cause or (ii) by the
Participant for Good Reason, notwithstanding any other
provision of the Plan to the contrary, a Participant shall
be deemed to have a vested Target Value of 75% of the
Participant's Target Value and such amount shall be paid by
the Company in a lump sum to the Participant within ten (10)
business days following the date of the termination of the
Participant's employment with the Company and Affiliates, in
satisfaction of any benefit the Participant or the
Participant's Beneficiary is otherwise entitled to under the
Plan, except for any additional benefit payable under
Section 5.4.
5.2 Termination of Employment for Cause. For purposes of
this Article 5, a termination of a Participant's employment
by the Company or an Affiliate for "Cause" shall mean
termination of the Participant's employment by the Company
for "Cause" as determined under an Employment Agreement of
the Participant, or if none, upon a good faith determination
by the board of directors of the Company, by written notice
to the Participant specifying the event relied upon for such
termination, due to the Participant's serious, willful
misconduct with respect to his duties of employment
(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
or any Affiliate 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 Participant.
5.3 Termination of Employment for Good Reason. For
purposes of this Article 5, a termination of a Participant's
employment by the Participant for "Good Reason" shall mean
termination of the Participant's employment by the
Participant due to "good reason" or "constructive
termination" as determined under an Employment Agreement of
the Participant, or if none, due to a reduction of the
Participant's aggregate base salary with the Company and
Affiliates, or a material change by the Company or
applicable Affiliate in the functions, duties or
responsibilities of the Participant's position which would
reduce the ranking or level, dignity, responsibility,
importance or scope of such position; or any relocation of
the Participant outside of the general Stamford, Connecticut
area, in each case above, without the written consent of the
Participant. The Participant shall provide the Company a
written notice which describes the circumstances being
relied on for the termination of employment for Good Reason
within ninety (90) days after the event giving rise to the
notice. The Company shall have thirty (30) days after
receipt of such notice to remedy the situation prior to the
termination of the Participant's employment for Good Reason.
5.4 Additional Benefit. In the event of a termination of
the Participant's employment resulting in the payment of a
benefit under Section 5.1 above, the Company shall calculate
the Actuarial Equivalent of the Participant's Target Value
payable as a lump sum as of the date of the termination of
the Participant's employment (the "Section 5.4 Actuarial
Equivalent Benefit") within five (5) business days following
the date of the termination of the Participant's employment.
If the Section 5.4 Actuarial Equivalent Benefit is greater
than the lump sum benefit payable under Section 5.1 above,
the difference between the Section 5.4 Actuarial Equivalent
Benefit and the lump sum benefit payable under Section 5.1
above shall be paid by the Company in a lump sum to the
Participant within ten (10) business days of the date of the
termination of the Participant's employment.
6
CHANGE OF CONTROL
6.1 Minimum Benefit. In the event of a Change in Control,
notwithstanding any other provision of the Plan to the
contrary, a Participant actively employed with the Company
or an Affiliate shall be deemed to have a vested Target
Value of 75% of the Participant's Target Value and such
amount (on an unreduced basis) shall be paid by the Company
in a lump sum to the Participant within ten (10) business
days of the Change In Control, in satisfaction of any
benefit the Participant or the Participant's Beneficiary is
otherwise entitled to under the Plan. Such payment shall be
subject to the provisions of Section 6.2.
6.2 Excise Tax Limitation. (i) In the event that any
payment or benefit received or to be received by the
Participant pursuant to the terms of the Plan (the "Plan
Payments") or of any other plan, arrangement or agreement of
the Company or any Affiliate ("Other Payments" and, together
with the Plan Payments, the "Payments") would, in the
opinion of independent tax counsel selected by the Company
and reasonably acceptable to the Participant ("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") or any successor provision, 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 Participant 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 Section 6.2, the
Participant shall be entitled, at any time by written notice
to the Company, to reduce the amount of any Payment other
wise payable to him (including, without limitation, by
waiving in whole or in part, any accelerated vesting on
options previously granted the Participant), and to select
from among the Payments those to be so reduced in order to
satisfy the limitations of this Section 6.2 and the Company
shall reduce the amount of such Payments accordingly. Any
stock options the vesting of which would have otherwise
accelerated but for the provisions of this Section 6.2 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 Participant'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, notwith
standing the good faith of the Participant and the
Company in applying the terms of this Section 6.2,
any Payments paid to the Participant or for his
benefit exceeded the limitation contained in this
Section 6.2, then the Participant 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 Section 6.2, 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 Section
6.2(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 Section 6.2(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, notwith
standing the good faith of the Participant and the
Company in applying the terms of this Section 6.2,
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 Plan Payments at such
times as set forth in Section 6.1 hereof; provided,
however, that if the Company in good faith believes
that any such payments shall be reduced under the
provisions of this Section 6.2, the Company shall pay
to the Participant 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 Participant 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 Section
6.2(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).
(v) If the Participant and the Company are parties
to any other agreement relating to excise tax
liability under Section 4999 of the Code, and the
provisions of such agreement conflict with the
provisions of this Section 6.2, the provisions of
such other agreement shall govern to the extent
inconsistent with this Section 6.2.
6.3 Change in Control. 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.
7
MISCELLANEOUS
7.1 Designation of Beneficiary. A Participant shall
designate on a form provided by the Compensation Committee a
beneficiary to receive any death benefit payable under the
terms of the Plan. In the event a Participant does not
designate a beneficiary or the beneficiary dies prior to the
death of the Participant, the beneficiary shall be deemed to
the Participant's estate, except in the event of an optional
form of benefit selected under Section 4.2 which provides
for a survivor benefit to be paid for the life of a
designated beneficiary, in which case no survivor benefit
shall be payable after the death of the designated
beneficiary.
7.2 Incapacity. If a person to whom a benefit is payable
is incompetent by reason of a physical or mental disability,
the Compensation Committee, in its sole discretion, may
cause the payments due to such person to made to another
person for his or her benefit without any responsibility of
the Compensation Committee to receipts of the application of
such payment. Such payment shall operate as a complete
discharge of the obligations of such person under the Plan.
7.3 Withholding Taxes. The Company may directly or
indirectly withhold from any payments under this Plan all
federal, state, city or other taxes that shall be required
pursuant to any law or governmental regulation.
8
CLAIMS
8.1 Claims Procedure. If any Participant or his or her
Beneficiary has a claim for benefits which is not being
paid, such claimant may file with the Compensation Committee
a written claim setting forth the amount and nature of the
claim, supporting facts, and the claimant's address. The
Compensation Committee shall notify each claimant of its
decision in writing by registered or certified mail within
sixty (60) days after its receipt of a claim or, under
special circumstances, within ninety (90) days after its
receipt of a claim. If a claim is denied, the written
notice of denial shall set forth the reasons for such
denial, refer to pertinent Plan provisions on which the
denial is based, describe any additional material or
information necessary for the claimant to realize the claim,
and explain the claim review procedure under the Plan.
8.2 Claims Review Procedure. A claimant whose claim has
been denied or such claimant's duly authorized representative may
file, within sixty (60) days after notice of such denial is
received by the claimant, a written request for review of such
claim by the Compensation Committee. If a request is so filed,
the Compensation Committee shall review the claim and notify
the claimant in writing of its decision within sixty (60) days
after receipt of such request. In special circumstances, the
Compensation Committee may extend for up to sixty (60) additional
days the deadline for its decision. The notice of the final
decision of the Compensation Committee shall include the
reasons for its decision and specific references to the Plan
provisions on which the decision is based. The decision of
the Compensation Committee shall be final and binding on all
parties.
9
ADMINISTRATION
9.1 Quorum. A majority of the members of the Compensation
Committee shall constitute a quorum for any meeting of such
committee held with respect to the Plan, and the acts of a
majority of the members of either such committee, whether at
a meeting or approved in writing without a meeting shall be
valid acts of such committee.
9.2 Duties. The Compensation Committee shall have the
power and duty to do all things necessary or convenient to
effect the intent and purposes of the Plan, whether or not
such powers and duties are specifically set forth herein,
and, by way of amplification and not limitation of the
foregoing, the Compensation Committee shall have the power
to:
(1) provide rules and regulations for the management,
operation and administration of the Plan, and, from time to
time, amend or supplement such rules and regulations;
(2) construe the Plan in its sole discretion to the fullest
extent permitted by law, which shall be final and conclusive
upon all parties hereto;
(3) correct any defect, supply any omission, or reconcile
any inconsistency in the Plan in such manner and to such
extent as it shall deem appropriate in its sole discretion
to carry the same into effect including amendments to the
Plan;
(4) establish actuarial principles and assumptions from
time to time for use with respect to the Plan, to the extent
not set forth in the Plan; and
(5) delegate all or any portion of the power to manage,
operate and administer the Plan to any person that it so
chooses.
9.3 Binding Authority. The acts and determinations of the
Compensation Committee or its duly authorized delegate
within the powers conferred by the Plan shall be final and
conclusive for all purposes of the Plan, and shall not be
subject to any appeal or review except as provided herein.
9.4 Exculpation. No member of the Compensation Committee
shall be directly or indirectly responsible or otherwise
liable for any action taken or any failure to take action as
a member of the Compensation Committee, except for such
action, default, exercise or failure to exercise resulting
from such member's gross negligence or willful misconduct.
No member of the Compensation Committee shall be liable in
any way for the acts or defaults of any other member of the
Compensation Committee, or any of its advisors, agents or
representatives.
9.5 Indemnification. The Company shall indemnify and hold
harmless each member of the Compensation Committee against
any and all expenses and liabilities arising out of his or
her own activities relating to the Compensation Committee,
except for expenses and liabilities arising out of a
member's gross negligence or willful misconduct.
9.6 Information. The Company shall furnish to the
Compensation Committee all information the Compensation
Committee may deem appropriate for the exercise of its
powers and duties in the administration of the Plan. The
Compensation Committee shall be entitled to rely on any
information provided by the Company without any
investigation thereof.
9.7 Self-Interest. No member of the Compensation Committee
may act, vote or otherwise influence a decision of such
committee relating to his or her benefits, if any, under the
Plan.
10
GENERAL PROVISIONS
10.1 Non-Property Interest. Any Participant who may have or
claim any interest in or right to any compensation, payment
or benefit payable hereunder shall rely solely upon the
unsecured promise of the Company. Nothing herein shall be
construed to give to or vest in the Participant or any other
person, now or hereafter, any right, title, interest or
claim in or to any specific asset, fund, reserve, account,
insurance or annuity policy or contract, or other property
of any kind whatsoever owned by the Company, or in which the
Company may have any right, title or interest, now or at any
time in the future.
10.2 Disclosure. The Compensation Committee shall make
available to each Participant for examination at the
principal office of the Company (or at such other location
as may be determined by the Compensation Committee), a copy
of the Plan and such of its records, or copies thereof, as
may pertain to any benefits of such Participant under the
Plan.
10.3 Other Rights. The Plan shall not affect or impair the
rights or obligations of the Company or a Participant under
any other contract, arrangement, or pension, profit sharing
or other compensation plan.
