SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CENDANT CORPORATION
(Name of Registrant as Specified In Its Charter)
......................................N/A.......................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X} No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
.......................................................................
2) Aggregate number of securities to which transaction applies:
.......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
.......................................................................
4) Proposed maximum aggregate value of transaction:
.......................................................................
5) Total fee paid:
.......................................................................
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
.......................................................................
2) Form, Schedule or Registration Statement No.:
.......................................................................
3) Filing Party:
.......................................................................
4) Date Filed:
.......................................................................
[CENDANT LOGO]
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Cendant Corporation, which will be held at the Ramada Inn and Conference
Center, 130 Route 10 West, East Hanover, New Jersey 07936, on May 27, 1999 at
10:00 a.m., New York Time. We look forward to greeting as many of our
stockholders as possible.
This booklet includes the Notice of Annual Meeting and the Proxy
Statement. The Proxy Statement describes the business to be conducted at the
Annual Meeting and provides other information concerning the Company which you
should be aware of when you vote your shares.
Whether or not you attend the Annual Meeting, it is important that your
shares be represented and voted at the meeting. Stockholders of record can vote
their shares by using the telephone or by marking your votes on the enclosed
proxy card, signing, dating and mailing the proxy card in the enclosed envelope.
If you decide to attend the Annual Meeting and vote in person, you may then
withdraw your proxy.
Admission to the Annual Meeting will be by ticket only. If you are a
registered stockholder planning to attend the meeting, please check the
appropriate box on the proxy card and retain the bottom portion of the card as
your admission ticket. If your shares are held through an intermediary such as a
bank or broker, follow the instructions in the Proxy Statement to obtain a
ticket.
On behalf of the Board of Directors and the employees of Cendant
Corporation, I would like to express my appreciation for your continued interest
in the affairs of the Company.
Sincerely,
Henry R. Silverman
Chairman of the Board,
President and Chief Executive Officer
CENDANT CORPORATION
9 West 57th Street
New York, New York 10019
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
to be held on
May 27, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Cendant Corporation (the "Company") will be held on Thursday, May 27, 1999 at
10:00 a.m., Eastern Standard Time, at the Ramada Inn and Conference Center, 130
Route 10 West, East Hanover, New Jersey 07936 (the "Meeting") to consider and
vote upon the following matters:
1. To elect five directors for a three-year term and until their
successors are duly elected and qualified;
2. Ratification of the appointment of Deloitte & Touche LLP as the
auditors of the Company's financial statements for fiscal year
1999;
3. To approve and adopt certain amendments to the Company's Amended
and Restated By-Laws (the "By-Law Amendments")
4. A stockholder's proposal, NOT recommended by the Board of
Directors, relating to the classification of the Board of
Directors; and
5. Approval of such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 29,
1999 as the record date for the Meeting. Only stockholders of record at that
time are entitled to notice of, and to vote at, the Meeting and any adjournment
or postponement thereof. A list of stockholders entitled to vote at the Meeting
will be available for examination by any stockholders, for any purpose germane
to the Meeting, for 10 days prior to the Meeting during ordinary business hours
at the site of the Meeting.
Attendance at the Meeting will be limited to stockholders as of the
record date, their authorized representatives and guests of the Company.
Admission will be by ticket only. For registered stockholders, the bottom
portion of the proxy card enclosed with the Proxy Statement is their Meeting
ticket. Beneficial owners with shares held through an intermediary, such as a
bank or broker, should request tickets in writing from Investor Relations,
Cendant Corporation, 9 West 57th Street, New York, New York 10019, and include
proof of ownership, such as a bank or brokerage firm account statement or letter
from the broker, trustee, bank or nominee holding their stock, confirming
beneficial ownership. Stockholders who do not obtain tickets in advance may
obtain them upon verification of ownership at the Registration Desk on the day
of the Meeting. Admission to the Meeting will be facilitated if tickets are
obtained in advance. Tickets may be issued to others at the discretion of the
Company.
The enclosed proxy is solicited by the Board of Directors of the
Company. Reference is made to the attached Proxy Statement for further
information with respect to the business to be transacted at the Meeting. The
Board of Directors urges you to date, sign and return the enclosed proxy
promptly. This will ensure the presence of a quorum at the Meeting. PROMPTLY
SIGNING, DATING, AND RETURNING THE PROXY WILL SAVE THE COMPANY THE EXPENSE AND
EXTRA WORK OF ADDITIONAL SOLICITATION. A reply envelope, for which no postage is
required if mailed within the United States, is enclosed for your convenience.
Alternatively, in lieu of returning signed proxy cards, the Company's
stockholders of record can vote their shares by calling a specially designated
telephone number set forth on the enclosed proxy card. You are cordially invited
to attend the Meeting in person. The return of the enclosed proxy will not
affect your right to vote if you attend the Meeting in person, as your proxy is
revocable at your option.
By Order of the Board of Directors
JEANNE M. MURPHY
Dated: March 31, 1999 Secretary
CENDANT CORPORATION
9 West 57th Street
New York, New York 10019
-------------------
PROXY STATEMENT
-------------------
Annual Meeting of Stockholders to
be held on Thursday, May 27, 1999
-------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Cendant Corporation, a Delaware
corporation (the "Company"), to be voted at the 1999 Annual Meeting of
Stockholders, and any adjournment or postponement thereof (the "Meeting"), to be
held on the date, at the time and place, and for the purposes set forth in the
foregoing notice. This Proxy Statement, the accompanying notice and the enclosed
proxy card are first being mailed to stockholders on or about March 31, 1999.
The Board of Directors does not intend to bring any matter before the
Meeting except as specifically indicated in the notice, nor does the Board of
Directors know of any matters which anyone else proposes to present for action
at the Meeting. However, if any other matters properly come before the Meeting,
the persons named in the enclosed proxy, or their duly constituted substitutes
acting at the Meeting, will be authorized to vote or otherwise act thereon in
accordance with their judgment on such matters.
Shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), represented by proxies received by the Company (whether through
the return of the enclosed proxy card or by telephone), where the stockholder
has specified his or her choice with respect to the proposals described in this
Proxy Statement (including the election of directors), will be voted in
accordance with the specification(s) so made. If your proxy is properly executed
but does not contain voting instructions, or if you use telephone voting without
indicating how you want to vote, your shares will be voted "For" the election of
all five nominees for the Board of Directors, "For" the ratification of the
appointment of Deloitte & Touche LLP as auditors of the Company's financial
statements for the year ending December 31, 1999, "FOR" the approval of the
By-Law Amendments and "Against" the stockholder's proposal listed as Item 4 on
the Notice of Annual Meeting.
Except as provided below, any proxy may be revoked at any time prior to
its exercise by notifying the Secretary in writing, by delivering a duly
executed proxy bearing a later date or by attending the Meeting and voting in
person.
For participants in the Cendant Employee Savings Plan (the "Employee
Savings Plan") and the Cendant Membership Services, Inc. Savings Incentive Plan
(the "Savings Incentive Plan" and together with the Employee Savings Plan, the
"Savings Plans") with shares of Common Stock credited to their accounts, voting
instructions for the trustees of the Savings Plans are also being solicited
through this Proxy Statement. In accordance with the provisions of the Savings
Plans, the trustees will vote shares of Common Stock in accordance with
instructions received from the participants to whose accounts such shares are
credited. To the extent such instructions are not received prior to twelve
o'clock noon, Eastern Standard Time, on May 20, 1999, the trustee of the
Employee Savings Plan will vote the shares with respect to which it has not
received instructions proportionately in accordance with the shares for which it
has received instructions, and the trustee under the Savings Incentive Plan will
abstain from voting such shares. Instructions given with respect to shares in
accounts of the Savings Plans may be changed or revoked only in writing, and no
such instructions may be revoked after twelve o'clock noon, Eastern Daylight
Time, on May 20, 1999. Participants in the Savings Plans are not entitled to
vote in person at the Meeting.
If a participant in a Savings Plan has shares of Common Stock credited
to his or her account in one of the Savings Plans and also owns other shares of
Common Stock, he or she should receive separate proxy cards for shares credited
to his or her account in the Savings Plans and any other shares that he or she
owns. All such proxy cards should be completed, signed and returned to the
transfer agent to register voting instructions for all shares owned by him or
her or held for his or her benefit in such Savings Plans' Cendant Stock Fund.
The accompanying form of proxy is being solicited on behalf of the
Board of Directors of the Company. The expenses of solicitation of proxies for
the Meeting will be paid by the Company. In addition to the mailing of the proxy
material, such solicitation may be made in person or by telephone by directors,
officers and employees of the Company, who will receive no additional
compensation therefor. Upon request, the Company will reimburse brokers,
dealers, banks and trustees, or their nominees, for reasonable expenses incurred
by them in forwarding material to beneficial owners of shares of Common Stock.
The Company has retained Innisfree M&A Incorporated
to aid in the solicitation of proxies. It is estimated that the fee for
Innisfree M&A Incorporated will be approximately $15,000.00 plus reasonable
out-of-pocket costs and expenses. Such fee will be paid by the Company.
A copy of the Annual Report on Form 10-K filed by the Company with the
Securities and Exchange Commission for its latest fiscal year is available
without charge to stockholders upon written request to Cendant Corporation, 9
West 57th Street, New York, New York 10019, Attention: Investor Relations.
TABLE OF CONTENTS
PAGE
VOTING SECURITIES AND PRINCIPAL HOLDERS 1
Outstanding Shares and Voting Rights 1
Security Ownership of Certain Beneficial Owners and Management 3
ELECTION OF DIRECTORS [Proposal 1] 5
General 5
Information Regarding the Nominees for Term Expiring in 2002 5
Information Regarding Directors Whose Terms Expire in 2000 6
Information Regarding Directors Whose Terms Expire in 2001 8
Committees and Meetings of the Board of Directors 9
EXECUTIVE OFFICERS 14
EXECUTIVE COMPENSATION AND OTHER INFORMATION 16
Summary Compensation Table for the Named Executive Officers 16
Option Grants Table for the Named Executive Officers 18
Option Exercises and Year-End Option Value Table for the Named Executive Officers 20
Ten Year Option/SAR Repricings 21
Employment Contracts and Termination, Severance and Change of Control Arrangements 23
Compensation Committee Interlocks and Insider Participation 29
Performance Graph 29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 30
Relationship with Chartwell 30
Relationship with Avis Rent A Car, Inc. 31
Relationship with NRT 31
Other Relationships 34
Claims of Certain Current and Former Officers and Directors of the Company and HFS 36
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 36
RATIFICATION OF APPOINTMENT OF AUDITORS [Proposal 2] 36
APPROVAL OF BY-LAW AMENDMENT [Proposal 3] 37
STOCKHOLDER PROPOSAL CONCERNING DECLASSIFICATION OF THE BOARD OF DIRECTORS [Proposal 4] 40
STOCKHOLDER PROPOSALS 41
APPENDIX A - BY-LAW AMENDMENTS 45
VOTING SECURITIES AND PRINCIPAL HOLDERS
Outstanding Shares and Voting Rights
Only holders of record of the Common Stock at the close of business on
March 29, 1999 are entitled to notice of, and to vote at, the Meeting. On that
date, the Company had outstanding __________________ shares of Common Stock,
held of record by _________________ shareholders.
The presence, in person or by proxy, of the holders of not less than
one-third of the Common Stock entitled to vote at the Meeting will constitute a
quorum. On all matters voted upon at the Meeting and any adjournment or
postponement thereof, the holders of the Common Stock vote together as a single
class, with each record holder of Common Stock entitled to one vote per share.
Directors shall be elected by a plurality of the votes of the shares of
Common Stock present at the Meeting, in person or by proxy, and entitled to vote
in the election of Directors. Under applicable Delaware law, in determining
whether such nominees have received the requisite number of affirmative votes,
abstentions and broker non-votes will have no effect on the outcome of the vote.
Approval of the proposal relating to the ratification of the
appointment of auditors of the Company's financial statements requires the
affirmative vote of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Meeting. Under applicable
Delaware law, in determining whether such proposal has received the requisite
number of affirmative votes, abstentions and broker non-votes will be counted
and will have the same effect as a vote against the proposal.
The Company's Amended and Restated By-Laws (the "By-Laws") state that
the affirmative vote of 80% of the shares of Common Stock entitled to vote in
the election of Directors (the "80% Vote Requirement") is necessary for
stockholders to approve the By-Law Amendments. Based on advice of counsel, the
Company believes that the 80% Vote Requirement is invalid and unenforceable
under Delaware law, as the 80% Vote Requirement limits the power of the
Company's stockholders to adopt, amend or repeal the By-Laws in contravention of
the rights of stockholders under Delaware law. While the Company is soliciting
approval of the By-Law Amendments pursuant to the 80% Vote Requirement, if a
majority of the outstanding shares present in person or represented by proxy and
entitled to vote at the Meeting approves the By-Law Amendments, but the 80% Vote
Requirement is not satisfied, the Company intends to treat the By-Law Amendments
as having been validly approved and adopted in accordance with Delaware law.
Under applicable Delaware law, in determining whether such proposal has received
the requisite number of affirmative votes, abstentions and broker non-votes will
be counted and will have the same effect as a vote against the proposal.
Approval of the stockholder's proposal requires the affirmative vote of
a majority of the shares of Common Stock present and represented by proxy and
entitled to vote at the Meeting. Under applicable Delaware law, in determining
whether such proposal has received the requisite number of affirmative votes,
absentions will be counted and will have the same effect as a vote against the
proposal; broker non-votes will be disregarded and will have no effect on the
outcome of the vote.
In order that your shares of Common Stock may be represented at the
Meeting, you are requested to:
o indicate your instructions on the proxy;
o date and sign the proxy;
o mail the proxy promptly in the enclosed envelope; and
o allow sufficient time for the proxy to be received before the date
of the Meeting.
1
Alternatively, in lieu of returning signed proxy cards, the Company's
stockholders of record can vote their shares by calling a specially designated
telephone number. The phone voting procedure is designed to authenticate
stockholders' identities, to allow stockholders to provide their voting
instructions, and to confirm that their instructions have been recorded
properly. Specific instructions for stockholders of record who wish to use the
telephone voting procedure are set forth on the enclosed proxy card. A proxy may
be revoked at any time prior to the voting at the Meeting by submitting a later
dated proxy (including a proxy by telephone), by giving timely written notice of
such revocation to the Secretary of the Company or by attending the Meeting and
voting in person.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED AND
THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE OF THIS PROXY STATEMENT.
2
Security Ownership of Certain Beneficial Owners and Management
The information set forth on the following table is furnished as of
March 15, 1999 (unless otherwise specified) with respect to any person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) who is known
to the Company to be the beneficial owner of more than 5% of any class of the
Company's voting securities, and as to those shares of the Company's equity
securities beneficially owned by each of its directors, certain of its executive
officers, and all of its executive officers and directors as a group.
Of the Total
Percent Number of Shares
Total Amount of Beneficially Owned,
of Shares Common Shares Which May Be
Beneficially Stock Acquired Within
Name Owned (1) Owned (2) 60 Days (3)
- ----------------------------------------------------------------------------------------------------------------------
Principal Stockholders:
Capital Research and
Management Company (4) 105,145,240 13.16% N/A
333 South Hope Street
Los Angeles, CA 90071
Massachusetts Financial
Services Company(5) 55,904,878 6.99% N/A
500 Boylston Street
Boston, MA 02116-3741
Directors and Executive Officers(6):
Henry R. Silverman 20,486,622 2.50% 20,286,622
Stephen P. Holmes(7) 2,811,967 * 2,651,480
Robert D. Kunisch(8) 2,321,694 * 1,293,678
Michael P. Monaco 1,927,920 * 1,911,325
James E. Buckman 2,498,812 * 2,479,712
Leonard S. Coleman 146,155 * 146,155
Martin L. Edelman 86,155 * 86,155
Dr. Carole G. Hankin 26,200 * 26,200
The Rt. Hon. Brian Mulroney,
P.C. LL.D 146,155 * 146,155
Robert E. Nederlander 146,155 * 146,155
Robert W. Pittman 626,775 * 626,775
Robert P. Rittereiser 112,188 * 68,750
E. John Rosenwald, Jr. 203,930 * 146,155
Leonard Schutzman 150,955 * 133,327
Robert F. Smith(9) 170,185 * 146,155
John D. Snodgrass(10) 6,337,504 * 5,064,822
Craig R. Stapleton(11) 36,967 * 26,000
John W. Chidsey 789,143 * 784,284
David M. Johnson 382,999 * 299,999
Samuel L. Katz(12) 813,682 * 805,207
Richard A. Smith 1,601,958 * 1,590,808
Tobia Ippolito 116,884 * 93,094
Executive Officers and Directors
As a group (22 persons)(13) 41,910,838 5.00% 38,959,013
3
* Amount represents less than 1% of the outstanding Common Stock.
(1) Shares beneficially owned includes direct and indirect ownership of shares
and stock options that are currently exercisable or exercisable within 60
days.
(2) Based on [799,244,990] shares of Common Stock outstanding on March 29,
1999.
(3) Includes stock options that are currently exercisable plus stock options
that are exercisable within 60 days ("Vested Options").
