REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CUC INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 8699 06-0918165
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
707 SUMMER STREET
STAMFORD, CONNECTICUT 06901
(203) 324-9261
(Address, including ZIP code, and telephone number, including area code, of
agent for service)
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<TABLE>
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COSMO CORIGLIANO AMY N. LIPTON, ESQ.
EXECUTIVE VICE PRESIDENT AND SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER GENERAL COUNSEL
CUC INTERNATIONAL INC. CUC INTERNATIONAL INC.
707 SUMMER STREET 707 SUMMER STREET
STAMFORD, CONNECTICUT 06901 STAMFORD, CONNECTICUT 06901
(203) 324-9261 (203) 324-9261
</TABLE>
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
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COPIES TO:
<TABLE>
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STEPHEN E. JACOBS, ESQ. HERBERT S. WANDER, ESQ.
WEIL, GOTSHAL & MANGES KATTEN MUCHIN & ZAVIS
767 FIFTH AVENUE 525 WEST MONROE STREET
NEW YORK, NEW YORK 10153 SUITE 1600
(212) 310-8000 CHICAGO, ILLINOIS 60661-3693
(312) 902-1081
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of Retreat Acquisition Corporation,
a wholly owned subsidiary of CUC International Inc. (the "Registrant"), with and
into Advance Ross Corporation ("Advance Ross"), as described in the Agreement
and Plan of Merger dated October 17, 1995 (the "Merger Agreement") attached as
Annex A to the Proxy Statement/Prospectus forming a part of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.................... 7,519,903 $36.44 $ 274,025,265 $94,491.31
</TABLE>
(1) The amount of common stock, $.01 par value, of the Registrant (the "Common
Stock") to be registered hereunder has been determined based on the maximum
number of shares of Common Stock (7,519,903) to be received in the Merger by
holders of the common stock, $.01 par value, of Advance Ross (assuming for
purposes of this Registration Statement only that all outstanding and
currently exercisable options to purchase shares of such stock will be
exercised in full prior to the effective time of the Merger) and by holders
of the 5% Cumulative Preferred Stock, $25 par value, of Advance Ross.
(2) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933, as
amended (the "Securities Act"), based upon the market value of the shares of
Common Stock to be received by holders of Advance Ross stock in the
Merger ($36.44 per share, which is the average of the high and low sale
prices of a share of the Common Stock as reported in The New York Stock
Exchange, Inc. ("NYSE") Composite Transactions on December 5, 1995).
(3) The registration fee for the Common Stock registered hereby, $94,491.31, has
been calculated pursuant to Section 6(b) of, and Rule 457(c) under, the
Securities Act, as follows: 1/29th of 1% of the product of: (x) $36.44, the
average of the high and low sale prices of a share of Common Stock as
reported in the NYSE Composite Transactions on December 5, 1995, and (y)
7,519,903, the maximum number of shares of Common Stock which may be
received by Advance Ross stockholders in the Merger. A fee of $40,314.87 was
paid on October 25, 1995 pursuant to Rules 0-11 and 14a-6(i)(4) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in respect
of the Merger upon the filing by Advance Ross with the Commission of
preliminary proxy materials relating thereto pursuant to Rules 14a-110,
14a-6(a) and 14a-6(e)(2)(ii) under the Exchange Act. Pursuant to Rules
0-11(a)(2)) and 14a-6(i)(4) under the Exchange Act, the registration fee
payable herewith has been reduced by the amount of the fee previously paid
upon the filing of the aforementioned preliminary proxy materials.
Accordingly, an additional fee of $54,176.44 is required to be (and has
been) paid with the filing of this Registration Statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
ADVANCE ROSS CORPORATION
233 SOUTH WACKER DRIVE, SUITE 9700
CHICAGO, ILLINOIS 60606-6502
December 8, 1995
To Our Stockholders:
You are hereby cordially invited to attend a special meeting of the holders
of common stock, $.01 par value (the "Advance Ross Common Stock"), of Advance
Ross Corporation, a Delaware corporation ("Advance Ross"), to be held at the
LaSalle Bank Building, Room 1204, 135 South LaSalle Street, Chicago, Illinois,
on January 10, 1996, convening at 10:00 a.m., local time (the "Meeting").
At the Meeting, holders of record of the Advance Ross Common Stock at the
close of business on December 6, 1995, will be requested to consider and vote
upon (i) a proposal to adopt an Agreement and Plan of Merger dated October 17,
1995 (the "Merger Agreement"), among Advance Ross, CUC International Inc., a
Delaware corporation ("CUC International"), and Retreat Acquisition Corporation,
a Delaware corporation and a wholly owned subsidiary of CUC International
("Merger Sub"), pursuant to which, among other things, Merger Sub will be merged
with and into Advance Ross (the "Merger") and Advance Ross, as the surviving
corporation in the Merger, will become a wholly owned subsidiary of CUC
International, and holders of the Advance Ross Common Stock immediately prior to
the effective time of the Merger will, by virtue of the Merger, become holders
of the common stock, $.01 par value, of CUC International ("CUC International
Common Stock"), in accordance with the share exchange ratio (i.e., 5/6 of one
share of CUC International Common Stock for each outstanding whole share of
Advance Ross Common Stock) and other terms and conditions specified in the
Merger Agreement, and (ii) such other business as properly may come before the
Meeting or any adjournments or postponements thereof.
In addition, all shares of 5% Cumulative Preferred Stock, $25 par value, of
Advance Ross ("Advance Ross Preferred Stock"), issued and outstanding
immediately prior to the effective time of the Merger, will be converted in the
Merger into shares of CUC International Common Stock having a value, determined
in accordance with the Merger Agreement, equal to the redemption price of such
shares (as provided in the Restated Certificate of Incorporation of Advance
Ross), subject to the obligation of Advance Ross to redeem such shares under
certain circumstances, in lieu of such conversion in the Merger, all as
described in the accompanying Proxy Statement/Prospectus.
HOLDERS OF ADVANCE ROSS PREFERRED STOCK ARE NOT ENTITLED TO VOTE AT THE
MEETING.
THE BOARD OF DIRECTORS OF ADVANCE ROSS UNANIMOUSLY HAS DETERMINED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTERESTS OF ADVANCE ROSS AND ITS
STOCKHOLDERS, UNANIMOUSLY HAS APPROVED THE MERGER AGREEMENT (AND THE
TRANSACTIONS CONTEMPLATED THEREBY), AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
ADVANCE ROSS COMMON STOCK VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
You should read carefully the accompanying Notice of Meeting and the Proxy
Statement/Prospectus for details of the Merger and additional related
information.
It is important that your shares be represented at the Meeting. Whether or
not you plan to attend the Meeting, I encourage you to sign, date and return the
enclosed proxy card at your earliest convenience in the enclosed postage-prepaid
envelope. Your shares of Advance Ross Common Stock will be voted in accordance
with the instructions you have given in your proxy. If you attend the Meeting,
you may vote in person if you wish, even though you previously have returned
your proxy card. Your prompt cooperation will be greatly appreciated.
Very truly yours,
HARVE A. FERRILL
Chairman of the Board
and Chief Executive Officer
<PAGE>
ADVANCE ROSS CORPORATION
NOTICE OF SPECIAL MEETING OF HOLDERS OF COMMON STOCK
A special meeting of the holders of common stock of Advance Ross
Corporation, a Delaware corporation ("Advance Ross"), will be held at the
LaSalle Bank Building, Room 1204, 135 South LaSalle Street, Chicago, Illinois,
on January 10, 1996, convening at 10:00 a.m., local time (the "Meeting"), for
the purpose of considering and acting upon the following matters, which are
described more fully in the accompanying Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to adopt an Agreement and Plan
of Merger, dated October 17, 1995 (the "Merger Agreement"), among Advance
Ross, CUC International Inc., a Delaware corporation ("CUC International"),
and Retreat Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of CUC International ("Merger Sub"), pursuant to which,
among other things, Merger Sub will be merged with and into Advance Ross
(the "Merger") and Advance Ross, as the surviving corporation in the Merger,
will become a wholly owned subsidiary of CUC International. At the effective
time of the Merger (the "Effective Time"), each share of the common stock,
$.01 par value, of Advance Ross ("Advance Ross Common Stock"), which was
issued and outstanding immediately prior to the Effective Time (other than
shares owned by CUC International, Merger Sub, Advance Ross, or any wholly
owned subsidiary of CUC International or Advance Ross) will be converted
into 5/6 of one share of the common stock, $.01 par value, of CUC
International (the "CUC International Common Stock"), subject to adjustment
in certain circumstances in accordance with the terms of the Merger
Agreement. In addition, all shares of 5% Cumulative Preferred Stock, $25 par
value, of Advance Ross ("Advance Ross Preferred Stock"), issued and
outstanding immediately prior to the Effective Time, will be converted in
the Merger into shares of CUC International Common Stock having a value,
determined in accordance with the Merger Agreement, equal to the redemption
price of such shares (as provided in the Restated Certificate of
Incorporation of Advance Ross), subject to the obligation of Advance Ross to
redeem such shares under certain circumstances, in lieu of such conversion
in the Merger, all as described in the accompanying Proxy
Statement/Prospectus. THE MERGER (AND THE RELATED TRANSACTIONS CONTEMPLATED
THEREBY) ARE MORE FULLY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS, AND A COPY OF THE MERGER AGREEMENT IS ATTACHED AS
ANNEX A THERETO.
2. To transact such other business as properly may come before the
Meeting or any adjournments or postponements thereof.
All of the executive officers and directors of Advance Ross who own shares
of Advance Ross Common Stock have agreed with CUC International to vote "FOR"
adoption of the Merger Agreement at the Meeting and against certain other
transactions which could impede or delay consummation of the Merger.
The Board of Directors of Advance Ross has fixed the close of business on
December 6, 1995 as the record date for the purpose of determining the holders
of Advance Ross Common Stock who are entitled to receive notice of and to vote
at the Meeting and any adjournments or postponements thereof.
A list of the holders of Advance Ross Common Stock entitled to vote at the
Meeting will be made available for examination by any holder of Advance Ross
Common Stock, for any purpose germane to the Meeting, during ordinary business
hours, at the offices of Advance Ross at 233 South Wacker Drive, Suite 9700,
Chicago, Illinois 60606-6502, commencing on December 20, 1995 and at the
Meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of Advance Ross Common Stock is necessary to adopt the Merger Agreement. Holders
of shares of Advance Ross Common Stock will not be entitled to appraisal rights
in connection with the Merger.
HOLDERS OF ADVANCE ROSS PREFERRED STOCK ARE NOT ENTITLED TO VOTE AT THE
MEETING.
<PAGE>
YOUR VOTE IS VERY IMPORTANT! YOU ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
HAS BEEN PROVIDED FOR YOUR CONVENIENCE AND WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES. THE PROMPT RETURN OF PROXY CARDS WILL ENSURE THE PRESENCE
OF A QUORUM. ANY HOLDER OF ADVANCE ROSS COMMON STOCK WHO SO DESIRES MAY REVOKE
HIS OR ITS PROXY AT ANY TIME PRIOR TO THE TIME IT IS EXERCISED BY (I) PROVIDING
WRITTEN NOTICE TO SUCH EFFECT TO THE SECRETARY OF ADVANCE ROSS, (II) DULY
EXECUTING A PROXY BEARING A DATE SUBSEQUENT TO THAT OF A PREVIOUSLY FURNISHED
PROXY, OR (III) ATTENDING THE MEETING AND VOTING IN PERSON. ATTENDANCE AT THE
MEETING WILL NOT IN ITSELF CONSTITUTE A REVOCATION OF A PREVIOUSLY FURNISHED
PROXY AND STOCKHOLDERS WHO ATTEND THE MEETING IN PERSON NEED NOT REVOKE THEIR
PROXY (IF PREVIOUSLY FURNISHED) AND VOTE THEREAT IN PERSON.
YOUR BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF ADVANCE ROSS AND ITS STOCKHOLDERS, UNANIMOUSLY
HAS APPROVED THE MERGER AGREEMENT (AND THE TRANSACTIONS CONTEMPLATED THEREBY),
AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ADVANCE ROSS COMMON STOCK VOTE
"FOR" ADOPTION OF THE MERGER AGREEMENT.
Constance Schirmer
Secretary
Chicago, Illinois
December 8, 1995
<PAGE>
ADVANCE ROSS CORPORATION
AND
CUC INTERNATIONAL INC.
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ADVANCE ROSS CORPORATION PROXY STATEMENT
CUC INTERNATIONAL INC. PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of shares of
the common stock, $.01 par value (the "Advance Ross Common Stock"), of Advance
Ross Corporation, a Delaware corporation ("Advance Ross"), in connection with
the solicitation of proxies by the Advance Ross Board of Directors for use at a
special meeting of the holders of Advance Ross Common Stock to be held at the
LaSalle Bank Building, Room 1204, 135 South LaSalle Street, Chicago, Illinois,
on January 10, 1996, convening at 10:00 a.m., local time, and at any
adjournments or postponements thereof (the "Meeting"). At the Meeting, holders
of record as of December 6, 1995, of Advance Ross Common Stock will be requested
to consider and vote upon the adoption of an Agreement and Plan of Merger dated
October 17, 1995, among CUC International Inc., a Delaware corporation ("CUC
International"), Retreat Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of CUC International ("Merger Sub"), and Advance Ross
(the "Merger Agreement"). Pursuant to the Merger Agreement, (i) Merger Sub will
be merged with and into Advance Ross, which will be the surviving corporation in
the Merger and become a wholly owned subsidiary of CUC International, and (ii)
each share of Advance Ross Common Stock issued and outstanding immediately prior
to the effective time of the Merger (other than shares owned by CUC
International, Merger Sub, Advance Ross, or any wholly owned subsidiary of CUC
International or Advance Ross) will be converted into 5/6 of one share of the
common stock, $.01 par value, of CUC International (the "CUC International
Common Stock"), subject to adjustment as more fully described in this Proxy
Statement/Prospectus and as set forth in the Merger Agreement attached hereto as
Annex A. See "The Merger."
In addition, each share of the 5% Cumulative Preferred Stock, $25 par value,
of Advance Ross (the "Advance Ross Preferred Stock") issued and outstanding
immediately prior to the effective time (the "Effective Time") of the Merger
(other than shares owned by CUC International, Merger Sub, Advance Ross or any
wholly owned subsidiary of CUC International or Advance Ross) will be converted
into that number of shares of CUC International Common Stock equal to the
quotient obtained by dividing: (x) the sum of $27.50 and all accumulated,
accrued and unpaid dividends in respect of each such share, but excluding
dividends that at the Effective Time have been declared with a record date prior
to, but having a payment date after, the Effective Time (i.e., the redemption
price of such shares as provided in the Restated Certificate of Incorporation of
Advance Ross, the "Redemption Price"), by (y) the "Average Stock Price" (as
defined below in "Summary--The Merger--Effects of the Merger; Merger
Consideration").
No fractional shares of CUC International Common Stock will be issued in the
Merger to holders of Advance Ross Common Stock or Advance Ross Preferred Stock.
Accordingly, if Advance Ross reasonably determines that the aggregate amount of
cash to be received by all holders of Advance Ross Preferred Stock, in lieu of
fractional share interests, would exceed 20% of the value of the aggregate
consideration to be received by all holders of Advance Ross Preferred Stock at
the Effective Time, then, in lieu of the conversion in the Merger of shares of
Advance Ross Preferred Stock into shares of CUC International Common Stock (as
described in the preceding paragraph), Advance Ross shall redeem the Advance
Ross Preferred Stock in accordance with the redemption provisions of Article
Fourth of the Advance Ross Restated Certificate of Incorporation.
This document also includes and constitutes the Prospectus of CUC
International filed as part of its Registration Statement on Form S-4 (together
with all amendments thereto, the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the shares of CUC International
Common Stock to be issued in the Merger in exchange for outstanding shares of
Advance Ross Common Stock and Advance Ross Preferred Stock, assuming the
exercise prior to the Effective Time of all Advance Ross stock options and
warrants that are, or prior to the Effective Time will be, exercisable. All
information concerning CUC International contained (or, as permitted by
applicable rules and regulations of the Commission, incorporated by reference)
in this Proxy Statement/Prospectus has been furnished or prepared by CUC
International, and all information concerning Advance Ross contained (or, as
permitted by applicable rules and regulations of the Commission, incorporated by
reference) in this Proxy Statement/Prospectus has been furnished or prepared by
Advance Ross.
This Proxy Statement/Prospectus and the related form of proxy are first
being mailed to holders of record of Advance Ross Common Stock on or about
December 8, 1995.
THE SHARES OF CUC INTERNATIONAL COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER 8, 1995.
<PAGE>
AVAILABLE INFORMATION
Each of CUC International and Advance Ross is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files periodic reports, proxy statements and
other information with the Commission. The periodic reports, proxy statements
and other information filed by CUC International and Advance Ross, respectively,
with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and also are available for inspection at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material also can be obtained, at prescribed rates,
from the Public Reference Section of the Commission, at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, periodic reports, proxy statements and
other information filed by CUC International may be inspected at the offices of
the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New
York 10005, and periodic reports, proxy statements and other information filed
by Advance Ross may be inspected at the offices of the NASDAQ Stock Market, 1735
K Street, N.W., Washington, D.C. 20006. If the Merger is consummated, CUC
International will continue to file periodic reports, proxy statements and other
information with the Commission pursuant to the Exchange Act and Advance Ross no
longer will be subject to the informational and certain other requirements of
the Exchange Act. See "The Merger-- Certain Consequences of the Merger."
CUC International has filed with the Commission the Registration Statement
under the Securities Act with respect to the CUC International Common Stock to
be issued in the Merger. This Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted as permitted by applicable rules and regulations of the Commission.
The Registration Statement and all amendments thereto, including the exhibits
filed as a part thereof, are available for inspection and copying as set forth
above.
THIS PROXY STATEMENT/PROSPECTUS, WHICH IS INCLUDED IN AND FORMS AN INTEGRAL
PART OF THE REGISTRATION STATEMENT, INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF ADVANCE ROSS COMMON STOCK TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO, IN THE CASE
OF DOCUMENTS RELATING TO CUC INTERNATIONAL, CUC INTERNATIONAL INC., 707 SUMMER
STREET, STAMFORD, CONNECTICUT 06901, ATTENTION: SECRETARY, TELEPHONE: (203)
324-9261 AND, IN THE CASE OF DOCUMENTS RELATING TO ADVANCE ROSS, ADVANCE ROSS
CORPORATION, 233 SOUTH WACKER DRIVE, SUITE 9700, CHICAGO, ILLINOIS 60606-6502,
ATTENTION: SECRETARY, TELEPHONE: (312) 382-1100. TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE JANUARY 4, 1996.
(i)
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by CUC International (File No.
1-10308) and Advance Ross (File No. 0-770), respectively, with the Commission
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
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(i) CUC International's Annual Report on Form 10-K for the fiscal year ended January
31, 1995, filed with the Commission on April 26, 1995 (the "CUC 10-K");
(ii) CUC International's Quarterly Report on Form 10-Q for the fiscal quarter ended
April 30, 1995, filed with the Commission on June 14, 1995;
(iii) CUC International's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 31, 1995, filed with the Commission on September 5, 1995;
(iv) CUC International's Current Report on Form 8-K, filed with the Commission on
September 5, 1995;
(v) CUC International's Current Report on Form 8-K, filed with the Commission on Octo-
ber 18, 1995;
(vi) CUC International's Current Report on Form 8-K, filed with the Commission on Octo-
ber 20, 1995;
(vii) The description of CUC International Common Stock contained in CUC International's
registration statements on Form 8-A, filed with the Commission on July 27, 1984,
and on August 15, 1989;
(viii) Advance Ross' Annual Report on Form 10-K for the fiscal year ended December 31,
1994, filed with the Commission on March 31, 1995 (the "Advance Ross 10-K");
(ix) Advance Ross' Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1995, filed with the Commission on May 11, 1995;
(x) Advance Ross' Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1995, filed with the Commission on August 14, 1995;
(xi) Advance Ross' Current Report on Form 8-K, filed with the Commission on October 25,
1995;
(xii) Advance Ross' Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1995, filed with the Commission on November 14, 1995; and
(xiii) The description of Advance Ross Common Stock contained in Advance Ross'
registration statement on Form 8-A, filed with the Commission on May 24, 1993.
</TABLE>
All documents filed with the Commission by CUC International and Advance
Ross, respectively, pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date hereof and prior to the date of the Meeting
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date any such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that also is incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
hereof. All information appearing in this Proxy Statement/Prospectus is
qualified in its entirety by the information and financial statements (including
the notes thereto) contained in the documents incorporated herein by reference,
except to the extent set forth in the immediately preceding sentence.
(ii)
<PAGE>
NO PERSON IS AUTHORIZED TO PROVIDE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CUC INTERNATIONAL OR ADVANCE ROSS. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF CUC INTERNATIONAL OR ADVANCE ROSS SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF.
(iii)
<PAGE>
TABLE OF CONTENTS
<TABLE><CAPTION>
PAGE
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AVAILABLE INFORMATION................................................................. i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... ii
SUMMARY............................................................................... 1
SELECTED FINANCIAL DATA............................................................... 12
SUMMARY UNAUDITED PRO FORMA SELECTED FINANCIAL DATA................................... 14
COMPARATIVE MARKET PRICE INFORMATION.................................................. 15
INFORMATION CONCERNING CUC INTERNATIONAL INC.......................................... 18
INFORMATION CONCERNING ADVANCE ROSS CORPORATION....................................... 19
THE MEETING........................................................................... 20
General............................................................................. 20
Matters to Be Considered at the Meeting............................................. 20
Record Date; Quorum; Voting at the Meeting.......................................... 20
Proxies............................................................................. 21
THE MERGER............................................................................ 22
Background of the Merger............................................................ 22
Reasons for the Merger.............................................................. 29
Recommendation of Advance Ross' Board of Directors.................................. 31
Opinion of Advance Ross' Financial Advisor.......................................... 32
Certain Consequences of the Merger.................................................. 39
Management of Advance Ross After the Merger......................................... 40
Conduct of the Business of CUC International and Advance Ross if the Merger Is Not
Consummated....................................................................... 40
Material Contacts Between CUC International and Advance Ross........................ 40
Interests of Certain Persons in the Merger.......................................... 40
Accounting Treatment................................................................ 44
Certain Federal Income Tax Consequences............................................. 44
Regulatory Approvals................................................................ 46
Federal Securities Law Consequences................................................. 47
Stock Exchange Listing.............................................................. 47
No Appraisal Rights................................................................. 47
THE MERGER AGREEMENT.................................................................. 47
The Merger.......................................................................... 47
Effective Time...................................................................... 48
Conversion of Shares; Exchange of Stock Certificates; No Fractional Shares.......... 48
Treatment of Stock Options and the Warrant.......................................... 49
Representations and Warranties...................................................... 50
Certain Covenants................................................................... 51
Conditions.......................................................................... 54
Termination......................................................................... 56
Fees and Expenses................................................................... 57
Modification or Amendment........................................................... 57
Waiver.............................................................................. 57
STOCKHOLDERS AGREEMENT................................................................ 58
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........................... 59
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 64
COMPARISON OF COMMON STOCKHOLDERS' RIGHTS............................................. 64
Directors........................................................................... 64
Amendments to the Charters.......................................................... 65
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Amendments to the By-Laws........................................................... 65
Quorum.............................................................................. 65
Vote Required for Merger and Certain Other Transactions............................. 65
Business Combinations Following a Change of Control................................. 66
Cumulative Voting................................................................... 66
Special Meetings of Stockholders; Action by Consent................................. 67
STOCKHOLDER PROPOSALS................................................................. 68
OWNERSHIP OF ADVANCE ROSS COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 68
PRINCIPAL HOLDERS OF CUC INTERNATIONAL COMMON STOCK................................... 70
LEGAL MATTERS......................................................................... 70
EXPERTS............................................................................... 70
OTHER MATTERS......................................................................... 71
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Annex A Agreement and Plan of Merger dated October 17, 1995, among CUC
International Inc., Retreat Acquisition Corporation and Advance Ross
Corporation.............................................................. A-1
Annex B Stockholders Agreement dated October 17, 1995, among CUC International Inc.
and each of the holders of Advance Ross Common Stock party thereto....... B-1
Annex C Opinion of Allen & Company Incorporated.................................... C-1
Annex D Opinion of Katten Muchin & Zavis........................................... D-1
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. This summary is not intended to be complete and
is qualified in its entirety by reference to the more detailed information
contained elsewhere, or incorporated by reference, in this Proxy
Statement/Prospectus and the Annexes hereto. Stockholders are urged to read this
Proxy Statement/Prospectus, the Annexes hereto and the documents incorporated
herein by reference carefully and in their entirety. Unless otherwise defined
herein, all capitalized terms used in this Summary have the respective meanings
assigned to them elsewhere in this Proxy Statement/Prospectus.
Unless otherwise indicated, all beneficial ownership information and share
amounts set forth in this Proxy Statement/Prospectus (i) have been adjusted for,
and give effect to, in the case of the Advance Ross Common Stock, the 2:1 split
thereof effected on each of February 4, 1994 and September 8, 1995 and, in the
case of the CUC International Common Stock, the 3:2 split thereof effected on
June 30, 1995, (ii) assume that the outstanding options and warrants to purchase
Advance Ross Common Stock will not be exercised prior to the Effective Time,
(iii) assume that outstanding options to purchase shares of CUC International
Common Stock will not be exercised prior to the Effective Time, (iv) assume that
the Average Stock Price will be $34, the midpoint of the range provided in the
Merger Agreement, and (v) assume that all shares of Advance Ross Preferred Stock
issued and outstanding immediately prior to the Effective Time will be converted
in the Merger into shares of CUC International Common Stock, as described
elsewhere in this Proxy Statement/Prospectus.
THE COMPANIES; CONSTITUENT CORPORATIONS IN THE MERGER
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CUC INTERNATIONAL INC............. CUC International is a membership-based consumer services
company, providing consumers with access to a variety
of services. CUC International currently has
approximately 40 million consumers using its various
services. CUC International operates in one business
segment, providing these services as individual,
wholesale or discount coupon program memberships. These
memberships include such components as shopping,
travel, auto, dining, home improvement, vacation
exchange, credit card and checking account enhancement
packages, financial products and discount coupon
programs. CUC International also administers insurance
package programs which are generally combined with
discount shopping and travel for credit union members
and bank account holders. CUC International believes it
is the leading provider of membership-based consumer
services of these types in the United States. CUC
International's activities are conducted principally
through its Comp-U-Card division and certain of CUC
International's wholly owned subsidiaries, FISI*Madison
Financial Corporation, Benefit Consultants, Inc.,
Interval International Inc. and Entertainment
Publications, Inc. For a more detailed description of
the business and properties of CUC International, see
the descriptions thereof set forth in the CUC 10-K,
which is incorporated herein by reference.
CUC International's executive offices are located at 707
Summer Street, Stamford, Connecticut 06901, and its
telephone number is (203) 324-9261.
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RETREAT ACQUISITION CORPORATION... Merger Sub, a wholly owned subsidiary of CUC
International, was formed solely for the purpose of
effecting the Merger and has not engaged in any
activities other than those incident to its
organization and consummation of the Merger.
ADVANCE ROSS CORPORATION.......... The primary business of Advance Ross is the operation of
a value-added tax ("VAT") refund system serving travelers
shopping in Europe. This business is conducted
primarily through Advance Ross' wholly owned
subsidiary, Europe Tax-free Shopping ETS AB ("ETS"),
and other European subsidiaries, and operates under the
logo "Tax-free for Tourists." ETS is the largest VAT
refund service in Europe. Advance Ross acquired ETS on
November 2, 1992.
ETS' business is based upon serving: (i) travelers,
through ETS' convenient, efficient and reliable VAT
refunds, and (ii) retailers, by promoting the benefits
of tax-free shopping, thereby enhancing the retailers'
business and simplifying the retailers' administrative
burden. ETS' business is also based upon VAT's role as
a vital component of the tax policy of most European
(and other) countries, and tourism, international
travel and retail being included among the world's
largest industries.
ETS began its operations in 1980 in Sweden. Since then,
ETS has expanded throughout Europe and currently
provides VAT refunds in 20 European countries at refund
points at most international airports, ferry terminals
and border crossings.
Advance Ross also designs, manufactures and installs
electrostatic precipitators for industrial pollution
control purposes through its subsidiary, PPC Industries
("PPC"), located in Longview, Texas. PPC also designs
and installs patented biofiltration pollution control
installations. PPC represented approximately 14% and
13% of Advance Ross' net sales and services in fiscal
1994 and 1993, respectively.
Advance Ross' executive offices are located at 233 South
Wacker Drive, Suite 9700, Chicago, Illinois 60606-6502,
and its telephone number is (312) 382-1100.
SPECIAL MEETING OF HOLDERS OF ADVANCE ROSS COMMON STOCK
TIME, DATE AND PLACE.............. The Meeting will be held at 10:00 a.m., local time, on
January 10, 1996, at the LaSalle Bank Building, Room
1204, 135 South LaSalle Street, Chicago, Illinois.
PURPOSE OF THE MEETING............ The purpose of the Meeting is to consider and vote upon
(i) a proposal to adopt the Merger Agreement and (ii)
such other business as properly may come before the
Meeting or any adjournments or postponements thereof.
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RECORD DATE, SHARES ENTITLED TO
VOTE, QUORUM, VOTE REQUIRED....... Holders of record of shares of Advance Ross Common Stock
at the close of business on December 6, 1995 (the "Record
Date") are entitled to notice of and to vote at the
Meeting. At the Record Date, there were 7,089,627
shares of Advance Ross Common Stock issued and
outstanding, each of which is entitled to one vote on
each matter to be acted upon or which properly may come
before the Meeting.
The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Advance Ross
Common Stock entitled to vote at the Meeting is
necessary to constitute a quorum for the transaction of
business, and the affirmative vote of the holders of a
majority of the outstanding shares of Advance Ross
Common Stock is necessary to approve the Merger.
At the Record Date, there were 16,923 shares of Advance
Ross Preferred Stock issued and outstanding. Holders of
these shares are not entitled to vote at the Meeting.
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THE MERGER
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EFFECTS OF THE MERGER; MERGER
CONSIDERATION................... In the Merger: (i) Merger Sub will be merged with and
into Advance Ross and Advance Ross, as the surviving
corporation in the Merger, will become a wholly owned
subsidiary of CUC International; (ii) each share of
Advance Ross Common Stock issued and outstanding
immediately prior to the Effective Time (other than
shares owned by CUC International, Merger Sub, Advance
Ross, or any wholly owned subsidiary of CUC
International or Advance Ross) will be converted into
5/6 of one share (the "Exchange Ratio") of CUC
International Common Stock, subject to adjustment as
described below; and (iii) at the Effective Time, each
holder of a certificate representing shares of Advance
Ross Common Stock will cease to have any rights with
respect to such stock, except the right to receive the
number of shares of CUC International Common Stock
specified above and cash in lieu of fractional share
interests. If the Average Stock Price (as defined
below) is greater than $38.00, the Exchange Ratio will
be reduced so as to equal the product of: (i) 5/6 and
(ii) a fraction, the numerator of which is $38.00 and
the denominator of which is the Average Stock Price. If
the Average Stock Price is less than $30.00, the
Exchange Ratio will be increased so as to equal the
product of: (i) 5/6 and (ii) a fraction, the numerator
of which is $30.00 and the denominator of which is the
Average Stock Price. The term "Average Stock Price"
means a fraction, the numerator of which is the sum of
the Weighted Amount (defined below) for each trading
day during the period of 10 consecutive trading days
commencing 11 trading days prior to the date of the
Meeting and ending on the second trading day
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prior to the date of the Meeting, and the denominator
of which is the total reported volume in trading in CUC
International Common Stock on the New York Stock
Exchange, Inc. (the "NYSE") during such 10-day period.
For purposes hereof, with respect to any trading day,
the "Weighted Amount" will be equal to the product of
the per share closing price on the NYSE of CUC
International Common Stock on such day and the volume
of trading in CUC International Common Stock on the
NYSE for such day, in each case as reported in the NYSE
Composite Transactions. See "The Merger
Agreement--Conversion of Shares; Exchange of Stock
Certificates; No Fractional Shares."
Each share of Advance Ross Preferred Stock issued and
outstanding immediately prior to the Effective Time
(other than shares owned by CUC International, Merger
Sub, Advance Ross or any wholly owned subsidiary of CUC
International or Advance Ross) will be converted into
that number of shares of CUC International Common Stock
equal to the quotient obtained by dividing the
Redemption Price by the Average Stock Price. No
fractional shares of CUC International Common Stock
will be issued in the Merger to holders of Advance Ross
Common Stock or Advance Ross Preferred Stock.
Accordingly, if Advance Ross reasonably determines that
the aggregate amount of cash to be received by all
holders of Advance Ross Preferred Stock, in lieu of
fractional share interests, would exceed 20% of the
value of the aggregate consideration to be received by
all holders of Advance Ross Preferred Stock at the
Effective Time then, in lieu of the conversion in the
Merger of shares of Advance Ross Preferred Stock into
shares of CUC International Common Stock as provided in
the preceding sentence, Advance Ross shall redeem the
Advance Ross Preferred Stock in accordance with the
redemption provisions of Article Fourth of the Advance
Ross Restated Certificate of Incorporation.
Based upon the capitalization of CUC International and
Advance Ross at September 30, 1995 and giving effect to
the Merger, the total number of shares of CUC
International Common Stock outstanding immediately
following the Effective Time will be 186,609,413, and
the current holders of Advance Ross Common Stock will
own, in the aggregate, approximately 3.2% of the
outstanding CUC International Common Stock.
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TREATMENT OF OPTIONS AND THE
WARRANT......................... At the Effective Time, each outstanding option to
purchase shares of Advance Ross Common Stock and the
warrant certificate dated as of February 19, 1992 (as
amended on December 1, 1992, and supplemented on
October 17, 1995) issued by Advance Ross to Allen &
Company Incorporated ("Allen & Company"), which
currently is exercisable for the purchase of up to
480,000 (or approximately 6.3%) of the Advance Ross
Common Stock at an exercise price per share of $2.375
(the "Warrant"), will be assumed by CUC International
and will be deemed to constitute an option or warrant,
as applicable, to acquire, at an adjusted price per
share, the same number of shares of CUC International
Common Stock as the holder of such option or Warrant
would have been entitled to receive in the Merger had
such holder exercised such option or Warrant in full
immediately prior to the Effective Time (irrespective
of whether such option or Warrant then was
exercisable).
REASONS FOR THE MERGER............ CUC International. CUC International's Board of Directors
believes that the Merger will further CUC
International's long-term strategic objectives by
strengthening CUC International's presence in Europe
and by providing it with access to Advance Ross'
relationships with European retailers in connection
with CUC International's other services.
Advance Ross. Advance Ross' Board of Directors believes
that the Merger offers holders of Advance Ross Common
Stock the opportunity to receive a significant premium
to recent market prices of such stock and, at the same
time, affords such holders the opportunity to
participate in the potential future growth of a company
that has greater financial resources, a larger market
capitalization and more diverse business operations
than Advance Ross. See "The Merger-- Reasons for the
Merger" and "--Recommendation of Advance Ross' Board of
Directors."
OWNERSHIP OF ADVANCE ROSS COMMON
STOCK BY MANAGEMENT AND CERTAIN
OTHER PERSONS; STOCKHOLDERS
AGREEMENT....................... At September 30, 1995, the executive officers and
directors of Advance Ross (as a group) owned
approximately 2.9% of the outstanding Advance Ross
Common Stock. Neither CUC International nor any of its
subsidiaries, affiliates, directors or executive
officers owns any shares of Advance Ross Common Stock.
See "The Merger--Interests of Certain Persons in the
Merger" and "Ownership of Advance Ross Common Stock by
Certain Beneficial Owners and Management."
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Concurrently with the execution and delivery of the
Merger Agreement, CUC International entered into an
agreement (the "Stockholders Agreement") with all
executive officers and directors of Advance Ross who
own shares of Advance Ross Common Stock (the "Voting
Stockholders"). Pursuant to the Stockholders Agreement,
the Voting Stockholders severally have agreed that
until the earlier to occur of the Effective Time and
termination of the Merger Agreement in accordance with
its terms, at any meeting of the holders of Advance
Ross Common Stock, however called (which includes the
Meeting), such holders will vote or cause to be voted
all shares of Advance Ross Common Stock held of record
or owned beneficially by them "FOR" adoption of the
Merger Agreement and against certain business
combinations and other extraordinary corporate
transactions involving Advance Ross and its
subsidiaries which are intended or reasonably could be
expected to impede, interfere with, delay or materially
adversely affect the Merger and the transactions
contemplated by the Merger Agreement and the
Stockholders Agreement. See "Stockholders Agreement."
OPINION OF ADVANCE ROSS' FINANCIAL
ADVISOR......................... Allen & Company has delivered to the Board of Directors
of Advance Ross its opinion, dated October 16, 1995, to
the effect that, at such date, and based upon and
subject to certain matters and qualifications stated
therein, the consideration to be paid to the holders of
Advance Ross Common Stock and Advance Ross Preferred
Stock in the Merger is fair to such holders, from a
financial point of view. The full text of the written
opinion of Allen & Company, which sets forth the
assumptions made, matters considered and limitations on
the review undertaken, is attached as Annex C to this
Proxy Statement/Prospectus and should be read carefully
and in its entirety. See "The Merger--Opinion of
Advance Ross' Financial Advisor."
Allen & Company and certain of its officers and employees
owned at the Record Date 306,500 (or approximately
4.3%) of the outstanding shares of Advance Ross Common
Stock and the Warrant, which currently is exercisable
to purchase up to 480,000 (or approximately 6.3%) of
the Advance Ross Common Stock at an exercise price per
share of $2.375. The 306,500 outstanding shares owned
by Allen & Company and such officers and employees were
acquired over time at market prices prevailing at such
times. The Warrant, which at the time of issuance to
Allen & Company was exercisable at a price which
equalled or exceeded the then-current market price for
the Advance Ross Common Stock, was received by Allen &
Company in September 1990 as the only form of
compensation in connection with its engagement as the
Company's financial advisor, in which capacity Allen &
Company has served since such date. Although it is not
a party to the Stockholders Agreement, Allen & Company
has
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informed the Company that it intends to vote all the
shares of Advance Ross Common Stock which it directly
owns at the Record Date "FOR" adoption of the Merger
Agreement and has agreed to certain restrictions on its
ability to sell or otherwise transfer the shares of
Advance Ross Common Stock beneficially owned by it,
provided that the Advance Ross Board of Directors has
not withdrawn its recommendation "FOR" adoption of the
Merger Agreement. See "Ownership of Advance Ross Common
Stock by Certain Beneficial Owners and Management."
RECOMMENDATION OF THE BOARD OF
DIRECTORS OF ADVANCE ROSS....... The Board of Directors of Advance Ross unanimously has
determined that the Merger is fair to and in the best
interests of Advance Ross and its stockholders,
unanimously has approved the Merger Agreement (and the
transactions contemplated thereby), and unanimously
recommends adoption of the Merger Agreement by the
holders of Advance Ross Common Stock. The foregoing
recommendation is based upon a variety of factors
discussed in "The Merger--Reasons for the Merger" and
"-- Recommendation of Advance Ross' Board of
Directors."
In making such determination and in connection with its
reliance on the opinion of Allen & Company, the Board
of Directors of Advance Ross specifically was informed
that Allen & Company together with certain of its
officers and employees beneficially own 306,500 (or
approximately 4.3%) of the outstanding shares of
Advance Ross Common Stock and the Warrant, which
currently is exercisable for the purchase of up to
480,000 (or approximately 6.3%) of the Advance Ross
Common Stock at an exercise price per share of $2.375.
See "The Merger--Background of the Merger," "Opinion of
Advance Ross' Financial Advisor" and "Ownership of
Advance Ross Common Stock by Certain Beneficial Owners
and Management."
CERTAIN CONSEQUENCES OF
THE MERGER...................... Upon consummation of the Merger, Advance Ross will become
a wholly owned subsidiary of CUC International, holders
of Advance Ross Common Stock will become holders of CUC
International Common Stock, shares of Advance Ross
Common Stock and Advance Ross Preferred Stock will
cease to be traded on the NASDAQ Stock Market, and
application will be made to deregister such shares
under the Exchange Act. At the Effective Time, the
Restated Certificate of Incorporation of Advance Ross
immediately prior to such time will become the
certificate of incorporation of the surviving
corporation, and the by-laws of Advance Ross
immediately prior to such time will become the by-laws
of the surviving corporation, in each case until
thereafter amended. See "Certain Consequences of the
Merger."
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MANAGEMENT OF ADVANCE ROSS AFTER
THE MERGER...................... Pursuant to the Merger Agreement, the members of the
Board of Directors of Merger Sub immediately prior to the
Effective Time will be the initial directors of the
surviving corporation immediately following the
Effective Time and the officers of Advance Ross
immediately prior to the Effective Time will be the
initial officers of the surviving corporation following
the Effective Time. CUC International has no present
intention of replacing after the Effective Time any of
the executive officers of the surviving corporation.
See "Interests of Certain Persons in the Merger."
CONDUCT OF THE BUSINESS OF CUC
INTERNATIONAL AND ADVANCE ROSS
IF THE MERGER IS NOT
CONSUMMATED..................... If the Merger is not consummated, it is expected that the
respective businesses and operations of CUC
International and Advance Ross each will continue to be
conducted substantially as they currently are being
conducted. In addition, pursuant to the terms of a
certain confidentiality agreement dated August 23,
1995, between Advance Ross and CUC International (the
"Confidentiality Agreement"), such parties have agreed
that for the two-year period ending August 23, 1997,
without the prior written consent of the Board of
Directors of Advance Ross, CUC International will not,
directly or indirectly, seek, offer or propose to
effect, or participate in or assist any other person to
seek, offer or propose to effect, certain business
combinations and acquisitions of Advance Ross
securities, including, without limitation, mergers,
tender or exchange offers, any recapitalization,
restructuring, liquidation or dissolution of Advance
Ross, solicitations of proxies or consents to vote any
voting securities of Advance Ross, or any other similar
extraordinary corporate transactions.
INTERESTS OF CERTAIN PERSONS IN
THE MERGER...................... In considering the recommendations of the Advance Ross
Board of Directors, holders of Advance Ross Common Stock
should consider that certain of Advance Ross' executive
officers and directors have certain interests in the
Merger that are in addition to the interests of holders
of Advance Ross Common Stock generally.
Stock Options. At the Effective Time, each outstanding
Option (as such term is defined in "The
Merger--Interests of Certain Persons in the
Merger--Stock Options") to purchase shares of Advance
Ross Common Stock will be assumed by CUC International
and will be deemed to constitute an option to acquire,
at an adjusted price per share, the same number of
shares of CUC International Common Stock as the holder
of such Option would have been entitled to receive
pursuant to the Merger had such holder exercised such
Option in full immediately prior to the Effective Time
(irrespective of whether such Option then was
exercisable). At September 30, 1995, certain executive
officers and directors of Advance Ross owned
outstanding Options to purchase up to an aggregate of
1,172,388 shares of Advance Ross Common Stock,
including options to purchase up to 10,000 shares of
Advance Ross Common Stock issued pursuant to the 1995
Advance Ross
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Corporation Directors Deferral Plan (the "Directors
Deferral Plan"), which options will be cancelled and
which plan will be terminated at or prior to the
Effective Time.
Employment Agreements. CUC International has agreed to
enter (or cause Advance Ross, as the surviving
corporation in the Merger, to enter) into new or
amended employment agreements prior to the Effective
Time with each of the Chairman of the Board and Chief
Executive Officer, the President and Chief Operating
Officer, and the Vice President and Chief Financial
Officer of Advance Ross, and with the President of
Advance Ross Electronics Corporation, an indirect
wholly owned subsidiary of Advance Ross ("AREC"), each
substantially in the form of the drafts agreed to by
such individuals and CUC International concurrently
with the execution of the Merger Agreement. See "The
Merger--Interest of Certain Persons in the
Merger--Employment Agreements."
Indemnification. The Merger Agreement preserves certain
indemnification rights of the executive officers and
directors of Advance Ross which currently are in
effect. See "The Merger Agreement--Certain Covenants."
EFFECTIVE TIME OF MERGER.......... The Merger will become effective on the date that a
Certificate of Merger is filed with the Secretary of
State of the State of Delaware or at such time
thereafter as provided in the Certificate of Merger.
CONDITIONS TO THE MERGER;
TERMINATION OF THE MERGER
AGREEMENT....................... The obligations of CUC International and Advance Ross to
consummate the Merger are subject to the satisfaction
of certain conditions, including, among others, the
accuracy of the representations and warranties and the
performance of covenants of the respective parties to
the Merger Agreement, the listing on the NYSE (subject
to official notice of issuance) of the shares of CUC
International Common Stock to be issued in the Merger,
CUC International being satisfied that all stock option
plans maintained by Advance Ross and currently in
effect have been terminated, there not being in effect
any injunction or other order of any court or
governmental authority preventing consummation of the
Merger, obtaining the requisite adoption of the Merger
Agreement at the Meeting by the holders of Advance Ross
Common Stock, the receipt by CUC International of a
letter from its independent auditors, Ernst & Young
LLP, to the effect that pooling-of-interests accounting
(under Accounting Principles Board Opinion No. 16) is
appropriate for the Merger, provided that the Merger is
consummated in accordance with the terms and conditions
of the Merger Agreement, the receipt of consents,
approvals and authorizations of non-governmental third
parties, the Registration Statement (of which this
Proxy Statement/Prospectus is a part) having been
declared effective by the Commission and there not
having been issued or initiated any proceeding for the
issuance of a stop order
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suspending the effectiveness of the Registration
Statement, and the receipt by Advance Ross of an
opinion from Katten Muchin & Zavis, tax counsel to
Advance Ross, to the effect, among other things, that
the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). See "The Merger
Agreement--Conditions."
Consummation of the Merger also is subject to the
satisfaction of certain regulatory matters, including
expiration of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the making of certain
filings with foreign governmental authorities. Early
termination of the waiting period under the HSR Act was
granted on October 30, 1995, without any requests for
additional documentation or other information. See "The
Merger--Regulatory Approvals."
The Merger Agreement is subject to termination by CUC
International or Advance Ross if, without fault of the
terminating party, the Merger is not consummated by
January 31, 1996, and prior to such time upon the
occurrence of certain events. See "The
Merger--Termination."
TERMINATION FEE................... Generally, subject to certain conditions and exceptions
described in "The Merger Agreement--Termination; Effect
of Termination and Abandonment," Advance Ross may be
required to pay to CUC International an aggregate
termination fee of up to $5.0 million if the Merger
Agreement is terminated and the transactions
contemplated thereby (including the Merger) are
abandoned and the holders of Advance Ross Common Stock
do not vote "FOR" adoption of the Merger Agreement.
For example, if under certain circumstances Advance Ross
were to enter into a definitive agreement in respect of
a "Superior Proposal" (as defined below in "The Merger
Agreement-- Certain Covenants"), CUC International
would be entitled to receive from Advance Ross a
termination fee of $2.5 million and, if Advance Ross
within one year thereafter were to consummate any
"Competing Transaction" (as defined below in "The
Merger Agreement--Certain Covenants"), irrespective of
whether such transaction relates to a Superior
Proposal, CUC International would be entitled to
receive an additional termination fee of $2.5 million.
NO APPRAISAL RIGHTS............... Holders of Advance Ross Common Stock and Advance Ross
Preferred Stock are not entitled to appraisal rights
under the Delaware General Corporation Law, as amended
(the "DGCL"), in connection with the Merger because
such shares are listed for trading on the NASDAQ Stock
Market. Holders of CUC International Common Stock are
not entitled to appraisal rights under the DGCL because
CUC International is not a constituent corporation to
the Merger under the DGCL. See "The Merger--No
Appraisal Rights."
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CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.................... The Merger is intended to qualify as a reorganization
within the meaning of Section 368(a) of the Code. A
condition to the obligation of Advance Ross to
consummate the Merger is the receipt by it of an
opinion of Katten Muchin & Zavis, tax counsel to
Advance Ross, dated the Effective Time, to the effect
that, among other things: (i) the Merger will qualify
as a reorganization within the meaning of Section
368(a) of the Code; (ii) each of CUC International,
Merger Sub and Advance Ross will be a party to the
reorganization within the meaning of Section 368(b) of
the Code; and (iii) no gain or loss will be recognized
by a holder of Advance Ross Common Stock or Advance
Ross Preferred Stock as a result of the Merger with
respect to shares of Advance Ross Common Stock or
Advance Ross Preferred Stock converted solely into
shares of CUC International Common Stock (except with
respect to cash, if any, received in lieu of fractional
share interests). However, consummation of the Merger
is not conditioned upon the receipt of a private letter
ruling from the Internal Revenue Service as to the tax
consequences of the Merger. The full text of the
written opinion of Katten Muchin & Zavis is attached as
Annex D to this Proxy Statement/Prospectus and should
be read carefully and in its entirety. See "The
Merger--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT.............. The Merger is intended to qualify as a
pooling-of-interests for accounting and financial
reporting purposes. In addition, it is a condition to
consummation of the Merger that CUC International shall
have received from Ernst & Young LLP, its independent
auditors, a letter to the effect that pooling-of-
interests accounting (under Accounting Principles Board
Opinion No. 16) is appropriate for the Merger, provided
that the Merger is consummated in accordance with the
terms and conditions of the Merger Agreement, and
Advance Ross shall have used commercially reasonable
efforts to cause its independent auditors, Deloitte &
Touche LLP, to cooperate fully (including, without
limitation, delivering to Advance Ross a letter
substantially similar to the letter delivered by Ernst
& Young LLP to CUC International) with Ernst & Young
LLP in connection with the delivery to CUC
International of such letter. See "The
Merger--Accounting Treatment" and "The Merger
Agreement--Conditions."
COMPARISON OF COMMON STOCKHOLDERS'
RIGHTS.......................... Upon consummation of the Merger, among other things,
holders of Advance Ross Common Stock will become
stockholders of CUC International. CUC International
and Advance Ross are both Delaware corporations;
accordingly, the differences between the rights of
holders of shares of CUC International Common Stock and
shares of Advance Ross Common Stock arise solely from
the distinctions between the respective certificates of
incorporation and bylaws of CUC International and
Advance Ross. See "Comparison of Common Stockholders'
Rights" for a summary of such differences.
</TABLE>
11
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for CUC International for the five
years ended January 31, 1995, and for Advance Ross for the five years ended
December 31, 1994, are derived from the consolidated financial statements of CUC
International and Advance Ross, respectively. The financial data for the
nine-month periods ended October 31, 1995 and 1994 are derived from the
unaudited financial statements of CUC International, and the financial data for
the nine-month periods ended September 30, 1995 and 1994 are derived from the
unaudited financial statements of Advance Ross. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which CUC International and Advance Ross management consider necessary for a
fair presentation of their respective financial positions and the results of
operations for these periods. Operating results for the nine months ended
October 31, 1995 and the nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the entire year
ending January 31, 1996, in the case of CUC International, and December 31,
1995, in the case of Advance Ross. The data should be read in conjunction with
the consolidated financial statements, related notes and other financial
information, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included in the CUC 10-K and Advance Ross 10-K,
respectively.
CUC INTERNATIONAL INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
------------------------------------------------------- -------------------
1995(C) 1994 1993(D) 1992(E) 1991(E) 1995(A) 1994
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues.................. $1,044,669 $879,324 $742,280 $644,255 $545,961 $979,886 $762,940
Income from continuing
operations before income
taxes.......................... 190,524 142,195 96,102 45,132(f) 42,149 186,291 137,788
Income from continuing
operations..................... 117,591 87,371 58,843 25,130(f) 25,893 115,407 84,809
Income per common share from
continuing operations(b)....... $ .66 $ .51 $ .38 $ .16(f) $ .17 $ .62 $ .48
---------- -------- -------- -------- -------- -------- --------
Weighted average number of
common and dilutive common
equivalent shares
outstanding(b)................. 176,834 171,197 156,558 152,382 148,170 186,873 176,400
---------- -------- -------- -------- -------- -------- --------
<CAPTION>
AT JANUARY 31, AT OCTOBER 31,
------------------------------------------------------- -------------------
1995 1994 1993 1992 1991 1995(A)
---------- -------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.................... $ 768,152 $612,759 $478,580 $321,801 $279,126 $957,623
Long-term debt(g)............... 55,060
Zero coupon convertible notes... 15,046 22,176 37,295 69,228 76,384 14,347
Stockholders' equity
(deficiency)(h)................ 443,322 284,881 150,190 (967) (44,146) 625,477
Working capital................. 394,412 254,215 116,071 71,614 36,406 503,514
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) During the nine months ended October 31, 1995, CUC International acquired Welcome Wagon
International, Inc. ("Welcome Wagon"), CUC Europe Limited ("CUC Europe"), Credit Card
Sentinel (U.K.) Limited ("CCS"), North American Outdoor Group, Inc. ("NAOG") and the
Getko Group Inc. ("Getko"). These acquisitions, other than the acquisitions of Getko and
NAOG, were accounted for in accordance in with the purchase method and, accordingly,
have been incorporated in CUC International's results of operations from the respective
dates of acquisition. The results of these entities' operations for the periods prior to
their acquisition were not significant to the historical financial statements of CUC
International. The acquisitions of Getko and NAOG were accounted for in accordance with
the pooling-of-interests method. However, due to the insignificance of Getko's and
NAOG's financial statements to the historical financial statements of CUC International,
CUC International's financial statements for periods prior to February 1, 1995 were not
restated.
(b) Adjusted to give retrospective effect to the 3:2 stock split effective June 30, 1995 for
stockholders of record on June 19, 1995.
(c) During fiscal 1995, CUC International acquired Essex Corporation and its subsidiaries
("Essex").
</TABLE>
(Footnotes continued on following page)
12
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(d) During fiscal 1993, CUC International acquired Leaguestar plc ("Leaguestar") and Sally
Foster Gift Wrap, LP ("Sally Foster").
(e) During fiscal 1992, CUC International completed a merger with Entertainment Publishing
Corp. ("Entertainment"). The acquisition was accounted for as a pooling-of-interests and
the financial statements, common share and per share data were restated for all prior
periods to include Entertainment.
(f) Includes provision for costs incurred in connection with the integration of the
operations of CUC International and Entertainment and costs of professional fees and
other expenses related to the merger with Entertainment. The charge aggregated $20.7
million ($15 million, or $.10 per share of CUC International Common Stock, after tax
effect).
(g) Includes current portion of long-term debt of $23.6 million as of January 31, 1991.
Excludes $15.2 million and $26.7 million of borrowings under CUC International's credit
agreement due at January 31, 1993 and 1992, respectively, and $6 million due at January
31, 1993 under a note payable issued in connection with the fiscal 1993 acquisition of
Sally Foster.
(h) No CUC International Common Stock cash dividends have been paid or declared during the
five years ended January 31, 1995 or during the nine months ended October 31, 1995.
</TABLE>
ADVANCE ROSS CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1994 1993 1992(1) 1991 1990 1995 1994
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales and services.............. $66,503 $50,288 $11,041 $ 5,870 $ 3,314 $53,321 $46,934
Income before equity in profit
(loss) of unconsolidated
affiliates......................... 7,472 4,659 612 7,289 2,664 5,614 5,268
Equity in profit (loss) of
unconsolidated affiliates.......... 874 428 57 (19) (2) 1,047 455
------- ------- ------- ------- ------- ------- -------
Net income.......................... 8,346 5,087 669 7,270 2,662 6,661 5,723
EARNINGS PER SHARE DATA:
Primary............................. .97 .63 .09 .99 .34 .76 .66
Fully diluted....................... .97 .60 .09 -- -- .75 .66
Cash dividends per share:
Preferred stock.................. 1.25 1.25 1.25 1.25 1.25 .9375 .9375
</TABLE>
<TABLE><CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
----------------------------------------------- -----------------
1994 1993 1992 1991 1990 1995
------- ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $20,398 $10,366 $ 5,538 $21,603 $12,908 $28,594
Total assets........................ 64,120 51,061 50,160 26,258 17,483 76,262
Long-term debt...................... 6,707 7,497 10,077 -- -- 7,256
Stockholder's equity................ 33,531 22,453 18,825 23,345 16,719 42,371
</TABLE>
- ------------
(1) On November 2, 1992, Advance Ross acquired all of the outstanding capital
stock of ETS. The acquisition has been accounted for using the purchase
method and, accordingly, the net assets and results of operations are
included in the consolidated financial statements, for reporting purposes,
beginning in November 1992. On a pro forma basis (unaudited), had the
acquisition occurred at the beginning of 1992, after giving effect to
certain adjustments, including amortization of cost in excess of net asset
value of acquired business, interest expense on the acquisition debt,
interest income lost as a result of redeeming a portion of cash and
temporary investments to finance the acquisition, and related tax effects,
the net sales and services, net income and primary earnings per share of
Advance Ross Common Stock would have been $46,898, $2,026, and $0.29,
respectively.
The pro forma adjustments were based upon available information and upon
certain assumptions that Advance Ross believed were reasonable in the
circumstances. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the acquisition been made as of such date or of actual results
which may occur in the future.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following summary unaudited pro forma selected financial data should be
read in conjunction with the unaudited pro forma combined condensed financial
statements and related notes thereto included elsewhere in this Proxy
Statement/Prospectus. The pro forma information is based on the historical
financial statements of CUC International, Advance Ross, NAOG and Getko, giving
effect to the mergers of CUC International with such companies under the
pooling-of-interests method of accounting. This pro forma information may not be
indicative of the results that would have occurred if the mergers had been
effected on the dates indicated or the results which may be obtained in the
future.
<TABLE><CAPTION>
NINE MONTH
PERIOD ENDED
FISCAL YEARS ENDED JANUARY 31, OCTOBER 31,
---------------------------------- ------------
1995 1994 1993 1995
---------- -------- -------- ------------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C>
Total revenues................................ $1,182,896 $984,801 $800,971 $ 1,037,016
Income from continuing operations............. $ 124,566 $ 94,151 $ 63,667 $ 120,759
Income from continuing operations per common
share....................................... $ 0.66 $ 0.51 $ 0.38 $ 0.62
Cash dividends per common share(a)............ -- $ 0.004 $ 0.002 --
Weighted average number of common and dilutive
common equivalent shares outstanding........ 189,219 183,113 167,908 194,209
<CAPTION>
AT OCTOBER
31,
------------
1995
------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.................................. $ 1,030,024
Long-term debt................................ 6,550
Zero coupon convertible notes................. 14,347
Stockholders' equity.......................... 666,747
Working capital............................... 530,056
</TABLE>
- ------------
(a) Represents dividends paid by NAOG prior to the merger with CUC
International. No other cash dividends were paid on the common stock of any
of the companies included in the unaudited pro forma financial data during
the periods presented.
14
<PAGE>
COMPARATIVE MARKET PRICE INFORMATION
CUC International. Shares of CUC International Common Stock are listed for
trading on the NYSE under the symbol "CU". The table below sets forth, for CUC
International's fiscal quarters commencing in fiscal 1994 through December 5,
1995, the reported high and low sales prices of the CUC International Common
Stock as reported on the NYSE Composite Transactions for all periods presented,
based on published financial sources. At the Record Date, there were
approximately holders of record of CUC International Common Stock. CUC
International has paid no cash dividends during the periods presented. The
market price for CUC International Common Stock on October 17, 1995, the last
full trading day immediately preceding the public announcement of the Merger,
and as of the most recent practicable date, is set forth below in "Equivalent
Per Share Data."