10.4 Amendment or Termination. Notwithstanding any other
provision of the Plan, the Plan may at any time be amended,
suspended or terminated by the Company, subject to prior
written approval of the Compensation Committee in its sole
discretion, except no such amendment, suspension or
termination shall (a) reduce a Participant's vested Target
Value (determined as of the date of such termination or
amendment), or (b) if a Participant has not forfeited his or
her benefit prior to the time of any such termination or
amendment, shall reduce a participant's Target Value below
the product of the Target Value, multiplied by a fraction,
with the numerator a Participant's Years of Participation
and the denominator a Participant's projected Years of
Participation to the Participant's Retirement Date (the
Participant's "Accrued Target Value"). In the latter case
the Participant's Accrued Target Value shall be deemed the
Participant's vested Target Value for the purpose of
calculating the Participant's benefit under the Plan.
Moreover, if the Compensation Committee has established any
additional or revised terms and conditions of participation
for any Participant, the Compensation Committee may, in its
sole discretion, add to, amend or terminate any such terms
and conditions upon prior written notice to the Participant,
except no such amendment or termination shall reduce a
Participant's vested Target Value or Accrued Target Value.
10.5 Severability. If any term or condition of the Plan
shall be invalid or unenforceable to any extent or in any
application, then the remainder of the Plan, with the
exception of such invalid or unenforceable provision, shall
not be affected thereby, and shall continue in effect and
application to its fullest extent.
10.6 No Employment Rights. Neither the establishment of the
Plan or any action of the Compensation Committee shall be
held or construed to confer upon any Participant the right
to a continuation of employment by the Company. Subject to
any applicable employment contract, the Company reserves the
right to dismiss or otherwise deal with any Participant to
the same extent as though the Plan had not been adopted.
10.7 Transferability of Rights. No Participant or spouse of
a Participant shall have any right to commute, encumber,
transfer or otherwise dispose of or alienate any present or
future right or expectancy which he may have at any time to
receive payments of benefits hereunder, which benefits and
the right thereto are expressly declared to be non-
assignable and nontransferable, except to the extent
required by law. Any attempt to transfer or assign a
benefit, or any rights granted hereunder, by a Participant
or the spouse of a Participant shall, in the sole discretion
of the Compensation Committee (after consideration of such
facts as it deems pertinent), be grounds for terminating any
rights of the Participant, his joint or contingent annuitant
or beneficiary, to any portion of the Plan benefits not
previously paid.
10.8 Governing Law. The Plan shall be construed,
administered, and enforced according to the laws of the
State of Connecticut, except to the extent that such laws
are preempted by the federal laws of the United States of
America.
IN WITNESS WHEREOF, the Company has caused this
Plan to be adopted as of the effective date first set forth
above.
CUC INTERNATIONAL INC.
By:
CUC INTERNATIONAL INC.
1996 Executive Retirement Plan
CUC INTERNATIONAL INC.
EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
Page
ARTICLE 1 PURPOSE AND DEFINITIONS 1
ARTICLE 2 ELIGIBILITY AND PARTICIPATION 3
2.1 Eligibility 3
2.2 Designation of Vesting Requirement,
Age for Commencement of Payment of
Benefits and Target Value 3
ARTICLE 3 VESTING AND FORFEITURES 4
3.1 Vesting 4
3.2 Forfeiture 4
3.3 Death 4
3.4 Total Disability 5
ARTICLE 4 BENEFITS 5
4.1 Commencement 5
4.2 Optional Form of Benefit 5
ARTICLE 5 TERMINATION OF EMPLOYMENT WITHOUT CAUSE
OR FOR GOOD REASON 6
5.1 Minimum Benefit 6
5.2 Termination of Employment for Cause 6
5.3 Termination of Employment for
Good Reason 6
5.4 Additional Benefit 7
ARTICLE 6 CHANGE OF CONTROL 7
6.1 Minimum Benefit 7
6.2 Excise Tax Limitation 8
6.3 Change in Control 11
ARTICLE 7 MISCELLANEOUS 11
7.1 Designation of Beneficiary 11
7.2 Incapacity 12
7.3 Withholding Taxes 12
ARTICLE 8 CLAIMS 12
8.1 Claims Procedure 12
8.2 Claims Review Procedure 12
ARTICLE 9 ADMINISTRATION 13
9.1 Quorum 13
9.2 Duties 13
9.3 Binding Authority 14
9.4 Exculpation 14
9.5 Indemnification 14
9.6 Information 14
9.7 Self-Interest 14
ARTICLE 10 GENERAL PROVISIONS 15
10.1 Non-Property Interest 15
10.2 Disclosure 15
10.3 Other Rights 15
10.4 Amendment or Termination 15
10.5 Severability 16
10.6 No Employment Rights 16
10.7 Transferability of Rights 16
10.8 Governing Law 17
8
AS ADOPTED ON JUNE 11, 1997
1997 STOCK OPTION PLAN OF
CUC INTERNATIONAL INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to key employees,
including officers and directors who are employees, of CUC
International Inc., a Delaware corporation (the "Company"),
and its present and future Subsidiaries, as defined in
Paragraph 16, and to offer an additional inducement in
obtaining the services of such individuals. The Plan
provides for the grant of "incentive stock options," within
the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and "non-qualified stock
options."
2. STOCK SUBJECT TO THE PLAN; LIMITATION ON OPTIONS GRANTED TO
ANY ONE OPTIONEE. Options may be granted under the Plan to
purchase in the aggregate not more than 10,000,000 shares of
Common Stock, $.01 par value per share, of the Company
("Common Stock"), which shares may, in the discretion of the
Board of Directors, consist either in whole or in part of
authorized but unissued shares of Common Stock or shares of
Common Stock held in the treasury of the Company. The
Company shall at all times during the term of the Plan
reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of
the Plan. Subject to the provision of Paragraph 12, any
shares subject to an option which for any reason expires, is
canceled or is terminated unexercised as to such shares
shall again become available for option under the Plan.
Notwithstanding anything else to the contrary which may be
set forth herein, no individual optionee shall be granted,
in any five-year period, options under and pursuant to the
Plan to purchase more than 4,500,000 shares of Common Stock.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a Committee (the "Committee") consisting of not less than
two members of the Board of Directors, each of whom shall be
a Non-Employee Director of the Company, within the meaning
of Rule 16b-3 or its successors under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and also
shall be an Outside Director of the Company, within the
meaning of Treasury Regulation Section 1.162-27(e)(3). A
majority of the members shall constitute a quorum, and the
acts of a majority of the members present at any meeting at
which a quorum is present, and any acts approved in writing
by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion: to
determine the individuals who shall receive options; the
times when they shall receive them; whether an incentive
and/or a non-qualified stock option shall be granted; the
number of shares to be subject to each option; the term of
each option; the date each option shall become exercisable;
whether an option shall be exercisable in whole, in part or
in installments, and if in installments, the number of
shares to be subject to each installment; the date each
installment shall become exercisable and the term of each
installment; to accelerate the date of exercise of any
installment; whether shares may be issued on exercise of an
option as partly paid, and, if so, the dates when future
installments of the exercise price shall become due and the
amounts of each installments; the exercise price; the form
of payment upon exercise; to require that the individual
remain employed in some capacity with the Company or its
Subsidiaries for a period of time from and after the date
the option is granted to him; the amount necessary to
satisfy the Company's withholding obligation; to restrict
the sale or other disposition of the shares of Common Stock
acquired upon the exercise of an option and to waive any
such restriction; to construe the respective option
agreements and the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to make all
other determinations necessary or advisable for
administering the Plan; and, with the consent of the
optionee, to cancel or modify an option, provided such
option as modified does not violate the terms of the Plan.
The determinations of the Committee on the matters referred
to in this Paragraph 3 shall be conclusive.
No member of the Committee shall be liable for anything
whatsoever in connection with the administration of the Plan
except such member's own willful misconduct. Under no
circumstances shall any member of the Committee be liable
for any act or omission of any other member of the
Committee. In the performance of its functions with respect
to the Plan, the Committee shall be entitled to rely upon
information and advice furnished by the Company's officers,
the Company's accountants, the Company's counsel and any
other party the Committee deems necessary and no member of
the Committee shall be liable for any action taken or not
taken in reliance upon any such advice.
4. ELIGIBILITY. The Committee may, consistent with the
purposes of the Plan, grant options from time to time,
within 10 years from the date of adoption of the Plan by the
Executive Committee of the Board of Directors, to key
employees (including officers and directors who are
employees) of the Company or any of its Subsidiaries and
covering such number of shares of Common Stock as it may
determine; provided, however, that the aggregate market
value (determined at the time the stock option is granted)
of the shares for which any eligible person may be granted
incentive stock options under the Plan or any other plan of
the Company, or of a Subsidiary of the Company, which are
exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000. Any option (or the
portion thereof) granted in excess of such amount shall be
treated as a non-qualified stock option.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be determined by the
Committee, but in no event shall such purchase price be less
than 100% of the fair market value of the Common Stock on
the date of grant; provided, however, that if, at the time
an option is granted, the optionee owns (or is deemed to
own) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of
any of its Subsidiaries, the exercise price shall not be
less than 110% of the fair market value of the Common Stock
subject to the option at the time of the granting of such
option. The fair market value of the Common Stock on any
day shall be (a) if the principal market for the Common
Stock is a national securities exchange, the closing sale
price of the Common Stock on such day as reported by such
exchange or on a consolidated tape reflecting transactions
on such exchange, (b) if the principal market for the Common
Stock is not a national securities exchange and the Common
Stock is quoted on the National Association of Securities
Dealers Automated Quotations System ("NASDAQ"), and (i) if
the Common Stock is quoted on the NASDAQ National Market
System, the closing sale price of the Common Stock on such
day, or (ii) if the Common Stock is not quoted on the NASDAQ
National Market System, the average between the highest bid
and the lowest asked prices for the Common Stock on such day
on NASDAQ, or (c) if the principal market for the Common
Stock is not a national securities exchange and the Common
Stock is not quoted on NASDAQ, the average between the
highest bid and lowest asked prices for the Common Stock on
such day as reported by National Quotation Bureau,
Incorporated; provided that if clauses (a), (b) and (c) of
this Paragraph are all inapplicable, or if no trades have
been made or no quotes are available for such day, the fair
market value of the Common Stock shall be determined by the
Committee by any method consistent with applicable
regulations adopted by the Treasury Department relating to
stock options. The determination of the Committee shall be
conclusive in determining the fair market value of the
stock.
6. TERM OF OPTION. The term of each option granted pursuant to
the Plan shall be such term as is established by the
Committee, in its sole discretion, at the time such option
is granted; provided, however, that the term of each
incentive stock option granted pursuant to the Plan shall be
for a period not exceeding 10 years from the date of
granting thereof, and further, provided, that if, at the
time an option is granted, the optionee owns (or is deemed
to own) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, or of
any of its Subsidiaries, the term of the incentive stock
option shall be for a period not exceeding five years.
Options shall be subject to earlier termination as
hereinafter provided.