(4) Based upon the information contained in a Form 13G/A dated February 8, 1999
by Capital Research and Management Company, a registered investment
advisor, Capital Research and Management Company beneficially owned
105,145,240 shares of Common Stock with sole power to vote none of such
shares and shared power to dispose all of such shares.
(5) Based upon the information contained in a Form 13-G/A dated February 11,
1999 by Massachusetts Financial Services Company ("MFS), a registered
investment adviser on behalf of itself and the other mutual funds and
institutional clients of MFS, such persons beneficially own 55,904,878
shares of Common Stock with sole power to vote 55,878,878 of such shares
and sole power to dispose of all of such shares.
(6) Such Director's and/or Executive Officer's Vested Options are deemed
outstanding for purposes of computing the percentages of the class for such
Director and/or Executive Officer.
(7) Includes 2,883 shares of Common Stock held by Mr. Holmes' children.
(8) Includes 167,892 shares of Common Stock held in a grantor retained annuity
trust of which Mr. Kunisch is the income beneficiary, 9,912 shares of
Common Stock held by Mr. Kunisch's spouse, 78,621 shares of Common Stock
held in the Employee Savings Plan and 781,504 shares held by Alibob
Partners, L.P.
(9) Includes 4,806 shares of Common Stock owned by a Keough plan of which Mr.
Smith is the sole beneficiary. Amount does not include 19,244 shares of
Common Stock held in the name of the Smith Family Foundation of which Mr.
Smith is President, as to which Mr. Smith disclaims beneficial ownership.
(10) Amount does not include 33,600 shares held by The Snodgrass Foundation of
which Mr. Snodgrass and his spouse are trustees but in which they have no
pecuniary interest. Mr. Snodgrass disclaims beneficial ownership of such
shares.
(11) Includes 500 shares of Common Stock held by Mr. Stapleton's wife, 3,093
shares of Common Stock held by Mr. Stapleton's mother, 3,374 shares of
Common Stock held by trusts for the benefit of Mr. Stapleton's children and
2,000 shares of Common Stock held by Mr. Stapleton's son. Mr. Stapleton
disclaims beneficial ownership of the aforementioned shares.
(12) Includes 180 shares of Common Stock held by Mr. Katz's spouse and 1,000
shares of Common Stock held by Mr. Katz's children.
(13) Vested Options of all Executive Officers and Directors are deemed
outstanding for purposes of computing the percentage of class.
4
ELECTION OF DIRECTORS
[PROPOSAL NO. 1]
GENERAL
The Board of Directors presently consists of seventeen members and is
divided into three classes serving staggered three-year terms. Directors for
each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and will serve for three years.
The Board of Directors has nominated five candidates to be elected at the
Meeting to serve as Class II directors for a three-year term ending at the 2002
annual meeting of stockholders and when their successors are duly elected and
qualified. All nominees are currently directors of the Company. The terms of the
remaining twelve directors expire at the Company's annual meeting of
stockholders to be held in 2000 and 2001.
Each nominee has consented to being named in this Proxy Statement and
to serve if elected. If, prior to the Meeting, any nominee should become
unavailable to serve, the shares of Common Stock represented by a properly
executed and returned proxy (whether through the return of the enclosed proxy
card or by telephone) will be voted for such additional person as shall be
designated by the Board of Directors, unless the Board of Directors determines
to reduce the number of directors in accordance with the Company's Amended and
Restated Certificate of Incorporation and By-Laws.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH
NOMINEE AS DIRECTORS. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED BY THE
COMPANY WILL BE VOTED FOR THE ELECTION OF THE FIVE NOMINEES LISTED BELOW.
Certain information regarding each nominee and as to each incumbent
director whose term of office extends to 2000 and 2001 and who is, therefore,
not a nominee for election as a director at the Meeting is set forth below as of
March 15, 1998, including such individual's age and principal occupation, a
brief account of such individual's business experience during at least the last
five years and other directorships currently held.
INFORMATION REGARDING THE NOMINEES FOR TERM EXPIRING IN 2002
Leonard S. Coleman Robert E. Nederlander
Leonard Schutzman Robert F. Smith
Craig R. Stapleton
MR. COLEMAN, age 50, has been a Director of the Company since December
1997. Mr. Coleman was a Director of HFS from April 1997 until December 1997. Mr.
Coleman has served as President of The National League of Professional Baseball
Clubs since 1994, having previously served since 1992 as Executive Director,
Market Development of Major League Baseball. Mr. Coleman is a director of the
following corporations which file reports pursuant to the Exchange Act: Avis
Rent A Car, Inc., Owens Corning, The Omnicom Group, New Jersey Resources and
H.J. Heinz Company. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Relationship with Avis Rent A Car Inc."
MR. NEDERLANDER, age 65, has been a Director of the Company since
December 1997. Mr. Nederlander was a Director of HFS from July 1995 to December
1997. Mr. Nederlander has been President and Director since November 1981 of the
Nederlander Organization, Inc., owner and operator of one of the world's largest
chains of legitimate theaters. Mr. Nederlander has been Chairman of the Board of
Riddell Sports Inc. since April 1988 and was the Chief Executive Officer of such
corporation from 1988 through April 1, 1993. From February until June 1992, Mr.
Nederlander was also Riddell Sports Inc.'s interim President and Chief Operating
Officer. He served as the Managing General Partner of the New York Yankees from
August 1990 until December 1991, and has been a limited partner since 1973. Mr.
Nederlander has been President since October 1985 of Nederlander Television and
Film Productions, Inc.; Chairman of the Board and Chief Executive Officer since
January 1988 of Mego Financial Corp. ("Mego")and Vice Chairman of the Board
since February 1988 to early 1993 of Vacation Spa Resorts, Inc., an
5
affiliate of Mego. Mr. Nederlander was a director of Mego Mortgage Corp. from
September 1996 until June 1998. Mr. Nederlander also served as Chairman of the
Board of Allis-Chalmers Corp. from May 1989 to 1993 and as Vice Chairman of
Allis-Chalmers Corp. from 1993 through October 1996. He is currently a Director
of Allis-Chalmers Corp. In October 1996, Mr. Nederlander became a director of
New Communications, Inc., a publisher of community oriented free circulation
newspapers. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Other
Relationships."
MR. SCHUTZMAN, age 52, has been a Director of the Company since December
1997. Mr. Schutzman was a Director of HFS from August 1993 until December 1997.
Mr. Schutzman is a professor at the William E. Simon Graduate School of Business
at the University of Rochester in Rochester, New York. Mr. Schutzman was Senior
Vice President of PepsiCo Inc. from February 1987 to April 1995.
MR. SMITH, age 66, has been a Director of the Company since December
1997. Mr. Smith was a Director of HFS from February 1993 until December 1997.
From November 1994 until August 1996, Mr. Smith also served as a Director of
Chartwell. Mr. Smith is the retired Chairman and Chief Executive Officer of
American Express Bank, Ltd. ("AEBL"). He joined AEBL's parent company, the
American Express Company, in 1981 as Corporate Treasurer before moving to AEBL
and serving as Vice Chairman and Co-Chief Operating Officer and then President
prior to becoming Chief Executive Officer. Mr. Smith is currently an equity
owner and Senior Managing Director of Car Component Technologies, Inc., an
automobile parts remanufacturer, located in Bedford, New Hampshire.
MR. STAPLETON, age 53, has been a Director of the Company since December
1997. Mr. Stapleton has been President of Marsh & McLennan Real Estate Advisors,
Inc. since 1983. Mr. Stapleton is also a director of the following corporations
which file reports pursuant to the Exchange Act: Alleghany Properties, Inc. (a
subsidiary of Alleghany Corp.), Cornerstone Properties, T.B. Woods Inc. and Vacu
Dry Co.
INFORMATION REGARDING DIRECTORS WHOSE TERMS EXPIRE IN 2000
Henry R. Silverman James E. Buckman
Michael P. Monaco Martin Edelman
Stephen P. Holmes Robert P. Rittereiser
MR. SILVERMAN, age 58, has been President and Chief Executive Officer
and Director of the Company since December 1997 and Chairman of the Board of
Directors and Chairman of the Executive Committee of the Board of Directors
since July 28, 1998. Mr. Silverman is also an officer and/or director of a
number of subsidiaries of the Company. Mr. Silverman was Chairman of the Board,
Chairman of the Executive Committee and Chief Executive Officer of HFS from May
1990 until December 1997. From November 1994 until February 1996, Mr. Silverman
also served as Chairman of the Board and Chief Executive Officer of Chartwell
Leisure Inc. ("Chartwell").
MR. MONACO, age 51, has been a Vice Chairman and a Director of the
Company since December 1997. Mr. Monaco is also Chairman and Chief Executive
Officer of the Alliance Marketing Division of the Company since November 1998.
Mr. Monaco was Chief Financial Officer of the Company from December 1997 until
November 1998. Mr. Monaco was Vice Chairman and Chief Financial Officer of HFS
from October 1996 until December 1997 and was a Director of HFS from January 27,
1997 until December 1997. Mr. Monaco also serves as a director and officer of
several subsidiaries of the Company. Mr. Monaco served as Executive Vice
President and Chief Financial Officer of the American Express Company, a
financial services company, from September 1990 to June 1996. Mr. Monaco serves
as a director of Avis Rent A Car, Inc., which files reports pursuant to the
Exchange Act. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Relationship
with Avis Rent A Car, Inc." and "--Relationship with NRT."
MR. HOLMES, age 42, has been a Vice Chairman and Director of the
Company and Chairman and Chief Executive Officer of the Travel Division of the
Company since December 1997. Mr. Holmes was Vice Chairman of HFS from September
1996 until December 1997 and was a Director of HFS from June 1994 until December
1997.
6
From July 1990 through September 1996, Mr. Holmes served as Executive Vice
President, Treasurer and Chief Financial Officer of HFS. Mr. Holmes also serves
as a director and officer of several subsidiaries of the Company. Mr. Holmes is
a director of the following corporations that file reports pursuant to the
Exchange Act: Avis Rent A Car, Inc. and PHH Corporation, a wholly owned
subsidiary of the Company. Mr. Holmes is also a Director of Avis Europe PLC. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Relationship with Avis Rent A
Car, Inc."
MR. BUCKMAN, age 54, has been a Vice Chairman since November 1998 and
General Counsel and a Director of the Company since December 1997. Mr. Buckman
was a Senior Executive Vice President of the Company from December 1997 until
November 1998. Mr. Buckman was the Senior Executive Vice President and General
Counsel and Assistant Secretary of HFS from May 1997 to December 1997, a
Director of HFS since June 1994 and was Executive Vice President, General
Counsel and Assistant Secretary of HFS from February 1992 to May 1997. Mr.
Buckman also serves as a director and officer of several subsidiaries of the
Company. From November 1994 to February 1996, Mr. Buckman served as the
Executive Vice President, General Counsel and Secretary of Chartwell and until
August 1996 he served as a director of Chartwell. Mr. Buckman also serves as a
Director of PHH Corporation, a wholly owned subsidiary of the Company, which
files reports pursuant to the Exchange Act.
MR. EDELMAN, age 57, has been a Director of the Company since December
1997. Mr. Edelman was a Director of HFS from November 1993 until December 1997.
He has been a partner with Battle Fowler, a New York City law firm, from 1972
through 1993 and since January 1, 1994 has been Of Counsel to that firm. Mr.
Edelman is also a partner of Chartwell Hotels Associates, Chartwell Leisure
Associates L.P., Chartwell Leisure Associates L.P. II, and of certain of their
respective affiliates. Mr. Edelman also serves as a director of the following
corporations which file reports pursuant to the Exchange Act: Avis Rent A Car,
Inc., Capital Trust and Arcadia Trust. Mr. Edelman became Chairman of the Board
of Directors of Avis Rent-A-Car, Inc. in December 1998. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS--Relationship with Chartwell",
"--Relationship with Avis Rent A Car, Inc." and "--Other Relationships."
MR. RITTEREISER, age 60, has been a Director of the Company since 1982
and is Chairman and Chief Executive Officer of Gruntal Financial L.L.C., an
investment services firm based in New York City since 1995. He has been Chairman
of Yorkville Associates Corp., a private investment and financial concern, since
its formation in April 1989. He served as a Trustee of the DBL Liquidating Trust
from April 1992 through April 1996. He served as a Director in 1990, as Chairman
in November 1992, and as President and Chief Executive Officer from March 1993
until February 1995 of Nationar, a New York banking services company which was
taken over on February 6, 1995 by the Acting Superintendent of Banks of New York
State. He is a Director of the following corporations which file reports
pursuant to the Exchange Act: Ferrofluidics Corporation and Interchange
Financial Services Corporation.
Messrs. Holmes and Pittman were directors and Mr. Snodgrass was
Chairman of the Board of Directors of AMRE, Inc. ("AMRE") within two years prior
to January 20, 1997, the date on which AMRE filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Although the Company had a minor
investment in AMRE, AMRE is not an affiliate of or otherwise related to the
Company.
7
INFORMATION REGARDING DIRECTORS WHOSE TERMS EXPIRE IN 2001
Robert D. Kunisch Dr. Carole G. Hankin
John D. Snodgrass The Rt. Hon. Brian Mulroney, P.C., LL.D
Robert W. Pittman E. John Rosenwald, Jr.
MR. KUNISCH, age 57, has been a Vice Chairman, Relationship Management
and Corporate Development, and a Director of the Company since December 1997.
Mr. Kunisch was a Vice Chairman of HFS from April 1997 to December 1997 and
Chairman of the Board (since 1989), Chief Executive Officer (since 1988) and
President (since 1984) of PHH Corporation. He is a director of the following
corporations which file reports pursuant to the Exchange Act: CSX Corporation
and GenCorp, Inc.
MR. SNODGRASS, age 41, has been a Director of the Company since
December 1997. Mr. Snodgrass was a Director, President and Chief Operating
Officer of HFS from February 1992 until December 1997 and was Vice Chairman of
HFS from September 1996 until December 1997. From December 1997 until June 30,
1998, Mr. Snodgrass served as a consultant to the Company. From November 1994
through January 1996, Mr. Snodgrass served as Vice Chairman of the Board of
Chartwell. Since December 1997, Mr. Snodgrass has been an independent investor.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Other Relationships."
DR. HANKIN, age 56, has been a Director of the Company since December
1997. Dr. Hankin is Superintendent of Schools in Syosset, New York, a suburban
K-12 school district; she has served in that district since 1990.
Mr. Mulroney, age 59, has been a Director of the Company since December
1997. Mr. Mulroney was a Director of HFS from April 1997 until December 1997.
Mr. Mulroney was Prime Minister of Canada from 1984 to 1993 and is currently
Senior Partner in the Montreal-based law firm, Ogilvy Renault. He is a director
of the following corporations which file reports pursuant to the Exchange Act:
Archer Daniels Midland Company Inc., Barrick Gold Corporation, Petrofina, S.A,
TrizechahN Corporation Ltd. and Quebecor Printing Inc.
MR. PITTMAN, age 45, has been a Director of the Company since December
1997. Mr. Pittman was a Director of HFS from July 1994 until December 1997.
Since February 1998, Mr. Pittman has been President and Chief Operating Officer
of America Online, Inc., a provider of internet online services. From October
1996 to February 1998, Mr. Pittman was President and Chief Executive Officer of
AOL Networks, a unit of America Online, Inc. From September 1995 through October
1996, Mr. Pittman served as the Chief Executive Officer and Managing Partner of
the Company's subsidiary, Century 21 Real Estate Corporation. From 1990 until
September 1995, Mr. Pittman served as President and Chief Executive Officer of
Time Warner Enterprises, a business development unit of Time Warner Inc. and,
from 1991 to September 1995, additionally, as Chairman and Chief Executive
Officer of Six Flags Entertainment Corporation, the parent of Six Flags Theme
Parks Inc. Mr. Pittman serves as a director of America Online, Inc., which files
reports pursuant to the Exchange Act. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Other Relationships."
MR. ROSENWALD, age 68, has been a Director of the Company since
December 1997. Mr. Rosenwald was a Director of HFS from September 1996 until
December 1997. Mr. Rosenwald has been, since 1988, Vice Chairman of The Bear
Stearns Companies Inc., an investment banking firm. Mr. Rosenwald also serves as
a director of the following corporations which file reports pursuant to the
Exchange Act: The Bear Stearns Companies Inc. and Hasbro, Inc. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS--Other Relationships."
8
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors held eight meetings during 1998. In 1998, all
incumbent directors attended at least 75% of the aggregate number of meetings of
the Board and committees of the Board on which they served that were held after
their appointment.
EXECUTIVE COMMITTEE
From December 17, 1997 to July 28, 1998, the Executive Committee (which
also acts as the nominating committee) was composed of Walter A. Forbes
(Chairman), Henry R. Silverman, E. Kirk Shelton, Christopher K. McLeod, Robert
P. Rittereiser, Michael P. Monaco, Stephen P. Holmes and Martin L. Edelman. On
July 28, 1998, a new Executive Committee of the Board of Directors was appointed
which is composed of Messrs. Silverman (Chairman), Monaco, Holmes and Edelman
(the "Executive Committee"). On August 27, 1998, James E. Buckman and Robert D.