PRICE PER SHARE
OF CUC INTERNATIONAL
COMMON STOCK
---------------------
HIGH LOW
-------- -------
Fiscal 1994 (ended January 31, 1994)
First Quarter......................................... $13 3/4 $11 1/8
Second Quarter........................................ 20 3/4 14
Third Quarter......................................... 26 1/8 20
Fourth Quarter........................................ 25 1/2 20 3/8
Fiscal 1995 (ended January 31, 1995)
First Quarter......................................... 21 7/8 18
Second Quarter........................................ 20 3/8 17 1/8
Third Quarter......................................... 23 1/8 20 3/8
Fourth Quarter........................................ 24 1/8 19 1/8
Fiscal 1996 (ending January 31, 1996)
First Quarter......................................... 27 1/8 23 1/8
Second Quarter........................................ 31 1/8 24 1/2
Third Quarter......................................... 36 3/8 29 7/8
Fourth Quarter (through December 5, 1995)............. 38 34 3/4
-------- -------
Advance Ross. Shares of Advance Ross Common Stock are listed for trading on
the NASDAQ Stock Market under the symbol "AROS". The table below sets forth, for
Advance Ross' fiscal quarters commencing in fiscal 1993 through December 5,
1995, the reported high and low sales prices of the Advance Ross Common Stock as
reported on the NASDAQ Stock Market, based on published financial sources. At
the Record Date, Advance Ross had approximately 3,150 holders of record of
Advance Ross Common Stock. Advance Ross has paid no cash dividends on shares of
the Advance Ross Common Stock during the periods presented. The market price for
Advance Ross Common Stock on October 17, 1995, the last full trading day
immediately preceding the public announcement of the proposed Merger, and as of
the most recent practicable date, is set forth below in "Equivalent Per Share
Data."
15
<PAGE>
PRICE PER SHARE
OF ADVANCE ROSS
COMMON STOCK
-------------------------
HIGH LOW
--------- ----------
Fiscal 1993 (ended December 31, 1993)
First Quarter..................................... $ 4 5/8 $ 3 1/4
Second Quarter.................................... 4 3/16 3 5/16
Third Quarter..................................... 5 1/32 4
Fourth Quarter.................................... 9 5/16 4 5/8
Fiscal 1994 (ended December 31, 1994)
First Quarter..................................... 11 1/8 7 11/16
Second Quarter.................................... 15 1/8 7 3/8
Third Quarter..................................... 14 5/8 9 3/8
Fourth Quarter.................................... 12 9 1/4
Fiscal 1995 (ending December 31, 1995)
First Quarter..................................... 12 3/4 8 5/8
Second Quarter.................................... 14 10 3/4
Third Quarter..................................... 19 5/8 13 3/8
Fourth Quarter (through December 5, 1995)......... 29 1/2 16
Equivalent Per Share Data. The information presented in the table below
represents closing sale prices reported on the NYSE Composite Transactions for
shares of CUC International Common Stock and on the NASDAQ Stock Market for
shares of Advance Ross Common Stock, on October 17, 1995, the last full trading
day immediately preceding the public announcement that the Merger Agreement had
been executed, and on December 5, 1995, the last full trading day for which
closing sale prices were available at the time of the printing of this Proxy
Statement/Prospectus, as well as the "equivalent per share price" of shares of
Advance Ross Common Stock on such dates. The "equivalent per share price" of
shares of Advance Ross Common Stock represents the closing sale price per share
reported on the NYSE Composite Transactions for shares of CUC International
Common Stock at such specified date, multiplied by 5/6 (i.e., the Exchange
Ratio).
<TABLE><CAPTION>
CUC INTERNATIONAL ADVANCE ROSS ADVANCE ROSS
COMMON STOCK COMMON STOCK EQUIVALENT
PRICE PRICE PER SHARE PRICE
----------------- ------------- ---------------
<S> <C> <C> <C>
October 17, 1995................................ $ 35 5/8 $ 16 3/8 $ 29 11/16
December 5, 1995................................ $ 36 $ 28 7/8 $ 30
</TABLE>
Following the Effective Time, shares of CUC International Common Stock are
expected to continue to be traded on the NYSE and shares of Advance Ross Common
Stock and Advance Ross Preferred Stock will cease to be traded on the NASDAQ
Stock Market.
BECAUSE THE MARKET PRICE OF SHARES OF CUC INTERNATIONAL COMMON STOCK
INHERENTLY IS SUBJECT TO FLUCTUATION, THE MARKET VALUE OF THE SHARES OF CUC
INTERNATIONAL COMMON STOCK THAT HOLDERS OF SHARES OF ADVANCE ROSS COMMON STOCK
WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO THE EFFECTIVE TIME.
STOCKHOLDERS ARE ENCOURAGED TO OBTAIN CURRENT QUOTATIONS FOR SHARES OF CUC
INTERNATIONAL COMMON STOCK AND ADVANCE ROSS COMMON STOCK.
Comparative Per Share Data. The following sets forth the book value, cash
dividends and income from continuing operations per share of CUC International
Common Stock (fiscal years ended January 31, and the nine months ended October
31) and the book value, cash dividends and income from continuing operations per
share of Advance Ross Common Stock (fiscal years ended December 31 and the nine
months ended October 31). The pro forma combined per share information is based
on the historical financial statements of CUC International, Advance Ross, NAOG
and Getko (See
16
<PAGE>
"Unaudited Pro Forma Condensed Combined Financial Statements"), as adjusted to
reflect consummation of the mergers under the pooling-of-interests method of
accounting. The pro forma combined information, Advance Ross equivalent pro
forma per share information, and information as of and for the nine months
ended, is unaudited.
<TABLE><CAPTION>
CUC INTERNATIONAL'S
FISCAL YEAR ENDED NINE MONTHS
JANUARY 31 ENDED
------------------------ OCTOBER 31
1995 1994 1993 1995
------ ----- ----- -----------
<S> <C> <C> <C> <C>
Book Value Per Common Share:
Historical:
CUC International(a)................................. $ 2.58 -- -- $ 3.45
Advance Ross(b)...................................... 4.86 -- -- 5.83
Pro Forma Combined..................................... 2.60 -- -- 3.56
Advance Ross Equivalent Pro Forma(c)................... 2.17 -- -- 2.97
Cash Dividends Per Common Share(d):
Pro Forma Combined..................................... -- 0.004 0.002 --
Advance Ross Equivalent Pro Forma(c)................... -- 0.003 0.002 --
Income From Continuing Operations Per Common Share:
Historical:
CUC International(a)................................. $ 0.66 $0.51 $0.38 $ 0.62
Advance Ross(b)...................................... 0.97 0.63 0.09 0.61
Pro Forma Combined..................................... 0.66 0.51 0.38 0.62
Advance Ross Equivalent Pro Forma(c)................... 0.55 0.43 0.32 0.52
</TABLE>
- ------------
(a) Adjusted to give retroactive effect to the 3:2 stock split in respect of the
CUC International Common Stock, effective June 30, 1995.
(b) Adjusted to give retroactive effect to the 2:1 stock split in respect of the
Advance Ross Common Stock, effective September 8, 1995.
(c) The Advance Ross equivalent pro forma information was computed by
multiplying the pro forma combined information by the Exchange Ratio of 5/6
of one share of CUC International Common Stock for each share of Advance
Ross Common Stock.
(d) Represents dividends paid by NAOG prior to the merger with CUC
International. No other cash dividends were paid on the common stock of any
of the companies included in the pro forma combined cash dividends per
common share during the periods presented.
17
<PAGE>
INFORMATION CONCERNING CUC INTERNATIONAL INC.
CUC International is a membership-based consumer services company, providing
consumers with access to a variety of services. CUC International currently has
approximately 40 million members in its various services. CUC International
operates in one business segment, providing these services as individual,
wholesale or discount coupon program memberships. These memberships include such
components as shopping, travel, auto, dining, home improvement, vacation
exchange, credit card and checking account enhancement packages, financial
products and discount coupon programs. CUC International also administers
insurance package programs which generally are combined with discount shopping
and travel for credit union members and bank account holders. CUC International
believes it is the leading provider of membership-based consumer services of
these types in the United States. CUC International's activities are conducted
principally through its Comp-U-Card division and certain of CUC International's
wholly owned subsidiaries, FISI*Madison Financial Corporation, Benefit
Consultants, Inc., Interval International Inc. and Entertainment Publications,
Inc.
CUC International derives its revenues principally from membership fees.
Membership fees vary depending upon the particular membership program, and
annual fees to consumers generally range from $6 to $250 per year. Most of CUC
International's memberships are for one-year renewable terms, and members
generally are entitled to unlimited use during the membership period of the
service for which the member has subscribed. Members generally may cancel their
membership and obtain a full refund at any point during the membership term.
CUC International arranges with client financial institutions, retailers,
oil companies, credit unions, online networks, fundraisers and others to market
certain membership services to such clients' individual account holders and
customers. Participating institutions generally receive commissions on initial
and renewal memberships, averaging 20% of the net membership fees. CUC
International's contracts with these clients generally grant CUC International
the right to continue providing membership services directly to each client's
individual account holders even if the client terminates the contract, provided
that the client continues to receive its commission.
CUC International solicits members for its various programs by direct
marketing and by using a direct sales force calling on financial institutions,
fund raising charitable institutions and associations. For the fiscal year ended
January 31, 1995, approximately 313 million solicitation pieces were mailed,
followed up by approximately 54 million telephone calls.
Individual memberships represented 69% of consolidated revenues for each of
the fiscal years ended January 31, 1995, 1994 and 1993. Wholesale memberships
represented 13%, 14% and 15% of consolidated revenues for the fiscal years ended
January 31, 1995, 1994 and 1993, respectively. Discount coupon book memberships
represented 18%, 17% and 16% of consolidated revenues for the fiscal years ended
January 31, 1995, 1994 and 1993, respectively. For the fiscal quarter ended July
31, 1995, individual, wholesale and discount coupon program memberships
represented 70%, 13% and 17% of revenues, respectively. Membership revenue is
recorded net of anticipated cancellations.
In January 1995, CUC International acquired all of the outstanding capital
stock of Essex Corporation and its subsidiaries ("Essex") in exchange for the
payment of cash and the issuance of shares of CUC International Common Stock.
The former shareholders of Essex may receive additional payments over the three
years next following the closing date of the acquisition based on the
achievement of certain earnings growth objectives. Based on projections of the
earnings growth of Essex prepared by management of CUC International and the
earn-out formula contained in the definitive stock purchase agreement pursuant
to which CUC International acquired all of the outstanding capital stock of
Essex, management of CUC International believes that payments to such
shareholders aggregating in excess of $30 million would be extremely remote.
18
<PAGE>
Recent Developments.
In June 1995, CUC International acquired all of the outstanding capital
stock of Getko for approximately 3,700,000 shares of CUC International Common
Stock. Getko distributes complimentary welcoming packages to new homeowners
throughout the United States. The acquisition was accounted for as a
pooling-of-interests.
In September 1995, CUC International effected the merger of Fresh Air
Acquisition Corp., a Minnesota corporation and a wholly owned subsidiary of CUC
International ("FAAC"), with and into NAOG, a Minnesota corporation, pursuant to
an Agreement and Plan of Merger dated August 17, 1995, as amended on September
1, 1995, among CUC International, FAAC and NAOG. The merger was accounted for as
a pooling-of-interests. NAOG owns one of the largest private, for-profit hunting
and general interest fishing membership organizations in America, the North
American Hunting Club and the North American Fishing Club. In addition, NAOG
owns a third club, the Handyman Club of America.
For a more detailed description of the business and properties of CUC
International, see the descriptions thereof set forth in the CUC 10-K which is
incorporated herein by reference.
CUC International's executive offices are located at 707 Summer Street,
Stamford, Connecticut 06901, and its telephone number is (203) 324-9261.
INFORMATION CONCERNING ADVANCE ROSS CORPORATION
The primary business of Advance Ross is the operation of a VAT refund system
serving travelers shopping in Europe. This business is conducted primarily
through Advance Ross' wholly owned subsidiary, ETS, and other European
subsidiaries and operates under the logo "Tax-free for Tourists." ETS is the
largest VAT refund service in Europe. Advance Ross acquired ETS on November 2,
1992.
ETS' business is based upon serving: (i) travelers, through ETS' convenient,
efficient and reliable VAT refunds, and (ii) retailers, by promoting the
benefits of tax-free shopping, thereby enhancing the retailers' business and
simplifying the retailers' administrative burden. ETS' business is also based
upon: VAT's role as a vital component of the tax policy of most European (and
other) countries, and tourism, international travel and retail being included
among the world's largest industries.
ETS began its operations in 1980 in Sweden. Since then, ETS has expanded
throughout Europe and currently provides VAT refunds in 20 European countries at
refund points at most international airports, ferry terminals and border
crossings.
Advance Ross also designs, manufactures and installs electrostatic
precipitators for industrial pollution control purposes through its subsidiary,
PPC, located in Longview, Texas. PPC also designs and installs patented
biofiltration pollution control installations. PPC represented about 14% and 13%
of Advance Ross' net sales and services in fiscal 1994 and 1993, respectively.
For a more detailed description of the businesses and properties of Advance
Ross, see the descriptions thereof set forth in Advance Ross' 10-K which is
incorporated herein by reference.
The executive offices of Advance Ross are located at 233 South Wacker Drive,
Suite 9700, Chicago, Illinois 60606-6502, and its telephone number is (312)
382-1100.
19
<PAGE>
THE MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of shares of
Advance Ross Common Stock in connection with the solicitation of proxies by the
Advance Ross Board of Directors for use at the Meeting to be held on January 10,
1996, at the LaSalle Bank Building, Room 1204, 135 South LaSalle Street,
Chicago, Illinois, convening at 10:00 a.m., local time, and at any adjournments
or postponements thereof.
This Proxy Statement/Prospectus also includes and constitutes the Prospectus
of CUC International filed with the Commission as part of its Registration
Statement under the Securities Act relating to the shares of CUC International
Common Stock issuable in the Merger. This Proxy Statement/Prospectus and the
accompanying forms of proxy are first being mailed to holders of Advance Ross
Common Stock on or about December 8, 1995.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of shares of Advance Ross Common Stock will be
requested to consider and vote upon a proposal to adopt the Merger Agreement and
such other business as properly may come before the Meeting or any adjournments
or postponements thereof.
THE ADVANCE ROSS BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTERESTS OF ADVANCE ROSS AND ITS
STOCKHOLDERS, UNANIMOUSLY HAS APPROVED THE MERGER AGREEMENT (AND THE
TRANSACTIONS CONTEMPLATED THEREBY), AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
ADVANCE ROSS COMMON STOCK VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. SEE
"BACKGROUND OF THE MERGER," "-- REASONS FOR THE MERGER" AND "--RECOMMENDATION OF
ADVANCE ROSS' BOARD OF DIRECTORS."
Holders of shares of Advance Ross Common Stock will not be entitled to
appraisal rights as a result of the Merger.
RECORD DATE; QUORUM; VOTING AT THE MEETING
The Advance Ross Board of Directors has fixed December 6, 1995 as the Record
Date. Accordingly, only holders of record of shares of Advance Ross Common Stock
at the Record Date will be entitled to notice of and to vote at the Meeting. At
the Record Date, there were 7,089,627 shares of Advance Ross Common Stock
outstanding and entitled to vote, and approximately 3,150 holders of record.
Each holder of record of shares of Advance Ross Common Stock on the Record Date
is entitled to cast one vote per share in respect of the proposal to adopt the
Merger Agreement and the other matters, if any, properly submitted for the vote
of such holders, either in person or by proxy, at the Meeting. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares of
Advance Ross Common Stock entitled to vote at the Meeting is necessary to
constitute a quorum at the Meeting.
At the Record Date, 16,923 shares of Advance Ross Preferred Stock were
issued and outstanding. Holders of these shares are not entitled to vote at the
Meeting.
Adoption by holders of Advance Ross Common Stock of the Merger Agreement
will require the affirmative vote of the holders of a majority of the
outstanding shares of Advance Ross Common Stock entitled to vote thereon at the
Meeting.
At September 30, 1995, the executive officers and directors (including the
Chairman of the Board and Chief Executive Officer, the President and Chief
Operating Officer, and the Vice President and Chief Financial Officer) of
Advance Ross as a group (eight persons) owned approximately 2.9% of the
outstanding Advance Ross Common Stock. Each of such persons has agreed to vote
his shares of Advance Ross Common Stock at the Meeting "FOR" adoption of the
Merger Agreement. See "Stockholders Agreement."
In addition, Allen & Company and certain of its officers and employees owned
at the Record Date 306,500 (or approximately 4.3%) of the outstanding shares of
Advance Ross Common Stock and the Warrant, which currently is exercisable for
the purchase of up to 480,000 shares (or approximately
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6.3%) of the Advance Ross Common Stock at an exercise price per share of $2.375.
Allen & Company has informed Advance Ross that it intends to vote all of the
shares of Advance Ross Common Stock which it directly owns at the Record Date
"FOR" adoption of the Merger Agreement and has agreed to certain restrictions on
its ability to sell or otherwise transfer the shares of Advance Ross Common
Stock beneficially owned by it, provided that the Advance Ross Board of
Directors has not withdrawn its recommendation "FOR" adoption of the Merger
Agreement. See "The Merger--Opinion of Advance Ross' Financial Advisor; Interest
of Certain Persons in the Merger" and "Ownership of Advance Ross Common Stock by
Certain Beneficial Owners and Management."
PROXIES
This Proxy Statement/Prospectus is being furnished to holders of Advance
Ross Common Stock in connection with the solicitation of proxies by and on
behalf of the Board of Directors of Advance Ross for use at the Meeting.
Shares of Advance Ross Common Stock represented by properly executed proxies
received at or prior to the Meeting that have not been revoked will be voted at
the Meeting in accordance with the instructions contained therein. Shares of
Advance Ross Common Stock represented by properly executed proxies for which no
instruction is provided will be voted "FOR" adoption of the Merger Agreement.
Holders of Advance Ross Common Stock are requested to complete, sign, date and
return promptly the enclosed proxy card in the postage-prepaid envelope provided
for such purpose to ensure that their shares are voted. Any holder of Advance
Ross Common Stock who so desires may revoke his or its proxy at any time prior
to the time it is exercised by (i) providing written notice to such effect to
the Secretary of Advance Ross, (ii) duly executing a proxy bearing a date
subsequent to that of a previously furnished proxy, or (iii) attending the
Meeting and voting in person. Attendance at the Meeting will not in itself
constitute a revocation of a previously furnished proxy and stockholders who
attend the Meeting in person need not revoke their proxy (if previously
furnished) and vote thereat in person.
If the Meeting is postponed or adjourned for any reason, at any subsequent
reconvening of the Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the initial convening of the Meeting (except
for any proxies that theretofore effectively have been revoked or withdrawn),
notwithstanding that they may have been effectively voted on the same or any
other matter at a previous meeting.
If any other matters properly are presented at the Meeting for
consideration, including among other things, consideration of a motion to
adjourn the Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed form of proxy and acting thereunder will have discretion to vote on
such matters in accordance with their best judgment.
Advance Ross will bear the cost of soliciting proxies from the holders of
Advance Ross Common Stock, including the cost of preparing and mailing this
Proxy Statement/Prospectus. In addition to solicitation by mail, directors,
officers and employees of Advance Ross may solicit proxies by telephone,
facsimile transmission or otherwise. Such directors, officers and employees of
Advance Ross will not be specially compensated for such solicitation, but may be
reimbursed for out-of-pocket expenses incurred in connection therewith.
Brokerage firms, fiduciaries and other custodians who forward soliciting
material to the beneficial owners of Advance Ross Common Stock held of record by
them will be reimbursed for their reasonable expenses incurred in forwarding
such material. Advance Ross has retained Chemical Mellon Shareholder Services at
an estimated cost of approximately $5,500, plus reimbursement of out-of-pocket
expenses, to assist in its solicitation of proxies from brokers, nominees,
institutions and individuals. Arrangements also will be made with custodians,
nominees and fiduciaries for the forwarding of proxy solicitation materials to
beneficial owners of shares of Advance Ross Common Stock held of record by such
custodians, nominees and fiduciaries, and Advance Ross will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
incurred in connection therewith.
IN CONNECTION WITH THE MEETING, HOLDERS OF ADVANCE ROSS COMMON STOCK SHOULD NOT
RETURN TO ADVANCE ROSS ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
BACKGROUND OF THE MERGER
The timing, terms and conditions of the Merger Agreement are the result of
arm's-length negotiations between representatives of CUC International and
Advance Ross. Set forth below is a summary of the background of these
negotiations.
Prior to November 2, 1992, Advance Ross' primary business was designing,
manufacturing and installing pollution control equipment. On November 2, 1992,
through the acquisition of ETS, which operates under the logo "Tax-free for
Tourists," Advance Ross' primary business became the operation of a VAT refund
system serving travelers shopping in Europe. ETS currently is the largest VAT
refund service in Europe.
Since the acquisition and integration of ETS, Advance Ross' strategy has
been to enhance stockholder value by broadening ETS' operations and by expanding
the business of Advance Ross generally, through selective acquisitions, in niche
tourism-, travel- and retail-related service sectors.
In 1993, at a meeting between representatives of Allen & Company and CUC
International at which various topics and business opportunities were discussed,
representatives of Allen & Company made CUC International aware of Advance Ross.
Allen & Company indicated that there may be commercial opportunities
advantageous to both CUC International and Advance Ross which might merit
consideration and, in that connection, Allen & Company provided CUC
International with publicly available general information about Advance Ross and
its business. Allen & Company did not approach CUC International with the
intention to seek or recommend any sale, merger or reorganization of Advance
Ross.
In April 1994, Harve A. Ferrill, Advance Ross' Chairman and Chief Executive
Officer, was introduced to Walter A. Forbes, Chairman and Chief Executive
Officer of CUC International, by Richard L. Fields, a Managing Director of Allen
& Company, Advance Ross' financial advisor. Mr. Forbes stated CUC
International's interest in exploring the potential acquisition of Advance Ross
in a strategic business combination. Mr. Ferrill indicated to Mr. Forbes that he
was not interested in such a transaction because the then-current price per
share of Advance Ross Common Stock was well below what he believed to be its
true value. Mr. Ferrill and Mr. Forbes then discussed a small marketing
opportunity between Advance Ross and CUC International which eventually was
pursued. See "-- Material Contacts Between Advance Ross and CUC International."
In April 1995, Harold E. Guenther, a director of Advance Ross, met Mr.
Forbes, who expressed to Mr. Guenther CUC International's interest in exploring
the possible acquisition of Advance Ross by means of a merger or similar
business combination transaction. Mr. Guenther suggested to Mr. Forbes that he
discuss the possibility of such a transaction with Mr. Ferrill and Mr. Fields.
During the ensuing two weeks, Mr. Forbes participated in several preliminary
conversations with Mr. Fields in which Mr. Fields stated that Advance Ross was
not interested in pursuing a business combination at that time because
management believed that Advance Ross' long-term prospects were better served if
Advance Ross were to remain an independent public company and pursue
management's strategic business plan. Mr. Fields did mention, however, that in
his view, and without any authorization from Advance Ross to negotiate or to
substantively discuss the terms of any potential business combination, if such a
transaction were to proceed it would need to include consideration to holders of
Advance Ross Common Stock having a value of at least $25 per share. Mr. Forbes
reiterated CUC International's interest regarding a possible acquisition of
Advance Ross by CUC International. No discussions of the specific terms, timing
or structure of such an acquisition occurred at this time.
In late May 1995, Mr. Forbes called Mr. Ferrill and requested an opportunity
to meet with representatives of Advance Ross' management to better understand
its business. On June 13, 1995, Mr.
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Forbes and Jeffrey E. Epstein, a Senior Vice President of CUC International, met
with Mr. Ferrill and Paul G. Yovovich, the President and Chief Operating Officer
and a director of Advance Ross, at Advance Ross' executive offices in Chicago,
Illinois. At that meeting, Mr. Ferrill reiterated that because the then- current
$12.50 price per share of the Advance Ross Common Stock was well below what he
believed to be its intrinsic value, he did not believe it was in the best
interests of Advance Ross and its stockholders for management to pursue a
strategic business combination at that time. Mr. Ferrill did, however, inform
Mr. Forbes that, in his view, a merger offering consideration with a total value
of at least $25 per share of Advance Ross Common Stock could be a starting point
for substantive discussions regarding such a transaction.
In early July 1995, Messrs. Ferrill, Fields and Forbes continued preliminary
discussions regarding a potential strategic business combination. Mr. Ferrill
emphasized that merger consideration of at least $25 per share of Advance Ross
Common Stock would have to be the starting point before he could recommend to
the Advance Ross Board of Directors the commencement of negotiations for an
acquisition.
At a meeting of the Advance Ross Board of Directors held on August 1, 1995,
Mr. Ferrill indicated that preliminary discussions with CUC International
regarding a possible business combination had been held and were continuing and
asked Mr. Fields and Mr. Yovovich to prepare a presentation of Advance Ross'
prospects to be presented to CUC International as part of the process of
exploring a possible business combination. During the ensuing four-week period,
Messrs. Ferrill, Yovovich and Randy M. Joseph, the Vice President and Chief
Financial Officer of Advance Ross, worked with Mr. Fields and representatives of
Allen & Company to prepare an analysis of the prospects of Advance Ross (the
"Allen & Company Analysis"). Allen & Company prepared the Allen & Company
Analysis as part of its engagement and was not paid separately for such work.
The Allen & Company Analysis was not used to prepare the fairness opinion. The
Allen & Company Analysis was presented to Mr. Forbes, E. Kirk Shelton, President
and Chief Operating Officer, Cosmo Corigliano, Senior Vice President and Chief
Financial Officer, and Kelly E. Green, Senior Vice President, each of CUC
International, on August 30, 1995.
To facilitate the review process for a potential strategic combination
between CUC International and Advance Ross, on August 23, 1995, such parties
entered into the Confidentiality Agreement, which contains, among other things,
certain "standstill" provisions in the event a transaction between the two
companies is not consummated. Specifically, CUC International has agreed that
for the two-year period ending August 23, 1997, without the prior written
consent of the Board of Directors of Advance Ross, it will not, directly or
indirectly, seek, offer or propose to effect, or participate in or assist any
other person to seek, offer or propose to effect, certain business combinations
and acquisitions of Advance Ross securities, including, without limitation,
mergers, tender or exchange offers, any recapitalization, restructuring,
liquidation or dissolution of Advance Ross, or any other similar extraordinary
corporate transactions.
Pursuant to the Confidentiality Agreement, Allen & Company provided the
Allen & Company Analysis to CUC International for its consideration in
connection with the proposed business combination with Advance Ross. The Allen &
Company Analysis included: (i) background and historical information concerning
Advance Ross and its subsidiaries and their respective business, operations and
ownership; (ii) consolidated historical financial information concerning Advance
Ross; (iii) projections of the financial results of Advance Ross and its
subsidiaries; and (iv) a description and analysis of the potential business
combination of CUC International and Advance Ross.
Non-public information contained in the Allen & Company Analysis included,
among other items: (i) projected income statements, balance sheets, cash flow
statements and profit margin analyses for Advance Ross and certain of its
subsidiaries through December 31, 1997 (based on management's assumption that
Advance Ross' sales growth and margins will remain generally consistent with
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Advance Ross' historical sales growth and margins over the past three years);
(ii) historical and pro forma projected financial information regarding Advance
Ross and its subsidiaries, restated to reflect certain adjustments made in
respect of Advance Ross' minority ownership of certain of its subsidiaries;
(iii) a narrative discussion of matters related to the VAT refund industry
generally and Advance Ross' market position in that industry; (iv) an overview
of potential acquisitions considered by Advance Ross; (v) estimates of cost
synergies and other benefits which might be achieved in a business combination
of Advance Ross and CUC International; (vi) calculations involving the potential
business combination of Advance Ross and CUC International, and estimated pro
forma income of Advance Ross and CUC International on a combined, consolidated
basis; (vii) a statistical presentation of the operations of Advance Ross' VAT
refund business; (viii) information concerning the ownership of Advance Ross
Common Stock and Advance Ross Preferred Stock, including options to purchase
shares of Advance Ross Common Stock and the Warrant; (ix) information concerning
the capital structure of Advance Ross and the value of Advance Ross (including
information about Advance Ross' equity capitalization); and (x) a description
and analysis of certain Advance Ross corporate expenses.
Based on management's review of the Allen & Company Analysis and the results
of its own review of Advance Ross' business and prospects, in early September
1995, CUC International delivered to Messrs. Ferrill and Yovovich an informal
proposal providing for the merger of a wholly owned subsidiary of CUC
International with and into Advance Ross, with Advance Ross as the surviving
corporation in such merger, and the tax-free exchange of 5/6 of a share of CUC
International Common Stock for each outstanding share of Advance Ross Common
Stock. It was understood by Advance Ross that such proposal was preliminary in
nature and subject to, among other things, (i) review by CUC International's
management, legal counsel and financial personnel of the terms, structure and
timing of the proposed transaction, (ii) the satisfactory completion of due
diligence with respect to the business, operations and financial results of
Advance Ross, (iii) the likelihood that a strategic business combination could
be effected on a tax-free basis and accounted for by CUC International as a
pooling-of-interests, (iv) the ability to complete a transaction promptly and,
in any case, not later than January 31, 1996, and (v) the effect of a strategic
business combination with Advance Ross on CUC International's relationship with
European retailers and the costs and other synergies to be achieved by such a
business combination.
On September 6, 1995, the Board of Directors of Advance Ross, consisting of
Mr. Ferrill, Mr. Yovovich, Duane R. Kullberg, Thomas J. Peterson, Roger E.
Anderson, Mr. Guenther and Herbert S. Wander, a director and a partner of Katten
Muchin & Zavis, legal counsel to Advance Ross, met to discuss and review the
details of CUC International's proposal (the "September 6, 1995 Meeting"). Mr.
Fields was invited to attend the meeting to provide financial advice with
respect to business combination transactions in general and with respect to the
potential strategic business combination transaction with CUC International. Mr.
Fields was joined by Kim M. Morgan, a Vice President of Allen & Company.
Mr. Fields reviewed with the Advance Ross Board of Directors the Allen &
Company Analysis that had been presented to CUC International on August 30,
1995, including management's financial projections for Advance Ross' fiscal
years ending on December 31, 1995, 1996 and 1997 (based on management's
assumption that Advance Ross' sales growth and margins will remain generally
consistent with Advance Ross' historical sales growth and margins over the past
three years). Such projections were not prepared with a view to public
disclosure or compliance with published guidelines of the Commission or the
guidelines established by the American Institute of Certified Public Accountants
regarding financial forecasts. In addition, Allen & Company was informed that
the projections were based upon a variety of assumptions relating to Advance
Ross' business which, although considered reasonable by Advance Ross'
management, may not be realized, and were subject to significant uncertainties
and contingencies, many of which are beyond the control of Advance Ross.
Preliminary information with respect to CUC International was presented,
including, among other things, the CUC 10-K, CUC International's Annual Report
on Form 10-K for the fiscal year ended
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January 31, 1994, CUC International's Quarterly Reports on Form 10-Q for the
fiscal quarters ended July 31, 1995, April 30, 1995, October 30, 1994, July 31,
1994 and April 30, 1994, respectively, proxy statements relating to annual
meetings of holders of CUC International Common Stock held on June 7, 1995 and
June 8, 1994, and certain other public filings and analysts' reports with
respect to CUC International, the anticipated effects of a strategic business
combination of Advance Ross and CUC International, which were prepared by
Messrs. Ferrill, Yovovich, Joseph, Fields and representatives of Allen & Company
as part of the Allen & Company Analysis, and the recent trading prices of the
Advance Ross Common Stock in relation to the recent trading prices of the CUC
International Common Stock.
At the September 6, 1995 Meeting, CUC International's agreement to issue in
the proposed Merger 5/6 of a share of CUC International Common Stock for each
share of Advance Ross Common Stock was discussed, and it was emphasized that
this ratio was based, in part, on the minimum $25 per share consideration
offered in respect of the Advance Ross Common Stock which Messrs. Ferrill and
Fields repeatedly had indicated to Mr. Forbes would be required, and, in part,
on the market price of CUC International Common Stock, which was approximately
$30 during the time of such discussions. It was noted that on September 6, 1995,
shares of CUC International Common Stock were trading at an average price of
$33.75 per share and shares of Advance Ross Common Stock were trading at an
average price of $18.625 per share. Based on this information, Messrs. Ferrill
and Fields concluded that an exchange ratio of 5/6 of one share of CUC
International Common Stock for each share of Advanced Ross Common Stock was
attractive and represented a substantial premium to the current market price of
the Advance Ross Common Stock and should be considered by the Advance Ross Board
of Directors. They also noted that, at then-current market prices, holders of
Advance Ross Common Stock would receive a value of approximately $28 per share
of Advance Ross Common Stock. Mr. Ferrill reviewed with the directors materials
which summarized the market share information and valuation multiples based upon
Advance Ross' current and projected operating performance for the 1995, 1996 and
1997 fiscal years.
After the presentation, the directors discussed CUC International's proposal
in detail. Mr. Anderson stated that, in his view, the transaction offered CUC
International significant opportunities for cost savings and other synergies.
Mr. Kullberg discussed what he perceived to be the options available to Advance
Ross, which included pursuing management's business plan or effecting a
strategic business combination transaction in which the holders of Advance Ross
Common Stock could exchange their ownership in Advance Ross for equity ownership
in a larger, more liquid company which would offer them an investment in a more
diverse business base. Mr. Ferrill stated that management actively had been
looking for acquisitions but had no strong near-term prospects. He added that
there was significant opportunity for expanding the ETS business outside of
Europe, especially into Asia, but that many of the benefits from such an
expansion would be long-term. Furthermore, Mr. Ferrill stated that the proposed
transaction with CUC International would offer diversity to holders of Advance
Ross Common Stock in the travel, tourism and retail businesses. Messrs. Ferrill
and Yovovich then discussed the benefits and detriments of a strategic business
combination with CUC International. They reviewed CUC International's business
and financial condition generally, and concluded that CUC International had the
ability and expertise to proceed with the proposed transaction promptly.
Moreover, it was noted that CUC International was the only party that had
approached Advance Ross regarding a potential strategic business combination
transaction and that prior to such contact, management had not contemplated the
sale of Advance Ross.
A discussion then followed about conducting an auction of Advance Ross. Some
directors voiced concern about an auction because they believed it would be
extremely disruptive to the management and operation of Advance Ross' business.
Moreover, the directors believed that CUC International had made a bona fide,
preemptive proposal to acquire Advance Ross (offering a substantial premium to
stockholders) and, if a subsequent auction were held and no higher bid were
obtained, such proposal might be withdrawn to the detriment of Advance Ross'
stockholders. Accordingly, the directors
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determined that an auction was not advisable but that any merger agreement with
CUC International should permit other potential buyers to submit and the Board
an opportunity to review a higher competing offer and that before voting to
approve or disapprove of any business combination with CUC International, the
Board of Directors should receive an opinion and detailed presentation from
Allen & Company or another nationally recognized investment banking firm as to
the fairness of the consideration to be received in the transaction by
stockholders, from a financial point of view.
Following this discussion, it was agreed by all parties that neither
management nor the Board would solicit any other offers at that time. However,
if presented, a superior, bona fide offer would be fully and fairly considered
by the Advance Ross Board. In addition, at the request of CUC International, the
appropriateness of a termination fee also was discussed. Under appropriate
circumstances, particularly if it did not foreclose other bidders from
submitting bona fide, competing proposals, the Board believed that provision for
such a fee could be included in any definitive agreement with CUC International.
At the conclusion of the September 6, 1995 Meeting, the Board authorized
management to negotiate with CUC International and to instruct Allen & Company
to pursue discussions with CUC International. Among the factors considered by
the Board in authorizing management to negotiate with CUC International was the
prospect that a strategic business combination with CUC International would
enable Advance Ross' stockholders to continue as investors in a combined company
that would have the financial resources, diversification and liquidity for
sustained growth. The Board also expressed the view that it should meet with CUC
International's senior management and commence and complete its due diligence
with respect to CUC International as promptly as possible.
Mr. Ferrill then advised Mr. Forbes of Advance Ross' willingness to conduct
substantive negotiations regarding a strategic business combination of the two
companies. On September 7, 1995, a draft of the Merger Agreement was submitted
by CUC International's attorneys for consideration by Advance Ross' management
and financial and legal advisors. During the next several weeks, a number of
meetings and telephone calls were held between Advance Ross' management and CUC
International's management, and between their respective financial and legal
advisors, which focused on, among other things, the specific terms, timing and
structure of the potential merger and the potential cost and other synergies
that could be realized from a strategic business combination between the two
companies.
In late September 1995, CUC International and Advance Ross agreed to proceed
with due diligence reviews of the other and agreed that the definitive Merger
Agreement should provide for a merger of the two companies in a tax-free
exchange and that the transaction would be structured so as to be treated for
accounting and financial reporting purposes as a pooling-of-interests. It was
further agreed that the Merger terms would be subject to (i) completion by CUC
International of its due diligence review of the Allen & Company Analysis and
completion by Advance Ross of its review of CUC International's business and
operations, (ii) the negotiation and execution of the draft Stockholders
Agreement between CUC International and Advance Ross' executive officers and
directors who owned Advance Ross Common Stock, pursuant to which such
individuals would agree to vote their shares for adoption of the Merger, and
(iii) the approval of the respective Boards of Directors of CUC International
and Advance Ross. See "The Merger Agreement--Conditions."
From the end of September through the first week of October 1995, due
diligence reviews were conducted and the parties continued to negotiate the
terms of the draft Merger Agreement and draft Stockholders Agreement.
Advance Ross' Board of Directors next met during the afternoon of Monday,
October 16, 1995 and again on Tuesday, October 17, 1995. Mr. Fields and John G.
Hall of Allen & Company, as well as Mr. Joseph and members of ETS' senior
management were present for portions of the October 16, 1995 meeting. Mr. Forbes
and Christopher K. McLeod, an Executive Vice President of CUC International,
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also were invited to attend a portion of such meeting to make a presentation
about CUC International. In addition, Advance Ross' attorneys, Katten Muchin &
Zavis, were invited to attend such meeting.
The October 16, 1995 meeting began with a brief discussion of the history of
discussions between Advance Ross and CUC International. Mr. Ferrill and Mr.
Yovovich also discussed the terms of proposed employment agreements to be
entered into at the Effective Time with Messrs. Ferrill, Yovovich, Joseph and
William M. Fisher. See "--Interests of Certain Persons in the Merger--
Employment Agreements."
Mr. Ferrill then reviewed the economic terms of the proposed Merger, noting
particularly that the Exchange Ratio was subject to adjustment if the Average
Stock Price falls below $30.00 per share or exceeds $38.00 per share. It was
noted that this gave the transaction a value of between $25.00 and $31.67 per
share of Advance Ross Common Stock outstanding. Mr. Ferrill added that in early
July 1995, when he and Mr. Forbes discussed the possible merger, Advance Ross
Common Stock was trading at $13.50 per share and CUC International Common Stock
was trading at approximately $30.00 per share. Accordingly, the Exchange Ratio
would have provided an approximately 85% premium to stockholders at that time.
Mr. Ferrill also noted that CUC International Common Stock had been trading at
approximately $35.00 to $36.00 per share during the two week period prior to the
October 16 meeting and, in view of the recent average price per share of the
Advance Ross Common Stock of $16.50, each share of Advance Ross Common Stock
would be valued at between $29.17 and $30.00 representing a premium of between
approximately 77% and 82%.
A discussion then ensued with respect to the "ancillary" documents to be
executed in connection with the Merger, the treatment of the Advance Ross
Preferred Stock in the Merger and the circumstances under which Advance Ross
would be obligated to pay a termination fee to CUC International. It was noted
that all Options and the Warrant would be assumed by CUC International in the
Merger. See "--Treatment of Stock Options and the Warrant."
The Board also discussed the appropriateness of Allen & Company's providing
a fairness opinion in view of their interests in the Merger (and the
transactions contemplated hereby) and after discussion thereof unanimously
determined to retain Allen & Company to furnish such an opinion. See "-- Opinion
of Advance Ross' Financial Advisor," "--Interests of Certain Persons in the
Merger" and "Ownership of Advance Ross Common Stock by Certain Beneficial Owners
and Management."
Mr. Forbes and Mr. McLeod then made a general presentation to the Advance
Ross Board of Directors on the business of CUC International, including its
services, products, strengths and growth strategies, and selected historical
financial highlights.
Mr. Fields and Mr. Hall of Allen & Company then made a presentation with
respect to the fairness to stockholders of the consideration to be received by
such holders in the transaction, from a financial point of view. Mr. Fields next
reviewed with the Board, among other things, historical and recent financial
results of CUC International and presented Allen & Company's analysis of the
economic terms of the proposed business combination. Finally, Mr. Fields and Mr.
Hall advised the Advance Ross Board of Directors that Allen & Company was of the
opinion that the consideration to be received in the proposed merger by holders
of Advance Ross Common Stock was fair, from a financial point of view, to such
holders, and that Allen & Company would be issuing a written opinion to that
effect following the conclusion of the October 16, 1995 Board meeting. A copy of
Allen & Company's opinion is attached as Annex C to this Proxy
Statement/Prospectus. See "The Merger--Opinion of Advance Ross' Financial
Advisor; Recommendation of Advance Ross Board of Directors."
Following Allen & Company's presentation, the Board adjourned the meeting
and reconvened on Tuesday, October 17, 1995 to resume its deliberations with
respect to the proposed Merger. Mr. Fields, Mr. Joseph and representatives of
Katten Muchin & Zavis also were present at this meeting. At the continuation of
the meeting, the draft Merger Agreement (which was substantially in final form)
was
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reviewed by the directors. The directors discussed the fairness of the proposed
strategic business combination to the holders of Advance Ross Preferred Stock
and determined that, in view of the absence of any active trading market for the
Advance Ross Preferred Stock and the significant premium in relation to the most
recent reported sale price of the Advance Ross Preferred Stock of $13.50 per
share, that the offer was fair to the holders of Advance Ross Preferred Stock.
The directors then concluded that Allen & Company should opine as to the
fairness of the consideration to be received in the Merger by the holders of
Advance Ross Preferred Stock from a financial point of view. See "The
Merger--Opinion of Advance Ross' Financial Advisor, Recommendation of Advance
Ross Board of Directors."
The Advance Ross directors also noted that the Advance Ross Preferred Stock
could be redeemed upon 30 days written notice in whole or in part at any time at
the option of Advance Ross upon the payment of the Redemption Price. It was
further noted that under Delaware law the Advance Ross Preferred Stock could be
converted, as part of the Merger, into shares of CUC International Common Stock
without a vote of the holders of the Advance Ross Preferred Stock. The Advance
Ross directors concluded that conversion of the Advance Ross Preferred Stock
into shares of CUC International Common Stock having a value, determined in
accordance with the Merger Agreement, equal to the Redemption Price was fair and
appropriate.
Much discussion ensued with respect to the non-solicitation (or "no-shop")
provisions of the Merger Agreement. The Advance Ross Board stated its belief
that although Advance Ross had not conducted an auction, in view of the
substantial premium the stockholders of Advance Ross were to receive in the
proposed merger, potential disruption to management and to the operations of
Advance Ross' business from an auction, the risk that CUC International might
withdraw from the transaction, and that the draft Merger Agreement provides the
Board with the flexibility to respond to bona fide, competing transaction
proposals, subject to the payment of certain termination (or "break-up") fees
(see "The Merger Agreement--Termination--Effect of Termination and
Abandonment"), entering into the Merger Agreement, in lieu of conducting such an
auction, was appropriate.
The Board then determined that the Merger was fair to and in the best
interests of Advance Ross and its stockholders. The reasons for this
determination, included, among other things, that the Merger offered
stockholders the opportunity to receive a significant premium over the recent
and historical market prices of the stock, afforded such holders increased
liquidity for their shares, offered stockholders the opportunity to participate
in the potential future growth of a company which has greater financial
resources, a larger market capitalization and more diverse business operation,
and was structured so as to be tax-free to such holders.
After further deliberation, the Advance Ross Board unanimously approved the
Merger and the Merger Agreement with CUC International, authorized management to
finalize negotiations of and to execute the Merger Agreement and recommended its
adoption by the holders of Advance Ross Common Stock. The Board also approved
the draft Stockholders Agreement that CUC International proposed to enter into
with certain holders of Advance Ross Common Stock.
At a special meeting of the Board of Directors of CUC International held on
October 12, 1995, the directors, by unanimous vote of the directors present,
determined that the terms of the Merger (including the issuance of shares of CUC
International Common Stock pursuant thereto) were fair to and in the best
interests of CUC International and the holders of CUC International Common
Stock, and approved the Merger Agreement and authorized the execution and
delivery thereof and the performance of the transactions contemplated thereby.
The Merger Agreement was executed by the parties as of October 17, 1995, and
a joint press release was issued on October 18, 1995 announcing the proposed
Merger. A copy of the Merger Agreement is attached to this Proxy
Statement/Prospectus as Annex A, which should be read carefully and in its
entirety.
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REASONS FOR THE MERGER
CUC International. CUC International's Board of Directors believes that the
business combination with Advance Ross will further CUC International's
long-term strategic objectives by strengthening CUC International's presence in
Europe and by providing it with access to Advance Ross' relationships with
European retailers in connection with CUC International's other services.
In reaching its conclusions, the CUC International Board of Directors
considered, among other things: (i) information concerning the financial
performance, condition and business operations of each of Advance Ross and CUC
International and the results of its due diligence investigation of Advance
Ross; and (ii) the proposed terms, timing and structure of the Merger (and the
transactions contemplated thereby). Although the shares of CUC International
Common Stock to be issued in the Merger will dilute (by approximately 3.2%) the
voting power of current holders of CUC International Common Stock, the Board of
Directors of CUC International believes that this dilution is offset by the
benefits to be attained by CUC International as a result of the Merger.
Advance Ross. The Board of Directors of Advance Ross believes that the terms
of the Merger are fair to and in the best interests of Advance Ross and its
stockholders, and unanimously has approved the Merger. In its evaluation, the
directors considered a number of factors, including the following:
. The Merger provides Advance Ross stockholders with CUC International
Common Stock in a tax-free exchange at a substantial premium over the
current and historical market prices for shares of their stock;
. The Merger enables Advance Ross stockholders to own shares in CUC
International, which is a company with more diverse businesses and markets
than those of Advance Ross, which is engaged almost exclusively in the VAT
refund business; and, at the same time, the Merger provides Advance Ross
stockholders with the opportunity to continue to participate in the long-
term growth and appreciation of the Advance Ross' VAT refund business
through their continued ownership interest in CUC International;
. The larger trading volume of shares of CUC International Common Stock
compared to the trading volume of the Advance Ross Common Stock and
absence of an active trading market for the Advance Ross Preferred Stock
provides Advance Ross stockholders with greater liquidity in their
investment than they presently have in respect of their shares of stock;
. Advance Ross' future success as a stand-alone entity depends, to a
significant extent, on its ability to access capital and identify and make
strategic acquisitions of companies to increase its growth and enhance its
long-term value, and no such potential acquisitions are foreseen in the
near future. See "-- Background of the Merger;"
. CUC International has the financial resources, willingness and expertise
to complete a strategic business combination with Advance Ross, which
requires, in addition to payment of the merger consideration, the
assumption of all outstanding Advance Ross borrowings and the Options and
the Warrant; a business combination with Advance Ross would provide CUC
International with unique synergies; CUC International is willing to pay a
substantial premium for shares of Advance Ross Common Stock and
expenditure of substantial resources by Advance Ross would be required to
identify other potential merger candidates and familiarize such candidates
with Advance Ross' unique VAT business before a transaction might be
negotiated; and in such case there still would be no certainty that
Advance Ross would succeed in identifying a potential
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purchaser that would be willing to acquire Advance Ross on terms that,
from a financial point of view, would be superior to the terms of the
Merger;
. If any third party acquiror is or prior to the Effective Time becomes,
interested in acquiring Advance Ross, the Merger Agreement permits the
Advance Ross Board of Directors to consider a bona fide, unsolicited
acquisition proposal from such third party and, if such proposal is
determined to be superior to the Merger, Advance Ross is permitted to
enter into negotiations with that company and recommend its approval to
holders of Advance Ross Common Stock, subject to a one-time payment of up
to $5.0 million in termination fees to CUC International under certain
circumstances;
. Information with respect to the financial condition and business of CUC
International, including, among other things, CUC International's recent
and historical stock and earnings performance, the demonstrated ability of
CUC International to successfully implement its growth strategy, and the
ability of CUC International to access the capital markets and its stated
commitment to expanding Advance Ross' VAT refund business;
. The Exchange Ratio is subject to adjustment, as provided in the Merger
Agreement, which offers Advance Ross stockholders protection by increasing
the Exchange Ratio if the price of CUC International Common Stock falls
below a certain threshold level. See "The Merger -- Background of the
Merger;" and
. The opinion of Allen & Company that, as of October 16, 1995, the
consideration to be received in the Merger by holders of Advance Ross
Common Stock and Advance Ross Preferred Stock is fair to such holders,
from a financial point of view.
In the course of its deliberations, the Board of Directors of Advance Ross
reviewed a number of additional factors relevant to the Merger, including
principally: (i) the capital structure of CUC International; (ii) the financial
presentation in connection with the original Allen & Company Analysis; (iii) the
compatibility of the businesses of CUC International and Advance Ross; (iv) the
financial analysis of Allen & Company prepared in connection with its fairness
opinion; (v) reports from management and legal advisors on specific terms of the
Merger Agreement, the Stockholders Agreement, the employment agreements and the
agreements by affiliates of Advance Ross described in "The Merger--Accounting
Treatment" to be entered into in connection with the Merger; (vi) the public
information concerning the financial performance, condition, business operations
and prospects of each of CUC International and Advance Ross presented at the
September 6, 1995 Meeting; and (vii) the proposed terms, timing and structure of
the Merger. For a discussion of many of the foregoing factors, see "-- Opinion
of Advance Ross' Financial Advisor."
The Board of Directors of Advance Ross also considered a number of
potentially negative factors in its deliberations concerning the Merger,
including, among other things: (i) the possibility of management disruption
associated with the Merger and the risk that, despite the efforts of the
combined company, key management personnel of Advance Ross might not continue
their employment with the combined company; (ii) the possibility that certain of
the operating economies of scale such as joint distribution and marketing and
elimination of redundant administrative costs sought to be achieved as a result
the Merger would not be obtained; (iii) Advance Ross' failure to be successfully
integrated into CUC International; (iv) the fact that the CUC International
Common Stock was trading at a multiple of approximately 46 times earnings in
relation to the trading multiple of the Advance Ross Common Stock of 17 times
earnings; (v) the downward adjustment to the Exchange Ratio if the Average Stock
Price exceeds $38, thus capping the value holders of Advance Ross Common Stock
would receive upon
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consummation of the Merger; and (vi) the loss of independence which would result
from being a wholly owned subsidiary of CUC International.
The foregoing discussion of the information and factors considered by the
Advance Ross Board of Directors is not intended to be exhaustive but is intended
to include the material factors considered by the directors. In the view of the
wide variety of factors considered by the Advance Ross Board of Directors, the
directors did not find it practical to, and did not, quantify or otherwise
assign relative weight to the specific factors considered and individual
directors may have ascribed differing weights to different factors.
After taking into consideration all of the factors set forth above, together
with an analysis of the presentations of management, Allen & Company and legal
counsel, the Board of Directors of Advance Ross unanimously determined that the
Merger is fair to and in the best interests of Advance Ross and its stockholders
and that Advance Ross should proceed with the Merger at this time.
RECOMMENDATION OF ADVANCE ROSS' BOARD OF DIRECTORS
At a special meeting of the Advance Ross Board held on October 16, 1995 and
continued on October 17, 1995, the directors unanimously determined that the
Merger is fair to and in the best interests of Advance Ross and its
stockholders, unanimously approved the Merger Agreement (and the transactions
contemplated thereby), and unanimously recommended (and hereby unanimously
recommend) that holders of Advance Ross Common Stock vote at the Meeting "FOR"
adoption of the Merger Agreement.
In making such determination, the Board considered the appropriateness of
Allen & Company providing their fairness opinion in light of the fact that:
Allen & Company and certain of its officers and employees beneficially own an
aggregate of 306,500 (or approximately 4.3%) of the outstanding shares of
Advance Ross Common Stock and the Warrant which currently is exercisable for the
purchase of up to 480,000 (or approximately 6.3%) of the Advance Ross Common
Stock at an exercise price per share of $2.375, that as of October 17, 1995 the
closing sale price per share of Advance Ross Common Stock as reported on the
NASDAQ Stock Market based on published financial sources was $16.375, and that
Allen & Company's fee in connection with the Merger will be approximately $4.0
million. See "The Merger--Opinion of Advance Ross' Financial Advisor."
The Board then considered Allen & Company's familiarity with Advance Ross'
unique business and its five-year representation of Advance Ross (pursuant to
past financial advisory and investment banking engagements), the fact that no
limitations were imposed on its engagement by and review of Advance Ross other
than those which are customary in transactions such as the Merger, its expertise
and integrity, and the Board's belief that Allen & Company's interests in the
Merger as an owner of Advance Ross Common Stock and the Warrant outweighed any
interest Allen & Company might have had with respect to its fee arrangement in
connection with the Merger. Accordingly, the Board unanimously determined and
believes that it is appropriate for Allen & Company to be engaged to act as
Advance Ross' financial advisor with respect to the Merger and furnish to the
Board an opinion as to the fairness, from a financial point of view, of the
consideration to be received in the Merger by the holders of Advance Ross Common
Stock and Advance Ross Preferred Stock.
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OPINION OF ADVANCE ROSS' FINANCIAL ADVISOR
At the meeting of the Advance Ross Board on October 16, 1995, Allen &
Company delivered its oral opinion (confirmed in writing after the conclusion of
such meeting) to the effect that, as of such date, the consideration to be
received by holders of Advance Ross Common Stock and holders of Advance Ross
Preferred Stock in the Merger was fair to such holders from a financial point of
view.
The full text of the written opinion of Allen & Company with respect to such
stockholders is set forth as Annex C to this Proxy Statement/Prospectus and
describes the assumptions made, matters considered and limits on the review
undertaken. Holders of Advance Ross Common Stock are urged to read the opinion
in its entirety. Allen & Company's opinion is directed only to the fairness,
from a financial point of view, of the consideration which the holders of
Advance Ross Common Stock and Advance Ross Preferred Stock will receive in the
Merger and does not constitute a recommendation of the Merger over other courses
of action that may be available to Advance Ross or constitute a recommendation
to any holder of Advance Ross Common Stock concerning how such holder should
vote with respect to adoption of the Merger Agreement. The summary of the
opinion of Allen & Company set forth as Annex C to this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In arriving at its opinion, Allen & Company: (i) reviewed the terms and
conditions of the Merger Agreement; (ii) analyzed publicly available historical
business and financial information relating to Advance Ross as presented in
documents filed with the Commission, including the Advance Ross 10-K, the 1994
Annual Report to holders of Advance Ross Common Stock and Advance Ross'
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995; (iii)
analyzed publicly available historical business and financial information
relating to CUC International as presented in documents filed with the
Commission, including the CUC 10-K, the 1995 Annual Report to holders of CUC
International Common Stock and CUC International's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 31, 1995; (iv) reviewed certain non-public
historical and financial information of Advance Ross, including financial and
operating results; (v) reviewed certain financial forecasts and other budgetary
data provided to it by Advance Ross relating to its business for its fiscal
years ending December 31, 1995, December 31, 1996 and December 31, 1997; (vi)
conducted discussions with certain members of the senior management of Advance
Ross and CUC International with respect to the financial condition, business,
operations, strategic objectives and prospects of Advance Ross and CUC
International, respectively; (vii) reviewed and analyzed public information,
including certain stock market data and financial information, relating to
selected public companies that it deemed generally comparable to Advance Ross
and CUC International, respectively; (viii) reviewed the trading history of
Advance Ross Common Stock and CUC International Common Stock, including each
company's respective performance in comparison to market indices and to selected
companies in comparable businesses and the market reaction to selected public
announcements regarding Advance Ross and CUC International; (ix) reviewed public
financial and transaction information relating to merger and acquisition
transactions that it deemed generally comparable to the Merger; and (x)
conducted such other financial analyses and investigations as it deemed
necessary or appropriate for the purposes of its opinion.
In connection with its review, Allen & Company assumed and relied on the
accuracy and completeness of the information it reviewed for the purpose of
delivering its opinion and did not assume any responsibility for independent
verification such information or for any independent valuation or appraisal of
the assets of Advance Ross or CUC International. With respect to Advance Ross'
financial forecasts, Allen & Company assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Advance Ross, and Allen & Company expressed no
opinion with respect to such forecasts or the reasonableness of the assumptions
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on which they were based. Allen & Company's opinion was necessarily based upon
business, market, economic and other conditions as they existed on, and which
could be evaluated as of, the date of its opinion. Allen & Company was not
requested to, and did not, solicit third-party offers to acquire all or any part
of Advance Ross or its securities. Allen & Company's opinion does not imply any
conclusion as to the likely trading range of CUC International Common Stock
following consummation of the Merger, which may vary depending on, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities.
The following is a summary of the presentation made by Allen & Company to
the Advance Ross Board of Directors in connection with the delivery of its
fairness opinion:
Transaction Overview. Allen & Company presented an overview of the proposed
transaction, noting the strategic fit of combining a leading membership-based
services provider such as CUC International with a travel related retail service
provider such as Advance Ross. Allen & Company noted that the transaction,
structured as a tax-free exchange and accounted for as a pooling-of-interests,
would afford stockholders of Advance Ross the ability to continue their
investment in the combined entity resulting from the Merger or, if they choose,
to sell the CUC International Common Stock received by Advance Ross stockholders
in the Merger. Allen & Company also noted that the combined operations of
Advance Ross and CUC International should benefit from the ability to capitalize
on CUC International's relationships in the financial services, travel and
retail industries and its extensive distribution channels in expanding the VAT
refund business.
Allen & Company noted that the Merger Agreement provides that the Exchange
Ratio is fixed at 5/6 of one share of CUC International Common Stock for each
share of Advance Ross Common Stock if the Average Stock Price is between $30.00
and $38.00 and that the Exchange Ratio would be adjusted proportionately if the
Average Stock Price falls outside of such range. Allen & Company stated that,
based on the October 13, 1995 closing sale price of CUC International Common
Stock as reported on the NYSE Composite Transactions, the per share value of the
consideration payable to the holders of Advance Ross Common Stock was $30.21
(the "Current Offer Value"), an 83.1% premium based on the October 13, 1995
closing sale price of a share of Advance Ross Common Stock. In addition, the
"collar" (i.e., the $30 to $38 Average Stock Price range) provided in the Merger
Agreement created a range of per share consideration payable in the Merger of
$25.00, based upon an Average Stock Price of $30.00 (the "Low Collar Price"), to
$31.67, based upon an Average Stock Price of $38.00 (the "High Collar Price"),
resulting in a premium range of 51.5% to 91.9% based on the October 13, 1995
closing sale price of a share of Advance Ross Common Stock.
Allen & Company analyzed the total enterprise value (the value of all equity
securities, plus long-term debt, less cash) of Advance Ross as of October 13,
1995 to the total enterprise values based on the ranges of consideration payable
to the holders of Advance Ross Common Stock pursuant to the Merger, resulting
from potential changes to the market price of CUC International Common Stock.
This analysis indicated an enterprise value of Advance Ross of $139.7 million
without giving effect to the Merger, as compared to $269.7 million based on the
Current Offer Value. In addition, this analysis provided a range of enterprise
value from $220.3 million at the Low Collar Price to $283.6 million at the High
Collar Price, reflecting the potential variation in the market price of the CUC
International Common Stock from October 13, 1995 through the time the definitive
merger consideration was fixed.