7. EXERCISE OF OPTION. An option (or any part or installment
thereof) shall be exercised by giving written notice to the
Company at its principal office (at present 707 Summer
Street, Stamford, Connecticut 06901), stating whether an
incentive stock option or a non-qualified stock option is
being exercised, specifying the number of shares as to which
such option is being exercised and accompanied by payment in
full of the aggregate exercise price therefor (or the amount
due on exercise if the Stock Option Contract permits
installment payments) (i) in cash or by certified check,
(ii) with previously acquired shares of Common Stock having
an aggregate fair market value, on the date of exercise,
equal to the aggregate exercise price of all options being
exercised, (iii), if approved by the Committee, by
requesting the Company withhold from the shares of Common
Stock issuable upon exercise of such options that number of
shares which have an aggregate fair market value, on the
date of exercise, equal to the aggregate exercise price of
all or any portion of the options being exercised, or (iv)
any combination thereof.
The Company shall have the right to deduct and withhold from
any cash otherwise payable to an optionee, or require that
an optionee make arrangements satisfactory to the Company
for payment of (including, without limitation, by
withholding shares of Common Stock otherwise issuable upon
exercise of options), such amounts as the Company shall
determine for the purpose of satisfying its liability to
withhold Federal, state or local income or FICA taxes
incurred by reason of the grant or exercise of an option.
Certificates representing the shares purchased shall be
issued as promptly as practicable, provided that the Company
may postpone issuing certificates for such shares for such
time as the Company, in its sole discretion, may deem
necessary or desirable in order to enable it to comply with
any requirements of the Securities Act of 1933, as amended
("Securities Act"), the 1934 Act, any Rules or Regulations
of the Securities and Exchange Commission promulgated under
either of the foregoing acts, the listing requirements of
any securities exchange on which the Company's Common Stock
may now or hereafter be listed, or any applicable laws of
any jurisdiction relating to the authorization, issuance or
sale of securities. With respect to persons subject to
Section 16 of the 1934 Act, the Company reserves the right
to defer distribution of share certificates issuable upon
exercise of an option by such person until at least six
months have elapsed from the date of grant of the option.
The holder of an option shall not have the rights of a
stockholder with respect to the shares covered by his option
until the date of issuance of a stock certificate to him for
such shares; provided, however, that until such stock
certificate is issued, any option holder using previously
acquired shares in payment of an option exercise price shall
have the rights of a shareholder with respect to such
previously acquired shares. In no case may a fraction of a
share be purchased or issued under the Plan.
8. TERMINATION OF EMPLOYMENT. Any optionee whose employment or
relationship with the Company (and its Subsidiaries) has
terminated for any reason other than death or permanent and
total disability (as defined in Section 22(e) (3) of the
Code) may exercise his option, to the extent exercisable on
the date of such termination, at any time within four months
after the date of termination, unless otherwise permitted by
the Committee, but in no event after the expiration of the
term of the option. Options granted to an employee under
the Plan shall not be affected by any changes in the status
of an optionee so long as he continues to be employed in
some capacity with the Company, or any of its Subsidiaries,
or a Constituent Corporation, as defined in Paragraph 16,
unless the Committee otherwise permits.
Nothing in the Plan or in any option granted under the Plan
shall confer on any individual any right to continue in the
employ of the Company or any of its Subsidiaries, or
interfere in any way with the right of the Company or any of
its Subsidiaries to terminate the employee's employment at
any time for any reason whatsoever without liability to the
Company or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies
while he is employed by the Company or any of its
Subsidiaries, or within three months after the termination
of his employment, or if the optionee's employment has
terminated by reason of a permanent and total disability (as
defined in Section 22(e)(3) of the Code), options granted
under this Plan shall become immediately exercisable by his
executor, administrator or other person at the time entitled
by law to his rights under the option.
10. STOCK OPTION CONTRACTS. Each option shall be evidenced by
an appropriate Stock Option Contract, and shall contain such
terms and conditions not inconsistent herewith as may be
determined by the Committee, and which may provide, among
other things, (a) that in the event of the exercise of such
option, unless the shares of Common Stock received upon such
exercise shall have been registered under an effective
registration statement under the Securities Act, such shares
will be acquired for investment and not with a view to
distribution thereof, and that such shares may not be sold
except in compliance with the applicable provisions of the
Securities Act, and (b) that in the event of any disposition
of the shares of Common Stock acquired upon the exercise of
an incentive stock option within two years from the date of
grant of the option or one year from the date of issuance of
such shares to him (a "Disqualifying Disposition") the
optionee will notify the Company thereof in writing within
30 days after such disposition, pay the Company, on demand,
in cash an amount necessary to satisfy its obligation, if
any, to withhold any Federal, state or local income taxes or
other taxes by reason of such Disqualifying Disposition and
provide the Company, on demand, with such information as the
Company shall reasonably request to determine such
obligation.
11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. The number and
kind of shares reserved for issuance hereunder may be
equitably adjusted, in the discretion of the Committee, in
the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
extraordinary dividend, split-up, spin-off, combination,
stock repurchase, exchange of shares, warrants or rights
offering to purchase stock at a price substantially below
fair market value or other similar corporate event affecting
the stock, in order to preserve the benefits intended to be
made available under the Plan. In the event of any of the
foregoing, the number and kind of shares subject to any
outstanding option granted pursuant to the Plan and the
exercise price of any such option shall be equitably
adjusted (including by payment of cash to the holder of such
option) in the discretion of the Committee in order to
preserve the benefits or potential benefits intended to be
made available to the holder of an option granted pursuant
to the Plan. The determination of the Committee as to what
adjustments shall be made, and the extent thereof, shall be
final. Unless otherwise determined by the Committee, such
adjustments shall be subject to the same vesting schedule
and restrictions to which the underlying option is subject.
No fractional shares of Company Stock shall be reserved or
authorized or made subject to any outstanding option by any
such adjustment.
12. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Executive Committee of the Board of Directors
on April 22, 1997. No stock options may be granted under
the Plan after April 22, 2007. The Board of Directors,
without further approval of the Company's stockholders, may
at any time suspend or terminate the Plan, in whole or in
part, or amend it from time to time in such respects as it
may deem advisable, including, without limitation, in order
that incentive stock options granted hereunder meet the
requirements for "incentive stock options" under the Code,
or any comparable provisions thereafter enacted and conform
to any change in applicable law or to regulations or rulings
of administrative agencies. No termination, suspension or
amendment of the Plan shall, without the consent of the
holder of an existing option affected thereby, adversely
affect his rights under such option.
13. TRANSFERABILITY OF OPTIONS. Options granted under the Plan
shall be transferable by the optionee only pursuant to the
following methods, and, with respect to incentive stock
options, only to the extent permitted under the Code for
options to qualify as incentive stock options: by will or
the laws of descent and distribution; pursuant to a domestic
relations order, as defined in the Code or Title I of the
Employee Retirement Income Security Act, or the rules
thereunder; or as a gift to family members of the optionee,
trusts for the benefit of family members of the optionee or
charities or other not-for-profit organizations. Except to
the extent provided in this Paragraph, Paragraph 9 and
Paragraph 14, options may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by
operation of law or otherwise), shall not be subject to
execution, attachment or similar process, and may be
exercised during the lifetime of the holder thereof only by
such holder.
14. DESIGNATION OF BENEFICIARY. The optionee may designate in
writing on forms prescribed by and filed with the Committee
prior to the optionee's death a beneficiary or beneficiaries
to receive all or part of the options to be delivered to the
optionee under this Plan in the event of the death of the
optionee at any time on forms prescribed by and filed with
the Committee. In the event of the optionee's death, the
options to be delivered to the optionee under this Plan with
respect to which a designation of a beneficiary has been
made (to the extent such designation is valid and
enforceable under applicable law) shall be delivered, in
accordance with the Plan, to the designated beneficiary or
beneficiaries. Any options to be delivered as to which a
designation has not been made shall be delivered to the
optionee's estate. If there is any question as to the legal
right of any beneficiary to receive delivery of the Plan
pursuant to the Plan, the options (and shares issuable upon
the exercise thereof) may be delivered in the sole
discretion of the Committee to the estate of the optionee,
in which event neither the Company nor any Subsidiary shall
have any further liability to anyone with respect to such
options.
15. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the
contrary notwithstanding, the Board of Directors may,
without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation or
assume the prior options of such Constituent Corporation.
16. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the
same definition as "subsidiary corporation" in Section
424(f) of the Code.
(b) Parent. The term "Parent" shall have the same
definition as "parent corporation" in Section 424(e) of
the Code.
(c) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages
with the Company or any of its Subsidiaries in a
transaction to which Section 424(a) of the Code applies
(or would apply if the option assumed or substituted
were an incentive stock option), or any Parent or any
Subsidiary of such corporation.
17. STOCKHOLDERS' APPROVAL. The Plan shall be subject to
approval by a majority of the Company's outstanding stock
entitled to vote thereon at the next annual or special
meeting of its stockholders to be held to consider such
approval and no options granted hereunder may be exercised
prior to such approval, provided that the date of grant of
any options granted hereunder shall be determined as if the
Plan had not been subject to such approval.
18. GOVERNING LAW. The Plan and all rights hereunder shall be
construed in accordance with and governed by the internal
laws of the State of Delaware.
19. COMPLIANCE WITH RULE 16b-3. With respect to optionees
subject to Section 16 of the 1934 Act, transactions under
the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934
Act. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed
advisable by the Committee.
(3)
, 199_
Dear (name):
I am pleased to advise you that the Compensation Committee (the
"Committee") of the Board of Directors of CUC International Inc.
(the "Corporation") on ___________, ____ authorized the granting
to you of a non-statutory option to purchase ________ shares of
common stock, $.01 par value, of the Corporation (the "Common
Stock") at a price of $_____ per share (the "Exercise Price"),
which the Committee believes to be the fair market value on that
date. Your option has been granted under the Company's 1997
Stock Option Plan (the "Plan").
Terms not defined herein shall have the meaning set forth in the
Plan.
Your option may be exercised under the following terms:
(a) This option shall not be transferable except: by will or the
laws of descent and distribution; pursuant to a domestic
relations order, as defined in the Internal Revenue Code of
1986, as amended (the "Code") or Title I of the Employee
Retirement Security Act or the rules thereunder; or as a
gift to your family members, trusts for the benefit of your
family members or charities or other not-for-profit
organizations.
(b) Subject to the provisions of paragraphs (e), (f) and (g)
hereof, this option may be exercisable by you as follows:
You may purchase ____________ of the Common Stock for which
options are herein granted on or after February 1, ____ and
an additional _____________ on or after each successive
February 1.
Your right to exercise this option shall be cumulative. The
Board of Directors of the Corporation may at any time
accelerate the vesting of this option. This option shall
expire on the tenth anniversary of the date of grant.
(c) If required by the Corporation, prior to the delivery to you
of a certificate or certificates representing the shares of
Common Stock purchased by you upon the exercise of this
option, you shall have deposited with the Corporation a non-
disposition letter (restricting disposition by you of the
shares of Common Stock) in form satisfactory to counsel for
the Corporation.