Kunisch were appointed to the Executive Committee. The Executive Committee has
and may exercise all of the powers of the Board of Directors when the Board is
not in session, including the power to authorize the issuance of stock, except
that the Executive Committee has no power to (a) alter, amend or repeal the
By-Laws or any resolution or resolutions of the Board of Directors, (b) declare
any dividend or make any other distribution to the stockholders of the Company,
(c) appoint any member of the Executive Committee, or (d) take any other action
which legally may be taken only by the full Board of Directors. The Chairman of
the Board serves as Chairman of the Executive Committee. The Executive Committee
held five meetings in 1998.
Pursuant to the By-Laws, the Executive Committee acts as the nominating
committee of the Board of Directors, nominating persons for election as
directors. The By-Laws provide that until such time as all claims and causes of
actions relating to the accounting issues at the former CUC businesses as
disclosed in a press release dated July 14, 1998 and a Current Report on Form
8-K of the Company, dated August 13, 1998 (the "Accounting Issues") have been
settled, adjudicated or otherwise disposed of pursuant to a final determination
that is no longer subject to appeal or review, (i) the Executive Committee shall
nominate for election as directors Craig R. Stapleton and Robert P. Rittereiser
or such alternate candidates as designated by Messrs. Stapleton and Rittereiser
who are not reasonably objected to by the Executive Committee and (ii) in the
event that any one or more of Mr. Stapleton, Mr. Rittereiser or Dr. Carole
Hankin are not elected, resign or are removed as directors, the Board of
Directors shall replace those individual(s) with an alternate director as
designated by the remaining individuals specified above who are not reasonably
objected to by the Board of Directors. The nominating committee did not meet in
1998. THE BOARD OF DIRECTORS HAS PROPOSED THE ELIMINATION OF THE FOREGOING
PROVISION OF THE BY-LAWS UNDER PROPOSAL 3 HEREIN.
AUDIT COMMITTEE
From December 17, 1997 until July 28, 1998, the Audit Committee (the
"First Audit Committee") was composed of Frederick D. Green (Chairman), Robert
P. Rittereiser, E. John Rosenwald, Jr. and Robert E. Nederlander. The Audit
Committee reviews and evaluates the Company's internal accounting and auditing
procedures; recommends to the Board of Directors the firm to be appointed as
independent accountants to audit the Company's financial statements; reviews
with management and the independent accountants the Company's year-end operating
results; reviews the scope and results of the audit with the independent
accountants; reviews with management the Company's interim operating results;
and reviews the non-audit services to be performed by the firm of independent
accountants and considers the effect of such performance on the accountants'
independence. The First Audit Committee held 13 meetings in 1998.
On July 28, 1998, Mr. Green tendered his irrevocable resignation to the
Board of Directors of the Company which became effective on August 27, 1998. On
August 27, 1998, the Audit Committee (the "New Audit Committee") was
reconstituted and now is comprised of Leonard Schutzman (Chairman), The Rt. Hon.
Brian Mulroney, Robert F. Smith and Robert W. Pittman. The New Audit Committee
held three meetings in 1998.
9
COMPENSATION COMMITTEE
The Compensation Committee (the "First Compensation Committee") was
composed of Robert F. Smith (Chairman), Leonard Schutzman, Anthony G. Petrello
and Robert T. Tucker. On July 28, 1998, a new Compensation Committee was
appointed which is composed of Messrs. Smith (Chairman), Schutzman, Mulroney and
Coleman (the "Compensation Committee"). As of January 1999, Mr. Mulroney no
longer serves on the Compensation Committee. The Compensation Committee has the
following powers and authority: (i) determining and fixing the compensation for
all senior officers of the Company and those of its subsidiaries that the
Compensation Committee shall from time to time consider appropriate, as well as
all employees of the Company and its subsidiaries compensated at a rate in
excess of such amount per annum as may be fixed or determined from time to time
by the Board; (ii) performing the duties of the committees of the Board provided
for in any present or future stock option, incentive compensation or employee
benefit plan of the Company or, if the Compensation Committee shall so
determine, any such plan of any subsidiary; and (iii) reviewing the operations
of and policies pertaining to any present or future stock option, incentive
compensation or employee benefit plan of the Company or any subsidiary that the
Compensation Committee shall from time to time consider appropriate. Each
resolution of the Compensation Committee requires approval by at least three
members of such committee. The Compensation Committee held six meetings in 1998.
LITIGATION COMMITTEE
On July 28, 1998, the Board of Directors appointed a Litigation
Committee composed of Robert P. Rittereiser, Craig R. Stapleton, E. John
Rosenwald and Robert E. Nederlander (the "Litigation Committee"). The By-Laws
provide the Litigation Committee with the following powers and authority: (i)
full and exclusive power and authority to determine whether the prosecution of
any pending or threatened stockholder derivative actions arising from or related
to the Accounting Issues are or would be in the best interests of the Company
and (ii) full and exclusive power and authority to initiate, maintain or settle
on behalf of the Company any direct action by the Company against any present or
former director (whether sued as a director or as an officer) arising from or
related to the Accounting Issues. The Litigation Committee did not meet during
1998. Pursuant to the By-Law Amendments being considered under Proposal 3, the
Board of Directors has proposed the elimination of the Litigation Committee.
DIRECTOR COMPENSATION
Non-Employee Directors (as defined in Rule 16b-3(b)(3) of the Exchange
Act) of the Company receive an annual retainer of $30,000, plus $4,000 for
chairing a committee and $2,000 for serving as a member of a committee other
than Chairman. On September 23, 1998, the Compensation Committee approved a
requirement that 50% of the annual $30,000 stipend is to be paid to each
Director in Common Stock of the Company. Non-Employee Directors also are paid
$1,000 for each Board meeting attended and $500 ($1,000 for committee chair) for
each Board committee meeting if held on the same day as a Board meeting and
$1,000 ($2,000 for committee chair) for each Board committee meeting attended on
a day on which there is no Board meeting. Non-Employee Directors are reimbursed
for expenses incurred in attending meetings of the Board of Directors and
committees.
The Company provides $100,000 of term life insurance coverage for each
Non-Employee Director to the beneficiary designated by such Non-Employee
Director. In addition, the Company has purchased joint life insurance contracts
in the amount of $1 million for each Director. Upon the death of such Director,
while still in office, the Company will donate an aggregate of $1 million to one
or more charitable organizations designated by such Director from the proceeds
of such insurance policy. With the exception of such joint life insurance
contracts, members of the Board of Directors who are officers or employees of
the Company or any of its subsidiaries do not receive compensation or
reimbursement of expenses for serving in such capacity.
Non-Employee Directors have also received grants of stock options under
one or more of the following plans: 1990 Directors Stock Option Plan, 1992
Directors Stock Option Plan, 1994 Director Stock Option Plan, the 1997 Stock
Incentive Plan and the HFS Incorporated 1993 Stock Option Plan.
10
Directors shall be elected by the affirmative vote of a plurality of
the shares of Common Stock present at the Meeting, in person or by proxy, and
entitled to vote in the election of directors. Pursuant to applicable Delaware
law, abstentions and broker non-votes will have no effect on the outcome of the
vote.
11
ACCOUNTING ISSUES, CLASS ACTION LITIGATION AND MANAGEMENT AND CORPORATE
GOVERNANCE CHANGES
Accounting Issues. On April 15, 1998, the Company announced that in the
course of transferring responsibility for the Company's accounting functions
from the former CUC International Inc. ("CUC") personnel to former HFS
accounting personnel and preparing for the reporting of first quarter 1998
results, it had discovered the Accounting Issues in the CUC business units. As a
result, upon discovering the Accounting Issues, the Company together with its
counsel and assisted by auditors, immediately began an intensive investigation.
In addition, the Audit Committee of the Board of Directors engaged Willkie, Farr
& Gallagher ("Willkie Farr") as special legal counsel and Willkie Farr engaged
Arthur Andersen LLP to perform an independent investigation. On July 14, 1998,
the Company announced that the accounting irregularities were greater than those
initially discovered in April and that the irregularities affected the
accounting records of all major business units of CUC. On August 13, 1998, the
Company announced that its investigation of accounting irregularities and errors
in the CUC business units was complete. On August 27, 1998, the Company
announced that the Audit Committee of the Board of Directors had submitted its
report (the "Report") to the Board of Directors on the investigation into the
accounting irregularities and its conclusions regarding responsibility for those
actions. A copy of the Report has been filed as an exhibit to the Company's
Current Report on Form 8-K dated August 28, 1998. As a result of the
investigation, the Company has restated its previously reported financial
results for 1997, 1996 and 1995.
Class Action Litigation and Government Investigation. As a result of
the aforementioned Accounting Issues, numerous purported class action lawsuits,
two purported derivative lawsuits and an individual lawsuit have been filed
against the Company and, among others, its predecessor, HFS, and certain current
and former officers and directors of the Company and HFS, asserting various
claims under the federal securities laws and certain state statutory and common
laws. In addition, the staff of the Securities and Exchange Commission (the
"SEC") and the United States Attorney for the District of New Jersey are
conducting investigations relating to the Accounting Issues. The SEC staff has
advised the Company that its inquiry should not be construed as an indication by
the SEC or its staff that any violations of law have occurred. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS--Claims of Certain Current and Former
Officers and Directors of the Company and HFS."
Management and Corporate Governance Changes. On July 28, 1998, Walter
A. Forbes resigned as Chairman of the Company and as a member of the Board of
Directors. Henry R. Silverman, President and Chief Executive Officer of the
Company, was unanimously elected by the Board of Directors to be Chairman and
will continue to serve as Chief Executive Officer and President of the Company.
Ten members of the Board formerly associated with CUC also resigned.
On July 28, 1998, the Board also approved the adoption of Amended and
Restated By-Laws of the Company and voted to eliminate the governance plan
adopted as part of the Merger, resulting in the elimination of 80%
super-majority vote requirement provisions of the By-Laws relating to the
composition of the Board and the limitations on the removal of the Chairman and
the Chief Executive Officer.
Stock Option Exchange and Cancellation. On September 23, 1998, the
Compensation Committee approved an equity incentive program for the Company's
senior management (the "Senior Management Program") and a program to effectively
reprice certain company stock options granted to middle management of the
Company during December 1997 and the first quarter of 1998. The Senior
Management Program effectively modified the terms of certain options held by the
executive and senior management of the Company. With respect to approximately
25.8 million options held by Mr. Silverman, (a) 33% were cancelled, (b) 33% were
exchanged for similar options with an exercise price of $20 per share and (c)
33% were exchanged for similar options with an exercise price equal to $9.8125
per share (the "New Price"). Although prior to the effectiveness of the Senior
Management Program all of Mr. Silverman's options were vested, the 17.2 million
options granted to Mr. Silverman in such exchange are unvested and will vest at
the rate of 25% per year over the next four years beginning in October 1999.
With respect to an aggregate of approximately 10.3 million options held by
Messrs. Buckman, Holmes, Monaco and Kunisch (the "Named Executive Officers") (a)
25% were cancelled, (b) 25% were exchanged for similar options with an exercise
price of $20 per share, and (c) 50% were exchanged for similar options with an
exercise price equal to the New Price. With respect to approximately 25 million
options held by other senior management (approximately 40 persons) (the "Senior
Management"), other than the Named Executive Officers, (a)
12
10% were cancelled, (b) 40% were exchanged for similar options with an exercise
price of $12.2656 per share (the New Price plus 25%), and (c) 50% were exchanged
for similar options with an exercise price equal to the New Price. In addition,
to further align the Senior Management (including the Named Executive Officers)
interest with that of the Company's stockholders, the ability to obtain modified
options was subject to such officers' agreement to participate in an executive
equity incentive program, requiring such officers to acquire and hold Common
Stock having an aggregate market value based upon their base cash compensation.
See "EXECUTIVE COMPENSATION AND OTHER INFORMATION - Ten Year Option/SAR
Repricings."
13
EXECUTIVE OFFICERS
The executive officers of the Company as of the date of this Proxy
Statement are set forth in the table below. All executive officers are appointed
at the annual meeting or interim meetings of the Board of Directors. Each
executive officer is appointed by the Board to hold office until his or her
successor is duly appointed and qualified:
NAME OFFICE OR POSITIONS HELD
---- ------------------------
Henry R. Silverman Chairman of the Board, President and Chief Executive Officer
James E. Buckman Vice Chairman, General Counsel and Assistant Secretary
Stephen P. Holmes Vice Chairman, Chairman and Chief Executive Officer, Travel Division
Robert D. Kunisch Vice Chairman, Relationship Management and Corporate Development
Michael P. Monaco Vice Chairman, Chairman and Chief Executive Officer, Alliance Marketing
Division
John W. Chidsey Chairman and Chief Executive Officer, Insurance/Wholesale Division
David M. Johnson Senior Executive Vice President and Chief Financial Officer
Samuel L. Katz Executive Vice President, Strategic Development
Richard A. Smith Chairman and Chief Executive Officer, Real Estate Division
Tobia Ippolito Senior Vice President, Controller, and Acting Chief Accounting Officer
14
Other than as set forth below, for biographical information concerning
the Executive Officers of the Company, see "Election of Directors."
NAME OFFICE OR POSITIONS HELD
---- ------------------------
John W. Chidsey Mr. Chidsey, age 36, has been Chairman and Chief Executive
Officer of the Insurance/Wholesale Division of the Company
since November 1998. From May 1998 to November 1998, Mr.
Chidsey was President and Chief Operating Officer of the
Alliance Marketing Division of the Company. From December
1997 to May 1998, Mr. Chidsey was Executive Vice President,
Business Development of the Company. From 1995 to December
1997, Mr. Chidsey was Senior Vice President, Preferred
Alliance Services for HFS. Prior to joining HFS, Mr. Chidsey
was the Chief Financial Officer at two divisions of Pepsico
Inc. with responsibilities for international operations.
David M. Johnson Mr. Johnson, age 38, has been Senior Executive Vice
President and Chief Financial Officer of the Company since
November 1998. From April 1998 until November 1998, Mr.
Johnson was Executive Vice President-Finance of the Company.
For the 12 years preceding April 1998, Mr. Johnson was
employed at Merrill Lynch Pierce Fenner & Smith Incorporated
("Merrill"), most recently as a managing director of
Merrill's Technology Investment Banking Group. Mr. Johnson
is a Director of NRT Incorporated. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -Relationship with
NRT."
Samuel L. Katz Mr. Katz, age 33, has been Executive Vice President,
Strategic Development of the Company since April 1998 and
was Senior Vice President - Acquisitions of the Company from
December 1998 to March 1998. Mr. Katz was Senior Vice
President, Acquisitions of HFS from January 1996 to April
1998. From June 1993 to December 1995, Mr. Katz was Vice
President of Dickstein Partners Inc., a private investment
firm. Mr. Katz is a director of Specialty Catalog Corp. and
NRT Incorporated. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSAC-TIONS -Relationship with NRT."
Richard A. Smith Mr. Smith, age 45, has been Chairman and Chief Executive
Officer of the Real Estate Division of the Company since
December 17, 1997. Mr. Smith was President of the Real
Estate Division of HFS from October 23, 1996 to December 17,
1997 and Executive Vice President of Operations for HFS
Incorporated from February 1992 to October 23, 1996. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-Relationship with NRT."
15
Tobia Ippolito Mr. Ippolito, age 34, has been Senior Vice President and
Corporate Controller of the Company since April 1998 and
Acting Chief Accounting Officer since March 8, 1999. From
December 17, 1997 to April 1998, Mr. Ippolito was Vice
President and Corporate Controller of the Company. From
January 1995 to December 17, 1997, Mr. Ippolito was Vice
President and Corporate Controller of HFS. From January 1993
to January 1995, Mr. Ippolito was a Director and Corporate
Controller of HFS.
16
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE OF THE NAMED EXECUTIVE OFFICERS
The following table sets forth the 1996, 1997 and 1998 cash and noncash
compensation awarded to or earned by each person who served as Chief Executive
Officer of the Company during 1998 and the four other most highly compensated
executive officers of the Company (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long Term Compensation
------------------------------------------------------------------------------
Securities
Underlying All Other
Name and Options/ Compensation
Principal Position Year Salary ($) Bonus ($) SARs (#)(2) ($)(4)
- ---------------------------------------------------------------------------------------------------------------
Henry R. Silverman 1998 1,610,367 1,207,775 17,208,920(3) 117,541
Chairman of the Board, 1997 1,577,472 2,366,208 19,307,180(3) 6,760
President and Chief 1996 1,501,903 2,250,000 0 39,804
Executive Officer
Stephen P. Holmes 1998 647,115 388,269 1,586,948(3) 51,772
Vice Chairman and 1997 499,980 299,988 1,025,620(3) 22,903
Chairman and CEO, 1996 417,305 215,621 100,000(3) 4,103
Travel Services Division
Michael P. Monaco 1998 647,115 388,269 2,397,994(3) 51,642
Vice Chairman and 1997 499,980 299,988 2,347,325(3) 16,514
Chairman and CEO, 1996 105,766 0 0 0
Alliance Marketing
Division
Robert D. Kunisch 1998 616,870 259,086 1,323,430(3) 24,754
Vice Chairman, 1997 901,480 2,799,251 134,615
Relationship Management 1996 -- -- -- --
and Corporate Develop-
ment
James E. Buckman 1998 531,759 237,297 1,624,448(3) 16,980
Vice Chairman and 1997 499,980 299,988 1,075,620(3) 6,258
General Counsel 1996 417,305 215,621 100,000(3) 3,940
- ------------------------
(1) Prior to December 17, 1997, all cash compensation represents compensation
paid by HFS.