Overview of Advance Ross. Allen & Company presented an overview of Advance
Ross, focusing particularly on its ETS business. Allen & Company noted the
leadership position of this line of business and growth prospects in both its
existing markets and potential new markets, and that Advance Ross'
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VAT refund business has been able to capitalize on its well known trademark to
establish a pan-European presence with expansion potential.
Allen & Company reviewed Advance Ross' historical and estimated operating
results for the four fiscal years ending December 31, 1995, noting particularly
Advance Ross' self-estimated earnings per share ("EPS") for 1995, compared to
EPS for its fiscal years ended December 31, 1994, 1993 and 1992, respectively.
In addition, Allen & Company observed a 26.8% increase in Advance Ross' EPS for
the six months ended June 30, 1995, compared with the corresponding prior year
period. Allen & Company reviewed projected operating results for fiscal 1995
through 1997, based on forecasts provided by Advance Ross' management. Allen &
Company also reviewed Advance Ross' historical balance sheet at June 30, 1995
and its operating results for the last twelve months ("LTM") ended June 30,
1995.
Allen & Company reviewed stock price and trading volume information for
Advance Ross Common Stock, noting that there are no directly comparable
companies in the same lines of business as Advance Ross. Allen & Company
identified several companies which have operations in related industries to
Advance Ross and/or provide to consumers financial services that are of a
similar nature to the services provided by Advance Ross. In Allen & Company's
judgment, the selected companies were sufficiently comparable to be used as two
groups of comparable companies: consumer related financial services companies
(listed below) and travel related retail operations (listed below). Although
there is no single company that is directly comparable to Advance Ross, the two
groups of selected companies are sufficiently similar to Advance Ross to conduct
a comparable company analysis. Advance Ross' general trading patterns have
outperformed the selected comparable companies and other market indices. Allen &
Company also compared selected multiples derived from the recent trading price
of Advance Ross Common Stock to multiples derived from recent prices of the
selected comparable consumer related financial service companies (i.e., Ace Cash
Express, Inc., Advanta Corp., American Express Company, Check Express, Inc.,
Equifax Inc. and Transmedia Network Inc.) and the selected travel related retail
companies (i.e., Duty Free International, Inc. and Little Switzerland, Inc.) .
The multiples compared included: (i) enterprise value to LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA") (which was 7.9x for
Advance Ross, compared to a mean of 12.5x for the financial service companies
and 8.0x for the travel-related retail companies), (ii) equity value (the recent
value of all equity securities) to LTM earnings (which was 16.2x for Advance
Ross, compared to a mean of 21.3x for the financial service companies and 19.3x
for the travel related retail companies), and (iii) equity value to 1995
estimated earnings (which was 15.9x for Advance Ross, compared to a mean of
18.5x for the financial service companies and 17.6x for the travel related
retail companies). These analyses indicated that the closing sale price of the
Advance Ross Common Stock at October 13, 1995, $16.50, represented market
trading multiples that were within the ranges observed for the consumer related
financial services companies and the travel related retail companies. In
addition, the Advance Ross price to earnings multiple as of October 13, 1995 was
within the historical range of multiples for Advance Ross Common Stock for the
past five years.
Overview of CUC International. Allen & Company presented an overview of CUC
International, including a description of the wide variety of consumer services
provided by CUC International. Allen & Company noted CUC International's ability
to market its databases and services internationally, both directly and through
intermediaries, such as airlines, hotels, banks and retailers. Allen & Company
described the financial attributes of CUC International's offering of membership
services and its consistent strategy for growth which includes expanding its
core business, leveraging across divisions, making strategic acquisitions and
expanding internationally.
Allen & Company also reviewed CUC International's historical operating
results for its fiscal years ended January 31, 1995, 1994 and 1993, noting
particularly that CUC International's EPS were $0.66, $0.51 and $0.38 for its
fiscal years ended January 31, 1995, 1994 and 1993, respectively. In addition,
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Allen & Company noted a 29.0% increase to $0.40 in CUC International's EPS for
the six months ended July 31, 1995, as compared to the corresponding prior year
period. Allen & Company then reviewed CUC International's historical balance
sheet, its six-month and LTM operating results and its equity and enterprise
values at July 31, 1995, as well as its recent ownership data in respect of
significant holders of CUC International Common Stock.
Allen & Company further reviewed stock price and trading volume data for CUC
International Common Stock, noting that although there are no directly
comparable companies in the same lines of business as CUC International. Allen &
Company identified several companies which have operations in related industries
to CUC International and/or provide consumer services that are of a similar
nature to the services provided by CUC International. In Allen & Company's
judgment, the selected companies were sufficiently comparable to be used as two
groups of comparable companies: the peer group of companies included in CUC
International's 1995 proxy statement (listed below) and electronic processing
and related services companies (listed below). Although there is no single
company that is directly comparable to CUC International, the two groups of
selected companies are sufficiently similar to CUC International to conduct a
comparable company analysis. CUC International's general trading patterns were
consistent with the S&P 500 Index and other market indices. Allen & Company also
compared selected multiples derived from the recent price of CUC International
Common Stock to multiples derived from recent trading prices of the peer group
companies included in CUC International's 1995 proxy statement, as required by
applicable Exchange Act proxy regulations (i.e., H&R Block, Inc., CPI Corp.,
Rollins, Inc., Service Corporation International and Ideon Group, Inc.) and the
selected electronic processing and related services companies (i.e., Comdata
Holdings Corporation, Concord EFS, Inc., First Data Corporation, National Data
Corporation, Paychex, Inc. and SPS Transaction Services, Inc.). The multiples
compared included: (i) enterprise value to LTM EBITDA (which was 25.7x for CUC
International, compared to a mean of 9.9x for the companies included in the
proxy statement and 17.4x for the electronic processing and related services
companies), (ii) equity value to LTM earnings (which was 47.9x for CUC
International, compared to a mean of 24.8x for the companies included in the
proxy statement and 33.0x for the electronic processing and related services
companies), and (iii) equity value to fiscal 1996 estimated earnings (which was
40.7x for CUC International, compared to a mean of 18.9x for the companies
included in the proxy statement and 30.6x for the electronic processing and
related services companies). These analyses indicated that the closing sale
price of the CUC International Common Stock at October 13, 1995 ($36.25)
represented market trading multiples that fell within the ranges found for the
electronic processing and related services companies. Allen & Company also noted
that CUC International's market trading multiples were higher than the ranges
for the proxy statement companies, reflecting the fact that CUC International
has exhibited significantly more attractive, sustained growth and returns than
such group of companies. In addition, the CUC International price to earnings
multiple as of October 13, 1995 was within the historical range of multiples for
CUC International Common Stock for the past five years.
Transaction Analysis. Allen & Company prepared projected pro forma financial
statements for CUC International and Advance Ross on a combined basis (the
"Combined Company") which were based in part on the projected financial
information provided by Advance Ross as discussed in "-- Background of the
Merger," noting in particular its estimated EPS of the Combined Company for the
fiscal years ending January 31, 1996 and January 31, 1997, respectively, as
compared to its pro forma EPS calculation for the fiscal year ended January 31,
1995. Allen & Company also examined the Combined Company's pro forma operating
results which it prepared for the six months and the LTM ended July 31, 1995,
and its pro forma balance sheet at such date.
Allen & Company also analyzed the enterprise value represented by the
consideration to be received by the holders of Advance Ross Common Stock in the
Merger (based upon the Current Offer Value and the Low Collar Price) as
multiples of various financial performance criteria, including
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EBITDA (15.3x at Current Offer Value and 12.5x at the Low Collar Price), and
compared such multiples to multiples of EBITDA for: consumer related financial
service companies (12.5x), travel related retail companies (8.0x), in selected
stock-for-stock merger transactions (which averaged 10.9x), and in a deemed
comparable transaction in which First Data Corporation acquired First Financial
Management Corporation (15.7x). The First Data transaction was deemed comparable
because the two companies operate in sufficiently similar industries to Advance
Ross and CUC International. Allen & Company also compared the equity value
represented by the merger consideration as multiples of various criteria,
including net income (31.2x at Current Offer Value and 25.7x at the Low Collar
Price) and compared such multiples to multiples of net income for consumer
related financial service companies (21.3x), travel related retail companies
(19.5x), in selected stock-for-stock merger transactions (which averaged 23.6x),
and in a comparable transaction in which First Data Corporation acquired First
Financial Management Corporation (35.2x). These analyses indicated that the
merger consideration (based on both the Current Offer Value and the Low Collar
Price) results in valuation multiples which generally are higher than the
multiples for selected comparable companies and in selected stock-for-stock
merger transactions and in the deemed comparable transactions.
Allen & Company noted that, based on the Current Offer Value, the per share
value of the consideration payable to the holders of Advance Ross Common Stock
pursuant to the Merger was $30.21, representing a premium of approximately 83.1%
over the closing sale price of Advance Ross Common Stock on October 13, 1995,
and that the Low Collar Price resulted in $25.00 of consideration per share, a
premium of 51.5% from the October 13, 1995 closing sale price of Advance Ross
Common Stock. Allen & Company compared this premium to be received in the Merger
by holders of Advance Ross Common Stock to premiums paid in selected
stock-for-stock merger transactions, noting that the premiums in such
transactions averaged 30.1% and ranged from -24.9% to 181.2%, as compared to the
trading prices on the day prior to announcement. Allen & Company also analyzed
these premium ranges as of one and four weeks prior to the public announcement
of the Merger and the public announcements of the selected stock-for-stock
merger transactions. The premiums in such transactions averaged 34.1% and ranged
from -18.6% to 189.6% as compared to the trading prices one week prior to
announcement. The average premium of 34.1% was lower than the premium of 42.9%
based on the Low Collar Price over the trading price of Advance Ross one week
prior to October 13, 1995. The premiums in such transactions averaged 39.1% and
ranged from -53.3% to 177.1%, as compared to the trading prices four weeks prior
to announcement. The average premium of 39.1% was lower than the premium of
44.9% based on the Low Collar Price over the trading price of Advance Ross four
weeks prior to October 13, 1995. These analyses indicated that the merger
consideration (based on both the Current Offer Value and the Low Collar Price)
exceeded the average premiums paid in comparable stock-for-stock merger
transactions.
Since the Merger Agreement provides for a Low Collar Price pursuant to which
a minimum value of CUC International Common Stock is to be received by holders
of Advance Ross Common Stock, and because Allen & Company has concluded that
that minimum value would constitute fair consideration from a financial point of
view to holders of Advance Ross Common Stock, Allen & Company concluded that the
consideration to be received by holders of Advance Ross Common Stock pursuant to
the Merger Agreement is fair from a financial point of view, regardless of the
Average Stock Price of CUC International Common Stock determined pursuant to the
Merger Agreement.
No company used in the comparable company analyses summarized above is
identical to Advance Ross or CUC International, and no transaction used in the
comparable transaction analysis summarized above is identical to the Merger.
Accordingly, any such analysis of the value of the consideration to be received
by the holders of Advance Ross Common Stock pursuant to the Merger involves
complex
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considerations and judgments concerning differences in the potential financial
and operating characteristics of the comparable companies and transactions and
other factors in relation to the trading and acquisition values of the
comparable companies.
Allen & Company also performed an analysis to estimate the potential time it
would take for the market price of Advance Ross Common Stock to reach the
Current Offer Value assuming 15% annual earnings growth based on Advance Ross'
estimate of its 1995 earnings and the current price to earnings multiple of
Advance Ross remaining constant. This analysis indicated that the price of
Advance Ross Common Stock would not likely reach the Current Offer Value in the
near term under the assumptions used.
The preparation of a fairness opinion is not susceptible to partial analysis
or summary description. Allen & Company believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in its opinion. Allen & Company has not
indicated that any of the analyses which it performed had greater significance
than any other.
In determining the appropriate analyses to conduct and when performing those
analyses, Allen & Company made numerous assumptions with respect to industry
performance, general business, financial, market and economic conditions and
other matters, many of which are beyond the control of Advance Ross and CUC
International. The analyses which Allen & Company performed are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of Allen & Company's analysis of the fairness, from a
financial point of view, of the consideration which the holders of Advance Ross
Common Stock would receive in the Merger. The analyses do not purport to be
appraisals or to reflect the prices at which Advance Ross might actually be sold
or the prices at which any securities may trade at the present time or at any
time in the future.
Allen & Company's opinion does not constitute a recommendation with respect
to whether any stockholder of Advance Ross should, upon consummation of the
Merger, continue such holder's investment in the CUC International Common Stock
received as consideration in the Merger or sell such shares of CUC International
Common Stock immediately or at any time.
Advance Ross engaged Allen & Company pursuant to an agreement dated as of
September 17, 1990, as amended (the "Engagement Letter"), pursuant to which
Allen & Company agreed to act as the Company's financial advisor through
November 30, 1996 and to assist it in developing an overall strategic plan and
in evaluating potential acquisition, investment and disposition opportunities,
as well as other financial and corporate matters. Under the Engagement Letter,
if Advance Ross elects to proceed with any specific proposal, Allen & Company
shall assist Advance Ross in structuring, negotiating, and documenting, and
otherwise taking necessary steps toward consummating any such proposed
transaction. Under the terms of the Engagement Letter, Allen & Company currently
receives an annual retainer of $100,000 and before commencing any specific
assignment on Advance Ross' behalf, Advance Ross and Allen & Company have agreed
mutually to determine an appropriate fee or fee scale to be paid to Allen &
Company in connection therewith. In connection with the evaluation of the events
culminating in the Merger, Advance Ross and Allen & Company entered into a
letter agreement dated as of September 21, 1995 (the "Letter Agreement"),
supplementing the terms of the Engagement Letter. The Letter Agreement provides
that Allen & Company will be paid a fee of 1.5% of the Equity Value (as defined
below) of Advance Ross upon the consummation of a Disposition Transaction (as
defined below), less a credit for the annual retainer paid to Allen & Company
under the
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Engagement Letter for the contract period ending November 30, 1995. As used in
the Letter Agreement, "Disposition Transaction" generally includes any merger,
reorganization, business combination, tender offer, stock purchase or other
transaction which has the effect of transferring ownership or control of Advance
Ross and "Equity Value" generally means the fully diluted equity value imputed
to Advance Ross in any such Disposition Transaction.
Allen & Company and certain of its officers and employees beneficially own
an aggregate of 306,500 (or approximately 4.3%) of the outstanding shares of
Advance Ross Common Stock, which stock was purchased over a period of time at
then-current market prices. In addition, pursuant to the terms of the original
engagement letter with Advance Ross dated as of September 17, 1990, Allen &
Company did not receive an annual retainer for the investment banking services
which it provided to Advance Ross, but instead received the Warrant to purchase
100,000 shares of Advance Ross Common Stock at an exercise price of $9.50 per
share, which exercise price at the time was at or above the then-market price of
Advance Ross Common Stock. Such Warrant currently is exercisable for the
purchase of up to 480,000 (or approximately 6.3%) of the Advance Ross Common
Stock (due to stock splits and other adjustments) at an exercise price per share
of $2.375. As of October 17, 1995, the closing sale price per share of Advance
Ross Common Stock as reported on the NASDAQ Stock Market based on published
financial sources was $16.375, the closing sale price per share of CUC
International Common Stock as reported on the NYSE based on published financial
sources was $35.625, and therefore based on the Exchange Ratio the Advance Ross
Common Stock owned by Allen & Company and certain of its officers and employees
had a value of $9.1 million and the Warrant had a value of $13.1 million, net of
the cost of exercising the Warrant.
Following the Effective Time, the Warrant will become exercisable to
purchase shares of CUC International Common Stock as described elsewhere in this
Proxy Statement/Prospectus. Allen & Company has informed Advance Ross that it
intends to vote all of the shares of Advance Ross Common Stock that it owns
directly as of the Record Date "FOR" adoption of the Merger Agreement. See
"Comparative Market Price Information--Advance Ross," "The
Merger--Recommendation of Advance Ross' Board of Directors--Opinion of Advance
Ross' Financial Advisor," "The Merger Agreement--Treatment of Stock Options and
the Warrant" and "Ownership of Advance Ross Common Stock by Certain Beneficial
Owners and Management."
It is expected that Allen & Company will receive a fee of approximately $4.0
million in respect of the Merger. Whether or not the Merger is consummated,
Advance Ross has agreed, pursuant to the Engagement Letter, to reimburse Allen &
Company for all its reasonable out-of-pocket expenses, including the fees and
disbursements of its counsel, incurred in connection with its engagement by
Advance Ross and to indemnify Allen & Company against certain liabilities and
expenses in connection with its engagement.
Allen & Company is a nationally recognized investment banking firm that is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Advance Ross
retained Allen & Company based on such qualifications as well as its familiarity
with Advance Ross. In addition, as a part of its investment banking and
securities trading business, Allen & Company holds positions in and trades in
the securities of Advance Ross from time to time. Allen & Company and certain of
its officers and employees beneficially own an aggregate of 306,500 (or
approximately 4.3%) shares of Advance Ross Common Stock and the Warrant to
purchase up to 480,000 (or approximately 6.3%) of the Advance Ross Common Stock
at an exercise price per share of $2.375 which, following the Effective Time,
will become exercisable to purchase shares of CUC International Common Stock as
described elsewhere in the Proxy Statement/Prospectus.
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<PAGE>
THE FULL TEXT OF THE WRITTEN OPINION OF ALLEN & COMPANY, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF ADVANCE ROSS COMMON STOCK ARE URGED
TO READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY. ALLEN & COMPANY'S OPINION IS
DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY
STOCKHOLDERS OF ADVANCE ROSS IN THE MERGER, FROM A FINANCIAL POINT OF VIEW, HAS
BEEN PROVIDED SOLELY FOR THE USE OF THE ADVANCE ROSS BOARD OF DIRECTORS IN ITS
EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY
RELATED TRANSACTION, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
ADVANCE ROSS COMMON STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE MEETING.
THE SUMMARY OF THE OPINION OF ALLEN & COMPANY SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
CERTAIN CONSEQUENCES OF THE MERGER
Upon consummation of the Merger, shares of the Advance Ross Common Stock and
Advance Ross Preferred Stock will cease to be traded on the NASDAQ Stock Market
and application (on Form 15) to the Commission promptly will be made to
deregister such shares under the Exchange Act. After the Merger, as a result of
such deregistration, Advance Ross no longer will be obligated to file periodic
reports with the Commission. In addition, the termination of registration of the
shares of Advance Ross Common Stock under the Exchange Act would cause to be
inapplicable certain other provisions of the Exchange Act, including
requirements that Advance Ross' executive officers, directors and 10%
stockholders file certain reports concerning their ownership of Advance Ross'
securities and provisions that any profit by such executive officers, directors
and stockholders derived from purchases and sales of Advance Ross' equity
securities within any six-month period may be recovered by Advance Ross.
Furthermore, if the shares of Advance Ross Common Stock and Advance Ross
Preferred Stock were deregistered, "affiliates" of Advance Ross and persons
holding "restricted securities" of Advance Ross would be deprived of the ability
to dispose of such shares pursuant to Rule 144 promulgated under the Securities
Act.
In the Merger, among other things, stockholders of Advance Ross immediately
prior to the Effective Time will, from and after the Effective Time, become
stockholders of CUC International, and thereby will continue to have an indirect
economic interest in Advance Ross as a wholly owned subsidiary of CUC
International. Based upon the capitalization of Advance Ross and CUC
International at September 30, 1995 and giving effect to the Merger, the total
number of shares of CUC International Common Stock outstanding immediately
following the Effective Time will be 186,609,413 shares, and the current
stockholders of Advance Ross, in the aggregate, will own approximately 3.2% of
the issued and outstanding CUC International Common Stock. CUC International has
agreed to use its best efforts to have the additional shares of CUC
International Common Stock to be issued in the Merger listed on the NYSE,
subject to official notice of issuance, and such listing is a condition to
consummation of the Merger.
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MANAGEMENT OF ADVANCE ROSS AFTER THE MERGER
Pursuant to the Merger Agreement, the members of the Board of Directors of
Merger Sub immediately prior to the Effective Time will be the initial directors
of the surviving corporation immediately following the Effective Time, and the
officers of Advance Ross immediately prior to the Effective Time will be the
initial officers of the surviving corporation immediately following the
Effective Time.
CONDUCT OF THE BUSINESS OF CUC INTERNATIONAL AND ADVANCE ROSS IF THE MERGER IS
NOT CONSUMMATED
If the Merger is not consummated, it is expected that the business and
operations of CUC International and Advance Ross each will continue to be
conducted substantially as they currently are being conducted. In addition,
pursuant to the Confidentiality Agreement, CUC International and Advance Ross
have agreed that for the two-year period ending August 23, 1997, without the
prior written consent of the Board of Directors of Advance Ross, CUC
International will not, directly or indirectly, seek, offer or propose to
effect, or participate in or assist any other person to seek, offer or propose
to effect, certain business combinations and acquisitions of Advance Ross
securities, including, without limitation, mergers, tender or exchange offers,
any recapitalization, restructuring, liquidation or dissolution of Advance Ross
solicitations of proxies or consents to vote any voting securities of Advance
Ross, or any other similar extraordinary corporate transactions.
MATERIAL CONTACTS BETWEEN CUC INTERNATIONAL AND ADVANCE ROSS
Other than Advance Ross permitting CUC International to place pamphlets and
information relating to memberships in Advance Ross', Heathrow Airport location,
for which no monetary consideration was exchanged, and the discussions and
negotiations relating to, and the execution of, the Merger Agreement discussed
in "The Merger--Background of the Merger," and the Stockholders Agreement and
the negotiations of the employment agreements discussed below in "--Interests of
Certain Persons in the Merger--Employment Agreements", neither CUC International
nor Advance Ross knows of any past, present or proposed material contracts,
arrangements, understandings, relationships, negotiations or transactions in the
last five years between Advance Ross or its affiliates and CUC International or
its affiliates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Advance Ross Board of Directors
with respect to the Merger Agreement, holders of shares of Advance Ross Common
Stock should be aware that certain executive officers and directors of Advance
Ross have certain interests in the Merger that are in addition to and
potentially in conflict with the interests of holders of Advance Ross Common
Stock generally. The Board of Directors of Advance Ross has considered these
interests, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
Employment Agreements. Upon consummation of the Merger, CUC International or
Advance Ross, as the surviving corporation in the Merger ("Surviving
Corporation"), has agreed to offer to enter into or amend, as applicable,
existing employment agreements with Harve A. Ferrill, Chairman and Chief
Executive Officer of Advance Ross, Paul G. Yovovich, President and Chief
Operating Officer of Advance Ross, Randy M. Joseph, Vice President and Chief
Financial Officer of Advance Ross, and William M. Fisher, President of AREC, an
indirect wholly owned subsidiary of Advance Ross.
The employment agreement with Mr. Ferrill will be dated the Effective Time,
and will provide that (i) he continue as the Surviving Corporation's Chairman
and Chief Executive Officer, (ii) his employment continue until December 31,
2002 or such earlier date as provided in such employment agreement (the
"Employment Period"), (iii) he receive a base salary of $550,000 for the first
four years of his employment and $300,000 for the remaining three years of his
employment, (iv) he receive a bonus of at least $100,000 for the first four
years of his employment, (v) he receive supplemental retirement benefits
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upon his reaching the age of 65 of $125,000 per year, less any annual benefits
paid from the Surviving Corporation's defined benefit pension plan and defined
contribution plan ("Supplemental Retirements Benefits"), (vii) if he is
terminated or resigns (a) for "cause" (as such term is defined in such
employment agreement), he receive his salary through the date of such
termination, (b) without "good reason" (as such term is defined in such
employment agreement), he receive his salary through the date of such
termination and his Supplemental Retirement Benefit), (c) without cause or for
good reason, he receive his salary and bonus through the end of the Employment
Period as well as the Supplemental Retirement Benefits, or (d) due to his death
or disability he or his spouse or estate, as applicable, receive 50% of his
salary and bonus through the end of the Employment Period and the Supplemental
Retirement Benefits, and (viii) until the later of December 31, 2002, or if he
remains in the employ of the Surviving Corporation after such date, the second
anniversary of the date his employment terminates with the Surviving
Corporation, he not directly or indirectly, other than as an employee of Advance
Ross, organize, invest in, become employed by or a consultant to, or otherwise
participate in any of businesses presently conducted by Advance Ross or any of
its subsidiaries.
Mr. Yovovich's existing employment agreement with Advance Ross will be
amended as of the Effective Time to provide that if he is terminated other than
for "cause" or resigns with "good reason" (as such terms are defined in such
employment agreement) in addition to receiving (as a lump sum) his salary
through the third anniversary of such termination of employment, his pension
benefits will continue to accrue and he and his family will be invited to
participate in the Surviving Corporation's benefits plans through the third
anniversary of such termination of employment.
The employment agreement with Mr. Joseph will be dated the Effective Time,
and will provide that (i) he will continue as the Surviving Corporation's
Treasurer and Chief Financial Officer, (ii) his employment will continue until
the third anniversary of the Effective Time or such earlier date as provided in
such employment agreement, (iii) he will continue to receive a base salary of
$110,000, (iv) if he is terminated or resigns (a) for "cause" or without "good
reason" (as such terms are defined in such employment agreement) he will receive
his salary and medical benefits through the date of such termination, or (b)
without cause, for good reason or due to his death or disability, he will
receive his salary and medical benefits through the third anniversary of the
Effective Time, and (v) until the third anniversary of the Effective Time, he
not directly or indirectly, other than as an employee of Advance Ross, organize,
invest in, become employed by or a consultant to, or otherwise participate in,
any of businesses presently conducted by the Surviving Corporation or any of its
subsidiaries.
In addition, for the period of one year and one day after the Effective
Time, Mr. Ferrill, Mr. Yovovich and Mr. Joseph will be indemnified by the
Surviving Corporation to the extent that any or all of such payments under their
employment agreements constitute "parachute payments" within the meaning of
Section 280G of the Code and are subject to the excise tax imposed by Section
4999 of the Code.
The employment and profit sharing agreement with Mr. Fisher will be dated
the Effective Time, and will provide that (i) he continue as AREC's President,
(ii) his employment continue until the third anniversary of the Effective Time
or such earlier date as provided in such employment agreement, (iii) he continue
to receive a base salary of $120,000, (iv) he continue to receive an annual
bonus equal to 20% of the operating profits of certain divisions of AREC and
Advance Ross Steel Company, an indirect wholly owned subsidiary of Advance Ross
("AR Steel"), after a 15% return on average net assets has been earned by
certain divisions of AREC and AR Steel ("Profit Sharing Bonus"), (v) if he is
terminated or resigns (a) for "cause" or without "good reason" (as such terms
are defined or delineated in such employment agreement) he receive his salary
and Profit Sharing Bonus through the date of such termination or (b) without
cause, for good reason or due to his death or disability he receive his salary
and Profit Sharing Bonus through the third anniversary of the Effective Time,
and (v) until the third anniversary of the Effective Time, he not directly or
indirectly, other than as an employee of Advance Ross, organize, invest in,
become employed by or a consultant to, or otherwise participate in any of
businesses presently conducted by the AREC or AR Steel including, without
limitation, the business of
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operating, manufacturing, designing and installing electrostatic precipitators
or biofiltration systems for industrial pollution control.
Stock Options. At the Effective Time, each outstanding option to purchase
shares of Advance Ross Common Stock issued and outstanding under the Advance
Ross Corporation Stock Option Plan, the 1993 Advance Ross Corporation Stock
Option Plan, and each of the several stock option agreements entered into by
certain employees and consultants of Advance Ross and its subsidiaries (each, an
"Option", and collectively, the "Options"), will be assumed by CUC International
and will be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Option, the same number of shares of
CUC International Common Stock as the holder of such Option would have been
entitled to receive in the Merger had such Option been exercised prior to the
Effective Time (irrespective of whether such Option then was exercisable), at an
exercise price per share equal to (i) the aggregate exercise price which would
have been paid to purchase shares of Advance Ross Common Stock subject to such
Option had such Option been exercised prior to the Effective Time divided by
(ii) the number of whole shares of CUC International Common Stock which the
holder of such Option would have been entitled to receive in the Merger had such
Option been exercised prior to the Effective Time (irrespective of whether such
Option then was exercisable). At the Record Date, Advance Ross had outstanding
Options to purchase 1,917,748 shares of Advance Ross Common Stock, including
options to purchase up to 10,000 shares of Advance Ross Common Stock issued
pursuant the Directors Deferral Plan, which options will be cancelled and which
plan will be terminated prior to the Effective Time. Pursuant to the Merger
Agreement, Advance Ross has agreed that each of the aforementioned Advance Ross
stock option plans and agreements under which the Options were granted and
currently are outstanding will be terminated at or prior to the Effective Time.
Moreover, all outstanding options under the Directors Deferral Plan will be
cancelled and such Plan will be terminated at or prior to the Effective Date.
At September 30, 1995, the executive officers and directors of Advance Ross
had outstanding Options to purchase shares of Advance Ross Common Stock as
follows:
<TABLE><CAPTION>
NUMBER OF SHARES OF
ADVANCE ROSS COMMON STOCK
NAME OF INDIVIDUAL POSITION SUBJECT TO OUTSTANDING OPTIONS EXERCISE PRICE
- ----------------------------- ---------------------- ------------------------------ --------------
<S> <C> <C> <C>
Harve A. Ferrill............. Director, Chief 400,000 $ 2.50
Executive Officer and 50,000 $ 12.50
Chairman of the Board
Roger E. Anderson............ Director 247,388 $ 3.125
2,000(1) $ 12.50
Harold E. Guenther........... Director 2,000(1) $ 12.50
Duane R. Kullberg............ Director 2,000(1) $ 12.50
Thomas J. Peterson........... Director 2,000(1) $ 12.50
Herbert S. Wander............ Director 2,000(1) $ 12.50
Paul G. Yovovich............. Director, President 200,000 $ 3.75
and Chief Operating 200,000 $ 4.00
Officer
40,000 $ 12.50
Randy M. Joseph.............. Chief Financial 10,000 $ 10.125
Officer
15,000 $ 12.50
----------
All directors and executive officers as a Group
(eight persons).................................... 1,172,388
==========
</TABLE>
- ------------
(1) Pursuant to the Directors Deferral Plan, options to purchase 2,000 shares of
Advance Ross Common Stock were granted to each of Messrs. Anderson,
Guenther, Kullberg, Peterson and
(Footnotes continued on following page)
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(Footnotes continued from preceding page)
Wander. Pursuant to the Merger Agreement, all options outstanding under the
Directors Deferral Plan shall have been cancelled at or prior to the
Effective Time and the Directors Deferral Plan shall have been cancelled at
or prior to the Effective Time.
Allen & Company and certain of its officers and employees owned at the
Record Date 306,500 (or approximately 4.3%) of the outstanding shares of Advance
Ross Common Stock, and the Warrant, which is currently exercisable to purchase
up to 480,000 shares of the Advance Ross Common Stock (or approximately 6.3%) of
the Advance Ross Common Stock at an exercise price of $2.375 per share. At the
Effective Time, the Warrant owned by Allen & Company will be assumed by CUC
International and will be deemed to constitute a warrant to acquire on the terms
as were applicable under the Warrant, the same number of shares of CUC
International Common Stock as Allen & Company and certain of its officers and
employees would have been entitled to receive had Allen & Company exercised the
Warrant in full immediately prior to the Effective Time. See "Ownership of
Advance Ross Common Stock by Certain Beneficial Owners and Management."
Indemnification. To preserve the existing rights of indemnification agreed
to by Advance Ross, CUC International has agreed to indemnify, and to cause the
surviving corporation in the Merger to indemnify, from and after the Effective
Time, the present and former officers, directors and employees of Advance Ross
and its subsidiaries against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions occurring on or prior to the
Effective Time to the full extent (not otherwise covered by insurance) permitted
or required under applicable law. CUC International further has agreed to
advance expenses to the aforementioned indemnitees as such expenses are
incurred, provided that the indemnitee furnishes an undertaking to repay such
advance if it ultimately is determined that the indemnitee was not entitled to
indemnification. Generally, all rights to indemnification with respect to
indemnified matters occurring through the Effective Time will survive the Merger
and will continue in full force and effect for a period of five years from and
after the Effective Time. In addition, CUC International has agreed to cause to
be maintained in effect for not less than three years the current policies of
directors' and officers' liability insurance and fiduciary liability insurance
maintained by Advance Ross and its subsidiaries with respect to matters
occurring prior to the Effective Time to the extent required to cover the types
of actions and omissions currently covered by such policies; provided that CUC
International may substitute policies of substantially the same coverage
containing terms and conditions which are not less advantageous, in any material
respect, to the indemnitees, and CUC International will not be required to pay
an annual premium for such insurance in excess of $150,000 but in such case will
purchase as much coverage as possible for such amount. See "The Merger
Agreement--Certain Covenants."
Consulting Agreement. Concurrent with the acquisition of ETS, Advance Ross
entered into a consulting agreement with Hamilton Capital Partners ("Hamilton")
(one of the general partners of which is Roger E. Anderson, a director of
Advance Ross). Hamilton provided services to Advance Ross in connection with
arranging and evaluating the ETS acquisition and was engaged to provide services
as requested with respect to monitoring ETS' operations and progress towards
goals, assessing new developments and trends affecting ETS' operations or new
opportunities and developing, evaluating and assessing acquisition and joint
venture proposals. Pursuant to the consulting agreement, Hamilton was entitled
to a minimum annual fee of $100,000 and an additional fee calculated pursuant to
a formula based on the return on equity of ETS (offset by the minimum annual fee
payment). In 1994, the amount of the additional fee earned was $334,152. The
agreement expired on December 31, 1994, and pursuant to the terms of the
agreement was not extended by Advance Ross. The terms of the agreement specify
that because the agreement was not extended, Advance Ross will be obligated to
pay Hamilton an amount for both 1995 and 1996 pursuant to a formula based on
ETS' return on equity. Such formula requires payment of an amount equal to 1.5%
of that portion of operating earnings of ETS in excess of an amount equal to 15%
of capital invested in ETS. Such payment is estimated to be between $150,000 and
$200,000 for each of 1995 and 1996.
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ACCOUNTING TREATMENT
It is a condition to consummation of the Merger that CUC International shall
have received from Ernst & Young LLP, its independent auditors, a letter to the
effect that pooling-of-interests accounting (under Accounting Principles Board
Opinion No. 16) is appropriate for the Merger, provided that the Merger is
consummated in accordance with the terms and conditions of the Merger Agreement,
and Advance Ross shall use commercially reasonable efforts to cause its
independent auditors, Deloitte & Touche LLP, to cooperate fully (including,
without limitation by delivering to Advance Ross a letter substantially similar
to Ernst & Young LLP's letter to CUC International) with Ernst & Young LLP in
connection with the delivery to CUC International of such letter. Under the
pooling-of-interests method of accounting, the recorded assets and liabilities
of CUC International and Advance Ross will be carried forward to the combined
company at their recorded amounts, income of the combined company will include
income of CUC International and Advance Ross for the entire fiscal year in which
the combination occurs, and the reported income of the separate companies for
prior periods will be combined and restated as income of the combined company.
See "The Merger Agreement -- Conditions" and "Unaudited Pro Forma Condensed
Combined Financial Statements."
Pursuant to the Merger Agreement, each person who is an "affiliate" of
Advance Ross for purposes of Rule 145 of the Securities Act has delivered to CUC
International a written agreement that such "affiliate" will not sell or in any
other way reduce such "affiliate's" risk relative to any shares of CUC
International Common Stock received in the Merger (within the meaning of the
Commission's Financial Reporting Release No. 1, "Codification of Financing
Reporting Policies," Sec.201.01 47 F.R. 21030 (April 15, 1982)), until such time
as financial results (including combined sales and net income) covering at least
30 days of post-Effective Time operations have been published, except as
permitted by Staff Accounting Bulletin No. 76 issued by the Commission. See
"Federal Securities Law Consequences."
CUC International has agreed to make publicly available financial statements
reflecting at least 30 days of combined operations of CUC International and
Advance Ross on or prior to March 5, 1996.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Code. It is a condition to the obligation of Advance Ross to consummate
the Merger that Advance Ross shall have received an opinion from Katten Muchin &
Zavis, its tax counsel to Advance Ross, which opinion is attached as Annex D to
this Proxy Statement/Prospectus and should be read carefully and in its
entirety, to the effect that: (i) the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, (ii) each of CUC International, Merger Sub and Advance Ross will be a
party to the reorganization within the meaning of Section 368(b) of the Code,
and (iii) no gain or loss will be recognized by holders of Advance Ross Common
Stock or Advance Ross Preferred Stock as a result of the Merger with respect to
shares of Advance Ross Common Stock or Advance Ross Preferred Stock converted
solely into shares of CUC International Common Stock (except with respect to
cash, if any, received by such Advance Ross stockholders in lieu of fractional
share interests in CUC International Common Stock or in lieu of accrued and
unpaid dividends on the Advance Ross Preferred Stock). The Advance Ross Common
Stock and the Advance Ross Preferred Stock shall collectively for the purposes
of this "Certain Federal Income Tax Consequences" section be referred to as the
"Advance Ross Stock". In rendering its opinion, such counsel will rely upon
certain assumptions, representations and warranties of CUC International and
Advance Ross, including those set forth in the Merger Agreement. Counsel's
opinion neither binds the Internal Revenue Service ("IRS") nor precludes the IRS
from adopting a contrary position. An opinion of counsel only represents
counsel's best legal judgment and has no binding effect or official status of
any kind, and no assurance can be given that contrary positions may not be taken
by the IRS or a court considering the issues.
The parties have not and will not request a ruling from the IRS in
connection with any of the federal income tax consequences of the Merger.
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Assuming the Merger qualifies as a tax-free reorganization, (i) the tax
basis of the CUC International Common Stock received by holders of Advance Ross
Stock in the Merger will be the same as the tax basis of the Advance Ross Stock
surrendered in exchange therefor, reduced by any basis allocable to fractional
share interests in CUC International Common Stock for which cash is received,
subject to adjustments described below and (ii) the holding period of the shares
of CUC International Common Stock received in the Merger by holders of Advance
Ross Stock will include the period during which the shares of Advance Ross Stock
surrendered in exchange therefor were held, provided that such shares of Advance
Ross Stock were held as capital assets at the Effective Time. Moreover, the
Merger will not result in the recognition of gain or loss by Advance Ross, CUC
International or Merger Sub. The taxable year of Advance Ross will end for
federal income tax purposes on the Effective Time and Advance Ross will be
required to file a federal income tax return for its short taxable year ending
on the Effective Time. As a result of the Merger, Advance Ross will experience
an ownership change as defined in Section 382(g) of the Code with the result
that any tax credit carry forwards, net operating loss carryovers, capital loss
carryforwards or built-in deductions may become subject to the limitation on use
provided by Sections 382 and 383 of the Code. In addition, the Merger may result
in the imposition of certain consolidated return limitations on the ability of
the CUC International consolidated return group to utilize any Advance Ross tax
credit carryovers, net operating loss carryovers, capital loss carryforwards or
built-in deductions pursuant to the Treasury regulations under Section 1502 of
the Code.
Cash received by a holder of Advance Ross Stock in lieu of a fractional
share interest in CUC International Common Stock will result in the recognition
of gain or loss for federal income tax purposes, measured by the difference
between the amount of cash received and the portion of the basis of the share of
Advance Ross Stock allocable to such fractional share interest. Such gain or
loss will be capital gain or loss, provided that such share of Advance Ross
Stock was held as a capital asset at the Effective Time and will be a long-term
capital gain or loss if such share of Advance Ross Stock has been held for more
than one year.
To qualify as a reorganization, the Merger must satisfy the "continuity of
interest" requirement. To satisfy the "continuity of interest" requirement,
holders of Advance Ross Stock must not, pursuant to a plan or intent existing at
or prior to the Merger, dispose of or transfer so much of either (i) their
Advance Ross Stock in anticipation of the Merger, or (ii) the CUC International
Common Stock to be received in the Merger (collectively, "Planned
Dispositions"), such that the holders of Advance Ross Stock, as a group, would
no longer have a significant equity interest in the Advance Ross business being
conducted by CUC International after the Merger. Holders of Advance Ross Stock
will generally be regarded as having a significant equity interest as long as
the CUC International Common Stock received in the Merger (after taking into
account Planned Dispositions), in the aggregate, represents a substantial
portion of the entire consideration received by the holders of Advance Ross
Stock in the Merger. No assurance can be made that the "continuity of interest"
requirement will be satisfied, and if such requirement is not satisfied, the
Merger would not be treated as a reorganization.
A successful IRS challenge to the reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
would result in holders of Advance Ross Stock being treated as if they sold
their Advance Ross Stock in a taxable transaction. In such event, each holder of
Advance Ross Stock would recognize gain or loss with respect to each share of
Advance Ross Stock surrendered equal to the difference between the stockholder's
basis in such share and the fair market value, at the Effective Time, of the CUC
International Common Stock received in exchange therefor (plus any cash received
for fractional shares). In such event, a stockholder's aggregate basis in the
CUC International Common Stock so received would equal its fair market value,
and the stockholder's holding period for such stock would begin the day after
the Effective Time.
Counsel's opinion will be based on certain assumptions and the accuracy of
certain representations, as indicated above. Among the principal assumptions are
that (i) the significant historic stockholders of Advance Ross have not disposed
of shares of Advance Ross Stock in contemplation of the Merger and do not have
any plan or intention, existing at or prior to the Effective Time, to dispose of
the shares of
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CUC International Common Stock to be received in the Merger such that they would
not have a significant continuing equity interest in Advance Ross, as the
surviving corporation in the Merger, by virtue of their ownership of CUC
International Common Stock, (ii) the Merger will be consummated in accordance
with the Merger Agreement, (iii) Advance Ross after the Merger will have
retained substantially all its assets and (iv) the parties intend Advance Ross
to continue its business as a wholly-owned subsidiary of CUC International.
Even if the Merger qualifies as a reorganization, a recipient of CUC
International Common Stock would recognize gain to the extent that such shares
were considered received in exchange for services or property (other than solely
Advance Ross Stock). All or a portion of such gain may be taxable as ordinary
income. Gain would also have to be recognized to the extent that a holder of
Advance Ross Stock was treated as receiving (directly or indirectly)
consideration other than CUC International Common Stock in exchange for the
stockholder's Advance Ross Stock.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT
PURPORT TO BE A COMPLETE ANALYSIS OR STATEMENT OF ALL POTENTIAL TAX EFFECTS OF
THE MERGER OR THE TAX CONSEQUENCES TO A PARTICULAR HOLDER OF ADVANCE ROSS STOCK
SUBJECT TO SPECIAL TREATMENT, SUCH AS FOREIGN PERSONS, DEALERS IN SECURITIES,
BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND HOLDERS OF ADVANCE ROSS
STOCK WHO ACQUIRED THEIR SHARES PURSUANT TO THE EXERCISE OF OPTIONS OR SIMILAR
DERIVATIVE SECURITIES OR OTHERWISE AS COMPENSATION, NOR AN ANALYSIS OR LISTING
OF ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION. HOLDERS OF ADVANCE ROSS STOCK, THEREFORE, ARE URGED TO CONSULT
WITH THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE AND LOCAL, AND
THE FOREIGN, TAX CONSEQUENCES OF THE MERGER TO THEM.
REGULATORY APPROVALS
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger cannot be consummated until
requisite pre-merger notifications have been filed and certain information has
been furnished to the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and specified waiting period requirements
have been satisfied. CUC International and Advance Ross filed notification and
report forms under the HSR Act with the FTC and the Antitrust Division on
October 20, 1995. Early termination of the required waiting period under the HSR
Act was granted on October 30, 1995, without any request for additional
documentary or other information. At any time before or after the Effective
Time, and notwithstanding that the HSR Act waiting period has expired, the
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin
consummation of the Merger or seeking divestiture of substantial assets of CUC
International or Advance Ross. At any time before or after the Effective Time,
and notwithstanding that the HSR Act waiting period has expired, any state could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest. Such action could include seeking to enjoin consummation of
the Merger or seeking divestiture of businesses of CUC International or Advance
Ross. Private parties also may seek to take legal action under the antitrust
laws under certain circumstances.
CUC International and Advance Ross believe that the Merger can be effected
in compliance with federal and state antitrust laws. However, there can be no
assurance that a challenge to consummation of the Merger on antitrust grounds
will not be made or that, if such a challenge were made, CUC International and
Advance Ross would prevail or would not be required to accept certain
conditions, including certain divestitures, in order to consummate the Merger.
In addition, pre-merger or post-merger filings may be required in certain
European countries and there can be no assurance that such filings will be
approved.
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FEDERAL SECURITIES LAW CONSEQUENCES
The issuance in the Merger of shares of CUC International Common Stock has
been registered under the Securities Act and, therefore, such shares will be
freely transferable, except that any shares of CUC International Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Advance Ross prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145 under
the Securities Act (or Rule 144 under the Securities Act if such persons are or
become affiliates of CUC International) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Advance Ross or
CUC International generally include individuals or entities that directly, or
indirectly through one or more intermediaries, control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal stockholders of such party. Prior
to execution of the Merger Agreement, each person identified by Advance Ross as
an "affiliate" of Advance Ross has executed a written agreement to the effect,
among other things, that such "affiliate" will not sell, pledge, transfer or
otherwise dispose of any shares of CUC International Common Stock issued to such
"affiliate" pursuant to the Merger, except in compliance with Rule 145 or an
exemption from the registration requirements of the Securities Act.
STOCK EXCHANGE LISTING
It is a condition to consummation of the Merger that the shares of CUC
International Common Stock to be issued in the Merger and required to be
reserved for issuance in connection therewith be authorized for listing on the
NYSE, subject to official notice of issuance. A supplemental application has
been filed for the listing of such additional shares of CUC International Common
stock on the NYSE.
NO APPRAISAL RIGHTS
Holders of Advance Ross Common Stock and Advance Ross Preferred Stock are
not entitled to appraisal rights under the DGCL in connection with the Merger
because such shares are listed for trading on the NASDAQ Stock Market. Holders
of CUC International Common Stock are not entitled to appraisal rights under the
DGCL in connection with the Merger because CUC International is not a
constituent corporation in the Merger under the DGCL.
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT,
WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT WHICH IS INCORPORATED HEREIN
BY REFERENCE. CAPITALIZED TERMS USED AND NOT DEFINED BELOW HAVE THE RESPECTIVE
MEANINGS ASSIGNED TO THEM IN THE MERGER AGREEMENT. ALL HOLDERS OF ADVANCE ROSS
COMMON STOCK ARE ENCOURAGED TO READ THE MERGER AGREEMENT CAREFULLY AND IN ITS
ENTIRETY.
THE MERGER
The Merger Agreement provides that, subject to satisfaction or waiver of the
terms and conditions contained therein, including the requisite adoption thereof
by the holders of Advance Ross Common Stock, Merger Sub will be merged with and
into Advance Ross, and Advance Ross will be the surviving corporation in the
Merger and become a wholly owned subsidiary of CUC International.
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EFFECTIVE TIME
The Merger Agreement provides that, subject to the satisfaction or waiver of
certain conditions and the requisite approval of the holders of Advance Ross
Common Stock, the Merger will become effective on the date of the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware or at
such time thereafter as is provided in the Certificate of Merger. The Merger
Agreement may be terminated by either Advance Ross or CUC International if,
among other reasons, the Merger has not been consummated on or before January
31, 1996. See "--Conditions to the Merger."
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES; NO FRACTIONAL SHARES
At the Effective Time, pursuant to the Merger Agreement, each share of
Advance Ross Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares owned by CUC International, Merger Sub or any
wholly owned subsidiary of CUC International or of Advance Ross) shall, by
virtue of the Merger and without any action on the part of any holder thereof,
be converted into 5/6 of one share of CUC International Common Stock. If the
Average Stock Price is greater than $38, the Exchange Ratio shall be reduced so
as to equal the product of (i) 5/6 and (ii) a fraction, the numerator of which
shall be $38 and the denominator of which shall be the Average Stock Price. If
the Average Stock Price is less than $30, the Exchange Ratio shall be increased
so as to equal the product of (i) 5/6 and (ii) a fraction, the numerator of
which shall be $30 and the denominator of which shall be the Average Stock
Price.
At the Effective Time, each share of Advance Ross Common Stock owned by CUC
International, Merger Sub or any wholly owned subsidiary of CUC International or
of Advance Ross shall cease to be outstanding and will be cancelled and retired
without the payment of any consideration therefor, and each share of common
stock of Merger Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of Merger
Sub or the holder thereof, be converted into the same number of shares of common
stock of the surviving corporation.
In addition, each share of Advance Ross Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than shares owned by
CUC International, Merger Sub or any wholly owned subsidiary of CUC
International or Advance Ross) will be converted into that number of shares of
CUC International Common Stock equal to the quotient obtained by dividing the
Redemption Price by the Average Stock Price.
No fractional shares of CUC International Common Stock will be issued in the
Merger to holders of Advance Ross Common Stock or Advance Ross Preferred Stock.
Accordingly, if Advance Ross reasonably determines that the aggregate amount of
cash to be received by all holders of Advance Ross Preferred Stock, in lieu of
fractional share interests, would exceed 20% of the value of the aggregate
consideration to be received by all holders of Advance Ross Preferred Stock at
the Effective Time then, in lieu of the conversion in the Merger of Advance Ross
Preferred Stock into shares of CUC International Common Stock (as described in
the preceding paragraph), Advance Ross shall redeem the Advance Ross Preferred
Stock in accordance with the redemption provisions of Article Fourth of the
Advance Ross Restated Certificate of Incorporation. If so redeemed, the
aggregate redemption price in respect of the Advance Ross Preferred Stock
(including all accumulated, unpaid and accrued dividends thereon) would be
approximately $467,733 (assuming for this purpose that the Effective Time occurs
on January 10, 1996--the date of the Meeting).
Based on the number of shares of Advance Ross Common Stock and Advance Ross
Preferred Stock outstanding at September 30, 1995, approximately 5.9 million
shares of CUC International Common Stock will be issued in the Merger which
amount will (i) increase if the Average Stock Price is below $30 per share and
(ii) decrease if the Average Stock Price is above $38 per share.
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No fractional shares of CUC International Common Stock will be issued in the
Merger. Accordingly, in lieu of such issuance, each holder of shares of Advance
Ross Common Stock will be entitled to receive, and the holders of Advance Ross
Preferred Stock will be entitled to receive, a cash payment in an amount equal
to the product of (i) the fractional interest of a share of CUC International
Common Stock to which such holder otherwise would have been entitled and (ii)
the closing sale price of a share of CUC International Common Stock on the NYSE
on the trading day immediately preceding the Effective Time. Merger Sub has
agreed to make available to the Exchange Agent (as defined below) cash in an
amount sufficient to make all such payments in lieu of fractional shares.
The shares of CUC International Common Stock to be issued in the Merger and
the cash consideration to be issued in lieu of fractional share interests are
hereinafter referred to collectively as the "Merger Consideration."
Promptly after the Effective Time, letters of transmittal will be mailed to
stockholders at the Record Date, to be used in forwarding such holder's
certificates evidencing such shares for surrender and exchange for the Merger
Consideration such holder is entitled to receive. After receipt of such
transmittal form, each holder of certificates formerly representing shares of
Advance Ross Common Stock and shares of Advance Ross Preferred Stock,
respectively, should surrender such certificates to The Bank of Boston, in its
capacity as exchange agent (the "Exchange Agent"), together with such letter of
transmittal duly executed and completed in accordance with the instructions
thereto, and each such holder will be entitled to receive in exchange therefor
certificates representing the whole number of shares of CUC International Common
Stock (rounded down to the nearest whole number) to which such holder is
entitled and any cash which may be payable in lieu of a fractional share of CUC
International Common Stock. Such letters of transmittal will be accompanied by
instructions specifying other details of the exchange.
STOCKHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL AND INSTRUCTIONS TO EFFECT THE
PROPER DELIVERY THEREOF.
From and after the Effective Time, each certificate evidencing shares of
Advance Ross Common Stock, and each certificate evidencing shares of Advance
Ross Preferred Stock, until so surrendered and exchanged, will be deemed, for
all purposes, to evidence only the right to receive the number of shares of CUC
International Common Stock which the holder of such certificate is entitled to
receive pursuant to the terms of the Merger Agreement and the right to receive
any cash payment in lieu of a fractional share of CUC International Common
Stock.
All shares of CUC International Common Stock issued and cash in lieu of
fractional share interests paid upon surrender for exchange of certificates
representing shares of Advance Ross Common Stock and upon surrender for exchange
of certificates representing shares of Advance Ross Preferred Stock, shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to such shares of such stock.
TREATMENT OF STOCK OPTIONS AND THE WARRANT
At the Effective Time, each outstanding Option and the Warrant will be
assumed by CUC International and will be deemed to constitute an option or
warrant, as applicable to acquire, on the terms and conditions as were
applicable under such Option or Warrant, the same number of shares of CUC
International Common Stock as the holder of such Option or Warrant would have
been entitled to receive pursuant to the Merger had such holder exercised such
Option or Warrant in full immediately prior to the Effective Time (irrespective
of whether such Option or Warrant then was exercisable), at a price per share
equal to the aggregate exercise price for the shares of Advance Ross Common
Stock subject to such Option or Warrant divided by the number of full shares of
CUC International Common
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Stock deemed purchasable pursuant to such Option or Warrant, with appropriate
cash payments in lieu of fractional shares.
As soon as practicable following the Effective Time, CUC International will
deliver to each holder of an Option, which immediately prior to the Effective
Time evidenced the right to acquire shares of Advance Ross Common Stock, an
appropriate notice setting forth such holder's right to acquire shares of CUC
International Common Stock and the Option agreements of each such holder will be
deemed to be appropriately amended such that the Options thereafter will
evidence the right to acquire shares of CUC International Common Stock on
substantially the same terms and conditions as those contained in the
outstanding Options, subject to the adjustments contemplated by the Merger
Agreement.
Advance Ross and Allen & Company have executed a supplement, dated October
17, 1995, to the Warrant pursuant to which certain clarifications to the
provisions thereof were made, including, without limitation, the following: (i)
in the case of any consolidation or merger involving Advance Ross (irrespective
of whether Advance Ross is the surviving or resulting corporation in such
transaction) and in which the holders of Advance Ross Common Stock receive
capital stock and/or other securities of any entity or person other than Advance
Ross (an "Issuer") in exchange or substitution for their shares of Advance Ross
Common Stock, Advance Ross has agreed to cause the Issuer at or prior to
consummation of such transaction to assume all obligations of Advance Ross under
the Warrant, and Allen & Company (upon exercise of the Warrant) will be entitled
to receive the kind and amount of shares of capital stock and/or other
securities that it otherwise would have been entitled to receive had it
exercised the Warrant, in full, immediately prior to consummation of such
consolidation or merger transaction at an exercise price per share equal to the
quotient obtained by dividing: (x) the aggregate exercise price for the number
of shares of Advance Ross Common Stock subject to the Warrant immediately prior
to consummation of such consolidation or merger transaction (the "Subject Shares
Amount") by (y) the aggregate number of whole shares of the capital stock and/or
other securities issuable in respect of the Subject Shares Amount pursuant to
the merger or consolidation transaction, and (ii) an Issuer will be required to
prepare and file with the Commission, and use its best efforts to have declared
effective by the Commission, upon the request of Allen & Company, a registration
statement covering the Warrant and the shares of capital stock and/or other
securities for which the Warrant will be exercisable following the consummation
of such consolidation or merger transaction, and to keep such registration
statement effective for a period not to exceed six months. Under certain
circumstances, an Issuer shall be entitled in lieu of such requested
registration to include the Warrant and shares of capital stock and/or other
securities issuable upon the exercise thereof in a registration statement of the
Issuer relating to the sale of any class or series of its securities,
irrespective of whether the registration statement relates to an offering for
the account of such Issuer.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. These include representations and warranties by Advance Ross
with respect to: corporate organization and qualification, capitalization,
requisite approvals, opinion of financial advisor, authority, consents and
approvals and no violations, litigation, filings by Advance Ross with the
Commission, financial statements, absence of certain changes or events,
employment agreements, brokers and finders, information included in this Proxy
Statement/Prospectus and the Registration Statement, taxes, employee benefits,
intangible property, certain contracts, accounting matters, absence of unlawful
payments and contributions, commission rates, listings, environmental matters,
disclosure, and other matters.
CUC International and Merger Sub also have made certain representations and
warranties with respect to: corporate organization and qualification,
capitalization, authorization for the issuance of CUC International Common Stock
in the Merger, authority, consents and approvals and no violations, ownership of
Merger Sub, filings by CUC International with the Commission, financial
statements,
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absence of certain changes or events, litigation, information included in this
Proxy Statement/Prospectus and the Registration Statement, brokers and finders,
ownership of shares, accounting matters, disclosure, and other matters.
CERTAIN COVENANTS
The Merger Agreement contains certain covenants and agreements, certain of
which are summarized below.
Conduct of Business. Pursuant to the Merger Agreement, Advance Ross has
agreed that, during the period from the date of the Merger Agreement until the
Effective Time, except as permitted by the Merger Agreement or as otherwise
consented to in writing by CUC International, Advance Ross will, and will cause
each of its respective subsidiaries to, conduct its operations according to its
ordinary and usual course of business consistent with past practice and will
not: (i) except as otherwise provided and except for shares to be issued upon
the exercise of outstanding Options or the Warrant, issue, sell, dispose of,
pledge or otherwise encumber any additional shares of capital stock of any
class, any securities or rights convertible into, exchangeable for or evidencing
the right to subscribe for any such shares, or any rights, warrants, options,
calls, commitments or other agreements to purchase or acquire any such shares of
capital stock, or securities or rights convertible into, exchangeable for or
evidencing the right to subscribe for any such shares, or any other securities
in respect of, in lieu of or in substitution for shares of Advance Ross Common
Stock outstanding on the date of the Merger Agreement; (ii) redeem, purchase or
otherwise acquire any of its outstanding securities (or propose to engage in any
such transaction except for the possible redemption of the Advance Ross
Preferred Stock pursuant to the terms of the Merger Agreement); (iii) split,
combine, subdivide or reclassify any shares of its capital stock or declare, set
aside for payment or pay any dividend, or make any other distribution in respect
of any shares of its capital stock or otherwise make any payments to
stockholders in their capacity as such, except for regular quarterly dividends
on the outstanding Advance Ross Preferred Stock; (iv) adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Advance Ross or any of its operating
subsidiaries (other than the Merger); (v) adopt any amendments to its charter or
bylaws or alter through merger, liquidation, reorganization, restructuring or in
any other fashion its corporate structure or ownership of any operating
subsidiary; (vi) make any acquisition, by means of merger, consolidation or
otherwise, or disposition of assets or securities; (vii) other than in the
ordinary course of business consistent with past practice, incur any
indebtedness for borrowed money or guarantee any such indebtedness or make any
loans, advances or capital contributions to, or investments in, any other
person, other than to Advance Ross or its wholly owned subsidiaries or pursuant
to joint venture agreements; (viii) make or revoke any material tax election,
settle or compromise any federal or state, local or foreign tax liability or
change (or make a request to any taxing authority to change) any material aspect
of its method of accounting for tax purposes (except that Advance Ross and its
subsidiaries may make tax elections that are consistent with prior elections (in
past years) so long as Advance Ross provides CUC International with reasonable
prior notice, to the extent possible, of its intention to do so); (ix) make or
revoke any material tax election, settle or compromise any material federal,
state, or local or foreign tax liability or change (or make a request to any
taxing authority to change) any material aspect of its method of accounting for
tax purposes (except that Advance Ross and its subsidiaries may make tax
elections that are consistent with prior such elections (in past years) upon
notice to CUC International that it intends make such election); (x) incur any
liability for taxes other than in the ordinary course of business; or (xi)
authorize, recommend, propose or announce an intention to effect any of the
foregoing, or enter into any contract, agreement, commitment or arrangement to
effect any of the foregoing.