(d) In the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
extraordinary dividend, split-up, spin-off, combination,
stock repurchase, exchange of shares, warrants or rights
offering to purchase stock at a price substantially below
fair market value or other similar corporate event affecting
the Common Stock, the number and kind of shares subject to
this option and the Exercise Price shall be equitably
adjusted (including by payment of cash to you) in the
discretion of the Committee in order to preserve the
benefits or potential benefits intended to be made available
to you under this option. The determination of the
Committee as to what adjustments shall be made, and the
extent thereof, shall be final. Unless otherwise determined
by the Committee, such adjustments shall be subject to the
same vesting schedule and restrictions to which this option
is subject. No fractional shares of Common Stock shall be
reserved or authorized or made subject to this option by any
such adjustment.
(e) Notwithstanding anything herein to the contrary, if you die
while in the employ of the Corporation or any of its
subsidiaries or if you die within a period of three (3)
months after your employment has terminated or if your
employment is terminated by reason of total and permanent
disability (as defined in Section 22(e)(3) of the Code),
this option shall become immediately exercisable in full
and, in the case of your death, your estate shall have the
right to exercise your rights hereunder.
(f) Notwithstanding anything herein to the contrary, in the
event your employment or relationship with the Corporation
or any of its subsidiaries is terminated for any reason
other than death or total and permanent disability (as
defined in Section 22(e)(3) of the Code,) you shall be
entitled to exercise your options hereunder, to the extent
exercisable on the date of termination, for a period of four
(4) months from such termination, but in no event after the
expiration of the term of the option.
(g) You may pay for shares purchased pursuant hereto as follows:
(i) You may pay the Exercise Price per share in cash or
check at the time of exercise;
(ii) You may pay the Exercise Price by remitting to the
Corporation in cash or by check an amount equal to or
greater than the product of (a) the par value of the
Corporation's Common Stock and (b) the number of shares
of Common Stock acquired pursuant to the exercise of
this option (such amount is hereinafter referred to as
the "Minimum Payment") and by executing a promissory
note for the balance equal to (A) the product of (i)
the Exercise Price and (ii) the number of shares of
Common Stock acquired pursuant to the exercise of this
option less (B) the Minimum Payment (such balance is
hereinafter referred to as the "Principal Amount").
Pursuant to the terms of the promissory note, interest
will be charged per year at the lowest interest rate in
effect at the time of exercise, which will prevent any
imputation of income under Sections 483 or 7872 of the
Code. Five years from the date of exercise, the
Principal Amount plus interest compounded annually will
be due. In the discretion of the Corporation's Board
of Directors, the Corporation may demand repayment of
the Principal Amount plus accrued interest upon a
termination of your employment with the Corporation or
any of its subsidiaries. With notice of your exercise
of your option, you must give notice of your election
to use the loan arrangement described above. In the
discretion of the Corporation's Board of Directors, you
may be required to execute a pledge agreement. The
Corporation will retain possession of certificates
representing shares of Common Stock acquired pursuant
to the exercise of this option until the loan is repaid
in full;
(iii) Provided that at the time of exercise, Common
Stock is publicly traded and quoted regularly in the
Wall Street Journal, you may pay for the shares of
Common Stock purchased pursuant hereto by delivery of
already-owned shares of Common Stock owned by you free
and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued
(a) if listed on a national securities exchange, at the
average closing price for the ten (10) trading days
immediately preceding the date of exercise, or (b)
otherwise at the average of the closing bid and ask
quotations published in the Wall Street Journal for the
ten (10) trading days immediately preceding the date of
exercise (as so valued, the "Fair Market Value");
(iv) If approved by the Committee, you may request that
the Corporation withhold from the number of shares of
Common Stock which you would otherwise acquire upon
exercise of your option and payment of the Exercise
Price therefor, that number of shares of Common Stock
which have an aggregate Fair Market Value equal to the
aggregate Exercise Price of all or any portion of the
options which you are then exercising; or
(v) You may pay with any other legal consideration
that may be acceptable to the Committee in its sole
discretion at the time of exercise.
When you wish to exercise your stock option in whole or in part,
please refer to the provisions of this letter and correspond in
writing with the Secretary of the Corporation. This is not an
incentive stock option under Section 422A of the Code.
Very truly yours,
E. Kirk Shelton
President and Chief Operating Officer
EKS:kg
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_ _ _ SETTLEMENT AGREEMENT (this "Agreement"),
made as of May 27, 1997, by and among Janice G. Davidson;
Robert M. Davidson; the Janice G. Davidson Charitable
Remainder Unitrust; the Robert M. Davidson Charitable
Remainder Unitrust; the Elizabeth A. Davidson Irrevocable
Trust; the Emilie A. Davidson Irrevocable Trust; the John R.
Davidson Irrevocable Trust; the Emilie A. Davidson
Charitable Remainder Unitrust; and the John R. Davidson
Charitable Remainder Unitrust (collectively, the
"Davidsons") and CUC International Inc., a Delaware
corporation ("CUC").
WHEREAS, CUC, Stealth Acquisition I Corp. (as
assignee of Stealth Acquisition II Corp.), a California
corporation and a wholly owned subsidiary of CUC, and
Davidson & Associates, Inc., a California corporation
("Davidson"), entered into an Agreement and Plan of Merger,
dated as of February 19, 1996 (the "Merger Agreement"),
which provided, among other things, for CUC's acquisition of
all of the outstanding capital stock of Davidson through the
merger (the "Merger") of Stealth Acquisition I Corp. into
Davidson, with Davidson as the surviving entity; and
WHEREAS, the Merger was consummated on July 24,
1996 and, as a result, Davidson became a wholly-owned
subsidiary of CUC; and
WHEREAS, in connection with the Merger, on
July 24, 1996, CUC and certain of the Davidsons entered
into a Registration Rights Agreement (the "Registration
Rights Agreement") pertaining to the sale by the Davidsons
named on the signature pages of the Registration Rights
Agreement and certain of their successors-in-interest of
the CUC common stock, $.01 par value ("CUC Common Stock"),
received by such Davidsons in the Merger; and
WHEREAS, in connection with the Merger, on
July 24, 1996, CUC also entered into employment agreements
(collectively, the "Original Employment Agreements") and
Noncompetition Agreements (collectively, the
"Noncompetition Agreements") with each of Janice G.
Davidson and Robert M. Davidson; and
WHEREAS, Janice G. Davidson and Robert M.
Davidson ceased to be full-time employees of CUC on
January 19, 1997; and
WHEREAS, Janice G. Davidson and Robert M.
Davidson have informed CUC that they believe that they
individually, and the other Davidsons, have certain claims
against CUC in connection with certain matters set forth
in the Notice of Arbitration, dated March 7, 1997, sent to
CUC by Jones, Day, Reavis & Pogue ("Jones Day"), attorneys
for the Davidsons (the "Notice"), and matters related to
Robert M. Davidson's and Janice G. Davidson's employment
and responsibilities while CUC employees (collectively,
the "Employment"); and
WHEREAS, CUC vigorously denies all wrongdoing; and
WHEREAS, CUC and the Davidsons desire that
disputes, controversies and claims between the Davidsons,
on the one hand, and CUC and/or its affiliates
(collectively, the "CUC Affiliates"), on the other hand,
as to matters set forth in the Notice or relating to the
Employment be permanently and irrevocably released and
settled to avoid the expense, inconvenience and disruption of any
litigation involving CUC, the CUC Affiliates and/or the
Davidsons;
NOW, THEREFORE, in consideration of the premises
and the mutual covenants contained herein and for other
good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties
hereto, intending to be legally bound, hereby agree as
follows:
1. EFFECTIVENESS OF THIS AGREEMENT.
(a) Obligations of CUC.
The obligations of CUC under this Agreement are
conditioned upon the representations and warranties of the
Davidsons made herein being true and correct on the date
hereof.
(b) Obligations of the Davidsons.
The obligations of the Davidsons under this
Agreement are conditioned upon the representations and
warranties of CUC made herein being true and correct on
the date hereof.
2. PAYMENT AND GRANT OF OPTIONS TO CERTAIN OF
THE DAVIDSONS.
In full settlement, satisfaction and compromise of
the claims asserted by any of the Davidsons or any
individual, corporation, limited liability company,
partnership, association, trust or any other entity or
organization, including any public or governmental authority
or political subdivision or any agency or instrumentality
thereof (each, a "Person") in respect of which any of the
Davidsons, directly, or indirectly through one or more
intermediaries, has the right to exercise or exercises
"control" (within the meaning of Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (each, a "Davidson Control Person") against CUC
and/or any one or more of the CUC Affiliates relating to the
matters set forth in the Notice or relating to the
Employment, and in consideration of the covenant not to
sue set forth in Section 6 of this Agreement and the
other provisions of this Agreement, CUC agrees to:
(a) and does hereby confirm the prior grant of
800,000 options to each of Janice G. Davidson and Robert M. Davidson
(for an aggregate of 1.6 million options), to purchase shares of
CUC Common Stock (as contemplated in the Option Letters to each
attached hereto as Exhibit A (the "New Option Letters")); and
(b) pay to Janice G. Davidson and Robert M.
Davidson, on the date hereof, in immediately available funds, to an
account (or accounts) designated in writing by Janice G.
Davidson and Robert M. Davidson on the date hereof, (i)
performance bonuses for the 1996 fiscal year in the sums
of $150,000 and $250,000, respectively, and (ii) an
amount, not to exceed $200,000 in the aggregate, in
respect of the Davidsons' reasonable legal fees and
expenses incurred in connection with the matters referred
to in the Notice, the Employment and this Agreement (upon
receipt of reasonable evidence of the incurrence thereof).
3. AMENDMENT OF OTHER AGREEMENTS; WAIVERS.
(a) Noncompetition Agreements.
Janice G. Davidson, Robert M. Davidson and CUC
agree that Sections 2(a), (b), and (c) and Section 6 of
each of the Noncompetition Agreements are hereby deleted
in their entirety and replaced with the following:
2. Restricted Activities
(a) (i) For the period
commencing on July 24, 1996 and ending on
July 24, 2000 (the "Restricted Period"),
the Executive, without prior express
written approval by the Board of Directors
of the Company (the "Board of Directors"),
will not (A) engage in competition with,
(B) directly or indirectly own or hold a
proprietary interest in (except as provided
in Section 2(a)(ii) below) or (C) be employed by, or
consult with or receive compensation from, any
party which competes, in any way or manner
with the Davidson Business (as defined below).
The "Davidson Business" shall mean the
business of Davidson or any of its
subsidiaries as conducted on July 24, 1996.
The Executive acknowledges that the Davidson
Business is conducted nationally and
internationally and agrees that the provisions
in the foregoing sentence shall operate
throughout the United States and the world.