17
(2) On September 23, 1998, the Compensation Committee approved the Senior
Management Program which effectively modified the terms of certain Company
stock options held by the Named Executive Officers. With respect to
approximately 25.8 million options held by Mr. Silverman, (a) 33% were
cancelled, (b) 33% were exchanged for similar options with an exercise
price of $20 per share and (c) 33% were exchanged for similar options with
an exercise price equal to the New Price. Although prior to the
effectiveness of the Senior Management Program all of Mr. Silverman's
options were vested, the 17.2 million options granted to Mr. Silverman in
such exchange are unexercisable and will vest at the rate of 25% per year
over the next four years beginning in October 1999. With respect to an
aggregate of approximately 10.3 million options held by the other Named
Executive Officers: (a) 25% were cancelled, (b) 25% were exchanged for
similar options with an exercise price of $20 per share; and (c) 50% were
exchanged for similar options with an exercise price equal to the New
Price. In addition, to further align the Senior Management (including the
Named Executive Officers) interest with that of the Company's stockholders,
the ability to obtain modified options was subject to such officers'
agreement to participate in an executive equity incentive program,
requiring such officers to acquire and hold Common Stock having an
aggregate market value based upon their base salary.
(3) As a result of the Senior Management Program, the options granted in
1996, 1997 and the first half of 1998 were cancelled and reissued in 1998.
(4) Payments included in these amounts for the fiscal year ended December 31,
1998, 1997 and 1996 consist of (i) contributions to the Employee Savings
Plan, which is a defined contribution salary reduction 401(k) plan
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code") and/or under a non-qualified deferred compensation
plan established by HFS in 1996 ("Defined Contribution Match"); (ii)
insurance premiums paid by the Company for supplemental life insurance
coverage; and (iii) unused vacation pay. The payments with respect to the
Defined Contribution Match and life insurance premiums were as follows:
Defined Life Unused
Contribution Insurance Vacation
Year Match ($) Premium ($) Pay ($)
-------------------------------------------------------------------------------------------------
Mr. Silverman 1998 75,226 2,400 0
Mr. Holmes 1998 53,267 2,400 0
Mr. Monaco 1998 53,137 2,400 0
Mr. Kunisch 1998 0 2,400 17,605
Mr. Buckman 1998 20,542 2,400 0
18
OPTION GRANTS TABLE FOR THE NAMED EXECUTIVE OFFICERS
The following table summarizes option grants during the last fiscal
year made to the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants(3)
---------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base Grant Date
Options/SARs Employees in Price Expiration Present
Name Granted (#)(1)(2) Fiscal Year ($/Sh) Date Value $ (4)
- ---------------------------------------------------------------------------------------------------------------------
Henry R. Silverman 4,806,200(5) 4.59% 9.8125 01/22/2006 27,491,464
3,798,260(5) 3.63% 9.8125 04/30/2007 21,726,047
1,007,940(5) 0.96% 20.000 04/30/2007 4,041,839
7,596,520(5) 7.26% 20.000 12/17/2007 30,462,045
Stephen P. Holmes 240,310(6) 0.23% 9.8125 05/31/2006 1,374,573
480,620(6) 0.46% 9.8125 04/30/2007 2,749,146
337,036(7) 0.32% 9.8125 12/17/2007 1,927,845
207,964(7) 0.20% 20.000 12/17/2007 833,935
321,018(5) 0.31% 20.000 10/14/2008 1,287,282
Michael P. Monaco 1,441,860(6) 1.38% 9.8125 01/16/2007 8,248,011
156,803(6) 0.15% 9.8125 04/30/2007 896,913
203,662(6) 0.19% 20.000 04/30/2007 816,684
545,000(7) 0.52% 20.000 12/17/2007 2,185,450
50,669(5) 0.05% 20.000 10/14/2008 203,182
Robert D. Kunisch 665,620(6) 0.64% 9.8125 04/30/2007 3,807,346
325,000(6) 0.31% 3.3125 11/11/2008 2,522,000
295,620(6) 0.28% 20.000 04/30/2007 1,185,436
37,190(7) 0.04% 20.000 12/17/2007 149,131
James E. Buckman 240,310(6) 0.23% 9.8125 05/31/2006 1,374,573
480,620(6) 0.46% 9.8125 04/30/2007 2,749,146
362,036(7) 0.35% 9.8125 12/17/2007 2,070,845
232,964(7) 0.22% 20.000 12/17/2007 934,185
308,518(5) 0.29% 20.000 10/14/2008 1,237,157
(1) Options granted to the Named Executive Officers expire as specified in the
table. The Compensation Committee retains discretion to modify the terms of
outstanding options provided that the options, as modified, do not violate
the terms of the respective plan under which they were granted.
19
(2) The vesting of these options accelerates under certain circumstances
(including a change of control of the Company occurring after the Effective
Time) under the terms of the Named Executive Officers' respective
employment agreements. See "Employment Contracts and Termination, Severance
and Change of Control Arrangements."
(3) On September 23, 1998, the Compensation Committee approved the Senior
Management Program which effectively modified the terms of certain Company
stock options held by the Named Executive Officers. With respect to
approximately 25.8 million options held by Mr. Silverman, (a) 33% were
cancelled, (b) 33% were exchanged for similar options with an exercise
price of $20 per share and (c) 33% were exchanged for similar options with
an exercise price equal to the New Price. Although prior to the
effectiveness of the Senior Management Program all of Mr. Silverman's
options were vested, the 17.2 million options granted to Mr. Silverman in
such exchange are unexercisable and will vest at 25% per year over the next
four years beginning in October 1999. With respect to an aggregate of
approximately 10.3 million options held by the other Named Executive
Officers: (a) 25% were cancelled, (b) 25% were exchanged for similar
options with an exercise price of $20 per share; and (c) 50% were exchanged
for similar options with an exercise price equal to the New Price. In
addition, to further align the Senior Management (including the Named
Executive Officers) interest with that of the Company's stockholders, the
ability to obtain modified options was subject to such officers' agreement
to participate in an executive equity incentive program, requiring such
officers to acquire and hold Common Stock having an aggregate market value
based upon their base cash compensation.
(4) The values assigned to each reported option on this table are computed
using the Black-Scholes option pricing model. The calculations for options
granted on October 14, 1998 each assume a risk-free rate of return of 4.9%,
which represents the ten-year yield of United States Treasury Notes on the
option grant date. The calculations for all option grant dates assume a
55.0% volatility; however, there can be no assurance as to the actual
volatility of the Common Stock in the future. The calculations for all
grant dates also assume no dividend payout, a straight-line, and a 6.3 year
expected life. In assessing these option values, it should be kept in mind
that no matter what theoretical value is placed on a stock option on the
date of grant to a Key Executive Officer, its ultimate value will depend on
the market value of the Common Stock at a future date.
(5) These options are scheduled to vest and become exercisable in yearly
increments of 25%, commencing in October 1999.
(6) These options are fully vested and exercisable.
(7) These options are scheduled to vest and become exercisable in yearly
increments of 20%, commencing in January 1999.
20
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE FOR NAMED EXECUTIVE OFFICERS
The following table summarizes the exercise of options by the Named
Executive Officers during the last fiscal year and the value of unexercised
options held by such executives as of the end of such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Options/SARs Options/SARs
On Exercise Value Realized at FY-End (#) at FY-End ($)(1)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
Henry R. Silverman 1,900,000 61,063,372 20,286,622/17,208,920 317,774,423/81,742,370
Stephen P. Holmes 0 0 2,542,481/ 866,018 34,103,809/ 3,201,842
Michael P. Monaco 0 0 1,802,325/ 595,669 15,187,298/ 0
Robert D. Kunisch 0 0 1,286,240/ 37,190 8,273,390/ 0
James E. Buckman 300,000 10,328,510 2,360,713/ 903,518 30,276,385/ 3,439,342
(1) Based upon the closing price of the Common Stock on the New York Stock
Exchange on December 31, 1998, and applicable exercise prices.
(2) On September 23, 1998, the Compensation Committee approved the Senior
Management Program which effectively modified the terms of certain Company
stock options held by the Named Executive Officers. With respect to
approximately 25.8 million options held by Mr. Silverman, (a) 33% were
cancelled, (b) 33% were exchanged for similar options with an exercise
price of $20 per share and (c) 33% were exchanged for similar options with
an exercise price equal to the New Price. Although prior to the
effectiveness of the Senior Management Program all of Mr. Silverman's
options were vested, the 17.2 million options granted to Mr. Silverman in
such exchange are unexercisable and will vest at 25% per year over the next
four years beginning in October 1999. With respect to an aggregate of
approximately 10.3 million options held by the other Named Executive
Officers: (a) 25% were cancelled, (b) 25% were exchanged for similar
options with an exercise price of $20 per share; and (c) 50% were exchanged
for similar options with an exercise price equal to the New Price. In
addition, to further align the Senior Management (including the Named
Executive Officers) interest with that of the Company's stockholders, the
ability to obtain modified options was subject to such officers' agreement
to participate in an executive equity incentive program, requiring such
officers to acquire and hold Common Stock having an aggregate market value
based upon their base cash compensation.
PENSION PLANS
The Company, through PHH Corporation, maintains a tax-qualified pension plan
generally for the benefit of certain employees of PHH Corporation (the "Pension
Plan"). The Pension Plan provides participants a defined retirement benefit
commencing at normal retirement age of 65 (or earlier, with reduced payments,
upon early retirement or disability). Mr. Kunisch is the only Named Executive
Officer who participates in the Pension Plan or any other defined benefit
pension plan of the Company.
The actual retirement benefit provided under the Pension Plan to Mr. Kunisch is
based upon years of credited service and final average compensation. The maximum
aggregate benefit provided to Mr. Kunisch under the Pension Plan is equal to 60%
of his Final Average Compensation. Final Average Compensation for purposes of
computing aggregate benefits is the average, for the five years of service prior
to retirement or other termination of employment, of base salary and bonus as
reported under the "Salary" and "Bonus" columns in the Summary Compensation
Table. Because of Internal Revenue Service limitations on compensation,
includible for purposes of the Pension Plan Mr. Kunisch's Final Average
Compensation would equal $160,000. The estimated annual benefit that Mr. Kunisch
will receive under the Pension Plan upon retirement at age 65 is $96,000.
21
TEN YEAR OPTION/SAR REPRICINGS
Number of Length of
Securities Market Price Exercise Original
Underlying of Stock Price Option Term
Options/ at Time at Time of Remaining at
SARs of Repricing Repricing New Date of
Repriced or or or Exercise Repricing
Amended Amendment Amendment Price or
Name Date ($)(1) ($) ($) ($) Amendment
- -------------------------- ------------ ----------------- ----------------- ------------------ ------------ -------------------
Henry R. Silverman, 10/14/98 4,806,200(2) 9.8125 16.78 9.8125 75 months
Chairman, President 10/14/98 3,798,260(2) 9.8125 23.88 9.8125 102 months
And Chief Executive 10/14/98 1,007,940(2) 9.8125 23.88 20.0000 102 months
Officer 10/14/98 7,996,520(2) 9.8125 31.375 20.0000 110 months
Stephen P. Holmes, 10/14/98 240,310(3) 9.8125 25.85 9.8125 91 months
Vice Chairman and 10/14/98 480,620(3) 9.8125 23.88 9.8125 102 months
Chairman and CEO, 10/14/98 337,036(4) 9.8125 31.375 9.8125 110 months
Travel Services 10/14/98 207,964(4) 9.8125 31.375 20.0000 110 months
Division 10/14/98 321,018(2) 9.8125 34.3125 20.0000 111 months
Michael P. Monaco, 10/14/98 1,441,860(3) 9.8125 25.44 9.8125 99 months
Vice Chairman and 10/14/98 156,803(3) 9.8125 23.88 9.8125 102 months
Chairman and CEO, 10/14/98 203,662(3) 9.8125 23.88 20.000 102 months
Alliance Marketing 10/14/98 545,000(4) 9.8125 31.375 20.0000 110 months
Division 10/14/98 50,669(2) 9.8125 34.3125 20.0000 111 months
Robert D. Kunisch, 10/14/98 665,620(3) 9.8125 23.88 9.8125 102 months
Vice Chairman, 10/14/98 295,620(3) 9.8125 23.88 20.0000 102 months
Relationship 10/14/98 37,190(5) 9.8125 31.375 20.0000 110 months
Management and
Corporate
Development
James E. Buckman, 10/14/98 240,310(3) 9.8125 25.85 9.8125 91 months
Vice Chairman 10/14/98 480,620(3) 9.8125 23.88 9.8125 102 months
And General 10/14/98 362,036(4) 9.8125 31.375 9.8125 110 months
Counsel 10/14/98 232,036(4) 9.8125 31.375 20.0000 110 months
10/14/98 308,518(2) 9.8125 34.3125 20.0000 111 months
John W. Chidsey, 10/14/98 240,310(3) 9.8125 23.88 9.8125 102 months
Chairman and Chief 10/14/98 179,845(5) 9.8125 31.38 9.8125 110 months
Executive Officer, 10/14/98 120,155(5) 9.8125 31.38 12.2656 110 months
Insurance/Wholesale 10/14/98 215,969(5) 9.8125 34.31 12.2656 111 months
Division
David M. Johnson, 10/14/98 666,667(2) 9.8125 22.00 9.8125 114 months
Senior Executive 10/14/98 533,333(2) 9.8125 22.00 12.2656 114 months
Vice President and
Chief Financial
Officer
22
Number of Length of
Securities Market Price Exercise Original
Underlying of Stock Price Option Term
Options/ at Time at Time of Remaining at
SARs of Repricing Repricing New Date of
Repriced or or or Exercise Repricing
Amended Amendment Amendment Price or
Name Date ($)(1) ($) ($) ($) Amendment
- -------------------------- ------------ ----------------- ----------------- ------------------ ------------ -------------------
Samuel L. Katz, 10/14/98 120,155(3) 9.8125 25.85 9.8125 91 months
Executive Vice 10/14/98 240,310(3) 9.8125 23.88 9.8125 102 months
President, Strategic 10/14/98 119,768(5) 9.8125 31.38 9.8125 110 months
Development 10/14/98 180,232(5) 9.8125 31.38 12.2656 110 months
10/14/98 203,954(5) 9.8125 34.31 12.2656 111 months
Richard A. Smith, 10/14/98 120,155(3) 9.8125 25.85 9.8125 91 months
Chairman and Chief 10/14/98 120,155(3) 9.8125 30.69 9.8125 96 months
Executive Officer, 10/14/98 240,310(3) 9.8125 23.88 9.8125 102 months
Real Estate Division 10/14/98 59,690(5) 9.8125 31.38 9.8125 110 months
10/14/98 140,310(5) 9.8125 31.38 12.2656 110 months
10/14/98 291,938(5) 9.8125 34.31 12.2656 111 months
Tobia Ippolito, 10/14/98 70,000(4) 9.8125 31.38 9.8125 110 months
Senior Vice Presi- 10/14/98 35,000(4) 9.8125 34.31 9.8125 111 months
dent, Controller,
and Acting Chief
Accounting Officer
(1) These options were effectively modified on October 14, 1998 and, other than
as specified below, have the same expiration date as specified in the
table. These options replace options that were cancelled under Senior
Management Program.
(2) These options are scheduled to vest and become exercisable in yearly
increments of 25%, commencing in October 1999.
(3) These options are fully vested and exercisable.
(4) These options are scheduled to vest and become exercisable in yearly
increments of 20%, commencing in January 1999.
(5) These options are scheduled to vest and become exercisable in yearly
increments of 20%, commencing in October 1999.
23
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE OF CONTROL
ARRANGEMENTS
Each Named Executive Officer, other than Mr. Kunisch, is employed by
the Company pursuant to a written agreement of employment.
Henry R. Silverman. Mr. Silverman is employed by the Company pursuant
to an employment agreement originally entered into as of September 30, 1991
between Mr. Silverman and HFS and amended and restated from time to time (the
"Silverman Employment Agreement"). The Silverman Employment Agreement was most
recently amended by the Third Amendment to the Silverman Employment Agreement
dated as of December 31, 1998 (the "Third Amendment"). Mr. Silverman serves the
Company as its President and Chief Executive Officer and, pursuant to the Third
Amendment, also as the Chairman of the Board and the Chairman of the Executive
Committee of the Board (such change was effective as of July 28, 1998). Pursuant
to the Third Amendment, the term of employment under the Silverman Employment
Agreement was extended through December 31, 2005, subject to earlier termination
or extension as provided therein; however, in connection with such extension, an
automatic annual renewal provision was removed from the Silverman Employment
Agreement.
In consideration of the additional duties assumed by Mr. Silverman
pursuant to the Third Amendment, the Silverman Employment Agreement, as amended,
provides for Mr. Silverman to receive an annual rate of base salary of
$1,500,000 for the period ending December 31, 1998, and $2,900,000 thereafter,
subject to further increases relating to the Consumer Price Index. The Silverman
Employment Agreement also provides Mr. Silverman an annual bonus opportunity
equal to the lesser of (i) 0.75% of the Company's "EBITDA" (as defined in the
Silverman Employment Agreement) for the applicable fiscal year or (ii) 150% of
his annual base salary.