Proxy Statement/Prospectus. Advance Ross has agreed to take all action
necessary in accordance with applicable law and its Restated Certificate of
Incorporation and By-laws promptly to convene the Meeting to consider and vote
upon adoption of the Merger Agreement by the holders of Advance Ross Common
Stock and, subject to its fiduciary duties under applicable law based upon the
advice of
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independent legal counsel, the Advance Ross Board of Directors has agreed to
recommend the adoption of the Merger Agreement by such holders and to take all
lawful action to solicit, and use its best efforts to obtain, the votes of such
holders "FOR" such adoption. See "The Merger--Recommendation of Advance Ross'
Board of Directors."
In connection with the Meeting and the shares of CUC International Common
Stock to be issued in the Merger, (i) CUC International has agreed promptly to
prepare and file with the Commission the Registration Statement of which this
Proxy Statement/Prospectus forms a part, providing for the registration under
the Securities Act of the shares of CUC International Common Stock to be issued
in the Merger, and (ii) Advance Ross has agreed promptly to prepare and file
with the Commission a proxy statement, together with all related proxy
solicitation materials of Advance Ross, in connection with the solicitation by
Advance Ross at the Meeting of votes of the holders of Advance Ross Common Stock
with respect to the adoption by such holders of the Merger Agreement. Advance
Ross has further agreed to use its best efforts to cause the proxy statement to
be mailed to holders of Advance Ross Common Stock (who are entitled to notice of
and to vote at the Meeting) at the earliest practicable date and to cooperate
with CUC International with respect to the timing of the Meeting and to use its
best efforts to call and to convene the Meeting as promptly as practicable.
Employment Matters. In addition, Advance Ross has agreed that, without the
prior written consent of CUC International, it will not: grant any material
increases in the compensation of any of its directors, officers or key
employees, except in the ordinary course of business and in accordance with its
customary past practices; pay or agree to pay any pension, retirement allowance
or other employee benefit not required or contemplated by any of its existing
benefit, severance, pension or employment plans or arrangements; enter into any
new or materially amend any existing employment or severance agreement or,
except as may be required to comply with applicable law, become obligated under
any new pension plan, welfare plan, multiemployer plan, employee benefit plan,
severance plan, benefit arrangement, or similar plan or arrangement not in
existence on the date of the Merger Agreement, or amend any such plan or
arrangement in existence on the date of the Merger Agreement if such amendment
would have the effect of enhancing any benefits thereunder.
No Solicitation. Advance Ross, its subsidiaries and their respective
officers, directors, employees, representatives, agents or affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by Advance Ross or any of its subsidiaries) (collectively, the "Advance
Ross Representatives") have agreed immediately to cease any discussions or
negotiations with any party that may have been ongoing with respect to a
Competing Transaction (as defined below). From and after the Effective Time
until the termination of the Merger Agreement, Advance Ross has agreed that
neither it nor any of its subsidiaries will, nor will Advance Ross authorize or
permit any of its subsidiaries or any of the Advance Ross Representatives to,
directly or indirectly, initiate, solicit or knowingly encourage (including by
way of furnishing non-public information), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or maintain or continue discussions or negotiate with
any person or entity in furtherance of such inquiries or to obtain a Competing
Transaction or agree to or endorse any Competing Transaction, and Advance Ross
has agreed to notify CUC International orally (within one business day) and in
writing (as promptly as practicable) of all of the relevant details relating to
all inquiries and proposals which it or any of its subsidiaries or any such
Advance Ross Representative may receive relating to any of such matters and, if
such inquiry or proposal is in writing, Advance Ross has agreed to deliver to
CUC International a copy of such inquiry or proposal promptly. However, Advance
Ross is not obligated to deliver to CUC International a copy of such written
inquiry or proposal if the Advance Ross Board of Directors, after consultation
with and based upon the advice of independent legal counsel (who may be the
regularly engaged independent counsel of Advance Ross) determines in good faith
that delivery to CUC International of such written inquiry or proposal would
cause the Advance Ross Board of Directors to breach its fiduciary duties to
holders of Advance Ross Common Stock under applicable law. In addition, Advance
Ross or its Board of Directors may (i) take
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and disclose to its stockholders a position contemplated by Exchange Act Rule
14e-2 or (ii) make any disclosure to its stockholders that, in the good faith
judgment of its Board of Directors, after consultation with and based upon the
advice of independent legal counsel (who may be the regularly engaged
independent legal counsel of Advance Ross), is required under applicable law.
Finally, notwithstanding the foregoing, Advance Ross may (A) furnish information
to, or enter into discussions or negotiations with, any person or entity that
after the Effective Time states in an unsolicited writing that it has a bona
fide serious interest to make a Superior Proposal (as defined below) if (1) the
Board of Directors of Advance Ross, after consultation with and based upon the
advice of independent legal counsel (who may be the regularly engaged
independent legal counsel of Advance Ross), determines in good faith that such
action is necessary for the Board of Directors of Advance Ross to comply with
its fiduciary duties to stockholders under applicable law and, after
consultation with and based upon the advice of an independent financial advisor
(who may be the regularly engaged independent financial advisor of Advance
Ross), determines in good faith that such person or entity is capable of making,
financing and consummating a Superior Proposal, and (2) prior to taking such
action, Advance Ross provides reasonable notice to CUC International to the
effect that it is taking such action and receives from such person or entity an
executed confidentiality agreement in reasonably customary form or (B) fail to
make, withdraw or modify its recommendation to holders of Advance Ross Common
Stock to, among other things, vote at the Meeting for adoption of the Merger
Agreement if there exists a Competing Transaction and the Board of Directors of
Advance Ross, after consultation with and based upon the advice of independent
legal counsel (who may be the regularly engaged independent counsel of Advance
Ross), determines in good faith that such action is necessary for the Board of
Directors of Advance Ross to comply with its fiduciary duties to stockholders
under applicable law.
"Competing Transaction" means any of the following (other than the
transactions between Advance Ross, CUC International and Merger Sub contemplated
by the Merger Agreement) involving Advance Ross: (i) any merger, consolidation,
share exchange, recapitalization, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of all or a substantial portion of the assets of Advance Ross and
its subsidiaries, taken as a whole, or of more than 25% of the equity securities
of Advance Ross or any of its subsidiaries, in any case in a single transaction
or series of transactions; (iii) any tender offer or exchange offer for 25% or
more of the outstanding shares of capital stock of Advance Ross or the filing of
a registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan or intention to effect any of
the foregoing or any agreement to engage in any of the foregoing.
"Superior Proposal" means any bona fide proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, all or
substantially all the shares of Advance Ross Common Stock then outstanding or
all or substantially all the assets of Advance Ross on terms which the Board of
Directors of Advance Ross determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation) to be more
favorable to the stockholders of Advance Ross than the Merger.
Indemnification of Directors and Officers. To preserve existing rights of
indemnification agreed to by Advance Ross, CUC International has agreed to
indemnify, and to cause the surviving corporation in the Merger to indemnify,
from and after the Effective Time, the present and former officers, directors
and employees of Advance Ross and any of its subsidiaries against all losses,
expenses, claims, damages or liabilities arising out of actions or omissions
occurring on or prior to the Effective Time to the full extent permitted or
required under applicable law. CUC International and Merger Sub have agreed that
all rights to indemnification, including provisions relating to advances of
expenses incurred in defense of any action or suit, existing in favor of the
present or former directors, officers, employees, fiduciaries and agents of
Advance Ross or any of its subsidiaries as provided in Advance Ross' charter or
bylaws or pursuant to other agreements, or pursuant to the similar documents of
any of Advance Ross' subsidiaries, as in effect as of the date of the Merger
Agreement, with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a
53
<PAGE>
period of five years from the Effective Time, provided that all rights to
indemnification in respect of any claim asserted or made within such period
shall continue until the disposition of such claim.
In addition, CUC International has agreed to cause to be maintained in
effect for not less than three years the current policies of directors' and
officers' liability insurance and fiduciary liability insurance maintained by
Advance Ross and its subsidiaries with respect to matters occurring prior to the
Effective Time, provided that (a) CUC International may substitute therefor
policies of substantially the same coverage containing terms and conditions
which are not less advantageous, in any material respect, to the indemnified
parties and (b) CUC International is not required to pay an annual premium for
such insurance in excess of $150,000, but in such case shall purchase as much
coverage as possible for such amount.
Pooling Accounting. The Merger Agreement provides that none of CUC
International, its direct or indirect wholly owned subsidiaries, or Advance Ross
or its subsidiaries will take any action which would prevent the Merger from
being accounted for as a pooling-of-interests transaction.
Other Covenants. Each of CUC International, Merger Sub and Advance Ross,
with respect to the Merger, has agreed promptly to (i) make all requisite
governmental filings, including filings pursuant to the Securities Act and the
Exchange Act and required submissions under the HSR Act, (ii) to use its best
efforts to take, or cause to be taken, all other actions and do or cause to be
done, all other things necessary, proper or appropriate under applicable law to
consummate, as soon as practicable, the transactions contemplated by the Merger
Agreement, and (iii) provide the other parties to the Merger Agreement of any
notice of, or other communication relating to (A) a default (or event which,
with notice, lapse of time or both, would become a default) received by it or
any of its subsidiaries subsequent to the date of the Merger Agreement and prior
to the Effective Time, under any contract which is material to the financial
condition, properties, businesses or results of operations of it and its
subsidiaries, taken as a whole, to which it or any of its subsidiaries is a
party or is subject, (B) any consent of a third party required for consummation
of the transactions contemplated by the Merger Agreement, or (C) any material
adverse change to its financial condition, properties, businesses or results of
operations, taken as a whole, other than changes resulting from general economic
conditions.
Advance Ross also has agreed to use its best efforts to cause to be
delivered and addressed to CUC International a letter of Deloitte & Touche LLP,
dated as of a date within two business days before the date on which the
Registration Statement (of which this Proxy Statement/Prospectus is a part) is
declared effective by the Commission, in form and substance reasonably
satisfactory to CUC International and customary in scope and substance for
letters delivered by independent auditors in connection with registration
statements similar to the Registration Statement.
CONDITIONS
The respective obligations of CUC International, Advance Ross and Merger
Sub, as applicable, to consummate the Merger are subject to the following
conditions, among others: (i) the representations and warranties of the parties,
set forth in the Merger Agreement (i.e., the representations and warranties of
CUC International and Merger Sub, in the case of the assertion by Advance Ross
of a breach, and the representations and warranties of Advance Ross, in the case
of the assertion by CUC International or Merger Sub of a breach) shall be true
and correct in all material respects on and as of the Effective Time (except to
the extent they relate to a particular date), and such parties shall have
performed in all material respects all of their material obligations under the
Merger Agreement and the other parties shall have received at the Effective Time
an officer's certificate to such effect dated the Effective Time; (ii) the
Merger Agreement shall have been duly approved by the holders of a majority of
the outstanding shares of Advance Ross Common Stock, in accordance with
applicable law and Advance Ross' Restated Certificate of Incorporation and
By-laws; (iii) there shall be in effect no preliminary or permanent injunction
or other order of a court or governmental or regulatory agency of
54
<PAGE>
competent jurisdiction directing that the transactions contemplated by the
Merger Agreement not be consummated; (iv) the Registration Statement shall have
become effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for such
purpose shall have been initiated and be continuing or threatened by the
Commission, and CUC International shall have received all state securities laws
or "blue sky" permits and authorizations necessary to issue shares of CUC
International Common Stock in exchange for the shares of Advance Ross Common
Stock in the Merger; (v) the shares of CUC International Common Stock to be
issued in the Merger shall have been authorized for listing on the NYSE, subject
to official notice of issuance; and (vi) the waiting periods under the HSR Act
shall have expired or been terminated.
The obligations of CUC International and Merger Sub to effect the Merger are
further subject to the following additional conditions: (i) CUC International
shall have received from Ernst & Young LLP, its independent auditors, a letter
to the effect that pooling-of-interests accounting (under Accounting Principles
Board Opinion No. 16) is appropriate for the Merger, provided that the Merger is
consummated in accordance with the terms and conditions of the Merger Agreement,
and Advance Ross shall have used commercially reasonable efforts to cause its
independent auditors, Deloitte & Touche LLP, to cooperate fully (including,
without limitation, by delivering to Advance Ross a letter substantially similar
to Ernst & Young LLP's letter to CUC International) with Ernst & Young LLP in
connection with the delivery to CUC International of such letter; (ii) each
"affiliate" of Advance Ross shall have performed all of their respective
obligations under their respective letters, dated October 17, 1995, from such
affiliate to Advance Ross and CUC International and Allen & Company shall have
performed all of its respective obligations under the letter, dated October 17,
1995, from such firm to Advance Ross and CUC International and CUC International
shall have received certificates from each affiliate and Allen & Company to that
effect; (iii) all filings required to be made prior to the Effective Time by
Advance Ross with, and all consents required to be obtained prior to the
Effective Time from, all governmental and regulatory authorities in connection
with the execution and delivery of the Merger Agreement and the consummation of
the transactions contemplated thereby shall have been made or obtained (except,
in the case of CUC International and Merger Sub, where the failure to make such
filing or obtain such consent would not reasonably be expected to have a
material adverse effect on CUC International); (iv) all additional required
consents and approvals of any third party (other than a governmental authority)
shall have been obtained; (v) Deloitte & Touche LLP, Advance Ross' independent
auditors, shall have delivered to CUC International one or more "comfort
letters" respecting the financial information contained in this Proxy
Statement/Prospectus; and (vi) all Advance Ross stock option plans and
agreements pursuant to which the Options were granted shall have been terminated
or substituted in a manner satisfactory to CUC International and all options
outstanding under the Directors Deferral Plan shall have been cancelled and the
Directors Deferral Plan shall have been terminated, and (iv) certain existing
financial advisory fee payment arrangements between Advance Ross and Allen &
Company shall have been terminated without further liability to Advance Ross
other than certain indemnification provisions in connection therewith. See "The
Merger--Opinion of Advance Ross' Financial Advisor."
The obligation of Advance Ross to effect the Merger is subject to the
additional condition that Advance Ross shall have received the required opinion
of Katten Muchin & Zavis, its tax counsel, to the effect that: (i) the Merger
will be treated for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code; (ii) each of CUC International,
Merger Sub and Advance Ross will be a party to the reorganization within the
meaning of Section 368(b) of the Code; and (iii) no gain or loss will be
recognized by a holder of Advance Ross Common Stock as a result of the Merger in
respect of shares of Advance Ross Common Stock converted solely into shares of
CUC International Common Stock (except with respect to cash, if any, received by
such holders in lieu of fractional share interests in CUC International Common
Stock).
55
<PAGE>
TERMINATION
Termination by Mutual Consent. The Merger Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time either by the
mutual written consent of CUC International and Advance Ross, or by mutual
action of their respective Boards of Directors.
Termination by Either CUC International or Advance Ross. The Merger
Agreement may be terminated and the Merger abandoned by action of the Board of
Directors of either CUC International or Advance Ross if: (i) the Merger shall
not have been consummated by January 31, 1996 (provided that such right to
terminate shall not be available to a party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date); (ii) any court of
competent jurisdiction in the United States or another governmental body or
regulatory authority shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable; or (iii) the Merger and the issuance of CUC International
Common Stock therein shall have been voted on by the stockholders of Advance
Ross at a meeting duly convened therefor and the vote shall not have been
sufficient to approve the Merger.
Termination by CUC International. The Merger Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time by action of the
Board of Directors of CUC International if: (i) Advance Ross shall have failed
to comply in any material respect with any of its covenants, conditions or
agreements contained in the Merger Agreement, which failure to comply has not
been cured within five business days following receipt by Advance Ross of notice
of such failure; (ii) any representation or warranty of Advance Ross contained
in the Merger Agreement shall not be true in all material respects when made
(provided such breach has not been cured within five business days following
receipt by Advance Ross of notice of the breach) or on and as of the Effective
Time as if made on and as of the Effective Time (except to the extent such
representation or warranty relates to a particular date); (iii) the Board of
Directors of Advance Ross withdraws, modifies or changes its recommendation to
holders of Advance Ross Common Stock of the Merger Agreement or the Merger in a
manner adverse to CUC International or Merger Sub, or shall have resolved to do
any of the foregoing; or (iv) the Board of Directors of Advance Ross shall have
recommended to the holders of Advance Ross Common Stock any Competing
Transaction or entered into an agreement with respect to any Competing
Transaction, or shall have resolved to do any of the foregoing.
Termination by Advance Ross. The Merger Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time by action of the Board
of Directors of Advance Ross, if: (i) CUC International or Merger Sub shall have
failed to comply in any material respect with any of its covenants, conditions
or agreements contained in the Merger Agreement, which failure to comply has not
been cured within five business days following receipt by the breaching party of
notice of such failure; (ii) any representation or warranty of CUC International
or Merger Sub contained in the Merger Agreement shall not be true in all
material respects when made (provided such breach has not been cured within five
business days following receipt by the breaching party of notice of the breach)
or on and as of the Effective Time as if made on and as of the Effective Time
(except to the extent they relate to a particular date); or (iii) Advance Ross
enters into a definitive agreement accepting a Superior Proposal provided it has
made payment of the fees specified in the immediately following paragraph.
Effect of Termination and Abandonment. Generally, if the Merger Agreement is
terminated by CUC International or Advance Ross as described above, the Merger
Agreement will become void without any liability of CUC International, Merger
Sub on Advance Ross (or any of their respective affiliates, directors, officers
or stockholders), except for the termination fees payable under the
circumstances described in the next sentence and those provisions of the Merger
Agreement which specifically address the payment of transaction expenses by the
respective parties. If, however, the Merger Agreement is terminated due to: (i)
the failure to receive, in respect of the Merger, the requisite
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<PAGE>
approval by the holders of Advance Ross Common Stock (if at or prior to the
Meeting a Competing Transaction shall have been commenced or publicly announced
or disclosed and Advance Ross' Board shall not have rejected such Competing
Transaction); (ii) the Advance Ross Board shall have withdrawn, modified or
changed its recommendation to adopt the Merger Agreement or approve the Merger
in a manner adverse to CUC International or Merger Sub, or shall have approved
or recommended to holders of Advance Ross Common Stock any Competing
Transaction, or Advance Ross shall have entered into an agreement with respect
to a Competing Transaction or the Advance Ross Board shall have resolved to do
any of the foregoing; or (iii) Advance Ross shall have entered into a definitive
agreement relating to a Superior Proposal, then, in any such case, Advance Ross
shall pay to CUC International $2.5 million. In addition, if Advance Ross
consummates any Competing Transaction within one year after (A), in the case
where the Merger Agreement shall have been terminated by reason of the event
described in clause (i) above, the earlier to occur of the Meeting or the
payment of the first $2.5 million, (B), in the case where the Merger Agreement
shall have been terminated by reason of the event described in clause (ii)
above, the termination of the Merger Agreement by CUC International, and (C), in
the case where the Merger Agreement shall have been terminated by reason of the
event described in clause (iii) above, the termination of the Merger Agreement
by Advance Ross, then Advance Ross shall pay to CUC International an additional
termination fee of $2.5 million. Notwithstanding the foregoing, the
aforementioned termination fees (up to an aggregate of $5.0 million) would not
be payable to CUC International in the event of the termination by CUC
International of the Merger Agreement in the case of clause (ii) or (iii) above
if Advance Ross delivers to CUC International a notice of termination in respect
of a breach by CUC International of its representations, warranties, covenants
or agreements and Advance Ross is entitled to terminate the Merger Agreement as
a result of such breach.
For example, if under the circumstances described in clause (iii) of the
preceding paragraph, Advance Ross were to enter into a definitive agreement in
respect of a "Superior Proposal" (as defined above in "--Certain Covenants"),
CUC International would be entitled to receive from Advance Ross a termination
fee of $2.5 million and, if Advance Ross within one year thereafter were to
consummate any "Competing Transaction" (as defined above in "--Certain
Covenants"), irrespective of whether such transaction relates to a Superior
Proposal, CUC International would be entitled to receive an additional
termination fee of $2.5 million.
FEES AND EXPENSES
Whether or not the Merger is consummated, each party to the Merger Agreement
and the holders of Advance Ross Common Stock are required to pay their own
expenses incident to, preparing for, entering into and carrying out the Merger
Agreement and the consummation of the transactions contemplated thereby,
provided that the surviving corporation is required to pay, with funds of
Advance Ross and not with funds provided by any of CUC International or its
direct or indirect wholly owned subsidiaries, any and all property or transfer
taxes imposed on the surviving corporation. The cost of printing the
Registration Statement and this Proxy Statement/Prospectus will be borne equally
by Advance Ross and CUC International.
MODIFICATION OR AMENDMENT
Subject to applicable provisions of the DGCL, at any time prior to the
Effective Time, the parties to the Merger Agreement may modify or amend the
Merger Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties, provided that after approval of the Merger
by the holders of Advance Ross Common Stock, no amendment may be made which
changes the consideration payable in the Merger or which adversely affects the
rights of holders of Advance Ross Common Stock, without the approval of such
holders of Advance Ross Common Stock.
WAIVER
The conditions to each of the parties' obligations to consummate the Merger
may be waived by such party, in whole or in part, to the extent permitted by
applicable law.
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<PAGE>
STOCKHOLDERS AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE STOCKHOLDERS
AGREEMENT, WHICH IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT / PROSPECTUS.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
STOCKHOLDERS AGREEMENT WHICH IS INCORPORATED HEREIN BY REFERENCE. ALL
CAPITALIZED TERMS USED AND NOT DEFINED BELOW HAVE THE RESPECTIVE MEANINGS
ASSIGNED TO THEM IN THE STOCKHOLDERS AGREEMENT. ALL HOLDERS OF ADVANCE ROSS
COMMON STOCK ARE ENCOURAGED TO READ THE STOCKHOLDERS AGREEMENT CAREFULLY AND IN
ITS ENTIRETY.
Concurrently with the execution and delivery of the Merger Agreement, CUC
International entered into an agreement with the Voting Stockholders (who
constitute all directors and executive officers of Advance Ross who are holders
of Advance Ross Common Stock) who owned at September 30, 1995, in the aggregate,
206,632 shares (or approximately 2.9%) of the outstanding Advance Ross Common
Stock.
Voting. Pursuant to the Stockholders Agreement, each Voting Stockholder has
agreed that until the earlier to occur of the Effective Time and the termination
of the Merger Agreement in accordance with its terms, at any meeting of the
holders of Advance Ross Common Stock, however called, or in connection with any
written consent of the Advance Ross' stockholders, such Voting Stockholder will
vote (or cause to be voted) the shares of Advance Ross Common Stock held of
record or beneficially owned by such stockholder: (i) in favor of approval of
the Merger Agreement and any actions required in furtherance thereof; (ii)
against any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty or any other obligation or agreement of
Advance Ross under the Merger Agreement (after giving effect to any materiality
or similar qualifications contained therein); and (iii) except as otherwise
agreed to in writing in advance by CUC International, against the following
actions (other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving Advance Ross, (B) a sale,
lease or transfer of a material amount of assets of Advance Ross, or a
reorganization, recapitalization, dissolution or liquidation of Advance Ross,
and (C)(1) any change in a majority of the persons who constitute the Board of
Directors of Advance Ross, (2) any change in the present capitalization of
Advance Ross or any amendment of Advance Ross' Restated Certificate of
Incorporation or By-laws, (3) any other material change in Advance Ross'
corporate structure or business, or (4) any other action which in the case of
each of the matters referred to in clauses C(1), (2) or (3) above, is intended
to, or reasonably could be expected to, impede, interfere with, delay, postpone,
or materially adversely affect the Merger and the transactions contemplated by
the Merger Agreement and the Stockholders Agreement. Each of the Voting
Stockholders further has agreed not to enter into any agreement or understanding
with any person or entity the effect of which would be inconsistent with or
violative of the provisions and agreements described above.
Representations, Warranties, Covenants and Other Agreements. The Voting
Stockholders have made certain customary representations, warranties and
covenants, including with respect to (i) their ownership of the shares of
Advance Ross Common Stock, (ii) their capacity and authority to enter into and
perform their obligations under the Stockholders Agreement, (iii)
noncontravention, (iv) the receipt of requisite governmental consents and
approvals, (v) the absence of liens and encumbrances on and in respect of their
shares of Advance Ross Common Stock, (vi) restrictions on the transfer of their
shares of Advance Ross Common Stock, (vii) the solicitation of Competing
Transactions and (viii) finders fees.
Termination. Other than as provided therein, the Stockholders Agreement will
terminate by its terms on the earlier to occur of the termination of the Merger
Agreement or the Effective Time.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
October 31, 1995 and the unaudited pro forma condensed combined statements of
income for the years ended January 31, 1995, 1994 and 1993 and for the
nine-month period ended October 31, 1995 give effect to the intended conversion
of the outstanding shares of Advance Ross Common Stock into shares of CUC
International Common Stock, at a conversion ratio of 5/6 of one share of CUC
International Common Stock for each outstanding share of Advance Ross Common
Stock, as if the transaction had occurred on October 31, 1995. The unaudited pro
forma condensed combined statements of income for the years ended January 31,
1995, 1994 and 1993 also give effect to the September 17, 1995 conversion of the
outstanding shares of NAOG common stock into shares of CUC International Common
Stock, at a conversion ratio of 1.77 shares of CUC International Common Stock
for each outstanding share of NAOG common stock, and to the June 27, 1995
conversion of the outstanding shares of Getko common stock into shares of CUC
International Common Stock, at a conversion ratio of 3.25 shares of CUC
International Common Stock for each outstanding share of Getko common stock, as
these amounts were previously excluded from CUC International's historical
financial statements due to their insignificance. NAOG and Getko are referred to
in the unaudited pro forma financial statements as "Other Pooled Entities." The
pro forma information gives effect to these transactions under the
pooling-of-interests method of accounting and the adjustments described in the
accompanying notes to the unaudited pro forma condensed combined financial
statements.
During the nine-month period ended October 31, 1995, CUC International
completed various acquisitions accounted for in accordance with the purchase
method of accounting which, in the aggregate, were not significant and,
therefore, are not included in the unaudited pro forma condensed combined
financial statements.
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that actually would have occurred if the above
acquisitions had been consummated as of the dates indicated or the operating
results which may be obtained by CUC International in the future. The unaudited
pro forma condensed combined financial statements should be read in conjunction
with the consolidated audited financial statements, related notes thereto and
other financial information included in the CUC 10-K and the Advance Ross 10-K.
59
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT
OCTOBER 31, 1995
(IN THOUSANDS)
<TABLE><CAPTION>
CUC
INTERNATIONAL ADVANCE ROSS ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................. $160,261 $ 16,361 $ 176,622
Receivables................................ 255,303 25,173 280,476
Other current assets....................... 190,892 7,372 198,264
-------- ------------ ----------
Total current assets..................... 606,456 48,906 655,362
Contract renewal rights and intangible
assets....................................... 262,973 16,252 279,225
Other non-current assets..................... 88,194 7,243 95,437
-------- ------------ ----------
Total assets................................. $957,623 $ 72,401 $1,030,024
======== ============ ==========
Accounts payable and accrued expenses and
federal and state income taxes payable..... $102,942 $ 22,364 $ 125,306
Deferred membership income, net.............. 211,024 211,024
Other non-current liabilities................ 18,180 8,767 26,947
-------- ------------ ----------
Total liabilities............................ 332,146 31,131 363,277
Shareholders' equity:
Common stock............................... 1,848 76 (17)(a) 1,907
Preferred stock............................ 506 (506)(a) 0
Additional paid in capital................. 304,549 2,583 (1,190)(a) 305,942
Retained earnings.......................... 344,242 39,818 384,060
Treasury stock............................. (25,162) (1,713) 1,713(a) (25,162)
-------- ------------ ----------
Total shareholders' equity................... 625,477 41,270 666,747
-------- ------------ ----------
Total liabilities and
shareholders' equity....................... $957,623 $ 72,401 $1,030,024
======== ============ ==========
</TABLE>
60
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED OCTOBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
CUC INTERNATIONAL ADVANCE ROSS PRO FORMA
----------------- ------------ ----------
<S> <C> <C> <C>
Membership and service fees and other revenues..... $ 979,886 $ 57,130 $1,037,016
EXPENSES
Operating........................................ 263,404 15,228 278,632
Marketing........................................ 385,684 22,297 407,981
General and administrative....................... 145,345 8,482 153,827
Other (income) expense, net...................... (838) (483) (1,321)
----------------- ------------ ----------
Total expenses..................................... 793,595 45,524 839,119
----------------- ------------ ----------
Income before income taxes......................... 186,291 11,606 197,897
Provision for income taxes......................... 70,884 6,254 77,138
----------------- ------------ ----------
Net income......................................... $ 115,407 $ 5,352 $ 120,759
================= ============ ==========
Net income per common share........................ $ 0.62 $ 0.61 $ 0.62
================= ============ ==========
Weighted average number of common and dilutive
common equivalent shares outstanding............. 186,873 8,786 194,209
================= ============ ==========
</TABLE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED JANUARY 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
OTHER
CUC INTERNATIONAL POOLED ENTITIES ADVANCE ROSS PRO FORMA
----------------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
Membership and service fees and
other revenues................... $ 1,044,669 $71,323 $ 66,904 $1,182,896
EXPENSES
Operating........................ 282,772 20,628 17,373 320,773
Marketing........................ 421,987 31,677 25,926 479,590
General and administrative....... 149,139 22,967 8,060 180,166
Other (income) expense, net...... 247 (290) 625 582
----------------- --------------- ------------ ----------
Total expenses..................... 854,145 74,982 51,984 981,111
----------------- --------------- ------------ ----------
Income before income taxes......... 190,524 (3,659) 14,920 201,785
Provision for income taxes......... 72,933 (2,288) 6,574 77,219
----------------- --------------- ------------ ----------
Net income......................... $ 117,591 $(1,371) $ 8,346 $ 124,566
================= =============== ============ ==========
Net income per common share........ $ 0.66 $ (0.69) $ .97 $ 0.66(c)
================= =============== ============ ==========
Weighted average number of common
and dilutive common equivalent
shares outstanding............... 176,834 1,988 8,624 189,219
================= =============== ============ ==========
</TABLE>
61
<PAGE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED JANUARY 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
OTHER
CUC INTERNATIONAL POOLED ENTITIES ADVANCE ROSS PRO FORMA
----------------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
Membership and service fees and other
revenues........................... $ 879,324 $54,778 $ 50,699 $ 984,801
EXPENSES
Operating.......................... 242,229 11,104 14,439 267,772
Marketing.......................... 356,540 16,712 21,253 394,505
General and administrative......... 132,973 23,180 6,078 162,231
Other (income) expense, net........ 5,387 (14) 1,662 7,035
----------------- --------------- ------------ ---------
Total expenses....................... 737,129 50,982 43,432 831,543
----------------- --------------- ------------ ---------
Income before income taxes........... 142,195 3,796 7,267 153,258
Provision for income taxes........... 54,824 2,103 2,180 59,107
----------------- --------------- ------------ ---------
Net income........................... $ 87,371 $ 1,693 $ 5,087 $ 94,151
================= =============== ============ =========
Net income per common share.......... $ 0.51 $ 0.86 $ 0.63 $ 0.51(c)
================= =============== ============ =========
Weighted average number of common and
dilutive common equivalent shares
outstanding........................ 171,197 1,974 8,092 183,113
================= =============== ============ =========
</TABLE>
CUC INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED JANUARY 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
OTHER
CUC INTERNATIONAL POOLED ENTITIES ADVANCE ROSS PRO FORMA
----------------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
Membership and service fees and other
revenues........................... $ 742,280 $46,676 $ 12,015 $ 800,971
EXPENSES
Operating.......................... 196,867 9,212 3,020 209,099
Marketing.......................... 328,389 13,352 5,037 346,778
General and administrative......... 108,676 20,072 2,508 131,256
Other (income) expense, net........ 12,246 (239) 429 12,436
----------------- --------------- ------------ ---------
Total expenses....................... 646,178 42,397 10,994 699,569
----------------- --------------- ------------ ---------
Income before income taxes........... 96,102 4,279 1,021 101,402
Provision for income taxes........... 37,259 124 352 37,735
----------------- --------------- ------------ ---------
Net income........................... $ 58,843 $ 4,155 $ 669 $ 63,667
================= =============== ============ =========
Net income per common share.......... $ 0.38 $ 2.11 $ 0.09 $ 0.38(c)
================= =============== ============ =========
Weighted average number of common and
dilutive common equivalent shares
outstanding........................ 156,558 1,971 7,418 167,908
================= =============== ============ =========
</TABLE>
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) At the Effective Time, each share of Advance Ross Common Stock will be
converted into shares of CUC International Common Stock at a conversion rate
of 5/6 of one share of CUC International Common Stock for each outstanding
share of Advance Ross Common Stock and each share of Advance Ross Preferred
Stock will be converted into that number of shares of CUC International
Common Stock equal to the quotient obtained by dividing (x) the Redemption
Price by (y) the Average Stock Price. The unaudited pro forma condensed
combined financial statements assume that all outstanding shares of Advance
Ross Common Stock (7,075,370 shares as of October 31, 1995) and that all
outstanding shares of Advance Ross Preferred Stock (16,923 shares as of
October 31, 1995) will be converted and approximately 5.9 million shares of
CUC International Common Stock will be issued. The effect of this
transaction, accounted for in accordance with the pooling-of-interests
method of accounting, was to increase CUC International Common Stock, $.01
par value per share, by $59,000 and additional paid in capital by
approximately $1.4 million and to eliminate Advance Ross Common Stock,
Advance Ross Preferred Stock and Advance Ross treasury stock.
(b) The pro forma information is based on the historical financial statements of
Advance Ross contained in the Advance Ross 10-K, the historical financial
statements of NAOG contained in its audited financial statements for each of
the three years ended December 31, 1994, the historical financial statements
of Getko contained in its audited financial statements for each of the three
years ended November 30, 1994, and the quarterly financial information of
Advance Ross for the nine-month period ended October 31, 1995. The December
31, 1994 historical financial statements of NAOG and the November 30, 1994
historical financial statements of Getko have been adjusted to conform with
CUC International's January 31, 1995 fiscal year end.
(c) Income per share from continuing operations has been computed based upon the
combined weighted average number of common and dilutive common equivalent
shares outstanding of CUC International, Advance Ross, NAOG and Getko for
each period. Historical weighted average common and dilutive common
equivalent shares outstanding of Advance Ross, NAOG and Getko for each
period have been adjusted to reflect the applicable exchange ratios and the
shares of CUC International Common Stock to be exchanged for Advance Ross
Preferred Stock. In addition, the weighted average number of common and
dilutive common equivalent shares outstanding have been adjusted for, and
give effect to, in the case of the Advance Ross Common Stock, the 2:1 split
thereof effected on each of February 4, 1994 and September 8, 1995 and, in
the case of CUC International Common Stock, the 3:2 split thereof effected
on June 30, 1995.
(d) The unaudited pro forma condensed combined financial statements do not
include costs and expenses associated with the Advance Ross and NAOG
transactions which are expected to approximate $5 million in the aggregate.
(e) Certain reclassifications were made to conform the historical financial
statements of Other Pooled Entities to those of CUC International.
63
<PAGE>
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pro forma combined operating revenues for the nine months ended October 31,
1995 are $1,037,016,000. The largest contributing factor to revenue growth is
the continual rapid growth of CUC International's membership base. CUC
International has maintained a flexible marketing plan in the past and will
continue to do so by utilizing Advance Ross as a distribution channel through
which to market existing products and services. Pro forma earnings per share for
the nine months ended October 31, 1995 remain unaffected at $.62, which includes
Advance Ross operations for the same period. CUC International believes that
future results of operations should be favorably, although not materially,
affected by the Merger.
CUC International's operations and acquisitions have been funded with cash
flow from operations and credit facilities. Furthermore, after the consummation
of the Merger with Advance Ross, cash flow from operations and existing CUC
International credit facilities will be sufficient to achieve CUC
International's current and long-term objectives. CUC International believes
that its liquidity has not been adversely affected by any acquisitions it has
made and that CUC International's liquidity will not be adversely affected by
the Merger.
COMPARISON OF COMMON STOCKHOLDERS' RIGHTS
At the Effective Time, holders of Advance Ross Common Stock immediately
prior to such time will become holders of CUC International Common Stock. The
following summary compares the material differences between the rights of
holders of shares of CUC International Common Stock and the rights of holders of
shares of Advance Ross Common Stock. CUC International and Advance Ross both are
incorporated under the laws of the State of Delaware; accordingly, the only
differences arise from the distinctions between the Restated Certificate of
Incorporation and By-Laws of CUC International and the Restated Certificate of
Incorporation and By-Laws of Advance Ross.
The following summary does not purport to be a complete statement of the
rights of holders of shares of CUC International Common Stock and shares of
Advance Ross Common Stock under, and is qualified in its entirety by reference
to, the Restated Certificate of Incorporation (the "CUC International Charter")
and By-Laws (the "CUC International By-Laws") of CUC International and the
Restated Certificate of Incorporation (the "Advance Ross Charter") and By-Laws
(the "Advance Ross By-Laws") of Advance Ross.
DIRECTORS
Number. The CUC International By-Laws provide that the Board of Directors of
CUC International cannot be fixed at less than three members. The CUC
International Charter further provides that amendment of the foregoing provision
requires the affirmative vote of the holders of 80% or more of the outstanding
voting stock.
The Advance Ross By-Laws provide that the Board of Directors of Advance Ross
shall consist of not less than five or more than eleven members, the exact
number to be fixed by the vote of a majority of the entire Advance Ross Board of
Directors.
Classified Board. Both the CUC International By-Laws and the Advance Ross
By-Laws provide for a classified Board of Directors.
Removal of Directors. The CUC International Charter and the CUC
International By-Laws provide that any and all directors may be removed, with or
without cause, by the affirmative vote of holders of at least 80% of the
combined voting power of the outstanding shares of stock entitled to vote for
the election of directors.
64
<PAGE>
Neither the Advance Ross Charter nor the Advance Ross By-Laws contains a
specific provision regarding the removal of directors. Therefore, under the
applicable DGCL provisions with respect to removal of directors of a classified
board, the stockholders of Advance Ross may, by the affirmative vote of holders
of a majority of the combined voting power of the outstanding shares of stock
entitled to vote, remove a director only for cause.
Indemnification of Directors and Officers. The CUC International By-Laws and
the Advance Ross Charter each provide that the corporation shall indemnify to
the full extent permitted by, and in the manner permissible under, the DGCL any
person made, or threatened to be made, a party to an action or proceeding,
whether criminal, civil, administrative or investigative. See "The Merger--
Interest of Certain Persons in the Merger--Indemnification."
AMENDMENTS TO THE CHARTERS
The CUC International Charter requires the approval of the holders of at
least 80% of the outstanding shares of stock entitled to vote to amend
provisions of the CUC International Charter relating to the following: (i) the
number, election, term and nomination of directors and newly created
directorships, vacancies in directorships and removal of directors; (ii) certain
business combinations; (ii) amendment of certain provisions of the CUC
International By-Laws dealing with stockholder meetings and directors; and (iv)
stockholder action without a meeting. All other amendments to the CUC
International Charter must be approved by the affirmative vote of the holders of
a majority of the outstanding shares entitled to vote thereon.
The Advance Ross Charter requires the approval of the holders of at least
66-2/3% of the outstanding shares of stock entitled to vote to amend provisions
of the Advance Ross Charter relating to the following: (i) certain business
combinations; and (ii) stockholder action without a meeting. All other
amendments to the Advance Ross Charter must be approved by a majority of the
outstanding shares entitled to vote thereon.
AMENDMENTS TO THE BY-LAWS
Amendments to certain provisions of the CUC International By-Laws dealing
with stockholder meetings and directors must be approved by at least 80% of the
shares of outstanding stock entitled to vote thereon.
Amendments to the Advance Ross By-Laws must be approved by a majority of the
shares of outstanding stock entitled to vote thereon.
QUORUM
The CUC International By-Laws provide that a quorum for the purpose of a
meeting of the holders of CUC International Common Stock shall consist of not
less than one-third of the issued and outstanding shares of stock of CUC
International.
The Advance Ross By-Laws provide that a quorum for the purpose of a meeting
of holders of Advance Ross Common Stock shall consist of the holders of record
of a majority of the issued and outstanding shares of the Advance Ross Common
Stock entitled to vote at the meeting.
VOTE REQUIRED FOR MERGER AND CERTAIN OTHER TRANSACTIONS
Under the DGCL, the CUC International Charter and the Advance Ross Charter,
an agreement of merger, sale, lease or exchange of all or substantially all of
the corporation's assets must be approved by the Board of Directors and then
adopted by the holders of a majority of the voting power of the outstanding
shares of stock entitled to vote thereon.
65
<PAGE>
The holders of Advance Ross Preferred Stock do not generally have voting
rights. However, the holders of Advance Ross Preferred Stock may (i) elect
one-third of the Board of Directors if Advance Ross fails to pay dividends over
a 12 month period and (ii) must affirmatively approve, voting as a separate
class, by a two-thirds vote of the outstanding shares of the Advance Ross
Preferred Stock: (A) any amendment to the Advance Ross Charter that would affect
the rights, preferences or powers of the Advance Ross Preferred Stock; (B) any
change to the authorized amount or the par value of the Advance Ross Preferred
Stock; (C) the sale, disposition, conveyance or lease of all or substantially
all the property or business of Advance Ross; or (D) the authorization of a new
or additional class of stock which would be preferred or prior to the Advance
Ross Preferred Stock either as to dividends or as to assets upon any
distribution.
BUSINESS COMBINATIONS FOLLOWING A CHANGE OF CONTROL
The CUC International Charter includes what generally is referred to as a
"fair price provision," which requires the affirmative vote of the holders of at
least 80% of the outstanding shares of capital stock entitled to vote generally
in the election of directors, voting together as a single class, to approve
certain business combinations (including certain mergers, recapitalizations, and
the issuance or transfer of securities of CUC International or a subsidiary
having an aggregate fair market value of $10 million or more) involving CUC
International or a subsidiary and an owner of 5% or more of the outstanding
shares of capital stock entitled to vote generally in the election of directors,
unless either (i) such business combination is approved by a majority of
disinterested directors, or (ii) the shareholders receive a "fair price" for
their holdings and certain other procedural requirements are met.
The Advance Ross Charter requires (i) the affirmative vote of at least 66
2/3% of all classes of stock, (ii) that a majority of the Board of Directors be
disinterested, (iii) that two independent experts selected by the Board of
Directors verify the fairness of the transaction, and (iv) that a proxy
statement be mailed to all stockholders, as conditions precedent to the merger
or consolidation of Advance Ross with or into any other corporation or to
authorize any sale or lease of Advance Ross or all or substantially all of the
assets of Advance Ross involving an owner of 5% or more of the outstanding
shares of Advance Ross.
This supermajority provision in the Advance Ross Charter shall not apply if
(i) such business combination was approved by a majority of the Board of
Directors before the other party became a 5% owner or (ii) there are fewer than
300 holders of record of the outstanding stock of Advance Ross entitled to vote
in the election of directors.
Any amendment to this supermajority provision in the Advance Ross Charter
must be approved by the affirmative vote of at least two-thirds of the
outstanding shares of stock of Advance Ross entitled to vote in the election of
directors.
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation, the shares of which are listed on a national securities exchange,
and an "interested stockholder," unless the certificate of incorporation of the
corporation contains a provision expressly electing not to be governed by
Section 203. Neither the CUC International Charter nor the Advance Ross Charter
contains such an election.
CUMULATIVE VOTING
Under DGCL, stockholders are not entitled to cumulative voting in the
election of directors unless specifically provided for in the certificate of
incorporation. Neither the CUC International Charter nor the Advance Ross
Charter contains such a provision.
66
<PAGE>
SPECIAL MEETINGS OF STOCKHOLDERS; ACTION BY CONSENT
The CUC International Charter and the CUC International By-Laws provide that
special meetings of stockholders may be called only by the Chairman of the
Board, the President or the Board of Directors pursuant to a resolution approved
by a majority of the entire Board of Directors.
The Advance Ross By-Laws provide that special meetings of holders of Advance
Ross Common Stock may be called by the President or Secretary at the request in
writing of the Board of Directors, or at the request in request in writing of
stockholders owning a majority in amount of the capital stock of the corporation
issued and outstanding and entitled to vote.
The CUC International Charter and the Advance Ross Charter each provides
that any action taken by stockholders must be effected at an annual or special
meeting and may not be effected by written consent without a meeting.
67
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at Advance Ross' 1996 Annual
Meeting of Stockholders, to be held only in the event the Merger is not
consummated, should have been received by Advance Ross not later than February
23, 1996.
OWNERSHIP OF ADVANCE ROSS COMMON STOCK BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information at the Record Date with
respect to the beneficial ownership of Advance Ross Common Stock by (i) persons
known to Advance Ross to be the beneficial owners of more than 5% of the
outstanding shares of Advance Ross Common Stock, (ii) all directors of Advance
Ross, (iii) each of the executive officers of Advance Ross and (iv) all
directors and executive officers of Advance Ross as a group.
The number of shares of Advance Ross Common Stock beneficially owned by each
individual set forth below is determined under applicable rules of the
Commission and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which an individual has sole or shared voting power or
investment power and any shares which an individual currently, or within 60 days
of the Record Date has the right to acquire through the exercise of any stock
option or other right. Unless otherwise indicated, each beneficial owner has
sole voting and investment power (or, in the case of the individuals listed in
the table below, shares such powers with his spouse) with respect to the shares
of Advance Ross Common Stock set forth in the table.
<TABLE><CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF ADVANCE ROSS COMMON OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED(1) SHARES(2)(3)
---------------------------- -------------
<S> <C> <C>
Allen & Company Incorporated........................... 786,500(4) 10.4%
711 Fifth Avenue
New York, NY 10022
Harve A. Ferrill....................................... 592,600(5)(11) 7.9%
Roger E. Anderson...................................... 256,820(6)(9)(11) 3.5%
Harold E. Guenther..................................... 6,000(9)(11) *
Duane R. Kullberg...................................... 5,000(9)(11) *
Thomas J. Peterson..................................... 16,000(7)(9)(11) *
Herbert S. Wander...................................... 20,000(9)(11) *
Paul G. Yovovich....................................... 446,400(10)(11) 5.9%
Randy M. Joseph........................................ 26,200(8)(11) *
All directors and executive officers as a Group (eight
persons)(5)(6)(7)(8)(9)(10) 1,369,020 16.6%
</TABLE>
- ------------
* Less than 1% of class.
(1) As used herein, the term "beneficial ownership" with respect to a security
is defined by Rule 13d-3 under the Exchange Act as consisting of sole or
shared voting power (including the power to vote or direct the vote) and/or
sole or shared investment power (including the power to dispose or direct
the disposition) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, beneficial ownership consists of sole voting and investment
power.
(2) These numbers do not include 12 shares of Advance Ross Preferred Stock
beneficially owned by Mr. Ferrill.
(Footnotes continued on following page)
68
<PAGE>
(Footnotes continued from preceding page)
(3) The number of shares of Advance Ross Common Stock outstanding for
calculation of percentage of outstanding shares includes shares of Advance
Ross Common Stock outstanding at the Record Date and shares issuable under
Options exercisable within 60 days held by the listed beneficial owners.
Such number does not include shares held by or for the account of Advance
Ross.
(4) Determined by a review of the Amendment No. 3 to Schedule 13D and Form 4
filed with the Commission on June 11, 1993 and May 5, 1994, and in
consultation with Allen & Company. Includes 480,000 shares issuable upon
exercise of the Warrant to purchase Advance Ross Common Stock at $2.375 per
share. Allen & Company disclaims beneficial ownership of 85,100 shares of
Advance Ross Common Stock and 144,000 shares of Advance Ross Common Stock
issuable upon exercise of the Warrant which are beneficially owned by
certain officers and employees of Allen & Company. Although it is not a
party to the Stockholders Agreement, Allen & Company has informed Advance
Ross that it intends to vote all shares of Advance Ross Common Stock that it
directly owns as of the Record Date "FOR" adoption of the Merger Agreement
and has agreed to certain restrictions on the Advance Ross Common Stock
beneficially owned by it, provided that the Advance Ross Board of Directors
has not withdrawn its recommendation "FOR" adoption of the Merger Agreement.
(5) Includes vested Options to acquire 400,000 shares. Also includes Options to
acquire 50,000 shares, one-half of which will become exercisable on each of
June 5, 1996, and June 5, 1997, or upon a change of control. Excludes 12
shares of Advance Ross Preferred Stock beneficially owned by Mr. Ferrill.
(6) Includes vested Options to acquire 113,696 shares. Also includes Options to
acquire 133,692 shares, one-half of which will become exercisable on each of
November 2, 1996, and November 2, 1997, or upon a change of control.
Includes 100 shares held by Mr. Anderson's son.
(7) Shared voting power with his spouse for 12,000 shares. Disclaims beneficial
ownership of remaining 4,000 shares owned by spouse.
(8) Includes vested Options to acquire 2,000 shares. Also includes Options to
acquire 8,000 shares, one-quarter of which will become exercisable on
November 21, 1996, and each of the following three anniversaries of such
date or upon a change of control, and Options to acquire 15,000 shares, one-
half of which will become exercisable on each of June 5, 1996, and June 5,
1997, or upon a change of control.
(9) Excludes Options held by each non-employee director to acquire 2,000 shares
which will become exercisable on June 5, 1996, or upon a change of control.
The Merger Agreement provides that these 2,000 options, issued pursuant to
the Directors Deferral Plan, be cancelled at or prior to the Effective Time.
(10) Includes vested Options to acquire 400,000 shares. Also includes Options to
acquire 40,000 shares, one-half of which will become exercisable on each of
June 5, 1996, and June 5, 1997, or upon a change of control.
(11) Pursuant to the Stockholders Agreement, each of Messrs. Ferrill, Anderson,
Guenther, Kullberg, Peterson, Wander, Yovovich and Joseph has agreed to
vote his shares of Advance Ross Common Stock "FOR" adoption of the Merger
Agreement.
69
<PAGE>
PRINCIPAL HOLDERS OF CUC INTERNATIONAL COMMON STOCK
The following table sets forth each person known by CUC International to be
the beneficial owner as of February 28, 1995 of more than 5% of the then
outstanding shares of CUC International Common Stock. All numbers have been
adjusted to reflect the 3:2 split of the CUC International Common Stock effected
on June 30, 1995.
<TABLE><CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
------------------- ----------------- ------------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, MA 02109........................................... 9,421,025(1) 5.44%
The Prudential Insurance Company of America
Prudential Plaza
Newark, NJ 07102-3777...................................... 9,783,393(2) 5.65%
</TABLE>
- ------------
(1) FMR Corp. filed a statement on Schedule 13G, dated February 13, 1995,
pursuant to Section 13(g) of the Exchange Act, reflecting the beneficial
ownership of 9,421,025 shares of CUC International Common Stock. This amount
includes 8,289,687 shares beneficially owned by Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., as a
result of Fidelity's acting as investment adviser to several registered
investment companies, and 1,131,338 shares beneficially owned by Fidelity
Management Trust Company ("FMTC"), a wholly-owned subsidiary of FMR Corp.,
as a result of FMTC's serving as investment manager of certain institutional
accounts. In addition, the Schedule 13G lists Edward C. Johnson III, the
Chairman of FMR Corp. and a member, along with certain members of his
family, of a controlling group with respect to FMR Corp., as having sole
power to dispose of the shares of CUC International Common Stock owned by
Fidelity and FMTC.
(2) The Prudential Insurance Company of America ("Prudential") filed Amendment
No. 5 to its statement on Schedule 13G, dated April 4, 1995, pursuant to
Section 13(g) of the Exchange Act, reflecting the beneficial ownership, as
of December 31, 1994, of 9,783,393 shares of CUC International Common Stock.
This amount includes shares of CUC International Common Stock reported
separately by Jennison Associates Capital Corp. ("Jennison"). Jennison, a
registered investment adviser, filed Amendment No. 10 to its statement on
Schedule 13G, dated March 8, 1995, pursuant to Section 13(g) of the Exchange
Act, reflecting the beneficial ownership of 9,751,500 shares of Common Stock
which it holds for the benefit of its clients.
LEGAL MATTERS
The validity of the shares of CUC International Common Stock to be issued in
connection with the Merger will be passed upon for CUC International by Robert
T. Tucker, Esq., Corporate Secretary of CUC International.
Certain federal income tax matters in connection with the transaction will
be passed upon for Advance Ross by Katten Muchin & Zavis, Chicago, Illinois.
Katten Muchin & Zavis is Advance Ross' regularly engaged legal counsel. Herbert
S. Wander, a director of Advance Ross, is a partner of Katten Muchin & Zavis and
is the beneficial owner of 20,000 shares of Advance Ross Common Stock.
EXPERTS
The consolidated financial statements and schedule of CUC International Inc.
appearing in CUC International Inc.'s Annual Report on Form 10-K for the Year
ended January 31, 1995, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements and schedule are
70
<PAGE>
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended April 30, 1995 and 1994, and the
three and six-month periods ended July 31, 1995 and 1994, incorporated by
reference in this Proxy Statement/Prospectus, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for reviews of such information. However, their separate reports,
included in CUC International Inc.'s Quarterly Reports on Form 10-Q for the
fiscal quarters ended April 30, 1995 and July 31, 1995 and incorporated herein
by reference, state that they did not audit and they do not express an opinion
on that interim financial information. Accordingly, the degree of reliance of
their reports on such information should be restricted in light of the limited
nature of the review procedures applied. The independent auditors are not
subject to the liability provisions of Section 11 of the Securities Act for
their report on unaudited interim financial information because such a report is
not a "report" or a "part" of a registration statement prepared or certified by
the auditors within the meaning of Section 7 and 11 of the Securities Act.
The consolidated financial statements and the related consolidated financial
statement schedules incorporated in this Proxy Statement/Prospectus by reference
from Advance Ross Corporations' Annual Report on Form 10-K for the year ended
December 31, 1994, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
It is expected that representatives of Deloitte & Touche LLP will be present
at the Meeting, to respond to appropriate questions of holders of Advance Ross
Common Stock and to make a statement if they desire.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Board of Directors of
Advance Ross does not intend to present, and have not been informed that any
other person intends to present, any matter for action at the Meeting, other
than as specifically discussed herein.
BY ORDER OF THE BOARD OF DIRECTORS
OF ADVANCE ROSS CORPORATION
HARVE A. FERRILL
Chairman of the Board
and Chief Executive Officer
71
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CUC INTERNATIONAL INC.,
RETREAT ACQUISITION CORPORATION
AND
ADVANCE ROSS CORPORATION
DATED OCTOBER 17, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER; EFFECTIVE TIME; CLOSING
1.1. The Merger..................................................................... A-1
1.2. Effective Time................................................................. A-2
1.3. Closing........................................................................ A-2
1.4. Effects of the Merger.......................................................... A-2
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. Certificate of Incorporation................................................... A-2
2.2. The By-Laws.................................................................... A-2
ARTICLE III
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.1. Directors...................................................................... A-2
3.2. Officers....................................................................... A-2
ARTICLE IV
MERGER CONSIDERATION;
CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
4.1. Share Consideration for the Merger; Conversion or Cancellation of Shares in the
Merger......................................................................... A-3
4.2. Payment for Shares in the Merger............................................... A-5
4.3. Fractional Shares.............................................................. A-6
4.4. Transfer of Shares after the Effective Time.................................... A-6
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company.................................. A-6
(a) Corporate Organization and Qualification................................. A-6
(b) Capitalization........................................................... A-6
(c) Approvals; Fairness Opinion.............................................. A-7
(d) Authority Relative to this Agreement..................................... A-7
(e) Consents and Approvals; No Violation..................................... A-8
(f) Litigation............................................................... A-9
(g) SEC Reports; Financial Statements........................................ A-9
(h) Absence of Certain Changes or Events..................................... A-9
(i) Employment Agreements.................................................... A-10
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(j) Brokers and Finders...................................................... A-10
(k) S-4 Registration Statement and Proxy Statement/Prospectus................ A-10
(l) Taxes.................................................................... A-10
(m) Employee Benefits........................................................ A-11
(n) Intangible Property...................................................... A-12
(o) Certain Contracts........................................................ A-13
(p) Accounting Matters....................................................... A-14
(q) Unlawful Payments and Contributions...................................... A-14
(r) Commission Rates......................................................... A-14
(s) Listings................................................................. A-14
(t) Environmental Matters.................................................... A-14
(u) Disclosure............................................................... A-15
5.2. Representations and Warranties of Parent and Merger Sub........................ A-15
(a) Corporate Organization and Qualification................................. A-15
(b) Capitalization........................................................... A-15
(c) Authorization for Parent Common Shares................................... A-16
(d) Authority Relative to this Agreement..................................... A-16
(e) Consents and Approvals; No Violation..................................... A-16
(f) Ownership of Merger Sub; No Prior Activities; Assets of Merger Sub....... A-17
(g) SEC Reports; Financial Statements........................................ A-17
(h) Absence of Certain Changes or Events..................................... A-18
(i) Litigation............................................................... A-18
(j) S-4 Registration Statement and Proxy Statement/Prospectus................ A-18
(k) Brokers and Finders...................................................... A-18
(l) Ownership of Shares...................................................... A-18
(m) Accounting Matters....................................................... A-18
(n) Disclosure............................................................... A-18
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1. Conduct of Business............................................................ A-19
6.2. No Solicitation................................................................ A-20
6.3. Meeting of Stockholders........................................................ A-21
6.4. Registration Statement......................................................... A-22
6.5. Best Efforts................................................................... A-22
6.6. Access to Information.......................................................... A-22
6.7. Publicity...................................................................... A-23
6.8. Indemnification of Directors and Officers...................................... A-23
6.9. Affiliates of the Company...................................................... A-24
6.10. Taxes.......................................................................... A-24
6.11. Maintenance of Insurance....................................................... A-24
6.12. Representations and Warranties................................................. A-24
6.13. Filings; Other Action.......................................................... A-24
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
6.14. Notification of Certain Matters................................................ A-24
6.15. Pooling Accounting............................................................. A-25
6.16. Blue Sky Permits............................................................... A-25
6.17. NYSE Listing................................................................... A-25
6.18. Pooling Letter................................................................. A-25
6.19. Comfort Letter................................................................. A-25
6.20. Tax-Free Reorganization Treatment.............................................. A-25
6.21. Combined Operations............................................................ A-25
6.22. Employment Agreements.......................................................... A-25
ARTICLE VII
CONDITIONS
7.1. Conditions to the Obligations of Parent and Merger Sub......................... A-26
(a) Certificate.............................................................. A-26
(b) Company Stockholder Approval............................................. A-26
(c) Injunction............................................................... A-26
(d) S-4 Registration Statement; "Blue Sky" Permits........................... A-26
(e) Listing of Parent Common Shares.......................................... A-26
(f) Governmental Filings and Consents; HSR Act............................... A-26
(g) Pooling Letter........................................................... A-26
(h) Third Party Consents..................................................... A-26
(i) Delivery of Comfort Letter............................................... A-27
(j) Termination of Options................................................... A-27
(k) Affiliate Letters........................................................ A-27
(l) Termination of Advisory Agreement........................................ A-27
7.2. Conditions to the Obligations of the Company................................... A-27
(a) Certificate.............................................................. A-27
(b) Company Stockholder Approval............................................. A-27
(c) Injunction............................................................... A-27
(d) S-4 Registration Statement; "Blue Sky" Permits........................... A-27
(e) Listing of Parent Common Shares.......................................... A-27
(f) HSR Act.................................................................. A-28
(g) Tax Opinion.............................................................. A-28
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent.................................................. A-28
8.2. Termination by either Parent or the Company.................................... A-28
8.3. Termination by Parent.......................................................... A-28
8.4. Termination by the Company..................................................... A-29
8.5. Effect of Termination and Abandonment.......................................... A-29
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Payment of Expenses............................................................ A-30
9.2. Survival of Representations and Warranties..................................... A-30
9.3. Modification or Amendment...................................................... A-30
9.4. Waiver of Conditions........................................................... A-30
9.5. Counterparts................................................................... A-30
9.6. Governing Law.................................................................. A-30
9.7. Notices........................................................................ A-30
9.8. Entire Agreement; Assignment................................................... A-31
9.9. Parties in Interest............................................................ A-31
9.10. Certain Definitions............................................................ A-31
(a) "Significant Subsidiary"................................................. A-31
(b) "subsidiary"............................................................. A-31
(c) "Material Adverse Effect"................................................ A-31
9.11. Obligation of Parent........................................................... A-32
9.12. Arbitration.................................................................... A-32
9.13. Severability................................................................... A-32
9.14. Specific Performance........................................................... A-32
9.15. Recapitalization............................................................... A-32
9.16. Captions....................................................................... A-32
</TABLE>
<TABLE>
<S> <C>
EXHIBITS
Stockholders Agreement.......................................................... Exhibit A
Form of Stockholder Certificate................................................. Exhibit B
Form of Company, Parent and Merger Sub Certificate.............................. Exhibit C
</TABLE>
(iv)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated October 17, 1995,
among CUC International Inc., a Delaware corporation ("Parent"), Retreat
Acquisition Corporation, a Delaware corporation and a direct wholly-owned
subsidiary of Parent ("Merger Sub"), and Advance Ross Corporation, a Delaware
corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company each
have determined that it is in the best interests of their respective
stockholders for Merger Sub to merge with and into the Company upon the terms
and subject to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger (as
defined in Section 1.1) shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, concurrently with the execution hereof, certain holders (each, a
"Stockholder" and, collectively, the "Stockholders") of Shares (as defined in
Section 4.1(b)) are entering into the Stockholders Agreement, a copy of which is
attached as Exhibit A hereto (the "Stockholders Agreement");
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling-of-interests;
WHEREAS, the Company has delivered to Parent a letter identifying all
persons (each, a "Company Affiliate") who are, at the date hereof, "affiliates"
of the Company for purposes of Rule 145 under the Securities Act of 1933, as
amended (the "Securities Act"), and each Company Affiliate has delivered to
Parent a letter (each, an "Affiliate Letter") relating to (i) the transfer,
prior to the Effective Time (as defined in Section 1.2), of the Shares
beneficially owned by such Company Affiliate on the date hereof, (ii) the
transfer of the Parent Common Shares (as defined in Section 4.1(a)) to be
received by such Company Affiliate in the Merger and (iii) the obligations of
each such Company Affiliate to deliver to Katten Muchin & Zavis, counsel to the
Company, a certificate substantially in the form attached hereto as Exhibit B;
and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, Parent, Merger Sub and the Company
hereby agree as follows:
ARTICLE I
THE MERGER; EFFECTIVE TIME; CLOSING
1.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), at the Effective Time the Company and Merger Sub shall
consummate a merger (the "Merger") in which (a) Merger Sub shall be merged with
and into the Company and the separate corporate existence of Merger Sub shall
thereupon cease, (b) the Company shall be the successor or surviving corporation
in the Merger and shall continue to be governed by the laws of the State of
Delaware and (c) the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall
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continue unaffected by the Merger. The corporation surviving the Merger is
sometimes hereinafter referred to as the "Surviving Corporation." The name of
the Surviving Corporation shall be "Advance Ross Corporation." At the election
of Parent, any direct wholly-owned subsidiary of Parent may be substituted for
Merger Sub as a constituent corporation in the Merger. In such event, the
parties agree to execute an appropriate amendment to this Agreement in order to
reflect the foregoing.