(ii) Notwithstanding the
provisions of Section 2(a)(i)(B), from and
after July 24, 1998 until the end of the
Restricted Period, the Executive may directly
or indirectly own or hold a proprietary
interest in a party which competes with the
Davidson Business (a "Competitor"); provided
that such direct or indirect proprietary
interest, when added to any proprietary
interest held in such Competitor at any time
directly or indirectly by (x) the Executive's
spouse; or (y) any trust of which the
Executive or the Executive's spouse is a
trustee or beneficiary, and which trust is a
signatory to the Settlement Agreement, dated
as of May 27, 1997, by and among CUC, the
Executive and the other parties named therein
(the "Settlement Agreement") and only during
such time as the Executive or such spouse is
such a trustee, and not at any other time
(such combined proprietary interest
hereinafter called "Combined Proprietary
Interest") does not at any time in aggregate
exceed the lesser of: (x) 25% of the total
equity of such Competitor or (y) such
percentage as is 1% less than the percentage
of total equity of the Competitor which would
allow the holders of the Combined Proprietary
Interest to exercise control over or with
respect to such Competitor (including, without
limitation, control which arises from the
ability of the holder of such equity to block
any action or actions of the Competitor
because of super-majority or similar
provisions under applicable law or which are
contained in the Competitor's constituent
documents or agreements with or among the
holders of any of the Competitor's common or
preferred stock or other equity).
(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 the Davidson
Business or discuss with any employee of the
Company or any of its affiliates information
or operation of any business intended to
compete with the Davidson Business.
(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 (other
than as contemplated in Section 8(a) of the
Settlement Agreement). 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.
Section 6:
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:
The Davidson Group
Union Bank Tower, Suite 960
Del Amo Financial Center
21515 Hawthorne Boulevard
Torrance, CA 90503
Telephone: (310) 540-2740
Facsimile: (310) 540-2804
with a copy to:
Jones, Day, Reavis & Pogue
555 West Fifth Street
Suite 4600
Los Angeles, CA 90013-1025
Attention: Bertram R. Zweig, Esq.
Gerald W. Palmer, Esq.
Telephone: (213) 489-3939
Facsimile: (213) 243-2539
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.
(b) Registration Rights Agreement.
CUC and the Davidsons agree that Sections 2(a)(i);
2(a)(vii); 2(d) and 4(b) of the Registration Rights Agreement
are hereby amended to read as follows:
Section 2(a)(i):
At any time, and from time to time,
commencing with the Effective Date and ending
six years thereafter (the "Effective Period"),
upon the written request of any Qualified
Holder(s) (as hereinafter defined) requesting
that Parent effect the registration under the
Securities Act of 1933, as amended (the
"Securities Act"), of Registrable Securities
(as hereinafter defined), which, in the
aggregate, constitute at least 3,000,000 1
shares of Parent Common Stock for each
registration hereunder, Parent shall use its
best efforts to register under the Securities
Act (a "Demand Registration"), as
expeditiously as may be practicable, the
Registrable Securities which Parent has been
requested to register, all to the extent
requisite to permit the disposition of such
Registrable Securities in accordance with the
methods intended by the sellers thereof;
provided that no Qualified Holder(s) shall be
permitted to exercise a Demand Registration
within three months of the effective date of
any registration statement for equity
securities of Parent (other than on Form S-4
or Form S-8 or any successor or similar
form). An exercise of a Demand Registration
right will not count as the use of such right
unless the registration statement to which it
relates is declared effective under the
Securities Act and remains effective for a
period (not less than 30 days) sufficient to
allow for the orderly sale of the Registrable
Securities covered thereby, except that such
exercise shall count if such registration
statement is withdrawn because (a) the
Qualified Holders, for any reason whatsoever,
determine not to proceed with such
registration and (b) the Qualified Holders do
not reimburse Parent for all Registration
Expenses and Counsel Fees (each as hereinafter
defined) incurred in connection with the
preparation and filing of such registration
statement. Qualified Holders exercising a
Demand Registration Right after
May 27, 1997, and prior to the end of the two
year period following the Merger shall
deliver, together with the request in respect
of such Demand Registration, an opinion,
rendered by Jones, Day, Reavis & Pogue,
substantially in the form attached as Exhibit
C to the Settlement Agreement dated
as of May 27, 1997 among Parent and the other
parties named on the signature pages thereof.
Such opinion shall be confirmed by such
counsel in writing at the closing of any sale
by the Davidsons pursuant to a Demand
Registration.
Section 2(a)(vii):
It is hereby further agreed that
with respect to any Demand Registration
requested pursuant to this Section 2(a),
Parent may defer the filing or effectiveness
of any registration statement related thereto
for a reasonable period of time (not to exceed
45 days after such request) if (A) Parent and
a proposed underwriter are, at such time,
working on an underwritten public offering of
Parent Common Stock ("Parent Common Stock
Offering") and Parent is advised by such
underwriter or its managing underwriter(s)
that such Parent Common Stock Offering would
in its or their opinion be adversely affected
by such filing or (B) Parent determines, in
its good faith and reasonable judgment, that
any such filing or the offering of any
Registrable Securities would materially
impede, delay or interfere with any material
proposed financing, offer or sale of
securities, acquisition, corporate reorganization
or other significant transaction involving Parent
(each, a "Material Transaction"); provided that, Parent
shall not defer the filing or effectiveness of
any registration statement requested pursuant
to this Section 2(a) on or prior to May 27, 1998
(1) if the underwritten public offering
referred to in clause (A) or the Material
Transaction involves the registration of
Parent Common Stock for Parent's own account
or any other financing transaction for
Parent's own account; (2) if the underwritten
public offering referred to in Clause (A) or
the Material Transaction involves gross
proceeds of (in the case of an underwritten
public offering) or a purchase price (in the
case of any Material Transaction) less than
$250 million; or (3) in the case of any
Material Transaction involving an offer or
sale of securities or an acquisition by Parent
or any of Parent's subsidiaries, such offer,
sale or acquisition has not been proposed by
Parent at the time such Demand Registration is
requested; provided further, however, that with respect
to clause (B), Parent gives the Qualified
Holders written notice of such determination;
and provided further, however, with respect to
both clauses (A) and (B), Parent shall not be
entitled to postpone such filing or
effectiveness if, within the preceding 12
months, it has effected two postponements
pursuant to this paragraph (vii) and,
following such postponements, the Registrable
Securities to be sold pursuant to the
postponed registration statements were not
sold (for any reason). Parent agrees that the
Effective Period shall be extended by a period
which is not less than the aggregate number of
days included in the periods during which
Parent deferred the filing or effectiveness of
a registration statement as provided above
(each, a "Suspension Period"). A Suspension
Period shall commence on and include the date
on which Parent provides such written notice
and shall end on the date when the affected
registration statement is filed or declared
effective.
Section 2(d):
Registration Expenses. Except as otherwise
provided in Section 2(b)(ii) or in this Section 2(d),
whether or not any registration statement
prepared and filed pursuant to this Section 2
is declared effective by the Commission
(except where a Demand Registration is terminated,
withdrawn or abandoned at the written request of the
Majority Qualified Holders), Parent shall pay
all expenses incident to Parent's performance
of or compliance with the registration
requirements of this Agreement, including,
without limitation, the following: (A) all
Commission and any NYSE registration and
filing fees and expenses; (B) any and all
expenses incident to its performance of, or
compliance with, this Agreement, including,
without limitation, any allocation of salaries
and expenses of Parent personnel or other
general overhead expenses of Parent, or other
expenses for the preparation of historical and
pro forma financial statements or other data
normally prepared by Parent in the ordinary
course of its business; (C) all listing,
transfer and/or exchange agent and registrar
fees; (D) fees and expenses in connection with
the qualification of the Registrable
Securities under securities or "blue sky" laws
including reasonable fees and disbursements of
counsel for the underwriters in connection
therewith; (E) printing expenses; (F)
messenger and delivery expenses; and (G) fees
and out-of-pocket expenses of counsel for
Parent and its independent certified public
accountants (including the expenses of any
audit, review and/or "cold comfort" letters)
and other persons, including special experts,
retained by Parent (collectively, clause (A)
through (G), "Registration Expenses"); provided,
however, that Parent shall not be required to
pay, and the Qualified Holders shall pay, (1)
50% of all Registration Expenses (other than
those described in clause (B) above) for all
Demand Registrations after the third Demand
Registration and (2) all fees and out-of-
pocket expenses of counsel selected by the
Qualified Holders, any fees or disbursements
of Managing Underwriters and their counsel,
participating underwriters and brokers-dealers
or any discounts, commissions or fees of
underwriters, selling brokers and dealers
relating to the distribution of the
Registrable Securities; provided further,
however, that in respect of the second Demand
Registration, Parent shall pay the reasonable
fees and out-of-pocket expenses of counsel
selected by the Qualified Holders and the fees
and disbursements of Managing Underwriters and
their counsel (collectively, "Counsel Fees"),
up to an aggregate of $300,000. If the amount
of such Counsel Fees incurred in respect of
the second Demand Registration is less than
$300,000, Parent shall, in respect of the
third Demand Registration, pay Counsel Fees in
an amount equal to the difference between
$300,000 and the Counsel Fees incurred in
respect of the second Demand Registration.
Section 4(b):
If to the Shareholders, to:
The Davidson Group
Union Bank Tower, Suite 960
Del Amo Financial Center
21515 Hawthorne Boulevard
Torrance, CA 90503
Attention: Janice G. Davidson
and
Robert M. Davidson
(310) 540-2740 (phone)
(310) 540-2804 (fax)
with a copy to:
Jones, Day, Reavis & Pogue
555 West Fifth Street
Suite 4600
Los Angeles, CA 90013-1025
Attention: Bertram R. Zweig, Esq.
Gerald W. Palmer, Esq.
(213) 489-3939 (phone)
(213) 243-2539 (fax)
(c) Merger Agreement - Election to Parent Board;
Resignation.
The Davidsons hereby waive any and all rights they may
have pursuant to the provisions of Section 4.21 of the Merger
Agreement and acknowledge that, from and after the date hereof,
CUC shall not have any further obligations thereunder. Each of
Janice G. Davidson and Robert M. Davidson is executing and delivering
to CUC, on the date hereof, a resignation from the CUC Board of Directors
and the Boards of Directors of all CUC Affiliates on which they
serve, substantially in the form attached hereto as Exhibit B.
(d) Continuity of Interest Certificate - Holding
Period.
With respect to (x) each Sale (as defined in the
Certificate referred to below) within a two-year period following
the Merger pursuant to a Demand Registration Right exercised
pursuant to the Registration Rights Agreement and (y) each
purchase of CUC Common Stock pursuant to Section 4 hereof within
a two-year period following the Merger, CUC hereby waives the
covenant, set forth in Paragraph 1(e) of the Continuity of Interest
Certificate executed on March 21, 1996 by certain of the Davidsons
in connection with the Merger (the "Certificate"), that the Davidsons
not sell CUC Common Stock prior to the expiration of the time period
contained in such Paragraph 1(e) of the Certificate; provided that
such waiver is conditioned upon CUC's receipt in respect of each
such Demand Registration or purchase, as the case may be, of a manually
signed copy of the opinion of Jones, Day, Reavis & Pogue required to be
delivered in connection with the exercise of such Demand Registration or
purchase, pursuant to the Registration Rights Agreement or this
Agreement, respectively.
(e) Employment Agreements; Previously Awarded Stock
Options.