The Silverman Employment Agreement provides that if Mr. Silverman
resigns his employment in connection with a breach by the Company of the
Silverman Employment Agreement, or if he is terminated by the Company without
Cause (as defined in the Silverman Employment Agreement), he will be entitled to
receive a lump sum cash payment equal to (i) the lesser of (a) 150% of his
annual base salary or (b) the sum of his annual base salary plus 0.75% of EBITDA
for the 12 months preceding the date of termination, multiplied by (ii) the
number of years and partial years remaining in the term of employment under the
Silverman Employment Agreement. In addition, Mr. Silverman would be entitled to
continued health and welfare benefits during the remaining term of employment
and the vesting of any options and restricted stock.
The Silverman Employment Agreement further provides that Mr. Silverman
will be made whole on an after-tax basis with respect to certain excise taxes in
connection with a change of control of the Company which may, in certain cases,
be imposed upon payments thereunder and other compensation and benefit
arrangements.
Messrs. Monaco, Holmes and Buckman. The Company entered into employment
agreements with Messrs. Monaco, Holmes and Buckman dated as of September 12,
1997 (such agreements, respectively, the "Monaco Employment Agreement," the
"Holmes Employment Agreement" and the "Buckman Employment Agreement," and
collectively, the "1997 Employment Agreements"). Each of the 1997 Employment
Agreements originally provided for a period of employment through December 17,
2002; however, such agreements contain automatic extension periods which cause
each respective period of employment to be extended by a one year increment on
an annual basis (a one year extension of the period of employment through
December 17, 2003 has taken effect under each of the 1997 Employment
Agreements).
Each of the 1997 Employment Agreements specifies the position and
duties of the executive during the period of employment. The Monaco Employment
Agreement was amended as of December 23, 1998 to reflect Mr. Monaco's new duties
and responsibilities with the Company and the location of his place of
employment. The Buckman Employment Agreement was amended as of January 11, 1999
to reflect his additional duties and responsibilities with the Company and the
location of his place of employment. The Holmes Employment Agreement was amended
as of January 11, 1999 to reflect the location of his place of employment.
Currently (i) Mr. Monaco serves as Vice Chairman of the Company and as Chairman
and Chief Executive Officer of the Membership and Marketing Services Division,
(ii) Mr. Holmes serves as Vice Chairman of the Company and Chairman and Chief
Executive Officer of the Travel Division and (iii) Mr.
Buckman serves as Vice Chairman and General Counsel of the Company.
24
Each of the 1997 Employment Agreements specifies the compensation and
benefits provided to the Executive during the period of employment. The Monaco
Employment Agreement and the Holmes Employment Agreement provide that each
Executive will be paid an annual base salary of $650,000 and will be eligible
for annual bonuses based on a target bonus of $650,000. The Buckman Employment
Agreement provides that Mr. Buckman will be paid an annual base salary of
$500,000, and will be eligible for an annual bonus based on a target bonus of
$500,000; however, in connection with the January 11, 1999 amendment to the
Buckman Employment Agreement, such salary and target bonus amounts were
increased to $650,000. Each of Messrs. Monaco, Holmes and Buckman will be
eligible to participate in all of the Company's other compensation and employee
benefit plans or programs and to receive officer perquisites.
Each of the 1997 Employment Agreements provides for certain payments in
the event of termination of the Executive's employment under various
circumstances. The Holmes Employment Agreement and the Monaco Employment
Agreement each provide that if, before January 1, 2000, the Executive's
employment is terminated by the Company other than for Cause (as defined
therein) or by the Executive for Constructive Discharge (as defined therein),
the Company will pay the Executive a lump sum cash payment equal to 300% of the
sum of (i) his annual base salary and (ii) the highest annual bonus he has
received for any of the three preceding years (or $520,000, if higher) ("Salary
plus Bonus"). Each such agreement also provides that if, after December 31,
1999, the Executive's employment is terminated by the Company other than for
Cause or by the Executive for Constructive Discharge, the Company will pay the
Executive a lump sum cash payment equal to 500% of Salary plus Bonus. In any of
the foregoing situations, the Executive would also receive any earned but unpaid
base salary and incentive compensation, his benefits and perquisites would
continue for 36 months and any stock options and restricted stock would vest
(and such options would remain outstanding for the remainder of their terms
without regard to such termination). Each such agreement also provides that, in
certain circumstances, the Executive's employment would be deemed terminated for
Constructive Discharge in the event that Mr. Silverman's employment with the
Company terminates or his responsibilities are reduced. In such event, the
Executive would receive substantially similar payments and benefits as described
above; however, his cash payment would range from 200% to 400% of Salary plus
Bonus, depending on the date of such termination.
The Buckman Employment Agreement provides that if, before January 1,
2000, Mr. Buckman's employment is terminated by the Company other than for Cause
(as defined therein) or by Mr. Buckman for Constructive Discharge (as defined
therein), the Company will pay Mr. Buckman a lump sum cash payment equal to 300%
of the sum of (i) his annual base salary and (ii) the highest annual bonus he
has received for any of the three preceding years (or $500,000, if higher)
("Buckman Salary plus Bonus"). The Buckman Employment Agreement also provides
that if, after December 31, 1999, Mr. Buckman's employment is terminated by the
Company other than for Cause or by Mr. Buckman for Constructive Discharge, the
Company will pay Mr. Buckman a lump sum cash payment equal to 500% of Buckman
Salary plus Bonus (Mr. Buckman may also resign at any time following such date
and receive a lump sum cash payment equal to 200% of Buckman Salary plus Bonus).
In any of the foregoing situations, Mr. Buckman would also receive any earned
but unpaid base salary and incentive compensation, his benefits and perquisites
would continue for 36 months and any stock options and restricted stock would
vest (and such options would remain outstanding for the remainder of their terms
without regard to such termination). The Buckman Employment Agreement also
provides that, in certain circumstances, his employment would be deemed
terminated for Constructive Discharge in the event that Mr. Silverman's
employment with the Company terminates or his responsibilities are reduced. In
such event, Mr. Buckman would receive substantially similar payments and
benefits as described above however his cash payment would range from 200% to
400% of Buckman Salary plus Bonus, depending on the date of such termination.
Each 1997 Employment Agreement provides that the Executive will be made
whole on an after-tax basis with respect to certain excise taxes in connection
with a change of control of the Company which may, in certain cases, be imposed
upon payments thereunder and other compensation and benefit arrangements.
Stock Options. Generally, all stock options granted to each of the
Named Executive Officers under any applicable stock option plan of the Company
will become fully and immediately vested and exercisable upon the occurrence of
any change of control transaction affecting the Company (as defined in each
employment agreement).
25
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following compensation
committee report on executive compensation and performance graph shall not be
incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
administering the Company's executive compensation policies and programs. The
Compensation Committee also reviews and approves the salaries and bonuses of the
Company's executive officers as well as all grants of options to purchase shares
of Common Stock.
Officer Compensation Policy. The Compensation Committee establishes
policies that include:
o aligning the long-term interests of executive officers with the
long-term interests of the Company's shareholders;
o providing competitive levels of compensation which are, in large
part, conditioned on the Company's attainment of specified
performance targets; and
o attracting, motivating and retaining the best possible executive
talent for the benefit of the Company's stockholders.
Employment Agreements. Each of the Named Executive Officers, other than
Mr. Kunisch, is employed by the Company pursuant to a written agreement of
employment. Other executive officers of the Company are also employed pursuant
to employment agreements. The Committee has considered the advisability of using
employment agreements and has determined that it is in the best interests of the
Company insofar as it permits the Company to achieve its desired goals of
motivating and retaining the best possible executive talent. Because of
extraordinary events affecting the Company in 1998, the Compensation Committee
has determined that the use of employment agreements may be necessary in certain
cases to ensure the retention of key executive officers and to attract
additional executive talent to the Company. Each such employment agreement
separately reflects the terms that the Compensation Committee felt were
appropriate and/or necessary to retain the services of the particular executive
officer, within the framework of the Company's compensation policies.
Components of Executive Compensation. The material elements of the
Company's executive compensation arrangements include base salary, annual
performance bonus and stock options. Each executive officer's total compensation
package is designed to condition a significant portion of the executive's
overall anticipated compensation on the Company's success in achieving specified
performance targets.
Base Salaries. Salaries paid to executive officers, other than the
Chief Executive Officer, are reviewed annually by the Chief Executive Officer
and the Executive Vice President-Human Resources based upon their assessment of
the nature of the position and the contribution, experience and tenure of the
executive officer. The Compensation Committee is responsible for determining the
salary of the Chief Executive Officer. Because, as noted above, certain Named
Executive Officers are party to employment agreements, their respective salary
levels are subject to the provisions of such employment agreements (the
employment agreements with the Named Executive Officers are described more fully
under "Employment Contracts and Termination, Severance and Change of Control
Arrangements.") Because base salaries are not tied to the performance of the
Company, the Compensation Committee intends that base salaries paid to executive
officers are at or below market levels, except under special circumstances.
26
Annual Bonus. The Named Executive Officers are entitled to annual
performance bonuses based upon the terms of their employment agreements (see
"Employment Contracts and Termination, Severance and Change of Control
Arrangements"), or, in the case of Mr. Kunisch, in accordance with theCompany's
annual incentive bonus plan, as described below. As described under "Employment
Contracts and Terminations, Severance and Change in Control Arrangements," Mr.
Silverman's employment agreement provides for an annual incentive bonus equal to
the lesser of (i) 0.75% of the Company's EBITDA (as defined in such agreement)
for the applicable fiscal year or (ii) 150% of his annual base salary. Under the
Company's annual incentive bonus plan, certain employees are eligible to earn
bonuses equal to a percentage of base salary based upon the degree of
achievement of target levels of earnings before interest, taxes, depreciation
and amortization ("EBITDA"). Such percentages of base salary range from 5% for
the lowest level of employees if the minimum level of earnings is achieved, to a
maximum of 100% for Executive Vice Presidents if the highest level of earnings
is achieved. In 1998, bonuses paid to executive officers generally were paid at
less than the target level to the extent business units for which such
executives were responsible did not attain pre-established levels of EBITDA (or
other relevant performance measurement). The bonuses paid to the Named Executive
Officers in respect of 1998 are set forth in the Summary Compensation Table. At
the recommendation of Mr. Silverman and after consideration by the Compensation
Committee, the Compensation Committee authorized a 50% reduction in the 1998
bonus payable to Mr. Silverman and a 40% reduction in the 1998 bonuses payable
to the other Named Executive Officers pursuant to their employment agreements.
Stock Options. The Compensation Committee believes that the most
effective way to align the interests of executives with those of shareholders is
to ensure that the executives hold material equity stakes in the Company.
Therefore, the Compensation Committee has determined that the continued use of
stock options is the best mechanism for long term incentive compensation of
executive officers. The Compensation Committee administers each of the Company's
stock option plans. Generally, option grants are approved by the Compensation
Committee upon the recommendation of the Chief Executive Officer and the
Executive Vice President-Human Resources, who determine the number of shares
subject to such grants and the applicable terms and conditions of such grants.
In general, to ensure that the use of stock options meets the intended long-term
goals of the Compensation Committee, most stock option grants vest incrementally
over a five-year time frame. In addition, absent special circumstances, the
Company does not grant options with exercise prices below the fair market value
of the Common Stock as of the date of grant. Information with respect to option
grants in 1998 to the Named Executive Officers is set forth in the "Option
Grants Table."
Stock Option Exchange and Cancellation. On September 23, 1998, the
Compensation Committee approved the Senior Management Program and a program to
effectively reprice certain Company stock options granted to middle management
of the Company during December 1997 and the first quarter of 1998. The Senior
Management Program effectively modified the terms of certain options held by the
executive and senior management of the Company. With respect to approximately
25.8 million options held by Mr. Silverman, (a) 33% were cancelled (b) 33% were
exchanged for similar options with an exercise price of $20 per share and (c)
33% were exchanged for similar options with an exercise price equal to $9.8125
per share (the "New Price"). Although prior to the effectiveness of the Senior
Management Program all of Mr. Silverman's options were vested, the 17.2 million
options granted to Mr. Silverman in such exchange are unvested and will vest at
25% per year over the next four years beginning in October 1999. With respect to
an aggregate of approximately 10.3 million options held by the Named Executive
Officers (a) 25% were cancelled, (b) 25% were exchanged for similar options with
an exercise price of $20 per share; and (c) 50% were exchanged for similar
options with an exercise price equal to the New Price. With respect to
approximately 25 million options held by other senior management (approximately
40 persons) (the "Senior Management"), other than the Named Executive Officers,
(a) 10% were cancelled, (b) 40% were exchanged for similar options with an
exercise price of $12.2656 per share, and (c) 50% were exchanged for similar
options with an exercise price equal to the New Price.
The decision to implement the foregoing plan was made after the
discovery of the Accounting Issues and the subsequent decline in the price of
the Common Stock. It was the view of the Compensation Committee that stock
option grants with exercise prices that were substantially above the current
market price of the Common Stock would undermine the intended purpose of stock
options, namely to provide incentives to the Company's officers and employees.
The Compensation Committee believes that such equity incentives are a
significant factor in the Company's ability to retain and motivate key employees
who are critical to the Company's long-term success.
27
The Compensation Committee believes that the disparity between the exercise
price of these options at their original exercise prices and market prices of
the Company's Common Stock at the time of modifying such options for the
Company's Common Stock did not provide meaningful incentives to the employees
holding these options. The Compensation Committee approved the modifications of
the option terms as a means of ensuring that employees will continue to have
meaningful equity incentives to motivate such employees to strive for the
success of the Company which is critical for the Company's stockholders'
long-term best interest.
In adopting the Senior Management Program, the Compensation Committee
attempted to strike an appropriate balance by setting the exercise price of a
portion of the options granted to Mr. Silverman and the Named Executive Officers
under such Program at more than twice the then current market price of the
Common Stock and requiring the cancellation of a substantial portion of the
existing options exchanged pursuant to such Program. The Compensation Committee
also considered the fact that, based on the Black-Scholes option pricing model,
the value of the modified options on the date of grant in October 1998 had an
aggregate value of less than one-quarter of the aggregate value of the package
of original options that were either exchanged for the modified options or
cancelled in connection with the modification on the date of their respective
grants. In addition, the value of the modified options and the original options
(including the permanently cancelled options) which were exchanged for the
modified options had substantially the same value under the Black-Scholes
pricing model on the effective date of the option modifications in October 1998
when using the same per share value of the Company Common Stock and other
assumptions such as volatility, expected life and risk-free interest rate in
calculating the value of both the modified and original options. To further
align the interests of Senior Management (including the Named Executive
Officers) with those of the Company's stockholders, the ability to obtain
modified options was subject to such officers' agreement to participate in an
executive equity incentive program, requiring such officers to acquire and hold
Common Stock having an aggregate market value based upon their base cash
compensation. The Compensation Committee also considered Mr. Silverman's
agreement to extend the term of the Silverman Employment Agreement in adopting
the modifications to Mr. Silverman's options and the addition of a provision in
the modified options granted to each of the Senior Management in the Senior
Management Program which causes the option to terminate upon the optionee's
termination of employment for Cause (as defined in the option grant agreement).
Chief Executive Officer Compensation. The compensation paid to Mr.
Silverman during 1998 is based upon the terms of his existing employment
agreement. Such agreement, and certain amendments made thereto during 1998, are
described under "Employment Contracts and Termination, Severance and Change of
Control Arrangements". Effective January 1, 1999, Mr. Silverman's annual base
salary was increased to $2.9 million. The Compensation Committee determined that
such increase was appropriate and in the best interests of the shareholders
after considering Mr. Silverman's overall importance to the Company, as well as
his increased responsibilities arising from his assumption of the roles of
Chairman of the Board and Chairman of the Executive Committee, as well as the
material increase in his efforts in connection with extraordinary events
occurring during 1998. Mr. Silverman's annual bonus, which is disclosed in the
Summary Compensation Table, was determined based on a formula set forth in his
employment agreement, and is based directly on the Company's attainment of
EBITDA (as defined in such employment agreement). At the recommendation of Mr.
Silverman and after consideration by the Compensation Committee, the
Compensation Committee authorized a 50% reduction in Mr. Silverman's 1998 bonus
payable pursuant to his employment agreement.
Deductibility of Compensation. In accordance with Section 162(m) of the
Code, the deductibility for corporate tax purposes of compensation paid to
individual executive officers of the Company in excess of $1 million in any year
may be restricted. The Compensation Committee believes that it is in the best
interests of the Company's shareholders to comply with such tax law, while still
maintaining the goals of the Company's executive compensation program. However,
where it is deemed necessary and in the best interests of the Company to
continue to attract and retain the best possible executive talent, and to
motivate such executives to achieve the goals inherent in the Company's business
strategy, the Compensation Committee will recommend, and the Company is expected
to pay, compensation to executive officers which may exceed the limits of
deductibility.