1.2. Effective Time. Subject to the provisions of this Agreement, Parent,
Merger Sub and the Company shall cause the Merger to be consummated by filing an
appropriate Certificate of Merger or other appropriate documents (the
"Certificate of Merger") with the Secretary of State of the State of Delaware in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL, as soon as practicable on or after the Closing Date (as
defined in Section 1.3). The Merger shall become effective upon such filing or
at such time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
1.3. Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Article
VIII, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") shall take place at 10:00
a.m., New York City time, on the second business day after satisfaction of the
conditions set forth in Article VII (or as soon as practicable thereafter
following satisfaction or waiver of the conditions set forth in Article VII)
(the "Closing Date"), at the offices of Weil, Gotshal & Manges, 767 Fifth
Avenue, New York, New York 10153, unless another date, time or place is agreed
to in writing by the parties hereto.
1.4. Effects of the Merger. At the Effective Time, the effects of the merger
shall be as provided in the Certificate of Merger and the applicable provisions
of the DGCL.
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. At the Effective Time, the Certificate of
Incorporation of the Company immediately prior to the Effective Time shall
become the Certificate of Incorporation of the Surviving Corporation.
2.2. The By-Laws. At the Effective Time, the by-laws of the Company
immediately prior to the Effective Time shall become the by-laws of the
Surviving Corporation.
ARTICLE III
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.1. Directors. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-Laws.
3.2. Officers. The officers of the Company at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected
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or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation and
By-Laws.
ARTICLE IV
MERGER CONSIDERATION;
CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
4.1. Share Consideration for the Merger; Conversion or Cancellation of
Shares in the Merger. The manner of converting or canceling shares of the
Company and Merger Sub in the Merger shall be as follows:
(a) At the Effective Time, each share of common stock, $.01 par value
per share, of the Company (the "Common Shares") issued and outstanding
immediately prior to the Effective Time (other than Common Shares owned by
Parent, Merger Sub or any direct or indirect wholly-owned subsidiary of
Parent (collectively, "Parent Companies") or any of the Company's direct or
indirect wholly-owned subsidiaries) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into
five-sixths ( 5/6) (the "Exchange Ratio") of one share of common stock, par
value $0.01 per share, of Parent ("Parent Common Shares"); provided,
however, that (x) if the Average Stock Price (as defined below) is greater
than $38.00, the Exchange Ratio shall be reduced so as to equal the product
of (i) five-sixths ( 5/6) and (ii) a fraction, the numerator of which shall
be $38.00 and the denominator of which shall be the Average Stock Price and
(y) if the Average Stock Price is less than $30.00, the Exchange Ratio shall
be increased so as to equal the product of (i) five-sixths ( 5/6) and (ii) a
fraction, the numerator of which shall be $30.00 and the denominator of
which shall be the Average Stock Price. The term "Average Stock Price" means
a fraction, the numerator of which is the sum of the Weighted Amount (as
defined below) for each trading day during the period of ten consecutive
trading days commencing eleven trading days prior to the date of the
Stockholder Meeting (as defined in Section 6.3) and ending on the second
trading day prior to the date of the Stockholder Meeting, and the
denominator of which is the total reported volume in trading in Parent
Common Shares on the New York Stock Exchange ("NYSE") during such ten-day
period. For purposes hereof, with respect to any trading day, the "Weighted
Amount" shall be equal to the product of (A) the per share closing price on
the NYSE of Parent Common Shares on such day and (B) the total reported
volume of trading in Parent Common Shares on the NYSE for such day, in each
case as reported in the New York Stock Exchange Composite Transactions.
(b) At the Effective Time, each share of 5% cumulative preferred stock,
$25.00 par value per share, of the Company (the "Preferred Shares" and,
together with the Common Shares, the "Shares") issued and outstanding
immediately prior to the Effective Time (other than Preferred Shares owned
by any of the Parent Companies or any of the Company's direct or indirect
wholly-owned subsidiaries) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into a number of
Parent Common Shares equal to the quotient obtained by dividing (x) the sum
of $27.50 plus all dividends accumulated, accrued and unpaid on such
Preferred Shares to the Effective Time (excluding any such dividends that,
as of the Effective Time, have been declared with a record date prior to the
Effective Time but a payment date after the Effective Time) by (y) the
Average Stock Price. Notwithstanding the prior sentence or any other
provision of this Agreement, if, in the reasonable determination of the
Company, the amount of cash to be received by the holders of Preferred
Shares would exceed 20% of the total consideration to be received by such
holders at the Effective Time, then the Company shall redeem the Preferred
Shares prior to the Effective Time in accordance with Article Fourth of the
Restated Certificate of Incorporation of the Company.
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<PAGE>
(c) All Shares to be converted into Parent Common Shares pursuant to
this Section 4.1 shall, by virtue of the Merger and without any action on
the part of the holders thereof, cease to be outstanding, be canceled and
retired and cease to exist, and each holder of a certificate representing
any such Shares shall thereafter cease to have any rights with respect to
such Shares, except the right to receive for each of the Shares, upon the
surrender of such certificate in accordance with Section 4.2, the number of
Parent Common Shares specified above (the "Share Consideration") and cash in
lieu of fractional Parent Common Shares as contemplated by Section 4.3.
(d) At the Effective Time, each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Merger Sub or the
holder thereof, be converted into the same number of shares of common stock
of the Surviving Corporation.
(e) At the Effective Time, each outstanding option to purchase Common
Shares (each, an "Option") issued pursuant to the Advance Ross Corporation
Stock Option Plan, effective October 26, 1992 (the "1992 Plan"), the 1993
Advance Ross Corporation Stock Option Plan, effective June 15, 1993 (the
"1993 Plan"), and each of the Stock Option Agreements set forth in Section
5.1(b) of the Company Disclosure Schedule (collectively, the "Option Plans")
and the Warrant Certificate to purchase 480,000 Common Shares (after giving
effect to all amendments and stock splits) issued to Allen & Company
Incorporated, dated as of February 19, 1992 and amended pursuant to the
Amendment to Warrant Certificate dated as of December 1, 1992 and the
addendum, dated the date hereof, between the Company and Allen & Company
Incorporated (the "Warrant") shall be assumed by Parent and shall be deemed
to constitute an option or warrant, as the case may be, to acquire, on the
terms and conditions as were applicable under such Option or Warrant, the
same number of Parent Common Shares as the holder of such Option or Warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such Option or Warrant in full immediately prior to the Effective
Time (not taking into account whether such option or warrant was in fact
exercisable at such time), at a price per share equal to (x) the aggregate
exercise price for the Common Shares subject to such Option or Warrant
divided by (y) the number of full Parent Common Shares deemed purchasable
pursuant to such Option or Warrant; provided, however, that the number of
Parent Common Shares that may be purchased upon exercise of such Option or
Warrant shall not include any fractional share and, upon exercise of the
Option or Warrant, a cash payment shall be made for any fractional share
based upon the closing price of a Parent Common Share on the trading day
immediately preceding the date of exercise. As soon as practicable after the
Effective Time, Parent shall deliver to each holder of an Option an
appropriate notice setting forth such holder's right to acquire Parent
Common Shares and the Option agreements of such holder shall be deemed to be
appropriately amended so that such Options shall represent rights to acquire
Parent Common Shares on substantially the same terms and conditions as
contained in the outstanding Options (subject to any adjustments required by
the preceding sentence); provided, however, that notwithstanding anything to
the contrary contained herein, Parent shall not be obligated (x) to grant
any incentive stock options (within the meaning of Section 422 of the Code)
or (y) to grant options on terms more favorable than options to be assumed
pursuant to this Section 4.1(e).
(f) Parent shall use its best efforts to cause there to be effective as
of a date as soon as practicable after the Effective Time a registration
statement on Form S-8 (or any successor form) or another appropriate form,
with respect to the Parent Common Shares subject to such Options and shall
use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such Options
remain outstanding.
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4.2. Payment for Shares in the Merger. The manner of making payment for
Shares in the Merger shall be as follows:
(a) At the Effective Time, Parent shall make available to The Bank of
Boston (the "Exchange Agent"), or such other exchange agent selected by
Parent and reasonably acceptable to the Company for the benefit of the
holders of Shares, a sufficient number of certificates representing Parent
Common Shares required to effect the delivery of the aggregate Share
Consideration required to be issued pursuant to Section 4.1 (the
certificates representing Parent Common Shares comprising such aggregate
Share Consideration being hereinafter referred to as the "Stock Merger
Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Parent Common Shares contemplated to be issued
pursuant to Section 4.1 and effect the sales provided for in Section 4.3 out
of the Stock Merger Exchange Fund. The Stock Merger Exchange Fund shall not
be used for any other purpose.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record (other than holders of certificates for Shares
referred to in Section 4.1(c)) of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Shares (the
"Certificates") (i) a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and (ii) instructions for use in effecting the surrender
of the Certificates for payment therefor. Upon surrender of Certificates for
cancellation to the Exchange Agent, together with such letter of transmittal
duly executed and any other required documents, the holder of such
Certificates shall be entitled to receive for each of the Shares represented
by such Certificates the Share Consideration and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered, such
Certificates shall represent solely the right to receive the Share
Consideration and any cash in lieu of fractional Parent Common Shares as
contemplated by Section 4.3 with respect to each of the Shares represented
thereby. No dividends or other distributions that are declared after the
Effective Time on Parent Common Shares and payable to the holders of record
thereof after the Effective Time will be paid to persons entitled by reason
of the Merger to receive Parent Common Shares until such persons surrender
their Certificates. Upon such surrender, there shall be paid to the person
in whose name the Parent Common Shares are issued any dividends or other
distributions having a record date after the Effective Time and payable with
respect to such Parent Common Shares between the Effective Time and the time
of such surrender. After such surrender there shall be paid to the person in
whose name the Parent Common Shares are issued any dividends or other
distributions on such Parent Common Shares which shall have a record date
after the Effective Time and prior to such surrender and a payment date
after such surrender and such payment shall be made on such payment date. In
no event shall the persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions. If any certificate representing Parent Common Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange
that the Certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer and that the person requesting such exchange
shall pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of certificates for such Parent Common Shares in a
name other than that of the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable
to a holder of Shares for any Parent Common Shares or dividends thereon, or,
in accordance with Section 4.3, cash in lieu of fractional Parent Common
Shares, delivered to a public official pursuant to applicable escheat law.
The Exchange Agent shall not be entitled to vote or exercise any rights of
ownership with respect to the Parent Common Shares held by it from time to
time hereunder, except that it shall receive and hold all
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<PAGE>
dividends or other distributions paid or distributed with respect to such
Parent Common Shares for the account of the persons entitled thereto.
(c) Any portion of the Stock Merger Exchange Fund and the Fractional
Securities Fund (as defined in Section 4.3) which remains unclaimed by the
former stockholders of the Company for two years after the Effective Time
shall be delivered to Parent, upon demand of Parent, and any former
stockholders of the Company shall thereafter look only to Parent for payment
of their claim for the Share Consideration for the Shares or for any cash in
lieu of fractional shares of Parent Common Shares.
4.3. Fractional Shares. No fractional Parent Common Shares shall be issued
in the Merger. Each holder of Shares shall be entitled to receive in lieu of any
fractional Parent Common Shares to which such holder otherwise would have been
entitled pursuant to Section 4.2 (after taking into account all Shares then held
of record by such holder) a cash payment in an amount equal to the product of
(i) the fractional interest of a Parent Common Share to which such holder
otherwise would have been entitled and (ii) the closing price of a Parent Common
Share on the NYSE on the trading day immediately prior to the Effective Time
(the cash comprising such aggregate payments in lieu of fractional Parent Common
Shares being hereinafter referred to as the "Fractional Securities Fund").
Merger Sub shall make available to the Exchange Agent cash in an amount
sufficient to make the payments in lieu of fractional shares as aforesaid.
4.4. Transfer of Shares after the Effective Time. No transfers of Shares
shall be made on the stock transfer books of the Company after the close of
business on the day prior to the date of the Effective Time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent and Merger Sub that (except to the extent set
forth on the Disclosure Schedule previously delivered by the Company to Parent
(the "Company Disclosure Schedule")):
(a) Corporate Organization and Qualification. Each of the Company and
its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation
and is qualified and in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by it require such qualification, except where failure to so
qualify or be in good standing would not have a Material Adverse Effect (as
defined in Section 9.10). Each of the Company and its subsidiaries has all
requisite power and authority (corporate or otherwise) to own its properties
and to carry on its business as it is now being conducted. All of the
subsidiaries of the Company, together with an organizational chart, are set
forth in Section 5.1(a) of the Company Disclosure Schedule. The Company has
heretofore made available to Parent complete and correct copies of its
Certificate of Incorporation and By-Laws.
(b) Capitalization. The authorized capital stock of the Company consists
of (i) 12,000,000 Common Shares of which, as of October 10, 1995, 7,075,370
Shares were issued and outstanding and 493,138 Shares were held in treasury,
(ii) 1,000,000 shares of preferred stock, $1 par value per share, none of
which are shares issued or outstanding and (iii) 200,000 Preferred Shares,
of which, as of October 10, 1995, 16,923 Preferred Shares were issued and
outstanding and 3,324 Preferred Shares were held in treasury. All of the
outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. The Company has no
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outstanding stock appreciation rights. Except as set forth in Section 5.1(b)
of the Company Disclosure Schedule, no Shares are owned by any subsidiary of
the Company. Except as set forth in Section 5.1(b) of the Company Disclosure
Schedule, all outstanding shares of capital stock or other equity interests
of the subsidiaries of the Company are owned by the Company or a direct or
indirect wholly-owned subsidiary of the Company, free and clear of all
liens, charges, encumbrances, claims and options of any nature. Except for
(i) options outstanding on the date hereof to purchase 1,923,096 Common
Shares under the Option Plans and 10,000 Common Shares under the Advance
Ross Corporation 1995 Directors Deferred Plan, (ii) the Warrant, a true,
complete and correct copy of which the Company has delivered to Parent prior
to the date hereof, and (iii) as set forth in Section 5.1(b) of the Company
Disclosure Schedule there are not as of the date hereof and there will not
be at the Effective Time any outstanding or authorized options, warrants,
calls, rights (including preemptive rights), commitments or any other
agreements of any character which the Company or any of its subsidiaries is
a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of capital stock or any securities or
rights convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of capital stock of the Company or any of its
subsidiaries. There are not as of the date hereof and there will not be at
the Effective Time any stockholder agreements (other than the Stockholders
Agreement), voting trusts or other agreements or understandings to which the
Company is a party or to which it is bound relating to the voting of any
shares of the capital stock of the Company. Except as otherwise agreed to by
Parent, there will not be at the Effective Time any outstanding options
under the Advance Ross Corporation 1995 Directors Deferral Plan.
(c) Approvals; Fairness Opinion.
(i) The Board of Directors of the Company has unanimously approved
the Merger and this Agreement. Except for the approval of the holders of
Common Shares required by the DGCL, no other approval of the stockholders
of the Company is required in order to consummate the transactions
contemplated by this Agreement.
(ii) The Board of Directors of the Company has received an opinion
from Allen & Company Incorporated to the effect that the consideration to
be received by the holders of Common Shares in the Merger is fair to such
holders from a financial point of view. As of the date hereof, such
opinion has not been withdrawn, revoked or modified.
(d) Authority Relative to this Agreement. The Board of Directors of the
Company has declared the Merger advisable and the Company has the requisite
corporate power and authority to approve, authorize, execute and deliver
this Agreement and to consummate the transactions contemplated hereby
(subject to the approval of the Merger by the stockholders of the Company in
accordance with the DGCL). This Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than
the approval of the Merger by the holders of the Common Shares in accordance
with the DGCL). This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement constitutes the valid
and binding agreement of Parent and Merger Sub, constitutes the valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general principles of equity.
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(e) Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement nor the consummation by the Company of the
transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the respective Certificate of Incorporation (or
other similar documents) or By-Laws (or other similar documents) of the
Company or any of its subsidiaries; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (A) in connection with the
applicable requirements, if any, of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (B) pursuant to the
applicable requirements of the Securities Act, and the rules and regulations
promulgated thereunder, and the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated thereunder,
(C) the filing of the Certificate of Merger pursuant to the DGCL and
appropriate documents with the relevant authorities of other states in which
the Company is authorized to do business, (D) as may be required by any
applicable state securities or takeover laws, (E) such filings and consents
as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement,
(F) the consents, approvals, orders, authorizations, registrations,
declarations and filings required under the laws of foreign countries, as
set forth in Section 5.1(e) of the Company Disclosure Schedule or (G) where
the failure to obtain such consent, approval, authorization or permit, or to
make such filing or notification, would not in the aggregate have a Material
Adverse Effect or adversely affect the ability of the Company to consummate
the transactions contemplated hereby; (iii) except as set forth in Section
5.1(e) of the Company Disclosure Schedule, result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration or lien or other charge or encumbrance) under any of the terms,
conditions or provisions of any note, license, agreement or other instrument
or obligation to which the Company or any of its subsidiaries or any of
their assets may be bound, except for such violations, breaches and defaults
(or rights of termination, cancellation or acceleration or lien or other
charge or encumbrance) as to which requisite waivers or consents have been
obtained or which, in the aggregate, would not have a Material Adverse
Effect or adversely affect the ability of the Company to consummate the
transactions contemplated hereby; or (iv) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in this
Section 5.1(e) are duly and timely obtained or made and the approval of the
Merger and the approval of this Agreement by the Company's stockholders has
been obtained, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or any of its subsidiaries or to any of
their respective assets, except for violations which would not in the
aggregate have a Material Adverse Effect or adversely affect the ability of
the Company to consummate the transactions contemplated hereby. Except as
set forth in Section 5.1(e) of the Company Disclosure Schedule, the Company
does not know of any pending or proposed legislation, regulation or order
(other than those affecting businesses generally) applicable to the Company
or any of its subsidiaries or to the conduct of the business or operations
of the Company or any of its subsidiaries which, if enacted or adopted,
could have a material adverse effect on the Company or any of its
subsidiaries. As of the date hereof, none of the Company or any of its
subsidiaries are subject to any laws governing lending or factoring
businesses. Except as set forth in Section 5.1(e) of the Company Disclosure
Schedule, (x) neither the Company nor any of its subsidiaries has ceased
doing business in any country which has a value-added or similar tax and
where the Company or any such subsidiary previously conducted business and
(y) the Company and its subsidiaries are not prohibited from conducting
business, as presently conducted, in any place in the world which has a
value-added or similar tax where the Company and its subsidiaries conduct
business or are (as described in Section 5.1(e) of the Company Disclosure
Schedule) considering conducting business. Section 5.1(e) of the Company
Disclosure Schedule also contains true, correct and complete copies of
studies prepared for the Company by Price Waterhouse and Ernst & Young. To
the actual knowledge of the Company (without independent verification), the
information contained in such studies with respect to those
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countries in which the Company and its subsidiaries presently conduct
business is accurate in all material respects as of the date hereof (it
being acknowledged and agreed that neither of such studies has been updated,
nor has the Company consulted with either of such firms or any third party
in making the representation set forth in this sentence).
(f) Litigation. Except as disclosed in the Company SEC Reports (as
defined in Section 5.1(g)) or as disclosed in writing by the Company to
Parent prior to the date hereof, there are no actions, suits, investigations
or proceedings pending or, to the best knowledge of the Company, threatened
against the Company or any of its subsidiaries that (i) if adversely
determined, would be reasonably likely to result in any claims against or
obligations or liabilities of the Company or any of its subsidiaries that,
alone or in the aggregate, would have a Material Adverse Effect or (ii)
question the validity of this Agreement or any action to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby.
(g) SEC Reports; Financial Statements.
(i) Since January 1, 1992, the Company has filed all forms, reports
and documents with the Securities and Exchange Commission (the "SEC")
required to be filed by it pursuant to the federal securities laws and
the SEC rules and regulations thereunder, all of which complied in all
material respects with all applicable requirements of the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder
(collectively, the "Company SEC Reports"). None of the Company SEC
Reports, including, without limitation, any financial statements or
schedules included therein, at the time filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii) The consolidated balance sheets and the related consolidated
statements of income, stockholders' equity (deficit) and cash flows
(including the related notes thereto) of the Company included in the
Company SEC Reports complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a
basis consistent with prior periods (except as otherwise noted therein),
and present fairly the consolidated financial position of the Company and
its consolidated subsidiaries as of their respective dates, and the
consolidated results of their operations and their cash flows for the
periods presented therein (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments). Except as set
forth in Section 5.1(g) of the Company Disclosure Schedule, since
November 2, 1992, there has not been any material change, or any
application or request for any material change, by the Company or any of
its subsidiaries in accounting principles, methods or policies for
financial accounting purposes that have affected or will affect the
Company's consolidated financial statements included in the Company SEC
Reports or for tax purposes.
(h) Absence of Certain Changes or Events. Neither the Company nor any of
its subsidiaries has any material indebtedness, obligations or liabilities
of any kind (whether accrued, absolute, contingent or otherwise, and whether
due or to become due or asserted or unasserted), and, to the best knowledge
of the Company, there is no basis for the assertion of any claim or
liability of any nature against the Company or any of its subsidiaries,
which is not fully reflected in, reserved against or otherwise described in
the financial statements included in the Company SEC Reports. Except as
disclosed in the Company SEC Reports or as disclosed in writing by the
Company to Parent prior to the date hereof or in Section 5.1(h) of the
Company Disclosure Schedule, since January 1, 1995, the business of the
Company and its subsidiaries has been carried on only in the ordinary and
usual course and there has not been any material adverse change in its
business,
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properties, operations or financial condition and no event has occurred and
no fact or set of circumstances has arisen which has resulted in or could
reasonably be expected to result in a Material Adverse Effect with respect
to the Company and its subsidiaries.
(i) Employment Agreements. Except as set forth in Section 5.1(i) of the
Company Disclosure Schedule, the Company is not a party to any employment,
consulting, non-competition, severance, golden parachute, indemnification
agreement or any other agreement providing for payments or benefits or the
acceleration of payments or benefits upon the change of control of the
Company (including, without limitation, any contract to which the Company is
a party involving employees of the Company).
(j) Brokers and Finders. Except for the fees and expenses payable to
Allen & Company Incorporated, which fees and expenses are reflected in its
agreement with the Company, a true and complete copy of which (including all
amendments) has been furnished to Parent, the Company has not employed any
investment banker, broker, finder, consultant or intermediary in connection
with the transactions contemplated by this Agreement which would be entitled
to any investment banking, brokerage, finder's or similar fee or commission
in connection with this Agreement or the transactions contemplated hereby.
(k) S-4 Registration Statement and Proxy Statement/Prospectus. None of
the information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the S-4 Registration Statement or the Proxy
Statement (as such terms are defined in Section 6.4) will (i) in the case of
the S-4 Registration Statement, at the time it becomes effective or at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, or (ii) in the case of the
Proxy Statement, at the time of the mailing of the Proxy Statement and at
the time of the Stockholder Meeting (as such term is defined in Section
6.3), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event
with respect to the Company, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment
of, or a supplement to, the Proxy Statement or the S-4 Registration
Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. The Proxy Statement will
(only with respect to the Company) comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
(l) Taxes. The Company and each subsidiary of the Company has (x) filed
all returns, declarations, reports, information returns and statements of
whatsoever kind ("Tax Returns") in respect of all federal and all material
state, county, local, foreign and other Taxes (as defined below), that it is
required to file through the date hereof, and (y) paid or provided for the
payment of all Taxes shown due on such Tax Returns and all Taxes, if any,
required to be paid for which no return is required. True and complete
copies of all federal, state, local and foreign Tax Returns relating to the
last three taxable years of the Company and its subsidiaries have been
delivered or made available to Parent. True and complete copies of the
foreign income tax returns for the last taxable year of the Company's
subsidiaries for Germany, Italy, Sweden and the United Kingdom have been
delivered to Parent. Except as otherwise set forth in Section 5.1(l) of the
Company Disclosure Schedule, the Company and its subsidiaries have not been
audited, or received written notice (and are not otherwise aware) of a
pending or proposed audit, by the Internal Revenue Service or any state,
local or foreign taxing jurisdiction since the year ended December 31, 1990
and no agreements or consents extending the period during which any Taxes
may be assessed or collected are now in force. No material adjustments have
been proposed by, or discussed with, the
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Internal Revenue Service or by, or with, any other taxing authority with
respect to any open tax years or tax returns. Neither the Company nor any of
its subsidiaries nor any predecessor of the foregoing has, during the past 5
years or, to the best knowledge of the Company and its subsidiaries, at any
time prior thereto, filed a consent under section 341(f)(1) of the Code, or
agreed under section 341(f)(3) of the Code to have the provisions of section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company or such
subsidiary. Set forth in Section 5.1(l) of the Company Disclosure Schedule
is a complete list of all material differences for the Company and any
subsidiary between their financial statements and income tax returns which
have the effect of deferring the realization of an item of income to a
period after the period for which such item of income was reported on the
Company's financial statements or accelerating an item of deduction to a
period prior to the period for which the corresponding item of loss or
expense was reported on the Company's financial statements. Except as set
forth in Section 5.1(l) of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries has entered into within the last five
(5) years, or otherwise is a party to or bound by, any agreement providing
for the allocation or sharing of Taxes with any entity which is not, either
directly or indirectly, a subsidiary of the Company. The Company is not a
"United States real property holding corporation" as defined in Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. Except as set forth in Section 5.1(l) of the
Company Disclosure Schedule, no closing agreement pursuant to Section 7121
of the Code or compromise pursuant to Section 7122 of the Code or any
similar provision of state, local or foreign law has been entered into by,
or with respect to, the Company or any of its subsidiaries or any assets
thereof that would be binding on, or affect the computation or reporting of
any Tax liability of, the Company or any subsidiary thereof for (i) any of
the last three taxable years of the Company or any subsidiary thereof ending
on or prior to the Closing Date or (ii) any taxable year of the Company or
any subsidiary thereof ending after the Closing Date. For the purpose of
this Agreement, the term "Tax" (and, with correlative meaning, the terms
"Taxes and "Taxable") shall include all federal, state, local and foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
value added, property, withholding, excise and other taxes, duties or
assessments of any nature whatsoever, together with all interest, penalties
and additions imposed with respect to such amounts.
(m) Employee Benefits. Section 5.1(m) of the Company Disclosure Schedule
contains an accurate and complete list of all Company Benefit Plans (as
defined below). None of the Company Benefit Plans is a "multiemployer plan"
as defined in Section 3(37) of ERISA or a multiple employer plan covered by
Sections 4063 or 4064 of ERISA.
(i) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, each Company Benefit Plan intended to qualify under Section 401
of the Code does so qualify and the trust maintained pursuant thereto is
exempt from federal income taxation under Section 501 of the Code. To the
best knowledge of the Company, nothing has occurred with respect to the
operation of such plans which could cause the loss of such qualification
or exemption or the imposition of any liability, penalty, or tax under
ERISA or the Code.
(ii) True and correct copies of the following documents with respect
to each Company Benefit Plans have been made available or delivered to
Parent by the Company: (1) any plans, and amendments thereto, (2) the
most recent forms 5500 and any financial statements attached thereto, (3)
the last Internal Revenue Service determination letter (if any), (4)
summary plan descriptions, (5) the two most recent actuarial reports,
including any such reports for purposes of FASB 87, 106 and 112, and (6)
written descriptions of all material, non-written agreements relating to
the Company Benefit Plans.
(iii) The Company Benefit Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA
and other applicable law.
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Neither the Company nor any of its subsidiaries has any liability with
respect to a non-exempt prohibited transaction within the meaning of
Section 4975 of the Code or Section 406 of ERISA.
(iv) There has been no transaction involving an ERISA Affiliate while
any Company Benefit Plan subject to Title IV of ERISA has unfunded
benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
(v) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries maintains
retiree life insurance or retiree health plans which are "welfare benefit
plans" within the meaning of Section 3(1) of ERISA and which provide for
continuing benefits or coverage for any participant or any beneficiary of
a participant after such participant's termination of employment where
such participant was an employee of the Company or any subsidiary of the
Company, other than as required by Part 6 of Title I of ERISA and at the
sole expense of the participant or beneficiary.
(vi) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (1) result in
any payment (including, without limitation, bonus or other compensation
severance, unemployment compensation, golden parachute or otherwise)
becoming due to any employee of the Company under any Company Benefit
Plan or otherwise, (2) increase any benefits otherwise payable under any
Company Benefit Plan, or (3) result in the acceleration of the time of
payment or vesting of any such benefits.
(vii) (A) None of the employees of the Company or any of its
subsidiaries is represented in his or her capacity as an employee of such
company by any labor organization; (B) neither the Company nor any of its
subsidiaries has recognized any labor organization nor has any labor
organization been elected as the collective bargaining agent of any of
their employees, nor has the Company or any of its subsidiaries signed
any collective bargaining agreement or union contract recognizing any
labor organization as the bargaining agent of any of their employees; and
(C) to the best knowledge of the Company, there is no active or current
union organization activity involving the employees of the Company or any
subsidiary of the Company, nor has there ever been union representation
involving employees of the Company and/or its subsidiaries.
(viii) For the purposes of this Agreement: (A) the term "Company
Benefit Plan" shall include all employee benefit plans (as defined in
Section 3(3) of ERISA) and all other employee benefit arrangements or
payroll practices, including, without limitation, severance pay, sick
leave, vacation pay, salary continuation for disability, scholarship
programs, stock option or restricted stock plans maintained by the
Company or any ERISA Affiliate of the Company (whether formal or
informal, whether for the benefit of a single individual or for more than
one individual and whether for the benefit of current or former employees
or their beneficiaries) on behalf of the Company or any of the employees
of the Company or any of its subsidiaries or to which or under which or
pursuant to which the Company or any ERISA Affiliate of the Company has
contributed or is obligated to make contributions on behalf of the
Company or any employees of the Company or any of its subsidiaries; (B)
the term "ERISA" shall refer to the Employee Retirement Income Security
Act of 1974, as amended; (C) the term "ERISA Affiliate" shall refer to
any trade or business (whether or not incorporated) under common control
or treated as a single employer with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
(n) Intangible Property. (i) Section 5.1(n) of the Company Disclosure
Statement sets forth a list of each patent, trademark, trade name, service
mark, brand mark, brand name, industrial design and copyright owned or used
in business by the Company and its subsidiaries, as well as all
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registrations thereof and pending applications therefor, and each license or
other contract relating thereto (collectively with any other intellectual
property owned or used in the business by the Company and its subsidiaries,
and all of the goodwill associated therewith, the "Intangible Property") and
indicates, with respect to each item of Intangible Property listed thereon,
the owner thereof and, if applicable, the name of the licensor and licensee
thereof and the terms of such license or other contract relating thereto.
Except as set forth in Section 5.1(n) of the Company Disclosure Schedule,
each of the foregoing is owned free and clear of any and all liens,
mortgages, pledges, security interests, levies, charges, options or any
other encumbrances, restrictions or limitations of any kind whatsoever and
none of the Company or any of its subsidiaries has received any notice to
the effect that any other entity has any claim of ownership with respect
thereto. To the best knowledge of the Company, the use of the foregoing by
the Company and its subsidiaries does not conflict with, infringe upon,
violate or interfere with or constitute an appropriation of any right,
title, interest or goodwill, including, without limitation, any intellectual
property right, patent, trademark, trade name, service mark, brand mark,
brand name, computer program, industrial design, copyright or any pending
application therefor of any other entity. Except as set forth in Section
5.1(n) of the Company Disclosure Schedule, no claims have been made, and
none of the Company or any of its subsidiaries has received any notice, that
any of the foregoing is invalid, conflicts with the asserted rights of other
entities, or has not been used or enforced (or has failed to be used or
enforced) in a manner that would result in the abandonment, cancellation or
unenforceability of any item of the Intangible Property.
(ii) The Company and each of its subsidiaries possesses all Intangible
Property, including, without limitation, all know-how, formulae and other
proprietary and trade rights necessary for the conduct of their businesses
as now conducted. None of the Company or any of its subsidiaries has taken
or failed to take any action that would result in the forfeiture or
relinquishment of any such Intangible Property used in the conduct of their
respective businesses as now conducted.
(o) Certain Contracts. Section 5.1(o) of the Company Disclosure Schedule
lists all of the following contracts to which the Company or a subsidiary is
a party or by which any one of them or any of their properties or assets may
be bound ("Listed Agreements"): (i) all employment or other contracts with
any employee, consultant, officer or director of the Company or any
subsidiary of the Company (or any company which is controlled by any such
individual) whose total rate of annual remuneration is estimated to exceed
$100,000 in 1995; (ii) union, guild or collective bargaining contracts
relating to employees of the Company or any subsidiary; (iii) instruments
for money borrowed (including, without limitation, any indentures,
guarantees, loan agreements, sale and leaseback agreements, or purchase
money obligations incurred in connection with the acquisition of property
other than in the ordinary course of business) in excess of $500,000; (iv)
underwriting, purchase or similar agreements entered into in connection with
the Company's or any of its subsidiaries' currently existing indebtedness;
(v) agreements for acquisitions or dispositions (by merger, purchase or sale
of assets or stock or otherwise) of material assets entered into within the
last two years, as to which the transactions contemplated have been
consummated or are currently pending; (vi) joint venture or partnership
agreements entered into; (vii) material licensing, merchandising and
distribution contracts; (viii) contracts granting any person or other entity
registration rights; (ix) guarantees, suretyships, indemnification and
contribution agreements, in excess of $500,000; (x) contracts between the
Company and its subsidiaries and their ten largest retailers, as measured as
a percent of Company sales to the customers of such retailers; (xi)
contracts with respect to duty-free arrangements including any lease or
revenue-sharing or profit-sharing arrangements; (xii) contracts with any
governmental or quasi-governmental entity concerning refunds or advances;
and (xiii) other contracts which materially affect the business, properties
or assets of the Company and its subsidiaries taken as a whole, and are not
otherwise disclosed in this Agreement or were entered into other than in the
ordinary course of business. A true and complete copy (including all
amendments) of each Listed Agreement and each contract
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with a retailer listed on Exhibit D to Section 5.1(o) of the Company
Disclosure Schedule, has been made available to Parent. Neither the Company
nor any subsidiary (i) to the knowledge of the Company is in breach or
default in any material respect under any of the Listed Agreements or (ii)
has any knowledge of any other material breach or default under any Listed
Agreement by any other party thereto or by any other person or entity bound
thereby, except in the case of (i) or (ii) breaches or defaults which would
not, individually or in the aggregate, have a Material Adverse Effect with
respect to the Company. At the Effective Time, no person will have the
right, by contract or otherwise, to become, nor does any entity have the
right to designate or cause the Company to appoint a person as, a director
of the Company.
(p) Accounting Matters. Neither the Company nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action
that would prevent the Parent from accounting for the business combination
to be effected by the Merger as a "pooling-of-interests." The Company has
not failed to bring to the attention of Parent any actions, or agreements or
understandings, whether written or oral, to act that would be reasonably
likely to prevent Parent from accounting for the Merger as a
pooling-of-interests.
(q) Unlawful Payments and Contributions. To the best knowledge of the
Company, neither the Company, any subsidiary of the Company nor any of their
respective directors, officers or, any of their respective employees or
agents has, with respect to the businesses of the Company and its
subsidiaries, (i) used any funds for any unlawful contribution, endorsement,
gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment to any foreign
or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any person or entity.
(r) Commission Rates. Set forth in Section 5.1(r) of the Company
Disclosure Statement is a list of the commissions earned by the Company and
its subsidiaries in percentages of invoiced VAT and the Swedish Krona amount
of invoiced VAT processed by the Company and its subsidiaries from January
1, 1993 to July 31, 1995.
(s) Listings. The Company's securities are not listed, or quoted, for
trading on any U.S. domestic or foreign securities exchange, except as set
forth in Section 5.1(s) of the Company Disclosure Schedule.
(t) Environmental Matters. Except as disclosed in the Company's SEC
Reports or as disclosed in writing by the Company to Parent prior to the
date hereof, (i) the Company and its subsidiaries and the operations thereof
are in material compliance with all Environmental Laws (as defined below);
(ii) there are no judicial or administrative actions, suits, proceedings or
investigations pending or, to the knowledge of the Company, threatened
against the Company or any subsidiary of the Company alleging the violation
of any Environmental Law and neither the Company nor any subsidiary of the
Company has received notice from any governmental body or person alleging
any violation of or liability under any Environmental Laws, in either case
which could reasonably be expected to result in material Environmental Costs
and Liabilities; and (iii) to the knowledge of the Company, there are no
facts, circumstances or conditions relating to, arising from associated with
or attributable to the Company or its subsidiaries or any real property
currently or previously owned, operated or leased by the Company or its
subsidiaries that could reasonably be expected to result in material
Environmental Costs and Liabilities. For the purpose of this Section 5.1(t),
the following terms have the following definitions: (X) "Environmental Costs
and Liabilities" means any losses, liabilities, obligations, damages, fines,
penalties, judgments, actions, claims, costs and expenses (including,
without limitation, fees, disbursements and expenses of legal counsel,
experts, engineers and consultants and the costs of investigation and
feasibility
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studies, remedial or removal actions and cleanup activities) arising from or
under any Environmental Law; (Y) "Environmental Laws" means any applicable
federal, state, local, or foreign law (including common law), statute, code,
ordinance, rule, regulation or other requirement relating to the
environment, natural resources, or public or employee health and safety; (Z)
"Hazardous Material" means any substance, material or waste regulated by
federal, state or local government, including, without limitation, any
substance, material or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "toxic waste" or "toxic
substance" under any provision of Environmental Law and including but not
limited to petroleum and petroleum products.
(u) Disclosure. No representation or warranty by the Company in this
Agreement and no statement contained in the Schedules to this Agreement or
any certificate delivered by the Company to Merger Sub or Parent pursuant to
this Agreement, contains any untrue statement of a material fact or omits
any material fact necessary to make the statements herein or therein not
misleading when taken together in light of the circumstances in which they
were made, it being understood that as used in this Section 5.1(u)
"material" means material to the Company and its subsidiaries taken as a
whole.
5.2. Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub each represents and warrants to the Company that (except to the
extent set forth on the Disclosure Schedule previously delivered by Parent to
the Company (the "Parent Disclosure Schedule")):
(a) Corporate Organization and Qualification. Each of Parent and its
Significant Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and is qualified and in good standing as a foreign corporation
in each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except where the
failure to so qualify or be in such good standing would not have a Material
Adverse Effect. Each of Parent and its Significant Subsidiaries has all
requisite power and authority (corporate or otherwise) to own its properties
and to carry on its business as it is now being conducted. Parent and Merger
Sub have heretofore made available to the Company complete and correct
copies of their Certificate of Incorporation, as the case may be, and their
respective By-Laws.
(b) Capitalization. The authorized capital stock of Parent consists of
(i) 400,000,000 Parent Common Shares of which, as of September 30, 1995,
approximately 181,000,000 Parent Common Shares were issued and outstanding
and 3,000,000 Parent Common Shares were held in treasury and (ii) 1,000,000
shares of preferred stock, $.01 par value per share (the "Parent Preferred
Shares"), none of which is issued or outstanding. All of the outstanding
shares of capital stock of Parent have been duly authorized and validly
issued and are fully paid and nonassessable. All outstanding shares of
capital stock or other equity interests of the subsidiaries of Parent are
owned by Parent or a direct or indirect wholly-owned subsidiary of Parent,
free and clear of all liens, charges, encumbrances, claims and options of
any nature. Except as set forth in Parent SEC Reports (as defined in Section
5.2(g)) or as contemplated by this Agreement, there are not, as of the date
hereof, any outstanding or authorized options, warrants, calls, rights
(including preemptive rights), commitments or any other agreements of any
character which Parent or any of its subsidiaries is a party to, or may be
bound by, requiring it to issue, transfer, sell, purchase, redeem or acquire
any Parent Common Shares or any shares of capital stock or any of its
securities or rights convertible into, exchangeable for, or evidencing the
right to subscribe for, any shares of capital stock of Parent or any of its
subsidiaries. There are not as of the date hereof and there will not be at
the Effective Time any stockholder agreements, voting trusts or other
agreements or understandings to which Parent is a party or to which it is
bound relating to the voting of any shares of the capital stock of Parent.
Parent has reserved for issuance under a stock option plan or
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plans of Parent a sufficient number of Parent Common Shares to cover the
exercise of the Options and Warrant assumed by Parent in accordance with
Section 4.1(d).
(c) Authorization for Parent Common Shares. Parent has taken all
necessary action to permit it to issue the number of Parent Common Shares
required to be issued pursuant to Article IV. Parent Common Shares issued
pursuant to Article IV will, when issued, be validly issued, fully paid and
nonassessable and no person will have any preemptive right of subscription
or purchase in respect thereof. Parent Common Shares will, when issued, be
registered under the Securities Act and the Exchange Act and registered or
exempt from registration under any applicable state securities laws and
will, when issued, be listed on the NYSE, subject to official notice of
issuance.
(d) Authority Relative to this Agreement. The Board of Directors of
Parent and Merger Sub have each declared the Merger advisable and each of
Parent and Merger Sub has the requisite corporate power and authority to
approve, authorize, execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly
and validly authorized by the respective Boards of Directors of Parent and
Merger Sub and by Parent as sole stockholder of Merger Sub, and no other
corporate proceedings on the part of Parent and Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
each of Parent and Merger Sub and, assuming this Agreement constitutes the
valid and binding agreement of the Company, constitutes valid and binding
agreements of Parent and Merger Sub, enforceable against them in accordance
with its terms, subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity.
(e) Consents and Approvals; No Violation. Except as set forth in Section
5.2(e) of the Parent Disclosure Schedule, neither the execution and delivery
of this Agreement by Parent or Merger Sub nor the consummation by Parent and
Merger Sub of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the respective Certificate of
Incorporation and the respective By-Laws of Parent and Merger Sub; (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) in
connection with the applicable requirements, if any, of the HSR Act, (B)
pursuant to the applicable requirements of the Securities Act and the
Exchange Act, (C) the filing of the Certificate of Merger pursuant to the
DGCL and appropriate documents with the relevant authorities of other states
in which Parent is authorized to do business, (D) as may be required by any
applicable state securities or takeover laws, (E) such filings and consents
as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement,
(F) such filings, consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the laws of
any foreign country, (G) filings with, and approval of, the NYSE or, (H)
where the failure to obtain such consent, approval, authorization or permit,
or to make such filing or notification, would not in the aggregate have a
Material Adverse Effect or adversely affect the ability of Parent or Merger
Sub to consummate the transactions contemplated hereby; (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or lien or other charge or encumbrance) under
any of the terms, conditions or provisions of any note, license, agreement
or other instrument or obligation to which Parent or any of its subsidiaries
or any of their assets may be bound, except for such violations, breaches
and defaults (or rights of termination, cancellation, or acceleration or
lien or other charge or encumbrance) as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not have a
Material Adverse Effect or adversely affect the ability of Parent and Merger
Sub to consummate
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the transactions contemplated hereby; or (iv) assuming the consents,
approvals, authorizations or permits and filings or notifications referred
to in this Section 5.2(e) are duly and timely obtained or made, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or any of its subsidiaries or to any of their respective assets,
except for violations which would not in the aggregate have a Material
Adverse Effect or adversely affect the ability of Parent and Merger Sub to
consummate the transactions contemplated hereby.
(f) Ownership of Merger Sub; No Prior Activities; Assets of Merger Sub.
(i) Merger Sub was formed solely for the purpose of the Merger and
engaging in the transactions contemplated hereby.
(ii) As of the date hereof and the Effective Time, the capital stock
of Merger Sub is and will be directly owned 100% by Parent. Further,
there are not as of the date hereof and there will not be at the
Effective Time any outstanding or authorized options, warrants, calls,
rights, commitments or any other agreements of any character which Merger
Sub is a party to, or may be bound by, requiring it to issue, transfer,
sell, purchase, redeem or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for or acquire, any shares of capital stock of
Merger Sub.
(iii) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation
or organization and the transactions contemplated hereby, Merger Sub has
not and will not have incurred, directly or indirectly through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business or activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person or entity.
(g) SEC Reports; Financial Statements.
(i) Since January 1, 1992, Parent has filed all forms, reports and
documents with the SEC required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder, all of
which complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act (the "Parent SEC Reports").
None of Parent SEC Reports, including, without limitation, any financial
statements or schedules included therein, at the time filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(ii) The consolidated balance sheets and the related statements of
income, stockholders' equity and cash flow (including the related notes
thereto) of Parent included in Parent SEC Reports comply as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior periods (except as otherwise
noted therein), and present fairly the consolidated financial position of
Parent and its consolidated subsidiaries as of their respective dates,
and the results of its operations and its cash flow for the periods
presented therein (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
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(h) Absence of Certain Changes or Events. Except as disclosed in Parent
SEC Reports filed by Parent and as set forth in Section 5.2(h) of the Parent
Disclosure Schedule, since January 1, 1995, the business of Parent has been
carried on only in the ordinary and usual course and there has not been any
adverse change in its business, properties, operations or financial
condition and no event has occurred and no fact or set of circumstances has
arisen which has resulted in or could reasonably be expected to result in a
Material Adverse Effect.
(i) Litigation. Except as disclosed in the Parent SEC Reports, there are
no actions, suits, investigations or proceedings pending or, to the best
knowledge of Parent threatened against Parent or any of its subsidiaries
that (i) if adversely determined, would be reasonably likely to result in
any claims against or obligation or liabilities of Parent or any of its
subsidiaries that, alone or in the aggregate, would have a Material Adverse
Effect or (ii) question the validity of the Agreement or any action to be
taken by Parent in connection with the consummation of the transactions
contemplated hereby.
(j) S-4 Registration Statement and Proxy Statement/Prospectus. None of
the information to be supplied by Parent or Merger Sub for inclusion or
incorporation by reference in the S-4 Registration Statement will, at the
time it becomes effective and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time any event with
respect to Parent, its officers and directors or any of its subsidiaries
shall occur which is required to be described in the S-4 Registration
Statement, such event shall be so described, and an amendment or supplement
shall be promptly filed with the SEC and, as required by law, disseminated
to the stockholders of the Parent. The S-4 Registration Statement will
comply (only with respect to Parent and Merger Sub) as to form in all
material respects with the provisions of the Securities Act and the rules
and regulations promulgated thereunder.
(k) Brokers and Finders. Parent has not employed any investment banker,
broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
(l) Ownership of Shares. As of the date hereof, none of the Parent
Companies owns any Shares.
(m) Accounting Matters. Neither Parent nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action
that would prevent Parent from accounting for the business combination to be
effected by the Merger as a "pooling-of-interests." Parent has not failed to
bring to the attention of the Company any actions, or agreements or
understandings, whether written or oral, to act that would be reasonably
likely to prevent Parent from accounting for the Merger as a
pooling-of-interests.
(n) Disclosure. No representation or warranty by Parent or Merger Sub in
this Agreement and no statement contained in the Schedules to this Agreement
or any certificate delivered by Parent or Merger Sub to the Company pursuant
to this Agreement, contains any untrue statement of a material fact or omits
any material fact necessary to make the statements herein or therein not
misleading when taken together in light of the circumstances in which they
were made, it being understood that as used in this Section 5.2(m)
"material" means material to Parent or Merger Sub and their subsidiaries
taken as a whole.
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ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1. Conduct of Business.
(a) The Company covenants and agrees that, during the period from the
date of this Agreement to the Effective Time (unless Parent shall otherwise
agree in writing and except as otherwise contemplated by this Agreement),
the Company will, and will cause each of its subsidiaries to, conduct its
operations according to its ordinary and usual course of business consistent
with past practice and, to the extent consistent therewith, with no less
diligence and effort than would be applied in the absence of this Agreement,
seek to preserve intact its current business organizations, keep available
the service of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings
with it to the end that goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Without limiting the generality of the foregoing, and
except as otherwise permitted in this Agreement, prior to the Effective
Time, neither the Company nor any of its subsidiaries will, without the
prior written consent of Parent (i) except (x) as otherwise provided in this
Agreement or as set forth in Section 6.1(a) of the Company Disclosure
Schedule and (y) for shares to be issued upon exercise of the outstanding
Options and the Warrant, as the case may be, issue, deliver, sell, dispose
of, pledge or otherwise encumber, or authorize or propose the issuance,
sale, disposition or pledge or other encumbrance of (A) any additional
shares of capital stock of any class, or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for
any shares of capital stock, or any rights, warrants, options, calls,
commitments or any other agreements of any character to purchase or acquire
any shares of capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock, or (B) any other securities in respect of, in lieu of, or in
substitution for, Shares outstanding on the date hereof, (ii) except as
provided in Section 4.1(b), redeem, purchase or otherwise acquire, or
propose to redeem, purchase or otherwise acquire, any of its outstanding
securities (including the Shares), (iii) split, combine, subdivide or
reclassify any shares of its capital stock or declare, set aside for payment
or pay any dividend, or make any other actual, constructive or deemed
distribution in respect of any shares of its capital stock or otherwise make
any payments to stockholders in their capacity as such, except for regular
quarterly dividends on the Preferred Shares not in excess of $.3125 per
share in accordance with customary record and payment dates, (iv) adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or
any of its subsidiaries not constituting an inactive subsidiary (other than
the Merger), (v) adopt any amendments to its Certificate of Incorporation or
By-Laws or alter through merger, liquidation, reorganization, restructuring
or in any other fashion the corporate structure or ownership of any
subsidiary not constituting an inactive subsidiary of the Company, (vi) make
any acquisition, by means of merger, consolidation or otherwise, or
disposition, of assets or securities, except for joint venture agreements
under negotiation in the countries set forth in Section 6.1(a) of the
Company Disclosure Schedule, (vii) other than in the ordinary course of
business consistent with past practice and except to the extent required
under any joint venture agreement listed in Section 5.1(b) of the Company
Disclosure Schedule or as set forth in Section 6.1(a) of the Company
Disclosure Schedule, incur any indebtedness for borrowed money or guarantee
any such indebtedness or make any loans, advances or capital contributions
to, or investments in, any other person, other than to the Company or any
wholly owned subsidiary of the Company, (viii) take any action with respect
to the Warrant other than as contemplated by the Warrant Amendment, dated
the date hereof, between the Company and Allen & Company Incorporated, (ix)
except as set forth in Section 6.1(a) of the Company Disclosure Schedule,
make or revoke any material Tax election, settle or compromise any material
federal, state, local or foreign Tax liability or change (or make a request
to any taxing authority to
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change) any material aspect of its method of accounting for Tax purposes
(except that the Company and its subsidiaries may make Tax elections that
are consistent with prior such elections (in past years) so long as the
Company provides Parent with reasonable prior notice, to the extent
possible, of its intention to do so (it being understood that the giving of
such notice shall not be deemed a request for, or give Parent a right of,
approval of such election)), (x) incur any liability for Taxes other than in
the ordinary course of business, or (xi) authorize, recommend, propose or
announce an intention to do any of the foregoing, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing.
(b) The Company and its subsidiaries shall not (without the prior
written consent of Parent) grant any material increases in the compensation
of any of its directors, officers or key employees, except in the ordinary
course of business and in accordance with its customary past practices; (A)
pay or agree to pay any pension, retirement allowance or other employee
benefit not required or contemplated by any of the existing benefit,
severance, pension or employment plans, agreements or arrangements as in
effect on the date hereof to any such director, officer or key employee,
whether past or present; (B) enter into any new or materially amend any
existing employment or severance agreement with any such director, officer
or key employee; or (C) except as may be required to comply with applicable
law, become obligated under any new pension plan, welfare plan,
multi-employer plan, employee benefit plan, severance plan, benefit
arrangement, or similar plan or arrangement, which was not in existence on
the date hereof, or amend any such plan or arrangement in existence on the
date hereof if such amendment would have the effect of enhancing any
benefits thereunder.
6.2. No Solicitation. (a) The Company, its subsidiaries and their respective
officers, directors, employees, representatives, agents or affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) (collectively, the
"Company's Representatives") shall immediately cease any discussions or
negotiations with any party that may be ongoing with respect to a Competing
Transaction (as defined below). From and after the date hereof until the
termination of this Agreement, neither the Company nor any of its subsidiaries
will, nor will the Company authorize or permit any of its subsidiaries or any of
the Company Representatives to, directly or indirectly, initiate, solicit or
knowingly encourage (including by way of furnishing non-public information), or
take any other action to facilitate knowingly, any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction, or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction or agree to or endorse any Competing Transaction,
and the Company shall notify Parent orally (within one business day) and in
writing (as promptly as practicable) of all of the relevant details relating to
all inquiries and proposals which it or any of its subsidiaries or any such
Company Representative may receive relating to any of such matters and, if such
inquiry or proposal is in writing, the Company shall deliver to Parent a copy of
such inquiry or proposal promptly provided, however, that the Company shall not
be obligated to deliver to Parent a copy of such written inquiry or proposal if
the Board of Directors of the Company, after consultation with and based upon
the advice of independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), determines in good faith that delivery to
Parent of such written inquiry or proposal would cause the Board of Directors of
the Company to breach its fiduciary duties to stockholders under applicable law;
provided, further, that nothing contained in this Section 6.2 shall prohibit the
Company or its Board of Directors from (i) taking and disclosing to its
stockholders a position contemplated by Exchange Act Rule 14e-2 or (ii) making
any disclosure to its stockholders that, in the good faith judgment of its Board
of Directors, after consultation with and based upon the advice of independent
legal counsel (who may be the Company's regularly engaged independent legal
counsel), is required under applicable law; provided, further, however, that
nothing contained in this Section 6.2 shall prohibit the Company from (A)
furnishing information to, or entering into discussions or negotiations with,
any person or entity that after the date hereof states in an unsolicited writing
that
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it has a bona fide serious interest to make a Superior Proposal (as defined
below) if (1) (x) the Board of Directors of the Company, after consultation with
and based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith that such
action is necessary for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable law and (y) after consultation
with and based upon the advice of an independent financial advisor (who may be
the Company's regularly engaged independent financial advisor) determines in
good faith that such person or entity is capable of making, financing and
consummating a Superior Proposal and (2) prior to taking such action, the
Company (x) provides reasonable notice to Parent to the effect that it is taking
such action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form or (B) failing to make or
withdrawing or modifying its recommendation referred to in Section 6.2(b) if
there exists a Competing Transaction and the Board of Directors of the Company,
after consultation with and based upon the advice of independent legal counsel
(who may be the Company's regularly engaged independent counsel), determines in
good faith that such action is necessary for the Board of Directors of the
Company to comply with its fiduciary duties to stockholders under applicable
law. For purposes of this Agreement, "Competing Transaction" shall mean any of
the following (other than the transactions between the Company, Parent and
Merger Sub contemplated hereunder) involving the Company: (i) any merger,
consolidation, share exchange, recapitalization, business combination, or other
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of all or a substantial portion of the assets of the
Company and its subsidiaries, taken as a whole, or of more than 25% of the
equity securities of the Company or any of its subsidiaries, in any case in a
single transaction or series of transactions; (iii) any tender offer or exchange
offer for 25% or more of the outstanding shares of capital stock of the Company
or the filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
(b) Except as set forth in this Section 6.2, the Board of Directors of
the Company shall not approve or recommend, or cause the Company to enter
into any agreement with respect to, any Competing Transaction.
Notwithstanding the foregoing, if the Board of Directors of the Company,
after consultation with and based upon the advice of independent legal
counsel (who may be the Company's regularly engaged independent legal
counsel), determines in good faith that it is necessary to do so in order to
comply with its fiduciary duties to stockholders under applicable law, the
Board of Directors of the Company may approve or recommend a Superior
Proposal (as defined below) or cause the Company to enter into an agreement
with respect to a Superior Proposal, but in each case only after providing
reasonable written notice to Parent (a "Notice of Superior Proposal")
advising Parent that the Board of Directors of the Company has received a
Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal.