Each of Janice G. Davidson and Robert M. Davidson
agrees that the Original Employment Agreement to which she
or he is a signatory is hereby amended and restated to read
in its entirety as set forth in Exhibit D-1 or D-2,
respectively (collectively, the "Amended and Restated
Employment Agreements"). Each of CUC, Janice G. Davidson and
Robert M. Davidson acknowledges that (A) of the options to
purchase 300,000 shares of CUC Common Stock (150,000 each)
granted to Janice G. Davidson and Robert M. Davidson on July
24, 1996 in connection with the execution and delivery of
their respective Original Employment Agreements, as evidenced
by letters and stock option agreements dated July 24, 1996
from CUC to each of Janice G. Davidson and Robert M. Davidson
(collectively, the "Original Option Grant Documents,"
attached hereto and make a part hereof as Exhibits D-3 and D-
4), and notwithstanding the foregoing, each of Janice G.
Davidson and Robert M. Davidson is entitled to exercise
options for no more than 75,000 shares each (for an aggregate
of 150,000 shares), and each of Janice G. Davidson and Robert
M. Davidson agrees not to assert or claim otherwise or
attempt to exercise options for more than 75,000 shares each
(for an aggregate of 150,000 shares), (B) the Original Option
Grant Documents are hereby amended (i) to give effect to the
foregoing and (ii) by deleting paragraphs (e) and (f) of each
of them and inserting in lieu thereof the paragraphs set
forth in Exhibit D-5 hereto (it being understood that the
vesting schedule set forth in paragraph (b) of the Original
Option Grant Documents shall remain in effect (on a pro rata
basis) as to such reduced numbers of shares), and (C) as so
amended, the Original Option Grant Documents are hereby
reconfirmed, remade and renewed. The numbers of shares in
this paragraph give effect to the 3-for-2 split, effective
October 21, 1996.
4. PURCHASE OF CERTAIN OF THE DAVIDSONS' CUC COMMON
STOCK.
(a) Proposed Purchase Acquisitions.
CUC agrees that, each time (if any) that CUC
proposes to acquire any Person, during the four year period
commencing on the date hereof, and CUC intends to account for
the purchase of such Person as a purchase, and not as a
"pooling of interests" (each such proposed acquisition to be
referred to as a "Purchase Acquisition"), CUC shall (subject
to the terms and conditions set forth in this Section 4)
offer to purchase from the Davidsons (pro rata in accordance
with their respective holdings of CUC Common Stock or in such
other proportions as the Davidsons may, by a writing signed
by all of them, inform CUC) such number of shares, if any, of
CUC Common Stock as CUC, in its sole discretion, proposes to
issue in connection with such Purchase Acquisition. CUC
shall notify the Davidsons of such Purchase Acquisition no
later than fifteen days preceding the scheduled closing date
("Scheduled Closing Date") of such proposed Purchase
Acquisition, which notice shall contain an estimate of the
number of shares CUC proposes to purchase from the Davidsons
(which would be not less than the number of shares CUC
proposes to issue) in connection with such proposed Purchase
Acquisition and the Scheduled Closing Date of such proposed
Purchase Acquisition.
(b) No Obligation.
CUC shall have no obligation to propose or
consummate any Purchase Acquisition.
(c) Purchase Price.
The purchase price for each share of CUC Common
Stock to be so purchased from the Davidsons shall be equal to
the Average Stock Price. The term "Average Stock Price"
shall mean, with respect to each proposed Purchase
Acquisition, the average of the closing prices per share of
CUC Common Stock on the New York Stock Exchange (the "NYSE")
as reported on the NYSE Composite Tape during the five
consecutive trading day period (the "Measurement Period")
ending on the fifth trading day immediately preceding the
Scheduled Closing Date for such proposed Purchase
Acquisition.
(d) Conditions to Purchase.
Under no circumstances shall CUC be required to
purchase any shares of CUC Common Stock from the Davidsons
if:
(i) such purchase might, in CUC's good faith
judgment, cause CUC to violate any applicable law or
regulation (including any applicable tax or accounting rule
or release);
(ii) such purchase might, in CUC's good faith
judgment, prevent CUC from accounting for any acquisition
which CUC wishes to account for as a "pooling of interests"
as a "pooling of interests" (whether or not such "pooling of
interests" acquisition has been consummated prior to the
closing of the proposed Purchase Acquisition referred to in
Section 4(a)); or
(iii) such shares were not issued to the
Davidsons pursuant to the Merger.
(b) Proposed Purchase Notice.
As soon as reasonably practicable after CUC has
determined the Average Stock Price in respect of a proposed Purchase
Acquisition (but in no event later than the fourth trading day
preceding the Scheduled Closing Date), CUC shall provide notice
to the Davidsons (each, a "Proposed Purchase Notice"), which
Proposed Purchase Notice shall contain the following information:
(i) the number of shares of CUC Common Stock
which CUC proposes to purchase from the Davidsons;
(ii) the Average Stock Price in respect of
such proposed purchase; and
(iii) the Scheduled Closing Date of the
proposed Purchase Acquisition and the location at, and the time
and place on, which such proposed purchase of shares of CUC
Common Stock from the Davidsons is to occur.
(c) Acceptance Notice.
Within two trading days after the receipt of
such Proposed Purchase Notice, Janice G. Davidson and/or
Robert M. Davidson, on behalf of all of the Davidsons, shall
provide a notice to CUC (each, an "Acceptance Notice"), which
Acceptance Notice shall contain at least the following information:
(i) whether one or more Davidsons wishes to sell
all or any part of the CUC Common Stock which CUC has
proposed to purchase;
(ii) the number of shares of CUC Common Stock
which each such Davidson wishes to sell to CUC; and
(iii) the Person who will act as the
Davidsons' agent in respect of such sale.
If an Acceptance Notice setting forth
such information is not so delivered within such two trading
day period, the Davidsons shall have no rights under this
Section 4 in respect of the proposed Purchase Acquisition.
(d) No Offer.
No Proposed Purchase Notice shall be deemed to
constitute an offer, and CUC shall have no obligation to effectuate
any purchase described in any such Proposed Purchase Notice, until
such time as the closing of the Purchase Acquisition in connection
with which CUC proposes to purchase shares of CUC Common Stock from the
Davidsons actually occurs. The Acceptance Notice shall constitute
an offer to sell shares of CUC Common Stock by the Davidsons designated
in such Acceptance Notice as wishing to sell shares of CUC Common Stock,
but may be revoked by each such Davidson, in whole or in part, as to
the shares of CUC Common Stock to be sold by such Davidson,
at any time until the close of business on the second
trading day immediately preceding the Scheduled Closing Date.
(e) Deliveries at Closing.
At the closing of each purchase of CUC Common Stock
from the Davidsons under this Section 4 (which may occur on a date
later than the Scheduled Closing Date, but in no event earlier than
the date and time on which all of the conditions set forth in this
Section 4 in respect of such purchase have been satisfied):
(i) the Davidsons proposing to sell shares of CUC
Common Stock to CUC hereunder shall deliver to CUC:
(x) with respect to any sale of shares of
CUC Common Stock to be made to CUC prior to the end of the
two-year period following the Merger, a manually signed copy
of the opinion, substantially in the form attached hereto as
Exhibit C, rendered by Jones, Day, Reavis & Pogue;
(y) a certificate or certificates representing
the shares of CUC Common Stock to be sold to CUC, together with duly
executed, blank stock powers in respect thereof; and
(z) customary representations as to (1) the
good and marketable title of the Davidsons proposing to sell
shares of CUC Common Stock, to the CUC Common Stock which
they propose to sell; (2) each such Davidson's authority to
sell such shares of CUC Common Stock to CUC; (3) each such
Davidson's ability to sell shares of CUC Common Stock to CUC
without violating any laws, rules, regulations, agreements,
judgments or orders to which they may be parties or may be
subject; and (4) there being no default by such Davidson of
such Davidson's respective obligations under this Agreement
or any other agreement referred to in this Agreement or
surviving the execution of this Agreement; and
(i) CUC shall deliver to each Davidson selling
shares of CUC Common Stock to CUC hereunder immediately available
funds, to an account or accounts designated in writing by
such Davidson, in an amount equal to the number of shares of
CUC Common Stock to be purchased from such Davidson multiplied
by the Average Stock Price.
(i) Fees and Expenses.
All reasonable legal fees and expenses and other
related expenses incurred by the Davidsons in connection with
any repurchase of shares of CUC Common Stock pursuant to this
Section 4 shall be paid by CUC; provided that CUC shall only
be obligated to pay the legal fees of a single law firm. The
Davidsons shall be responsible for the payment of any
applicable transfer or similar taxes arising out of the sale
by them to CUC of CUC Common Stock.
(j) Capital Gains Treatment.
At the request of the Davidsons, CUC will use its
good faith efforts to structure each repurchase transaction
pursuant to Section 4 so as to have each such transaction
qualify for capital gains treatment for the Davidsons;
provided, however, that in no event shall CUC be obligated to
repurchase a number of shares greater than the number it
proposes to issue in the applicable Purchase Acquisition.
5. MUTUAL RELEASE.
Each of the Davidsons, on behalf of himself,
herself, itself, and her, his or its heirs, executors,
successors, assigns and each Davidson Control Person and any
other Person claiming by, through or because of any of the
Davidsons (collectively, the "Davidson Releasors"), and CUC,
on behalf of itself and the CUC Affiliates and any of their
successors, assigns or any other Person claiming by, through
or because of any of CUC or the CUC Affiliates (collectively,
the "CUC Releasors" and with the Davidson Releasors, the
"Releasors", and each individually a "Releasor"), jointly and
severally, hereby agrees as follows:
(a) Benefit.
The following release (this "Release") by and on
behalf of the Davidson Releasors is in respect of and for the
benefit of CUC, and by and on behalf of the CUC Releasors is
in respect of and for the benefit of the Davidsons and each
Davidson Control Person and in each case, for the benefit of
each of its present and former share holders, officers,
directors, employees, agents, attorneys, accountants,
representatives, successors, assigns, affiliates (within the
meaning of Rule 12b-2 under the Exchange Act) and any other
Person who is or may be liable as a result of any association
with any of them (each, a "Releasee" and collectively, the
"Releasees").
(b) Release.
Each of the Releasees is entitled to enforce the
terms of this Release contained in this Agreement by all
means available at law, in equity or as herein provided. Each
of the Davidsons, on behalf of himself, herself, itself and
his, her or its respective other Releasors, and CUC, on
behalf of itself and its other Releasors hereby acquits,
remises, discharges, and forever releases each of the
Releasees and each of their respective shareholders,
officers, directors, employees, agents, attorneys,
accountants, representatives, successors, assigns,
affiliates, parents, spouses, heirs, executors,
administrators and personal or legal representatives, past or
present, from any and all sums of money, actions, awards,
causes of action, suits, judgments, damages, demands, debts,
dues, escrows, contracts, accounts, agreements, liabilities,
obligations, representations, rights, setoffs, trespasses,
torts, wrongs, losses, expenses, claims and counterclaims of
any and all kind or nature whatsoever, whether known or
unknown, suspected or unsuspected, which have in the past
existed, or which as of this date do exist, or which may
exist in the future, arising out of, relating to or in
connection with:
(i) The matters contained in the Notice or any
claim which could have been asserted against the Releasees, or by
any of them, arising out of, relating to or in connection
with matters specified in the Notice; and
(ii) Any and all claims or causes of action that could
have been alleged against the Releasees, or any of them, in any
lawsuit in any court or other forum of competent jurisdiction,
whether state, federal or foreign, arising
under the laws of the State of California, Delaware,
Connecticut or any other state, federal or foreign laws,
whether statutory, at common law, equity, civil law or
otherwise, whether state, federal or foreign (including
claims which may have arisen or accrued prior to the date of
this Release, whether related to the Merger, the Merger
Agreement, the Original Employment Agreements or the
Employment, as well as claims which may arise or accrue
subsequent to the date of this Release (whether or not
foreseeable), as a result of any form of conduct, behavior,
action or omission occurring at any time prior to the date
hereof.