28
The Compensation Committee
Robert F. Smith (Chair)
Leonard Schutzman The Rt. Hon. Brian Mulroney,
P.C., LL.D*
Leonard S. Coleman
- --------------
*As of January 1999, Mr. Mulroney no longer serves on the Compensation
Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Robert F. Smith (Chairman), Anthony Petrello, Leonard
Schutzman and Robert T. Tucker served on the First Compensation Committee. After
July 28, 1998, the Compensation Committee was comprised of Messrs. Smith
(Chairman), Schutzman, Mulroney and Coleman. As of January 1999, Mr. Mulroney no
longer serves on the Compensation Committee. Messrs. Smith, Petrello, Mulroney,
Coleman and Schutzman were not employees of the Company during 1998 or before.
From the Effective Time until July 28, 1998, Mr. Tucker served as a Vice
Chairman and Secretary of the Company.
PERFORMANCE GRAPH
The following graph assumes $100 invested on December 31, 1993, and
compares (a) the yearly percentage change in the Company's cumulative total
shareholder return on the Common Stock (as measured by dividing (i) the sum of
(A) the cumulative amount of dividends, assuming dividend reinvestment during
the five years commencing on the last trading day before January 1, 1994, and
ending on December 31, 1998, and (B) the difference between the Company's share
price at the end and the beginning of the periods presented; by (ii) the share
price at the beginning of the periods presented) with (b) (i) the Standard &
Poor's 500 Index (the "S&P 500 Index"), and (ii) the Standard & Poor's Services
(Commercial & Consumer) Index (the "S&P SVCS Index").
29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CENDANT CORPORATION, THE S&P 500 INDEX
AND THE S&P SERVICES (COMMERCIAL & CONSUMER) INDEX
[DATA POINTS TO COME]
*$100 INVESTED ON 12/31/93 IN STOCK OR INDEX.
INCLUDING REIVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
RELATIONSHIP WITH CHARTWELL
On November 22, 1994 (the "Chartwell Effective Date"), HFS (the
Company's predecessor) distributed to its stockholders one (1) share of the
common stock of Chartwell, then a wholly owned subsidiary of HFS, for every ten
(10) shares of HFS Common Stock held of record as of November 14, 1994 (the
"Distribution"). On the Chartwell Effective Date, HFS also transferred the
assets and liabilities of its business of financing and developing casino gaming
and entertainment facilities (the "Casino Development Business") to Chartwell
and made (and agreed to make) cash capital contributions to Chartwell
aggregating $50 million. As a result of the Distribution, Chartwell became an
independent publicly traded corporation and ceased to be a subsidiary of HFS.
30
In connection with the Distribution and for purposes of (i) governing
certain of the ongoing relationships between HFS and Chartwell after the
Distribution, (ii) providing mechanisms for an orderly transition and (iii)
providing HFS with a means of participating in the economic benefits of future
gaming projects, HFS and Chartwell entered into certain agreements, including
the Distribution Agreement, the Financing Agreement, the Marketing Services
Agreement, the Advisory Agreement, the Corporate Services Agreement, the
Facility Lease and the Tax Sharing Agreement on the Chartwell Effective Date.
Copies of such agreements were filed with the Securities and Exchange Commission
as exhibits to Chartwell's Current Report on Form 8-K dated December 2, 1994. As
indicated herein under the captions "ELECTION OF DIRECTORS -- Information
Regarding Nominees for the Term Expiring in 2001; Information Regarding
Directors Whose Terms Expire in 2000," certain of the Company's directors and
executive officers served during 1997, as directors and executive officers of
Chartwell. Each of these directors and executive officers also owned certain
options to purchase shares of common stock of Chartwell, which, except for the
options which were granted to Mr. Edelman and Mr. Smith, were cancelled on or
before February 1, 1996.
On December 20, 1995, Chartwell Leisure Associates L.P. II, a general
partnership affiliated with the Fisher Brothers and Gordon Getty ("Chartwell
Leisure II") acquired approximately 17% of the outstanding common stock of
Chartwell. Mr. Edelman is a partner in Chartwell Leisure II, owning in the
aggregate a 4.8% beneficial interest in that partnership. On January 23, 1996,
the Company acquired the Travelodge(R)and Thriftlodge(R) lodging franchise
system (the "Travelodge System") and the related trademarks and trade names in
North America from Forte Hotels, Inc. and Forte Plc and immediately subsequent
to such acquisition, Chartwell acquired Forte Hotels, Inc., including in such
purchase approximately 16 hotels and joint venture interests in 96 hotels, which
are now licensed as part of the Travelodge System. As a result, Chartwell was
the largest franchisee of the Travelodge System. Under the applicable franchise
agreements, Chartwell was required to pay to Travelodge Hotels, Inc. ("THI"), a
wholly owned subsidiary of the Company, annual franchise fees equal to four
percent of gross room revenues for the owned hotel properties plus four percent
of gross room revenues of such properties as marketing and reservation fees. In
addition, Chartwell was required to pay to THI a license fee equal to four
percent of gross room revenues multiplied by Chartwell's percentage interest in
each of the hotel properties owned by joint ventures in which Chartwell acquired
an interest. In connection with such acquisition, in accordance with the
Financing Agreement, the Company guaranteed $75 million of borrowings by
Chartwell under a $125 million revolving credit facility with certain banks. The
Company received an annual guaranty fee of 2% of the $75 million credit
extension. In connection with the Travelodge acquisition, the Advisory Agreement
and the Marketing Services Agreement were terminated, and the Corporate Services
Agreement was modified to provide for a fixed fee of $1.5 million per year, the
provision of certain corporate services only through September 1996 and the
requirement of the Company to provide corporate transaction advisory services.
The Company also received an advisory fee of approximately $2 million from
Chartwell for advisory services in connection with the acquisition by Chartwell
of Forte Hotels, Inc. as described above.
In November 1996, HFS and Chartwell agreed to terminate the Corporate
Services Agreement in return for the payment by Chartwell to HFS of $9,265,000.
$2,500,000 of such amount was paid in cash and the balance was paid by delivery
of a promissory note in the principal amount of $7 million, payable over seven
years commencing on January 1, 1999, bearing interest at the per annum rate of
6%, and payable in semi-annual installments commencing July 1, 1997. The
promissory note was repaid in full on March 20, 1998 in anticipation of the sale
of Chartwell as described below.
As a result of the sale of Chartwell to Whitehall Street Real Estate
Limited Partnership IX on March 25, 1998, Mr. Edelman is no longer affiliated
with Chartwell or the successor to Chartwell.
In 1996, HFS and affiliates of Chartwell entered into master license
relationships with respect to the Travelodge brands in Mexico under which such
affiliates assumed responsibility for providing services to the Mexican
franchisees other than reservation services, which will continue to be provided
by the Company. The Company will receive royalties and fees for providing
certain marketing and reservation services under the master license agreements.
Rio Grande Associates LLC (with which Mr. Edelman is affiliated) replaced
Chartwell under the foregoing agreements in connection with the sale of
Chartwell on March 25, 1998.
31
RELATIONSHIP WITH AVIS RENT A CAR, INC.
Upon entering into a definitive merger agreement to acquire Avis, Inc.
in July 1996, HFS (the Company's predecessor) announced its strategy to dilute
its interest in Avis's ("Avis") car rental operations while retaining assets
associated with the franchise business, including trademarks, reservation system
assets and franchise agreements. In September 1997, HFS completed an initial
public offering ("IPO") of Avis Rent A Car, Inc. ("ARAC"), the company that
operated the car rental operations of Avis, which diluted the Company's equity
interest in such subsidiary to approximately 27.5%. The Company received no
proceeds from the IPO. However, the Company licenses the Avis trademark to ARAC
pursuant to a 50-year master license agreement and receives royalty fees based
upon 4% of ARAC revenue, escalating to 4.5% of ARAC revenue over a 5-year
period. In addition, the Company operates the telecommunications and computer
processing system which services ARAC for reservations, rental agreement
processing, accounting and fleet control for which the Company charges ARAC at
cost. Messrs. Monaco, Holmes, Coleman and Edelman currently serve on the Board
of Directors of ARAC. On March 23, 1998, the Company sold 1,000,000 shares of
ARAC which reduced the Company's equity interest to 20.4%. On January 15, 1999,
the Company sold 1.3 million shares of ARAC to ARAC for $24.25 per share or an
aggregate of $31,525,000 which reduced the Company's equity interest in ARAC to
approximately 20%.
RELATIONSHIP WITH NRT
Formation/Status. NRT Incorporated ("NRT") was incorporated in August
1997 by Apollo Management, L.P. ("Apollo") and the Company. Concurrent with its
formation, NRT acquired the real estate brokerage business and operations of
National Realty Trust (the "Trust") which included the brokerage offices
formerly owned by Coldwell Banker Corporation. In connection with the formation
of NRT, the Company acquired $182.0 million of preferred stock of NRT.
On February 10, 1999, NRT filed a registration statement on Form S-1
with the Securities and Exchanged Commission to register up to $225 million in
common stock in an initial public offering. The shares to be sold in the
proposed offering are comprised of newly issued shares and shares owned by
Apollo.
Franchisee Status. NRT is the largest franchisee, based on gross
commission income, for each of the Company's real estate franchise systems.
NRT's status as a franchisee is governed by franchise agreements (the "Franchise
Agreements") with wholly owned subsidiaries of the Company (the "Real Estate
Franchisors") pursuant to which NRT has the non-exclusive right to operate as
part of the COLDWELL BANKER(R), ERA(R) and CENTURY 21(R) real estate franchise
systems at locations specified in the Franchise Agreements. In February 1999,
NRT entered into new fifty-year franchise agreements with the Real Estate
Franchisors. During 1996 (from May 31, 1996), 1997 and 1998, NRT paid an
aggregate of approximately $24 million, $60 million and $121 million,
respectively, in franchise royalties to the Company.
Acquisition Arrangements. The Company has an agreement with NRT that
reduces NRT's effective purchase price for brokerage acquisitions in which the
Company agrees to participate. In such brokerage acquisitions, the Company
purchases the tradenames, trademarked operating names and, in some cases,
mortgage operations of the brokerages being acquired by NRT, thereby paying a
substantial portion of the total purchase price that otherwise would be payable
by NRT. All other assets of the acquired brokerage are purchased by NRT. Through
December 31, 1998, with the exception of the Trust, the assets of which were
purchased solely with NRT's funds, the Company has provided between 12% and 90%
of the total purchase price for each of the Company's brokerage acquisitions
involving a total purchase price in excess of $1 million, and has provided an
average of 66% of the total purchase price for all of NRT's brokerage
acquisitions. At the time of NRT's formation, the Company committed to provide
up to approximately $446 million in connection with NRT's brokerage
acquisitions, of which approximately $446 million had been provided through
December 31, 1998. In February 1999, the Company increased its commitment by up
to $1 billion as follows: $500 million is immediately available and the next
$500 million will become available upon the later to occur of (i) February 9,
2004 and (ii) such time as the first $500 million has been paid in connection
with brokerage acquisitions. As with all of NRT's existing brokerage offices,
all future acquired offices are required to be operated under the COLDWELL
BANKER(R), ERA(R)or CENTURY 21(R) brand name.
32
The Company acquired $216.1 million of certain intangible assets
including trademarks associated with real estate brokerage firms acquired by NRT
in 1997. Through December 31, 1998, the Company participated in each of NRT's 28
acquisitions of multi-office brokerages and 36 acquisitions of single-office
brokerages. Through December 31, 1998, the Company has paid NRT or the seller an
aggregate of approximately $446 million, and NRT has paid an aggregate of $227.4
million, in such transactions.
In connection with the amendments to the acquisition arrangements, the
Company and NRT entered into an acquisition services agreement pursuant to which
the Company made an upfront payment of $30 million to NRT for services to be
provided by NRT to the Company related to the identification of potential
acquisition candidates, the negotiation of agreements and other services in
connection with future brokerage acquisitions by NRT. Such fee is refundable in
the event the services are not provided.
Lease Agreements. NRT leases from the Company an aggregate of
approximately 42,500 square feet of office space for its offices in Parsippany,
New Jersey and Mission Viejo, California pursuant to two leases dated August 11,
1997 (the "Leases"). Each Lease has an initial term of five years commencing on
September 1, 1997, with an option exercisable by NRT to extend the term thereof
for an additional five years upon 30 days' written notice to the Company. Under
the Leases, the Company is responsible for property taxes, maintenance and
insurance as well as various ancillary services. Rent is payable under each
Lease at a rate equal to the Company's total annual actual costs of operating
the leased premises. In addition, under each Lease, NRT is permitted to amend
the lease to increase or reduce the square footage of the premises as needed and
as space becomes available, provided that NRT gives 60 days' advance notice to
the Company of its intent to do so and the rental amount is adjusted
accordingly. Each Lease is terminable by either party, with or without cause,
upon 180 days' written notice to the other party. During 1997 and 1998, an
aggregate of $529,000 and $853,000, respectively, was paid by NRT to the Company
under the Leases.
The Company is currently negotiating a new lease with NRT for space
located at 339 Jefferson Road in Parsippany, New Jersey.
Marketing Agreement. NRT and Cendant Mortgage Corporation ("Cendant
Mortgage") are parties to a Marketing Agreement (the "Marketing Agreement"),
pursuant to which NRT has agreed to assist Cendant Mortgage in the marketing of
its various mortgage programs and products through NRT's real estate brokerage
offices. Cendant Mortgage is required to pay NRT a marketing fee each quarter
based on NRT's total number of closed real estate transactions and the average
sales price of homes sold by NRT during such quarter. The term of the Marketing
Agreement is 40 years unless earlier terminated by Cendant Mortgage with or
without cause or, at NRT's option, in the event of Cendant Mortgage's material
breach or if a nationwide third party provider of mortgage services meeting
certain conditions offers NRT a comparable marketing arrangement and Cendant
Mortgage declines to match the economic terms. During the term of the Marketing
Agreement, NRT may not enter into any similar arrangement with another party.
During 1997, over the four-month period in which the Marketing Agreement was in
effect, an aggregate of $699,000 was paid to NRT under the Marketing Agreement.
During 1998, an aggregate of $11,183,000 was paid to NRT under the Marketing
Agreement.
The Company expects to replace the Marketing Agreement in 1999 with a
joint venture between Cendant Mortgage and NRT, which will provide the services
currently provided by Cendant Mortgage.
33
Relocation Management. NRT has an arrangement with Cendant Mobility
Services Corporation, a wholly owned subsidiary of the Company ("Cendant
Mobility"), pursuant to which NRT provides its brokerage services to relocating
employees of the clients of Cendant Mobility, which are typically large
corporations and governmental agencies. Pursuant to such arrangement, when
receiving a referral from Cendant Mobility, NRT receives a commission on the
purchase or sale of the property but is obligated to pay Cendant Mobility a
portion of such commission as a referral fee. During 1997 and 1998, NRT paid an
aggregate $6,435,000 and $11,631,000, respectively, in referral fees to Cendant
Mobility. The arrangement with NRT is not embodied in a written agreement and,
accordingly, may be subject to termination or modification at any time.
Support Agreement. NRT and the Company are parties to a Support
Agreement, dated as of August 11, 1997 (the "Support Agreement"), pursuant to
which the Company has agreed to furnish NRT with certain computer and data
related information services. In consideration of the provision of such
services, NRT has agreed to reimburse the Company directly for certain actual
costs incurred by the Company on behalf of NRT. In addition, NRT was required to
pay the Company a monthly fee of $77,500 during 1997 and is required to pay a
monthly fee of $41,667 during 1998 and $12,500 during 1999. During 1997 and
1998, an aggregate of $1,448,000 and $1,422,000, respectively, was paid to the
Company under the Support Agreement. The Support Agreement terminates on
December 31, 1999, unless earlier terminated by either party.
Development Advance. On January 14, 1997, the Company made an advance
of $20 million (the "Development Advance") to the Trust and one of its
subsidiaries. The Development Advance was assumed by NRT in August 1997, at
which time the term of the Development Advance was amended from 10 years to 40
years. Under the terms of the Development Advance, so long as there is no
material default under any of the Franchise Agreements and NRT maintains certain
levels of gross commissions income, 1/480th of the principal amount of the
Development Advance will be forgiven on a monthly basis over a 40-year period.
Other. In addition to the above-mentioned agreements, NRT is party to
various other agreements and arrangements with the Company and its affiliates,
including an outsourcing agreement pursuant to which the Company acts as NRT's
exclusive agent in negotiating arrangements on behalf of NRT with third party
service and product providers, a stockholders agreement relating to the voting,
transfer and registration of shares of NRT's capital stock owned by Apollo and
the Company and certain other agreements and arrangements. Pursuant to these
agreements and arrangements, the Company, among other things, provides services
to NRT and receives revenues, directly or indirectly, in respect thereof.
Messrs. Katz, Johnson and Richard A. Smith serve on the Board of
Directors of NRT. Mr. Monaco resigned from the Board of Directors during 1998
and was replaced by Mr. Johnson.
34
OTHER RELATIONSHIPS
Mr. Edelman is of counsel to Battle Fowler, a New York City law firm.
Battle Fowler represented HFS (the Company's predecessor) in certain
transactions in 1998. It is expected that Battle Fowler will continue to
represent the Company in connection with certain matters from time to time in
the future.