In addition, if the Company proposes to enter into an agreement with respect
to any Competing Transaction, it shall concurrently with entering into such
an agreement pay, or cause to be paid, to Parent the fee required by Section
8.5(a) hereof. For purposes of this Agreement, a "Superior Proposal" means
any bona fide proposal to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, all or substantially all the Shares
then outstanding or all or substantially all the assets of the Company and
otherwise on terms which the Board of Directors of the Company determines in
its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to the Company's
stockholders than the Merger.
6.3. Meeting of Stockholders. The Company will take all action necessary in
accordance with applicable law and its Certificate of Incorporation and By-Laws
to convene a meeting of its stockholders (the "Stockholder Meeting") as promptly
as practicable to consider and vote upon the approval of the Merger. Subject to
the fiduciary duties of the Company's Board of Directors under applicable law
after consultation with and based upon the advice of independent legal counsel
the Board of Directors of the
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Company shall recommend and declare advisable such approval and the Company
shall take all lawful action to solicit, and use its best efforts to obtain,
such approval.
6.4. Registration Statement. Parent will, as promptly as practicable,
prepare and file with the SEC a registration statement on Form S-4 (the "S-4
Registration Statement"), containing a proxy statement/prospectus and a form of
proxy, in connection with the registration under the Securities Act of Parent
Common Shares issuable upon conversion of the Shares and the other transactions
contemplated hereby. The Company will, as promptly as practicable, prepare and
file with the SEC a proxy statement that will be the same proxy
statement/prospectus contained in the S-4 Registration Statement and a form of
proxy, in connection with the vote of the Company's stockholders with respect to
the Merger (such proxy statement/prospectus, together with any amendments
thereof or supplements thereto, in each case in the form or forms mailed to the
Company's stockholders, is herein called the "Proxy Statement"). Parent and the
Company will, and will cause their accountants and lawyers to, use their best
efforts to have or cause the S-4 Registration Statement declared effective as
promptly as practicable, including, without limitation, causing their
accountants to deliver necessary or required instruments such as opinions and
certificates, and will take any other action required or necessary to be taken
under federal or state securities laws or otherwise in connection with the
registration process, it being understood and agreed that Katten Muchin & Zavis,
counsel to the Company, will render the tax opinion referred to in Section
7.2(g) on (i) the date the preliminary Proxy Statement is filed with the SEC and
(ii) the date the S-4 Registration Statement is filed with the SEC. The Company
will use its best efforts to cause the Proxy Statement to be mailed to
stockholders of the Company at the earliest practicable date and will coordinate
and cooperate with Parent with respect to the timing of the Stockholder Meeting
and shall use its best efforts to hold such Stockholder Meeting as soon as
practicable after the date hereof.
6.5. Best Efforts. The Company and Parent shall: (i) promptly make their
respective filings and thereafter make any other required submissions under all
applicable laws with respect to the Merger and the other transactions
contemplated hereby; and (ii) use their best efforts to promptly take, or cause
to be taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable.
6.6. Access to Information. Upon reasonable notice, the Company shall (and
shall cause each of its subsidiaries to) afford to officers, employees, counsel,
accountants and other authorized representatives of Parent ("Parent's
Representatives") reasonable access, during normal business hours throughout the
period prior to the Effective Time, to its properties, books and records and,
during such period, shall (and shall cause each of its subsidiaries to) furnish
promptly to Parent's Representatives all information concerning its business,
properties and personnel as may reasonably be requested, provided that no
investigation pursuant to this Section 6.6 shall affect or be deemed to modify
any of the representations or warranties made by the Company. Parent agrees that
it will not, and will cause Parent's Representatives not to, use any information
obtained pursuant to this Section 6.6 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. In connection
with the foregoing, the Company agrees to use its best efforts to cause the
Company's independent accountants to provide their workpapers to Parent, subject
to the confidentiality provisions of this Section 6.6. Subject to the
requirements of law, Parent will keep confidential, and will cause Parent's
Representatives to keep confidential, all information and documents obtained
pursuant to this Section 6.6 except as otherwise consented to by the Company;
provided, however, that Parent shall not be precluded from making any disclosure
which it deems required by law in connection with the Merger. In the event
Parent is required to disclose any information or documents pursuant to the
immediately preceding sentence, Parent shall give prompt prior notice of such
disclosure to the Company. Upon any termination of this Agreement, Parent will
collect and deliver to the Company all documents obtained pursuant to this
Section 6.6 by it or any of Parent's Representatives then in their
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possession and any copies thereof. Notwithstanding anything to the contrary
contained herein, in the event this Agreement is terminated and the Merger
abandoned pursuant to Article VIII, the terms of the Confidentiality Agreement,
dated August 23, 1995 (the "Confidentiality Agreement"), between Parent and the
Company shall survive such termination subject to the conditions and limitations
set forth in such Confidentiality Agreement.
6.7. Publicity. The parties hereto agree that they will consult with each
other concerning any proposed press release or public announcement pertaining to
the Merger in order to seek to agree upon the text of any such press release or
the making of such public announcement.
6.8. Indemnification of Directors and Officers.
(a) From and after the Effective Time, Parent shall, and shall cause the
Surviving Corporation to, indemnify, defend and hold harmless the present
and former officers, directors and employees of the Company and any of its
subsidiaries against all losses, expenses, claims, damages or liabilities
arising out of actions or omissions occurring on or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement) to the full extent (not otherwise covered by insurance) permitted
or required under applicable law (and shall also advance expenses as
incurred to the fullest extent permitted under applicable law, provided that
the person to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such person is not
entitled to indemnification); provided, however, the indemnification
provided hereunder by Parent shall not be greater than (x) the
indemnification permissible pursuant to the Company's Certificate of
Incorporation and By-Laws, as in effect as of the date hereof or (y) the
indemnification actually provided by the Company as of the date hereof.
Parent and Merger Sub agree that all rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any
action or suit, existing in favor of the present or former directors,
officers, employees, fiduciaries and agents of the Company or any of its
subsidiaries (collectively, the "Indemnified Parties") as provided in the
Company's Certificate of Incorporation or By-Laws or pursuant to other
agreements, or certificates of incorporation or by-laws or similar documents
of any of the Company's subsidiaries, as in effect as of the date hereof,
with respect to matters occurring through the Effective Time, shall survive
the Merger and shall continue in full force and effect for a period of five
(5) years from the Effective Time; provided, however, that all rights to
indemnification in respect of any claim (a "Claim") asserted or made within
such period shall continue until the disposition of such Claim.
(b) Parent shall cause to be maintained in effect for not less than
three (3) years the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by the Company and
the Company's subsidiaries with respect to matters occurring prior to the
Effective Time to the extent required to cover the types of actions and
omissions currently covered by such policies; provided, however, that (i)
Parent may substitute therefor policies of substantially the same coverage
containing terms and conditions which are not less advantageous, in any
material respect, to the Indemnified Parties and (ii) Parent shall not be
required to pay an annual premium for such insurance in excess of $150,000
but in such case shall purchase as much coverage as possible for such
amount.
(c) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Agreement is
commenced, whether before or after the Closing, the parties hereto agree to
cooperate and use their respective best efforts to vigorously defend against
and respond thereto.
(d) This Section 6.8 is intended to benefit the Indemnified Parties and
shall be binding on all successors and assigns of Parent, Merger Sub, the
Company and the Surviving Corporation.
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6.9. Affiliates of the Company. The Company has identified to Parent each
Company Affiliate and each Company Affiliate has delivered to Parent on or prior
to the date hereof, a written agreement (i) that such Company Affiliate will not
sell, pledge, transfer or otherwise dispose of any Parent Common Shares issued
to such Company Affiliate pursuant to the Merger, except in compliance with Rule
145 promulgated under the Securities Act or an exemption from the registration
requirements of the Securities Act and (ii) that on or prior to the earlier of
(x) the mailing of the Proxy Statement/Prospectus or (y) the thirtieth day prior
to the Effective Time such Company Affiliate will not thereafter sell or in any
other way reduce such Company Affiliate's risk relative to any Parent Common
Shares received in the Merger (within the meaning of the SEC's Financial
Reporting Release No. 1, "Codification of Financing Reporting Policies," Sec.
201.01 47 F.R. 21028 (April 15, 1982)), until such time as financial results
(including combined sales and net income) covering at least 30 days of post-
merger operations have been published, except as permitted by Staff Accounting
Bulletin No. 76 issued by the SEC.
6.10. Taxes. In respect of Tax Returns of the Company or any subsidiary not
required to be filed prior to the date hereof, the Company shall, to the extent
permitted by law without any penalty, delay (or cause such subsidiary to delay)
the filing of any such Tax Returns until after the Effective Time; provided,
however, that the Company shall notify Parent of its intention to delay (or
cause such subsidiary to delay) any such filing and shall not so delay the
filing of a Tax Return if Parent and the Company agree that so delaying the
filing of such Tax Return is not in the best interests of either the Company or
Parent. If any such Tax Return is required to be filed on or prior to the
Effective Time, the Company or its subsidiaries, as the case may be, shall
prepare and timely file such Tax Return in a manner consistent with prior years
and all applicable laws and regulations; provided, however, that Parent shall be
notified and given an opportunity to review and to comment, prior to the filing
thereof, on any such Tax Return (a) which relates to a Tax which is based upon
or measured by income, (b) which is not regularly filed by the Company or a
subsidiary thereof in connection with the conduct of its business in the
ordinary course, or (c) for which Parent requests such opportunity, although
neither Parent's approval nor consent shall be required prior to the filing of
any such Tax Return.
6.11. Maintenance of Insurance. Between the date hereof and through the
Effective Time the Company will use its best efforts to maintain in full force
and effect all of its presently existing policies of insurance or insurance
comparable to the coverage afforded by such policies.
6.12. Representations and Warranties. Neither the Company on the one hand,
nor Parent or Merger Sub on the other, will take any action that would cause any
of the representations and warranties set forth in Section 5.1 or 5.2, as the
case may be, not to be true and correct in all material respects at and as of
the Effective Time.
6.13. Filings; Other Action. Subject to the terms and conditions herein
provided, the Company, Parent and Merger Sub shall: (a) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act, the Securities Act and the Exchange Act with respect to the Merger; and
(b) use best efforts promptly to take, or cause to be taken, all other actions
and do, or cause to be done, all other things necessary, proper or appropriate
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable.
6.14. Notification of Certain Matters. Each of the Company and Parent shall
give prompt notice to the other of (a) any notice of, or other communication
relating to, a default or event which, with notice or lapse of time or both,
would become a default, received by it or any of its subsidiaries subsequent to
the date of this Agreement and prior to the Effective Time, under any contract
material to the financial condition, properties, businesses or results of
operations of it and its subsidiaries taken as a whole to which it or any of its
subsidiaries is a party or is subject, (b) any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection
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with the transactions contemplated by this Agreement, or (c) any material
adverse change in their respective financial condition, properties, businesses
or results of operations, taken as a whole, other than changes resulting from
general economic conditions.
6.15. Pooling Accounting. None of the Company, any of its subsidiaries,
Parent nor Merger Sub will take any action that could prevent the Merger from
being accounted for as a pooling-of-interests and the Company will bring to the
attention of Parent, and Parent will bring to the attention of the Company, any
actions, or agreements or understandings, whether written or oral, to act that
could be reasonably likely to prevent Parent from accounting for the Merger as a
pooling-of-interests.
6.16. Blue Sky Permits. Parent shall use its best efforts to obtain, prior
to the effective date of the S-4 Registration Statement, all necessary state
securities laws or "blue sky" permits and approvals required to carry out the
transactions contemplated by this Agreement and the Merger, and will pay all
expenses incident thereto.
6.17. NYSE Listing. Parent shall use its best efforts to cause the Parent
Common Shares constituting the Share Consideration to be listed on the NYSE,
subject to notice of official issuance thereof.
6.18. Pooling Letter. Parent shall use commercially reasonable efforts to
cause Ernst & Young LLP ("E&Y") to deliver to Parent a letter to the effect that
pooling-of-interests accounting is appropriate for the Merger if it is closed
and consummated in accordance with the terms of this Agreement, and the Company
shall use commercially reasonable efforts to cause Deloitte & Touche LLP
("Deloitte") to cooperate fully with E&Y (including, without limitation, sharing
information, analysis and work product, engaging in active discussions and
delivering to the Company a letter substantially similar to E&Y's letter to
Parent) in connection with E&Y's delivery of such letter.
6.19. Comfort Letter. The Company shall use its best efforts to cause to be
delivered to Parent a letter of Deloitte, independent public accountants to the
Company, dated a date within two business days before the date on which the S-4
Registration Statement shall become effective and addressed to Parent, in form
and substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4 Registration Statement.
6.20. Tax-Free Reorganization Treatment. The Company, Parent and Merger Sub
shall execute and deliver to Katten Muchin & Zavis, counsel to the Company, a
certificate substantially in the form attached hereto as Exhibit C at such time
or times as reasonably requested by such law firm in connection with its
delivery of an opinion with respect to the transactions contemplated hereby, and
shall provide a copy thereof to Parent and the Company. Prior to the Effective
Time, none of the Company, Parent or Merger Sub shall take or cause to be taken
any action which would cause to be untrue (or fail to take or cause not to be
taken any action which would cause to be true) any of the representations in
Exhibit C.
6.21. Combined Operations. Parent agrees to make publicly available
financial statements reflecting at least 30 days of combined operations of
Parent and the Company on or prior to March 5, 1996.
6.22. Employment Agreements. At the Closing, Parent shall offer or cause the
Surviving Corporation to offer to enter into employment agreements with each of
the individuals listed in Section 6.22 of the Company Disclosure Schedule (the
"Employment Agreements"), each such agreement to be substantially in the form
previously agreed to among Parent, the Company and each such individual on or
prior to the date hereof.
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ARTICLE VII
CONDITIONS
7.1. Conditions to the Obligations of Parent and Merger Sub. The respective
obligations of Parent and Merger Sub to consummate the Merger are subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by Parent or Merger Sub, as
the case may be, to the extent permitted by applicable law.
(a) Certificate. The representations and warranties of the Company set
forth in this Agreement shall be true and correct in all material respects
on and as of the Effective Time with the same force and effect as though the
same had been made on and as of the Effective Time (except to the extent
they relate to a particular date), the Company shall have performed in all
material respects all of its material obligations under this Agreement
theretofore to be performed, and Parent shall have received at the Effective
Time a certificate to that effect dated the Effective Time and executed by
the President of the Company.
(b) Company Stockholder Approval. This Agreement shall have been duly
approved by the holders of a majority of the outstanding Common Shares, in
accordance with applicable law and the Certificate of Incorporation and
By-Laws of the Company.
(c) Injunction. There shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transactions contemplated herein
not be consummated; provided, however, that prior to invoking this condition
Parent shall use its best efforts to have such injunction or order vacated.
(d) S-4 Registration Statement; "Blue Sky" Permits. The S-4 Registration
Statement shall have become effective and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued and
no proceedings for such purpose shall have been initiated and be continuing
or threatened by the SEC. Parent shall have received all state securities
laws or "blue sky" permits and other authorizations necessary to issue
Parent Common Shares in exchange for the Shares in the Merger.
(e) Listing of Parent Common Shares. The Parent Common Shares
constituting the aggregate Share Consideration and the other such shares
required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on the NYSE, subject to notice of official
issuance.
(f) Governmental Filings and Consents; HSR Act. (i) All governmental
filings required to be made prior to the Effective Time by the Company with,
and all governmental consents required to be obtained prior to the Effective
Time from, governmental and regulatory authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby shall have been made or obtained, except
where the failure to make such filing or obtain such consent would not
reasonably be expected to have a Material Adverse Effect on Parent (assuming
the Merger had taken place) and (ii) the waiting periods under the HSR Act
shall have expired or been terminated.
(g) Pooling Letter. Parent shall have received from E&Y a letter to the
effect that pooling-of-interests accounting is appropriate for the Merger
pursuant to 6.18 of this Agreement.
(h) Third Party Consents. All required authorizations, consents and
approvals of any third party (other than a governmental authority), the
failure to obtain which would have a Material Adverse Effect on Parent
(assuming the Merger had taken place), shall have been obtained.
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(i) Delivery of Comfort Letter. Deloitte shall have delivered to the
Company, for delivery by it to Parent, one or more letters with respect to
the financial information contained in the Proxy Statement as contemplated
by Section 6.19.
(j) Termination of Options. The Option Plans shall have been terminated
or substituted in a manner satisfactory to Parent. The Advance Ross
Corporation 1995 Directors Deferral Plan shall have been duly and validly
terminated by action of the Company's Board of Directors and all outstanding
options thereunder shall have been terminated without further liability on
the part of the Company or Parent to the holders thereof.
(k) Affiliate Letters. Each Company Affiliate shall have performed all
of their respective obligations under their respective Affiliate Letters,
Allen & Company Incorporated shall have performed all of its obligations
under the letter, dated the date hereof, from such firm to the Company and
Parent, and Parent shall have received certificates signed by each of them
to such effect.
(l) Termination of Advisory Agreement. The agreement between the Company
and Allen & Company Incorporated referred to in Section 5.1(i) of the
Company Disclosure Schedule shall have been terminated without further
liability thereunder for advisory fees for future periods on the part of the
Company, and Parent shall have received satisfactory evidence thereof except
that the indemnification provisions of such agreement shall survive the
Merger.
7.2. Conditions to the Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the fulfillment at or prior to
the Effective Time of the following conditions, any or all of which may be
waived in whole or in part by the Company to the extent permitted by applicable
law.
(a) Certificate. The representations and warranties of Parent and Merger
Sub set forth in this Agreement shall be true and correct in all material
respects on and as of the Effective Time with the same force and effect as
though the same had been made on and as of the Effective Time (except to the
extent they relate to a particular date), Parent and Merger Sub shall have
performed all material respects all of their respective obligations under
this Agreement theretofore to be performed, and the Company shall have
received at the Effective Time a certificate to that effect dated the
Effective Time and executed by the President of Parent.
(b) Company Stockholder Approval. This Agreement shall have been duly
approved by the holders of a majority of the outstanding Common Shares, in
accordance with applicable law and the Certificate of Incorporation and
By-Laws of the Company.
(c) Injunction. There shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transactions contemplated herein
not be consummated; provided, however, that prior to invoking this condition
the Company shall use its best efforts to have such injunction or order
vacated.
(d) S-4 Registration Statement; "Blue Sky" Permits. The S-4 Registration
Statement shall have become effective and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued and
no proceedings for such purpose shall have been initiated and be continuing
or threatened by the SEC. Parent shall have received all state securities
laws or "blue sky" permits and other authorizations necessary to issue
Parent Common Shares in exchange for the Shares in the Merger.
(e) Listing of Parent Common Shares. The Parent Common Shares
constituting the aggregate Share Consideration and such other shares
required to be reserved for issuance in connection
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with the Merger shall have been authorized for listing on the NYSE, subject
to official notice of issuance.
(f) HSR Act. The waiting periods under the HSR Act shall have expired or
been terminated.
(g) Tax Opinion. The Company shall have received an opinion of Katten
Muchin & Zavis, dated the Closing Date, to the effect that (i) the Merger
will be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code; (ii) each of the Parent, Merger
Sub and the Company will be a party to the reorganization within the meaning
of Section 368(b) of the Code; and (iii) no gain or loss will be recognized
by a shareholder of the Company as a result of the Merger with respect to
Shares converted solely into shares of Parent Common Stock. In rendering
such opinion, Katten Muchin & Zavis may receive and rely upon
representations contained in certificates of Parent, Merger Sub and the
Company, and certain shareholders of the Company as requested by Katten
Muchin & Zavis.
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by holders of Common Shares, either by the mutual written consent
of Parent and the Company, or by mutual action of their respective Boards of
Directors.
8.2. Termination by either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or the Company if (i) the Merger shall not have been
consummated by January 31, 1996 (provided that the right to terminate this
Agreement under this Section 8.2(i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); (ii) any
court of competent jurisdiction in the United States or some other governmental
body or regulatory authority shall have issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; or (iii) the Merger shall have been voted on by
stockholders of the Company at a meeting duly convened therefor and the vote
shall not have been sufficient to satisfy the conditions set forth in Sections
7.1(b) and 7.2(b).
8.3. Termination by Parent. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
approval by holders of Shares, by action of the Board of Directors of Parent, if
(i) the Company shall have failed to comply in any material respect with any of
the covenants, conditions or agreements contained in this Agreement to be
complied with or performed by the Company at or prior to such date of
termination, which failure to comply has not been cured within five business
days following receipt by the Company of notice of such failure to comply, (ii)
any representation or warranty of the Company contained in the Agreement shall
not be true in all material respects when made (provided such breach has not
been cured within five business days following receipt by the Company of notice
of the breach) or (except to the extent they relate to a particular date) on and
as of the Effective Time as if made on and as of the Effective Time, or (iii)
(A) the Board of Directors of the Company shall withdraw, modify or change its
recommendation of this Agreement or the Merger in a manner adverse to Parent or
Merger Sub, or shall have approved or recommended to the stockholders of the
Company any Competing Transaction or (B) the Company shall have entered into any
agreement with respect to any Competing Transaction or (C) the Board of
Directors of the Company shall resolve to do any of the foregoing.
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8.4. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by holders of Shares, by action of the Board of Directors of the
Company, if (i) Parent or Merger Sub shall have failed to comply in any material
respect with any of the covenants, conditions or agreements contained in this
Agreement to be complied with or performed by Parent or Merger Sub at or prior
to such date of termination, which failure to comply has not been cured within
five business days following receipt by the breaching party of notice of such
failure to comply, (ii) any representation or warranty of Parent or Merger Sub
contained in this Agreement shall not be true in all material respects when made
(provided such breach has not been cured within five business days following
receipt by the breaching party of notice of the breach) or on and as of the
Effective Time as if made on and as of the Effective Time (except to the extent
they relate to a particular date) or (iii) the Company enters into a definitive
agreement relating to a Superior Proposal in accordance with Section 6.2(b),
provided it has complied with all of the provisions thereof and has made payment
of the fees required by Section 8.5 hereof.
8.5. Effect of Termination and Abandonment. (a) In the event of termination
of this Agreement by either the Company or Parent as provided in this Article
VIII, this Agreement shall forthwith become void and there shall be no liability
or obligation on the part of Parent, Merger Sub or the Company or their
respective affiliates, officers, directors or stockholders except (x) with
respect to this Section 8.5 and Section 9.1 and (y) to the extent that such
termination results from the breach of a party hereto or any of its
representations or warranties, or any of its covenants or agreements, in each
case, as set forth in this Agreement; provided, that, the Company agrees that if
this Agreement shall be terminated pursuant to (i) Section 8.2(iii), if at or
prior to the time of the Stockholder Meeting (x) a Competing Transaction shall
have been commenced, publicly proposed or publicly disclosed and (y) the Company
has not rejected such Competing Transaction, (ii) Section 8.3(iii), or (iii)
Section 8.4(iii), then the Company shall pay to Parent an amount equal to
$2,500,000; provided, however, that no such fee shall be payable upon a
termination by Parent pursuant to Section 8.3(iii)(A) or Section 8.3(iii)(C) (to
the extent subparagraph (C) relates to subparagraph (A)) if (x) the Company gave
to Parent prior to Parent's termination of this Agreement pursuant to Section
8.3(iii)(A) or Section 8.3(iii)(C) (to the extent subparagraph (C) relates to
subparagraph (A)) a termination notice pursuant to Section 8.4(i) or Section
8.4(ii) (the "Company Termination Notice") setting forth in reasonable detail
the reason therefor and (y) at the time Parent terminates this Agreement
pursuant to Section 8.3(iii)(A) or 8.3(iii)(C) (to the extent subparagraph (C)
relates to subparagraph (A)) the Company is entitled to terminate this Agreement
pursuant to the reasons set forth in the Company Termination Notice; provided,
further, that the Company shall pay to Parent an additional $2,500,000 if the
Company consummates any Competing Transaction within one year after (A) in the
case of clause (i) of this Section 8.5(a), the earlier of the Stockholder
Meeting or payment of the first $2,500,000, (B) in the case of clause (ii) of
this Section 8.5(a), the termination of this Agreement by Parent and (C) in the
case of clause (iii) of this Section 8.5(a), the termination of this Agreement
by the Company.
(b) Any payment required to be made pursuant to Section 8.5(a) shall be made
as promptly as practicable but not later than five business days after the
occurrence of the event giving rise to such payment and shall be made by wire
transfer of immediately available funds to an account designated by Parent
except that any payment to be made pursuant to Section 8.5(a)(i) shall be made
not later than the termination of this Agreement by the Company pursuant to
Section 8.4(iii).
(c) Each of the parties hereto agrees that the payment in full of
immediately available funds by the Company to Parent shall be Parent's exclusive
remedy for an action taken by the Company which (x) is permitted under this
Agreement and (y) results in the payment to Parent of the fee set forth in
Section 8.5(a). Except as set forth in the immediately preceding sentence and
subject to Section 9.12, all rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise of any such right, power or
remedy by any party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
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ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Payment of Expenses. Whether or not the Merger shall be consummated,
each party hereto and the stockholders of the Company shall pay their own
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby, provided
that the Surviving Corporation shall pay, with funds of the Company and not with
funds provided by any of Parent Companies, any and all property or transfer
taxes imposed on the Surviving Corporation. The cost of printing the S-4
Registration Statement and the Proxy Statement shall be borne equally by the
Company and the Parent.
9.2. Survival of Representations and Warranties. The representations and
warranties made herein shall not survive beyond the Effective Time or a
termination of this Agreement. This Section 9.2 shall not limit any covenant or
agreement of the parties hereto which by its terms contemplates performance
after the Effective Time.
9.3. Modification or Amendment. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
approval of the Merger by the stockholders of the Company, no amendment shall be
made which changes the consideration payable in the Merger or adversely affects
the rights of the Company's stockholders hereunder without the approval of such
stockholders.
9.4. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.5. Counterparts. For the convenience of the parties hereto, this Agreement
may be executed in any number of counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
9.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
9.7. Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the other parties shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile transmission (with a confirming copy sent by overnight courier), as
follows:
(a) if to the Company, to
Advance Ross Corporation
233 South Wacker Drive
Suite 9700
Chicago, Illinois 60606-6502
Attention: Paul G. Yovovich
Facsimile: (312) 382-1109
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
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Suite 1600
Chicago, Illinois 60661-3693
Attention: Herbert S. Wander, Esq.
Facsimile: (312) 902-1061
(b) if to Parent or Merger Sub, to
CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Attention: Amy N. Lipton, Esq.
Facsimile: (203) 348-1982
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Howard Chatzinoff, Esq.
Facsimile: (212) 310-8007
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
9.8. Entire Agreement; Assignment. This Agreement, including the Disclosure
Schedules, (i) constitutes the entire agreement among the parties with respect
to the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof, and (ii) shall not be assigned by
operation of law or otherwise, provided that Parent may assign its rights and
obligations or those of Merger Sub to any direct wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent of its obligations hereunder
if such assignee does not perform such obligations.
9.9. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and their respective successors and
assigns. Nothing in this Agreement, express or implied, other than the right to
receive the consideration payable in the Merger pursuant to Article IV hereof,
is intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement;
provided, however, that the provisions of Section 6.8 shall inure to the benefit
of and be enforceable by the Indemnified Parties.
9.10. Certain Definitions. As used herein:
(a) "Significant Subsidiary" shall have the meaning ascribed to it under
Rule 12b-1 of the Exchange Act.
(b) "subsidiary" shall mean, when used with reference to any entity, any
entity fifty percent (50%) or more of the outstanding voting securities or
interests of which are owned directly or indirectly by such former entity.
(c) "Material Adverse Effect" shall mean any adverse change in the
properties, financial condition, business or results of operations of the
Company or any of its subsidiaries or Parent or any of its subsidiaries, as
the case may be, which is material to the Company and its subsidiaries,
taken as a whole, or Parent and its subsidiaries, taken as a whole, as the
case may be.
(d) "Knowledge" with respect to the Company shall mean the knowledge of
any of the executive officers or directors of the Company, any of the
managing or deputy managing directors
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of Europe Tax-Free Shopping ETS AB, and the managing directors of the
subsidiaries listed in Section 9.10(d) of the Company Disclosure Schedule,
after due inquiry.
9.11. Obligation of Parent. Whenever this Agreement requires Merger Sub to
take any action, such requirement shall be deemed to include an undertaking on
the part of Parent to cause Merger Sub to take such action.
9.12. Arbitration. Any controversy, dispute or claim arising out of or
relating to this Agreement or the breach hereof which cannot be settled by
mutual agreement (except for actions by Parent or the Company seeking equitable,
injunctive or other relief under Section 9.14) shall be finally settled by
arbitration as follows: Any party who is aggrieved shall deliver a notice to
other party setting forth the specific points in dispute. Any points remaining
in dispute twenty (20) days after the giving of such notice shall be submitted
to arbitration in New York, New York, to Endispute, before a single arbitrator
appointed in accordance with Endispute's Arbitration Rules, modified only as
herein expressly provided. The arbitrator may enter a default decision against
any party who fails to participate in the arbitration proceedings. The decision
of the arbitrator on the points in dispute will be final, unappealable and
binding and judgment on the award may be entered in any court having
jurisdiction thereof. The arbitrator will be authorized to apportion its fees
and expenses and the reasonable attorney's fees and expenses of Parent and the
Company as the arbitrator deems appropriate. In the absence of any such
apportionment, the fees and expense of the arbitrator will be borne equally by
each party, and each party will bear the fees and expenses of its own attorney.
The parties agree that this clause has been included to rapidly and
inexpensively resolve any disputes between them with respect to this Agreement,
and that this clause shall be grounds for dismissal of any court action
commenced by either party with respect to this Agreement, other than
post-arbitration actions seeking to enforce an arbitration award. The parties
shall keep confidential, and shall not disclose to any person, except as may be
required by law, the existence of any controversy hereunder, the referral of any
such controversy to arbitration or the status or resolution thereof.
9.13. Severability. If any term or other provision of this Agreement is
invalid, illegal or unenforceable, all other provisions of this Agreement shall
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
9.14. Specific Performance. The parties hereto acknowledge that irreparable
damage would result if this Agreement were not specifically enforced, and they
therefore consent that the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a court
of competent jurisdiction. Such remedy shall, however, not be exclusive and,
subject to Section 9.12, shall be in addition to any other remedies, including
arbitration, which any party may have under this Agreement or otherwise.
9.15. Recapitalization. Whenever (a) the number of outstanding Parent Common
Shares is changed by reason of a subdivision or combination of shares, whether
effected by a reclassification of shares or otherwise or (b) Parent pays a cash
or stock dividend or makes a similar distribution, each specified number of
shares referred to in this Agreement and each specified per share amount (other
than par values) shall be adjusted accordingly.
9.16. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
A-32
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto and shall be effective as of
the date first hereinabove written.
CUC INTERNATIONAL INC.
By: /s/ Cosmo Corigliano
..................................
Name: Cosmo Corigliano
Title: Senior Vice President and
Chief Financial Officer
RETREAT ACQUISITION CORPORATION
By: /s/ Cosmo Corigliano
..................................
Name: Cosmo Corigliano
Title: President
ADVANCE ROSS CORPORATION
By: /s/ Harve A. Ferrill
..................................
Name: Harve A. Ferrill
Title: Chairman and Chief
Executive Officer
A-33
<PAGE>
ANNEX B
STOCKHOLDERS AGREEMENT
AGREEMENT, dated October 17, 1995 (this "Agreement"), by and among CUC
International Inc., a Delaware corporation ("Parent"), and each of the other
parties signatory hereto (each, a "Stockholder", and collectively, the
"Stockholders").
WITNESSETH:
WHEREAS, concurrently herewith, Parent, Retreat Acquisition Corporation, a
Delaware corporation and a direct wholly-owned subsidiary of Parent ("Merger
Sub"), and Advance Ross Corporation, a Delaware corporation (the "Company"), are
entering into an Agreement and Plan of Merger (as such agreement may hereafter
be amended from time to time, the "Merger Agreement"; capitalized terms used and
not defined herein have the respective meanings ascribed to them in the Merger
Agreement) pursuant to which Merger Sub will be merged with and into the Company
(the "Merger");
WHEREAS, each of the Stockholders owns the number of shares, par value $.01
per share, of common stock of the Company (the "Shares" or "Company Common
Stock") of the Company set forth opposite such Stockholder's name on Schedule I
hereto;
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Stockholders agree, and the Stockholders
have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees that during the period commencing on the date hereof and continuing until
the first to occur of the Effective Time and termination of the Merger Agreement
in accordance with its terms, at any meeting of the holders of Company Common
Stock, however called, or in connection with any written consent of the holders
of Company Common Stock, such Stockholder shall vote (or cause to be voted) the
Shares held of record or Beneficially Owned (as defined below) by such
Stockholder, whether heretofore owned or hereafter acquired, (i) in favor of
approval of the Merger Agreement and any actions required in furtherance thereof
and hereof; (ii) against any action or agreement that would result in a breach
in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement (after giving
effect to any materiality or similar qualifications contained therein); and
(iii) except as otherwise agreed to in writing in advance by Parent, against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company; (B) a
sale, lease or transfer of a material amount of assets of the Company, or a
reorganization, recapitalization, dissolution or liquidation of the Company; (C)
(1) any change in a majority of the persons who constitute the board of
directors of the Company; (2) any change in the present capitalization of the
Company or any amendment of the Company's Certificate of Incorporation or
By-Laws; (3) any other material change in the Company's corporate structure or
business; or (4) any other action which, in the case of each of the matters
referred to in clauses C (1), (2), (3) or (4), is intended, or could reasonably
be expected, to impede, interfere with, delay, postpone, or materially adversely
affect the Merger and the transactions contemplated by this Agreement and the
Merger Agreement. Such Stockholder shall not enter into any agreement or
understanding with any Person (as defined below) the effect of which would be
inconsistent or violative of the provisions and agreements contained in Section
1 or 2 hereof. For purposes of this Agreement, "Beneficially Own" or "Beneficial
Ownership" with respect to any securities shall mean having "beneficial
ownership" of such securities
B-1
<PAGE>
(as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all other
Persons with whom such Person would constitute a "group" as within the meanings
of Section 13(d)(3) of the Exchange Act. For purposes of this Agreement,
"Person" shall mean an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
2. Other Covenants, Representations and Warranties. Each Stockholder hereby
represents and warrants to Parent as follows:
(a) Ownership of Shares. Such Stockholder is the record and Beneficial
Owner of the number of Shares set forth opposite such Stockholder's name on
Schedule I hereto. On the date hereof, the Shares set forth opposite such
Stockholder's name on Schedule I hereto constitute all of the Shares owned
of record or Beneficially Owned by such Stockholder. Such Stockholder has
sole voting power and sole power to issue instructions with respect to the
matters set forth in Section 1 hereof, sole power of disposition, sole power
of conversion, sole power to demand appraisal rights and sole power to agree
to all of the matters set forth in this Agreement, in each case with respect
to all of the Shares set forth opposite such Stockholder's name on Schedule
I hereto, with no limitations, qualifications or restrictions on such
rights.
(b) Power; Binding Agreement. Such Stockholder has the legal capacity,
power and authority to enter into and perform all of such Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to
which such Stockholder is a party including, without limitation, any voting
agreement, stockholders agreement or voting trust. This Agreement has been
duly and validly executed and delivered by such Stockholder and constitutes
a valid and binding agreement of such Stockholder, enforceable against such
Stockholder in accordance with its terms. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which such
Stockholder is Trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such stockholder of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby and
(B) none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated hereby or compliance by such Stockholder with any of the
provisions hereof shall (1) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's properties or assets may be bound,
or (2) violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to such Stockholder or any of such
Stockholder's properties or assets.
(d) No Finder's Fees. Other than existing financial advisory and
investment banking arrangements and agreements between the Company and Allen
& Company Incorporated, no broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's,
B-2
<PAGE>
financial adviser's or other similar fee or commission in connection with
the transactions contemplated by the Merger Agreement based upon
arrangements made by or on behalf of such Stockholder.
(e) No Solicitation. From and after the date hereof until termination of
the Merger Agreement, such Stockholder shall not, in his, her or its
capacity as such, directly or indirectly, initiate, solicit or knowingly
encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any inquiries
or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Competing Transaction, or enter into or maintain or
continue discussions or negotiate with any person or entity in furtherance
of such inquiries or to obtain a Competing Transaction or agree to or
endorse any Competing Transaction, or authorize or permit any of such
Stockholder's agents, and such Stockholder shall promptly notify Parent
orally (in all events within two business days) and in writing (as promptly
thereafter as practicable) of the material terms and status of all inquiries
and proposals which he, she or it, or any such agent, may receive after the
date hereof relating to any of such matters and, if such inquiry or proposal
is in writing, such Stockholder shall deliver to Parent a copy of such
inquiry or proposal promptly. Such Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations,
with any parties conducted heretofore with respect to any of the foregoing.
(f) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated by
the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option
or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or
other disposition of, any or all of such Stockholder's Shares or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement.
(g) Reliance by Parent. Such Stockholder understands and acknowledges
that Parent is entering into, and causing Merger Sub to enter into, the
Merger Agreement in reliance upon such Stockholder's execution and delivery
of this Agreement.
3. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to, Parent
that such Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Stockholder's Shares, unless such transfer is made in
compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) termination of the Merger Agreement in accordance with its terms
and (b) the Effective Time.
B-3
<PAGE>
6. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director of the Company makes any agreement or
understanding herein in his or her capacity as such director. Each Stockholder
signs solely in his or her capacity as the record and beneficial owner of such
Stockholder's Shares.
7. Confidentiality. The Stockholders recognize that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each Stockholder hereby agrees
not to disclose or discuss such matters with anyone not a party to this
Agreement (other than such Stockholder's counsel and advisors, if any) without
the prior written consent of Parent, except for disclosures such Stockholder's
counsel advises are necessary in order to fulfill such Stockholder's obligations
imposed by law, in which event such Stockholder shall give notice of such
disclosure to Parent as promptly as practicable so as to enable Parent to seek a
protective order from a court of competent jurisdiction with respect thereto.
8. Release. Each of the Stockholders, solely in such person's capacity as a
stockholder of the Company, hereby releases and discharges the Company and its
officers, directors, stockholders, employees, agents, attorneys,
representatives, successors and assigns (and the respective heirs, executors,
administrators, representatives, successors and assigns of such officers,
directors, stockholders, employees, agents, attorneys and representatives) from
any and all claims, actions, causes of action, suits, debts, sums of money,
controversies, agreements, promises, damages, judgments, claims and demands
whatsoever, at law or in equity, which any of the Stockholders, as a result of
such person's status as a stockholder of the Company, had, now have or hereafter
can, shall or may have for, upon, or by reason of any matter, cause or thing
whatsoever relating, directly or indirectly, to the Company or the Surviving
Corporation, as the case may be.
9. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
(b) Certain Events. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including,
without limitation, such Stockholder's heirs, guardians, administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall
remain liable for the performance of all obligations under this Agreement of
the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other party, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but
no such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the relevant parties hereto;
provided that Schedule I hereto may be supplemented by Parent by adding the
name and other relevant information concerning any Stockholder of the
Company who agrees to be bound by the terms of this Agreement without the
agreement of any other party hereto, and thereafter such added stockholder
shall be treated as a "Stockholder" for all purposes of this Agreement.
B-4
<PAGE>
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if so given) by hand delivery,
telegram, telex or telecopy, or by mail (registered or certified mail,
postage prepaid, return receipt requested) or by any courier service, such
as Federal Express, providing proof of delivery. All communications
hereunder shall be delivered to the respective parties at the following
addresses:
If to Any Stockholder: At the Addresses Set Forth
on Schedule I Hereto
with a copy to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Herbert S. Wander, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
If to Parent or Merger Sub: CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Telephone: (203) 324-9261
Facsimile: (203) 977-8501
Attention: Amy N. Lipton, Esq.
with a copy to: Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore
each of the parties hereto agrees that in the event of any such breach the
aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in
equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by
any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
B-5
<PAGE>
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity
who or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
(l) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN CONNECTION WITH ANY SUCH ACTION, SUIT OR PROCEEDING.
(m) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
B-6
<PAGE>
IN WITNESS WHEREOF, Parent and each Stockholder have caused this Agreement
to be duly executed as of the day and year first above written.
CUC INTERNATIONAL INC.
By: /s/ COSMO CORIGLIANO
..............................
Name: Cosmo Corigliano
Title: Senior Vice President
and Chief Financial
Officer
By: /s/ HARVE A. FERRILL
..............................
Harve A. Ferrill
By: /s/ DUANE R. KULLBERG
..............................
Duane R. Kullberg
By: /s/ THOMAS J. PETERSON
..............................
Thomas J. Peterson
By: /s/ HERBERT S. WANDER
..............................
Herbert S. Wander
By: /s/ PAUL G. YOVOVICH
..............................
Paul G. Yovovich
By: /s/ ROGER E. ANDERSON
..............................
Roger E. Anderson
By: /s/ HAROLD E. GUENTHER
..............................
Harold E. Guenther
By: /s/ RANDY M. JOSEPH
..............................
Randy M. Joseph
AGREED TO AND ACKNOWLEDGED
(with respect to Section 2):
ADVANCE ROSS CORPORATION
By: /s/ HARVE A. FERRILL
.................................
Name: Harve A. Ferrill
Title: Chairman of the Board and
Chief Executive Officer
B-7
<PAGE>
SCHEDULE I TO
STOCKHOLDERS AGREEMENT
----------------------
NAME AND ADDRESS NUMBER OF SHARES OWNED
---------------- ----------------------
Roger E. Anderson...................................... 9,432
14 Oriole Avenue
Broxville, NY 10708
Harve A. Ferrill....................................... 142,600
1300 N. Lakeshore Drive, Apt. 26B
Chicago, IL 60610
Harold E. Guenther..................................... 6,000
417 Dana Lane
Barrington, IL 60010
Randy M. Joseph........................................ 1,200(1)
130 Bentley Court
Deerfield, IL 60015
Duane R. Kullberg...................................... 5,000
179 East Lake Shore Drive, Apt. 1001
Chicago, IL 60611
Thomas J. Peterson..................................... 16,000(2)
1649 N. Russell Road
Bloomington, IN 47407
Paul G. Yovovich....................................... 6,400
1007 Forest
Wilmette, IL 60091
Herbert S. Wander...................................... 20,000
2023 Linden Avenue
Highland Park, IL 60035
- ------------
(1) Mr. Joseph's wife owns 200 shares for which he disclaims beneficial
ownership.
(2) Shares voting power on 12,000 shares. Mr. Peterson's wife owns 4,000 shares
for which he disclaims beneficial ownership.
B-8
<PAGE>
ANNEX C
Opinion of Allen & Company Incorporated
October 16, 1995
Members of the Board of Directors
Advance Ross Corporation
233 South Wacker Drive
Chicago, Illinois 60606
Gentlemen:
You have requested our opinion, as of this date, as to the fairness, from a
financial point of view, to the holders of the outstanding shares of Common
Stock, par value $0.01 per share (the "Company's Common Stock"), and the holders
of the outstanding shares of 5% Cumulative Preferred Stock, $25.00 par value
(the "Company's Preferred Stock") of Advance Ross Corporation, a Delaware
corporation (the "Company"), of the consideration to be received by such holders
in connection with the Proposed Transaction hereinafter referred to.
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), to be
entered into as of October 17, 1995, by and between the Company, CUC
International Inc., a Delaware corporation (the "Purchaser"), and a wholly owned
special purpose subsidiary of the Purchaser ("Merger Sub"), the Company will
enter into a business combination transaction (the "Merger") pursuant to which
Merger Sub will be merged with and into the Company (the "Proposed
Transaction"). Pursuant to the terms of the Merger Agreement, each outstanding
share of the Company's Common Stock will be converted into five-sixths (5/6ths)
of a share of common stock, par value $.01 per share (the "Purchaser's Common
Stock"), of the Purchaser, subject to certain upward or downward adjustments in
such exchange ratio in the event of changes in the average market price of the
Purchaser's Common Stock, as specified in the Merger Agreement.
In addition, all shares of the Company's Preferred Stock issued and
outstanding immediately prior, to the effective time of the Merger, will be
converted in the Merger into shares of the Purchaser's Common Stock having a
value equal to the liquidation preference of such shares, as specifically set
forth in the Merger Agreement. The Merger Agreement provides that such
conversion of the Company's Preferred Stock shall be subject to the obligation
of the Company to redeem such shares under certain circumstances, in lieu of
such conversion in the Merger.
We understand that all approvals required for the consummation of the
Proposed Transaction have been or, prior to consummation of the Proposed
Transaction, will be obtained. As you know, Allen & Company Incorporated
("Allen") has from time to time provided various investment banking and
financial advisory services to the Company and has acted as its financial
advisor in connection with the Proposed Transaction and will receive a fee for
its services to the Company pursuant to the letter agreement dated September 21,
1995, amending and supplementing a letter agreement originally entered into on
September 17, 1990. In addition, as you know, Allen together with certain of its
officers and directors own an aggregate of 306,500 shares of the Company's
Common Stock and warrants to purchase an additional 480,000 shares of the
Company's Common Stock.
In arriving at our opinion, we have among other things:
(i) reviewed the terms and conditions of the Merger Agreement;
(ii) analyzed publicly available historical business and financial
information relating to the Company, as presented in documents filed with
the Securities and Exchange Commission, including the Company's Annual
Report to Stockholders and Annual Report on Form 10-K for its fiscal year
ended December 31, 1994 and the Company's Quarterly Report on Form 10-Q for
its quarter ended June 30, 1995;
(iii) analyzed publicly available historical business and financial
information relating to the Purchaser as presented in documents filed with
the Securities and Exchange Commission, including the Purchaser's Annual
Report to Stockholders and Annual Report on Form 10-K for its fiscal
C-1
<PAGE>
year ended January 31, 1995 and the Purchaser's Quarterly Report on Form
10-Q for its quarter ended July 31, 1995;
(iv) reviewed certain non-public historical business and financial
information relating to the Company, including financial and operating
results of the Company;
(v) reviewed certain financial forecasts and other budgetary data
provided to us by the Company relating to its business for its fiscal years
ending December 31, 1995, 1996 and 1997;
(vi) conducted discussions with certain members of the senior management
of the Company and the Purchaser with respect to the financial condition,
business, operations, strategic objectives and prospects of the Company and
the Purchaser, respectively;
(vii) reviewed and analyzed public information, including certain stock
market data and financial information relating to selected public companies
which we deemed generally comparable to the Company and the Purchaser;
(viii) reviewed the trading history of the Company's Common Stock and
the Purchaser's Common Stock, including each company's respective
performance in comparison to market indices and to selected companies in
comparable businesses and the market reaction to selected public
announcements regarding each company;
(ix) reviewed public financial and transaction information relating to
merger and acquisition transactions we deemed to be comparable to the
Proposed Transaction; and
(x) conducted such other financial analyses and investigations as we
deemed necessary or appropriate for the purposes of the opinion expressed
herein.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information respecting the Company and
the Purchaser and any other information provided to us, and we have not assumed
any responsibility for any independent verification of such information or any
independent valuation or appraisal of any of the assets of the Company or the
Purchaser. With respect to the financial forecasts referred to above, we have
assumed that they have been reasonably prepared on a basis reflecting the best
currently available judgments of the management of the Company as to the future
financial performance of the Company.
In addition to our review and analysis of the specific information set forth
above, our opinion herein reflects and gives effect to our assessment of general
economic, monetary and market conditions existing as of the date hereof as they
may affect the business and prospects of the Company.
In connection with the preparation of this opinion, we have not been
authorized by the Company or its Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or any
part of the Company.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company or the Purchaser with the Securities and
Exchange Commission with respect to the Proposed Transaction and the
transactions related thereto. In addition, we express no recommendation as to
how the stockholders of the Company should vote at the stockholders' meeting
held in connection with the Proposed Transaction.
Based on and subject to the foregoing, we are of the opinion that, as of
this date, the consideration to be received by the holders of the Company's
Common Stock and the holders of the Company's Preferred Stock pursuant to the
Proposed Transaction is fair to such holders from a financial point of view.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By /s/ RICHARD L. FIELDS
...................................
Richard L. Fields
Managing Director
C-2
<PAGE>
ANNEX D
OPINION OF KATTEN MUCHIN & ZAVIS
Advance Ross Corporation
233 South Wacker Drive
Sears Tower, Suite 9700
Chicago, Illinois 60606-6502
Attention: Board of Directors
Ladies and Gentlemen:
We have been requested to render this opinion concerning certain matters of
federal income tax law in connection with the proposed merger of Retreat
Acquisition Corp., a newly-formed corporation, organized and existing under the
laws of the State of Delaware ("Merger Sub") which is a wholly owned subsidiary
of CUC International Inc. organized and existing under the laws of the State of
Delaware ("Parent"), with and into Advance Ross Corporation organized and
existing under the laws of the State of Delaware (the "Company") with the
Company surviving the merger and becoming a wholly owned subsidiary of Parent,
pursuant to the applicable corporate laws of the State of Delaware (the
"Merger"), and in accordance with that certain Agreement and Plan of Merger
between and among the Company, Parent and Merger Sub (the "Agreement") and
related Articles of Merger and a Plan of Merger (together with the Agreement,
the "Merger Agreements"). Our opinion is being delivered to you pursuant to
Section 7.2(g) of the Agreement.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Merger Agreements. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to the Company in connection with the Merger.
As such, and for the purpose of rendering this opinion, we have examined (or
will examine on or prior to the Effective Time of the Merger) and are relying
(or will rely) upon (without any independent investigation or review thereof)
the truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
1. The Merger Agreements;
2. Representations made to us by Parent and Merger Sub;
3. Representations made to us by the Company;
4. The Company Affiliate Certificates;
5. The Registration Statement on Form S-4; and
6. Such other instruments and documents related to the formation,
organization and operation of the Company, Parent and Merger Sub or the
consummation of the Merger and the transactions contemplated thereby as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic; documents
submitted to us as copies conform to the original documents, and there has
been (or will be by the Effective Time of
D-1
<PAGE>
the Merger) due execution and delivery of all documents where due execution
and delivery are prerequisites to the effectiveness thereof;
2. Any representation or statement referred to above made "to the
knowledge of" or otherwise similarly qualified is correct without such
qualification;
3. The Merger will be consummated pursuant to the Merger Agreements and
will be effective under the applicable state law;
4. There is no plan or intention by the Company stockholders who own 5%
or more of the Company stock to sell, exchange or otherwise dispose of their
stock in the Company;
5. Following the Merger, the Company will continue its historic business
or use a significant portion of its historic business assets in a business;
6. No outstanding indebtedness of the Company, Parent or Merger Sub has
or will represent equity for tax purposes (including, without limitation,
any loans from Parent to the Company); no outstanding equity of the Company,
Parent or Merger Sub has represented or will represent indebtedness for tax
purposes; no outstanding security other than the Company's Stock Option
Plans, instrument, agreement or arrangement that provides for, contains, or
represents either a right to acquire the Company stock or to share in the
appreciation thereof constitutes or will constitute "stock" for purposes of
Section 368(c) of the Code;
7. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. Sec.1.368-1(c) with
respect to the Merger) are funded directly or indirectly by a party other
than the party incurring such expenses, such expenses will be within the
guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187; and
8. Neither Parent, the Company or Merger Sub is, or will be at the time
of the Merger: (a) an "investment company" within the meaning of Section
368(a)(2)(F) of the Code; or (b) under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion, for federal income tax purposes, that (1) the Merger will
constitute a "reorganization" as defined in Section 368(a) of the Code, (2) each
of Parent, Merger Sub and the Company will be a party to the reorganization
within the meaning of Section 368(b) of the Code, and (3) no gain or loss will
be recognized by a shareholder of the Company as a result of the Merger with
respect to Company common shares converted solely into Parent common shares.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below:
1. This opinion represents and is based upon our best judgment regarding
the application of existing federal income tax laws arising under the Code,
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and the Internal Revenue Service is not precluded from asserting
a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the opinion
expressed herein. Nevertheless, we undertake no responsibility to advise you
of any new developments in the application or interpretation of the federal
income tax laws after the date of this opinion.
D-2
<PAGE>
2. Our opinion concerning certain of the federal tax consequences of the
Merger is limited to the specific federal tax consequences presented above.
No opinion is expressed as to any transaction other than the Merger,
including any transaction undertaken in connection with the Merger. In
addition, this opinion does not address any other federal, estate, gift,
state, local or foreign tax consequences that may result from the Merger. In
particular, we express no opinion regarding:
(a) whether and the extent to which any Company stockholder who has
provided or will provide services to the Company, Parent or Merger Sub
will have compensation income under any provision of the Code;
(b) the effects of such compensation income, including, but not
limited to, the effect upon the basis and holding period of the Parent
stock received by any such stockholder in the Merger;
(c) the effects of the Merger and Parent's assumption of outstanding
options to acquire the Company Common Stock on the holders of such
options under any of the Company Stock Option Plans;
(d) the effects of the Merger on any pension or other employee
benefit plan maintained by Parent or the Company;
(e) the potential application of the "golden parachute" provisions of
Sections 280G, 3121(v)(2) and 4999 of the Code, the alternative minimum
tax provisions of Sections 55, 56 and 57 of the Code or the regulations
promulgated thereunder;
(f) the tax consequences of the Merger to Parent, Merger Sub or the
Company, including without limitation the recognition of any gain and the
survival and/or availability, after the Merger, of any of the federal
income tax attributes or elections of the Company or Parent (including,
without limitation, foreign tax credits or net operating loss
carryforwards, if any, of the Company or Parent), after application of
any provision of the Code, as well as the regulations promulgated
thereunder and judicial interpretations thereof;
(g) the basis of any equity interest in the Company acquired by
Parent in the Merger; and
(h) the tax consequences of the Merger (including the opinion set
forth above) as applied to specific stockholders of the Company and/or
holders of options or warrants for the Company stock or that may be
relevant to particular classes of the Company stockholders and/or holders
of options or warrants for the Company stock, including, without
limitation, dealers in securities, corporate shareholders subject to the
alternative minimum tax, foreign persons, and holders of shares acquired
upon exercise of stock options or in other compensatory transactions.
3. No opinion is expressed if all the transactions described in the
Merger Agreements are not consummated in accordance with the terms of such
Merger Agreements and without waiver or breach of any material provision
thereof or if all of the representations, warranties, statements and
assumptions upon which we relied are not true and accurate at all relevant
times. In the event any one of the statements, representations, warranties
or assumptions upon which we have relied to issue this opinion is incorrect,
our opinion might be adversely affected and may not be relied upon.
4. If the facts vary from those relied upon (including if any
representation, covenant, warranty or assumption upon which we have relied
is inaccurate, incomplete, breached or ineffective), our opinion contained
herein could be inapplicable. You should be aware that an opinion of counsel
represents only counsel's best legal judgment, and has no binding effect or
official status of any kind, and that no assurance can be given that
contrary positions will not be
D-3
<PAGE>
taken by the Internal Revenue Service or that a court considering the issues
would not hold otherwise. No ruling has been or will be requested from the
Internal Revenue Service concerning the federal income tax consequences of
the Merger.
5. This opinion is being delivered solely for the purpose of satisfying
the condition set forth in Section 7.2(g) of the Agreement. This opinion may
not be relied upon or utilized for any other purpose or by any other person
or entity, and may not be made available to any other person or entity,
without our prior written consent. We do, however, consent to the filing of
this opinion as an exhibit to the Proxy Statement and Form S-4. We further
consent to the use of our name in the Registration Statement wherever it
appears.
Very truly yours,
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware empowers
a Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A Delaware corporation may indemnify directors, officers, employees
and other agents of such corporation in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the person to be indemnified has been
adjudged to be liable to the corporation. Where a director, officer, employee or
agent of the corporation is successful on the merits or otherwise in the defense
of any action, suit or proceeding referred to above or in defense of any claim,
issue or matter therein, the corporation must indemnify such person against the
expenses (including attorneys' fees) which he or she actually and reasonably
incurred in connection therewith.
The Registrant's By-Laws contain provisions that indemnify officers and
directors and their heirs and distributees to the fullest extent permitted by,
and in the manner permissible under, the General Corporation Law of the State of
Delaware.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, the Registrant's Restated Certificate of Incorporation, as
amended, contains a provision eliminating the personal liability of a director
to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, subject to certain exceptions.
The Registrant maintains policies insuring its officers and directors
against certain civil liabilities, including liabilities under the Securities
Act.
ITEM 21. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2 Agreement and Plan of Merger, dated October 17, 1995, among CUC International
Inc., Retreat Acquisition Corporation and Advance Ross Corporation.
4 Form of Stock Certificate evidencing shares of CUC International Common Stock
(filed as Exhibit 4.1 to CUC International's Registration Statement, No.
33-44453, on Form S-4 dated December 19, 1991).*
</TABLE>
<TABLE>
<S> <C>
5 Opinion of Robert T. Tucker, Esq. as to the legality of the Registrant's Common
Stock to be registered.
</TABLE>
- ------------
* Incorporated herein by reference.
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
8 Opinion re: tax matters of Katten Muchin & Zavis.
9 Stockholders Agreement, dated October 17, 1995, among CUC International Inc. and
the holders of Advance Ross Common Stock party thereto.
15 Letter re: Unaudited Interim Financial Information from Ernst & Young LLP.
23.1 Consent of Robert T. Tucker, Esq. (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP, independent auditors for the Registrant.
23.3 Consent of Deloitte & Touche LLP, independent auditors for Advance Ross
Corporation.
23.4 Consent of Katten Muchin & Zavis (included in Exhibit 8).
24 Power of Attorney (included as part of the signature page of this Registration
Statement).
27.1 Financial Data Schedules of the Registrant.
27.2 Financial Data Schedules of Advance Ross Corporation.
</TABLE>
(c) See exhibits 5 and 8 in Item 21(a) above.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(b)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus (i)
that is filed pursuant to paragraph (b)(1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the
II-2
<PAGE>
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Stamford, State of Connecticut, on this 7th day of
December, 1995.
CUC INTERNATIONAL INC.
By: /s/ WALTER A. FORBES
..................................
Walter A. Forbes
Chief Executive Officer and
Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Walter A. Forbes and E. Kirk Shelton, and
each and either of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including,
without limitation, post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WALTER A. FORBES Chief Executive Officer and December 7, 1995
....................................... Chairman of the Board
Walter A. Forbes (Principal Executive Officer)
/s/ COSMO CORIGLIANO Senior Vice President and Chief December 7, 1995
....................................... Financial Officer (Principal
Cosmo Corigliano Financial and Accounting
Officer)
/s/ BARTLETT BURNAP Director December 7, 1995
.......................................
Bartlett Burnap
/s/ T. BARNES DONNELLEY Director December 7, 1995
.......................................
T. Barnes Donnelley
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEPHEN A. GREYSER Director December 7, 1995
.......................................
Stephen A. Greyser
/s/ CHRISTOPHER K. MCLEOD Director December 7, 1995
.......................................
Christopher K. McLeod
/s/ BURTON C. PERFIT Director December 7, 1995
.......................................
Burton C. Perfit
/s/ ROBERT P. RITTEREISER Director December 7, 1995
.......................................
Robert P. Rittereiser
/s/ STANLEY M. RUMBOUGH, JR. Director December 7, 1995
.......................................
Stanley M. Rumbough, Jr.
/s/ E. KIRK SHELTON Director December 7, 1995
.......................................
E. Kirk Shelton
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
<S> <C> <C>
2 Agreement and Plan of Merger, dated October 17, 1995, among CUC International
Inc., Retreat Acquisition Corporation and Advance Ross Corporation.
4 Form of Stock Certificate evidencing shares of CUC International Common Stock
(filed as Exhibit 4.1 to CUC International's Registration Statement, No.
33-44453, on Form S-4 dated December 19, 1991).*
5 Opinion of Robert T. Tucker, Esq. as to the legality of the Registrant's
Common Stock to be registered.