(c) Limitations on Release.
Nothing in the foregoing releases shall in any way
limit or eliminate the rights and obligations of the parties
under this Agreement; the Noncompetition Agreements (as such
agreements are amended pursuant hereto); the Registration
Rights Agreement (as such agreement is amended pursuant
hereto); the Amended and Restated Employment Agreements
(from and after the date hereof); the New Option Letters;
the Original Option Grant Documents (as such documents are
amended pursuant hereto); the Continuity of Interest
Certificate; or any document, instrument or agreement
entered into in connection with the secondary public
offering of CUC Common Stock effected by certain of
the Davidsons in November, 1996 and all rights to
indemnification provided by any of the agreements, documents,
certificates or instruments referred to in this Section 5(c)
(collectively, the "Surviving Agreements"), the Merger
Agreement, the Delaware General Corporation Law, the
California Corporations Code, the Certificate of
Incorporation of CUC or the Articles of Incorporation of
Davidson or any other of the organizational documents of CUC
or Davidson (however such document may be designated or
denominated) or any rights to indemnification under any
officers and directors insurance policy of CUC or Davidson
(collectively, the "Surviving Agreements and Rights").
6. COVENANT NOT TO SUE.
Except as otherwise specifically provided for
herein to enforce the terms of this Agreement and Rights
and/or any of the Surviving Agreements and Rights and/or to
seek relief including damages or an injunction or other
appropriate relief in the event of a breach of this
Agreement or any of the Surviving Agreements and Rights
(subject to Section 7 hereof), each of the Davidsons, on
behalf of himself, herself, itself and his, her or its
respective other Releasors, jointly and severally, and CUC,
on behalf of itself and its other Releasors,
unconditionally, fully and finally covenants forever not to
commence, sponsor, assert, file, institute, prosecute or
continue, or cooperate with any Person or in any way
facilitate or encourage anyone in the commencement,
assertion, filing, institution, prosecution, commencement, or
continuance of any complaint, suit, legal or equitable
proceeding, including proceedings before any federal, state
or foreign court, regulatory agency, arbitral tribunal or
other forum, wherever located, against the Releasees, or any
of them, for any claim, counterclaim, demand, charge, cause
of action, injury, damage, loss, expense, cost or other
matter of any and every kind and nature whatsoever with
respect to any of the matters addressed by the Release,
except to the extent required to provide information or
assistance by law or legal process, but only after reasonable
advance written notice to CUC or the Davidsons, as the case
may be, of such proposed action and only after having
received a written opinion of counsel for the providing or
assisting party that such action is required by law.
7. AGREEMENT TO ARBITRATE
(a) Notwithstanding anything to the contrary
contained in this Agreement or the Surviving Agreements and Rights,
any controversy, dispute or claim arising out of or relating
to this Agreement or any of the Surviving Agreements and
Rights or the breach hereof or thereof which cannot be
settled by mutual agreement 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 (or parties)
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 (or parties), upon ten (10) days notice to the
other(s), 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 or
any of the Surviving Agreements and Rights, 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 (or, as applicable, group of
related parties), 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 or any of the
Surviving Agreements and Rights, and that this Section shall
be grounds for dismissal of any court action commenced by any
party with respect to this Agreement or any of the Surviving
Agreements and Rights, other than post-arbitration actions
seeking to enforce an arbitrator award.
(e) The parties shall keep confidential, and shall not
disclose to any person, other than to the arbitrator in the
normal course of any proceeding in this Section 7, or 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 2. ADDITIONAL COVENANTS.
(a) Employment of Anne Weber. From the date hereof
until December 31, 1997 (the "Loan Out Period"), Anne Weber,
a long term employee of Davidson, shall be available to
Janice G. Davidson full time to provide such secretarial and
administrative assistance as Janice G. Davidson shall
request. At all times during the Loan Out Period and the
Supplemental Loan Out Period (hereinafter defined), Anne
Weber shall remain an employee of Davidson and shall
continue to receive all benefits to which she is entitled as
an employee. During the Loan Out Period, the Davidsons will
reimburse Davidson in an amount equal to 50% of Ms. Weber's
salary plus an allocation of direct taxes and benefits on the
same basis as applicable to other Davidson employees of her
category ("Anne Weber Employment Cost"). From and after
January 1, 1998 and to (but not after) June 30, 1998 (the
"Supplemental Loan Out Period"), Anne Weber shall be
available to Janice G. Davidson as and to the extent from
time to time requested by Janice G. Davidson. During the
Supplemental Loan Out Period the Davidsons will reimburse
Davidson for 100% of Anne Weber Employment Cost for each
business day or part thereof on which Ms. Weber is so
employed by Janice G. Davidson.
(b) Personal Likeness or Endorsement of Janice G.
Davidson.
CUC agrees that neither it nor Davidson will use
the personal name, likeness or endorsement of Janice G. Davidson
in connection with any products, packaging, promotions or activities
of CUC or Davidson or in any other way that exploits
Janice G. Davidson's name or image. Janice G. Davidson hereby
agrees that CUC and the CUC Affiliates may (until December 31,
1997) exhaust any and all existing inventory of products, packaging
and promotional materials on hand at the date of this Agreement which
contain Janice G. Davidson's personal name, likeness or endorsement
(or any variation or derivative thereof) (the "Existing Davidson
Inventory"). CUC shall provide to Janice G. Davidson monthly status
reports in reasonable detail concerning such Existing Davidson
Inventory at least monthly during the period commencing June 1, 1997
and ending December 31, 1997.
(c) Davidson Name and Trademark. CUC further agrees
that it will not use the "Davidson" name or trademark on
software of a type which would be rated "R" or "NC-17" under
the standards of the Motion Picture Association of America,
Inc., or "x", in each case relating to films (which, for the
purpose of the Agreement, shall be, mean and include all
forms of software), as in effect on the date hereof, a copy
of which standards are attached hereto and made a part hereof
as Exhibit E. Nothing herein shall limit or restrict CUC's
or Davidson's right to use the "Davidson" trademark (or any
variation or derivative thereof) in any way except as
specifically set forth in the preceding sentence.
(d) Confidentiality.
Each party hereto agrees that it shall keep in
confidence the financial terms of this Agreement and shall not,
without the consent of each other party hereto, disclose the
same to any Person except its own counsel or accountants or as
required by applicable law (after consultation with counsel).
Section 3. REPRESENTATIONS OF THE DAVIDSONS.
(a) Authority.
The Davidsons hereby represent and warrant to CUC
that they have requisite legal capacity, power and authority to
execute, deliver and perform the provisions of this Agreement
and that this Agreement is a valid and binding obligation of the
Davidsons enforceable against them in accordance with its terms.
(b) No Agreements with Employees.
Each of Janice G. Davidson and Robert M. Davidson
hereby represents and warrants to CUC that neither Janice G. Davidson
nor Robert M. Davidson has entered into any agreement, understanding
or arrangement with any employee of CUC or any of the CUC Affiliates
pertaining to any business in which Janice G. Davidson or
Robert M. Davidson has participated or plans to participate,
or to the employment, engagement or compensation of any such
employee.
(c) Validity of Restrictive Covenants.
Janice G. Davidson and Robert M. Davidson agree that
they shall not contest, challenge or call into question, or cause
or permit any other Person to contest, challenge or call into question,
in any way the validity or enforceability of any of the restrictive
covenants contained in the Non-Competition Agreements, as
amended by this Agreement (the "Restrictive Covenants")
(whether as an affirmative claim or cause of action or as a
defense to an action by CUC or any CUC Affiliate), in any
judicial or arbitral forum. Nothing herein shall prevent
either of Janice G. Davidson or Robert M. Davidson from
asserting that she or he has not violated the terms of any
of such Restrictive Covenants in defending a claim to that
effect brought by CUC or any CUC Affiliate.
(d) Ownership of Stock by the Davidsons.
Each of the Davidsons hereby represents and warrants
that with the possible exception of minor differences, none of which
is material, and which collectively are not material, the Davidsons
own beneficially and of record the number of shares of CUC Common Stock
set forth opposite each Davidson's name on Exhibit F hereto, free and
clear of any lien, pledge, claim, charge or encumbrance.
(e) No Interest in Competitors. Each of Janice G.
Davidson and Robert M. Davidson hereby represents and
warrants that she or he does not own or hold (or have the right to
acquire), directly or indirectly, as a member of a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act, or otherwise,
any proprietary interest in a Competitor (as defined in Section 2(a)
of the Noncompetition Agreements (as such agreements are amended pursuant
hereto)).
(f) No Basis for Claims. Each of Janice G. Davidson
and Robert M. Davidson hereby represents and warrants that
neither she nor he knows of any basis for any claim or cause
of action that could be alleged against any of the CUC
Releasees as of the date hereof arising out of, relating to
or in connection with matters other than those contained or
specified in the Notice.
Section 4. REPRESENTATIONS OF CUC.
(a) Authority. CUC hereby represents and
warrants to the Davidsons that it has the requisite legal
capacity, power and authority to execute, deliver and perform the
provisions of this Agreement and that this Agreement is a
valid and binding obligation of CUC enforceable against it
in accordance with its terms.
(b) No Basis for Claims. CUC hereby represents
and warrants that it does not know of, and to the best knowledge
of CUC none of the CUC Affiliates knows of, any basis for
any claim or cause of action that could be alleged against
any of the Davidson Releasees as of the date hereof arising
out of, related to or in connection with matters other than
those contained or specified in the Notice.
Section 5. CONSTRUCTION.
All of the parties to this Agreement were represented
by counsel and this document was negotiated by counsel, and no party
may rely on any drafts of this Agreement in any interpretation of
this Agreement. Each party and counsel for each party to this Agreement has
reviewed this Agreement and has participated in its drafting
and, accordingly, no party shall attempt to invoke the rule
of construction to the effect that ambiguities are to be
resolved against the drafting party in any interpretation of
this Agreement.
Section 6. VOLUNTARY SIGNING OF AGREEMENT AND RIGHT TO
REVOKE.