Mr. Edelman is also a partner in Chartwell Hotels Associates
("Chartwell Hotels"), a general partnership affiliated with the Fisher Brothers
and Gordon Getty, and its affiliate Chequers Investment Associates, which have
acquired certain hotels and mortgages secured by hotels from the Resolution
Trust Corporation. In two transactions with Chartwell Hotels, entered into in
November 1992 and May 1993, and each amended in December 1994, which have
resulted in and will result in the addition of properties to the Company's
franchise systems, the Company has advanced approximately $10 million, and has
agreed to advance up to an additional $4 million if certain additional property
conversions and other requirements are met, in return for Chartwell Hotels
agreeing to franchise the properties with one of the Company's brands. All
Chartwell Hotels properties will pay royalties once they become part of the
Company's franchise systems and these royalties will be credited toward the
recovery of the advance. Certain properties which cannot be converted to Company
brands will also pay a percentage of gross room sales in lieu of royalties as
specified in the agreements. Each advance is required to be fully recovered over
a maximum five year period following the advance. In addition, as individual
properties convert to Company brands, the Company will make additional advances
to the franchisee of such properties to fund costs incurred in connection with
such conversion. Such advances are required to be repaid with interest by the
franchisee over a three year period and such repayment has been guaranteed by
Chartwell Hotels.
On March 31, 1995, the Company acquired a 1% general partnership
interest in a limited partnership which develops, promotes and franchises the
Wingate Inn franchise system, a new construction hotel brand. Through December
31, 1995, an additional $15 million of capital was invested in the partnership
through a private placement of limited partnership unit interests, which units
were sold for $50,000 each. The Company had an option to acquire the limited
partner investment at a 30% compounded annual rate of return plus additional
outstanding capital loans and an additional call premium equal to approximately
1.5 times annual royalty revenue, as defined. The Company also agreed to finance
additional limited partner capital contributions up to $60 million at the prime
lending rate, upon the occurrence of certain events, including the addition of
open and operating Wingate Inn properties. Certain executives of the Company
purchased limited partnership units, as follows: Messrs. Silverman, Pittman and
Snodgrass, 10 units each; and Messrs. Buckman and Holmes, 2 units each and Mr.
Smith, 1 unit. In addition, the Company had agreed to guarantee up to $36
million of borrowings by a subsidiary of the Partnership, which borrowings were
to be used to provide financing for franchises to develop Wingate Inn
facilities. The Company exercised its option to acquire the limited partnership
interests on April 1, 1998 for approximately $114,750 per unit.
In April 1995, the Company and Ramada Franchise Systems, Inc. ("RFS"),
a wholly-owned subsidiary of the Company ("RFS"), entered into a license
agreement with Preferred Equities Corporation ("PEC"), the owner, developer and
operator of interval ownership resort facilities, pursuant to which PEC was
licensed to use certain Ramada servicemarks in connection with its facilities in
the United States. PEC has paid RFS $1 million in initial fees and will pay a
percentage of Gross Sales (as defined) of interval ownership interests during
the term of the agreement. Mr. Nederlander is the Chairman and a significant
shareholder of MEGO Financial Corp., of which PEC is a wholly-owned subsidiary.
The Company entered into an agreement with PEC during the second quarter of 1998
whereby RCI Travel, Inc. a subsidiary of the Company, will provide corporate and
leisure travel services to PEC, including its owners, members and employees in
exchange for fees payable by PEC to the Company.
As part of Mr. Snodgrass's former employment agreement with HFS, the
Company arranged to make available to Mr. Snodgrass a one-quarter interest in a
Hawker 1000 aircraft. On October 1, 1998, Mr. Snodgrass exercised his right to
purchase such interest from the Company for approximately $702,000 in cash
through the purchase of a wholly owned subsidiary of the Company whose sole
asset was such interest.
Mr. Rosenwald serves as Vice Chairman of The Bear Stearns Companies,
Inc., an investment banking firm. During 1998, The Bear Stearns Companies, Inc.
provided underwriting and advisory services to the Company.
35
Mr. Pittman is the President and Chief Operating Officer of American
Online, Inc. ("AOL"). Century 21 Real Estate Corporation, an indirect
wholly-owned subsidiary of the Company, is party to an agreement with AOL
pursuant to which the National Advertising Fund for the CENTURY 21 System is
committed to pay a $1,000,000 annual advertising fee to AOL for a period of five
years relating to exclusive advertising rights for the CENTURY 21 System and for
the CENTURY 21 Communitiessm Website on the AOL network. AOL also serves as the
exclusive on-line home of the CENTURY 21 System intranet site, Century 21
Online(R). It is expected that AOL and the Company and its subsidiaries will
enter into advertising arrangements and internet marketing arrangements from
time to time in the ordinary course of business in the future.
On June 3, 1997, the Company entered into a Master Marketing Agreement
with AOL pursuant to which the Company markets its Netmarket(R) online product
and its automobile, shopping, travel and information/privacy individual
membership programs through prominent placement and promotions on the AOL online
services and AOL's Internet website, and also markets these products to AOL
subscribers through various other marketing mechanisms, including inbound
telemarketing, outbound telemarketing and direct mail. Pursuant to such
agreement, the Company makes commission payments to AOL with respect to
membership fees and certain other transaction related revenue received by the
Company under this arrangement. The Company made an initial payment to AOL of
$45 million upon execution of the agreement, which will primarily be credited
against future membership commissions payable by the Company to AOL under such
agreement. The Company made payments to AOL in the total amount of $7,434,819
during 1998.
36
CLAIMS OF CERTAIN CURRENT AND FORMER OFFICERS AND DIRECTORS OF THE COMPANY
AND HFS
In connection with the Merger, certain officers and directors of HFS
exchanged their shares of HFS common stock and options exercisable for HFS
common stock for shares of the Company's Common Stock and options exercisable
for the Company's Common Stock, respectively. As a result of the Accounting
Issues, such officers and directors (some of whom are officers and directors of
the Company) have advised the Company that they believe they have claims against
the Company in connection with such exchange. In addition, certain current and
former officers and directors of the Company would consider themselves to be
members of any class ultimately certified in the federal securities actions now
pending in which the Company is named as a defendant by virtue of their having
been HFS stockholders at the time of the Merger.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and
the New York Stock Exchange. Officers, directors and greater than ten percent
owners are required to furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for a specified fiscal year, except as set
forth below, the Company believes that all its officers, directors, and greater
than ten percent beneficial owners complied with all filing requirements
applicable to them with respect to transactions during 1998.
On March 4, 1998, the New Directors filed an amendment to their Forms 3
correcting a typographical error in the exercise price of certain option grants.
On March 4, 1998, Ken Williams, a former director of the Company, filed a Form
5, which was late. On January 9, 1998, Mr. Snodgrass filed an amendment to Form
3 correcting a typographical error in his share holdings. On March 31, 1998, Mr.
Kunisch filed an amendment to a Form 4 correcting a typographical error in his
share holdings. On April 8, 1998, Mr. Burnap filed a Form 4 correcting certain
arithmetic errors in prior filings.
RATIFICATION OF APPOINTMENT OF AUDITORS
[PROPOSAL NO. 2]
Deloitte & Touche LLP has been appointed by the Board of Directors as
the auditors for the Company's financial statements for 1999. A representative
of Deloitte & Touche LLP is expected to be present at the Meeting and will have
the opportunity to make a statement if he desires to do so and will be available
to respond to appropriate questions of stockholders.
On January 20, 1998, in connection with the Company's previously
announced plan to name a successor independent accountant following the Merger
with HFS Incorporated, the Company engaged Deloitte & Touche LLP, the auditor of
HFS Incorporated prior to the Merger, as its new principal independent
accountants. Ernst & Young LLP, the Company's former principal independent
accountants, reported on the results of operations of the Company's former CUC
businesses for the year ended December 31, 1997. The reports of Ernst & Young
LLP on the financial statements for the past two fiscal years of the Company
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. The Audit
Committee of the Company's Board of Directors participated in and approved the
decision to change independent accountants. In connection with its audit for the
two most recent fiscal years and through May 11, 1998, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Ernst & Young LLP would
have caused Ernst & Young LLP to make reference thereto in their report on the
financial statements for such years. During the two most recent fiscal years and
through May 11, 1998, there were no reportable events, as that term is defined
in Item 304 (a)(1)(v) of Regulation S-K. However, as previously reported,
37
the Audit Committee of the Board of Directors of the Company conducted an
investigation into accounting irregularities at former CUC business units which
were audited by Ernst & Young LLP. The results of such investigation required a
restatement of previously reported financial statements of the Company. Such
investigation may result in disagreements by the Company with Ernst & Young LLP
in the future with respect to previously reported financial statements of the
Company which were audited by Ernst & Young LLP. The Company requested that
Ernst & Young LLP furnish it with letters addressed to the Commission stating
whether or not it agrees with the above statements. A copy of a letter, dated
January 22, 1998, is filed as Exhibit 16 to the Company's Current Report Form
8-K dated January 22, 1998. A copy of a letter, dated May 15, 1998, is filed as
Exhibit 16 to the Company's Current Report on Form 8-K, dated May 18, 1998.
During the two most recent fiscal years and through January 20, 1998,
the Company has not consulted with Deloitte & Touche LLP regarding either:
(i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements, and neither a written
report was provided to the registrant nor oral advice was provided that Deloitte
& Touche LLP concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting issue;
or
(ii) any matter that was either the subject of a disagreement, as the
term is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304 (a)(1)(v) of Regulation S-K.
Although stockholder action on this matter is not required, the
appointment of Deloitte & Touche LLP is being recommended to the stockholders
for ratification. Pursuant to applicable Delaware law, the ratification of the
appointment of auditors of the Company requires the affirmative vote of the
holders of a majority of the shares of Common Stock present or represented by
proxy and entitled to vote at the Meeting. Abstentions and broker non-votes will
be counted and will have the same effect as a vote against this proposal.
THE BOARD OF DIRECTORS UNAMIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THIS PROPOSAL.
APPROVAL OF BY-LAW AMENDMENTS
[PROPOSAL NO. 3]
On March 12, 1999, the Board approved a resolution to submit proposed
amendments to Article V, Sections 1(a), 1(d), 3(d) and 4 of the By-Laws to the
stockholders for approval. The relevant provisions of Article V, Section 1(a)
provide for the Executive Committee of the Board to nominate certain persons
nominated by the former CUC Directors (the "CUC Directors") at the time of the
merger of CUC and HFS in December 1997 as Directors of the Company until such
time as all claims and causes of actions relating to the Accounting Issues have
been settled, adjudicated or otherwise disposed of. Article V, Section 1(d)
established a Litigation Committee comprised of two CUC Directors and two
Directors formerly associated with HFS Incorporated to make certain decisions
relating to litigation by or on behalf of the Company against former Directors
of the Company arising from the Accounting Issues. Article V, Section 3(d)
provides for the Board to appoint an equal number of such CUC Directors as other
Directors to the Litigation Committee thereby requiring the consent of a CUC
Director to initiate certain legal proceedings by the Company against former
Directors arising from the Accounting Issues. Article V, Section 4 specifies the
actions required to amend the aforementioned provisions of the By-Laws.
38
THE PROPOSAL
The Board of Directors recommends that the Company's stockholders vote
in favor of the amendments to eliminate the provisions of the By-Laws which
provide for: (i) the Executive Committee of the Board of Directors to nominate
the CUC Directors as members of the Board until such time as all claims and
causes of action relating to the Accounting Issues have been settled,
adjudicated or otherwise finally disposed of; (ii) the Litigation Committee;
(iii) appointment of the CUC Directors to the Litigation Committee; and (iv) the
approval standards necessary to amend the foregoing provisions of the By-Laws.
The By-Law Amendments are set forth on Appendix A hereto with deletions
indicated by strike-out.
REASONS FOR THE AMENDMENTS
The Board of Directors has recommended the proposed By-Law Amendments
because the provisions serve no benefit to the Company and may unduly restrict
the Board's ability to nominate Directors and to initiate appropriate legal
proceedings, if warranted, against former Directors of the Company relating to
the Accounting Issues. The By-Law provisions proposed to be eliminated were
added to the By-Laws in July 1998 in connection with the former Directors of the
Company formerly associated with CUC (the "Former CUC Directors") agreeing to
approve the separation from the Company of Walter A. Forbes, former Chairman of
the Board of CUC and the Company, and in connection with the resignation of the
Former CUC Directors who resigned from the Board in July 1998. The Board no
longer believes that such provisions are in the best interests of the Company
and its stockholders, but serve only to protect the Former CUC Directors.
The By-Laws currently provide that the Litigation Committee has the
full and exclusive power and authority to: (i) determine whether pending or
threatened shareholder derivative actions arising from the Accounting Issues are
or would be in the best interest of the Company; and (ii) initiate, maintain or
settle on behalf of the Company any direct actions by the Company against any
present or former Directors (whether sued as a director or an officer) arising
from the Accounting Issues. In addition, actions of the Litigation Committee
require the affirmative vote of a majority of its members and, unless a majority
of the Litigation Committee votes to support or permit (by taking a position of
neutrality) the continuation and/or prosecution of a derivative lawsuit by a
shareholder, the Litigation Committee will be deemed to have voted that the
prosecution or continuation of such pending or threatened stockholder derivative
action is not in the best interests of the Company. Since CUC Directors must
comprise half of the members of the Litigation Committee under the current
By-Laws, the approval (or the taking of a position of neutrality) of at least
one of the CUC Directors is required for Litigation Committee action. The Board
believes that decisions delegated to the Litigation Committee would be more
appropriately made by a majority vote of the Board. The Board also believes that
decisions concerning the nomination of Directors should not be constricted in
the manner provided by the By-Law provisions proposed to be eliminated by the
By-Law Amendments and that it is inappropriate to be required to continue to
nominate the CUC Directors to the Board for an indefinite period of time in
order to comply with the foregoing provisions of the By-Laws.
39
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR THIS PROPOSAL.
Article V, Section 4 of the By-Laws states that the affirmative vote of
80% of the shares of Common Stock entitled to vote in the election of Directors
(the "80% Vote Requirement") is necessary for stockholders to approve the By-Law
Amendments. Based on advise of counsel, the Company believes that the 80% Vote
Requirement is invalid and unenforceable under Delaware law, as the 80% Vote
Requirement limits the power of the Company's stockholders to adopt, amend or
repeal the By-Laws in contravention of the rights of stockholders under Delaware
Law. While the Company is soliciting approval of the By-Law Amendments pursuant
to the 80% Vote Requirement, if a majority of the outstanding shares present in
person or represented by proxy and entitled to vote at the Meeting approves the
By-Law Amendments, but the 80% Vote Requirement is not satisfied, the Company
intends to treat the By-Law Amendments as having been validly approved and
adopted in accordance with Delaware law. Under applicable Delaware law, in
determining whether such proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will be counted and will
have the same effect as a vote against the proposal.
40
STOCKHOLDER PROPOSAL
CONCERNING DECLASSIFICATION OF BOARD OF DIRECTORS
[PROPOSAL NO. 4]
The following proposal, NOT recommended by the Board of Directors, has
been submitted for inclusion in the proxy statement and action at the annual
meeting by the Amalgamated Bank of New York, LongView Collective Investment
Fund, located at 11-15 Union Square, New York, New York 10003:
"RESOLVED: The stockholders of Cendant Corporation request
that the Board of Directors take the necessary steps in accordance with
Delaware law to declassify the Board of Directors so that all directors
are elected annually, such declassification to be carved out in a
manner that does not affect the unexpired terms of directors previously
elected."
SUPPORTING STATEMENT SUBMITTED BY STOCKHOLDER
The election of directors is the primary avenue for
shareholders to influence corporate governance policies and to hold
management accountable for its implementation of those policies.
We believe that classification of the board to directors,
which results in only a portion of the board being elected annually, is
not in the best interests of our Company and its stockholders.
We therefore urge our fellow shareholders to support
declassification of the Company's board of directors, which is divided
into three classes with one-third of the directors elected annually to
three-year terms. Eliminating this classification system would require
each director to stand for election annually and would give
shareholders an opportunity to register their views on the performance
of the board collectively and each director individually.
We believe that electing directors in this manner is one of
the best methods available to shareholder to ensure that the Company
will be managed in a manner that is in the best interest of
stockholders.
We believe that this step is warranted as a matter of sound
corporate governance. We also deem it appropriate in light of the
significant loss of value that Cendant shareholders have suffered, with
the Company's stock price roughly half the level it was at its peak in
early 1998.
A number of companies have declassified boards. We regard as
unfounded the concern expressed by some that the annual election of all
directors could leave companies without experienced directors in the
event that all incumbents are voted out by stockholders. In the
unlikely event that stockholders do vote to replace all incumbent
directors and reflect the need for change.
"WE URGE YOU TO VOTE FOR THIS RESOLUTION!"
RECOMMENDATION OF BOARD OF DIRECTORS ON STOCKHOLDER PROPOSAL 4
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THIS STOCKHOLDER PROPOSAL.
In connection with the merger of CUC and HFS, as approved by the
stockholders of the constituent companies, it was determined to divide the Board
of Directors into three classes with the number of directors in each class being
as nearly equal as possible. Each director serves a three year term and
directors for one of the three classes are elected each year. Similar procedures
for this staggered election approval have been adopted by many major
corporations and, in fact, more than half of the other Fortune 500 companies
provide for the election of their directors in this manner.