8 Opinion re: tax matters of Katten Muchin & Zavis.
9 Stockholders Agreement, dated October 17, 1995, among CUC International Inc.
and the holders of Advance Ross Common Stock party thereto.
15.1 Letter re: Unaudited Interim Financial Information from Ernst & Young LLP.
23.1 Consent of Robert T. Tucker, Esq. (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP, independent auditors for the Registrant.
23.3 Consent of Deloitte & Touche LLP, independent auditors for Advance Ross
Corporation.
23.4 Consent of Katten Muchin & Zavis (included in Exhibit 8).
24 Power of Attorney (included as part of the signature page of this Registration
Statement).
27.1 Financial Data Schedules of the Registrant.
27.2 Financial Data Schedules of Advance Ross Corporation.
</TABLE>
- ------------
* Incorporated herein by reference.
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
AMONG
CUC INTERNATIONAL INC.,
RETREAT ACQUISITION CORPORATION
AND
ADVANCE ROSS CORPORATION
DATED OCTOBER 17, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER; EFFECTIVE TIME; CLOSING
1.1. The Merger..................................................................... 1
1.2. Effective Time................................................................. 2
1.3. Closing........................................................................ 2
1.4. Effects of the Merger.......................................................... 2
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. Certificate of Incorporation................................................... 2
2.2. The By-Laws.................................................................... 2
ARTICLE III
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.1. Directors...................................................................... 2
3.2. Officers....................................................................... 2
ARTICLE IV
MERGER CONSIDERATION;
CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
4.1. Share Consideration for the Merger; Conversion or Cancellation of Shares in the
Merger......................................................................... 3
4.2. Payment for Shares in the Merger............................................... 5
4.3. Fractional Shares.............................................................. 6
4.4. Transfer of Shares after the Effective Time.................................... 6
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company.................................. 6
(a) Corporate Organization and Qualification................................. 6
(b) Capitalization........................................................... 6
(c) Approvals; Fairness Opinion.............................................. 7
(d) Authority Relative to this Agreement..................................... 7
(e) Consents and Approvals; No Violation..................................... 8
(f) Litigation............................................................... 9
(g) SEC Reports; Financial Statements........................................ 9
(h) Absence of Certain Changes or Events..................................... 9
(i) Employment Agreements.................................................... 10
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(j) Brokers and Finders...................................................... 10
(k) S-4 Registration Statement and Proxy Statement/Prospectus................ 10
(l) Taxes.................................................................... 10
(m) Employee Benefits........................................................ 11
(n) Intangible Property...................................................... 12
(o) Certain Contracts........................................................ 13
(p) Accounting Matters....................................................... 14
(q) Unlawful Payments and Contributions...................................... 14
(r) Commission Rates......................................................... 14
(s) Listings................................................................. 14
(t) Environmental Matters.................................................... 14
(u) Disclosure............................................................... 15
5.2. Representations and Warranties of Parent and Merger Sub........................ 15
(a) Corporate Organization and Qualification................................. 15
(b) Capitalization........................................................... 15
(c) Authorization for Parent Common Shares................................... 16
(d) Authority Relative to this Agreement..................................... 16
(e) Consents and Approvals; No Violation..................................... 16
(f) Ownership of Merger Sub; No Prior Activities; Assets of Merger Sub....... 17
(g) SEC Reports; Financial Statements........................................ 17
(h) Absence of Certain Changes or Events..................................... 18
(i) Litigation............................................................... 18
(j) S-4 Registration Statement and Proxy Statement/Prospectus................ 18
(k) Brokers and Finders...................................................... 18
(l) Ownership of Shares...................................................... 18
(m) Accounting Matters....................................................... 18
(n) Disclosure............................................................... 18
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1. Conduct of Business............................................................ 19
6.2. No Solicitation................................................................ 20
6.3. Meeting of Stockholders........................................................ 21
6.4. Registration Statement......................................................... 22
6.5. Best Efforts................................................................... 22
6.6. Access to Information.......................................................... 22
6.7. Publicity...................................................................... 23
6.8. Indemnification of Directors and Officers...................................... 23
6.9. Affiliates of the Company...................................................... 24
6.10. Taxes.......................................................................... 24
6.11. Maintenance of Insurance....................................................... 24
6.12. Representations and Warranties................................................. 24
6.13. Filings; Other Action.......................................................... 24
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.14. Notification of Certain Matters................................................ 24
6.15. Pooling Accounting............................................................. 25
6.16. Blue Sky Permits............................................................... 25
6.17. NYSE Listing................................................................... 25
6.18. Pooling Letter................................................................. 25
6.19. Comfort Letter................................................................. 25
6.20. Tax-Free Reorganization Treatment.............................................. 25
6.21. Combined Operations............................................................ 25
6.22. Employment Agreements.......................................................... 25
ARTICLE VII
CONDITIONS
7.1. Conditions to the Obligations of Parent and Merger Sub......................... 26
(a) Certificate.............................................................. 26
(b) Company Stockholder Approval............................................. 26
(c) Injunction............................................................... 26
(d) S-4 Registration Statement; "Blue Sky" Permits........................... 26
(e) Listing of Parent Common Shares.......................................... 26
(f) Governmental Filings and Consents; HSR Act............................... 26
(g) Pooling Letter........................................................... 26
(h) Third Party Consents..................................................... 26
(i) Delivery of Comfort Letter............................................... 27
(j) Termination of Options................................................... 27
(k) Affiliate Letters........................................................ 27
(l) Termination of Advisory Agreement........................................ 27
7.2. Conditions to the Obligations of the Company................................... 27
(a) Certificate.............................................................. 27
(b) Company Stockholder Approval............................................. 27
(c) Injunction............................................................... 27
(d) S-4 Registration Statement; "Blue Sky" Permits........................... 27
(e) Listing of Parent Common Shares.......................................... 27
(f) HSR Act.................................................................. 28
(g) Tax Opinion.............................................................. 28
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent.................................................. 28
8.2. Termination by either Parent or the Company.................................... 28
8.3. Termination by Parent.......................................................... 28
8.4. Termination by the Company..................................................... 29
8.5. Effect of Termination and Abandonment.......................................... 29
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Payment of Expenses............................................................ 30
9.2. Survival of Representations and Warranties..................................... 30
9.3. Modification or Amendment...................................................... 30
9.4. Waiver of Conditions........................................................... 30
9.5. Counterparts................................................................... 30
9.6. Governing Law.................................................................. 30
9.7. Notices........................................................................ 30
9.8. Entire Agreement; Assignment................................................... 31
9.9. Parties in Interest............................................................ 31
9.10. Certain Definitions............................................................ 31
(a) "Significant Subsidiary"................................................. 31
(b) "subsidiary"............................................................. 31
(c) "Material Adverse Effect"................................................ 31
9.11. Obligation of Parent........................................................... 32
9.12. Arbitration.................................................................... 32
9.13. Severability................................................................... 32
9.14. Specific Performance........................................................... 32
9.15. Recapitalization............................................................... 32
9.16. Captions....................................................................... 32
</TABLE>
<TABLE>
<S> <C>
EXHIBITS
Stockholders Agreement.......................................................... Exhibit A
Form of Stockholder Certificate................................................. Exhibit B
Form of Company, Parent and Merger Sub Certificate.............................. Exhibit C
</TABLE>
(iv)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated October 17, 1995,
among CUC International Inc., a Delaware corporation ("Parent"), Retreat
Acquisition Corporation, a Delaware corporation and a direct wholly-owned
subsidiary of Parent ("Merger Sub"), and Advance Ross Corporation, a Delaware
corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company each
have determined that it is in the best interests of their respective
stockholders for Merger Sub to merge with and into the Company upon the terms
and subject to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger (as
defined in Section 1.1) shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, concurrently with the execution hereof, certain holders (each, a
"Stockholder" and, collectively, the "Stockholders") of Shares (as defined in
Section 4.1(b)) are entering into the Stockholders Agreement, a copy of which is
attached as Exhibit A hereto (the "Stockholders Agreement");
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling-of-interests;
WHEREAS, the Company has delivered to Parent a letter identifying all
persons (each, a "Company Affiliate") who are, at the date hereof, "affiliates"
of the Company for purposes of Rule 145 under the Securities Act of 1933, as
amended (the "Securities Act"), and each Company Affiliate has delivered to
Parent a letter (each, an "Affiliate Letter") relating to (i) the transfer,
prior to the Effective Time (as defined in Section 1.2), of the Shares
beneficially owned by such Company Affiliate on the date hereof, (ii) the
transfer of the Parent Common Shares (as defined in Section 4.1(a)) to be
received by such Company Affiliate in the Merger and (iii) the obligations of
each such Company Affiliate to deliver to Katten Muchin & Zavis, counsel to the
Company, a certificate substantially in the form attached hereto as Exhibit B;
and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, Parent, Merger Sub and the Company
hereby agree as follows:
ARTICLE I
THE MERGER; EFFECTIVE TIME; CLOSING
1.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), at the Effective Time the Company and Merger Sub shall
consummate a merger (the "Merger") in which (a) Merger Sub shall be merged with
and into the Company and the separate corporate existence of Merger Sub shall
thereupon cease, (b) the Company shall be the successor or surviving corporation
in the Merger and shall continue to be governed by the laws of the State of
Delaware and (c) the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall
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continue unaffected by the Merger. The corporation surviving the Merger is
sometimes hereinafter referred to as the "Surviving Corporation." The name of
the Surviving Corporation shall be "Advance Ross Corporation." At the election
of Parent, any direct wholly-owned subsidiary of Parent may be substituted for
Merger Sub as a constituent corporation in the Merger. In such event, the
parties agree to execute an appropriate amendment to this Agreement in order to
reflect the foregoing.
1.2. Effective Time. Subject to the provisions of this Agreement, Parent,
Merger Sub and the Company shall cause the Merger to be consummated by filing an
appropriate Certificate of Merger or other appropriate documents (the
"Certificate of Merger") with the Secretary of State of the State of Delaware in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL, as soon as practicable on or after the Closing Date (as
defined in Section 1.3). The Merger shall become effective upon such filing or
at such time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
1.3. Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Article
VIII, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") shall take place at 10:00
a.m., New York City time, on the second business day after satisfaction of the
conditions set forth in Article VII (or as soon as practicable thereafter
following satisfaction or waiver of the conditions set forth in Article VII)
(the "Closing Date"), at the offices of Weil, Gotshal & Manges, 767 Fifth
Avenue, New York, New York 10153, unless another date, time or place is agreed
to in writing by the parties hereto.
1.4. Effects of the Merger. At the Effective Time, the effects of the merger
shall be as provided in the Certificate of Merger and the applicable provisions
of the DGCL.
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. At the Effective Time, the Certificate of
Incorporation of the Company immediately prior to the Effective Time shall
become the Certificate of Incorporation of the Surviving Corporation.
2.2. The By-Laws. At the Effective Time, the by-laws of the Company
immediately prior to the Effective Time shall become the by-laws of the
Surviving Corporation.
ARTICLE III
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.1. Directors. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-Laws.
3.2. Officers. The officers of the Company at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected
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or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation and
By-Laws.
ARTICLE IV
MERGER CONSIDERATION;
CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
4.1. Share Consideration for the Merger; Conversion or Cancellation of
Shares in the Merger. The manner of converting or canceling shares of the
Company and Merger Sub in the Merger shall be as follows:
(a) At the Effective Time, each share of common stock, $.01 par value
per share, of the Company (the "Common Shares") issued and outstanding
immediately prior to the Effective Time (other than Common Shares owned by
Parent, Merger Sub or any direct or indirect wholly-owned subsidiary of
Parent (collectively, "Parent Companies") or any of the Company's direct or
indirect wholly-owned subsidiaries) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into
five-sixths ( 5/6) (the "Exchange Ratio") of one share of common stock, par
value $0.01 per share, of Parent ("Parent Common Shares"); provided,
however, that (x) if the Average Stock Price (as defined below) is greater
than $38.00, the Exchange Ratio shall be reduced so as to equal the product
of (i) five-sixths ( 5/6) and (ii) a fraction, the numerator of which shall
be $38.00 and the denominator of which shall be the Average Stock Price and
(y) if the Average Stock Price is less than $30.00, the Exchange Ratio shall
be increased so as to equal the product of (i) five-sixths ( 5/6) and (ii) a
fraction, the numerator of which shall be $30.00 and the denominator of
which shall be the Average Stock Price. The term "Average Stock Price" means
a fraction, the numerator of which is the sum of the Weighted Amount (as
defined below) for each trading day during the period of ten consecutive
trading days commencing eleven trading days prior to the date of the
Stockholder Meeting (as defined in Section 6.3) and ending on the second
trading day prior to the date of the Stockholder Meeting, and the
denominator of which is the total reported volume in trading in Parent
Common Shares on the New York Stock Exchange ("NYSE") during such ten-day
period. For purposes hereof, with respect to any trading day, the "Weighted
Amount" shall be equal to the product of (A) the per share closing price on
the NYSE of Parent Common Shares on such day and (B) the total reported
volume of trading in Parent Common Shares on the NYSE for such day, in each
case as reported in the New York Stock Exchange Composite Transactions.
(b) At the Effective Time, each share of 5% cumulative preferred stock,
$25.00 par value per share, of the Company (the "Preferred Shares" and,
together with the Common Shares, the "Shares") issued and outstanding
immediately prior to the Effective Time (other than Preferred Shares owned
by any of the Parent Companies or any of the Company's direct or indirect
wholly-owned subsidiaries) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into a number of
Parent Common Shares equal to the quotient obtained by dividing (x) the sum
of $27.50 plus all dividends accumulated, accrued and unpaid on such
Preferred Shares to the Effective Time (excluding any such dividends that,
as of the Effective Time, have been declared with a record date prior to the
Effective Time but a payment date after the Effective Time) by (y) the
Average Stock Price. Notwithstanding the prior sentence or any other
provision of this Agreement, if, in the reasonable determination of the
Company, the amount of cash to be received by the holders of Preferred
Shares would exceed 20% of the total consideration to be received by such
holders at the Effective Time, then the Company shall redeem the Preferred
Shares prior to the Effective Time in accordance with Article Fourth of the
Restated Certificate of Incorporation of the Company.
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(c) All Shares to be converted into Parent Common Shares pursuant to
this Section 4.1 shall, by virtue of the Merger and without any action on
the part of the holders thereof, cease to be outstanding, be canceled and
retired and cease to exist, and each holder of a certificate representing
any such Shares shall thereafter cease to have any rights with respect to
such Shares, except the right to receive for each of the Shares, upon the
surrender of such certificate in accordance with Section 4.2, the number of
Parent Common Shares specified above (the "Share Consideration") and cash in
lieu of fractional Parent Common Shares as contemplated by Section 4.3.
(d) At the Effective Time, each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Merger Sub or the
holder thereof, be converted into the same number of shares of common stock
of the Surviving Corporation.
(e) At the Effective Time, each outstanding option to purchase Common
Shares (each, an "Option") issued pursuant to the Advance Ross Corporation
Stock Option Plan, effective October 26, 1992 (the "1992 Plan"), the 1993
Advance Ross Corporation Stock Option Plan, effective June 15, 1993 (the
"1993 Plan"), and each of the Stock Option Agreements set forth in Section
5.1(b) of the Company Disclosure Schedule (collectively, the "Option Plans")
and the Warrant Certificate to purchase 480,000 Common Shares (after giving
effect to all amendments and stock splits) issued to Allen & Company
Incorporated, dated as of February 19, 1992 and amended pursuant to the
Amendment to Warrant Certificate dated as of December 1, 1992 and the
addendum, dated the date hereof, between the Company and Allen & Company
Incorporated (the "Warrant") shall be assumed by Parent and shall be deemed
to constitute an option or warrant, as the case may be, to acquire, on the
terms and conditions as were applicable under such Option or Warrant, the
same number of Parent Common Shares as the holder of such Option or Warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such Option or Warrant in full immediately prior to the Effective
Time (not taking into account whether such option or warrant was in fact
exercisable at such time), at a price per share equal to (x) the aggregate
exercise price for the Common Shares subject to such Option or Warrant
divided by (y) the number of full Parent Common Shares deemed purchasable
pursuant to such Option or Warrant; provided, however, that the number of
Parent Common Shares that may be purchased upon exercise of such Option or
Warrant shall not include any fractional share and, upon exercise of the
Option or Warrant, a cash payment shall be made for any fractional share
based upon the closing price of a Parent Common Share on the trading day
immediately preceding the date of exercise. As soon as practicable after the
Effective Time, Parent shall deliver to each holder of an Option an
appropriate notice setting forth such holder's right to acquire Parent
Common Shares and the Option agreements of such holder shall be deemed to be
appropriately amended so that such Options shall represent rights to acquire
Parent Common Shares on substantially the same terms and conditions as
contained in the outstanding Options (subject to any adjustments required by
the preceding sentence); provided, however, that notwithstanding anything to
the contrary contained herein, Parent shall not be obligated (x) to grant
any incentive stock options (within the meaning of Section 422 of the Code)
or (y) to grant options on terms more favorable than options to be assumed
pursuant to this Section 4.1(e).
(f) Parent shall use its best efforts to cause there to be effective as
of a date as soon as practicable after the Effective Time a registration
statement on Form S-8 (or any successor form) or another appropriate form,
with respect to the Parent Common Shares subject to such Options and shall
use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such Options
remain outstanding.
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4.2. Payment for Shares in the Merger. The manner of making payment for
Shares in the Merger shall be as follows:
(a) At the Effective Time, Parent shall make available to The Bank of
Boston (the "Exchange Agent"), or such other exchange agent selected by
Parent and reasonably acceptable to the Company for the benefit of the
holders of Shares, a sufficient number of certificates representing Parent
Common Shares required to effect the delivery of the aggregate Share
Consideration required to be issued pursuant to Section 4.1 (the
certificates representing Parent Common Shares comprising such aggregate
Share Consideration being hereinafter referred to as the "Stock Merger
Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Parent Common Shares contemplated to be issued
pursuant to Section 4.1 and effect the sales provided for in Section 4.3 out
of the Stock Merger Exchange Fund. The Stock Merger Exchange Fund shall not
be used for any other purpose.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record (other than holders of certificates for Shares
referred to in Section 4.1(c)) of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Shares (the
"Certificates") (i) a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and (ii) instructions for use in effecting the surrender
of the Certificates for payment therefor. Upon surrender of Certificates for
cancellation to the Exchange Agent, together with such letter of transmittal
duly executed and any other required documents, the holder of such
Certificates shall be entitled to receive for each of the Shares represented
by such Certificates the Share Consideration and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered, such
Certificates shall represent solely the right to receive the Share
Consideration and any cash in lieu of fractional Parent Common Shares as
contemplated by Section 4.3 with respect to each of the Shares represented
thereby. No dividends or other distributions that are declared after the
Effective Time on Parent Common Shares and payable to the holders of record
thereof after the Effective Time will be paid to persons entitled by reason
of the Merger to receive Parent Common Shares until such persons surrender
their Certificates. Upon such surrender, there shall be paid to the person
in whose name the Parent Common Shares are issued any dividends or other
distributions having a record date after the Effective Time and payable with
respect to such Parent Common Shares between the Effective Time and the time
of such surrender. After such surrender there shall be paid to the person in
whose name the Parent Common Shares are issued any dividends or other
distributions on such Parent Common Shares which shall have a record date
after the Effective Time and prior to such surrender and a payment date
after such surrender and such payment shall be made on such payment date. In
no event shall the persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions. If any certificate representing Parent Common Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange
that the Certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer and that the person requesting such exchange
shall pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of certificates for such Parent Common Shares in a
name other than that of the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable
to a holder of Shares for any Parent Common Shares or dividends thereon, or,
in accordance with Section 4.3, cash in lieu of fractional Parent Common
Shares, delivered to a public official pursuant to applicable escheat law.
The Exchange Agent shall not be entitled to vote or exercise any rights of
ownership with respect to the Parent Common Shares held by it from time to
time hereunder, except that it shall receive and hold all
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dividends or other distributions paid or distributed with respect to such
Parent Common Shares for the account of the persons entitled thereto.
(c) Any portion of the Stock Merger Exchange Fund and the Fractional
Securities Fund (as defined in Section 4.3) which remains unclaimed by the
former stockholders of the Company for two years after the Effective Time
shall be delivered to Parent, upon demand of Parent, and any former
stockholders of the Company shall thereafter look only to Parent for payment
of their claim for the Share Consideration for the Shares or for any cash in
lieu of fractional shares of Parent Common Shares.
4.3. Fractional Shares. No fractional Parent Common Shares shall be issued
in the Merger. Each holder of Shares shall be entitled to receive in lieu of any
fractional Parent Common Shares to which such holder otherwise would have been
entitled pursuant to Section 4.2 (after taking into account all Shares then held
of record by such holder) a cash payment in an amount equal to the product of
(i) the fractional interest of a Parent Common Share to which such holder
otherwise would have been entitled and (ii) the closing price of a Parent Common
Share on the NYSE on the trading day immediately prior to the Effective Time
(the cash comprising such aggregate payments in lieu of fractional Parent Common
Shares being hereinafter referred to as the "Fractional Securities Fund").
Merger Sub shall make available to the Exchange Agent cash in an amount
sufficient to make the payments in lieu of fractional shares as aforesaid.
4.4. Transfer of Shares after the Effective Time. No transfers of Shares
shall be made on the stock transfer books of the Company after the close of
business on the day prior to the date of the Effective Time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent and Merger Sub that (except to the extent set
forth on the Disclosure Schedule previously delivered by the Company to Parent
(the "Company Disclosure Schedule")):
(a) Corporate Organization and Qualification. Each of the Company and
its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation
and is qualified and in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by it require such qualification, except where failure to so
qualify or be in good standing would not have a Material Adverse Effect (as
defined in Section 9.10). Each of the Company and its subsidiaries has all
requisite power and authority (corporate or otherwise) to own its properties
and to carry on its business as it is now being conducted. All of the
subsidiaries of the Company, together with an organizational chart, are set
forth in Section 5.1(a) of the Company Disclosure Schedule. The Company has
heretofore made available to Parent complete and correct copies of its
Certificate of Incorporation and By-Laws.
(b) Capitalization. The authorized capital stock of the Company consists
of (i) 12,000,000 Common Shares of which, as of October 10, 1995, 7,075,370
Shares were issued and outstanding and 493,138 Shares were held in treasury,
(ii) 1,000,000 shares of preferred stock, $1 par value per share, none of
which are shares issued or outstanding and (iii) 200,000 Preferred Shares,
of which, as of October 10, 1995, 16,923 Preferred Shares were issued and
outstanding and 3,324 Preferred Shares were held in treasury. All of the
outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. The Company has no
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outstanding stock appreciation rights. Except as set forth in Section 5.1(b)
of the Company Disclosure Schedule, no Shares are owned by any subsidiary of
the Company. Except as set forth in Section 5.1(b) of the Company Disclosure
Schedule, all outstanding shares of capital stock or other equity interests
of the subsidiaries of the Company are owned by the Company or a direct or
indirect wholly-owned subsidiary of the Company, free and clear of all
liens, charges, encumbrances, claims and options of any nature. Except for
(i) options outstanding on the date hereof to purchase 1,923,096 Common
Shares under the Option Plans and 10,000 Common Shares under the Advance
Ross Corporation 1995 Directors Deferred Plan, (ii) the Warrant, a true,
complete and correct copy of which the Company has delivered to Parent prior
to the date hereof, and (iii) as set forth in Section 5.1(b) of the Company
Disclosure Schedule there are not as of the date hereof and there will not
be at the Effective Time any outstanding or authorized options, warrants,
calls, rights (including preemptive rights), commitments or any other
agreements of any character which the Company or any of its subsidiaries is
a party to, or may be bound by, requiring it to issue, transfer, sell,
purchase, redeem or acquire any shares of capital stock or any securities or
rights convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of capital stock of the Company or any of its
subsidiaries. There are not as of the date hereof and there will not be at
the Effective Time any stockholder agreements (other than the Stockholders
Agreement), voting trusts or other agreements or understandings to which the
Company is a party or to which it is bound relating to the voting of any
shares of the capital stock of the Company. Except as otherwise agreed to by
Parent, there will not be at the Effective Time any outstanding options
under the Advance Ross Corporation 1995 Directors Deferral Plan.
(c) Approvals; Fairness Opinion.
(i) The Board of Directors of the Company has unanimously approved
the Merger and this Agreement. Except for the approval of the holders of
Common Shares required by the DGCL, no other approval of the stockholders
of the Company is required in order to consummate the transactions
contemplated by this Agreement.
(ii) The Board of Directors of the Company has received an opinion
from Allen & Company Incorporated to the effect that the consideration to
be received by the holders of Common Shares in the Merger is fair to such
holders from a financial point of view. As of the date hereof, such
opinion has not been withdrawn, revoked or modified.
(d) Authority Relative to this Agreement. The Board of Directors of the
Company has declared the Merger advisable and the Company has the requisite
corporate power and authority to approve, authorize, execute and deliver
this Agreement and to consummate the transactions contemplated hereby
(subject to the approval of the Merger by the stockholders of the Company in
accordance with the DGCL). This Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than
the approval of the Merger by the holders of the Common Shares in accordance
with the DGCL). This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement constitutes the valid
and binding agreement of Parent and Merger Sub, constitutes the valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general principles of equity.
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(e) Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement nor the consummation by the Company of the
transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the respective Certificate of Incorporation (or
other similar documents) or By-Laws (or other similar documents) of the
Company or any of its subsidiaries; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (A) in connection with the
applicable requirements, if any, of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (B) pursuant to the
applicable requirements of the Securities Act, and the rules and regulations
promulgated thereunder, and the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated thereunder,
(C) the filing of the Certificate of Merger pursuant to the DGCL and
appropriate documents with the relevant authorities of other states in which
the Company is authorized to do business, (D) as may be required by any
applicable state securities or takeover laws, (E) such filings and consents
as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement,
(F) the consents, approvals, orders, authorizations, registrations,
declarations and filings required under the laws of foreign countries, as
set forth in Section 5.1(e) of the Company Disclosure Schedule or (G) where
the failure to obtain such consent, approval, authorization or permit, or to
make such filing or notification, would not in the aggregate have a Material
Adverse Effect or adversely affect the ability of the Company to consummate
the transactions contemplated hereby; (iii) except as set forth in Section
5.1(e) of the Company Disclosure Schedule, result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration or lien or other charge or encumbrance) under any of the terms,
conditions or provisions of any note, license, agreement or other instrument
or obligation to which the Company or any of its subsidiaries or any of
their assets may be bound, except for such violations, breaches and defaults
(or rights of termination, cancellation or acceleration or lien or other
charge or encumbrance) as to which requisite waivers or consents have been
obtained or which, in the aggregate, would not have a Material Adverse
Effect or adversely affect the ability of the Company to consummate the
transactions contemplated hereby; or (iv) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in this
Section 5.1(e) are duly and timely obtained or made and the approval of the
Merger and the approval of this Agreement by the Company's stockholders has
been obtained, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or any of its subsidiaries or to any of
their respective assets, except for violations which would not in the
aggregate have a Material Adverse Effect or adversely affect the ability of
the Company to consummate the transactions contemplated hereby. Except as
set forth in Section 5.1(e) of the Company Disclosure Schedule, the Company
does not know of any pending or proposed legislation, regulation or order
(other than those affecting businesses generally) applicable to the Company
or any of its subsidiaries or to the conduct of the business or operations
of the Company or any of its subsidiaries which, if enacted or adopted,
could have a material adverse effect on the Company or any of its
subsidiaries. As of the date hereof, none of the Company or any of its
subsidiaries are subject to any laws governing lending or factoring
businesses. Except as set forth in Section 5.1(e) of the Company Disclosure
Schedule, (x) neither the Company nor any of its subsidiaries has ceased
doing business in any country which has a value-added or similar tax and
where the Company or any such subsidiary previously conducted business and
(y) the Company and its subsidiaries are not prohibited from conducting
business, as presently conducted, in any place in the world which has a
value-added or similar tax where the Company and its subsidiaries conduct
business or are (as described in Section 5.1(e) of the Company Disclosure
Schedule) considering conducting business. Section 5.1(e) of the Company
Disclosure Schedule also contains true, correct and complete copies of
studies prepared for the Company by Price Waterhouse and Ernst & Young. To
the actual knowledge of the Company (without independent verification), the
information contained in such studies with respect to those
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countries in which the Company and its subsidiaries presently conduct
business is accurate in all material respects as of the date hereof (it
being acknowledged and agreed that neither of such studies has been updated,
nor has the Company consulted with either of such firms or any third party
in making the representation set forth in this sentence).
(f) Litigation. Except as disclosed in the Company SEC Reports (as
defined in Section 5.1(g)) or as disclosed in writing by the Company to
Parent prior to the date hereof, there are no actions, suits, investigations
or proceedings pending or, to the best knowledge of the Company, threatened
against the Company or any of its subsidiaries that (i) if adversely
determined, would be reasonably likely to result in any claims against or
obligations or liabilities of the Company or any of its subsidiaries that,
alone or in the aggregate, would have a Material Adverse Effect or (ii)
question the validity of this Agreement or any action to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby.
(g) SEC Reports; Financial Statements.
(i) Since January 1, 1992, the Company has filed all forms, reports
and documents with the Securities and Exchange Commission (the "SEC")
required to be filed by it pursuant to the federal securities laws and
the SEC rules and regulations thereunder, all of which complied in all
material respects with all applicable requirements of the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder
(collectively, the "Company SEC Reports"). None of the Company SEC
Reports, including, without limitation, any financial statements or
schedules included therein, at the time filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii) The consolidated balance sheets and the related consolidated
statements of income, stockholders' equity (deficit) and cash flows
(including the related notes thereto) of the Company included in the
Company SEC Reports complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a
basis consistent with prior periods (except as otherwise noted therein),
and present fairly the consolidated financial position of the Company and
its consolidated subsidiaries as of their respective dates, and the
consolidated results of their operations and their cash flows for the
periods presented therein (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments). Except as set
forth in Section 5.1(g) of the Company Disclosure Schedule, since
November 2, 1992, there has not been any material change, or any
application or request for any material change, by the Company or any of
its subsidiaries in accounting principles, methods or policies for
financial accounting purposes that have affected or will affect the
Company's consolidated financial statements included in the Company SEC
Reports or for tax purposes.
(h) Absence of Certain Changes or Events. Neither the Company nor any of
its subsidiaries has any material indebtedness, obligations or liabilities
of any kind (whether accrued, absolute, contingent or otherwise, and whether
due or to become due or asserted or unasserted), and, to the best knowledge
of the Company, there is no basis for the assertion of any claim or
liability of any nature against the Company or any of its subsidiaries,
which is not fully reflected in, reserved against or otherwise described in
the financial statements included in the Company SEC Reports. Except as
disclosed in the Company SEC Reports or as disclosed in writing by the
Company to Parent prior to the date hereof or in Section 5.1(h) of the
Company Disclosure Schedule, since January 1, 1995, the business of the
Company and its subsidiaries has been carried on only in the ordinary and
usual course and there has not been any material adverse change in its
business,
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properties, operations or financial condition and no event has occurred and
no fact or set of circumstances has arisen which has resulted in or could
reasonably be expected to result in a Material Adverse Effect with respect
to the Company and its subsidiaries.
(i) Employment Agreements. Except as set forth in Section 5.1(i) of the
Company Disclosure Schedule, the Company is not a party to any employment,
consulting, non-competition, severance, golden parachute, indemnification
agreement or any other agreement providing for payments or benefits or the
acceleration of payments or benefits upon the change of control of the
Company (including, without limitation, any contract to which the Company is
a party involving employees of the Company).
(j) Brokers and Finders. Except for the fees and expenses payable to
Allen & Company Incorporated, which fees and expenses are reflected in its
agreement with the Company, a true and complete copy of which (including all
amendments) has been furnished to Parent, the Company has not employed any
investment banker, broker, finder, consultant or intermediary in connection
with the transactions contemplated by this Agreement which would be entitled
to any investment banking, brokerage, finder's or similar fee or commission
in connection with this Agreement or the transactions contemplated hereby.
(k) S-4 Registration Statement and Proxy Statement/Prospectus. None of
the information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the S-4 Registration Statement or the Proxy
Statement (as such terms are defined in Section 6.4) will (i) in the case of
the S-4 Registration Statement, at the time it becomes effective or at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, or (ii) in the case of the
Proxy Statement, at the time of the mailing of the Proxy Statement and at
the time of the Stockholder Meeting (as such term is defined in Section
6.3), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event
with respect to the Company, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment
of, or a supplement to, the Proxy Statement or the S-4 Registration
Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. The Proxy Statement will
(only with respect to the Company) comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
(l) Taxes. The Company and each subsidiary of the Company has (x) filed
all returns, declarations, reports, information returns and statements of
whatsoever kind ("Tax Returns") in respect of all federal and all material
state, county, local, foreign and other Taxes (as defined below), that it is
required to file through the date hereof, and (y) paid or provided for the
payment of all Taxes shown due on such Tax Returns and all Taxes, if any,
required to be paid for which no return is required. True and complete
copies of all federal, state, local and foreign Tax Returns relating to the
last three taxable years of the Company and its subsidiaries have been
delivered or made available to Parent. True and complete copies of the
foreign income tax returns for the last taxable year of the Company's
subsidiaries for Germany, Italy, Sweden and the United Kingdom have been
delivered to Parent. Except as otherwise set forth in Section 5.1(l) of the
Company Disclosure Schedule, the Company and its subsidiaries have not been
audited, or received written notice (and are not otherwise aware) of a
pending or proposed audit, by the Internal Revenue Service or any state,
local or foreign taxing jurisdiction since the year ended December 31, 1990
and no agreements or consents extending the period during which any Taxes
may be assessed or collected are now in force. No material adjustments have
been proposed by, or discussed with, the
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Internal Revenue Service or by, or with, any other taxing authority with
respect to any open tax years or tax returns. Neither the Company nor any of
its subsidiaries nor any predecessor of the foregoing has, during the past 5
years or, to the best knowledge of the Company and its subsidiaries, at any
time prior thereto, filed a consent under section 341(f)(1) of the Code, or
agreed under section 341(f)(3) of the Code to have the provisions of section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company or such
subsidiary. Set forth in Section 5.1(l) of the Company Disclosure Schedule
is a complete list of all material differences for the Company and any
subsidiary between their financial statements and income tax returns which
have the effect of deferring the realization of an item of income to a
period after the period for which such item of income was reported on the
Company's financial statements or accelerating an item of deduction to a
period prior to the period for which the corresponding item of loss or
expense was reported on the Company's financial statements. Except as set
forth in Section 5.1(l) of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries has entered into within the last five
(5) years, or otherwise is a party to or bound by, any agreement providing
for the allocation or sharing of Taxes with any entity which is not, either
directly or indirectly, a subsidiary of the Company. The Company is not a
"United States real property holding corporation" as defined in Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. Except as set forth in Section 5.1(l) of the
Company Disclosure Schedule, no closing agreement pursuant to Section 7121
of the Code or compromise pursuant to Section 7122 of the Code or any
similar provision of state, local or foreign law has been entered into by,
or with respect to, the Company or any of its subsidiaries or any assets
thereof that would be binding on, or affect the computation or reporting of
any Tax liability of, the Company or any subsidiary thereof for (i) any of
the last three taxable years of the Company or any subsidiary thereof ending
on or prior to the Closing Date or (ii) any taxable year of the Company or
any subsidiary thereof ending after the Closing Date. For the purpose of
this Agreement, the term "Tax" (and, with correlative meaning, the terms
"Taxes and "Taxable") shall include all federal, state, local and foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
value added, property, withholding, excise and other taxes, duties or
assessments of any nature whatsoever, together with all interest, penalties
and additions imposed with respect to such amounts.
(m) Employee Benefits. Section 5.1(m) of the Company Disclosure Schedule
contains an accurate and complete list of all Company Benefit Plans (as
defined below). None of the Company Benefit Plans is a "multiemployer plan"
as defined in Section 3(37) of ERISA or a multiple employer plan covered by
Sections 4063 or 4064 of ERISA.
(i) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, each Company Benefit Plan intended to qualify under Section 401
of the Code does so qualify and the trust maintained pursuant thereto is
exempt from federal income taxation under Section 501 of the Code. To the
best knowledge of the Company, nothing has occurred with respect to the
operation of such plans which could cause the loss of such qualification
or exemption or the imposition of any liability, penalty, or tax under
ERISA or the Code.
(ii) True and correct copies of the following documents with respect
to each Company Benefit Plans have been made available or delivered to
Parent by the Company: (1) any plans, and amendments thereto, (2) the
most recent forms 5500 and any financial statements attached thereto, (3)
the last Internal Revenue Service determination letter (if any), (4)
summary plan descriptions, (5) the two most recent actuarial reports,
including any such reports for purposes of FASB 87, 106 and 112, and (6)
written descriptions of all material, non-written agreements relating to
the Company Benefit Plans.
(iii) The Company Benefit Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA
and other applicable law.
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Neither the Company nor any of its subsidiaries has any liability with
respect to a non-exempt prohibited transaction within the meaning of
Section 4975 of the Code or Section 406 of ERISA.
(iv) There has been no transaction involving an ERISA Affiliate while
any Company Benefit Plan subject to Title IV of ERISA has unfunded
benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
(v) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries maintains
retiree life insurance or retiree health plans which are "welfare benefit
plans" within the meaning of Section 3(1) of ERISA and which provide for
continuing benefits or coverage for any participant or any beneficiary of
a participant after such participant's termination of employment where
such participant was an employee of the Company or any subsidiary of the
Company, other than as required by Part 6 of Title I of ERISA and at the
sole expense of the participant or beneficiary.
(vi) Except as disclosed in Section 5.1(m) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (1) result in
any payment (including, without limitation, bonus or other compensation
severance, unemployment compensation, golden parachute or otherwise)
becoming due to any employee of the Company under any Company Benefit
Plan or otherwise, (2) increase any benefits otherwise payable under any
Company Benefit Plan, or (3) result in the acceleration of the time of
payment or vesting of any such benefits.
(vii) (A) None of the employees of the Company or any of its
subsidiaries is represented in his or her capacity as an employee of such
company by any labor organization; (B) neither the Company nor any of its
subsidiaries has recognized any labor organization nor has any labor
organization been elected as the collective bargaining agent of any of
their employees, nor has the Company or any of its subsidiaries signed
any collective bargaining agreement or union contract recognizing any
labor organization as the bargaining agent of any of their employees; and
(C) to the best knowledge of the Company, there is no active or current
union organization activity involving the employees of the Company or any
subsidiary of the Company, nor has there ever been union representation
involving employees of the Company and/or its subsidiaries.
(viii) For the purposes of this Agreement: (A) the term "Company
Benefit Plan" shall include all employee benefit plans (as defined in
Section 3(3) of ERISA) and all other employee benefit arrangements or
payroll practices, including, without limitation, severance pay, sick
leave, vacation pay, salary continuation for disability, scholarship
programs, stock option or restricted stock plans maintained by the
Company or any ERISA Affiliate of the Company (whether formal or
informal, whether for the benefit of a single individual or for more than
one individual and whether for the benefit of current or former employees
or their beneficiaries) on behalf of the Company or any of the employees
of the Company or any of its subsidiaries or to which or under which or
pursuant to which the Company or any ERISA Affiliate of the Company has
contributed or is obligated to make contributions on behalf of the
Company or any employees of the Company or any of its subsidiaries; (B)
the term "ERISA" shall refer to the Employee Retirement Income Security
Act of 1974, as amended; (C) the term "ERISA Affiliate" shall refer to
any trade or business (whether or not incorporated) under common control
or treated as a single employer with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
(n) Intangible Property. (i) Section 5.1(n) of the Company Disclosure
Statement sets forth a list of each patent, trademark, trade name, service
mark, brand mark, brand name, industrial design and copyright owned or used
in business by the Company and its subsidiaries, as well as all
12
<PAGE>
registrations thereof and pending applications therefor, and each license or
other contract relating thereto (collectively with any other intellectual
property owned or used in the business by the Company and its subsidiaries,
and all of the goodwill associated therewith, the "Intangible Property") and
indicates, with respect to each item of Intangible Property listed thereon,
the owner thereof and, if applicable, the name of the licensor and licensee
thereof and the terms of such license or other contract relating thereto.
Except as set forth in Section 5.1(n) of the Company Disclosure Schedule,
each of the foregoing is owned free and clear of any and all liens,
mortgages, pledges, security interests, levies, charges, options or any
other encumbrances, restrictions or limitations of any kind whatsoever and
none of the Company or any of its subsidiaries has received any notice to
the effect that any other entity has any claim of ownership with respect
thereto. To the best knowledge of the Company, the use of the foregoing by
the Company and its subsidiaries does not conflict with, infringe upon,
violate or interfere with or constitute an appropriation of any right,
title, interest or goodwill, including, without limitation, any intellectual
property right, patent, trademark, trade name, service mark, brand mark,
brand name, computer program, industrial design, copyright or any pending
application therefor of any other entity. Except as set forth in Section
5.1(n) of the Company Disclosure Schedule, no claims have been made, and
none of the Company or any of its subsidiaries has received any notice, that
any of the foregoing is invalid, conflicts with the asserted rights of other
entities, or has not been used or enforced (or has failed to be used or
enforced) in a manner that would result in the abandonment, cancellation or
unenforceability of any item of the Intangible Property.
(ii) The Company and each of its subsidiaries possesses all Intangible
Property, including, without limitation, all know-how, formulae and other
proprietary and trade rights necessary for the conduct of their businesses
as now conducted. None of the Company or any of its subsidiaries has taken
or failed to take any action that would result in the forfeiture or
relinquishment of any such Intangible Property used in the conduct of their
respective businesses as now conducted.
(o) Certain Contracts. Section 5.1(o) of the Company Disclosure Schedule
lists all of the following contracts to which the Company or a subsidiary is
a party or by which any one of them or any of their properties or assets may
be bound ("Listed Agreements"): (i) all employment or other contracts with
any employee, consultant, officer or director of the Company or any
subsidiary of the Company (or any company which is controlled by any such
individual) whose total rate of annual remuneration is estimated to exceed
$100,000 in 1995; (ii) union, guild or collective bargaining contracts
relating to employees of the Company or any subsidiary; (iii) instruments
for money borrowed (including, without limitation, any indentures,
guarantees, loan agreements, sale and leaseback agreements, or purchase
money obligations incurred in connection with the acquisition of property
other than in the ordinary course of business) in excess of $500,000; (iv)
underwriting, purchase or similar agreements entered into in connection with
the Company's or any of its subsidiaries' currently existing indebtedness;
(v) agreements for acquisitions or dispositions (by merger, purchase or sale
of assets or stock or otherwise) of material assets entered into within the
last two years, as to which the transactions contemplated have been
consummated or are currently pending; (vi) joint venture or partnership
agreements entered into; (vii) material licensing, merchandising and
distribution contracts; (viii) contracts granting any person or other entity
registration rights; (ix) guarantees, suretyships, indemnification and
contribution agreements, in excess of $500,000; (x) contracts between the
Company and its subsidiaries and their ten largest retailers, as measured as
a percent of Company sales to the customers of such retailers; (xi)
contracts with respect to duty-free arrangements including any lease or
revenue-sharing or profit-sharing arrangements; (xii) contracts with any
governmental or quasi-governmental entity concerning refunds or advances;
and (xiii) other contracts which materially affect the business, properties
or assets of the Company and its subsidiaries taken as a whole, and are not
otherwise disclosed in this Agreement or were entered into other than in the
ordinary course of business. A true and complete copy (including all
amendments) of each Listed Agreement and each contract
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with a retailer listed on Exhibit D to Section 5.1(o) of the Company
Disclosure Schedule, has been made available to Parent. Neither the Company
nor any subsidiary (i) to the knowledge of the Company is in breach or
default in any material respect under any of the Listed Agreements or (ii)
has any knowledge of any other material breach or default under any Listed
Agreement by any other party thereto or by any other person or entity bound
thereby, except in the case of (i) or (ii) breaches or defaults which would
not, individually or in the aggregate, have a Material Adverse Effect with
respect to the Company. At the Effective Time, no person will have the
right, by contract or otherwise, to become, nor does any entity have the
right to designate or cause the Company to appoint a person as, a director
of the Company.
(p) Accounting Matters. Neither the Company nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action
that would prevent the Parent from accounting for the business combination
to be effected by the Merger as a "pooling-of-interests." The Company has
not failed to bring to the attention of Parent any actions, or agreements or
understandings, whether written or oral, to act that would be reasonably
likely to prevent Parent from accounting for the Merger as a
pooling-of-interests.
(q) Unlawful Payments and Contributions. To the best knowledge of the
Company, neither the Company, any subsidiary of the Company nor any of their
respective directors, officers or, any of their respective employees or
agents has, with respect to the businesses of the Company and its
subsidiaries, (i) used any funds for any unlawful contribution, endorsement,
gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment to any foreign
or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any person or entity.
(r) Commission Rates. Set forth in Section 5.1(r) of the Company
Disclosure Statement is a list of the commissions earned by the Company and
its subsidiaries in percentages of invoiced VAT and the Swedish Krona amount
of invoiced VAT processed by the Company and its subsidiaries from January
1, 1993 to July 31, 1995.
(s) Listings. The Company's securities are not listed, or quoted, for
trading on any U.S. domestic or foreign securities exchange, except as set
forth in Section 5.1(s) of the Company Disclosure Schedule.
(t) Environmental Matters. Except as disclosed in the Company's SEC
Reports or as disclosed in writing by the Company to Parent prior to the
date hereof, (i) the Company and its subsidiaries and the operations thereof
are in material compliance with all Environmental Laws (as defined below);
(ii) there are no judicial or administrative actions, suits, proceedings or
investigations pending or, to the knowledge of the Company, threatened
against the Company or any subsidiary of the Company alleging the violation
of any Environmental Law and neither the Company nor any subsidiary of the
Company has received notice from any governmental body or person alleging
any violation of or liability under any Environmental Laws, in either case
which could reasonably be expected to result in material Environmental Costs
and Liabilities; and (iii) to the knowledge of the Company, there are no
facts, circumstances or conditions relating to, arising from associated with
or attributable to the Company or its subsidiaries or any real property
currently or previously owned, operated or leased by the Company or its
subsidiaries that could reasonably be expected to result in material
Environmental Costs and Liabilities. For the purpose of this Section 5.1(t),
the following terms have the following definitions: (X) "Environmental Costs
and Liabilities" means any losses, liabilities, obligations, damages, fines,
penalties, judgments, actions, claims, costs and expenses (including,
without limitation, fees, disbursements and expenses of legal counsel,
experts, engineers and consultants and the costs of investigation and
feasibility
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studies, remedial or removal actions and cleanup activities) arising from or
under any Environmental Law; (Y) "Environmental Laws" means any applicable
federal, state, local, or foreign law (including common law), statute, code,
ordinance, rule, regulation or other requirement relating to the
environment, natural resources, or public or employee health and safety; (Z)
"Hazardous Material" means any substance, material or waste regulated by
federal, state or local government, including, without limitation, any
substance, material or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "toxic waste" or "toxic
substance" under any provision of Environmental Law and including but not
limited to petroleum and petroleum products.
(u) Disclosure. No representation or warranty by the Company in this
Agreement and no statement contained in the Schedules to this Agreement or
any certificate delivered by the Company to Merger Sub or Parent pursuant to
this Agreement, contains any untrue statement of a material fact or omits
any material fact necessary to make the statements herein or therein not
misleading when taken together in light of the circumstances in which they
were made, it being understood that as used in this Section 5.1(u)
"material" means material to the Company and its subsidiaries taken as a
whole.
5.2. Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub each represents and warrants to the Company that (except to the
extent set forth on the Disclosure Schedule previously delivered by Parent to
the Company (the "Parent Disclosure Schedule")):
(a) Corporate Organization and Qualification. Each of Parent and its
Significant Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and is qualified and in good standing as a foreign corporation
in each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except where the
failure to so qualify or be in such good standing would not have a Material
Adverse Effect. Each of Parent and its Significant Subsidiaries has all
requisite power and authority (corporate or otherwise) to own its properties
and to carry on its business as it is now being conducted. Parent and Merger
Sub have heretofore made available to the Company complete and correct
copies of their Certificate of Incorporation, as the case may be, and their
respective By-Laws.
(b) Capitalization. The authorized capital stock of Parent consists of
(i) 400,000,000 Parent Common Shares of which, as of September 30, 1995,
approximately 181,000,000 Parent Common Shares were issued and outstanding
and 3,000,000 Parent Common Shares were held in treasury and (ii) 1,000,000
shares of preferred stock, $.01 par value per share (the "Parent Preferred
Shares"), none of which is issued or outstanding. All of the outstanding
shares of capital stock of Parent have been duly authorized and validly
issued and are fully paid and nonassessable. All outstanding shares of
capital stock or other equity interests of the subsidiaries of Parent are
owned by Parent or a direct or indirect wholly-owned subsidiary of Parent,
free and clear of all liens, charges, encumbrances, claims and options of
any nature. Except as set forth in Parent SEC Reports (as defined in Section
5.2(g)) or as contemplated by this Agreement, there are not, as of the date
hereof, any outstanding or authorized options, warrants, calls, rights
(including preemptive rights), commitments or any other agreements of any
character which Parent or any of its subsidiaries is a party to, or may be
bound by, requiring it to issue, transfer, sell, purchase, redeem or acquire
any Parent Common Shares or any shares of capital stock or any of its
securities or rights convertible into, exchangeable for, or evidencing the
right to subscribe for, any shares of capital stock of Parent or any of its
subsidiaries. There are not as of the date hereof and there will not be at
the Effective Time any stockholder agreements, voting trusts or other
agreements or understandings to which Parent is a party or to which it is
bound relating to the voting of any shares of the capital stock of Parent.
Parent has reserved for issuance under a stock option plan or
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<PAGE>
plans of Parent a sufficient number of Parent Common Shares to cover the
exercise of the Options and Warrant assumed by Parent in accordance with
Section 4.1(d).
(c) Authorization for Parent Common Shares. Parent has taken all
necessary action to permit it to issue the number of Parent Common Shares
required to be issued pursuant to Article IV. Parent Common Shares issued
pursuant to Article IV will, when issued, be validly issued, fully paid and
nonassessable and no person will have any preemptive right of subscription
or purchase in respect thereof. Parent Common Shares will, when issued, be
registered under the Securities Act and the Exchange Act and registered or
exempt from registration under any applicable state securities laws and
will, when issued, be listed on the NYSE, subject to official notice of
issuance.
(d) Authority Relative to this Agreement. The Board of Directors of
Parent and Merger Sub have each declared the Merger advisable and each of
Parent and Merger Sub has the requisite corporate power and authority to
approve, authorize, execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly
and validly authorized by the respective Boards of Directors of Parent and
Merger Sub and by Parent as sole stockholder of Merger Sub, and no other
corporate proceedings on the part of Parent and Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
each of Parent and Merger Sub and, assuming this Agreement constitutes the
valid and binding agreement of the Company, constitutes valid and binding
agreements of Parent and Merger Sub, enforceable against them in accordance
with its terms, subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity.
(e) Consents and Approvals; No Violation. Except as set forth in Section
5.2(e) of the Parent Disclosure Schedule, neither the execution and delivery
of this Agreement by Parent or Merger Sub nor the consummation by Parent and
Merger Sub of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the respective Certificate of
Incorporation and the respective By-Laws of Parent and Merger Sub; (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) in
connection with the applicable requirements, if any, of the HSR Act, (B)
pursuant to the applicable requirements of the Securities Act and the
Exchange Act, (C) the filing of the Certificate of Merger pursuant to the
DGCL and appropriate documents with the relevant authorities of other states
in which Parent is authorized to do business, (D) as may be required by any
applicable state securities or takeover laws, (E) such filings and consents
as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement,
(F) such filings, consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the laws of
any foreign country, (G) filings with, and approval of, the NYSE or, (H)
where the failure to obtain such consent, approval, authorization or permit,
or to make such filing or notification, would not in the aggregate have a
Material Adverse Effect or adversely affect the ability of Parent or Merger
Sub to consummate the transactions contemplated hereby; (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or lien or other charge or encumbrance) under
any of the terms, conditions or provisions of any note, license, agreement
or other instrument or obligation to which Parent or any of its subsidiaries
or any of their assets may be bound, except for such violations, breaches
and defaults (or rights of termination, cancellation, or acceleration or
lien or other charge or encumbrance) as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not have a
Material Adverse Effect or adversely affect the ability of Parent and Merger
Sub to consummate
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the transactions contemplated hereby; or (iv) assuming the consents,
approvals, authorizations or permits and filings or notifications referred
to in this Section 5.2(e) are duly and timely obtained or made, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or any of its subsidiaries or to any of their respective assets,
except for violations which would not in the aggregate have a Material
Adverse Effect or adversely affect the ability of Parent and Merger Sub to
consummate the transactions contemplated hereby.
(f) Ownership of Merger Sub; No Prior Activities; Assets of Merger Sub.
(i) Merger Sub was formed solely for the purpose of the Merger and
engaging in the transactions contemplated hereby.
(ii) As of the date hereof and the Effective Time, the capital stock
of Merger Sub is and will be directly owned 100% by Parent. Further,
there are not as of the date hereof and there will not be at the
Effective Time any outstanding or authorized options, warrants, calls,
rights, commitments or any other agreements of any character which Merger
Sub is a party to, or may be bound by, requiring it to issue, transfer,
sell, purchase, redeem or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for or acquire, any shares of capital stock of
Merger Sub.
(iii) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation
or organization and the transactions contemplated hereby, Merger Sub has
not and will not have incurred, directly or indirectly through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business or activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person or entity.
(g) SEC Reports; Financial Statements.
(i) Since January 1, 1992, Parent has filed all forms, reports and
documents with the SEC required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder, all of
which complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act (the "Parent SEC Reports").
None of Parent SEC Reports, including, without limitation, any financial
statements or schedules included therein, at the time filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(ii) The consolidated balance sheets and the related statements of
income, stockholders' equity and cash flow (including the related notes
thereto) of Parent included in Parent SEC Reports comply as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior periods (except as otherwise
noted therein), and present fairly the consolidated financial position of
Parent and its consolidated subsidiaries as of their respective dates,
and the results of its operations and its cash flow for the periods
presented therein (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
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(h) Absence of Certain Changes or Events. Except as disclosed in Parent
SEC Reports filed by Parent and as set forth in Section 5.2(h) of the Parent
Disclosure Schedule, since January 1, 1995, the business of Parent has been
carried on only in the ordinary and usual course and there has not been any
adverse change in its business, properties, operations or financial
condition and no event has occurred and no fact or set of circumstances has
arisen which has resulted in or could reasonably be expected to result in a
Material Adverse Effect.
(i) Litigation. Except as disclosed in the Parent SEC Reports, there are
no actions, suits, investigations or proceedings pending or, to the best
knowledge of Parent threatened against Parent or any of its subsidiaries
that (i) if adversely determined, would be reasonably likely to result in
any claims against or obligation or liabilities of Parent or any of its
subsidiaries that, alone or in the aggregate, would have a Material Adverse
Effect or (ii) question the validity of the Agreement or any action to be
taken by Parent in connection with the consummation of the transactions
contemplated hereby.
(j) S-4 Registration Statement and Proxy Statement/Prospectus. None of
the information to be supplied by Parent or Merger Sub for inclusion or
incorporation by reference in the S-4 Registration Statement will, at the
time it becomes effective and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time any event with
respect to Parent, its officers and directors or any of its subsidiaries
shall occur which is required to be described in the S-4 Registration
Statement, such event shall be so described, and an amendment or supplement
shall be promptly filed with the SEC and, as required by law, disseminated
to the stockholders of the Parent. The S-4 Registration Statement will
comply (only with respect to Parent and Merger Sub) as to form in all
material respects with the provisions of the Securities Act and the rules
and regulations promulgated thereunder.
(k) Brokers and Finders. Parent has not employed any investment banker,
broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
(l) Ownership of Shares. As of the date hereof, none of the Parent
Companies owns any Shares.
(m) Accounting Matters. Neither Parent nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action
that would prevent Parent from accounting for the business combination to be
effected by the Merger as a "pooling-of-interests." Parent has not failed to
bring to the attention of the Company any actions, or agreements or
understandings, whether written or oral, to act that would be reasonably
likely to prevent Parent from accounting for the Merger as a
pooling-of-interests.
(n) Disclosure. No representation or warranty by Parent or Merger Sub in
this Agreement and no statement contained in the Schedules to this Agreement
or any certificate delivered by Parent or Merger Sub to the Company pursuant
to this Agreement, contains any untrue statement of a material fact or omits
any material fact necessary to make the statements herein or therein not
misleading when taken together in light of the circumstances in which they
were made, it being understood that as used in this Section 5.2(m)
"material" means material to Parent or Merger Sub and their subsidiaries
taken as a whole.
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ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1. Conduct of Business.
(a) The Company covenants and agrees that, during the period from the
date of this Agreement to the Effective Time (unless Parent shall otherwise
agree in writing and except as otherwise contemplated by this Agreement),
the Company will, and will cause each of its subsidiaries to, conduct its
operations according to its ordinary and usual course of business consistent
with past practice and, to the extent consistent therewith, with no less
diligence and effort than would be applied in the absence of this Agreement,
seek to preserve intact its current business organizations, keep available
the service of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings
with it to the end that goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Without limiting the generality of the foregoing, and
except as otherwise permitted in this Agreement, prior to the Effective
Time, neither the Company nor any of its subsidiaries will, without the
prior written consent of Parent (i) except (x) as otherwise provided in this
Agreement or as set forth in Section 6.1(a) of the Company Disclosure
Schedule and (y) for shares to be issued upon exercise of the outstanding
Options and the Warrant, as the case may be, issue, deliver, sell, dispose
of, pledge or otherwise encumber, or authorize or propose the issuance,
sale, disposition or pledge or other encumbrance of (A) any additional
shares of capital stock of any class, or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for
any shares of capital stock, or any rights, warrants, options, calls,
commitments or any other agreements of any character to purchase or acquire
any shares of capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock, or (B) any other securities in respect of, in lieu of, or in
substitution for, Shares outstanding on the date hereof, (ii) except as
provided in Section 4.1(b), redeem, purchase or otherwise acquire, or
propose to redeem, purchase or otherwise acquire, any of its outstanding
securities (including the Shares), (iii) split, combine, subdivide or
reclassify any shares of its capital stock or declare, set aside for payment
or pay any dividend, or make any other actual, constructive or deemed
distribution in respect of any shares of its capital stock or otherwise make
any payments to stockholders in their capacity as such, except for regular
quarterly dividends on the Preferred Shares not in excess of $.3125 per
share in accordance with customary record and payment dates, (iv) adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or
any of its subsidiaries not constituting an inactive subsidiary (other than
the Merger), (v) adopt any amendments to its Certificate of Incorporation or
By-Laws or alter through merger, liquidation, reorganization, restructuring
or in any other fashion the corporate structure or ownership of any
subsidiary not constituting an inactive subsidiary of the Company, (vi) make
any acquisition, by means of merger, consolidation or otherwise, or
disposition, of assets or securities, except for joint venture agreements
under negotiation in the countries set forth in Section 6.1(a) of the
Company Disclosure Schedule, (vii) other than in the ordinary course of
business consistent with past practice and except to the extent required
under any joint venture agreement listed in Section 5.1(b) of the Company
Disclosure Schedule or as set forth in Section 6.1(a) of the Company
Disclosure Schedule, incur any indebtedness for borrowed money or guarantee
any such indebtedness or make any loans, advances or capital contributions
to, or investments in, any other person, other than to the Company or any
wholly owned subsidiary of the Company, (viii) take any action with respect
to the Warrant other than as contemplated by the Warrant Amendment, dated
the date hereof, between the Company and Allen & Company Incorporated, (ix)
except as set forth in Section 6.1(a) of the Company Disclosure Schedule,
make or revoke any material Tax election, settle or compromise any material
federal, state, local or foreign Tax liability or change (or make a request
to any taxing authority to
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change) any material aspect of its method of accounting for Tax purposes
(except that the Company and its subsidiaries may make Tax elections that
are consistent with prior such elections (in past years) so long as the
Company provides Parent with reasonable prior notice, to the extent
possible, of its intention to do so (it being understood that the giving of
such notice shall not be deemed a request for, or give Parent a right of,
approval of such election)), (x) incur any liability for Taxes other than in
the ordinary course of business, or (xi) authorize, recommend, propose or
announce an intention to do any of the foregoing, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing.