The Davidsons acknowledge that before entering into
this Agreement, they consulted with attorneys and other advisors
of their choice. They further acknowledge that they have entered
into this Agreement of their own free will, and that no promises or
representations have been made to them by any person to induce them to
enter into this Agreement other than the express terms set forth
herein. The Davidsons further acknowledge that they have
read this Agreement and understand all of its terms,
including the waiver and release of claims set forth in
Section 5. Janice G. Davidson and Robert M. Davidson each
acknowledges that she or he, as the case may be, may take up
to 21 calendar days from the date she or he, as the case may
be, was given this Agreement to consider, sign and return
this Agreement. In addition, Janice G. Davidson and Robert
M. Davidson each acknowledges that she or he, as the case may
be, may revoke the Agreement after signing it, but only by
delivering a signed revocation notice to CUC during the
Revocation Period. For purposes of this Agreement the
"Revocation Period" shall mean the period which is seven (7)
calendar days following the execution of this Agreement by
Janice G. Davidson and Robert M. Davidson.
Section 7. MISCELLANEOUS.
(a) Notices.
All notices under this Agreement shall be in
writing and shall be deemed to have been duly given upon
receipt of hand delivery or facsimile transmission with
confirmation of receipt, as follows:
CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
(203) 324-9261 (phone)
(203) 348-1982 (fax)
Attention: Amy N. Lipton, Esq.
Senior Vice President and
General Counsel
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Greg A. Danilow, Esq.
(212) 310-8000 (phone)
(212) 310-8007 (fax)
If to the Davidsons, to:
The Davidson Group
Union Bank Tower, Suite 960
Del Amo Financial Center
21515 Hawthorne Boulevard
Torrance, CA 90503
Attention: Janice G. Davidson
and
Robert M. Davidson
(310) 540-2740 (phone)
(310) 540-2804 (fax)
with a copy to:
Jones, Day, Reavis & Pogue
555 West Fifth Street
Suite 4600
Los Angeles, CA 90013-1025
Attention: Bertram R. Zweig, Esq.
Gerald W. Palmer, Esq.
(213) 489-3939 (phone)
(213) 243-2539 (fax)
Such names and addresses may be changed by written notice to
each Person listed above.
(a) Governing Law.
Except as provided for in Section 7, this Agreement and
all disputes arising hereunder or related hereto, shall be governed
by, construed and interpreted in accordance with the internal laws
of the State of Delaware, applicable to instruments made, delivered and
performed entirely in such state; provided, however, that the
Surviving Agreements and Rights shall continue to be governed
by, construed and interpreted in accordance with the laws of
the jurisdiction to the extent specifically selected in each
such Surviving Agreement, or, in the case of the Rights, the laws
of the state of incorporation of the relevant corporation, or
other laws selected in the instrument creating such Rights, as
the case may be.
(b) Counterparts.
This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which
together shall constitute one and the same original instrument.
(c) Interpretation.
Whenever a reference is made in this Agreement to a
particular Section or Exhibit, such reference shall be to a
Section of or an Exhibit to this Agreement unless otherwise indicated.
The headings contained in the provisions of this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions of this Agreement. Whenever
the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the
words "without limitation."
(d) Entire Agreement; Severability;
Reformation. This Agreement, including the Exhibits hereto
and the Surviving Agreements, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter
contained herein and supersedes all prior and contemporaneous agreements
and understandings (whether written or oral) among the parties
hereto with respect to such subject matter. If any provision of
this Agreement is determined to be invalid or unenforceable, in whole
or in part, it is the parties' desire and intention that such
determination shall not be held to affect the validity or enforceability
of any other provision of this Agreement, which provisions shall
otherwise remain in full force and effect.
(e) Amendment and Modification.
This Agreement may be amended or modified only by the duly
executed written agreement of the parties hereto.
(f) Extension; Waiver.
The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to require
strict adherence to that term or any other term of this Agreement.
No waiver of any breach of this Agreement shall be held to constitute a
waiver of any other or subsequent breach. Any waiver must be
evidenced in writing and duly executed by the party against
whom such waiver may be enforced.
(g) Binding Effect; Benefits.
This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
Other than as provided for in Section 5 and Section 7, nothing in this
Agreement, express or implied, is intended to confer on any Person
other than the parties hereto and their respective successors and
assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
(h) Assignability.
This Agreement is not assignable by any party hereto without
the prior written consent of the other parties hereto.
(i) Expenses.
Other than as provided for in Section 4 and Section 7 hereof,
each of the parties hereto shall pay all of its own expenses relating to
the transactions contemplated by this Agreement, including the fees
and expenses of its own financial, legal and tax advisors.
(j) Gender and Certain Definitions.
All words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context requires.
(k) Specific Enforcement.
The parties hereto acknowledge and agree that each would be
irreparably damaged in the event that any of the provisions of this
Agreement are not fully performed by the other in accordance with
their specific terms or are otherwise breached. Subject to Section 7
hereof, it is accordingly hereby agreed that each party shall
be entitled to an injunction (or injunctions) to prevent breaches of
this Agreement by any other party hereto and to specifically enforce
this Agreement and the terms and provisions thereof against any other
party hereto.
(l) No Admission.
This Agreement shall not be construed as an
admission by CUC and/or any of the CUC Affiliates, nor by
any of the Davidsons or any of the Davidson Control Persons
of any liability or wrongdoing, nor shall this Agreement be
construed as evidence of such liability or wrongdoing.
IN WITNESS WHEREOF, CUC and the Davidsons have
duly executed and delivered this Agreement as of the date
first above written.
CUC INTERNATIONAL INC.
By: _________________________
Name: Walter A. Forbes
Title: Chairman and Chief
Executive Officer
ROBERT M. DAVIDSON ________________________________
CHARITABLE REMAINDER UNITRUST Robert M. Davidson, individually
By:___________________________ ________________________________
Robert M. Davidson, Trustee Janice G. Davidson, individually
JANICE G. DAVIDSON ELIZABETH A. DAVIDSON
CHARITABLE REMAINDER UNITRUST IRREVOCABLE TRUST
By:___________________________ By:_____________________________
Janice G. Davidson, Trustee Robert M. Davidson, Co-Trustee
By:_____________________________
Janice G. Davidson, Co-Trustee
JOHN R. DAVIDSON EMILIE A. DAVIDSON
IRREVOCABLE TRUST IRREVOCABLE TRUST
By:______________________________ By:______________________________
Robert M. Davidson, Co-Trustee Robert M. Davidson, Co-Trustee
By:______________________________ By:______________________________
Janice G. Davidson, Co-Trustee Janice G. Davidson, Co-Trustee
JOHN R. DAVIDSON EMILIE A. DAVIDSON
CHARITABLE REMAINDER UNITRUST CHARITABLE REMAINDER UNITRUST
By:______________________________ By:______________________________
Robert M. Davidson, Co-Trustee Robert M. Davidson, Co-Trustee
By:______________________________ By:______________________________
Janice G. Davidson, Co-Trustee Janice G. Davidson, Co-Trustee
SETTLEMENT AGREEMENT
BY AND AMONG
JANICE G. DAVIDSON;
ROBERT M. DAVIDSON;
THE JANICE G. DAVIDSON CHARITABLE REMAINDER UNITRUST;
THE ROBERT M. DAVIDSON CHARITABLE REMAINDER UNITRUST;
THE ELIZABETH A. DAVIDSON IRREVOCABLE TRUST;
THE EMILIE A. DAVIDSON IRREVOCABLE TRUST;
THE JOHN R. DAVIDSON IRREVOCABLE TRUST;
THE EMILIE A. DAVIDSON CHARITABLE REMAINDER UNITRUST;
THE JOHN R. DAVIDSON CHARITABLE REMAINDER UNITRUST;
AND
CUC INTERNATIONAL INC.
Dated: as of May 27, 1997
TABLE OF CONTENTS
Page
Section 1. EFFECTIVENESS OF THIS AGREEMENT 3
(a) Obligations of CUC 3
(b) Obligations of the Davidsons 3
Section 2. PAYMENT AND GRANT OF OPTIONS TO CERTAIN OF
THE DAVIDSONS 4
Section 3. AMENDMENT OF OTHER AGREEMENTS; WAIVERS 5
(a) Noncompetition Agreements 5
(b) Registration Rights Agreement 9
(c) Merger Agreement - Election to Parent Board;
Resignation 14
(d) Continuity of Interest Certificate - Holding
Period 14
(e) Employment Agreements; Previously Awarded Stock
Options 15
Section 4. PURCHASE OF CERTAIN OF THE DAVIDSONS'
CUC COMMON STOCK 16
(a) Proposed Purchase Acquisitions 16
(b) No Obligation 17
(c) Purchase Price 17
(d) Conditions to Purchase 18
(e) Proposed Purchase Notice 19
(f) Acceptance Notice 19
(g) No Offer 20
(h) Deliveries at Closing 21
(i) Fees and Expenses 22
(j) Capital Gains Treatment 22
Section 5. MUTUAL RELEASE 23
(a) Benefit 23
(b) Release 24
(c) Limitations on Release 26
Section 6. COVENANT NOT TO SUE 27
Section 7. AGREEMENT TO ARBITRATE 28
Section 8. ADDITIONAL COVENANTS 30
(a) Employment of Anne Weber 30
(b) Personal Likeness or Endorsement of
Janice G. Davidson 31
(c) Davidson Name and Trademark 32
(d) Confidentiality 32
Section 9. REPRESENTATIONS OF THE DAVIDSONS 32
(a) Authority 32
(b) No Agreements with Employees 33
(c) Validity of Restrictive Covenants 33
(d) Ownership of Stock by the Davidsons 34
(e) No Interest in Competitors 34
(f) No Basis for Claims 34
Section 10. REPRESENTATIONS OF CUC 35
(a) Authority 35
(b) No Basis for Claims 35
Section 11. CONSTRUCTION 35
Section 12. VOLUNTARY SIGNING OF AGREEMENT AND
RIGHT TO REVOKE 36
Section 13. MISCELLANEOUS 37
(a) Notices 37
(b) Governing Law 38
(c) Counterparts 38
(d) Interpretation 39
(e) Entire Agreement; Severability; Reformation 39
(f) Amendment and Modification 40
(g) Extension; Waiver 40
(h) Binding Effect; Benefits 40
(i) Assignability 41
(j) Expenses 41
(k) Gender and Certain Definitions 41
(l) Specific Enforcement 41
(m) No Admission 42
EXHIBITS
Exhibit A Option Letters to each of Janice G. Davidson and
Robert M. Davidson
Exhibit B Resignation Letters of Janice G. Davidson and
Robert M. Davidson
Exhibit C Form of Opinion - Demand Registration/Repurchase
Exhibit D-1 Amended and Restated Employment Agreement of Janice
G. Davidson
Exhibit D-2 Amended and Restated Employment Agreement of Robert
M. Davidson
Exhibit D-3 Original Option Grant Documents
(Janice G. Davidson)
Exhibit D-4 Original Option Grant Documents
(Robert M. Davidson)
Exhibit D-5 Amendment to Original Option Grant Documents
Exhibit E Rating Standards of the Motion Picture Association
of America, Inc.
Exhibit F Ownership of Davidson Stock
_______________________________
1. This number gives effect to the 3-for-2 split, effective
October 21, 1996.