41
The Board of Directors plays an important role in overseeing the
direction of the Company. The staggered election of directors is intended to
provide continuity of experienced directors on the Board and prevent a
precipitous change in the composition of the Board. With staggered elections, at
least two annual stockholder meetings would be required to effect a change in
control of the Board of Directors. One benefit derived from that situation is an
enhancement of management's ability to negotiate in the best interest of all the
stockholders with a person seeking to gain control of the Company. A further
benefit is the assurance of continuity and stability in the management of the
business and affairs of the Company since a majority of the directors will
always have prior experience as directors of the Company. The diverse nature of
the Company's businesses necessitates Directors serve on the Board of Directors
for a number of years in order to better understand the prospects and to become
acquainted with the various elements of the Company's businesses. The Board
believes this experience and continuity is critical to ensure that stockholders
have knowledgeable oversight provided by their elected directors.
Elimination of the classified board, in accordance with the Certificate
of Incorporation, would require stockholder approval of a Board proposal to
amend the Certificate to elect directors on an annual basis. Passage would
require that 75% of the shares outstanding be voted in favor of the resolution.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THE STOCKHOLDER PROPOSAL IN ITEM 3.
Approval of this stockholder proposal will require the affirmative vote
of a majority of the shares of Common Stock present or represented by proxy and
entitled to vote at the Meeting. Under applicable Delaware law, in determining
whether such proposal has received the requisite number of affirmative votes,
absentions will be counted and will have the same effect as a vote against the
proposal; broker non-votes will be disregarded and will have no effect on the
outcome of the vote.
STOCKHOLDER PROPOSALS
Proposals received from stockholders are given careful consideration by
the Company in accordance with Rule 14a-8 under the Exchange Act. Stockholder
proposals are eligible for consideration for inclusion in the proxy statement
for the Year 2000 Annual Meeting if they are received by the Company on or
before December 22, 1999. Any proposal should be directed to the attention of
the Secretary, Cendant Corporation, 6 Sylvan Way, Parsippany, New Jersey 07054.
In order for a shareholder proposal submitted outside of Rule 14a-8 to be
considered "timely" within the meaning of Rule 14a-4(c) such proposal must be
received by the Company on or prior to March 13, 2000 and in order for a
proposal to be timely under the Company's By-Laws it must be received on or
prior to March 13, 2000 but no earlier than February 12, 2000.
By Order of the Board of Directors
JEANNE M. MURPHY
Secretary
Dated: March 31, 1999
42
CENDANT CORPORATION
THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend the Annual Meeting of Stockholders, you can
ensure your shares are represented at the Meeting by promptly completing,
signing and returning your proxy (attached below) to ChaseMellon Shareholder
Services L.L.C., in the enclosed postage-paid envelope. We urge you to return
your proxy as soon as possible. AS AN ALTERNATIVE TO COMPLETING THIS FORM, YOU
MAY ENTER YOUR VOTE INSTRUCTION BY TELEPHONE. CALL TOLL FREE 1-800-840-1208 AND
FOLLOW THE SIMPLE INSTRUCTIONS. Thank you for your attention to this important
matter.
CENDANT CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON MAY 27, 1999
The undersigned stockholder of Cendant Corporation ("Cendant") hereby appoints
Henry R. Silverman, Stephen P. Holmes and James E. Buckman, and each of them
individually, with full power of substitution, attorneys and proxies for the
undersigned and authorizes them to represent and vote, as designated below, all
of the shares of common stock of Cendant ("Cendant Common Stock") which the
undersigned may be entitled, in any capacity, to vote at the Annual Meeting of
Stockholders to be held at the Ramada Inn and Conference Center, 130 Route 10
West, East Hanover, New Jersey 07936, May 27, 1999, at 10:00 a.m. Eastern
Standard Time and at any adjournments or postponements of such meeting, for the
following purposes, and with discretionary authority as to any other matters
that may properly come before the meeting, all in accordance with, and as
described in, the Notice and accompanying Proxy Statement. The undersigned
acknowledges receipt of the Notice of Annual Meeting of Shareholders dated March
31, 1999, and the accompanying Proxy Statement. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE NAMED NOMINEES AND FOR
PROPOSALS 2 AND 3 AND AGAINST PROPOSAL 4.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY USING THE ENCLOSED ENVELOPE.)
See Reverse Side
43
[X] PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE.
1. Election Of Directors.
Nominees: Robert E. Nederlander, Leonard S. Coleman, Robert F. Smith,
Leonard S. Schutzman and Craig R. Stapleton.
THE BOARD OF DIRECTORS OF CENDANT RECOMMENDS A VOTE FOR THE ELECTION AS
DIRECTORS OF EACH OF THE NOMINEES.
FOR ALL NOMINEES [ ] WITHHELD FOR ALL NOMINEES [ ]
For all nominees, except vote withheld from the following:
----------------------------------------------------------------------------
2. To ratify and approve the appointment of Deloitte & Touche LLP as the
Company's Independent Auditors for year ending December 31, 1999.
THE BOARD OF DIRECTORS OF CENDANT RECOMMENDS A VOTE FOR PROPOSAL 2.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve amendments to the Company's By-Laws.
THE BOARD OF DIRECTORS OF CENDANT RECOMMENDS A VOTE FOR PROPOSAL 3.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Stockholder proposal concerning declassification of Board of Directors.
THE BOARD OF DIRECTORS OF CENDANT RECOMMENDS A VOTE AGAINST
PROPOSAL 4.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
I plan to attend the meeting [ ]
I have noted an address change or comment on the reverse side of
the card [ ]
44
Please sign exactly as name appears. If signing for trusts, estates or
corporations, capacity or title should be stated. If shares are owned jointly,
both owners must sign. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.
DATED: _____________________, 1999
Signature(s): _________________________________
Signature if held jointly: ____________________
................................................................................
FOLD AND DETACH HERE
RETURN IN ENCLOSED ENVELOPE AFTER COMPLETING, SIGNING AND DATING
ADMISSION TICKET
[LOGO]
1999 Annual Meeting of Shareholders
Thursday, May 27, 1999
10:00 A.M.
Ramada Inn and Conference Center
130 Route 10 West
East Hanover, New Jersey 07936
NON-TRANSFERABLE NON TRANSFERABLE
SEE REVERSE SIDE FOR DIRECTIONS TO THE RAMADA INN AND
CONFERENCE CENTER.
45
Appendix A
BY-LAW AMENDMENTS
ARTICLE V.
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. DESIGNATION.
The Board of Directors of the Corporation shall have the following
committees:
a) An Executive Committee consisting of not less than three Directors
may be elected by a majority vote of the Board to serve until the Board shall
otherwise determine. The Executive Committee shall have and may exercise all of
the powers of the Board of Directors when the Board is not in session, including
the power to authorize the issuance of stock, except that the Executive
Committee shall have no power to (i) alter, amend or repeal these By-Laws or any
resolution or resolutions of the Board of Directors; (ii) declare any dividend
or make any other distribution to the stockholders of the Corporation; (iii)
appoint any member of the Executive Committee; or (iv) take any other action
which legally may be taken only by the Board. The Executive Committee shall also
act as the nominating committee, nominating persons for election as Directors.
[Strike-out begin]Subject to the classification of Directors provided for under
Section 1 of Article III and until such time as all claims and causes of actions
relating to the Accounting Issues (as defined in Section 1(d) of this Article V)
have been settled, adjudicated or otherwise disposed of pursuant to a final
determination that is no longer subject to appeal or review, (x) the Executive
Committee shall nominate for election as Directors Craig R. Stapleton and Robert
P. Rittereiser or such alternate candidates as designated by Messrs. Stapleton
and Rittereiser who are not reasonably objected to by the Executive Committee
(collectively, the "CUC Directors") and (y) in the event that any one or more of
Mr. Stapleton, Mr. Rittereiser or Carole Hankin are not elected, resign or are
removed as Directors, then the Board will replace that individual(s) with an
alternate Director as designated by the remaining individuals specified above
who are not reasonably objected to by the Board. In addition, the Executive
Committee shall nominate Carole Hankin for election as a Director at the
Corporation's 1998 Annual Meeting of Stockholders for a term of three years.
[Strike-out end] The Chairman of the Board will also serve as Chairman of the
Executive Committee. Each resolution of the Executive Committee will require
approval by a majority of the members of such Committee.
b) A Compensation Committee consisting of not less than three Directors
may be elected by a majority vote of the Board to serve until the Board shall
otherwise determine. The Compensation Committee will have the following powers
and authority: (i) determining and fixing the compensation for all senior
officers of the Corporation and those of its subsidiaries that the Compensation
Committee shall from time to time consider appropriate, as well as all employees
of the Corporation and its subsidiaries compensated at a rate in excess of such
amount per annum as may be fixed or determined from time to time by the Board;
(ii) performing the duties of the committees of the Board provided for in any
present or future stock option, incentive compensation or employee benefit plan
of the Corporation or, if the Compensation Committee shall so determine, any
such plan of any subsidiary; and (iii) reviewing the operations of and policies
pertaining to any present or future stock option, incentive compensation or
employee benefit plan of the Corporation or any subsidiary that the Compensation
Committee shall from time to time consider appropriate. Each resolution of the
Compensation Committee will require approval by a majority of the members of
such committee.
c) An Audit Committee consisting of not less than four Directors may be
elected by a majority vote of the Board to serve until the Board shall otherwise
determine. The Audit Committee will have the following powers and authority: (i)
employing independent public accountants to audit the books of account,
accounting procedures, and financial statements of the Corporation and to
perform such other duties from time to time as the Audit Committee may
prescribe; (ii) receiving the reports and comments of the Corporation's internal
auditors and of the independent public accountants employed by the Audit
Committee and to take such action with respect thereto as may seem appropriate;
(iii) requesting the Corporation's consolidated subsidiaries and
46
affiliated companies to employ independent public accountants to audit their
respective books of account, accounting procedures, and financial statements;
(iv) requesting the independent public accountants to furnish to the
Compensation Committee the certifications required under any present or future
stock option, incentive compensation or employee benefit plan of the
Corporation; (v) reviewing the adequacy of internal financial controls; (vi)
approving the accounting principles employed in financial reporting; (vii)
approving the appointment or removal of the Corporation's general auditor; and
(viii) reviewing the accounting principles employed in financial reporting. Each
resolution of the Audit Committee will require approval by a majority of the
members of such committee. Notwithstanding the foregoing, there will be no
changes in the composition of the Audit Committee prior to the date of the
adoption of a resolution of the Audit Committee approving its final report
concerning the Accounting Issues (as defined in Section 1(d)).
d) [Strike-out begin] A Litigation Committee shall consist of no more
than four Directors as determined by a majority vote of the Board, subject to
the provisions of Section 3(d) of this Article V. The Litigation Committee will
have (i) full and exclusive power and authority to determine whether the
prosecution of any pending or threatened stockholder derivative actions arising
from or related to the accounting issues at CUC International Inc. businesses as
disclosed by the Corporation in a press release dated July 14, 1998 or as are
being investigated by the Audit Committee as of July 28, 1998 (the "Accounting
Issues") are or would be in the best interests of the Corporation; and (ii) full
and exclusive power and authority to initiate, maintain or settle on behalf of
the Corporation any direct action by the Corporation against any present or
former Director (whether sued as a director or as an officer) arising from or
related to the Accounting Issues. Each resolution of the Litigation Committee
will require approval by a majority of the entire committee; provided that, in
the event that only two members of the Litigation Committee (or one member in
the event the size of the Committee shall have been reduced to two) (such
members, the "Approving Members") shall have voted to approve and authorize a
settlement of an action contemplated by clause (ii) above against any defendant
or defendants, independent legal counsel mutually acceptable to the Approving
Members, on the one hand, and the other member(s) of the Litigation Committee,
on the other hand, shall be appointed to determine whether such settlement shall
be approved and such counsel's determination shall be binding upon the
Litigation Committee. Unless a majority of the Litigation Committee votes to
support or permit (by taking a position of neutrality) the continuation and/or
prosecution of a derivative lawsuit by a shareholder, the Litigation Committee
will be deemed to have voted that the prosecution or continuation of such
pending or threatened stockholder derivative action is not in the best interests
of the Corporation. The Litigation Committee shall be authorized to retain
independent counsel. All persons who were Directors on the date of adoption of
the By-Laws embodied in Sections 1(a) and (d) of this Article V shall have the
right to enforce compliance with this By-Law.[Strike-out end]
SECTION 2. Meetings; Notice.
Regular meetings of committees shall be held at such times and places
as the Board or the committee in question may from time to time determine.
Special meetings of any committee may be called at any time, at any place and
for any purpose by the Chairman of such committee, the Chairman of the Board, or
the President, or by any officer of the Corporation upon the request of a
majority of the members of such committee. Notice of regular meetings of the
committees need not be given. Notice of every special meeting of any committee
shall be given to each member at his usual place of business, or at such other
address as shall have been furnished by him for the purpose. Such notice shall
be given at least twenty-four hours before the meeting by telephone or by being
personally delivered, mailed, or telegraphed. Such notice need not include a
statement of the business to be transacted at, or the purpose of, any such
meeting.
47
SECTION 3. Committee Members; Board of Director Nominations.
a) Each member of any committee of the Board shall hold office until
such member's successor is elected and has qualified, unless such member sooner
dies, resigns or is removed.
b) Subject to Section 3(d) of this Article V, the Board may remove a
director from a committee or change the chairmanship of a committee by
resolution adopted by a majority of the Board.
c) Subject to Section 3(d) of this Article V, the Board may designate
one or more Directors as alternate members of any committee to fill any vacancy
on a committee and to fill a vacant chairmanship of a committee, occurring as a
result of a member or chairman leaving the committee, whether through death,
resignation, removal or otherwise. Any such designation may be made or amended
by the affirmative vote of a majority of the Board.
[Strike-out begin]
d) The Board shall designate the members of the Litigation Committee in
accordance with the following: The members of the Litigation Committee shall
consist of an equal number of CUC Directors and directors other than the CUC
Directors (the "Non-CUC Directors"). In the event that a CUC Director serving on
the Litigation Committee shall no longer serve as a member of such committee,
then a Non-CUC Director serving on the Litigation Committee shall immediately
resign as a member of the Litigation Committee and no action shall be taken by
the Litigation Committee prior to the resignation of such Non-CUC Director. In
the event that there is only one CUC Director serving on the Litigation
Committee and such person shall cease serving as a member of such committee
(whether because of resignation, removal or failure to be reelected as a
Director by the stockholders of the Corporation), to the extent consistent with
Delaware law and the Certificate of Incorporation, then such CUC Director shall
be replaced on the Litigation Committee by a person who at the time of such
replacement is a Director designated by Carole G. Hankin and Christopher K.
McLeod or their successors appointed or elected pursuant to Section 1(a) of this
Article V to the extent they are serving as Directors (such person thereinafter
to be deemed a CUC Director). No CUC Director who is a member of the Litigation
Committee may be removed from the Litigation Committee.
[Strike-out end]
d) From and after August 28, 1998, any new appointees to the Audit
Committee shall be composed solely of independent directors. For this purpose,
an independent director is one who:
(1) has not been employed by the Corporation or an affiliate of the
Corporation in an executive capacity within the last five years;
(2) is not an employee of a company that is one of the Corporation's
paid advisors or consultants;
(3) is not employed by a significant customer or supplier of the
Corporation;
(4) is not remunerated by the Corporation for personal services
(consisting of legal, accounting, investment banking, and
management consulting services) whether or not as an employee of a
corporation, division, or similar organization that actually
provides the personal services, nor is an employee of an entity
which derives more than 50 percent of its gross revenues from the
Corporation;
(5) is not employed by a tax-exempt organization that receives
significant contributions from the Corporation;
(6) is not a relative of any member of the senior management of the
Corporation;
48
(7) has no business or financial ties to the Corporation's Chief
Executive Officer or other executive officers or directors other than
relationships with the Corporation; and
(8) is not part of an interlocking directorate in which the Chief
Executive Officer or another executive officer of the Corporation
serves on the board of another corporation that employs the
director.
[Strike-out begin]
SECTION 4 Amendments.
Notwithstanding anything contained in these By-Laws or the Certificate
of Incorporation to the contrary and in addition to any other requirement set
forth herein and therein, until the earlier of July 28, 2004 or such time as all
litigation relating to the Accounting Issues has been settled, adjudicated or
otherwise disposed of pursuant to a final determination that is no longer
subject to appeal or review, the affirmative vote of a majority of the
Litigation Committee shall be required for the Board to amend, modify or repeal,
or adopt any provision inconsistent with, the provisions of Section 1 (a), (c)
or (d) or 3(d) of this Article V or this Section 4 and the affirmative vote of
the holders of at least 80% of the voting power of all shares of the Corporation
entitled to vote generally in the election of Directors, voting together as a
single class, shall be required for stockholders to amend, modify or repeal, or
adopt any provision inconsistent with, the provisions of Section 1(a), (c) or
(d) or 3(d) of this Article V or this Section 4.
[Strike-out end]
49