(b) The Company and its subsidiaries shall not (without the prior
written consent of Parent) grant any material increases in the compensation
of any of its directors, officers or key employees, except in the ordinary
course of business and in accordance with its customary past practices; (A)
pay or agree to pay any pension, retirement allowance or other employee
benefit not required or contemplated by any of the existing benefit,
severance, pension or employment plans, agreements or arrangements as in
effect on the date hereof to any such director, officer or key employee,
whether past or present; (B) enter into any new or materially amend any
existing employment or severance agreement with any such director, officer
or key employee; or (C) except as may be required to comply with applicable
law, become obligated under any new pension plan, welfare plan,
multi-employer plan, employee benefit plan, severance plan, benefit
arrangement, or similar plan or arrangement, which was not in existence on
the date hereof, or amend any such plan or arrangement in existence on the
date hereof if such amendment would have the effect of enhancing any
benefits thereunder.
6.2. No Solicitation. (a) The Company, its subsidiaries and their respective
officers, directors, employees, representatives, agents or affiliates
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) (collectively, the
"Company's Representatives") shall immediately cease any discussions or
negotiations with any party that may be ongoing with respect to a Competing
Transaction (as defined below). From and after the date hereof until the
termination of this Agreement, neither the Company nor any of its subsidiaries
will, nor will the Company authorize or permit any of its subsidiaries or any of
the Company Representatives to, directly or indirectly, initiate, solicit or
knowingly encourage (including by way of furnishing non-public information), or
take any other action to facilitate knowingly, any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction, or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction or agree to or endorse any Competing Transaction,
and the Company shall notify Parent orally (within one business day) and in
writing (as promptly as practicable) of all of the relevant details relating to
all inquiries and proposals which it or any of its subsidiaries or any such
Company Representative may receive relating to any of such matters and, if such
inquiry or proposal is in writing, the Company shall deliver to Parent a copy of
such inquiry or proposal promptly provided, however, that the Company shall not
be obligated to deliver to Parent a copy of such written inquiry or proposal if
the Board of Directors of the Company, after consultation with and based upon
the advice of independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), determines in good faith that delivery to
Parent of such written inquiry or proposal would cause the Board of Directors of
the Company to breach its fiduciary duties to stockholders under applicable law;
provided, further, that nothing contained in this Section 6.2 shall prohibit the
Company or its Board of Directors from (i) taking and disclosing to its
stockholders a position contemplated by Exchange Act Rule 14e-2 or (ii) making
any disclosure to its stockholders that, in the good faith judgment of its Board
of Directors, after consultation with and based upon the advice of independent
legal counsel (who may be the Company's regularly engaged independent legal
counsel), is required under applicable law; provided, further, however, that
nothing contained in this Section 6.2 shall prohibit the Company from (A)
furnishing information to, or entering into discussions or negotiations with,
any person or entity that after the date hereof states in an unsolicited writing
that
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it has a bona fide serious interest to make a Superior Proposal (as defined
below) if (1) (x) the Board of Directors of the Company, after consultation with
and based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel), determines in good faith that such
action is necessary for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable law and (y) after consultation
with and based upon the advice of an independent financial advisor (who may be
the Company's regularly engaged independent financial advisor) determines in
good faith that such person or entity is capable of making, financing and
consummating a Superior Proposal and (2) prior to taking such action, the
Company (x) provides reasonable notice to Parent to the effect that it is taking
such action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form or (B) failing to make or
withdrawing or modifying its recommendation referred to in Section 6.2(b) if
there exists a Competing Transaction and the Board of Directors of the Company,
after consultation with and based upon the advice of independent legal counsel
(who may be the Company's regularly engaged independent counsel), determines in
good faith that such action is necessary for the Board of Directors of the
Company to comply with its fiduciary duties to stockholders under applicable
law. For purposes of this Agreement, "Competing Transaction" shall mean any of
the following (other than the transactions between the Company, Parent and
Merger Sub contemplated hereunder) involving the Company: (i) any merger,
consolidation, share exchange, recapitalization, business combination, or other
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of all or a substantial portion of the assets of the
Company and its subsidiaries, taken as a whole, or of more than 25% of the
equity securities of the Company or any of its subsidiaries, in any case in a
single transaction or series of transactions; (iii) any tender offer or exchange
offer for 25% or more of the outstanding shares of capital stock of the Company
or the filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
(b) Except as set forth in this Section 6.2, the Board of Directors of
the Company shall not approve or recommend, or cause the Company to enter
into any agreement with respect to, any Competing Transaction.
Notwithstanding the foregoing, if the Board of Directors of the Company,
after consultation with and based upon the advice of independent legal
counsel (who may be the Company's regularly engaged independent legal
counsel), determines in good faith that it is necessary to do so in order to
comply with its fiduciary duties to stockholders under applicable law, the
Board of Directors of the Company may approve or recommend a Superior
Proposal (as defined below) or cause the Company to enter into an agreement
with respect to a Superior Proposal, but in each case only after providing
reasonable written notice to Parent (a "Notice of Superior Proposal")
advising Parent that the Board of Directors of the Company has received a
Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal.
In addition, if the Company proposes to enter into an agreement with respect
to any Competing Transaction, it shall concurrently with entering into such
an agreement pay, or cause to be paid, to Parent the fee required by Section
8.5(a) hereof. For purposes of this Agreement, a "Superior Proposal" means
any bona fide proposal to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, all or substantially all the Shares
then outstanding or all or substantially all the assets of the Company and
otherwise on terms which the Board of Directors of the Company determines in
its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to the Company's
stockholders than the Merger.
6.3. Meeting of Stockholders. The Company will take all action necessary in
accordance with applicable law and its Certificate of Incorporation and By-Laws
to convene a meeting of its stockholders (the "Stockholder Meeting") as promptly
as practicable to consider and vote upon the approval of the Merger. Subject to
the fiduciary duties of the Company's Board of Directors under applicable law
after consultation with and based upon the advice of independent legal counsel
the Board of Directors of the
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Company shall recommend and declare advisable such approval and the Company
shall take all lawful action to solicit, and use its best efforts to obtain,
such approval.
6.4. Registration Statement. Parent will, as promptly as practicable,
prepare and file with the SEC a registration statement on Form S-4 (the "S-4
Registration Statement"), containing a proxy statement/prospectus and a form of
proxy, in connection with the registration under the Securities Act of Parent
Common Shares issuable upon conversion of the Shares and the other transactions
contemplated hereby. The Company will, as promptly as practicable, prepare and
file with the SEC a proxy statement that will be the same proxy
statement/prospectus contained in the S-4 Registration Statement and a form of
proxy, in connection with the vote of the Company's stockholders with respect to
the Merger (such proxy statement/prospectus, together with any amendments
thereof or supplements thereto, in each case in the form or forms mailed to the
Company's stockholders, is herein called the "Proxy Statement"). Parent and the
Company will, and will cause their accountants and lawyers to, use their best
efforts to have or cause the S-4 Registration Statement declared effective as
promptly as practicable, including, without limitation, causing their
accountants to deliver necessary or required instruments such as opinions and
certificates, and will take any other action required or necessary to be taken
under federal or state securities laws or otherwise in connection with the
registration process, it being understood and agreed that Katten Muchin & Zavis,
counsel to the Company, will render the tax opinion referred to in Section
7.2(g) on (i) the date the preliminary Proxy Statement is filed with the SEC and
(ii) the date the S-4 Registration Statement is filed with the SEC. The Company
will use its best efforts to cause the Proxy Statement to be mailed to
stockholders of the Company at the earliest practicable date and will coordinate
and cooperate with Parent with respect to the timing of the Stockholder Meeting
and shall use its best efforts to hold such Stockholder Meeting as soon as
practicable after the date hereof.
6.5. Best Efforts. The Company and Parent shall: (i) promptly make their
respective filings and thereafter make any other required submissions under all
applicable laws with respect to the Merger and the other transactions
contemplated hereby; and (ii) use their best efforts to promptly take, or cause
to be taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable.
6.6. Access to Information. Upon reasonable notice, the Company shall (and
shall cause each of its subsidiaries to) afford to officers, employees, counsel,
accountants and other authorized representatives of Parent ("Parent's
Representatives") reasonable access, during normal business hours throughout the
period prior to the Effective Time, to its properties, books and records and,
during such period, shall (and shall cause each of its subsidiaries to) furnish
promptly to Parent's Representatives all information concerning its business,
properties and personnel as may reasonably be requested, provided that no
investigation pursuant to this Section 6.6 shall affect or be deemed to modify
any of the representations or warranties made by the Company. Parent agrees that
it will not, and will cause Parent's Representatives not to, use any information
obtained pursuant to this Section 6.6 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. In connection
with the foregoing, the Company agrees to use its best efforts to cause the
Company's independent accountants to provide their workpapers to Parent, subject
to the confidentiality provisions of this Section 6.6. Subject to the
requirements of law, Parent will keep confidential, and will cause Parent's
Representatives to keep confidential, all information and documents obtained
pursuant to this Section 6.6 except as otherwise consented to by the Company;
provided, however, that Parent shall not be precluded from making any disclosure
which it deems required by law in connection with the Merger. In the event
Parent is required to disclose any information or documents pursuant to the
immediately preceding sentence, Parent shall give prompt prior notice of such
disclosure to the Company. Upon any termination of this Agreement, Parent will
collect and deliver to the Company all documents obtained pursuant to this
Section 6.6 by it or any of Parent's Representatives then in their
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possession and any copies thereof. Notwithstanding anything to the contrary
contained herein, in the event this Agreement is terminated and the Merger
abandoned pursuant to Article VIII, the terms of the Confidentiality Agreement,
dated August 23, 1995 (the "Confidentiality Agreement"), between Parent and the
Company shall survive such termination subject to the conditions and limitations
set forth in such Confidentiality Agreement.
6.7. Publicity. The parties hereto agree that they will consult with each
other concerning any proposed press release or public announcement pertaining to
the Merger in order to seek to agree upon the text of any such press release or
the making of such public announcement.
6.8. Indemnification of Directors and Officers.
(a) From and after the Effective Time, Parent shall, and shall cause the
Surviving Corporation to, indemnify, defend and hold harmless the present
and former officers, directors and employees of the Company and any of its
subsidiaries against all losses, expenses, claims, damages or liabilities
arising out of actions or omissions occurring on or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement) to the full extent (not otherwise covered by insurance) permitted
or required under applicable law (and shall also advance expenses as
incurred to the fullest extent permitted under applicable law, provided that
the person to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such person is not
entitled to indemnification); provided, however, the indemnification
provided hereunder by Parent shall not be greater than (x) the
indemnification permissible pursuant to the Company's Certificate of
Incorporation and By-Laws, as in effect as of the date hereof or (y) the
indemnification actually provided by the Company as of the date hereof.
Parent and Merger Sub agree that all rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any
action or suit, existing in favor of the present or former directors,
officers, employees, fiduciaries and agents of the Company or any of its
subsidiaries (collectively, the "Indemnified Parties") as provided in the
Company's Certificate of Incorporation or By-Laws or pursuant to other
agreements, or certificates of incorporation or by-laws or similar documents
of any of the Company's subsidiaries, as in effect as of the date hereof,
with respect to matters occurring through the Effective Time, shall survive
the Merger and shall continue in full force and effect for a period of five
(5) years from the Effective Time; provided, however, that all rights to
indemnification in respect of any claim (a "Claim") asserted or made within
such period shall continue until the disposition of such Claim.
(b) Parent shall cause to be maintained in effect for not less than
three (3) years the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by the Company and
the Company's subsidiaries with respect to matters occurring prior to the
Effective Time to the extent required to cover the types of actions and
omissions currently covered by such policies; provided, however, that (i)
Parent may substitute therefor policies of substantially the same coverage
containing terms and conditions which are not less advantageous, in any
material respect, to the Indemnified Parties and (ii) Parent shall not be
required to pay an annual premium for such insurance in excess of $150,000
but in such case shall purchase as much coverage as possible for such
amount.
(c) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Agreement is
commenced, whether before or after the Closing, the parties hereto agree to
cooperate and use their respective best efforts to vigorously defend against
and respond thereto.
(d) This Section 6.8 is intended to benefit the Indemnified Parties and
shall be binding on all successors and assigns of Parent, Merger Sub, the
Company and the Surviving Corporation.
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6.9. Affiliates of the Company. The Company has identified to Parent each
Company Affiliate and each Company Affiliate has delivered to Parent on or prior
to the date hereof, a written agreement (i) that such Company Affiliate will not
sell, pledge, transfer or otherwise dispose of any Parent Common Shares issued
to such Company Affiliate pursuant to the Merger, except in compliance with Rule
145 promulgated under the Securities Act or an exemption from the registration
requirements of the Securities Act and (ii) that on or prior to the earlier of
(x) the mailing of the Proxy Statement/Prospectus or (y) the thirtieth day prior
to the Effective Time such Company Affiliate will not thereafter sell or in any
other way reduce such Company Affiliate's risk relative to any Parent Common
Shares received in the Merger (within the meaning of the SEC's Financial
Reporting Release No. 1, "Codification of Financing Reporting Policies," Sec.
201.01 47 F.R. 21028 (April 15, 1982)), until such time as financial results
(including combined sales and net income) covering at least 30 days of post-
merger operations have been published, except as permitted by Staff Accounting
Bulletin No. 76 issued by the SEC.
6.10. Taxes. In respect of Tax Returns of the Company or any subsidiary not
required to be filed prior to the date hereof, the Company shall, to the extent
permitted by law without any penalty, delay (or cause such subsidiary to delay)
the filing of any such Tax Returns until after the Effective Time; provided,
however, that the Company shall notify Parent of its intention to delay (or
cause such subsidiary to delay) any such filing and shall not so delay the
filing of a Tax Return if Parent and the Company agree that so delaying the
filing of such Tax Return is not in the best interests of either the Company or
Parent. If any such Tax Return is required to be filed on or prior to the
Effective Time, the Company or its subsidiaries, as the case may be, shall
prepare and timely file such Tax Return in a manner consistent with prior years
and all applicable laws and regulations; provided, however, that Parent shall be
notified and given an opportunity to review and to comment, prior to the filing
thereof, on any such Tax Return (a) which relates to a Tax which is based upon
or measured by income, (b) which is not regularly filed by the Company or a
subsidiary thereof in connection with the conduct of its business in the
ordinary course, or (c) for which Parent requests such opportunity, although
neither Parent's approval nor consent shall be required prior to the filing of
any such Tax Return.
6.11. Maintenance of Insurance. Between the date hereof and through the
Effective Time the Company will use its best efforts to maintain in full force
and effect all of its presently existing policies of insurance or insurance
comparable to the coverage afforded by such policies.
6.12. Representations and Warranties. Neither the Company on the one hand,
nor Parent or Merger Sub on the other, will take any action that would cause any
of the representations and warranties set forth in Section 5.1 or 5.2, as the
case may be, not to be true and correct in all material respects at and as of
the Effective Time.
6.13. Filings; Other Action. Subject to the terms and conditions herein
provided, the Company, Parent and Merger Sub shall: (a) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act, the Securities Act and the Exchange Act with respect to the Merger; and
(b) use best efforts promptly to take, or cause to be taken, all other actions
and do, or cause to be done, all other things necessary, proper or appropriate
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable.
6.14. Notification of Certain Matters. Each of the Company and Parent shall
give prompt notice to the other of (a) any notice of, or other communication
relating to, a default or event which, with notice or lapse of time or both,
would become a default, received by it or any of its subsidiaries subsequent to
the date of this Agreement and prior to the Effective Time, under any contract
material to the financial condition, properties, businesses or results of
operations of it and its subsidiaries taken as a whole to which it or any of its
subsidiaries is a party or is subject, (b) any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection
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with the transactions contemplated by this Agreement, or (c) any material
adverse change in their respective financial condition, properties, businesses
or results of operations, taken as a whole, other than changes resulting from
general economic conditions.
6.15. Pooling Accounting. None of the Company, any of its subsidiaries,
Parent nor Merger Sub will take any action that could prevent the Merger from
being accounted for as a pooling-of-interests and the Company will bring to the
attention of Parent, and Parent will bring to the attention of the Company, any
actions, or agreements or understandings, whether written or oral, to act that
could be reasonably likely to prevent Parent from accounting for the Merger as a
pooling-of-interests.
6.16. Blue Sky Permits. Parent shall use its best efforts to obtain, prior
to the effective date of the S-4 Registration Statement, all necessary state
securities laws or "blue sky" permits and approvals required to carry out the
transactions contemplated by this Agreement and the Merger, and will pay all
expenses incident thereto.
6.17. NYSE Listing. Parent shall use its best efforts to cause the Parent
Common Shares constituting the Share Consideration to be listed on the NYSE,
subject to notice of official issuance thereof.
6.18. Pooling Letter. Parent shall use commercially reasonable efforts to
cause Ernst & Young LLP ("E&Y") to deliver to Parent a letter to the effect that
pooling-of-interests accounting is appropriate for the Merger if it is closed
and consummated in accordance with the terms of this Agreement, and the Company
shall use commercially reasonable efforts to cause Deloitte & Touche LLP
("Deloitte") to cooperate fully with E&Y (including, without limitation, sharing
information, analysis and work product, engaging in active discussions and
delivering to the Company a letter substantially similar to E&Y's letter to
Parent) in connection with E&Y's delivery of such letter.
6.19. Comfort Letter. The Company shall use its best efforts to cause to be
delivered to Parent a letter of Deloitte, independent public accountants to the
Company, dated a date within two business days before the date on which the S-4
Registration Statement shall become effective and addressed to Parent, in form
and substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4 Registration Statement.
6.20. Tax-Free Reorganization Treatment. The Company, Parent and Merger Sub
shall execute and deliver to Katten Muchin & Zavis, counsel to the Company, a
certificate substantially in the form attached hereto as Exhibit C at such time
or times as reasonably requested by such law firm in connection with its
delivery of an opinion with respect to the transactions contemplated hereby, and
shall provide a copy thereof to Parent and the Company. Prior to the Effective
Time, none of the Company, Parent or Merger Sub shall take or cause to be taken
any action which would cause to be untrue (or fail to take or cause not to be
taken any action which would cause to be true) any of the representations in
Exhibit C.
6.21. Combined Operations. Parent agrees to make publicly available
financial statements reflecting at least 30 days of combined operations of
Parent and the Company on or prior to March 5, 1996.
6.22. Employment Agreements. At the Closing, Parent shall offer or cause the
Surviving Corporation to offer to enter into employment agreements with each of
the individuals listed in Section 6.22 of the Company Disclosure Schedule (the
"Employment Agreements"), each such agreement to be substantially in the form
previously agreed to among Parent, the Company and each such individual on or
prior to the date hereof.
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ARTICLE VII
CONDITIONS
7.1. Conditions to the Obligations of Parent and Merger Sub. The respective
obligations of Parent and Merger Sub to consummate the Merger are subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by Parent or Merger Sub, as
the case may be, to the extent permitted by applicable law.
(a) Certificate. The representations and warranties of the Company set
forth in this Agreement shall be true and correct in all material respects
on and as of the Effective Time with the same force and effect as though the
same had been made on and as of the Effective Time (except to the extent
they relate to a particular date), the Company shall have performed in all
material respects all of its material obligations under this Agreement
theretofore to be performed, and Parent shall have received at the Effective
Time a certificate to that effect dated the Effective Time and executed by
the President of the Company.
(b) Company Stockholder Approval. This Agreement shall have been duly
approved by the holders of a majority of the outstanding Common Shares, in
accordance with applicable law and the Certificate of Incorporation and
By-Laws of the Company.
(c) Injunction. There shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transactions contemplated herein
not be consummated; provided, however, that prior to invoking this condition
Parent shall use its best efforts to have such injunction or order vacated.
(d) S-4 Registration Statement; "Blue Sky" Permits. The S-4 Registration
Statement shall have become effective and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued and
no proceedings for such purpose shall have been initiated and be continuing
or threatened by the SEC. Parent shall have received all state securities
laws or "blue sky" permits and other authorizations necessary to issue
Parent Common Shares in exchange for the Shares in the Merger.
(e) Listing of Parent Common Shares. The Parent Common Shares
constituting the aggregate Share Consideration and the other such shares
required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on the NYSE, subject to notice of official
issuance.
(f) Governmental Filings and Consents; HSR Act. (i) All governmental
filings required to be made prior to the Effective Time by the Company with,
and all governmental consents required to be obtained prior to the Effective
Time from, governmental and regulatory authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby shall have been made or obtained, except
where the failure to make such filing or obtain such consent would not
reasonably be expected to have a Material Adverse Effect on Parent (assuming
the Merger had taken place) and (ii) the waiting periods under the HSR Act
shall have expired or been terminated.
(g) Pooling Letter. Parent shall have received from E&Y a letter to the
effect that pooling-of-interests accounting is appropriate for the Merger
pursuant to 6.18 of this Agreement.
(h) Third Party Consents. All required authorizations, consents and
approvals of any third party (other than a governmental authority), the
failure to obtain which would have a Material Adverse Effect on Parent
(assuming the Merger had taken place), shall have been obtained.
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(i) Delivery of Comfort Letter. Deloitte shall have delivered to the
Company, for delivery by it to Parent, one or more letters with respect to
the financial information contained in the Proxy Statement as contemplated
by Section 6.19.
(j) Termination of Options. The Option Plans shall have been terminated
or substituted in a manner satisfactory to Parent. The Advance Ross
Corporation 1995 Directors Deferral Plan shall have been duly and validly
terminated by action of the Company's Board of Directors and all outstanding
options thereunder shall have been terminated without further liability on
the part of the Company or Parent to the holders thereof.
(k) Affiliate Letters. Each Company Affiliate shall have performed all
of their respective obligations under their respective Affiliate Letters,
Allen & Company Incorporated shall have performed all of its obligations
under the letter, dated the date hereof, from such firm to the Company and
Parent, and Parent shall have received certificates signed by each of them
to such effect.
(l) Termination of Advisory Agreement. The agreement between the Company
and Allen & Company Incorporated referred to in Section 5.1(i) of the
Company Disclosure Schedule shall have been terminated without further
liability thereunder for advisory fees for future periods on the part of the
Company, and Parent shall have received satisfactory evidence thereof except
that the indemnification provisions of such agreement shall survive the
Merger.
7.2. Conditions to the Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the fulfillment at or prior to
the Effective Time of the following conditions, any or all of which may be
waived in whole or in part by the Company to the extent permitted by applicable
law.
(a) Certificate. The representations and warranties of Parent and Merger
Sub set forth in this Agreement shall be true and correct in all material
respects on and as of the Effective Time with the same force and effect as
though the same had been made on and as of the Effective Time (except to the
extent they relate to a particular date), Parent and Merger Sub shall have
performed all material respects all of their respective obligations under
this Agreement theretofore to be performed, and the Company shall have
received at the Effective Time a certificate to that effect dated the
Effective Time and executed by the President of Parent.
(b) Company Stockholder Approval. This Agreement shall have been duly
approved by the holders of a majority of the outstanding Common Shares, in
accordance with applicable law and the Certificate of Incorporation and
By-Laws of the Company.
(c) Injunction. There shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transactions contemplated herein
not be consummated; provided, however, that prior to invoking this condition
the Company shall use its best efforts to have such injunction or order
vacated.
(d) S-4 Registration Statement; "Blue Sky" Permits. The S-4 Registration
Statement shall have become effective and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued and
no proceedings for such purpose shall have been initiated and be continuing
or threatened by the SEC. Parent shall have received all state securities
laws or "blue sky" permits and other authorizations necessary to issue
Parent Common Shares in exchange for the Shares in the Merger.
(e) Listing of Parent Common Shares. The Parent Common Shares
constituting the aggregate Share Consideration and such other shares
required to be reserved for issuance in connection
27
<PAGE>
with the Merger shall have been authorized for listing on the NYSE, subject
to official notice of issuance.
(f) HSR Act. The waiting periods under the HSR Act shall have expired or
been terminated.
(g) Tax Opinion. The Company shall have received an opinion of Katten
Muchin & Zavis, dated the Closing Date, to the effect that (i) the Merger
will be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code; (ii) each of the Parent, Merger
Sub and the Company will be a party to the reorganization within the meaning
of Section 368(b) of the Code; and (iii) no gain or loss will be recognized
by a shareholder of the Company as a result of the Merger with respect to
Shares converted solely into shares of Parent Common Stock. In rendering
such opinion, Katten Muchin & Zavis may receive and rely upon
representations contained in certificates of Parent, Merger Sub and the
Company, and certain shareholders of the Company as requested by Katten
Muchin & Zavis.
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by holders of Common Shares, either by the mutual written consent
of Parent and the Company, or by mutual action of their respective Boards of
Directors.
8.2. Termination by either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or the Company if (i) the Merger shall not have been
consummated by January 31, 1996 (provided that the right to terminate this
Agreement under this Section 8.2(i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); (ii) any
court of competent jurisdiction in the United States or some other governmental
body or regulatory authority shall have issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; or (iii) the Merger shall have been voted on by
stockholders of the Company at a meeting duly convened therefor and the vote
shall not have been sufficient to satisfy the conditions set forth in Sections
7.1(b) and 7.2(b).
8.3. Termination by Parent. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
approval by holders of Shares, by action of the Board of Directors of Parent, if
(i) the Company shall have failed to comply in any material respect with any of
the covenants, conditions or agreements contained in this Agreement to be
complied with or performed by the Company at or prior to such date of
termination, which failure to comply has not been cured within five business
days following receipt by the Company of notice of such failure to comply, (ii)
any representation or warranty of the Company contained in the Agreement shall
not be true in all material respects when made (provided such breach has not
been cured within five business days following receipt by the Company of notice
of the breach) or (except to the extent they relate to a particular date) on and
as of the Effective Time as if made on and as of the Effective Time, or (iii)
(A) the Board of Directors of the Company shall withdraw, modify or change its
recommendation of this Agreement or the Merger in a manner adverse to Parent or
Merger Sub, or shall have approved or recommended to the stockholders of the
Company any Competing Transaction or (B) the Company shall have entered into any
agreement with respect to any Competing Transaction or (C) the Board of
Directors of the Company shall resolve to do any of the foregoing.
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8.4. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by holders of Shares, by action of the Board of Directors of the
Company, if (i) Parent or Merger Sub shall have failed to comply in any material
respect with any of the covenants, conditions or agreements contained in this
Agreement to be complied with or performed by Parent or Merger Sub at or prior
to such date of termination, which failure to comply has not been cured within
five business days following receipt by the breaching party of notice of such
failure to comply, (ii) any representation or warranty of Parent or Merger Sub
contained in this Agreement shall not be true in all material respects when made
(provided such breach has not been cured within five business days following
receipt by the breaching party of notice of the breach) or on and as of the
Effective Time as if made on and as of the Effective Time (except to the extent
they relate to a particular date) or (iii) the Company enters into a definitive
agreement relating to a Superior Proposal in accordance with Section 6.2(b),
provided it has complied with all of the provisions thereof and has made payment
of the fees required by Section 8.5 hereof.
8.5. Effect of Termination and Abandonment. (a) In the event of termination
of this Agreement by either the Company or Parent as provided in this Article
VIII, this Agreement shall forthwith become void and there shall be no liability
or obligation on the part of Parent, Merger Sub or the Company or their
respective affiliates, officers, directors or stockholders except (x) with
respect to this Section 8.5 and Section 9.1 and (y) to the extent that such
termination results from the breach of a party hereto or any of its
representations or warranties, or any of its covenants or agreements, in each
case, as set forth in this Agreement; provided, that, the Company agrees that if
this Agreement shall be terminated pursuant to (i) Section 8.2(iii), if at or
prior to the time of the Stockholder Meeting (x) a Competing Transaction shall
have been commenced, publicly proposed or publicly disclosed and (y) the Company
has not rejected such Competing Transaction, (ii) Section 8.3(iii), or (iii)
Section 8.4(iii), then the Company shall pay to Parent an amount equal to
$2,500,000; provided, however, that no such fee shall be payable upon a
termination by Parent pursuant to Section 8.3(iii)(A) or Section 8.3(iii)(C) (to
the extent subparagraph (C) relates to subparagraph (A)) if (x) the Company gave
to Parent prior to Parent's termination of this Agreement pursuant to Section
8.3(iii)(A) or Section 8.3(iii)(C) (to the extent subparagraph (C) relates to
subparagraph (A)) a termination notice pursuant to Section 8.4(i) or Section
8.4(ii) (the "Company Termination Notice") setting forth in reasonable detail
the reason therefor and (y) at the time Parent terminates this Agreement
pursuant to Section 8.3(iii)(A) or 8.3(iii)(C) (to the extent subparagraph (C)
relates to subparagraph (A)) the Company is entitled to terminate this Agreement
pursuant to the reasons set forth in the Company Termination Notice; provided,
further, that the Company shall pay to Parent an additional $2,500,000 if the
Company consummates any Competing Transaction within one year after (A) in the
case of clause (i) of this Section 8.5(a), the earlier of the Stockholder
Meeting or payment of the first $2,500,000, (B) in the case of clause (ii) of
this Section 8.5(a), the termination of this Agreement by Parent and (C) in the
case of clause (iii) of this Section 8.5(a), the termination of this Agreement
by the Company.
(b) Any payment required to be made pursuant to Section 8.5(a) shall be made
as promptly as practicable but not later than five business days after the
occurrence of the event giving rise to such payment and shall be made by wire
transfer of immediately available funds to an account designated by Parent
except that any payment to be made pursuant to Section 8.5(a)(i) shall be made
not later than the termination of this Agreement by the Company pursuant to
Section 8.4(iii).
(c) Each of the parties hereto agrees that the payment in full of
immediately available funds by the Company to Parent shall be Parent's exclusive
remedy for an action taken by the Company which (x) is permitted under this
Agreement and (y) results in the payment to Parent of the fee set forth in
Section 8.5(a). Except as set forth in the immediately preceding sentence and
subject to Section 9.12, all rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise of any such right, power or
remedy by any party shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
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ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Payment of Expenses. Whether or not the Merger shall be consummated,
each party hereto and the stockholders of the Company shall pay their own
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby, provided
that the Surviving Corporation shall pay, with funds of the Company and not with
funds provided by any of Parent Companies, any and all property or transfer
taxes imposed on the Surviving Corporation. The cost of printing the S-4
Registration Statement and the Proxy Statement shall be borne equally by the
Company and the Parent.
9.2. Survival of Representations and Warranties. The representations and
warranties made herein shall not survive beyond the Effective Time or a
termination of this Agreement. This Section 9.2 shall not limit any covenant or
agreement of the parties hereto which by its terms contemplates performance
after the Effective Time.
9.3. Modification or Amendment. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
approval of the Merger by the stockholders of the Company, no amendment shall be
made which changes the consideration payable in the Merger or adversely affects
the rights of the Company's stockholders hereunder without the approval of such
stockholders.
9.4. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.5. Counterparts. For the convenience of the parties hereto, this Agreement
may be executed in any number of counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
9.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
9.7. Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the other parties shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile transmission (with a confirming copy sent by overnight courier), as
follows:
(a) if to the Company, to
Advance Ross Corporation
233 South Wacker Drive
Suite 9700
Chicago, Illinois 60606-6502
Attention: Paul G. Yovovich
Facsimile: (312) 382-1109
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
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Suite 1600
Chicago, Illinois 60661-3693
Attention: Herbert S. Wander, Esq.
Facsimile: (312) 902-1061
(b) if to Parent or Merger Sub, to
CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Attention: Amy N. Lipton, Esq.
Facsimile: (203) 348-1982
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Howard Chatzinoff, Esq.
Facsimile: (212) 310-8007
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
9.8. Entire Agreement; Assignment. This Agreement, including the Disclosure
Schedules, (i) constitutes the entire agreement among the parties with respect
to the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof, and (ii) shall not be assigned by
operation of law or otherwise, provided that Parent may assign its rights and
obligations or those of Merger Sub to any direct wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent of its obligations hereunder
if such assignee does not perform such obligations.
9.9. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and their respective successors and
assigns. Nothing in this Agreement, express or implied, other than the right to
receive the consideration payable in the Merger pursuant to Article IV hereof,
is intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement;
provided, however, that the provisions of Section 6.8 shall inure to the benefit
of and be enforceable by the Indemnified Parties.
9.10. Certain Definitions. As used herein:
(a) "Significant Subsidiary" shall have the meaning ascribed to it under
Rule 12b-1 of the Exchange Act.
(b) "subsidiary" shall mean, when used with reference to any entity, any
entity fifty percent (50%) or more of the outstanding voting securities or
interests of which are owned directly or indirectly by such former entity.
(c) "Material Adverse Effect" shall mean any adverse change in the
properties, financial condition, business or results of operations of the
Company or any of its subsidiaries or Parent or any of its subsidiaries, as
the case may be, which is material to the Company and its subsidiaries,
taken as a whole, or Parent and its subsidiaries, taken as a whole, as the
case may be.
(d) "Knowledge" with respect to the Company shall mean the knowledge of
any of the executive officers or directors of the Company, any of the
managing or deputy managing directors
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of Europe Tax-Free Shopping ETS AB, and the managing directors of the
subsidiaries listed in Section 9.10(d) of the Company Disclosure Schedule,
after due inquiry.
9.11. Obligation of Parent. Whenever this Agreement requires Merger Sub to
take any action, such requirement shall be deemed to include an undertaking on
the part of Parent to cause Merger Sub to take such action.
9.12. Arbitration. Any controversy, dispute or claim arising out of or
relating to this Agreement or the breach hereof which cannot be settled by
mutual agreement (except for actions by Parent or the Company seeking equitable,
injunctive or other relief under Section 9.14) shall be finally settled by
arbitration as follows: Any party who is aggrieved shall deliver a notice to
other party setting forth the specific points in dispute. Any points remaining
in dispute twenty (20) days after the giving of such notice shall be submitted
to arbitration in New York, New York, to Endispute, before a single arbitrator
appointed in accordance with Endispute's Arbitration Rules, modified only as
herein expressly provided. The arbitrator may enter a default decision against
any party who fails to participate in the arbitration proceedings. The decision
of the arbitrator on the points in dispute will be final, unappealable and
binding and judgment on the award may be entered in any court having
jurisdiction thereof. The arbitrator will be authorized to apportion its fees
and expenses and the reasonable attorney's fees and expenses of Parent and the
Company as the arbitrator deems appropriate. In the absence of any such
apportionment, the fees and expense of the arbitrator will be borne equally by
each party, and each party will bear the fees and expenses of its own attorney.
The parties agree that this clause has been included to rapidly and
inexpensively resolve any disputes between them with respect to this Agreement,
and that this clause shall be grounds for dismissal of any court action
commenced by either party with respect to this Agreement, other than
post-arbitration actions seeking to enforce an arbitration award. The parties
shall keep confidential, and shall not disclose to any person, except as may be
required by law, the existence of any controversy hereunder, the referral of any
such controversy to arbitration or the status or resolution thereof.
9.13. Severability. If any term or other provision of this Agreement is
invalid, illegal or unenforceable, all other provisions of this Agreement shall
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
9.14. Specific Performance. The parties hereto acknowledge that irreparable
damage would result if this Agreement were not specifically enforced, and they
therefore consent that the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a court
of competent jurisdiction. Such remedy shall, however, not be exclusive and,
subject to Section 9.12, shall be in addition to any other remedies, including
arbitration, which any party may have under this Agreement or otherwise.
9.15. Recapitalization. Whenever (a) the number of outstanding Parent Common
Shares is changed by reason of a subdivision or combination of shares, whether
effected by a reclassification of shares or otherwise or (b) Parent pays a cash
or stock dividend or makes a similar distribution, each specified number of
shares referred to in this Agreement and each specified per share amount (other
than par values) shall be adjusted accordingly.
9.16. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto and shall be effective as of
the date first hereinabove written.
CUC INTERNATIONAL INC.
By: /s/ Cosmo Corigliano
..................................
Name: Cosmo Corigliano
Title: Senior Vice President and
Chief Financial Officer
RETREAT ACQUISITION CORPORATION
By: /s/ Cosmo Corigliano
..................................
Name: Cosmo Corigliano
Title: President
ADVANCE ROSS CORPORATION
By: /s/ Harve A. Ferrill
..................................
Name: Harve A. Ferrill
Title: Chairman and Chief
Executive Officer
33
Exhibit 5
ROBERT T. TUCKER
ATTORNEY AT LAW
61 PURCHASE ST. (914) 967-8105
RYE, N.Y. 10580 FAX: (914) 967-8161
December 7, 1995
CUC International Inc.
707 Summer Street
Stamford, CT 06901
Ladies and Gentlemen:
I refer to the Registration Statement (the "Registration Statement") on
Form S-4 being filed by CUC International Inc. ("CUC") Under the Securities Act
of 1933, as amended (the "Securities Act") with the Securities and Exchange
Commission (the "Commission"), relating to the registration of up to 7,520,000
shares of common stock par value $ .01 per share of CUC (the "Shares") to be
issued to the shareholders of Advance Ross Corporation ("Advance") in connection
with the merger of CUC's wholly owned subsidiary Retreat Acquisition Corporation
("Merger Sub"), into and with Advance, all as set forth in the Agreement and
Plan of Merger dated October 17, 1995, among CUC, Advance and Merger Sub (the
"Merger Agreement")
I have examined copies of (i) the Registration Statement; (ii) the Restated
Certificate of Incorporation and By-Laws of the Company, each as amended to
date; (iii) certain resolutions of the Board of Directors of the Company
relating to the issuance of the Shares pursuant to the terms of the Agreement
and Plan of Merger; and (iv) the Agreement and Plan of Merger. I have also
examined originals, or photostatic or certified copies, of such records of the
Company, certificates of officers of the Company and of public officials and
such other documents as I have deemed relevant and necessary as the basis for
the opinions set forth below. In such examinations, I have assumed the
genuineness of all signatures, the authenticity of all documents submitted to me
as originals, the conformity to original documents of all copies submitted to me
as certified, conformed or photostatic copies, and the authenticity of all
originals of such copies.
Based upon the foregoing, I am of the opinion that the issuance of the
Shares has been duly authorized by CUC and that the Shares, when issued and
delivered to the Shareholders of Advance in accordance with the Merger
Agreement, will be legally issued, fully paid and non-assessable.
<PAGE>
Page 2
I hereby consent to the filing of this opinion with the Commission as an
Exhibit to the Registration Statement and to the reference to the undersigned
under the caption "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ Robert T. Tucker
-----------------------------------
Robert T. Tucker
RTT/kau
Exhibit 8
OPINION OF KATTEN MUCHIN & ZAVIS
Advance Ross Corporation
233 South Wacker Drive
Sears Tower, Suite 9700
Chicago, Illinois 60606-6502
Attention: Board of Directors
Ladies and Gentlemen:
We have been requested to render this opinion concerning certain matters of
federal income tax law in connection with the proposed merger of Retreat
Acquisition Corp., a newly-formed corporation, organized and existing under the
laws of the State of Delaware ("Merger Sub") which is a wholly owned subsidiary
of CUC International Inc. organized and existing under the laws of the State of
Delaware ("Parent"), with and into Advance Ross Corporation organized and
existing under the laws of the State of Delaware (the "Company") with the
Company surviving the merger and becoming a wholly owned subsidiary of Parent,
pursuant to the applicable corporate laws of the State of Delaware (the
"Merger"), and in accordance with that certain Agreement and Plan of Merger
between and among the Company, Parent and Merger Sub (the "Agreement") and
related Articles of Merger and a Plan of Merger (together with the Agreement,
the "Merger Agreements"). Our opinion is being delivered to you pursuant to
Section 7.2(g) of the Agreement.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Merger Agreements. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to the Company in connection with the Merger.
As such, and for the purpose of rendering this opinion, we have examined (or
will examine on or prior to the Effective Time of the Merger) and are relying
(or will rely) upon (without any independent investigation or review thereof)
the truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
1. The Merger Agreements;
2. Representations made to us by Parent and Merger Sub;
3. Representations made to us by the Company;
4. The Company Affiliate Certificates;
5. The Registration Statement on Form S-4; and
6. Such other instruments and documents related to the formation,
organization and operation of the Company, Parent and Merger Sub or the
consummation of the Merger and the transactions contemplated thereby as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic; documents
submitted to us as copies conform to the original documents, and there has
been (or will be by the Effective Time of
1
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the Merger) due execution and delivery of all documents where due execution
and delivery are prerequisites to the effectiveness thereof;
2. Any representation or statement referred to above made "to the
knowledge of" or otherwise similarly qualified is correct without such
qualification;
3. The Merger will be consummated pursuant to the Merger Agreements and
will be effective under the applicable state law;
4. There is no plan or intention by the Company stockholders who own 5%
or more of the Company stock to sell, exchange or otherwise dispose of their
stock in the Company;
5. Following the Merger, the Company will continue its historic business
or use a significant portion of its historic business assets in a business;
6. No outstanding indebtedness of the Company, Parent or Merger Sub has
or will represent equity for tax purposes (including, without limitation,
any loans from Parent to the Company); no outstanding equity of the Company,
Parent or Merger Sub has represented or will represent indebtedness for tax
purposes; no outstanding security other than the Company's Stock Option
Plans, instrument, agreement or arrangement that provides for, contains, or
represents either a right to acquire the Company stock or to share in the
appreciation thereof constitutes or will constitute "stock" for purposes of
Section 368(c) of the Code;
7. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. Sec.1.368-1(c) with
respect to the Merger) are funded directly or indirectly by a party other
than the party incurring such expenses, such expenses will be within the
guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187; and
8. Neither Parent, the Company or Merger Sub is, or will be at the time
of the Merger: (a) an "investment company" within the meaning of Section
368(a)(2)(F) of the Code; or (b) under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion, for federal income tax purposes, that (1) the Merger will
constitute a "reorganization" as defined in Section 368(a) of the Code, (2) each
of Parent, Merger Sub and the Company will be a party to the reorganization
within the meaning of Section 368(b) of the Code, and (3) no gain or loss will
be recognized by a shareholder of the Company as a result of the Merger with
respect to Company common shares converted solely into Parent common shares.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below:
1. This opinion represents and is based upon our best judgment regarding
the application of existing federal income tax laws arising under the Code,
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and the Internal Revenue Service is not precluded from asserting
a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the opinion
expressed herein. Nevertheless, we undertake no responsibility to advise you
of any new developments in the application or interpretation of the federal
income tax laws after the date of this opinion.
2
<PAGE>
2. Our opinion concerning certain of the federal tax consequences of the
Merger is limited to the specific federal tax consequences presented above.
No opinion is expressed as to any transaction other than the Merger,
including any transaction undertaken in connection with the Merger. In
addition, this opinion does not address any other federal, estate, gift,
state, local or foreign tax consequences that may result from the Merger. In
particular, we express no opinion regarding:
(a) whether and the extent to which any Company stockholder who has
provided or will provide services to the Company, Parent or Merger Sub
will have compensation income under any provision of the Code;
(b) the effects of such compensation income, including, but not
limited to, the effect upon the basis and holding period of the Parent
stock received by any such stockholder in the Merger;
(c) the effects of the Merger and Parent's assumption of outstanding
options to acquire the Company Common Stock on the holders of such
options under any of the Company Stock Option Plans;
(d) the effects of the Merger on any pension or other employee
benefit plan maintained by Parent or the Company;
(e) the potential application of the "golden parachute" provisions of
Sections 280G, 3121(v)(2) and 4999 of the Code, the alternative minimum
tax provisions of Sections 55, 56 and 57 of the Code or the regulations
promulgated thereunder;
(f) the tax consequences of the Merger to Parent, Merger Sub or the
Company, including without limitation the recognition of any gain and the
survival and/or availability, after the Merger, of any of the federal
income tax attributes or elections of the Company or Parent (including,
without limitation, foreign tax credits or net operating loss
carryforwards, if any, of the Company or Parent), after application of
any provision of the Code, as well as the regulations promulgated
thereunder and judicial interpretations thereof;
(g) the basis of any equity interest in the Company acquired by
Parent in the Merger; and
(h) the tax consequences of the Merger (including the opinion set
forth above) as applied to specific stockholders of the Company and/or
holders of options or warrants for the Company stock or that may be
relevant to particular classes of the Company stockholders and/or holders
of options or warrants for the Company stock, including, without
limitation, dealers in securities, corporate shareholders subject to the
alternative minimum tax, foreign persons, and holders of shares acquired
upon exercise of stock options or in other compensatory transactions.
3. No opinion is expressed if all the transactions described in the
Merger Agreements are not consummated in accordance with the terms of such
Merger Agreements and without waiver or breach of any material provision
thereof or if all of the representations, warranties, statements and
assumptions upon which we relied are not true and accurate at all relevant
times. In the event any one of the statements, representations, warranties
or assumptions upon which we have relied to issue this opinion is incorrect,
our opinion might be adversely affected and may not be relied upon.
4. If the facts vary from those relied upon (including if any
representation, covenant, warranty or assumption upon which we have relied
is inaccurate, incomplete, breached or ineffective), our opinion contained
herein could be inapplicable. You should be aware that an opinion of counsel
represents only counsel's best legal judgment, and has no binding effect or
official status of any kind, and that no assurance can be given that
contrary positions will not be
3
<PAGE>
taken by the Internal Revenue Service or that a court considering the issues
would not hold otherwise. No ruling has been or will be requested from the
Internal Revenue Service concerning the federal income tax consequences of
the Merger.
5. This opinion is being delivered solely for the purpose of satisfying
the condition set forth in Section 7.2(g) of the Agreement. This opinion may
not be relied upon or utilized for any other purpose or by any other person
or entity, and may not be made available to any other person or entity,
without our prior written consent. We do, however, consent to the filing of
this opinion as an exhibit to the Proxy Statement and Form S-4. We further
consent to the use of our name in the Registration Statement wherever it
appears.
Very truly yours,
4
Exhibit 9
STOCKHOLDERS AGREEMENT
AGREEMENT, dated October 17, 1995 (this "Agreement"), by and among CUC
International Inc., a Delaware corporation ("Parent"), and each of the other
parties signatory hereto (each, a "Stockholder", and collectively, the
"Stockholders").
WITNESSETH:
WHEREAS, concurrently herewith, Parent, Retreat Acquisition Corporation, a
Delaware corporation and a direct wholly-owned subsidiary of Parent ("Merger
Sub"), and Advance Ross Corporation, a Delaware corporation (the "Company"), are
entering into an Agreement and Plan of Merger (as such agreement may hereafter
be amended from time to time, the "Merger Agreement"; capitalized terms used and
not defined herein have the respective meanings ascribed to them in the Merger
Agreement) pursuant to which Merger Sub will be merged with and into the Company
(the "Merger");
WHEREAS, each of the Stockholders owns the number of shares, par value $.01
per share, of common stock of the Company (the "Shares" or "Company Common
Stock") of the Company set forth opposite such Stockholder's name on Schedule I
hereto;
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Stockholders agree, and the Stockholders
have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees that during the period commencing on the date hereof and continuing until
the first to occur of the Effective Time and termination of the Merger Agreement
in accordance with its terms, at any meeting of the holders of Company Common
Stock, however called, or in connection with any written consent of the holders
of Company Common Stock, such Stockholder shall vote (or cause to be voted) the
Shares held of record or Beneficially Owned (as defined below) by such
Stockholder, whether heretofore owned or hereafter acquired, (i) in favor of
approval of the Merger Agreement and any actions required in furtherance thereof
and hereof; (ii) against any action or agreement that would result in a breach
in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement (after giving
effect to any materiality or similar qualifications contained therein); and
(iii) except as otherwise agreed to in writing in advance by Parent, against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company; (B) a
sale, lease or transfer of a material amount of assets of the Company, or a
reorganization, recapitalization, dissolution or liquidation of the Company; (C)
(1) any change in a majority of the persons who constitute the board of
directors of the Company; (2) any change in the present capitalization of the
Company or any amendment of the Company's Certificate of Incorporation or
By-Laws; (3) any other material change in the Company's corporate structure or
business; or (4) any other action which, in the case of each of the matters
referred to in clauses C (1), (2), (3) or (4), is intended, or could reasonably
be expected, to impede, interfere with, delay, postpone, or materially adversely
affect the Merger and the transactions contemplated by this Agreement and the
Merger Agreement. Such Stockholder shall not enter into any agreement or
understanding with any Person (as defined below) the effect of which would be
inconsistent or violative of the provisions and agreements contained in Section
1 or 2 hereof. For purposes of this Agreement, "Beneficially Own" or "Beneficial
Ownership" with respect to any securities shall mean having "beneficial
ownership" of such securities
1
<PAGE>
(as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all other
Persons with whom such Person would constitute a "group" as within the meanings
of Section 13(d)(3) of the Exchange Act. For purposes of this Agreement,
"Person" shall mean an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
2. Other Covenants, Representations and Warranties. Each Stockholder hereby
represents and warrants to Parent as follows:
(a) Ownership of Shares. Such Stockholder is the record and Beneficial
Owner of the number of Shares set forth opposite such Stockholder's name on
Schedule I hereto. On the date hereof, the Shares set forth opposite such
Stockholder's name on Schedule I hereto constitute all of the Shares owned
of record or Beneficially Owned by such Stockholder. Such Stockholder has
sole voting power and sole power to issue instructions with respect to the
matters set forth in Section 1 hereof, sole power of disposition, sole power
of conversion, sole power to demand appraisal rights and sole power to agree
to all of the matters set forth in this Agreement, in each case with respect
to all of the Shares set forth opposite such Stockholder's name on Schedule
I hereto, with no limitations, qualifications or restrictions on such
rights.
(b) Power; Binding Agreement. Such Stockholder has the legal capacity,
power and authority to enter into and perform all of such Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to
which such Stockholder is a party including, without limitation, any voting
agreement, stockholders agreement or voting trust. This Agreement has been
duly and validly executed and delivered by such Stockholder and constitutes
a valid and binding agreement of such Stockholder, enforceable against such
Stockholder in accordance with its terms. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which such
Stockholder is Trustee whose consent is required for the execution and
delivery of this Agreement or the consummation by such stockholder of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Stockholder and the
consummation by such Stockholder of the transactions contemplated hereby and
(B) none of the execution and delivery of this Agreement by such
Stockholder, the consummation by such Stockholder of the transactions
contemplated hereby or compliance by such Stockholder with any of the
provisions hereof shall (1) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's properties or assets may be bound,
or (2) violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to such Stockholder or any of such
Stockholder's properties or assets.
(d) No Finder's Fees. Other than existing financial advisory and
investment banking arrangements and agreements between the Company and Allen
& Company Incorporated, no broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's,
2
<PAGE>
financial adviser's or other similar fee or commission in connection with
the transactions contemplated by the Merger Agreement based upon
arrangements made by or on behalf of such Stockholder.
(e) No Solicitation. From and after the date hereof until termination of
the Merger Agreement, such Stockholder shall not, in his, her or its
capacity as such, directly or indirectly, initiate, solicit or knowingly
encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any inquiries
or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Competing Transaction, or enter into or maintain or
continue discussions or negotiate with any person or entity in furtherance
of such inquiries or to obtain a Competing Transaction or agree to or
endorse any Competing Transaction, or authorize or permit any of such
Stockholder's agents, and such Stockholder shall promptly notify Parent
orally (in all events within two business days) and in writing (as promptly
thereafter as practicable) of the material terms and status of all inquiries
and proposals which he, she or it, or any such agent, may receive after the
date hereof relating to any of such matters and, if such inquiry or proposal
is in writing, such Stockholder shall deliver to Parent a copy of such
inquiry or proposal promptly. Such Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations,
with any parties conducted heretofore with respect to any of the foregoing.
(f) Restriction on Transfer, Proxies and Non-Interference. Such
Stockholder shall not, directly or indirectly: (i) except as contemplated by
the Merger Agreement, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option
or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or
other disposition of, any or all of such Stockholder's Shares or any
interest therein; (ii) except as contemplated by this Agreement, grant any
proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such Stockholder
contained herein untrue or incorrect or have the effect of preventing or
disabling such Stockholder from performing such Stockholder's obligations
under this Agreement.
(g) Reliance by Parent. Such Stockholder understands and acknowledges
that Parent is entering into, and causing Merger Sub to enter into, the
Merger Agreement in reliance upon such Stockholder's execution and delivery
of this Agreement.
3. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. Stop Transfer. Each Stockholder agrees with, and covenants to, Parent
that such Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Stockholder's Shares, unless such transfer is made in
compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
5. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of (a) termination of the Merger Agreement in accordance with its terms
and (b) the Effective Time.
3
<PAGE>
6. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director of the Company makes any agreement or
understanding herein in his or her capacity as such director. Each Stockholder
signs solely in his or her capacity as the record and beneficial owner of such
Stockholder's Shares.
7. Confidentiality. The Stockholders recognize that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each Stockholder hereby agrees
not to disclose or discuss such matters with anyone not a party to this
Agreement (other than such Stockholder's counsel and advisors, if any) without
the prior written consent of Parent, except for disclosures such Stockholder's
counsel advises are necessary in order to fulfill such Stockholder's obligations
imposed by law, in which event such Stockholder shall give notice of such
disclosure to Parent as promptly as practicable so as to enable Parent to seek a
protective order from a court of competent jurisdiction with respect thereto.
8. Release. Each of the Stockholders, solely in such person's capacity as a
stockholder of the Company, hereby releases and discharges the Company and its
officers, directors, stockholders, employees, agents, attorneys,
representatives, successors and assigns (and the respective heirs, executors,
administrators, representatives, successors and assigns of such officers,
directors, stockholders, employees, agents, attorneys and representatives) from
any and all claims, actions, causes of action, suits, debts, sums of money,
controversies, agreements, promises, damages, judgments, claims and demands
whatsoever, at law or in equity, which any of the Stockholders, as a result of
such person's status as a stockholder of the Company, had, now have or hereafter
can, shall or may have for, upon, or by reason of any matter, cause or thing
whatsoever relating, directly or indirectly, to the Company or the Surviving
Corporation, as the case may be.
9. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
(b) Certain Events. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including,
without limitation, such Stockholder's heirs, guardians, administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall
remain liable for the performance of all obligations under this Agreement of
the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other party, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but
no such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with
respect to any one or more Stockholders, except upon the execution and
delivery of a written agreement executed by the relevant parties hereto;
provided that Schedule I hereto may be supplemented by Parent by adding the
name and other relevant information concerning any Stockholder of the
Company who agrees to be bound by the terms of this Agreement without the
agreement of any other party hereto, and thereafter such added stockholder
shall be treated as a "Stockholder" for all purposes of this Agreement.
4
<PAGE>
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if so given) by hand delivery,
telegram, telex or telecopy, or by mail (registered or certified mail,
postage prepaid, return receipt requested) or by any courier service, such
as Federal Express, providing proof of delivery. All communications
hereunder shall be delivered to the respective parties at the following
addresses:
If to Any Stockholder: At the Addresses Set Forth
on Schedule I Hereto
with a copy to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Herbert S. Wander, Esq.
Telephone: (312) 902-5200
Facsimile: (312) 902-1061
If to Parent or Merger Sub: CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Telephone: (203) 324-9261
Facsimile: (203) 977-8501
Attention: Amy N. Lipton, Esq.
with a copy to: Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision or
portion of any provision had never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore
each of the parties hereto agrees that in the event of any such breach the
aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in
equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by
any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
5
<PAGE>
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any
other party hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity
who or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
(l) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN CONNECTION WITH ANY SUCH ACTION, SUIT OR PROCEEDING.
(m) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
6
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IN WITNESS WHEREOF, Parent and each Stockholder have caused this Agreement
to be duly executed as of the day and year first above written.
CUC INTERNATIONAL INC.
By: /s/ COSMO CORIGLIANO
..............................
Name: Cosmo Corigliano
Title: Senior Vice President
and Chief Financial
Officer
By: /s/ HARVE A. FERRILL
..............................
Harve A. Ferrill
By: /s/ DUANE R. KULLBERG
..............................
Duane R. Kullberg
By: /s/ THOMAS J. PETERSON
..............................
Thomas J. Peterson
By: /s/ HERBERT S. WANDER
..............................
Herbert S. Wander
By: /s/ PAUL G. YOVOVICH
..............................
Paul G. Yovovich
By: /s/ ROGER E. ANDERSON
..............................
Roger E. Anderson
By: /s/ HAROLD E. GUENTHER
..............................
Harold E. Guenther
By: /s/ RANDY M. JOSEPH
..............................
Randy M. Joseph
AGREED TO AND ACKNOWLEDGED
(with respect to Section 2):
ADVANCE ROSS CORPORATION
By: /s/ HARVE A. FERRILL
.................................
Name: Harve A. Ferrill
Title: Chairman of the Board and
Chief Executive Officer
7
<PAGE>
SCHEDULE I TO
STOCKHOLDERS AGREEMENT
----------------------
NAME AND ADDRESS NUMBER OF SHARES OWNED
---------------- ----------------------
Roger E. Anderson...................................... 9,432
14 Oriole Avenue
Broxville, NY 10708
Harve A. Ferrill....................................... 142,600
1300 N. Lakeshore Drive, Apt. 26B
Chicago, IL 60610
Harold E. Guenther..................................... 6,000
417 Dana Lane
Barrington, IL 60010
Randy M. Joseph........................................ 1,200(1)
130 Bentley Court
Deerfield, IL 60015
Duane R. Kullberg...................................... 5,000
179 East Lake Shore Drive, Apt. 1001
Chicago, IL 60611
Thomas J. Peterson..................................... 16,000(2)
1649 N. Russell Road
Bloomington, IN 47407
Paul G. Yovovich....................................... 6,400
1007 Forest
Wilmette, IL 60091
Herbert S. Wander...................................... 20,000
2023 Linden Avenue
Highland Park, IL 60035
- ------------
(1) Mr. Joseph's wife owns 200 shares for which he disclaims beneficial
ownership.
(2) Shares voting power on 12,000 shares. Mr. Peterson's wife owns 4,000 shares
for which he disclaims beneficial ownership.
8
Exhibit 15
Letter Re: Unaudited Interim Financial Information
December 6, 1995
Securities and Exchange Commission
Washington, D.C. 20549
We are aware of the incorporation by reference in the Registration
Statement (Form S-4) of CUC International Inc. of our reports dated May 31,
1995 and August 29, 1995, relating to the unaudited condensed consolidated
interim financial statements of CUC International Inc. which are included
in its Forms 10-Q for the quarters ended April 30, 1995 and July 31, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a
part of the registration statement prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
Stamford, Connecticut
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 21, 1995, included in the Proxy Statement
of Advance Ross Corporation that is made a part of the Registration
Statement (Form S-4) and Prospectus of CUC International Inc.
Ernst & Young LLP
Stamford, Connecticut
December 6, 1995
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the incorporation by reference in this Registration Statement
of CUC International, Inc. on Form S-4 of our report dated March 13, 1995,
appearing in the Annual Report on Form 10-K of Advance Ross Corporation
for the year ended December 31, 1994 and to the reference to us under the
heading "Experts" in the Proxy Statement/Prospectus of Advance Ross Corporation,
which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
- ------------------------------
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 6, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form S-4 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
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